AMERICAN BANK NOTE HOLOGRAPHICS INC, 424B4, 1998-07-15

AMERICAN BANK NOTE HOLOGRAPHICS INC
424B4, 1998-07-15
BUSINESS SERVICES, NEC

Previous: SCHRODER SERIES TRUST II, NSAR-A, 1998-07-15

Next: BRILL MEDIA CO LLC, 10-Q, 1998-07-15

<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-51845

13,636,000 SHARES

[AM. BANKNOTE LOGO]
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

COMMON STOCK

All of the shares of the Common Stock of American Bank Note Holographics,
Inc. ("ABNH" or the "Company") being offered hereby (the "Offering") are being
sold by American Banknote Corporation ("ABN" or the "Parent"). The Company will
not receive any of the proceeds from the sale of Common Stock being sold by the
Parent. Prior to the Offering, the Company has been a wholly-owned subsidiary of
the Parent. After the Offering, the Parent will not own any of the Common Stock.
See "Description of Capital Stock."

Prior to the Offering, there has been no public market for the Common
Stock. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for listing on the New York Stock Exchange under the symbol "ABH."

SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF MATERIAL RISKS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Price Underwriting Proceeds to
to Public Discount(1) Parent(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $8.500 $0.595 $7.905
- ----------------------------------------------------------------------------------------------------------
Total(3)................................... $115,906,000 $8,113,420 $107,792,580
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Parent estimated at $1,100,000. See
"Certain Relationships and Related Transactions -- Separation Agreement."
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 2,045,400 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise the option in full,
the total Price to Public, Underwriting Discount and Proceeds to Parent will
be $133,291,900, $9,330,433 and $107,792,580, respectively, and the Proceeds
to the Company will be $7.905 per share and $16,168,887 in total. See
"Underwriting."

The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices of
NationsBanc Montgomery Securities LLC, on or about July 20, 1998.

---------------------
NationsBanc Montgomery Securities LLC
Lazard Freres & Co. LLC
Raymond James & Associates, Inc.
Salomon Smith Barney
July 15, 1998
<PAGE> 2

AMERICAN BANK NOTE HOLOGRAPHICS' CLIENTS

[ART]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

The Company is not currently a reporting company under the Securities
Exchange Act of 1934, as amended. Following this Offering, the Company intends
to furnish its shareholders with annual reports containing financial statements
audited by its independent auditors and make available to them quarterly reports
containing unaudited financial statements for each of the first three quarters
of each fiscal year.
---------------------

Unless stated otherwise, the holography market data included herein are
based on the study prepared by Reconnaissance International and the University
of Colorado. Market share data for the credit card industry included herein are
based on the Nilson report, a payment system industry newsletter (the "Nilson
Report"). This information has not been prepared or verified by the Company or
the Parent.

HOLOGARD(TM) is a trademark of the Company. All rights are reserved. This
Prospectus includes trade names, trademarks and references to intellectual
property owned by other companies, including Bacardi(TM), Chivas Regal(TM),
Diners Club(TM), Discover(TM), Eli Lilly(TM), Entertainment Weekly(TM), IBM(TM),
Intel(TM), Kelloggs(TM), Lotus(TM), MasterCard(TM), Merck(TM), National
Geographic(TM), Playboy(TM), Skybox International(TM), Sony(TM), Sports
Illustrated(TM), TitanSports(TM) and VISA(TM).
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the financial statements and notes
thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information contained in this Prospectus assumes that the Underwriters' over-
allotment option is not exercised. Unless otherwise indicated, all share and per
share amounts appearing in this Prospectus reflect the Company's 1,363.6 for one
Common Stock split, effective July 2, 1998. As used herein, the term "Common
Stock" refers to the Company's common stock, par value $.01 per share.

This Prospectus contains statements which constitute "forward-looking
statements." Such statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers primarily with respect to the future
operating performance of the Company. Prospective purchasers of Common Stock are
cautioned that any such forward-looking statements are not guarantees of future
performance and may involve risks and uncertainties, and that actual results may
differ from those in the forward-looking statements as a result of various
factors, many of which are beyond the control of the Company. Important factors
that could cause such differences include general economic and business
conditions, customer demand and ordering patterns, the time and expense required
for research and development of new products, the availability and cost of
materials, actions of competitors, changes in the Company's business strategy
and other factors discussed under "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

THE COMPANY

American Bank Note Holographics, Inc. ("ABNH" or the "Company") is a world
leader in the origination, production and marketing of mass-produced secure
holograms, based on its significant market share. The Company's holograms are
used primarily for security applications such as counterfeiting protection for
credit and other transaction cards, identification cards and documents of value,
as well as for tamper resistance and authentication of high-value consumer and
industrial products. ABNH's ability to control the diffraction of light
("origination") using proprietary processes in a secure, controlled
manufacturing environment has enabled ABNH to become a market leader in security
holography. ABNH's products are used by over 125 customers in more than 25
countries. Customers include VISA, IBM, Intel, Merck and Eli Lilly, as well as
agencies of the United States government and the Chinese government. Moreover,
at present ABNH is the sole supplier of holograms to certain customers including
MasterCard, Discover, Europay and Diners Club. Based on a study of the
holography industry by Reconnaissance International and the University of
Colorado (the "Study"), management estimates that, in 1997, sales in the
security sector of the holography market were approximately $380 million and
represented approximately 62% of total worldwide holography market sales. Also
based on the Study, management believes that ABNH has the largest worldwide
market share in the security sector, with approximately 8%. The Company also
competes selectively in the market for non-secure holograms used in packaging
and promotional applications, including magazine illustrations, trading cards,
promotions, advertising and specialized packaging. In 1997, the Company derived
95% of its sales from security applications and 5% from packaging and
promotional applications.

The Company attributes its leading position in the security sector of the
holography industry to a number of competitive strengths. ABNH was the first
holography company to produce holograms for credit cards and has developed
relationships with MasterCard, VISA, Europay, Discover and Diners Club. Based on
the Study, management estimates that the Company has a 75% share of the
worldwide market for credit card holograms. The Company has one of the largest
production capacities in the industry and recently became the first holography
company to receive International Organization for Standardization ("ISO") 9001
certification (a certification that a business's quality assurance systems for,
among other things, the design, development and production of products meet
guidelines established by the ISO). The Company has two highly secure, certified
production facilities containing a total of 12 origination laboratories, 13 mass
replication lines and extensive security and quality control procedures, and
expects to add 3 additional replication lines in the second half of 1998. In
addition, the Company's emphasis on research and development ("R&D") has

1
<PAGE> 4

enabled the Company to create new technologies and proprietary production
processes and to deliver innovative products to the marketplace. Further, the
Company holds numerous patents and service marks used in its business.

The Study estimates that total sales of holography products, including
those used for security, packaging, and promotional applications, grew at a
compound annual rate of 31.7% per year, from $90 million in 1990 to $617 million
in 1997. The Study bases its findings on 114 survey respondents out of 248
companies surveyed worldwide. The Study also estimates that total sales of
holography products will grow at a compound annual rate of approximately 25%
over the five year period from 1998 through 2002, reaching almost $1.9 billion
in sales by the year 2002. According to the Study, the security sector of the
holography market, in which ABNH primarily competes, is expected to grow at a
compound annual growth rate of approximately 20% over this same time frame.
Factors contributing to the growth of the security sector of the holography
market include consistent annual growth in the worldwide credit card population;
increased use of card-based payment systems as a supplement to checks and cash;
the introduction of holograms as security features on paper currency, tax
stamps, event tickets and other documents of value; and wider adoption of
holograms for tamper resistance and product authentication on high-value
consumer and industrial products.

The Company's objective is to capitalize on its position as a leader in the
holography industry in order to increase profitably its market share. The
Company's business strategy is comprised of the following six principal
components: (i) leverage its leadership position in the security sector of the
holography market; (ii) expand ABNH's security products and services for
licensed products; (iii) grow through strategic acquisitions; (iv) focus on
international expansion; (v) continue the development of holographic technology;
and (vi) continue operating improvements.

The Company currently employs approximately 110 persons, including six
salespeople. In addition, the Company has 25 international sales agents. The
Company maintains hologram manufacturing facilities in Elmsford, New York and
Huntingdon Valley, Pennsylvania, which together provide the Company with
redundant mass production capability.

Upon consummation of the Offering, the Company expects to enter into a
$30.0 million credit facility (the "New Credit Facility") consisting of a $10.0
million revolving credit facility for working capital purposes and a $20.0
million facility for the acquisition of companies in related businesses.

Prior to this Offering, the Company has been a wholly-owned subsidiary of
American Banknote Corporation ("ABN" or the "Parent"). Following this Offering,
ABN will not own any of the Common Stock. The Company is a Delaware corporation
with its principal executive offices located at 399 Executive Boulevard,
Elmsford, New York 10523, telephone number (914) 592-2355.

2
<PAGE> 5

THE OFFERING

Common Stock Offered by the Parent.... 13,636,000 shares

Common Stock Outstanding after the
Offering(1)........................... 13,636,000 shares

Use of Proceeds(2).................... The Company will not receive any of
the proceeds from the sale of Common
Stock by the Parent. Substantially
all of the net proceeds of the
Offering will be used by the Parent
to repay indebtedness. See "Use of
Proceeds."

Dividends............................. The Company intends to retain
earnings for use in its business and,
accordingly, does not expect to pay
cash dividends in the foreseeable
future.

Proposed New York Stock Exchange
Symbol................................ ABH
- ---------------

(1) Excludes an aggregate of 1,363,000 shares reserved for issuance under the
Company's 1998 Stock Incentive Plan, under which options to acquire
approximately 915,000 shares of Common Stock were granted concurrently with
the Offering at the initial public offering price. See "Management -- 1998
Stock Incentive Plan." If the Underwriters' over-allotment option were
exercised in full, an additional 2,045,400 shares of Common Stock would be
offered by the Company, and 15,681,400 shares of Common Stock would be
outstanding after the Offering. See "Underwriting" and "Description of
Capital Stock."
(2) If the Underwriters' over-allotment option were exercised in full, the
Company would receive approximately $15.6 million in net proceeds, which
would be used to repay indebtedness, for working capital and other general
corporate purposes, including potential acquisitions.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. Prospective
purchasers of the Common Stock offered hereby should carefully consider the
factors set forth in "Risk Factors," as well as the other information set forth
in this Prospectus, before making an investment in the Common Stock.

3
<PAGE> 6

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary historical financial data as of
March 31, 1998 and for each of the three years in the period ended December 31,
1997 and the three months ended March 31, 1997 and 1998 and summary unaudited
pro forma condensed Statement of Income data for the year ended December 31,
1997 and the three months ended March 31, 1998. The historical financial data
for each of the three years in the period ended December 31, 1997 have been
derived from the Company's audited financial statements included elsewhere
herein. The historical financial data as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 have been derived from the Company's
unaudited condensed financial statements included elsewhere herein, which in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information. The
historical Statement of Income data for the three months ended March 31, 1998
are not necessarily indicative of results that may be expected for the entire
year. The unaudited pro forma condensed Statements of Income data for the year
ended December 31, 1997 and for the three months ended March 31, 1998 include
the historical accounts of the Company and give effect to certain expenses which
the Company expects to incur as an independent public company and to certain
non-operating income that the Company will forego. The unaudited pro forma
condensed Statement of Income data are not intended to represent, and are not
indicative of, what the Company's results of operations actually would have been
or to project the Company's results of operations for any future period. The
following information is qualified by reference to, and should be read in
conjunction with, "Capitalization," "Selected Historical and Pro Forma Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's audited financial statements and notes thereto,
the unaudited condensed financial statements and notes thereto, and the
unaudited pro forma condensed Statements of Income and notes thereto included
elsewhere herein.

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THREE MONTHS
YEAR ENDED YEAR ENDED THREE MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
--------------------------- ------------ ------------------- ------------
1995 1996 1997 1997 1997 1998 1998
------- ------- ------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................... $27,865 $28,649 $30,915 $30,915 $ 5,241 $ 7,035 $ 7,035
Costs and expenses:
Costs of goods
sold............... 13,787 15,034 11,912 11,912 2,629 2,438 2,438
Selling and
administrative..... 4,576 4,711 6,001 6,851 1,310 1,256 1,469
Depreciation and
amortization....... 1,203 1,141 1,136 1,136 293 292 292
------- ------- ------- ------- ------- ------- -------
Total costs and
expenses........ 19,566 20,886 19,049 19,899 4,232 3,986 4,199
------- ------- ------- ------- ------- ------- -------
Operating income........ 8,299 7,763 11,866 11,016 1,009 3,049 2,836
Net income.............. $ 5,054 $ 4,820 $ 7,539 $ 6,846 $ 657 $ 1,793 $ 1,620
Net income per share.... $ 0.37 $ 0.35 $ 0.55 $ 0.50 $ 0.05 $ 0.13 $ 0.12
Weighted average shares
outstanding.......... 13,636 13,636 13,636 13,636 13,636 13,636 13,636
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
1998
ACTUAL AND AS
ADJUSTED(1)
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 9,550
Total assets.............................................. 32,112
Total debt................................................ 4,987
Stockholders' equity...................................... 21,946
</TABLE>

- ---------------
(1) The balance sheet data shown as of March 31, 1998 as adjusted for the
Offering will be the same as the actual balance sheet data as of March 31,
1998. See "Capitalization."

4
<PAGE> 7

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, as well as the other information set forth in this Prospectus,
before purchasing the shares of Common Stock offered hereby.

DEPENDENCE ON CERTAIN CUSTOMERS

The Company is currently dependent on certain credit card companies for a
substantial portion of its business, including MasterCard and manufacturers of
VISA brand credit cards, which accounted for 44% and 24% of the Company's total
sales in 1997, respectively. The Company provides holograms to MasterCard
pursuant to an agreement which expires in February 2001, subject to automatic
renewal if not terminated by either party. The Company does not have long term
purchase contracts with its other card customers and supplies holograms to them
pursuant to purchase orders. Currently, the Company is one of two companies
authorized to manufacture and sell VISA brand holograms to manufacturers of VISA
brand credit cards. If either MasterCard or VISA were to terminate its
respective relationship with the Company, there would be a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- Sales and Marketing."

RELIANCE ON KEY PERSONNEL

The Company's success depends to a significant extent on the continued
services of its key executive officers and other senior management personnel.
The Company expects to enter into employment agreements with its Chief Executive
Officer, President, Vice President -- Operations and Vice President -- Finance.
The Company believes that its future success will depend in large part on its
ability to attract and retain highly skilled and qualified personnel and to
expand, train and manage its employee base. If the Company is unable to retain
the services of its key personnel, there could be a material adverse effect on
the Company's business, financial condition or results of operations. See
"Management -- Employment Agreements."

TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT

A number of technologically driven processes are involved in creating the
Company's products. The creation of the Company's products involves the use of
lasers, computers, special foils, embossing equipment, chemicals, tools and
dyes. The Company's ability to maintain or improve its competitive position will
be dependent on its ability to maintain and develop its technology. In the event
that one or more of the Company's competitors develop similar or better
materials or processes and the Company were not able similarly to improve its
materials and processes, there could be a material adverse effect on the
Company's business, financial condition or results of operations. Additionally,
a number of the Company's customers pay for research and development in
connection with certain projects or orders, which payments represented
approximately 65% of the Company's research and development efforts in 1997. If
the terms of these arrangements were to change or if, through competition or
reduced funding from customers, the Company were forced to increase
significantly its expenditures on R&D, there could be a material adverse effect
on the Company's business, financial condition or results of operations. See
"Business -- Competition" and "-- Research and Development."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

5
<PAGE> 8

expenses, availability and cost of materials from its suppliers and competitive
pricing pressures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Unaudited Quarterly Operating Results."

COMPETITION

The holography industry is highly competitive, with approximately 50
companies in the security sector. Competition is based on a number of factors,
such as technology, price, product quality and customer service. In addition, an
increased use of non-holographic methods or devices in place of the Company's
products could reduce demand for the Company's products. A number of competitors
are larger or are divisions of larger companies, and have greater financial
resources, than the Company. Based on the Study, management believes the
Company's two largest competitors in the security sector have a market share of
approximately 6% and 4%, respectively. Competition in the security sector of the
holography market and from non-holographic producers could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Competition."

ABILITY TO CONTINUE SALES GROWTH

The Study estimates that the holography industry as a whole (including the
security, packaging and promotion sectors) has grown significantly from 1991 to
1997. There can be no assurance, however, that the holography industry
generally, or the sectors within that industry, including transaction cards,
security devices, documents of value, product authentication or other security
applications, will continue historical rates of growth. The failure to maintain
such growth rates could have a material adverse effect on the Company's
business, financial condition or results of operations.

RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS

The Company intends to seek to acquire businesses to increase its customer
base and manufacturing and distribution capabilities. Such acquisitions would
expose the Company to the risks associated with the assimilation of new
operations, sites and personnel, the diversion of resources from the Company's
existing business and technologies, the inability to generate sales to offset
associated acquisition costs, the maintenance of uniform standards, controls and
procedures and the impairment of relationships with employees and customers as a
result of any integration of new management personnel. The Company's acquisition
strategy may also result in the incurrence of additional expense in connection
with investigating potential acquisitions, the issuance of dilutive equity
securities, the incurrence or assumption of debt and charges for amortization of
acquired intangible assets. The Company's failure to address such risks
successfully could have a material adverse effect on the Company's business,
financial condition or results of operations.

INTELLECTUAL PROPERTY PROTECTION

The Company utilizes a combination of patents, trade secrets and
confidentiality agreements, as well as restricted access and other forms of
intellectual property protection, to safeguard certain of its proprietary
technology and processes. The Company also holds certain trademarks with respect
to certain products and services. There can be no assurance, however, as to the
degree of protection offered by any of the Company's patents or as to the
likelihood that patents will be issued for any of the Company's pending
applications. There also can be no assurance that the Company will be able to
maintain the confidentiality of its trade secrets or that its confidentiality
agreements will provide meaningful protection of the Company's trade secrets or
other proprietary information. See "Business -- Trademarks and Patents."

PRODUCT LIABILITY

A portion of the Company's business consists of providing tamper-apparent
seals to pharmaceutical companies. The nature of such business could expose the
Company to product liability claims. Although the Company maintains insurance
against such an occurrence, there can be no assurance that such insurance would
be available to cover any such claim or available in amounts sufficient to cover
all potential liabilities. As a result, product liability claims could have a
material adverse effect on the Company's business, financial condition or
results of operations.

6
<PAGE> 9

EXPORT SALES

In 1997, 18% of the Company's sales were derived from customers outside the
United States. International sales are subject to risks, including United States
and international regulatory requirements and policy changes, political and
economic instability, difficulties in accounts receivable collection, currency
fluctuation, tariffs and other barriers, difficulty in attracting, retaining and
managing international representatives and potentially adverse tax consequences.
There can be no assurance that any of these factors will not have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- ABNH Strategy."

ENVIRONMENTAL REGULATION

The Company's operations are subject to federal, state and local
environmental laws and regulations. The Company believes that it is currently in
material compliance with applicable laws and regulations. To the extent future
laws and regulations are adopted or interpretations of existing laws and
regulations change, new requirements may be imposed on the Company's future
activities or may create liability retroactively. Failure to comply with
applicable rules and regulations could subject the Company to monetary damages
and injunctive action, which could have a material adverse effect on the
Company's business, financial condition or results of operations.

IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS

The initial public offering price per share of the Common Stock exceeds the
net tangible book value per share of Common Stock. Accordingly, the purchasers
of the Common Stock offered hereby will experience immediate and substantial
dilution in their investment. See "Dilution." The Company intends to retain all
earnings, if any, for use in the Company's business and does not anticipate
paying cash dividends in the foreseeable future. Further, the declaration of
dividends on the Common Stock will depend, among other things, upon future
earnings, the operating and financial condition of the Company, its capital
requirements and general business conditions.

NEW STATUS AS INDEPENDENT ENTITY

Prior to the Offering, the Company was a wholly-owned subsidiary of ABN,
and the Company has depended on ABN for certain financial and administrative
support. Upon completion of the Offering, the Company will be responsible for
its own corporate and administrative services, including treasury functions, tax
planning and compliance financial reporting, risk management, human resources
and legal services. It is anticipated that ABN may continue to provide certain
services to the Company for a limited time after the Offering as described in
"Certain Relationships and Related Transactions -- Transitional Services
Agreement." After the consummation of the Offering, the Company is expected to
incur certain expenses that are not reflected in its historical results of
operations and to forego certain non-operating income that has been included in
such results. The net effect of those items in 1997 would have been to reduce
net income by approximately $693,000. Further, the inability of the Company's
management to manage the Company effectively and efficiently as a stand alone
company could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Selected Historical and Pro
Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Unaudited Pro Forma Condensed
Statements of Income."

NO PRIOR PUBLIC MARKET

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market will develop or be
sustained after the Offering or that the initial public

7
<PAGE> 10

offering price corresponds to the price at which the Common Stock will trade in
the public market subsequent to the Offering. The initial public offering price
for the Common Stock has been determined by negotiations among the Company, ABN
and the representatives of the Underwriters. After completion of the Offering,
the market price of the Common Stock will be subject to fluctuations in response
to various factors and events, including, among others, the liquidity of the
market for the Common Stock, variations in the Company's operating results,
regulatory or other changes (both domestic and international) affecting the
holography industry generally or the Company specifically, announcements of
business developments by the Company or its competitors, changes in operating
results and changes in general market conditions.

POTENTIAL ISSUANCE OF PREFERRED STOCK

The Company's Certificate of Incorporation permits the issuance of up to
5,000,000 shares of Preferred Stock and permits the Board of Directors to fix
the rights, preferences, privileges and restrictions of such shares without any
further vote or action by the Company's stockholders. Although the Company has
no current plans to issue shares of Preferred Stock, the potential issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock and may adversely affect the
market price of, and the voting and other rights of the holders of, the Common
Stock.

YEAR 2000 RISK

The Year 2000 issue involves the risk that computer systems using two-digit
date fields will fail to recognize properly the Year 2000, resulting in computer
system failures for businesses, government agencies, service providers, vendors
and customers. The Company has initiated discussions with its key suppliers and
customers to determine whether they have any Year 2000 issues which could impact
the Company. The Company anticipates that certain of its software will require
replacement or modification in connection with the Year 2000 issue. Estimates of
the costs of the Company's Year 2000 program are based on assumptions, including
the continued availability of certain resources, the ability to correct all
relevant applications and third party modification plans. There is no guarantee
that the estimates will be achieved, and actual costs could differ materially
from those anticipated. Additionally, there can be no assurance that the failure
of the Company or third parties to address adequately their respective Year 2000
issues will not have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

8
<PAGE> 11

USE OF PROCEEDS

The net proceeds to the Parent from the sale of 13,636,000 shares of Common
Stock offered hereby (net of underwriting discounts and commissions and
estimated offering expenses) are estimated to be $106.7 million. The Company
will not receive any of the proceeds from the sale of Common Stock by the
Parent. If the Underwriters' over-allotment option were exercised in full, the
Company would receive approximately $15.6 million (net of underwriting discounts
and commissions and estimated offering expenses).

The Parent will use the net proceeds it receives to repay indebtedness on
its 10 3/8% Senior Notes due 2002 and for general corporate purposes. If the
Underwriters' over-allotment option is exercised, the Company intends to use the
net proceeds therefrom to repay borrowings under the Revolving Credit Facility
(as defined herein) (or, if refinanced under the New Credit Facility (as defined
herein), the New Credit Facility), for working capital and other general
corporate purposes, including potential acquisitions. The Revolving Credit
Facility matures on October 31, 1998 and its interest rate is variable and is
based on certain market rates. At March 31, 1998, the applicable interest rate
was 9% per annum. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company currently intends to retain any future earnings for use in its
business. Accordingly, the Company does not expect to pay cash dividends in the
foreseeable future.

9
<PAGE> 12

CAPITALIZATION

The following table sets forth the unaudited capitalization of the Company
as of March 31, 1998 and as adjusted for the Offering and to reflect the
cancellation immediately prior to the Offering of amounts due from Parent and
affiliates. This table should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1998
---------------------- ----------------------
ACTUAL AS ADJUSTED
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facility(1)........................... $ 4,987 $ 4,987
Stockholders' equity:
Common stock, par value $.01 per share, authorized
30,000,000 shares; 13,636,000 shares issued and
outstanding....................................... 136 136
Additional paid-in capital........................... 11,627 11,627
Retained earnings.................................... 42,808 10,183
Due from Parent and affiliates....................... (32,625) 0
-------- --------
Total stockholders' equity................... 21,946 21,946
-------- --------
Total capitalization.................... $ 26,933 $ 26,933
======== ========
</TABLE>

- ---------------
(1) Upon consummation of the Offering, the Revolving Credit Facility will be
replaced by the New Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

10
<PAGE> 13

DILUTION

Dilution is the amount by which the initial public offering price paid by
the purchasers of the shares of Common Stock exceeds the net tangible book value
per share of Common Stock after the Offering. The net tangible book value per
share of Common Stock is determined by subtracting the total liabilities of the
Company from the total carrying value of the tangible assets of the Company and
dividing the difference by the number of shares of Common Stock deemed to be
outstanding on the date of which such carrying value is determined.

At March 31, 1998, the Company had a net tangible book value of
approximately $13,243,000, or $0.97 per share, which is unchanged when adjusted
for the sale by the Parent of 13,636,000 shares of the Company's Common Stock.
Purchasers of Common Stock in the Offering will experience immediate dilution in
net tangible book value of $7.53 per share (based on an initial offering price
of $8.50). The following table illustrates this per share dilution:

<TABLE>
<S> <C>
Initial public offering price per share..................... $8.50
Net tangible book value per share before, and as adjusted
for, the Offering...................................... 0.97
-----
Dilution per share to new investors......................... $7.53
=====
</TABLE>

11
<PAGE> 14

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth selected historical financial data as of
December 31, 1993, 1994, 1995, 1996 and 1997 and March 31, 1998, and for each of
the five years in the period ended December 31, 1997 and the three months ended
March 31, 1997 and 1998 and selected unaudited pro forma condensed Statement of
Income data for the year ended December 31, 1997 and the three months ended
March 31, 1998. The selected historical financial data as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997
have been derived from the Company's audited financial statements included
elsewhere herein. The selected historical financial data as of March 31, 1998
and for the three months ended March 31, 1997 and 1998 have been derived from
the Company's unaudited condensed financial statements included elsewhere
herein, which in the opinion of management include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
information. The selected historical Statement of Income data for the three
months ended March 31, 1998 are not necessarily indicative of results that may
be expected for the entire year. The unaudited pro forma condensed Statements of
Income data for the year ended December 31, 1997 and for the three months ended
March 31, 1998 include the historical accounts of the Company and give effect to
certain expenses which the Company expects to incur as an independent public
company and to certain non-operating income that the Company will forego. The
unaudited pro forma condensed Statement of Income data are not intended to
represent, and are not indicative of, what the Company's results of operations
actually would have been or to project the Company's results of operations for
any future period. The following information is qualified by reference to, and
should be read in conjunction with, "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
audited financial statements and notes thereto, the unaudited condensed
financial statements and notes thereto, and the unaudited pro forma condensed
Statements of Income and notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THREE MONTHS
YEAR ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, ENDED MARCH 31, MARCH 31,
----------------------------------------------- ------------ ----------------- ------------
1993 1994 1995 1996 1997 1997 1997 1998 1998
------- ------- ------- ------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales....................... $24,611 $21,960 $27,865 $28,649 $30,915 $30,915 $ 5,241 $ 7,035 $ 7,035
Costs and expenses:
Cost of goods sold........ 12,979 14,141 13,787 15,034 11,912 11,912 2,629 2,438 2,438
Selling and
administrative.......... 5,806 4,673 4,576 4,711 6,001 6,851 1,310 1,256 1,469
Depreciation and
amortization............ 882 1,066 1,203 1,141 1,136 1,136 293 292 292
------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses.............. 19,667 19,880 19,566 20,886 19,049 19,899 4,232 3,986 4,199
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income............ 4,944 2,080 8,299 7,763 11,866 11,016 1,009 3,049 2,836
Other income................ 153 244 113 196 821 821 33 34 34
Interest, net............... 305 305 305 305 146 (159) 76 (29) (105)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes..................... 5,402 2,629 8,717 8,264 12,833 11,678 1,118 3,054 2,765
Income taxes................ 2,282 1,223 3,663 3,444 5,294 4,832 461 1,261 1,145
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.................. $ 3,120 $ 1,406 $ 5,054 $ 4,820 $ 7,539 $ 6,846 $ 657 $ 1,793 $ 1,620
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per share........ $ 0.23 $ 0.10 $ 0.37 $ 0.35 $ 0.55 $ 0.50 $ 0.05 $ 0.13 $ 0.12
======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding............... 13,636 13,636 13,636 13,636 13,636 13,636 13,636 13,636 13,636
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, AT
----------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............. $15,363 $10,704 $11,486 $10,504 $17,301 $ 9,550
Total assets................ 41,109 30,135 29,172 28,357 35,818 32,112
Total debt.................. 0 0 0 0 674 4,987
Total stockholder's
equity.................... 37,940 26,791 25,730 23,507 29,782 21,946
</TABLE>

12
<PAGE> 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this Prospectus.

The Company is a wholly-owned subsidiary of the Parent. As a wholly-owned
subsidiary, the Company has historically received from the Parent certain
corporate and administrative services, including treasury functions, tax
planning and compliance, financial reporting, risk management, human resources
and legal services. Except for a transition period immediately following the
completion of the Offering, these activities will be performed by the Company
itself in the future. The financial position and results of operations of the
Company set forth herein may differ from the results that may have been achieved
had the Company operated as an independent entity. In the ordinary course of
business, the Company makes intercompany advances to the Parent to service the
Parent's debt obligations and for general corporate purposes. This practice will
continue until consummation of the Offering and will be discontinued after such
time.

OVERVIEW

The Company is a world leader in the origination, production and marketing
of mass-produced secure holograms, based on its significant market share. In the
early 1980's, the Company began marketing its secure holograms for use on credit
cards and, as a result, helped to create and expand the security sector of the
holography market. The Company also competes selectively in the market for
non-secure holograms used in commercial (packaging and promotional)
applications, including magazine illustrations, trading cards, promotions,
advertising and specialized packaging. The Company's sales of holograms for
security applications generally carry higher gross margins than sales for
packaging and promotional applications. The Company's products are used by over
125 customers in more than 25 countries.

The Company's sales are derived from the sale of its security and
commercial holograms. In 1997, the Company derived 95% of its sales from
security applications and 5% from commercial applications. In the security
sector, the Company has benefited from the increased use of transaction cards as
forms of payment, as well as card issuers' expansion into debit cards, smart
cards and stored-value cards. As competition for card users within the
transaction card area intensifies, transaction cards are frequently replaced.
This frequent card replacement, along with the growing popularity of loyalty
(frequent buyer) and other affinity credit card programs and promotions, has led
to growth in the transaction card population. Certain credit card companies, as
part of addressing their Year 2000 concerns, have issued and continue to issue
cards with expiration dates in 1999 rather than in the year 2000 or later.
Management believes that as these companies replace cards that might otherwise
have been issued with expiration dates in the year 2000 or later, there may be a
temporary increase in credit card issuances which may have a beneficial impact
on the Company's sales. There can be no assurance that any such beneficial
impact will occur, and the amount, if any, of any such impact cannot be
predicted.

The use of product authentication holograms is driven by concerns regarding
counterfeiting, piracy and other infractions that can result in lost sales, lost
goodwill and product liability claims. Companies in various industries have
utilized holograms as authentication devices to reduce potential losses. Also,
concerns over counterfeiting and copying have led to an increased use of
holograms on documents of value, including currency, passports, business
cheques, gift certificates, vouchers, certificates of deposit, stamps (postage
and revenue), tickets and other financial instruments.

The Company generally manufactures holograms in response to a specific
customer order and only manufactures finished good inventories in cases where
the Company believes a recurring pattern of customer orders has been established
for a specific product. Holograms are sold under purchase orders and contracts
with customers. Sales of holograms are generally recognized upon shipment of
products; however, pursuant to terms of the Company's agreement with certain
customers, completed items are sometimes stored in an on-site secured facility
at the Company's premises and, in those instances, sales are recognized when the
goods

13
<PAGE> 16

are completed and transferred to the secured facility, the risk of ownership has
passed to the customer and the customer has been billed for the order.

During 1997, international sales accounted for 18% of total sales. The
Company expects its international sales to increase in the future. All of the
Company's international sales are presently denominated in U.S. dollars.

Cost of goods sold includes raw materials such as nickel, foils, films and
adhesives; labor costs; manufacturing overhead; and hologram origination costs
(which represents costs of a unique consumable master hologram that is made to
customer specifications and is an integral part of the production process). As a
result, costs of sales are affected by product mix, manufacturing yields, costs
of hologram originations and changes in the cost of raw materials and labor.

Selling and administrative expenses primarily consist of salaries, benefits
and commissions for the Company's corporate, sales, marketing and administrative
personnel; marketing and advertising expenses for the Company's services and
products.

Sales may fluctuate from quarter to quarter due to changes in customers'
ordering patterns. Customers do not typically provide ABNH with precise
forecasts of future order quantities. Quarterly demand for holograms may be
influenced materially by customers' promotions, inventory replenishment, card
expiration patterns, delivery schedules and other factors which may be difficult
for ABNH to anticipate.

As an independent public company, ABNH expects to incur certain expenses
which are not reflected in its historical results of operations, and to forego
certain non-operating income that has been reflected in such results. These
expenses are for shareholder communications and other costs associated with
public ownership, presently estimated to be $850,000 annually. In addition, ABNH
will no longer receive interest income from loans to the Parent, which amounted
to $305,000 in 1997. Had the Company's 1997 results of operations been affected
by the above items, net income would have been reduced by approximately $693,000
or $0.05 per share.

For tax periods prior to the consummation of the Offering, the Company was
included in the ABN consolidated group for purposes of filing consolidated
federal income and in certain instances consolidated state tax returns. In
accordance with a tax allocation agreement with ABN, historically the Company
made payments to ABN based on the amount which would have been payable as income
taxes if consolidated returns had not been filed. Following the consummation of
the Offering, the Company will no longer be a part of the ABN consolidated group
for federal and state income tax purposes. Because the federal and state income
taxes were determined on a separate company basis, management believes that the
basis on which federal and state income taxes will be determined for the Company
following the Offering will not be materially different from the basis on which
such taxes have been computed under the tax allocation agreement.

14
<PAGE> 17

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
operating information expressed as a percentage of sales.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS THREE MONTHS
------------------------ ENDED MARCH 31, ENDED MARCH 31,
1995 1996 1997 1997 1998
------ ------ ------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold.................... 49.5 52.5 38.5 50.1 34.7
Selling and administrative............ 16.4 16.4 19.4 25.0 17.9
Depreciation and amortization......... 4.3 4.0 3.7 5.6 4.1
----- ----- ----- ----- -----
Operating income........................ 29.8 27.1 38.4 19.3 43.3
Other income............................ 0.4 0.6 2.6 0.6 0.5
Interest, net........................... 1.1 1.1 0.5 1.4 (0.4)
----- ----- ----- ----- -----
Income before income taxes.............. 31.3 28.8 41.5 21.3 43.4
Net income.............................. 18.1% 16.8% 24.4% 12.5% 25.5%
</TABLE>

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED MARCH 31,
1997

Sales. Sales increased by $1.8 million, or 34.2%, from $5.2 million for
the three months ended March 31, 1997 to $7.0 million for the three months ended
March 31, 1998. The increase in sales was due primarily to increased sales
volume of transaction cards and product authentication holograms. The increase
in transaction card hologram volumes was due to the growth in loyalty programs,
competition among financial institutions resulting in increased multi-card
issuance and the increased use of automated teller machine and debit cards. The
increase in product authentication hologram sales volume was due to higher
demand for this product and new product authentication customers.

Cost of Goods Sold. Cost of goods sold decreased by $0.2 million, from
$2.6 million for the three months ended March 31, 1997 to $2.4 million for the
three months ended March 31, 1998. As a percentage of sales, cost of goods sold
decreased from 50.1% in the three months ended March 31, 1997 to 34.7% for the
same period in 1998. This decrease reflects the Company's focus on controlling
costs, improving production yields and the higher margins earned on security
holograms.

Selling and Administrative. Selling and administrative expenses remained
approximately the same in both periods on higher sales. As a percentage of
sales, selling and administrative expenses decreased from 25.0% for the three
months ended March 31, 1997 to 17.9% for the three months ended March 31, 1998.
This decrease in selling and administrative expenses as a percentage of sales
was due primarily to the increased sales in 1998.

Depreciation and Amortization. Depreciation and amortization remained
relatively unchanged.

Other Income. Other income remained relatively unchanged.

Interest, Net. Interest, net decreased by $0.1 million principally due to
interest expense on the Revolving Credit Facility (as defined) for the three
months ended March 31, 1998.

Income Taxes. Income taxes are based on an estimated annual effective tax
rate in both periods of approximately 41.3%. The rate is computed based on the
taxes that would have been paid had the Company operated on a stand alone basis.
Income taxes increased by $0.8 million, from $0.5 million for the three months
ended March 31, 1997 to $1.3 million for the three months ended March 31, 1998,
as a result of higher taxable income due to the factors described above.

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996

Sales. Sales increased by $2.3 million, or 7.9%, from $28.6 million in
1996 to $30.9 million in 1997. The increase in sales was due primarily to an
increase in sales volume of security holograms, including a $6.9
15
<PAGE> 18

million order from a major customer which was received and completed in December
1997 and which goods were transferred to the Company's on-site secured facility.
The Company believes that this order may have been in response to increases in
prices charged by the customer which took effect in January 1998 and the
customer's desire to establish a European distribution facility. The increase in
security hologram volumes was due to the growth in transaction card loyalty
programs, competition among financial institutions resulting in increased
multi-card issuance, the increased use of automated teller machine and debit
cards and new product authentication customers. This increase was partially
offset by a decrease in commercial hologram sales which reflects the Company's
strategy to focus on the more profitable security sector of the holography
market.

Cost of Goods Sold. Cost of goods sold decreased by $3.1 million, from
$15.0 million in 1996 to $11.9 million in 1997. As a percentage of sales, cost
of goods sold decreased from 52.5% in 1996 to 38.5% in 1997. This decrease
reflects the Company's focus on controlling costs, improving production yields
and a shift in product mix toward security holograms.

Selling and Administrative. Selling and administrative expenses increased
by $1.3 million, from $4.7 million in 1996 to $6.0 million in 1997. As a
percentage of sales, selling and administrative expenses increased from 16.4% in
1996 to 19.4% in 1997. This increase in selling and administrative expenses was
due primarily to a bad debt charge of $800,000 associated with a product
development project. In addition, approximately $300,000 of expenses were
incurred in connection with the Company's ISO 9001 certification.

Depreciation and Amortization. Depreciation and amortization remained
relatively unchanged from 1996 to 1997. As a percentage of sales, depreciation
and amortization decreased from 4.0% in 1996 to 3.7% in 1997.

Other Income. Other income increased by $625,000, from $196,000 in 1996 to
$821,000 in 1997. This increase in other income was primarily due to increased
use of ABNH patents subject to royalties and a change in the estimate of 1996
royalties resulting from information not reported by the licensee until 1997.

Interest, Net. Interest, net, decreased by $159,000 from $305,000 in 1996
to $146,000 in 1997 as a result of interest expense on the Revolving Credit
Facility. Interest income in both years represents interest on a note due from
the Parent.

Income Taxes. Income taxes are based on taxes that would have been paid
had the Company operated on a stand alone basis. Income taxes increased by $1.9
million, from $3.4 million in 1996 to $5.3 million in 1997, as a result of
higher taxable income due to the factors described above.

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995

Sales. Sales increased by $784,000, or 2.8%, from $27.9 million in 1995 to
$28.6 million in 1996. The increase in sales was due primarily to an increase in
sales volume of commercial holograms to several large trading card customers
that initiated promotional programs. This increase was partially offset by a
decrease in sales volume of security holograms to certain Asian customers.

Cost of Goods Sold. Cost of goods sold increased by $1.2 million, from
$13.8 million in 1995 to $15.0 million in 1996. As a percentage of sales, cost
of goods sold increased from 49.5% in 1995 to 52.5% in 1996. The increase in
cost of goods sold was primarily due to development and origination costs
incurred for new commercial and security laminate applications. Increases in
development costs and a shift in product mix also contributed to the increase.

Selling and Administrative. Selling and administrative expenses increased
by $135,000, from $4.6 million in 1995 to $4.7 million in 1996. As a percentage
of sales, selling and administrative expenses remained constant at 16.4%. This
increase in selling and administrative expenses was primarily due to
management's decision to expand its R&D department in order to focus on
applications of security holograms. Selling and administrative expenses in 1995
included a $400,000 write-off of a computer software application.

16
<PAGE> 19

Depreciation and Amortization. Depreciation and amortization decreased by
$62,000 from $1.2 million in 1995 to $1.1 million in 1996. As a percentage of
sales, depreciation and amortization decreased from 4.3% in 1995 to 4.0% in
1996.

Other Income. Other income increased by $83,000 from $113,000 in 1995 to
$196,000 in 1996.

Interest, Net. Interest, net, represents interest income on a note due
from the Parent, and was the same in 1995 and 1996.

Income Taxes. Income taxes are based on taxes that would have been paid
had the Company operated on a stand alone basis. Income taxes decreased by
$219,000 from $3.6 million in 1995 to $3.4 million in 1996 as a result of lower
taxable income due to the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company had $252,000 in cash and cash equivalents
and working capital of $9.6 million. In January 1996, the Company, together with
the Parent, entered into a $20.0 million revolving credit facility (the
"Revolving Credit Facility") for general working capital and letters of credit
purposes. At March 31, 1998, the combined companies had approximately $13.9
million of availability under the Revolving Credit Facility before reductions
for $4.2 million of outstanding letters of credit and $8.1 million of
outstanding borrowings. On a stand alone basis, the Company had $5.6 million of
availability under the Revolving Credit Facility before reductions for
outstanding borrowings of $5.0 million.

Upon consummation of the Offering, the Company expects to enter into a
$30.0 million credit facility (the "New Credit Facility") with The Chase
Manhattan Bank ("Chase") which will replace the Revolving Credit Facility. The
New Credit Facility will consist of a $10.0 million senior revolving credit
facility for working capital and general corporate purposes and a $20.0 million
facility for the acquisition of companies in related businesses. Upon
consummation of the Offering, the Company will refinance its then outstanding
borrowings under the Revolving Credit Facility (approximately $5.0 million at
March 31, 1998) by borrowing an equal amount under the New Credit Facility. The
New Credit Facility will be secured by a first priority security interest in
substantially all of the assets of the Company and a commitment to pledge the
capital stock of any future subsidiaries.

The Company's ability to borrow under the revolving credit portion of the
New Credit Facility will be limited by its Borrowing Base (as defined therein).
Such Borrowing Base will be a fixed percentage of eligible accounts receivable
plus a fixed percentage of eligible raw material inventory. Additionally, the
Company must make monthly interest payments in the case of the Alternate Base
Loan (as defined therein). With respect to any Eurodollar Loan (as defined
therein), the interest must be paid on the last day of the Interest Period (as
defined therein). If any Eurodollar Loan has an Interest Period exceeding three
months, interest will be paid every three months, under the New Credit Facility,
at a floating rate equal to either Chase's Alternate Base Rate (as defined
therein) or LIBOR plus, in each case, a margin as determined in accordance with
the agreement for the New Credit Facility (the "Agreement").

Under the New Credit Facility, the Company will pay an arrangement fee of
1.0% of the New Credit Facility and an upfront fee of 0.5% of the New Credit
Facility. The Company will also pay a commitment fee of 0.5% per annum on the
average daily unused amount of the New Credit Facility. The latest maturity date
of all the loans under the New Credit Facility will be the date that is 72
months after the closing of the Agreement. The New Credit Facility will contain
certain covenants which will restrict the Company's ability to, among other
things, (i) incur additional indebtedness, (ii) incur certain liens and
encumbrances, (iii) make investments in other persons, (iv) guaranty the
indebtedness of other persons, (v) sell or dispose of its assets, (vi) incur any
rental or lease commitments, (vii) materially alter the nature of its business,
(viii) pay or declare dividends and (ix) make capital expenditures.

Prior to the Offering, cash accounts for the Company have been controlled
on a centralized basis by the Parent and, accordingly, cash receipts and
disbursements have been received or made through the Parent and are recorded as
due from Parent and affiliates. Subsequent to the Offering, the Company will
maintain its own centralized cash management system. In the ordinary course of
business, cash has been provided to the Parent
17
<PAGE> 20

by way of intercompany advances to service its debt obligations and for general
corporate purposes. This practice will continue until consummation of the
Offering and will then be discontinued after such time. Upon consummation of the
Offering, these intercompany advances (approximately $32.6 million at March 31,
1998) will be cancelled and forgiven, and the Company will have a minimal amount
of cash and cash equivalents on hand at that time. See "Certain Relationships
and Related Transactions".

The Company's issued and outstanding Common Stock is pledged as security
for the Parent's 10 3/8% Senior Notes due 2002 ($126.5 million principal
amount). The Company and each of the Parent's direct and indirect domestic
operating subsidiaries have, jointly and severally, fully and unconditionally
guaranteed, on a senior subordinated basis, the Parent's 11 1/4% Senior
Subordinated Notes due 2007 ($95.0 million principal amount). Immediately upon
consummation of the Offering, the Company will be released from its obligations
under the Parent's debt instruments.

For the three months ended March 31, 1998, the Company's operating
activities provided cash flow of $5.4 million compared to $1.3 million of cash
flow provided by operating activities in the same period in 1997, primarily due
to collection of accounts receivable, partially offset by an increase in
inventories.

Investing activities for the three months ended March 31, 1998 and 1997
used cash flows of $132,000 and $122,000, respectively for capital expenditures.

Financing activities for the three months ended March 31, 1998 and 1997
used cash flows of $5.3 million and $0.6 million, respectively. The activity in
1998 and 1997 was principally comprised of net advances to the Parent and
affiliated subsidiaries and, in 1998, included $4.3 million of borrowings under
the Revolving Credit Facility.

For the year ended December 31, 1997, the Company's operating activities
provided cash flow of $1.2 million compared to $4.3 million and $6.1 million of
cash flow provided by operating activities in 1996 and 1995, respectively. The
decrease in cash flows was primarily due to timing of deliveries and the
collection of receivables. The Company does not expect accounts receivable to
remain at the December 31, 1997 levels. Accordingly, the Company believes that
cash flows from operations during 1998 will benefit from a reduction in accounts
receivable levels.

Investing activities for the years ended December 31, 1997, 1996 and 1995
used cash flows of $461,000, $390,000, and $255,000, respectively. These
activities primarily reflected capital expenditures for the respective years.
The Company anticipates that capital expenditures in 1998 and 1999 will be
approximately $1.0 million and $1.5 million, respectively. These amounts include
approximately $400,000 in each of 1998 and 1999 that management estimates will
be required for maintenance, with the balance relating to capital expenditures
required to increase capacity. The Company expects to add three additional
replication lines in the second half of 1998 in order to address certain
capacity constraints experienced in the fourth quarter of 1997 which resulted in
the use of subcontractors for a significant portion of sales in that quarter.
Such capital commitments include amounts that may be financed through capital
leases and other financing arrangements. The portion of capital commitments not
financed through such leases and arrangements is likely to be financed with cash
resources.

Financing activities for the years ended December 31, 1997, 1996 and 1995
used cash flows of $590,000, $7.0 million and $6.1 million, respectively. The
activity in 1997, 1996 and 1995 was comprised principally of advances to the
Parent and affiliated subsidiaries and, in 1997, included $674,000 of borrowings
under the Revolving Credit Facility.

The Company believes that cash flows from operations, together with cash
balances and availability of funds under the New Credit Facility, will be
sufficient to meet working capital needs, service debt and fund capital
expenditures for the next twelve months.

18
<PAGE> 21

UNAUDITED QUARTERLY OPERATING RESULTS

The following tables set forth certain unaudited financial information for
each of the quarters in 1997 and the first quarter of 1998. In management's
opinion, this unaudited quarterly information has been prepared on the same
basis as the audited financial statements and includes all necessary
adjustments, consisting only of normal recurring adjustments, that management
considers necessary for a fair presentation of the unaudited quarterly results.
The Company believes that quarter-to-quarter comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales............................ $5,241 $6,296 $ 8,104 $11,274 $7,035
Costs and expenses:
Cost of goods sold............ 2,629 2,591 2,617 4,075 2,438
Selling and administrative.... 1,310 1,103 1,448 2,140 1,256
Depreciation and
amortization................ 293 288 288 267 292
------ ------ ------- ------- ------
Total costs and
expenses............... 4,232 3,982 4,353 6,482 3,986
------ ------ ------- ------- ------
Operating income................. 1,009 2,314 3,751 4,792 3,049
Other income..................... 33 30 89 669 34
Interest, net.................... 76 76 33 (39) (29)
------ ------ ------- ------- ------
Income before income taxes....... 1,118 2,420 3,873 5,422 3,054
Net income....................... $ 657 $1,422 $ 2,275 $ 3,185 $1,793
Net income per share............. $ 0.05 $ 0.10 $ 0.17 $ 0.23 $ 0.13
Weighted average shares
outstanding................... 13,636 13,636 13,636 13,636 13,636
PERCENTAGE OF SALES:
Sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold............ 50.1 41.1 32.3 36.1 34.7
Selling and administrative.... 25.0 17.5 17.9 19.0 17.9
Depreciation and
amortization................ 5.6 4.6 3.5 2.4 4.1
------ ------ ------- ------- ------
Total costs and
expenses............... 80.7 63.2 53.7 57.5 56.7
Operating Income................. 19.3 36.8 46.3 42.5 43.3
Other income..................... 0.6 0.5 1.1 5.9 0.5
Interest, net.................... 1.4 1.1 0.4 (0.3) (0.4)
------ ------ ------- ------- ------
Income before income taxes....... 21.3 38.4 47.8 48.1 43.4
Net income....................... 12.5% 22.6% 28.1% 28.3% 25.5%
</TABLE>

The Company's future operating results are likely to fluctuate
substantially from quarter to quarter. The degree of fluctuation will depend on
a number of factors, including the timing and level of sales, any change in the
pricing of the Company's products, or the mix of products sold. Because a
significant portion of the Company's business is expected to be derived from
orders placed by a limited number of large customers, variations in the timing
of such orders could cause significant fluctuations in the Company's operating
results. Customers do not typically provide ABNH with precise forecasts of
future order quantities. Quarterly demand for holograms may be influenced
materially by customers' promotions, inventory replenishment, card expiration
patterns, delivery schedules and other factors which may be difficult for ABNH
to anticipate. In particular, promotions in advance of the holiday season have
in the past resulted in higher sales of credit cards in the third and fourth
quarters. Other factors that may result in fluctuations in operating results
include the timing of new product announcements and the introduction of new
products and new technologies by the Company or its competitors, delays in R&D
of new products, increased R&D expenses, availability and cost of materials from
the Company's suppliers, competitive pricing pressures and financing costs.

19
<PAGE> 22

YEAR 2000 ISSUE

The Company anticipates that certain of its software will require
replacement or modification in connection with the Year 2000 issue. The Company
believes it has allocated adequate resources for this purpose and that its Year
2000 date conversion program can be successfully completed on a timely basis.
The Company estimates that its costs related to addressing the Year 2000 issue
will be less than $300,000. Estimates of the related costs are based on
assumptions, including the continued availability of certain resources, the
ability to correct all relevant applications and third party modification plans.
There is no guarantee that the estimates will be achieved, and actual costs
could differ materially from those anticipated.

BACKLOG

As of December 31, 1996 and 1997, the Company had a backlog of $5.0 million
and $2.3 million, respectively. As of March 31, 1997 and 1998, the Company had a
backlog of $1.9 million and $1.3 million, respectively. The Company includes in
its backlog all sales specified in signed contracts and purchase orders to the
extent that the Company contemplates recognition of the related sales within one
year. There can be no assurance that the contracts included in backlog will
actually generate the specified sales or that the actual sales will be generated
within the one year period. The amount of backlog at the end of any fiscal year
is not necessarily indicative of sales for the following year because most of
the Company's sales, including sole source arrangements, are based upon the
customer's total requirements rather than the specified amount at the end of the
year.

IMPACT OF INFLATION

In recent years, inflation has not had a significant impact on the
Company's historical operations. There can be no assurance that inflation will
not adversely affect the Company's operations in the future, particularly in
emerging markets where inflationary conditions tend to be more prevalent.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The AICPA Accounting Standards Executive Committee Issued Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," was
issued in April 1998 and is effective for fiscal periods beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. The Company is evaluating the
effect of the pronouncement.

20
<PAGE> 23

BUSINESS

ABNH is a world leader in the origination, production and marketing of
mass-produced secure holograms based on its significant market share. The
Company's holograms are used primarily for security applications such as
counterfeiting protection for credit and other transaction cards, identification
cards and documents of value, as well as for tamper resistance and
authentication of high-value consumer and industrial products. ABNH's ability to
control the diffraction of light ("origination") using proprietary processes in
a secure, controlled manufacturing environment has enabled ABNH to become a
market leader in security holography. ABNH's products are used by over 125
customers in more than 25 countries. Customers include VISA, IBM, Intel, Merck
and Eli Lilly, as well as agencies of the United States government and the
Chinese government. Moreover, at present, ABNH is the sole supplier of holograms
to certain customers including MasterCard, Discover, Europay and Diners Club.
Based on the Study, management estimates, that in 1997, sales in the security
sector of the holography market were approximately $380 million and represented
approximately 62% of the total worldwide holography market sales. Also based on
the Study, management believes that ABNH has the largest worldwide market share
in the security sector, with approximately 8%. The Company also competes
selectively in the market for non-secure holograms used in packaging and
promotional applications, including magazine illustrations, trading cards,
promotions, advertising and specialized packaging. In 1997, the Company derived
95% of its sales from security applications and 5% from packaging and
promotional applications.

The Company attributes its leading position in the security sector of the
holography industry to a number of competitive strengths. ABNH was the first
holography company to produce holograms for credit cards, and has developed
relationships with MasterCard, VISA, Europay, Discover and Diners Club. Based on
the Study, management estimates that the Company has a 75% share of the
worldwide market for credit card holograms. The Company has one of the largest
production capacities in the industry and recently became the first holography
company to receive ISO 9001 certification (a certification that a business's
quality assurance systems for, among other things, the design, development and
production of products meet guidelines established by the ISO). The Company has
two highly secure, certified production facilities containing a total of 12
origination laboratories, 13 mass replication lines and extensive security and
quality control procedures and expects to add 3 additional replication lines in
the second half of 1998. In addition, the Company's emphasis on R&D has enabled
the Company to create new technologies and proprietary production processes and
to deliver innovative products to the marketplace. Further, the Company holds
numerous patents and service marks used in its business.

INDUSTRY OVERVIEW

A hologram is a laser-generated, three-dimensional reproduction of an
object, produced on a two-dimensional surface. A hologram controls the
diffraction of light at pre-determined angles to create specific visual imagery.
When a hologram is viewed from different angles, features such as depth and
movement, unseen in normal two-dimensional photographs, are seen by the viewer.
Holograms can also include information which is visible only with the aid of
special devices.

The holography market is divided into three main sectors: security,
promotion and packaging.

SECURITY

Based on the Study, management estimates that, in 1997, there were
approximately 50 companies in the security sector of the holography market, with
total sales in the security sector of approximately $380 million. According to
the Study, the security sector of the holography market is expected to grow at a
compound
21
<PAGE> 24

annual rate of over 20% over the five year period from 1998 through 2002. The
Company believes that the limited competition, high potential growth rate and
barriers to entry make the security sector more attractive than other sectors of
the holography market.

The Study estimates that the security sector of the holography market,
consisting of credit and other transaction cards, product authentication and
documents of value, represented approximately 62% of overall industry sales for
1997. Holography, combining art and science, allows each customer to develop its
own unique hologram with which to identify and protect its product. The secure
hologram can also be used to store covertly certain data, which are only machine
readable, about the particular products shipped or purchased. Holograms provide
three major benefits as security devices:

- The three-dimensional imagery, combined with various proprietary
hidden and visible security features, makes exact duplication and
replication of holograms on a mass-production basis virtually
impossible and presents obstacles to counterfeiting.

- The unique visual aspects of a hologram are easily recognizable,
making authentication of products and documents possible by both
experts and laymen without special machinery, equipment or training.

- The adhesives used to affix the hologram permanently to a product or a
document may be specially designed to cause the holograms to destruct
upon removal or after efforts to tamper with the product.

Pricing in the security sector of the holography market is based on
performance, quality and control. This pricing also reflects the complexity of
holograms used as security/authentication devices to reduce losses of sensitive
products and documents. Additionally, the Company believes the technological
sophistication of the production processes creates a barrier to marketplace
entry for potential competitors.

The security sector of the holography market consists of:

Transaction Cards. In the early 1980's, ABNH began marketing its
secure holograms for use on credit cards and, as a result, helped to create
and expand the security sector of the holography market. Since that time,
the use of holograms on credit cards and other transaction cards has
continued to grow. The most common examples of secure holograms are the
distinctive MasterCard "micro globes" and VISA "dove" found on their
various credit and transaction cards. In recent years, consumers demanding
fast, convenient and secure methods of payment have increasingly
supplemented traditional payment systems such as checks and cash with
card-based payments, such as debit, credit and charge cards. According to
the Nilson Report, electronic payments using credit, debit, electronic
benefits transfer and prepaid cards increased from approximately 15% of all
United States consumer purchases in 1990 to approximately 23% in 1996, and
are projected to account for approximately 31% and 40% of transactions by
2000 and 2005, respectively. Increased transaction card use has led to the
development and success of new markets for transaction products, such as
health cards, transportation cards, identification cards, telephone cards,
secure credentials and drivers' licenses.

Product Authentication. The use of product authentication holograms
is driven by concerns regarding counterfeiting, piracy, pilfering and other
infractions that can result in lost sales, lost goodwill and product
liability claims. Holograms have gained increasing acceptance as
authentication devices in, among others, the electronics, pharmaceutical,
licensed consumer products industries (e.g., clothing, sporting goods and
software) and in high value consumer and industrial products (e.g., laser
printers, electronic components, videocassettes and compact discs). Other
industries evaluating holograms for use as authentication devices include
aerospace and toy manufacturing. Product authentication holograms are
either machine or hand-applied to individual products. A holographic label
that is tampered with becomes permanently damaged, leaving a visible
footprint on the product. Customers distinguish hologram providers in the
product authentication sector of the holography market on the basis of
security features offered, secure production control capabilities and
price/benefit concerns.

22
<PAGE> 25

Documents of Value. Concerns over counterfeiting and copying have led
to an increased use of holograms on documents of value, including currency,
passports, business cheques, gift certificates, vouchers, certificates of
deposit, stamps (postage and revenue), tickets and other financial
instruments. There are over a dozen countries, including Bulgaria, Kuwait
and Poland, using holograms on their currencies, and management expects
that use of holograms by foreign countries will increase in the future. For
example, the European Union is expected to utilize holography on several
denominations of the Euro when issued.

PROMOTION

According to the Study, the promotion sector of the holography market
represented approximately 17% of overall industry sales in 1997. Promotional
holography is used for "short run," low-end products, including greeting cards
and decorative clothing, and for certain advertising. The manufacturing
processes utilized for the creation of promotional holograms are not as complex,
secure or proprietary as those used in creating security holograms. Competition
is based primarily on price, turn-around time, design and reliability. There are
over 100 companies competing in the promotion sector of the holography market.
The Study indicates this sector is expected to grow at a compound annual rate of
7% over the five year period from 1998 through 2002.

PACKAGING

According to the Study, sales in the packaging sector of the holography
market accounted for approximately 21% of overall industry sales in 1997. These
lower-margin, commodity-type holograms are generally used on consumer product
packaging solely for their eye-catching appeal, including packaging for candy,
beer, toothpaste, soft-drinks and other consumer products. The manufacturing
processes utilized for the creation of packaging holograms are not as complex,
secure or proprietary as those used in creating security holograms. Customers
distinguish between suppliers primarily based upon price and production
capacity. There are over 150 competitors in this sector. According to the Study,
the packaging sector is expected to grow at a compound annual rate of over 42%
over the five year period from 1998 through 2002.

ABNH STRATEGY

The Company's objective is to capitalize on its position as a leader in the
holography industry in order to profitably increase its market share. The
Company's business strategy is comprised of the following six principal
components:

Leverage Leadership Position in Security Sector of the Holography
Market. The Company's strategy is to maintain and expand its leading market
position in the security sector of the holography market in the following
manner:

Maintain Leadership in Transaction Cards. The Company holds a
leadership position in this area as a result of its relationships with
companies such as MasterCard, VISA, Europay, Diners Club and Discover.
Management believes this leadership role ideally positions the Company to
benefit from present growth in the transaction card area. ABNH manufactures
laminates that are incorporated onto identification and access cards. The
governments of Colombia and China, as well as the United States military,
among other customers, currently utilize this product. The Company expects
continued growth in this area as more governments and government agencies
incorporate holography into their card-based identification products.

Grow Product Authentication Area. The Company seeks to expand its
position in the product authentication area by increasing its presence in
industries that have experienced a high degree of counterfeiting such as
the apparel, electronics and licensed consumer products industries. For
example, in late 1997 the Company developed a new program, HOLOGARD(TM), to
deliver security services together with its secure holograms. The services
are delivered through a strategic alliance with an international
investigative agency and include monthly reports describing grey market
activity, counterfeit detection, labor compliance to assure that no child
or exploited labor is utilized in the customer's manufacturing, and
cooperation with law enforcement officials for the prosecution of criminals
who participate in such
23
<PAGE> 26

illegal activities. ABNH is presently the only hologram manufacturer to
offer these services. To date, sales under the HOLOGARD program have not
been material. Additionally, the Company has targeted the microprocessor,
pharmaceutical, aerospace, and spirits markets as industries in need of the
security and accountability that the Company's products offer.

Promote Acceptance of Holograms on Documents of Value. Working with
international banking authorities, banknote paper manufacturers and
security printers as well as the Company's international sales agents, ABNH
is promoting the use of holograms as security devices on documents of
value. Documents of value that use holograms include currencies, passports,
stamps (postage and revenue), checks, gift certificates and food vouchers.
The Company is already a producer of holograms for the currencies of
Bulgaria and Swaziland, and is attempting to have holograms accepted as
security features on several other currencies.

Expand ABNH's Security Products and Services for Licensed Products. ABNH
markets its products to licensors in various industries that rely on the Company
to produce holograms and certify the number of holograms distributed to licensee
manufacturers. ABNH monitors the distribution of the holograms to customers'
licensees under controlled circumstances. ABNH reports to the licensor the
number of holograms shipped to licensees, allowing the licensor to compare this
number to the amount of product reported shipped by the licensee. This provides
a mechanism for the customer to audit royalty reports and otherwise maintain the
integrity of marketing channels. Customers include Titan Sports (World Wrestling
Federation), Playboy licensed products, Sony PlayStation and DC Comics/Batman
licensed products.

Grow through Strategic Acquisitions. With approximately 50 smaller
companies engaged in some form of security holography, ABNH intends to focus on
acquiring companies that provide access to new customers, geographic markets or
technologies. Historically, ABNH has been limited by restrictive covenants
associated with debt issued by the Parent and associated capital needs of the
Parent.

Focus on International Expansion. The Company intends to utilize its
network of 25 international sales agents, as well as recruit new agents where
the Company does not currently have a presence, in order to expand its customer
base. Additionally, the Company recently added a sales executive to cover
specific regions in the growing Latin American market. As part of the overall
plan to expand internationally, the Company may expand its manufacturing
capabilities by forming joint ventures with companies in selected regions,
including Europe and Asia.

Continue the Development of Holographic Technology. ABNH seeks to stay at
the forefront of optical development in order to originate holograms more
efficiently and further distinguish its products in the marketplace. Continued
emphasis on research and development is expected to enable the Company to create
new technologies and to introduce new products to the marketplace. Currently,
the Company is seeking to develop new ways to increase the information stored on
a hologram and to deliver higher resolution (dots per inch) than is currently
available in the security sector of the holography market. The Company's ability
to incorporate machine-readable features should be enhanced through the use of
higher resolution.

Continue Operating Improvements. ABNH plans to continue to acquire capital
assets and develop technology to improve productivity and quality and to reduce
product lead times. The Company also plans to continue its program of integrated
yield management. To date, the Company has made progress in improving yields and
reducing costs by refining material requirements and enhancing relationships
with its suppliers. Additionally, the Company plans to expand its internal use
of statistical process control tools to increase the efficiencies of the
manufacturing processes.

24
<PAGE> 27

PRODUCTS AND USES

PRODUCTS

ABNH's secure holography products can be grouped into three categories: hot
stamp foils, pressure-sensitive labels and laminates.

Hot Stamp Foils. These holograms are designed for permanent application to
paper (e.g., currency) and plastic (e.g., transaction cards) through the
application of heat and pressure to the hologram. The Company uses specific heat
activated adhesives to ensure even bonding of the hologram to the substrate, and
the exposed side of the hologram is treated with protective coatings to ensure
durability and wear resistance. ABNH's transaction card hot stamp foil also
possesses a degree of flexibility that allows a hologram to be embossed over the
transaction card without cracking or flaking. In addition, the hot stamp foil
has been engineered to record permanently embossed transaction card numbers, so
that fraudulent attempts to change the account number on the card are apparent.

Pressure Sensitive Labels. These labels are designed to be applied using
pressure by hand or by machine to create a permanent bond to the intended
substrate. The Company has developed proprietary and patent pending features
that make tampering apparent. If removed, the label leaves a distinctive mark or
pattern and the removed material is unusable.

Laminates. Laminates are used primarily in identification products. The
Company has patented its method of making the hologram visible at specific
angles and invisible at other pre-determined angles. The Company's see-through,
demetallized product also protects the information on the identification
document (card, passport or paper credential) from alteration. Any attempt to
alter the hologram will cause it to disintegrate. Fully metallized laminates are
used on products such as hang tags for apparel, "full face" transaction cards
and magazine covers. Adhesives for laminates can be formulated for application
through both heat and pressure as well as pressure only, depending upon the
customer's specific requirements.

USES

ABNH designs and mass produces different types of holograms for a variety
of uses and customers.

<TABLE>
<CAPTION>
PACKAGING/
SECURITY PROMOTION
---------------------------------------------------------------- --------------------
CARD PRODUCT
TYPE OF PRODUCT PRODUCTS AUTHENTICATION DOCUMENTS OF VALUE
- --------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Hot Stamp Foils MasterCard Chivas Regal Bulgaria National Geographic
VISA Lotus (currency) Kelloggs
Europay Swaziland Sports Illustrated
Discover (currency)
Diners Club Thailand (postage
stamp)
Venezuela
(revenue
stamp)

Pressure IBM U.S. Postal Entertainment Weekly
Sensitive Intel Service National Geographic
Labels Merck (space station
Eli Lilly stamp and
Playboy envelope)
Sony
TitanSports
(World
Wrestling
Federation)

Laminates U.S. Military TitanSports Bacardi
(I.D.'s) Jaks Jeans National Geographic
China (I.D.'s) Skybox International
Colombia (I.D.'s) (trading cards)
</TABLE>

25
<PAGE> 28

PRODUCTION PROCESS

ABNH's production process is integrated to handle virtually all aspects of
production, including raw materials sourcing, processing, finishing, packaging
and storage. The Company believes that this integration enables it to control
quality, costs and inventory and to match its output levels and product mix to
incoming orders efficiently. From time to time, the Company subcontracts certain
production functions to third parties under strict specifications,
accountability and control. The production process consists of the following
four steps:

Design

The first step of the mass-production process is the design of the
hologram. In the Company's art department, ABNH's experienced personnel work
with the customer to develop a conceptual design that is both aesthetically
pleasing and incorporates multiple security features.

Origination

After the design has been completed, various laser-ready components
(magnetic floppy disc, three dimensional sculpture, flat art, etc., referred to
as "information") are delivered to one of the Company's 12 origination studios.

The conversion from information to hologram is based on ABNH's ability to
record light in an organized format. Coherent light, which is delivered by a
laser, is best understood as light which has one wavelength of the visible
spectrum and possesses a high degree of organization. The coherent light is
split into two beams (the object beam and the reference beam) directed toward
photo-resist treated glass. The object beam is interfered with by the
information before continuing its travel toward the photo-resist treated glass.
The reference beam is not interfered with and travels directly toward the
photo-resist treated glass.

The object beam then interferes with the reference beam, creating an
interference pattern which is recorded on the light sensitive photo-resist
glass. After developing the photo-resist glass, the film is re-illuminated
approximating the original angle(s) of the reference beam. The resulting
interference pattern within the film reflects some of the light, striking it
into a re-creation of the pattern of light which originally came from the object
beam, due to a property of light called diffraction. The reflected light, now
organized, and containing all information that the object beam once carried,
allows the viewer to see all of the information in three dimensions, true color
or other desired effect.

There are less complex methods of creating a hologram origination than the
process described above. However, in the Company's opinion, only the above
process produces the clarity, depth perception, movement and mass replication
properties capable of producing billions of holograms without measurable
variance. The Company believes that these are essential components of secure
holograms. The Company further believes that its largest competitors in the
security sector may use similar processes.

Plate Making

Once the originating process is completed, a plate is created in order to
permit mass production. The "one-on" image is "step and repeated" to a
pre-determined size with multiple identical images recorded on a photo-resist
glass. The glass is then converted to a production plate in an electrolytic
process where nickel is grown on the surface of the glass. Nickel is used
because its molecular nature allows for an exact transfer of the origination to
the production plate. The Company believes that its proprietary plate making
process is an important component of its ability to mass produce its secure
holograms.

The electrolytic process creates different "generations" of plates prior to
the production phase. Each generation, identical to the last, creates a more
wear resistant plate for use in a mass production environment, thereby extending
the useful life of the plate. The production plate will have varying degrees of
hardness, depending upon the requirements of the customer.

26
<PAGE> 29

Mass Production

No two customers employ the same custom origination or the same
manufacturing specification. Manufacturing specifications are determined in
collaboration with the customer. The Company and the customer enter into
production planning where drawings and overall specifications are written and
distributed to the various production departments.

The Company employs two methods of mass-production of holograms. Hard
embossing transfers images to an aluminum foil/polyester substrate through heat
and pressure. The holographic plate actually forces ridges and grooves into the
foil, which in turn diffract light.

The other method of production is In-Situ Polymeric Replication. Using this
method, a polymer is transferred to a substrate (polyester, polypropylene, etc.)
which is then put in contact with the holographic plate so that holographic
imagery is transferred. The material is then metallized in a vacuum deposition
process.

Finishing for both methods includes application of adhesive, and/or control
numbering and cutting to delivered sizes. The completed hologram is then applied
to the customer's intended product.

RESEARCH AND DEVELOPMENT

ABNH regards its R&D efforts as integral to maintaining its competitive
position in the areas of origination, replication and mass production of
holograms. ABNH's research facilities, based in Elmsford, New York, employ six
dedicated personnel. In connection with purchasing holograms, ABNH's customers,
including both private companies and certain agencies of the United States
government, have paid for a portion of the Company's R&D efforts in producing
various products. The R&D effort is also responsible for both product
development and manufacturing support.

The following table provides brief summaries of the credentials of ABNH's
senior R&D staff.

<TABLE>
<CAPTION>
YEARS
WITH
NAME/TITLE DEGREE PREVIOUS EXPERIENCE ABNH
- ---------- ------ ------------------- -----
<S> <C> <C> <C>
LILY O'BOYLE Masters Degree, University of Ms. O'Boyle began her career as 14
Director of Research Delaware, 1981 an origination lab technician
and has held various positions
in production and research with
ABNH. Ms. O'Boyle is the
inventor on numerous ABNH
patents.
ANH NGUYEN Ph.D., University of Akron, Before joining ABNH, Dr. Nguyen 6
Research Chemist/Materials 1980 held positions with Dow
Scientist Chemical Form Physics and Napp
Systems in various research and
development functions.
DER KUAN KANG Ph.D., Tokyo Institute of Dr. Kang's prior positions 3
Optical Research Physicist Technology, 1991 include Toppan Printing Co., in
research for the period from
1991 to 1995, and various
engineering and research
positions in Taiwan.
</TABLE>

PRODUCT DEVELOPMENT

Over the past several years, members of the Company's R&D staff have
developed a number of new products, including a tamper-apparent label and a
tamper-apparent heat seal laminate for use in identification card and passport
products. The Company is seeking to develop new ways to deliver higher
resolution beyond what is currently available in the security sector of the
holography market. Additionally, the development of machine-readable holograms
has been a priority for the R&D department. The proliferation of machine-

27
<PAGE> 30

readable technology will enable holographic products to be compatible with
optical bar code technology for a variety of applications, including both simple
product validation or authentication and more sophisticated uses.

MANUFACTURING SUPPORT

The R&D department assists the manufacturing department in addressing
various process and quality issues. The Company's R&D staff has also been
involved in several manufacturing process improvements, including the discovery
of a means to increase significantly the lifetime of nickel plate shims and the
development of an automated plate layout program that has reduced layout time
from two weeks to less than one day.

MANUFACTURING FACILITIES

ABNH maintains secure hologram manufacturing facilities in Elmsford, New
York and Huntingdon Valley, Pennsylvania. These facilities provide the Company
with redundant mass production capability. The Company currently has 13 mass
replication lines and expects to add 3 additional lines in the second half of
1998. Both the Elmsford and Huntingdon Valley facilities have a high level of
security and are certified by, among others, MasterCard, VISA, Europay and
certain agencies of the federal government (including the Department of State,
the Department of Defense as well as certain security agencies). Such
certification involves a series of tests of physical plant security, inventory
tracking and employee screening. The Company believes that its existing
facilities are adequate to meet its current requirements and that additional
suitable space will be available as needed.

The Company's 57,200 square foot facility at Elmsford, New York serves as
the Company's headquarters, origination center and the manufacturing site for
the mass production of numerous holographic products. Supporting the mass
replication capabilities are 12 fully-equipped, proprietary laser laboratories.

The Company's 30,000 square foot facility at Huntingdon Valley,
Pennsylvania is dedicated to the mass production of security holograms. In 1997,
this plant manufactured and distributed over 600 million holograms to the
Company's customers, including MasterCard, VISA and Europay.

Both facilities are monitored for security 24 hours a day, seven days a
week. The Director of Security is responsible for the physical security of both
facilities, access and egress, monitoring employee integrity, and safeguarding
of machinery, materials, work-in-process and finished product until shipping.
The security department identifies personnel to accompany all inter-plant
shipments, witnesses material destruction and supervises the transfer of
shipments to armored carriers.

Each facility is equipped with full perimeter alarms enhanced by window
glass break sensors, internal motion detectors and closed circuit video
monitoring of security sensitive areas. The Elmsford facility is equipped with
card access for all inter-departmental access and activity. Uniformed security
personnel are on-site at all times for the Huntingdon Valley facility and during
all non-working hours in the Elmsford facility.

All electroformed plates and masters are completely accounted for, recorded
and kept on file by a system that utilizes an audit trail inscribed into the
master plate. All waste material is controlled and either pulverized in one of
the manufacturing facilities or incinerated under the direction and observation
of security personnel. All prospective employees undergo extensive background
checks and pre-employment physicals which include reviewing past employment,
credit history and criminal records and testing for alcohol or illegal drug use.

SALES AND MARKETING

In 1997, ABNH provided holographic products to over 125 customers in more
than 25 countries. The Company is the exclusive supplier of holograms to
MasterCard pursuant to a five-year agreement that extends until February 2001.
The agreement provides for automatic two-year renewal periods if not terminated
by either party. In 1997, MasterCard accounted for approximately 44% of sales of
the Company. The Company is one of only two authorized manufacturers of VISA
holograms for sale to approved manufacturers of VISA cards, which in 1997
accounted for 24% of sales of the Company. In addition, the Company is the only

28
<PAGE> 31

hologram supplier approved by Diners Club, Discover and Europay. See "Risk
Factors -- Dependence on Certain Customers."

ABNH currently employs six full-time, incentive-compensated salespeople and
two sales service personnel. ABNH also utilizes 25 incentive-based international
sales agents and manufacturer representatives around the world.

All pricing decisions are made centrally by ABNH's operating executives.
The Company focuses certain of its marketing efforts on trade shows such as
Expopak, the International Holographics Manufacturers Association trade show,
the International Card Manufacturers Association trade show and the Card
Tech/SecurTech trade show. In the future, the Company intends to participate in
brand protection/packaging trade shows, both domestically and internationally.

The Company maintains a customer support center that is staffed by three
technical support representatives whose responsibility is to act as a liaison
for the customer through all phases from design through implementation. Working
with ABNH's chemists and engineering staff, the technical support
representatives advise the customers on various matters including adhesives,
application machinery, substrate chemistry, and physical attributes.
Additionally, ABNH provides immediate technical field support when necessary and
has, from time to time, sent support personnel to customers in international
locations.

COMPETITION

The holography industry is highly competitive and highly fragmented, with
approximately 50 companies in the security sector. A number of the Company's
competitors are larger or are divisions of larger companies, and have greater
financial resources, than the Company. In the holography industry, competition
is generally based on technology, price, product quality and customer service.
The Company also competes with other non-holographic methods or devices. The
Company believes its leading position in the security sector of the holography
market is attributable to its technical expertise and years of experience in the
mass production of secure holograms, as well as its reputation for secure
facilities and inventory control systems.

TRADEMARKS AND PATENTS

The Company utilizes a combination of patents, trade secrets and
confidentiality agreements, as well as restricted access and other forms of
intellectual property protection, to safeguard certain of its proprietary
technology and processes. The Company also holds certain trademarks with respect
to certain products and services. The Company's sales are not materially
dependent upon its portfolio of patents and trademarks. Although the Company
believes that its patents and trademarks have value and the Company has, from
time to time, chosen to enforce its patents against others whom the Company
believes are infringing, the Company believes that its future success will
depend primarily on the innovation, technical expertise, production and
marketing abilities of its personnel. There can be no assurance as to the degree
of protection offered by the Company's patents, the success of any of the
Company's enforcement actions or the likelihood that patents will be issued for
pending applications.

Competitors in the United States and foreign countries may have applied for
or obtained, or may in the future apply for and obtain, patents that will
prevent, limit or interfere with the Company's ability to make and sell some of
its products.

EMPLOYEES

As of March 31, 1998, the Company employed approximately 110 persons, of
which 65 are covered by collective bargaining agreements. The Company considers
its relations with its employees to be good.

LEGAL PROCEEDINGS

Inc., American Banknote Company and ABNH. The complaint alleges that the
defendants are indebted to the bankruptcy estate for royalty payments under a
1981 license and that the Company is liable for unpaid royalties for 1990 in the
amount of $226,322, for 1991 in the amount of $853,582 and through July 1992 in
the amount of $568,762, plus attorney's fees and interest on unpaid amounts.

The plaintiff claims that pursuant to the 1981 arrangements, the Company is
required to pay royalties through July 1992 of 5% on sales of holographic
products using the patents covered by the license agreement for the origination
of holographic images. The Company denies all liability in the case on several
grounds, including that two of the three patents at issue expired on or before
September 30, 1991 and any obligation to pay royalties terminated with the
expiration of those patents and that the one remaining patent which expired in
July 1992 had been held invalid in part and not infringed as to its other parts
in prior litigation in the United States District Court for the Northern
District of California, which binds the plaintiff and bars the Trustee from
asserting claims against the Company. In addition, the Company claims that it
utilizes processes differently from those of the licensed patents and that at
the time the license agreement was executed by the Trustee, the debtors did not
own the patents and the license is therefore invalid and cannot be enforced.

The directors of the Parent, including C. Gerald Goldsmith and Morris
Weissman, are defendants in two shareholder derivative and purported class
action complaints (Atencio v. Morris Weissman, et al., and Rosenberg v. Morris
Weissman, et al., each filed in the Court of Chancery for the State of Delaware
in 1994). Mr. Weissman is Chairman and Chief Executive Officer of the Company.
Mr. Goldsmith will be a director of the Company upon consummation of the
Offering. These actions assert breach of fiduciary duty and allege the sale of
common stock of the Parent while in possession of material non-public
information. These cases have been stayed during resolution of a related class
action, settled in March 1998, and there have been no substantive proceedings
since 1994.

The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, but the Company is not a party to any
lawsuit or proceeding which, in the opinion of the Company, is likely to have a
material adverse effect on the Company.

30
<PAGE> 33

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the persons
who will be the directors and executive officers of the Company following the
Offering. All directors hold office until the next annual meeting of
shareholders or until their successors have been elected and qualified. Officers
are appointed by the Board of Directors and serve at the discretion of the
Board.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Morris Weissman....................... 56 Chairman of the Board and Chief
Executive Officer
Joshua C. Cantor...................... 38 President and Director
Richard P. Macchiarulo................ 36 Vice President -- Finance and
Secretary
Jeffrey N. Dugal...................... 41 Vice President -- Operations
</TABLE>

MORRIS WEISSMAN, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER: Morris
Weissman has been Chairman of the Board and Chief Executive Officer of the
Company since 1990. He is also the Chairman of the Board and Chief Executive of
ABN, and serves as a trustee of the Jackie Robinson Foundation and the Business
Council for the United Nations. Mr. Weissman concentrates on financing matters,
strategy, joint ventures and acquisitions, as well as working with certain of
the Company's international sales agents. It is expected that Mr. Weissman will
devote approximately 20% of his time to ABNH.

JOSHUA C. CANTOR, PRESIDENT AND DIRECTOR: Joshua C. Cantor has been
President of the Company since May 1997 and a director since May 1998, and is
responsible for all day-to-day operations of the Company. Prior to that, Mr.
Cantor was Executive Vice President and General Manager of the Company from
November 1995 to May 1997. Before joining ABNH, Mr. Cantor was Executive Vice
President -- Worldwide Sales of ABN from 1994 to 1995, and Senior Vice
President -- Commercial Sales of ABN from 1992 to 1994.

RICHARD P. MACCHIARULO, CPA, VICE PRESIDENT -- FINANCE AND
SECRETARY: Richard P. Macchiarulo has been Vice President -- Finance of the
Company since June 1997 and has been appointed Secretary of the Company in
connection with the Offering. Prior to that, Mr. Macchiarulo served as Director
of Financial Reporting and Budgets for ABN from April 1988 to June 1997. He is a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants.

JEFFREY N. DUGAL, VICE PRESIDENT -- OPERATIONS: Jeffrey N. Dugal has been
Vice President -- Operations of the Company since July 1997. Prior to that, Mr.
Dugal was the operations manager for a division of Illinois Tool Works from 1994
to 1997. Prior to that, he was director of manufacturing for Midwest Film
Corporation from 1991 to 1994. Mr. Dugal earned a B.S. in Mechanical Engineering
from the Massachusetts Institute of Technology.

Stephen A. Benton, C. Gerald Goldsmith and Jeffrey S. Silverman have been
elected as independent directors, to serve upon consummation of the Offering.
Certain officers of the Parent currently serve as directors and executive
officers of the Company, and will resign prior to or concurrently with the
consummation of the Offering.

STEPHEN A. BENTON: Mr. Benton, age 56, is a Professor of Media Arts and
Sciences at the Massachusetts Institute of Technology, where he has been a
faculty member since 1982. He is a fellow of the Optical Society of America and
the Society for Imaging Science and Technology.

C. GERALD GOLDSMITH: Mr. Goldsmith, age 69, has been an independent
investor and financial advisor for over 20 years. He is a director of ABN,
Innkeepers USA Trust, Meditrust Corporation, Nine West Group, Inc., Plymouth
Rubber Company, Inc. and Palm Beach National Bank & Trust Company. He is also
Chairman of the Intracoastal Health Foundation.

JEFFREY S. SILVERMAN: Mr. Silverman, age 52, has been an independent
investor and financial advisor since 1997. He had been Chief Executive Officer
of PLY GEM Industries, Inc., a building products supplier,

31
<PAGE> 34

since 1983 and was its Chairman of the Board from 1986 to 1997. Since 1997, he
has been the Chief Executive Officer and Chairman of LTS Capital Partners, LLC,
an investment company. Mr. Silverman is a director of Catalina Lighting, Inc.
and Reelco, Inc.

BOARD OF DIRECTORS

Compensation Committee Interlocks and Insider Participation

Mr. Weissman and one independent director will serve as members of the
Company's Compensation Committee. Prior to the Offering, the Company did not
have a Compensation Committee and compensation decisions were made primarily by
Mr. Weissman.

Audit Committee

The independent directors will serve as the Company's Audit Committee.

Non-Employee Director Compensation

Each member of the Board of Directors who is not an officer or an owner or
the representative of an owner of more than 5% of the outstanding Common Stock
will receive compensation of $1,500 per meeting for serving on the Board of
Directors. The Company also will reimburse Directors for any expenses incurred
in attending meetings of the Board of Directors and the committees thereof. Upon
their election to the Board of Directors or the closing of the Offering
(whichever is later), each non-employee Board member will be granted options to
purchase 15,000 shares of the Common Stock. Such options will be exercisable at
the fair market value of the Common Stock at the date of grant. These options
will become vested and exercisable for up to 33% of the total optioned shares
upon the first anniversary of the grant of the options and for an additional 33%
of the total optioned shares upon each succeeding anniversary until the option
is fully exercisable at the end of the third year.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

Compensation of Named Executive Officers. The following table provides
certain summary information for the twelve months ended December 31, 1997
concerning compensation paid or accrued by the Company to, or on behalf of, the
Company's Chief Executive Officer and President (the "Named Executive
Officers"). None of the Company's other executive officers earned salary and
bonus in excess of $100,000 during such period.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER
ANNUAL
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)
- --------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Morris Weissman, Chairman of the Board and
Chief Executive Officer...................... 1997 $ 0 $ 0 $0
Joshua C. Cantor, President.................... 1997 250,000 25,000 0
</TABLE>

Option Grants, Exercises and Fiscal Year-end Values. No stock options were
granted, exercised or outstanding during the fiscal year ended December 31,
1997.

1998 STOCK INCENTIVE PLAN

The Company's Board of Directors has adopted the 1998 Stock Incentive Plan
(the "1998 Plan") for the purpose of granting various stock incentives to the
Company's key employees. The Board of Directors has discretionary authority,
subject to certain restrictions, to administer the 1998 Plan, including, but not
limited to, determining the individuals to whom, the times at which and the
exercise price for which options will be granted. The total number of shares
reserved for issuance under the 1998 Plan will be an amount equal to 10% of the
Company's outstanding shares of Common Stock; provided, that in the event that
any outstanding option expires or is terminated prior to the end of the period
during which options may be granted under the 1998 Plan, the shares of Common
Stock allocable to the unexercised portion of such option may again be subject
in whole or in part to any option granted under the 1998 Plan. Of the initial
amount of 1,363,000 shares reserved for issuance under the 1998 Plan, options
for approximately 915,000 were granted

32
<PAGE> 35

concurrently with the Offering at the initial public offering price. The
exercise price of options granted under the 1998 Plan may not be less than 100%
of the fair market value of the Common Stock on the date such option was
granted, unless otherwise determined by the Committee. Options granted under the
1998 Plan generally are not assignable or transferable by the option holders.
Options granted under the 1998 Plan typically either will become vested and
exercisable for up to 33 1/3% of the total optioned shares upon each succeeding
anniversary (until the option is fully exercisable at the end of the third year)
or, if immediately vested, will be exercisable for restricted shares of Common
Stock with restrictions lapsing with respect to 33 1/3% of such shares upon each
succeeding anniversary (until all restrictions expire at the end of the third
year). Generally, the unexercised portion of any option automatically terminates
upon the termination of the optionee's employment with the Company, unless
otherwise determined by the Committee; provided, however, that any extension
shall not extend beyond the expiration of the option. Upon a change in control,
the outstanding options may be exercised immediately whether or not vested as of
such date of consummation.

The Company intends to file a registration statement on Form S-8 under the
Securities Act of 1933, as amended (the "Securities Act") to register all shares
of Common Stock issuable under the 1998 Plan. Such a registration statement is
expected to be filed on or shortly after the closing date of the Offering and
will be effective upon filing.

DEFINED CONTRIBUTION PLAN

The Company has established a profit sharing plan (the "401(k) Plan") under
Section 401(k) of the Internal Revenue Code of 1986, as amended, for all
eligible employees. Under the 401(k) Plan, all employees generally are permitted
to defer compensation up to a maximum of 20% of their income. However, "highly
compensated employees" (currently, meaning employees who earn over $80,000
annually) will be limited to a lower percentage imposed by applicable tax
regulations. The 401(k) Plan provides for a contribution by the Company equal to
1% of a participant's compensation, as well as a discretionary profit-sharing
employer contribution. The Company's contributions are fully vested after three
years of service by an employee.

CONTINUED PARTICIPATION IN ABN PLAN

Certain employees of the Company will retain their right to benefits under
ABN's defined benefit retirement plan, but will not be eligible for any
additional benefits. No contributions are currently required in order to provide
those benefits. Pursuant to the Employee Benefits Allocation Agreement described
under "Certain Relationships and Related Transactions," if contributions should
be required in the future, including any contribution necessary to fully fund
plan benefits on termination of the plan, the amount of such contributions will
be paid by ABN.

EMPLOYMENT AGREEMENTS

Following the Offering, the Company intends to enter into employment
agreements with each of the Named Executive Officers and certain other officers
of the Company. Such employment agreements will prohibit each of the respective
officers from competing with the Company for a period of one year after
termination of employment.

Mr. Weissman will be a party to an employment agreement with the Company
pursuant to which he will serve as Chairman of the Board of Directors and Chief
Executive Officer of the Company. Under the terms of Mr. Weissman's employment
agreement, he will be entitled to receive an annual base salary of $1. The
agreement will provide that Mr. Weissman may receive an annual bonus based on
certain performance measures of the Company, including but not limited to
pre-tax earnings, return on equity, increase in share price and increase in
sales, payable at the discretion of the Board of Directors or the Compensation
Committee. The bonus may be paid in stock options, restricted stock or cash.
Pursuant to the employment agreement, Mr. Weissman will be granted stock options
under the 1998 Plan to purchase up to 400,000 shares of the Common Stock at an
exercise price equal to the initial public offering price. Subsequent grants of
options to Mr. Weissman during the term of the employment agreement will be at
the discretion of the Board of Directors or the Compensation Committee. Mr.
Weissman's employment agreement will be effective following the Offering, and
will terminate on December 31, 2000, subject to automatic renewal at the end of
the term for an additional period of two years, unless the Company gives written
notice at least six months prior to the end of the term of its election to
terminate such employment at the end of such term (hereinafter,

33
<PAGE> 36

a "Non-Renewal"). In the event of a Non-Renewal, the Company will pay to Mr.
Weissman an amount equal to his average earnings for the prior two years
(including salary, bonus and the value of options granted). In the event of
termination without cause, Mr. Weissman will receive two years' salary and
bonus, automatic vesting on his options and all restrictions will lapse on his
restricted stock. In the event that Mr. Weissman's employment with the Company
is involuntarily terminated following a merger, acquisition or other similar
event involving the Company, the agreement will provide that the Company pay Mr.
Weissman a severance payment of $1,000,000, two times his salary and bonus for
the year and all options shall vest and all restrictions will lapse on his
restricted stock.

Mr. Cantor will be a party to an employment agreement with the Company
pursuant to which he will serve as President of the Company. Under the terms of
Mr. Cantor's employment agreement, he will be entitled to receive an annual base
salary of $250,000. At the discretion of the Board of Directors, such base
salary will be increased by not less than 6% during each year of the term of the
employment agreement. The employment agreement will provide that Mr. Cantor may
receive a bonus at the discretion of the Board of Directors or the Compensation
Committee. Pursuant to the employment agreement, Mr. Cantor will be granted
stock options under the 1998 Plan to purchase up to 200,000 shares of the Common
Stock at an exercise price equal to the initial public offering price.
Subsequent grants during the term of the employment agreement will be at the
discretion of the Board of Directors or the Compensation Committee. Mr. Cantor's
employment agreement will be effective following the Offering, and will
terminate on December 31, 2000, with an automatic renewal provision of two
years, subject to Non-Renewal. Upon Non-Renewal, or termination without cause,
Mr. Cantor will receive payments based on salary and bonus and receive certain
rights with respect to options granted under the 1998 Plan. In the event that
Mr. Cantor's employment with the Company is involuntarily terminated following a
merger, acquisition or other similar event involving the Company, the agreement
will provide that the Company pay Mr. Cantor a severance payment of $500,000 and
other payments based on salary and bonus.

Mr. Macchiarulo will be a party to an employment agreement with the Company
pursuant to which he will serve as Vice President -- Finance of the Company.
Under the terms of Mr. Macchiarulo's employment agreement, he will be entitled
to receive an annual base salary of $110,000. At the discretion of the Board of
Directors, such base salary will be increased by not less than 6% during each
year of the term of the employment agreement. The employment agreement will
provide that Mr. Macchiarulo may receive a bonus at the discretion of the Board
of Directors or the Compensation Committee. Pursuant to the employment
agreement, Mr. Macchiarulo will be granted stock options under the 1998 Plan to
purchase up to 40,000 shares of the Company's Common Stock at an exercise price
equal to the initial public offering price. Subsequent grants during the term of
the employment agreement will be at the discretion of the Board of Directors or
the Compensation Committee. Mr. Macchiarulo's employment agreement will be
effective following the Offering, and will terminate on December 2000, subject
to automatic renewal at the end of the term for an additional period of two
years, subject to Non-Renewal. Upon Non-Renewal, or termination without cause,
Mr. Macchiarulo will receive payments based on salary and bonus and receive
certain rights with respect to options granted under the 1998 Plan. In the event
that Mr. Macchiarulo's employment with the Company is involuntarily terminated
following a merger, acquisition or other similar event involving the Company,
the agreement will provide that the Company pay Mr. Macchiarulo a severance
payment of $220,000 and other payments based on salary and bonus.

Jeffrey Dugal will be party to an employment agreement with the Company
pursuant to which he will serve as Vice President -- Operations of the Company.
Under the terms of Mr. Dugal's employment agreement, he will be entitled to
receive an annual base salary of $120,750. At the discretion of the board of
directors, such base salary will be increased by not less than 6% during each
year of the term of the employment agreement. The employment agreement will
provide that Mr. Dugal may receive a bonus at the discretion of the Board of
Directors or the Compensation Committee. Pursuant to the employment agreement,
Mr. Dugal will be granted stock options under the 1998 Plan to purchase up to
40,000 shares of the Company's Common Stock at an exercise price equal to the
initial public offering price. Subsequent grants during the term of the
employment agreement will be at the discretion of the Board of Directors or the
Compensation Committee. Mr. Dugal's employment agreement will be effective
following the Offering, and will terminate on December 31, 2000, subject to
automatic renewal at the end of the term for an additional

34
<PAGE> 37

two years, subject to Non-Renewal. Upon Non-Renewal, or termination without
cause, Mr. Dugal will receive payments based on salary and bonus and receive
certain rights with respect to options granted under the 1998 Plan. In the event
that Mr. Dugal's employment with the Company is involuntarily terminated
following a merger, acquisition or other similar event involving the Company,
the agreement will provide that the Company pay Mr. Dugal a severance payment of
$240,000 and other payments based on salary and bonus.

35
<PAGE> 38

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Prior to the Offering, the Company was a wholly-owned subsidiary of ABN.
ABN will not own any of the Common Stock following the Offering. Cash accounts
for the Company have been controlled on a centralized basis by ABN and,
accordingly, cash receipts and disbursements have been received or made through
ABN and are recorded as due from Parent and affiliates. Subsequent to the
Offering, the Company will maintain its own centralized cash management system.

In the ordinary course of business, cash is provided to the Parent by way
of intercompany advances to service its debt obligations and for general
corporate purposes. This practice will continue until consummation of the
Offering and will be discontinued after such time. Upon consummation of the
Offering, such advances will be cancelled and forgiven. The amount of such
advances in the year ended December 31, 1997 was $2.9 million and in the three
months ended March 31, 1998 was $9.9 million.

In connection with the Offering, the Company and ABN will enter into a
number of agreements for the purpose of ensuring an orderly transition period
and defining their ongoing relationships following the Offering. Additional or
modified agreements, arrangements and transactions may be entered into by the
Company and ABN following the consummation of the Offering.

Any future agreements, arrangements and transactions between the Company
and ABN will be determined through negotiation between the Company and ABN and
will not be on terms less favorable to the Company than can reasonably be
obtained in arms-length transactions with independent third parties. The terms
will be approved by a majority of the Company's independent directors or will be
consistent with policies approved by such independent directors.

Set forth below are summaries of arrangements, transactions and agreements
between the Company and ABN. Copies of such agreements are included as exhibits
to the Company's Registration Statement on Form S-1, of which this Prospectus is
a part, and the following discussions with respect to such agreements are
qualified in their entireties by reference to the agreements as filed with the
Securities and Exchange Commission (the "Commission").

SEPARATION AGREEMENT

The Company and ABN expect to enter into a separation agreement (the
"Separation Agreement") which will include cross-indemnification provisions and
be effective upon the closing of the Offering. The Separation Agreement will
provide that (i) the Company generally will indemnify ABN (including its
officers, directors, employees and affiliates) against substantially all costs,
liabilities and expenses relating to the conduct by the Company of its business
before or after closing of the Offering, and the Offering, including as a result
of guarantees by ABN of any obligations of the Company, (ii) ABN will indemnify
the Company against substantially all costs, liabilities and expenses relating
to the business of ABN, including as a result of guarantees by the Company of
any obligations of ABN, (iii) the Company will owe (without markup or markdown)
ABN after the consummation of the Offering for any goods or services purchased
from or through ABN prior to consummation but not paid for prior to such
consummation, (iv) in connection with the Offering, ABN will cause its lenders
to release any guaranty or obligation by the Company relating to ABN's debt, all
liens on the Company's assets and the Common Stock to be sold by ABN pursuant to
the Offering, and (v) immediately prior to the consummation of the Offering, the
Company will have a nominal amount of unrestricted cash and prior to the closing
date ABN shall be entitled to all unrestricted cash on hand, and (vi) until the
first anniversary of the consummation of the Offering, the Company will not
solicit any employee of ABN (including any officer, director or affiliate) to
become an employee of the Company and ABN (including its officers, directors,
employees or affiliates) will not solicit any employee of the Company to become
an employee of ABN (including its officers, directors, employees or affiliates).
However, neither the Company nor ABN (including its officers, directors,
employees or affiliates) will have any duty to refrain from (i) engaging in the
same or similar activities or lines of business as one another, (ii) doing
business with any potential or actual supplier or customer of one another, or
(iii) engaging in, or refraining from, any other activities relating to any of
the potential or actual suppliers or customers of one another. Notwithstanding
the

36
<PAGE> 39

foregoing, ABN will pay all expenses of the Offering, provided that if the
Underwriters' over-allotment option is exercised, the Company and ABN will
allocate such expenses in such amounts and percentages as they shall agree.

Upon consummation of the Offering, the Company will no longer qualify to be
a member of the ABN consolidated group for purposes of filing federal, state or
local income tax returns. Under the Separation Agreement, ABN will indemnify and
hold harmless the Company for all federal, foreign, state and local franchise,
income, sales, use, transfer and other tax liabilities or obligations, including
interest and penalties ("Taxes"), attributable to ABN consolidated group
activities (other than activities of the Company) for all periods (whether
before or after the closing of the Offering). Similarly, the Company will
indemnify and hold harmless ABN for all Taxes attributable to activities of the
Company for all periods, whether before or after the closing of the Offering.
The Separation Agreement also provides for certain other matters relating to
Taxes of ABN and the Company, including the obligation of the Company to assign
to ABN all refunds of Taxes for which ABN indemnifies the Company.

LICENSE AGREEMENT

The Company and ABN expect to enter into a cross-license agreement (the
"License Agreement"), effective upon the closing of the Offering, pursuant to
which the Company will continue to have the right to use of the "American Bank
Note" name in connection with its current business and any other business
conducted by the Company within the holography industry for an annual fee of $1
per year. The one-year term commencing on the Closing Date will be automatically
renewed for consecutive one-year periods at the end of each term. Also, the
Company and ABN will grant to each other (including subsidiaries in the case of
ABN) perpetual royalty-free licenses for any patents, trademarks or other
proprietary technology used by the other in its respective business. The Company
will agree in the License Agreement not to use the name "American Bank Note" in
connection with any company, business, enterprise or venture outside of the
holography industry, and not to sub-license the name to third parties.

TRANSITIONAL SERVICES AGREEMENT

The Company and ABN expect to enter into a transitional services agreement
(the "Transitional Services Agreement") effective concurrently with the Offering
under which ABN agrees to provide or cause to be provided to the Company certain
specified corporate and administrative services for a transitional period after
the Offering, including tax planning and compliance, financial reporting, risk
management, human resources and legal and related services (the "Services"). The
Transitional Services Agreement provides that the Services will be provided in
exchange for fees which will be no greater than the Parent's costs for such
Services. The period for which ABN will provide the Services will be for one
year. The Company shall indemnify ABN (including its officers, directors,
employees and affiliates) from any and all claims, losses, demands and actions
arising out of the Services to be performed by ABN.

EMPLOYEE BENEFITS ALLOCATION AGREEMENT

The Company and ABN expect to enter into an employee benefits allocation
agreement (the "Employee Benefits Allocation Agreement"), effective upon the
closing of the Offering, to govern the allocation of responsibilities and costs
regarding employee benefit plans and related matters following the Offering. The
Employee Benefits Allocation Agreement provides that the Company shall establish
new benefit and insurance plans for its employees following the Offering, and
will cooperate with ABN with respect to certain shared responsibilities during
the transitional period following the Offering. ABN will be solely responsible
for any contributions that may be required following the Offering with respect
to service prior thereto for employees of the Company who were covered under
ABN's defined benefit retirement plan.

37
<PAGE> 40

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth as of June 5, 1998, and as adjusted to give
effect to the sale of Common Stock offered hereby, certain information regarding
beneficial ownership of the Company's Common Stock by (i) each person who is
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director and director nominee,
(iii) each of the Named Executive Officers and (iv) all directors, director
nominees and executive officers as a group. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.
Prior to the Offering, the Company was a wholly-owned subsidiary of ABN. ABN is
selling all of its shares of Common Stock in the Offering.

<TABLE>
<CAPTION>
PRIOR TO OFFERING(1) AFTER OFFERING(1)
----------------------- ----------------------
NAME NUMBER PERCENTAGE NUMBER(2) PERCENTAGE
- ---- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
American Banknote Corporation(3).................. 13,636,000 100% -- 0.0%
Morris Weissman(4)................................ -- 400,000 2.8%
Joshua C. Cantor(5)............................... -- 200,000 1.4%
Richard P. Macchiarulo............................ -- 40,000 *
Jeffrey N. Dugal.................................. -- 40,000 *
C. Gerald Goldsmith(6)............................ -- -- 0.0%
Stephen A. Benton................................. -- -- 0.0%
Jeffrey S. Silverman.............................. -- -- 0.0%
All executives officers and directors as a group
(7 persons)(7).................................. -- 680,000 4.7%
</TABLE>

- ---------------

* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes general voting power and/or investment power with
respect to securities. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days of the date hereof ("Currently
Exercisable Options") are deemed outstanding for computing the percentage
beneficially owned by the person holding such options.
(2) Represents shares issuable pursuant to Currently Exercisable Options. The
Currently Exercisable Options are subject to certain restrictions contained
in the 1998 Plan (as defined herein). See "Management -- Stock Incentive
Plan."
(3) The address of American Banknote Corporation is 200 Park Avenue, New York,
New York 10166.
(4) Excludes 2,757,096 shares of ABN (representing approximately 12.0% of ABN),
of which 873,501 are options and warrants exercisable within 60 days.
(5) Excludes 46,873 shares of ABN (representing less than 1% of ABN).
(6) Excludes 21,200 shares of ABN (representing less than 1% of ABN).
(7) Excludes 2,825,169 shares of ABN (representing approximately 12.3% of ABN),
of which 873,501 are options exercisable within 60 days.

38
<PAGE> 41

DESCRIPTION OF CAPITAL STOCK

The following summary description of the capital stock of the Company is
qualified by reference to the ABNH Certificate of Incorporation (the
"Certificate") and Bylaws. The Certificate and By-laws are filed as exhibits to
the Registration Statement of which this Prospectus is a part.

The Company's authorized capital stock currently consists of 30,000,000
Shares of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock,
$.01 par value per share (the "Preferred Stock").

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the holders of Common Stock and do
not have cumulative voting rights. Accordingly, the holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of shares of Common Stock
are entitled to receive dividends when, as and if declared by the Board of
Directors, subject to any preferential dividend rights of outstanding Preferred
Stock. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in the assets of the
Company legally available for distribution to its shareholders, subject to the
prior rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. All of the issued and
outstanding shares of Common Stock are, and all shares of Common Stock to be
sold in this Offering are, or will be, duly authorized, validly issued, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.

PREFERRED STOCK

The Board of Directors of the Company is authorized to issue, by resolution
and without any action by stockholders, up to 5,000,000 shares of Preferred
Stock and may establish the designations, dividend rights, dividend rate,
conversion rights, voting rights, terms of redemption, liquidation preference,
sinking fund terms and all other preferences and rights of any series of
Preferred Stock, including rights that could adversely affect the voting power
of the holders of the Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change of control of the Company.
The Company has no present plans to issue any shares of Preferred Stock.

The authorized shares of Preferred Stock, as well as the authorized but
unissued shares of Common Stock, will be available for issuance without further
action by stockholders of the Company, unless such action is required by
applicable law or the rules of any stock exchange or quotation system on which
the Company's securities may be listed or quoted.

LIMITATION ON LIABILITY

As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation provides that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided, however, that such
prohibition shall not apply to any liability of a director (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payment of dividends, or unlawful
stock purchase or redemption under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Delaware Law

The Company is subject to the provisions of Section 203 ("Section 203") of
the DGCL. In general, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with

39
<PAGE> 42

an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder", unless the
business combination is approved in a prescribed manner. A "business
combination" is defined generally to include mergers or consolidations between a
Delaware corporation and an "interested stockholder," transactions with an
"interested stockholder" involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an "interested
stockholder's" percentage ownership of stock. An "interested stockholder" is a
person and his associates and affiliates who owns 15% or more of the
corporation's outstanding voting stock, or who is an affiliate or associate of
the corporation and owns (or, in certain cases, within three years prior, did
own) 15% or more of the corporation's outstanding voting stock. Under Section
203, a business combination between the Company and an "interested stockholder"
is prohibited unless it satisfies one of the following conditions: (i) the
Company's Board of Directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming an
"interested stockholder"; or (ii) upon consummation of the transaction that
resulted in the stockholder becoming an "interested stockholder", the
"interested stockholder" owned at least 85% of the voting stock of the Company
outstanding at the time the transaction commenced (excluding, for purposes of
determining the number of shares outstanding, shares owned by (a) persons who
are directors and also officers and (b) employee stock plans, in certain
instances); or (iii) the business combination is approved by the Board of
Directors and authorized at an annual or special meeting of the shareholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the "interested stockholder".

Special Meetings

The By-Laws provide that special meetings of shareholders for any purpose
or purposes can be called only upon the request of the Chairman of the Board,
the request to the Chairman in writing by a majority of the Directors or the
written consent of three-quarters of the issued and outstanding capital stock
which is regularly entitled to vote.

Number of Directors; Removal; Filling Vacancies

The By-Laws provide that the number of directors shall be not less than two
nor more than 21; provided, however, that no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director. Any
vacancy occurring in the Board caused by death, resignation, removal or
otherwise, and any newly created directorship resulting from an increase in the
number of directors, may be filled only by the affirmative vote of at least a
majority of the remaining directors then in office, although such directors are
less than a quorum, or by the sole remaining director. Furthermore, the By-Laws
provide that any one or more of the directors of the Company may be removed from
office only for cause by the affirmative vote of three-quarters of the entire
Board of Directors or by the affirmative vote of two-thirds of the votes
represented by the issued and outstanding shares of the Company entitled to vote
at a meeting called for such purpose.

The provisions of the By-Laws governing removal may have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to gain control of the Company, or of attempting
to change the composition or policies of the Board of Directors, even though
such attempt might be beneficial to the Company or its shareholders. These
provisions of the By-Laws could thus increase the likelihood that incumbent
directors will retain their positions.

Amendment of Company By-Laws

In order to adopt, repeal, alter or amend the provisions set forth therein,
the By-Laws require the unanimous written consent of all directors or the
affirmative vote of a majority of the entire Board of Directors acting at a
regular or special meeting called by written notice, which written notice shall
include notice of the proposed action to amend the By-Laws, or by the
affirmative vote of a majority of votes represented by the issued and
outstanding shares of the Company entitled to vote at a meeting called for such
purpose.

40
<PAGE> 43

Advance Notice Provisions for Shareholder Nominations and Proposals

The By-Laws establish an advance notice procedure for shareholders to make
nominations of candidates for election as director, or to bring other business
before an annual or special meeting of shareholders of the Company. The By-Laws
provide that only persons nominated by, or at the direction of, a majority of
the Board of Directors, or by a shareholder who has given timely written notice
to the Secretary of the Company prior to the meeting at which directors are to
be elected, will be eligible for election as directors of the Company.
Furthermore, the By-Laws provide that at an annual meeting, only such business
may be conducted as has been brought before the meeting by, or at the direction
of, a majority of the Board of Directors or by a shareholder who has given
timely written notice to the Secretary of the Company of such shareholder's
intention to bring such business before such meeting. Under the By-Laws, to be
timely, notice of shareholder nominations or proposals to be made at an annual
meeting must be received by the Company not less than 60 days prior to the
scheduled meeting in the case of a meeting to be held within 30 days preceding
the anniversary date of the previous year's annual meeting (or not less than 90
days prior to the scheduled annual meeting in the case of a meeting to be held
on or after the anniversary date of the previous year's meeting) or with respect
to any other annual or special meeting of stockholders notice must be received
by the Company, not later than the close of business on the 10th day following
the date that the public disclosure of such meeting was first made.

Under the By-Laws, a shareholder's notice to the Company proposing to
nominate a person for election as a director must contain certain information
about the nominating shareholder and the proposed nominee. Similarly, a
shareholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing shareholder. If the Chairman of the Board or other presiding
officer of the meeting shall determine that a person was not nominated, or if
the Chairman of the Board or other presiding officer of the annual meeting
determines that other business was not brought before the meeting, in accordance
with the By-Laws, such person will not be eligible for election as a director,
or such business will not be conducted at such meeting, as the case may be.

By requiring advance notice of nominations by shareholders, the By-Laws
afford the Board an opportunity to consider the qualifications of the proposed
nominee and, to the extent deemed necessary or desirable by the Board, to inform
shareholders about such qualifications. By requiring advance notice of other
proposed business, the By-Laws also provide an orderly procedure for conducting
annual meetings of shareholders and, to the extent deemed necessary or desirable
by the Board, provides the Board with an opportunity to inform shareholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with any recommendations as to the Board's position regarding
action to be taken with respect to such business, so that shareholders can
better decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.

Although the Certificate of Incorporation does not give the Board any power
to approve or disapprove shareholder nominations of the election of directors or
proposals for action, the foregoing provisions may have the effect of precluding
a contest for the election of directors or the consideration of shareholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its shareholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock will be American
Stock Transfer & Trust Co.

41
<PAGE> 44

UNDERWRITING

The Underwriters named below represented by NationsBanc Montgomery
Securities LLC, Lazard Freres & Co. LLC, Raymond James & Associates, Inc. and
Smith Barney Inc. (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase from
the Parent the number of shares of Common Stock opposite their respective names
at the initial public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent, and
that the Underwriters are committed to purchase all of such shares, if any are
purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ----------
<S> <C>
NationsBanc Montgomery Securities LLC....................... 2,209,000
Lazard Freres & Co. LLC..................................... 2,209,000
Raymond James & Associates, Inc. ........................... 2,209,000
Smith Barney Inc. .......................................... 2,209,000
BT Alex. Brown Incorporated................................. 400,000
CIBC Oppenheimer Corp. ..................................... 400,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 400,000
Lehman Brothers Inc. ....................................... 400,000
Morgan Stanley & Co. Incorporated........................... 400,000
Prudential Securities Incorporated.......................... 400,000
Societe Generale Securities Corporation..................... 400,000
Wasserstein Perella Securities, Inc......................... 400,000
Credit Research And Trading LLC............................. 200,000
Cruttenden Roth Incorporated................................ 200,000
Doft & Co. Inc. ............................................ 200,000
First Albany Corporation.................................... 200,000
John G. Kinnard & Company, Incorporated..................... 200,000
Ryan, Beck & Co. ........................................... 200,000
Value Investing Partners, Inc. ............................. 200,000
H.C. Wainwright & Co., Inc. ................................ 200,000
----------
Total............................................. 13,636,000
==========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $.35 per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $.10 per share to
certain other dealers. After this Offering, the offering price and other selling
terms may be changed by the Representatives. The shares of Common Stock are
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 2,045,400 additional shares of Common Stock to cover over-allotments, if any,
at the offering price less the Underwriting Discount set forth on the cover page
of this Prospectus. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with the Offering.

The directors and officers of the Company have agreed that for a period of
180 days after the date of this Prospectus they will not, without the prior
written consent of NationsBanc Montgomery Securities LLC, directly or
indirectly, sell, offer, contract or grant an option to sell (including, without
limitation, any short sale), pledge, transfer, establish an open put equivalent
position or otherwise dispose of any shares of Common Stock, options or to
acquire shares of Common Stock or securities exchangeable or exercisable or
convertible
42
<PAGE> 45

into shares of Common Stock held by them except gifts and pledges of shares
where the donee or pledgee, as the case may be, agrees in writing to be bound by
the terms of such agreement.

The Company has agreed not to issue, offer, sell, grant options to sell or
otherwise dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable for its equity securities for a
period of 180 days after the effective date of the Offering without the prior
written consent of NationsBanc Montgomery Securities LLC, subject to certain
exceptions, including shares of Common Stock offered hereby, and grants and
exercises of stock options under the Company's 1998 Plan. Additionally, ABN has
agreed not to offer, sell, grant options to sell or otherwise dispose of any of
the Company's equity securities or any other securities convertible into or
exchangeable for its equity securities for a period of 180 days after the
effective date of the Offering without the prior written consent of NationsBanc
Montgomery Securities LLC, subject to certain exceptions, including shares of
Common Stock offered hereby.

The Common Stock has been approved for listing on the NYSE under the symbol
"ABH." In order to meet one of the requirements for listing the Common Stock on
the NYSE, the Underwriters have undertaken to sell lots of 100 or more shares to
a minimum of 2,000 beneficial holders.

The Underwriting Agreement provides that the Company and ABN will indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof. The Company has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.

The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined by
negotiations among the Parent, the Company and the Representatives. Among the
factors considered in such negotiations were the history of, and prospects for,
the Company and the industry in which it competes, an assessment of the Company
management, its past and present operations and financial performance, the
prospects for future earnings of the Company, the present state of the Company's
development, the general conditions of the securities markets at the time of the
Offering, the market prices of and demand for publicly traded common stocks of
comparable companies in recent periods and other factors deemed relevant.

The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover of this Prospectus, the Representatives may
reduce that short position by purchasing Common Stock on the New York Stock
Exchange or otherwise. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.

43
<PAGE> 46

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

Neither the Company nor any of the Underwriters makes any representation or
predictions as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Paul, Hastings, Janofsky & Walker LLP, New York, New York. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Fried, Frank, Harris, Shriver & Jacobson, a partnership
including professional corporations, New York, New York.

EXPERTS

The financial statements as of December 31, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997 included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (which
term shall include any amendment thereto) on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, Room 1024, N.W., Washington, D.C. 20549 and copies may be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C., and may be electronically accessed at the
Commission's site on the World Wide Web at http://www.sec.gov. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.

44
<PAGE> 47

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements for the Years Ended December 31, 1995,
1996 and 1997:
Independent Auditors' Report...................... F-2
Statements of Income.............................. F-3
Balance Sheets.................................... F-4
Statements of Stockholder's Equity................ F-5
Statements of Cash Flows.......................... F-6
Notes to Financial Statements..................... F-7

Unaudited Condensed Financial Statements for the Three
Months Ended March 31, 1997 and 1998:
Condensed Statements of Income -- Unaudited....... F-16
Condensed Balance Sheets -- Unaudited............. F-17
Statement of Stockholder's Equity -- Unaudited.... F-18
Condensed Statements of Cash Flows -- Unaudited... F-19
Notes to Unaudited Condensed Financial
Statements........................................ F-20
</TABLE>

F-1
<PAGE> 48

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of
American Bank Note Holographics, Inc.
New York, New York

We have audited the accompanying balance sheets of American Bank Note
Holographics, Inc., a wholly-owned subsidiary of American Banknote Corporation,
as of December 31, 1996 and 1997, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of American Bank Note Holographics, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.

Deloitte & Touche LLP
March 17, 1998 (except as to Note K, the date of which is July 2, 1998)
New York, New York

F-2
<PAGE> 49

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Sales....................................................... $27,865 $28,649 $30,915
------- ------- -------
Costs and expenses:
Cost of goods sold........................................ 13,787 15,034 11,912
Selling and administrative................................ 4,576 4,711 6,001
Depreciation and amortization............................. 1,203 1,141 1,136
------- ------- -------
19,566 20,886 19,049
------- ------- -------
8,299 7,763 11,866
Other, net
Royalty income............................................ 103 128 785
Intercompany interest income.............................. 305 305 305
Other income.............................................. 10 68 36
Interest expense.......................................... (159)
------- ------- -------
418 501 967
------- ------- -------
Income before income taxes.................................. 8,717 8,264 12,833
Income taxes................................................ 3,663 3,444 5,294
------- ------- -------
Net income........................................ $ 5,054 $ 4,820 $ 7,539
======= ======= =======
Net income per share.............................. $ 0.37 $ 0.35 $ 0.55
======= ======= =======
</TABLE>

See Notes to Financial Statements.

F-3
<PAGE> 50

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 136 $ 253
Accounts receivable, net of allowance for doubtful
accounts of $287 and $375.............................. 7,726 14,479
Inventories, net of allowances of $265 and $215........... 4,626 5,989
Deferred income taxes..................................... 441 471
Prepaid expenses and other................................ 254 95
-------- --------
Total current assets.............................. 13,183 21,287

Machinery, equipment and leasehold improvements, net........ 6,022 5,695

Other assets................................................ 11 43

Excess of cost over net assets acquired, net of accumulated
amortization of $1,220 and $1,568......................... 9,141 8,793
-------- --------
$ 28,357 $ 35,818
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Revolving credit.......................................... $ 674
Accounts payable and accrued expenses..................... $ 2,679 3,312
-------- --------
Total current liabilities......................... 2,679 3,986
Other long-term liabilities................................. 375 460

Deferred income taxes....................................... 1,796 1,590

Commitments and Contingencies -- Note I

Stockholder's equity
Common Stock, par value $.01 per share, authorized,
30,000,000 shares; issued and outstanding, 13,636,000
shares................................................. 136 136
Additional paid-in-capital................................ 11,627 11,627
Retained earnings......................................... 33,476 41,015
-------- --------
45,239 52,778
Due from Parent and affiliates............................ (21,732) (22,996)
-------- --------
Total stockholder's equity........................ 23,507 29,782
-------- --------
$ 28,357 $ 35,818
======== ========
</TABLE>

See Notes to Financial Statements.

F-4
<PAGE> 51

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DUE FROM
--------------- PAID-IN RETAINED PARENT AND
SHARES AMOUNT CAPITAL EARNINGS AFFILIATES TOTAL
------ ------ ---------- -------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995................. 13,636 $136 $11,627 $23,602 $ (8,574) $26,791
Change during year....................... (6,115) (6,115)
Net income............................... 5,054 5,054
------ ---- ------- ------- -------- -------
Balance, December 31, 1995............... 13,636 136 11,627 28,656 (14,689) 25,730
Change during year....................... (7,043) (7,043)
Net income............................... 4,820 4,820
------ ---- ------- ------- -------- -------
Balance, December 31, 1996............... 13,636 136 11,627 33,476 (21,732) 23,507
Change during year....................... (1,264) (1,264)
Net income............................... 7,539 7,539
------ ---- ------- ------- -------- -------
Balance, December 31, 1997............... 13,636 $136 $11,627 $41,015 $(22,996) $29,782
====== ==== ======= ======= ======== =======
</TABLE>

See Notes to Financial Statements.

F-5
<PAGE> 52

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Net income................................................ $5,054 $ 4,820 $ 7,539
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,203 1,141 1,136
Loss on disposal of equipment.......................... 769
Deferred income taxes.................................. (255) 508 (236)
Changes in operating assets and liabilities:
Accounts receivable.................................... (741) (3,332) (6,753)
Inventories............................................ (230) 180 (1,363)
Prepaid expenses and other............................. 76 19 127
Accounts payable, accrued expenses and other........... 252 991 718
------ ------- -------
Net cash provided by operating activities......... 6,128 4,327 1,168
------ ------- -------
Investing Activities:
Capital expenditures...................................... (276) (390) (461)
Proceeds from sales of assets............................. 21
------ ------- -------
Net cash used in investing activities............. (255) (390) (461)
------ ------- -------
Financing Activities:
Advances to Parent and affiliates, net.................... (6,115) (7,043) (1,264)
Revolving credit borrowings, net.......................... 674
------ ------- -------
Net cash used in financing activities............. (6,115) (7,043) (590)
------ ------- -------
Increase (decrease) in cash and cash equivalents............ (242) (3,106) 117
Cash and cash equivalents -- beginning of year.............. 3,484 3,242 136
------ ------- -------
Cash and cash equivalents -- end of year.................... $3,242 $ 136 $ 253
====== ======= =======
Supplemental cash payments:
Taxes (including amounts paid to Parent).................. $3,716 $ 3,179 $ 5,485
Interest.................................................. -- -- 159
</TABLE>

See Notes to Financial Statements.

F-6
<PAGE> 53

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE A -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Bank Note Holographics, Inc. (the "Company"), incorporated in the
State of Delaware, is a wholly-owned subsidiary of American Banknote Corporation
(the "Parent"). As a wholly-owned subsidiary, the Company is provided certain
corporate and administrative services, including treasury functions, tax
planning and compliance, financial reporting, risk management, human resources
and legal services. Additionally, because the Parent manages cash and financing
requirements centrally, interest expense and financing requirements are based on
the existing capital structure. The financial position and operations of the
Company may differ from the results that may have been achieved had the Company
operated as an independent entity.

The Company is a world leader in the origination, production and marketing
of controlled and secure mass-produced holograms. Holograms are used for
security, packaging and promotional applications.

Use of Estimates

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of sales and expenses during the reporting
period. Actual results may differ from those estimates.

Cash and Cash Equivalents

All highly liquid investments with a maturity of three months or less, when
purchased, are considered to be cash equivalents.

Inventories and Sales Recognition

Inventories are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) method. Hologram originations are
capitalized and charged to cost of goods sold over the estimated production
period. Sales are generally recognized when goods are shipped. However, pursuant
to terms with certain customers, completed items are sometimes stored at the
Company's premises and, in those instances, sales are recognized when all of the
following have occurred: the manufacturing process is complete, the goods have
been transferred to the on-site secured facility and are ready for shipment, the
risk of ownership has passed to the customer and the customer has been billed
for the order. At December 31, 1996 and 1997, accounts receivable from these
customers totaled $1.1 million and $7.8 million, respectively. In December 1997,
the Company recorded sales of $6.9 million under this arrangement.

Royalty Income

The Company enters into licensing agreements with certain manufacturers
under which the Company receives royalty payments. Royalty payments due under
licensing agreements are recognized as income either based upon shipment reports
from manufacturers, where available, or estimated shipments by such
manufacturers.

Depreciation and Amortization

Machinery and equipment is recorded at cost and depreciated by the
straight-line method over the estimated useful lives of 5 to 22 years.

Amortization of leasehold improvements is computed by the straight-line
method based upon the remaining term of the applicable lease, or the estimated
useful life of the asset, whichever is shorter.

F-7
<PAGE> 54
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Long-Lived Assets

The Company reviews its long-lived assets for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Such changes in circumstances may include, among other factors, a
significant change in technology that may render an asset or an asset group
obsolete or noncompetitive, a significant change in the extent or manner in
which an asset is used, evidence of a physical defect in an asset or asset group
or an operating loss. If changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company estimates the future cash
flows (undiscounted and without interest charges) expected to result from the
use of the asset and its eventual disposition, and records an impairment loss
(equal to the amount by which the carrying amount of the asset exceeds the fair
value of the asset) if such estimated cash flows are less than the carrying
amount of the asset. No impairment losses have been recorded for the years ended
December 31, 1995, 1996, and 1997.

Assets to be disposed of and assets not expected to provide any future
service potential to the Company are recorded at the lower of carrying amount or
fair value less cost to sell. In 1995, the Company recorded a charge of
approximately $0.8 million related to disposal of fixed assets that were no
longer in service.

Intangible Assets

The excess cost over the net assets acquired is being amortized over 30
years by the straight-line method. The Company evaluates the carrying amount of
the excess cost over the net assets acquired by analyzing historical and
expected future income and undiscounted cash flows of its operations. If
impairment is indicated, a write-down to fair value is taken.

Research and Development

Research and development costs are expensed as incurred (1995 -- $0.4
million, 1996 -- $0.6 million and 1997 -- $0.5 million).

Net Income Per Share

Net income per share is computed based on the number of outstanding shares
of common stock, after giving retroactive effect to the stock split (Note K).
The weighted average number of shares outstanding were 13,636,000 for the years
ended December 31, 1995, 1996 and 1997.

Business Information

Sales to MasterCard were approximately 20%, 22% and 44% of sales for the
years ended December 31, 1995, 1996 and 1997, respectively. Approximately half
of the 1997 MasterCard sales were recorded in December 1997. Sales to
manufacturers of VISA credit cards were approximately 37%, 34% and 24% of sales
for the years ended December 31, 1995, 1996 and 1997, respectively. The loss of
a substantial portion of the sales to these customers would have a material
adverse effect on the financial position and results of operations of the
Company. At December 31, 1996 and 1997, accounts receivable from these customers
approximated $4.9 million and $11.6 million, respectively.

Export Sales

US export sales were 37%, 31% and 18% of sales for the years ended December
31, 1995, 1996 and 1997, respectively.

Concentration of Credit Risk -- Trade Accounts Receivable

The Company extends credit to its customers, principally the domestic
credit card industry, based on evaluations of customer's financial condition and
credit history and does not require collateral. The Company's allowance for
doubtful accounts is based upon expected collectibility of its trade accounts
receivable.

F-8
<PAGE> 55
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Tax Accounting Policy

The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires an asset and
liability approach that recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than enactments of changes in the tax law or rates.

Impact of Accounting Pronouncements

SFAS No. 129, "Disclosure of Information about Capital Structure," issued
in February 1997, is effective for periods ending after December 15, 1997 and
establishes standards for disclosing information about an entity's capital
structure by superseding and consolidating previously issued accounting
standards. The financial statements of the Company are prepared in accordance
with the requirements of SFAS No. 129.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, is required to be adopted by the Company
effective for the year ending December 31, 1998. SFAS No. 131 requires, among
other things, that financial and descriptive information be provided about its
reportable operating segments. Under this statement operating segments are
components of an enterprise about which separate financial information is
available that is regularly evaluated by the enterprise's chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. The Company continues to evaluate the effects, if any, of the
adoption of the new standard.

SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," issued in February 1998, is effective for periods
beginning after December 15, 1997. The Company is currently evaluating the
required disclosures under this new standard.

The AICPA Accounting Standards Executive Committee issued in October 1996,
Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." The
adoption of this pronouncement in 1997 did not have a material effect on the
Company's financial condition and results of operations.

NOTE B -- INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Work in process............................................. $2,051 $2,369
Origination costs*.......................................... 1,616 2,581
Raw materials............................................... 959 1,039
------ ------
$4,626 $5,989
====== ======
</TABLE>

* Includes approximately $0.5 million and $0.8 million of costs, at December
31, 1996 and 1997, respectively, relating to work for customers in
anticipation of orders in the ordinary course of business.

NOTE C -- MACHINERY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment..................................... $10,221 $10,682
Leasehold improvements...................................... 888 888
------- -------
11,109 11,570
Accumulated depreciation and amortization................... 5,087 5,875
------- -------
$ 6,022 $ 5,695
======= =======
</TABLE>

F-9
<PAGE> 56
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable -- trade................................... $2,074 $2,315
Accrued expenses............................................ 140 319
State and local income taxes................................ 259 325
Salaries and wages.......................................... 206 353
------ ------
$2,679 $3,312
====== ======
</TABLE>

NOTE E -- TAXES ON INCOME

In accordance with a tax allocation agreement, the Company is included in
the consolidated US federal income tax return and in certain instances
consolidated state income tax returns of its Parent and makes payments to the
Parent based on the amount which would be payable as federal and state income
taxes as if consolidated returns were not filed. The Company computes its
federal and state income tax provision as if it were filing separate tax
returns, without regard to the tax allocation agreement.

Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities, and their reported amounts in the financial
statements.

Taxes on income (benefit) for the years ended December 31, follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................................... $3,129 $2,356 $4,417
State and local............................................. 789 580 1,113
------ ------ ------
3,918 2,936 5,530
------ ------ ------

Deferred:
Federal..................................................... (225) 438 (203)
State and local............................................. (30) 70 (33)
------ ------ ------
(255) 508 (236)
------ ------ ------
$3,663 $3,444 $5,294
====== ====== ======
</TABLE>

A reconciliation of the taxes on income and the amount computed by applying
the federal income tax statutory rate of 34% in 1995 and 1996 and 35% in 1997
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory tax............................................... $2,964 $2,810 $4,392
Non-deductible goodwill..................................... 122 122 122
State and local income taxes, net of federal benefit........ 493 422 702
Other....................................................... 84 90 78
------ ------ ------
$3,663 $3,444 $5,294
====== ====== ======
</TABLE>

F-10
<PAGE> 57
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of the items comprising the Company's deferred income tax
assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Current deferred tax assets:
Uniform capitalization of inventory....................... $ 220 $ 235
Bad debt provision........................................ 115 150
Inventory obsolescence.................................... 106 86
------ ------
$ 441 $ 471
====== ======
Deferred tax liabilities:
Excess tax over book depreciation......................... $1,946 $1,774
Post retirement medical accrual........................... (139) (162)
Supplemental retirement accrual........................... (11) (22)
------ ------
Net deferred tax liabilities...................... $1,796 $1,590
====== ======
</TABLE>

NOTE F -- REVOLVING CREDIT

In 1996, the Company together with its Parent and its affiliate, American
Bank Note Company, entered into a $20 million revolving credit facility (the
"Credit Facility") which matures on October 30, 1998. At December 31, 1997,
interest under the Credit Facility, as defined, was 9.0% and the weighted
average interest rate in 1996 and 1997 was approximately 9.25% and 9.0%,
respectively. The average aggregate borrowings under the Credit Facility during
1996 and 1997 was approximately $1.5 million and $6.0 million, respectively. The
Credit Facility is an asset-based facility secured by certain accounts
receivable and inventory (total carrying value for the combined companies of
approximately $24.0 million at December 31, 1997). At December 31, 1997, the
combined companies had approximately $18.5 million of availability under the
Credit Facility before reductions for $3.6 million of outstanding letters of
credit and $3.2 million of borrowings. The Company is jointly and severally
liable for all borrowings and letters of credit outstanding under the Credit
Facility.

At December 31, 1997, the Company had approximately $10.4 million of
availability under the Credit Facility before reductions for $0.7 million of
borrowings. The Company's total carrying value for accounts receivable and
inventory collateral was approximately $12.9 million at December 31, 1997.

The Company's issued and outstanding Common Stock is pledged as security
for the Parent's senior debt ($126.5 million principal amount). The Company and
each of the Parent's direct and indirect domestic operating subsidiaries have,
jointly and severally, fully and unconditionally guaranteed, on a senior
subordinated basis the Parent's 11 1/4% Senior Subordinated Notes due 2007
($95.0 million principal amount).

NOTE G -- RELATED PARTY TRANSACTIONS

The financial statements reflect both allocated and, where readily
determinable, actual expenses for services provided by the Company's Parent and
affiliates. Where allocations have been utilized, the Company, its Parent and
affiliates recorded transactions based upon systematic and reasonable methods,
including but not limited to, sales, asset values, and headcount all as a
percent of total.

F-11
<PAGE> 58
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The amounts by major category of historical transactions with affiliates
follow:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Due from (to) Parent and affiliates:
Balance at beginning of year............................ $ 8,574 $14,689 $21,732
Income tax liability payable to Parent............... (3,716) (3,091) (5,306)
Taxes paid to Parent................................. 3,716 3,091 5,306
Cash advances to Parent.............................. 7,668 8,606 2,851
Allocation of employee benefits(1)................... (962) (936) (1,052)
Purchases from affiliates............................ 247 30 297
Allocation of security services...................... (142) (108) (198)
Sales and administration expenses(2)................. (286) (301) (592)
Allocation of general liability insurance............ (715) (508) (293)
Intercompany interest................................ 305 305 305
Executive benefits(3)................................ (45) (54)
------- ------- -------
Balance at end of year.................................. $14,689 $21,732 $22,996
======= ======= =======
</TABLE>

- ---------------

(1) Primarily medical, life and disability insurance premiums.
(2) Includes legal fees and allocated portion of audit fees.
(3) Includes value of restricted stock of the Parent.

Included in the above balances is a $5.3 million note receivable from the
Parent that bears interest at 5 3/4% per annum.

For financial reporting purposes, the amounts due from Parent and
affiliates has been classified within stockholder's equity.

In addition to the above, the Company sold $0.3 million, $0.7 million and
$0.4 million of holograms in 1995, 1996 and 1997, respectively, to its
affiliates in the normal course of business. Purchases by the Company from
affiliates in the normal course of business were $0.1 million, $0.3 million and
$0.1 million in 1995, 1996 and 1997, respectively. Trade accounts receivable
from affiliates were $0.4 million in 1996 and $0.6 million in 1997. Trade
payables to affiliates were $0.2 million in 1996 and $12,000 in 1997.

In 1996 and 1997, employees of the Company received stock options under the
Parent's stock-based compensation plans. No such options were granted in 1995.
Had compensation cost for the stock option plans been determined based on the
fair value at the grant award dates, in 1996 and 1997, consistent with the
provisions of SFAS No. 123, "Accounting for Stock-Based-Compensation," net
income would have been reduced by approximately $13,000 and $22,000,
respectively.

NOTE H -- EMPLOYEE BENEFITS PLANS

Postretirement Health Care and Life Insurance Plans. The Company and its
affiliates participate in benefit plans which provide certain health care and
life insurance benefits for certain eligible retired employees. The Company's
employees may become eligible for these benefits if they reach normal retirement
age, with certain service requirements.

The Company accrues the estimated cost of retiree benefit payments other
than pensions during the years an employee provides services. The plan is not
funded.

F-12
<PAGE> 59
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the status of this obligation as it relates
to the Company:

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
(IN
THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $156 $119
Eligible active plan participants......................... 34 35
Other active plan participants............................ 200 243
---- ----
Accumulated postretirement benefit obligation............... 390 397
Unrecognized transition obligation........................ (155) (145)
Unrecognized net gain..................................... 112 152
---- ----
Accrued postretirement benefit obligation.............. $347 $404
==== ====
</TABLE>

Net postretirement benefit costs consisted of the following components:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned................................ $37 $25 $31
Interest cost on accumulated postretirement benefit
obligation................................................ 29 25 25
Amortization of transition obligation....................... 8 6 9
Amortization of gain........................................ (7)
--- --- ---
$74 $56 $58
=== === ===
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation, as of January 1, 1997, was 11.5% for 1997
decreasing each successive year until it reaches 5.5%, after which it remains
constant. A one-percentage-point increase in the assumed health care cost trend
rate for each year would increase service cost plus interest on the accumulated
postretirement benefit obligation by approximately 11.8%. The assumed discount
rates used in determining the accumulated postretirement benefit obligation was
7.5% at December 31, 1995 and December 31, 1996 and 7.0% at December 31, 1997.

Pension Plans. Retirement benefits are provided by the Company to eligible
employees through defined contributions to an employee's retirement plan; the
aggregate contribution to such plan and charged to operations was approximately
$0.2 million in each of the years ended December 31, 1995, 1996 and 1997,
respectively.

Certain employees of the Company participate in an affiliate's trusteed
noncontributory defined benefit pension plan. Benefits under the plan were
frozen in 1992 and were based on years of service and average final
compensation. The liability for benefits under this plan, which is substantially
funded, is the responsibility of the affiliate. The total pension expense
relating to the Company's employees in the aggregate for the past three years
was approximately $26,000.

In 1996 and 1997, the Company participated in the Parent's noncontributory
supplemental executive retirement plan ("SERP") for certain senior management
employees of the Parent and its affiliates. Benefits under the noncontributory
plan are based on years of service and average final compensation. The plan is
unfunded. Following the Offering, the Company's participants will cease to be
eligible for SERP benefits.

F-13
<PAGE> 60
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following sets forth the status of the Company's obligation under this
plan:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation.............................. $ 0 $ 0
===== =====
Projected benefit obligation................................ $ 162 $ 167
Prior service cost.......................................... (147) (142)
Unrecognized net gain....................................... 13 31
----- -----
Accrued pension cost.............................. $ 28 $ 56
===== =====
</TABLE>

Net periodic pension cost consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Service costs-benefits earned............................... $ 12 $ 12
Interest cost on projected benefit obligation............... 11 11
Amortization of prior service cost.......................... 5 5
------ ------
Pension expense................................... $ 28 $ 28
====== ======
</TABLE>

The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% at December 31, 1996
and 1997.

NOTE I -- COMMITMENTS AND CONTINGENCIES

On February 14, 1997, James Rigby, Trustee in Bankruptcy for Holosonics,
Inc., Holotron Corp., Meadows Games, Inc. and Fire Diamond, Inc. commenced an
adversary proceeding in the United States Bankruptcy Court for the Western
District of Washington at Seattle against International Banknote Company, Inc.,
American Banknote Company and the Company. The complaint alleges that the
defendants are indebted to the bankruptcy estate for royalty payments under a
1981 license and that the Company is liable for unpaid royalties for 1990 in the
amount of $226,322, for 1991 in the amount of $853,582 and through July 1992 in
the amount of $568,762, plus attorney's fees and interest on unpaid amounts.

The Company currently and from time to time is involved in litigation (as
both plaintiff and defendant) incidental to the conduct of its business, but the
Company is not a party to any lawsuit or proceeding which, in the opinion of the
Company, is likely to have a material impact on the Company's financial position
or results of operations.

F-14
<PAGE> 61
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONCLUDED)

The Company has long-term operating leases for offices, manufacturing
facilities and equipment which expire through 2007. The Company has renewal
options on some locations, which provide for renewal rents based upon increases
tied to the consumer price index.

Net rental expense was approximately $1.2 million for each of the years
ended December 31, 1995, 1996 and 1997.

At December 31, 1997, future minimum lease payments under noncancelable
operating leases are as follows: $1.1 million in 1998; $0.9 million in 1999;
$0.9 million in 2000; $0.8 million in 2001; $0.8 million in 2002; and $3.4
million thereafter.

NOTE J -- QUARTERLY RESULTS OF OPERATIONS -- UNAUDITED

<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1997
Sales(a).......................... $ 5,241 $ 6,296 $ 8,104 $11,274
Cost of goods sold................ 2,629 2,591 2,617 4,075
Net income........................ 657 1,422 2,275 3,185
Net income per share...... $ .05 $ .10 $ .17 $ .23
======= ======= ======= =======
1996
Sales............................. $ 7,232 $ 8,052 $ 6,134 $ 7,231
Cost of goods sold................ 3,323 3,905 2,962 4,844
Net income........................ 1,365 1,673 983 799
Net income per share...... $ .10 $ .12 $ .07 $ .06
======= ======= ======= =======
</TABLE>

- ---------------

(a) In December 1997, the Company recorded sales of $6.9 million relating to a
customer order which was transferred to the Company's on site secured
facility. (See Note A).

NOTE K -- SUBSEQUENT EVENTS

On May 5, 1998, the Company filed a Registration Statement on Form S-1 for
the sale by the Parent of all of the issued and outstanding Common Stock of the
Company (the "Offering"). The Company will not receive any of the proceeds from
the sale of Common Stock by the Parent. After the sale, the Parent will not own
any of the Company's Common Stock. On June 11, 1998, the Company declared a
1,363.6 to one stock split, effective July 2, 1998, in the form of a stock
dividend, of the Company's Common Stock and increased its authorized Common
Stock to 30,000,000 shares and its authorized Preferred Stock to 5,000,000
shares. The accompanying financial statements give retroactive effect to the
consummation of the stock split. Additionally, immediately prior to the Offering
the amounts due from Parent and affiliates will be cancelled. For financial
reporting purposes the amounts due from Parent and affiliates have been
classified within stockholder's equity; accordingly, the cancellation of such
amounts will result in a reclassification within stockholder's equity.

SOP 98-5, "Reporting on the Costs of Start-Up Activities," was issued in
April 1998 and is effective for the fiscal years beginning after December 15,
1998. SOP 98-5 provides guidance on the financial reporting of start-up costs
and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The Company is evaluating the
effect of this recent pronouncement.

F-15
<PAGE> 62

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

CONDENSED STATEMENTS OF INCOME -- UNAUDITED

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales....................................................... $ 5,241 $ 7,035
Costs and expenses:
Cost of goods sold........................................ 2,629 2,438
Selling and administrative................................ 1,310 1,256
Depreciation and amortization............................. 293 292
------- -------
4,232 3,986
------- -------
1,009 3,049
Other, net
Royalty income............................................ 2 30
Intercompany interest income.............................. 76 76
Other income.............................................. 31 4
Interest expense.......................................... -- (105)
------- -------
109 5
------- -------
Income before income taxes.................................. 1,118 3,054
Income taxes................................................ 461 1,261
------- -------
Net income.................................................. $ 657 $ 1,793
======= =======
Net income per share........................................ $ 0.05 $ 0.13
======= =======
</TABLE>

See Notes to Unaudited Condensed Financial Statements.
F-16
<PAGE> 63

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

CONDENSED BALANCE SHEETS -- UNAUDITED

<TABLE>
<CAPTION>
DECEMBER MARCH
31, 1997 31, 1998
-------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 253 $ 252
Accounts receivable, net of allowance for doubtful
accounts of $375 and $395.............................. 14,479 9,184
Inventories, net of allowances of $215 and $253........... 5,989 7,886
Deferred income taxes..................................... 471 414
Prepaid expenses and other................................ 95
------- -------
Total current assets.............................. 21,287 17,736
Machinery, equipment and leasehold improvements, net........ 5,695 5,623
Other assets................................................ 43 50
Excess of cost over net assets acquired, net of accumulated
amortization of $1,568 and $1,658......................... 8,793 8,703
------- -------
$35,818 $32,112
======= =======

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Revolving credit.......................................... $ 674 $ 4,987
Accounts payable and accrued expenses..................... 3,312 3,199
------- -------
Total current liabilities......................... 3,986 8,186
Other long-term liabilities................................. 460 481
Deferred income taxes....................................... 1,590 1,499

Commitments and Contingencies -- Note D

Stockholder's equity
Common Stock, par value $.01 per share, authorized,
30,000,000 shares; issued and outstanding 13,636,000
shares................................................. 136 136
Additional paid-in-capital................................ 11,627 11,627
Retained earnings......................................... 41,015 42,808
------- -------
52,778 54,571
Due from Parent and affiliates............................ (22,996) (32,625)
------- -------
Total stockholder's equity........................ 29,782 21,946
------- -------
$35,818 $32,112
======= =======
</TABLE>

See Notes to Unaudited Condensed Financial Statements.
F-17
<PAGE> 64

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

STATEMENT OF STOCKHOLDER'S EQUITY -- UNAUDITED
THREE MONTHS ENDED MARCH 31, 1998

See Notes to Unaudited Condensed Financial Statements.

F-18
<PAGE> 65

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating Activities:
Net cash from operations after adjustments to reconcile
net income to net cash provided by operating
activities............................................. $ 939 $ 2,053
Changes in operating assets and liabilities:
Accounts receivable.................................... 941 5,295
Inventories............................................ 21 (1,897)
Prepaid expenses and other............................. 43 95
Accounts payable, accrued and other expenses........... (627) (99)
------ -------
Net cash provided by operating activities......... 1,317 5,447
------ -------
Investing Activities:
Capital expenditures...................................... (122) (132)
------ -------
Net cash used in investing activities............. (122) (132)
------ -------
Financing Activities:
Advances to Parent and affiliates, net.................... (555) (9,629)
Revolving credit borrowings, net.......................... 4,313
------ -------
Net cash used in financing activities............. (555) (5,316)
------ -------
Increase (decrease) in cash and cash equivalents............ 640 (1)
Cash and cash equivalents -- beginning of period............ 136 253
------ -------
Cash and cash equivalents -- end of period.................. $ 776 $ 252
====== =======
Supplemental disclosure of cash payments for:
Taxes (including amounts paid to Parent).................. $ 550 $ 1,270
Interest.................................................. -- 100
</TABLE>

See Notes to Unaudited Condensed Financial Statements.

F-19
<PAGE> 66

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE A -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements do not contain
all disclosures required by generally accepted accounting principles. Reference
should be made to the Company's audited financial statements included elsewhere
herein. The accompanying unaudited condensed financial statements reflect all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair statement of the results of the
interim periods presented and are not necessarily indicative of the results
which may be expected for a full year.

Sales Recognition

Sales are generally recognized when goods are shipped. However, pursuant to
terms with certain customers, completed items are sometimes stored at the
Company's premises and, in those instances, sales are recognized when the goods
are transferred to the on-site secured facility. At December 31, 1997 and March
31, 1998, accounts receivable from these customers totaled $7.8 million and $0.4
million, respectively.

Net Income Per Share

Net income per share is computed based on the number of outstanding shares
of common stock, after giving retroactive effect to the stock split (Note E).
The weighted average shares outstanding was 13,636,000 for the three months
ended March 31, 1997 and 1998.

Business Information

Sales to MasterCard were approximately 24% and 6% of sales for the three
months ended March 31, 1997 and 1998, respectively. Sales to manufacturers of
VISA credit cards were approximately 21% and 41% of sales for the three months
ended March 31, 1997 and 1998, respectively. At December 31, 1997 and March 31,
1998, accounts receivable from these customers approximated $11.6 million and
$5.8 million, respectively.

Impact of Accounting Pronouncements

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive
income for the three months ended March 31, 1998 was the same as reported net
income.

The AICPA Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," in April
1998 which is effective for fiscal years beginning after December 15, 1998. SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The Company is evaluating the effect of this
recent pronouncement.

F-20
<PAGE> 67
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Work in process...................................... $2,369 $4,022
Origination costs*................................... 2,581 2,975
Raw materials........................................ 1,039 889
------ ------
$5,989 $7,886
====== ======
</TABLE>

- ---------------
* Includes approximately $0.8 million and $0.6 million, respectively, of costs
relating to work for customers in anticipation of orders in the ordinary
course of business.

NOTE C -- RELATED PARTY TRANSACTIONS

The financial statements reflect both allocated and, where readily
determinable, actual expenses for services provided by the Company's Parent and
affiliates. Where allocations have been utilized, the Company and its Parent and
affiliates recorded transactions based upon systematic and reasonable methods,
including but not limited to, sales, asset values, and headcount all as a
percent of total.

The amounts by major category of historical transactions with affiliates
follow for the three months ended March 31, 1998 (in thousands):

<TABLE>
<S> <C>
Due from (to) Parent and affiliates:
Balance at beginning of period............................ $22,996
Income tax liability payable to Parent................. (1,241)
Taxes paid to Parent................................... 1,241
Cash advances to Parent................................ 9,934
Allocation of employee benefits(1)..................... (201)
Allocation of security services........................ (50)
Sales and administration expenses(2)................... (122)
Intercompany interest.................................. 76
Executive benefits(3).................................. (8)
-------
Balance at end of period.................................. $32,625
=======
</TABLE>

- ---------------
(1) Primarily medical, life and disability insurance premiums.

(2) Includes legal fees and allocated portion of audit fees.

(3) Includes value of restricted stock of the Parent.

Included in the above balances is a $5.3 million note receivable from the
Parent that bears interest at 5 3/4% per annum.

For financial reporting purposes, the amounts due from Parent and
affiliates has been classified within stockholder's equity.

In addition to the above, the Company sold $0.1 million and $0.3 million of
holograms in the three months ended March 31, 1997 and 1998, respectively, to
its affiliates in the normal course of business. There were no purchases by the
Company from affiliates in the first quarter of 1997 or 1998. Trade accounts

F-21
<PAGE> 68
AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONCLUDED)

receivable from affiliates were $0.7 million and $0.6 million at December 31,
1997 and March 31, 1998, respectively. There were no trade payables to
affiliates at March 31, 1998.

NOTE D -- COMMITMENTS AND CONTINGENCIES

NOTE E -- SUBSEQUENT EVENTS

On May 5, 1998, the Company filed a Registration Statement on Form S-1 for
the sale by the Parent of all of the issued and outstanding Common Stock of the
Company (the "Offering"). The Company will not receive any of the proceeds from
the sale of Common Stock by the Parent. After the sale, the Parent will not own
any of the Company's Common Stock. On June 11, 1998, the Company declared a
1,363.6 to one stock split, effective July 2, 1998, in the form of a stock
dividend, of the Company's Common Stock and increased its authorized Common
Stock to 30,000,000 shares and its authorized Preferred Stock to 5,000,000
shares. The accompanying unaudited condensed financial statements give
retroactive effect to the consummation of the stock split. Additionally,
immediately prior to the Offering the amounts due from Parent and affiliates
will be canceled. For financial reporting purposes the amounts due from Parent
and affiliates have been classified within stockholder's equity; accordingly,
the cancellation of such amounts will result in a reclassification within
stockholder's equity.

F-22
<PAGE> 69

INDEX TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Statements of Income for the
Year Ended December 31, 1997 and for the Three Months
Ended March 31, 1998:
Unaudited Pro Forma Condensed Statements of
Income............................................. P-2
Notes to Unaudited Pro Forma Condensed Statements
of Income.......................................... P-5
</TABLE>

P-1
<PAGE> 70

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME

The following Unaudited Pro Forma Condensed Statements of Income for the
year ended December 31, 1997 and for the three months ended March 31, 1998,
include the historical accounts of the Company and give effect to certain
expenses which the Company expects to incur as an independent public company.
Additionally, these statements give effect to certain non-operating income that
the Company will forego.

The Unaudited Pro Forma Condensed Statements of Income are for
informational purposes only and are not intended to represent, and are not
indicative of, the results of operations of the Company that would have occurred
nor are they necessarily indicative of the results of operations that may be
achieved in the future.

The Unaudited Pro Forma Condensed Statements of Income are based on
available information and certain assumptions and adjustments as described in
the notes thereto, which management of the Company believes are reasonable under
the circumstances. The Unaudited Pro Forma Condensed Statements of Income should
be read in conjunction with "Risk Factors," "Capitalization," "Selected
Historical and Pro Forma Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the Company's audited
financial statements and notes thereto and unaudited condensed financial
statements and notes thereto included elsewhere herein.

P-2
<PAGE> 71

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Sales...................................................... $30,915 $30,915
------- -------
Costs and expenses:
Cost of goods sold....................................... 11,912 11,912
Selling and administrative............................... 6,001 $ 850(a) 6,851
Depreciation and amortization............................ 1,136 1,136
------- ------ -------
19,049 850 19,899
------- ------ -------
11,866 (850) 11,016
Other, net
Royalty income........................................... 785 785
Intercompany interest income............................. 305 (305)(b) --
Other income............................................. 36 36
Interest expense......................................... (159) (159)
------- ------ -------
967 (305) 662
------- ------ -------
Income before income taxes................................. 12,833 (1,155) 11,678
Income taxes............................................... 5,294 (462)(c) 4,832
------- ------ -------
Net income............................................... $ 7,539 $ (693) $ 6,846
======= ====== =======
Net income per share..................................... $ 0.55 $(0.05) $ 0.50
======= ====== =======
Weighted average shares outstanding...................... 13,636 13,636
======= =======
</TABLE>

See Notes to Unaudited Pro Forma Condensed Statements of Income.
P-3
<PAGE> 72

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Sales...................................................... $7,035 $7,035
------- -------
Costs and expenses:
Cost of goods sold....................................... 2,438 2,438
Selling and administrative............................... 1,256 $ 213(a) 1,469
Depreciation and amortization............................ 292 292
------- ------ -------
3,986 213 4,199
------- ------ -------
3,049 (213) 2,836
Other, net
Royalty income........................................... 30 30
Intercompany interest income............................. 76 (76)(b) --
Other income............................................. 4 4
Interest expense......................................... (105) (105)
------- ------ -------
5 (76) (71)
------- ------ -------
Income before income taxes................................. 3,054 (289) 2,765
Income taxes............................................... 1,261 (116)(c) 1,145
------- ------ -------
Net income............................................... $1,793 $ (173) $1,620
======= ====== =======
Net income per share..................................... $ 0.13 $(0.01) $ 0.12
======= ====== =======
Weighted average shares outstanding...................... 13,636 13,636
======= =======
</TABLE>

See Notes to Unaudited Pro Forma Condensed Statements of Income.
P-4
<PAGE> 73

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME

(a) Adjustment represents estimated expenses for shareholder communications and
other costs associated with public ownership.

(b) Adjustment represents reduction in interest income from loans to Parent.

P-5
<PAGE> 74

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company, American Banknote Corporation or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any securities other than the shares of Common
Stock to which it relates or an offer to, or a solicitation of, any person in
any jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.

----------------------------------
TABLE OF CONTENTS
----------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Use of Proceeds....................... 9
Dividend Policy....................... 9
Capitalization........................ 10
Dilution.............................. 11
Selected Historical and Pro Forma
Financial Data...................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 21
Management............................ 31
Certain Relationships and Related
Transactions........................ 36
Principal and Selling Stockholders.... 38
Description of Capital Stock.......... 39
Underwriting.......................... 42
Legal Matters......................... 44
Experts............................... 44
Additional Information................ 44
Index to Financial Statements......... F-1
Index to Unaudited Pro Forma Condensed
Statements of Income................ P-1
</TABLE>

---------------------

Until August 9, 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

13,636,000 SHARES

AM. BANKNOTE LOGO

AMERICAN BANK NOTE
HOLOGRAPHICS, INC.

COMMON STOCK

------------------------
PROSPECTUS
------------------------

NationsBanc Montgomery
Securities LLC

Lazard Freres & Co. LLC

Raymond James & Associates, Inc.

Salomon Smith Barney

July 15, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------