SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ------------------------------------
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 19862-8740
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HOSPOSABLE PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
New York 11-2236837
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Readington Road Somerville, New Jersey 08876
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 908-707-1800
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
Common Stock Traded on the NASDAQ
par value $.01 per share National Market
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant (i.e., by persons other than officers and directors of Hosposable
Products, Inc. as reflected in the table incorporated by reference in Item 12
of this Annual Report on Form 10-K) as of March 22, 1996, was $4,064,434.
As of March 22, 1996, there were 1,692,476 Common Shares of the Registrant
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. The Exhibits identified in Item 14 (b).
<PAGE>
TABLE OF CONTENTS
Item Page
PART I. 1. Business 1
2. Properties 4
3. Legal Proceedings 5
4. Submission of Matters to a
Vote of Security Holders 5
PART II.
5. Market for the Registrant's Common
Stock and Related Shareholder
Matters 6
6. Selected Financial Data 7
7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
8. Financial Statements and
Supplementary Data 10
9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 10
PART III.
10. Directors and Executive Officers 11
11. Executive Compensation 11
12. Security Ownership of Certain
Beneficial Owners and Management 11
13. Certain Relationships and
Related Transactions 11
PART IV.
14. Exhibits, Consolidated Financial
Statements and Schedules and Reports
on Form 8-K 12
<PAGE>
PART I
Item 1. BUSINESS
A. GENERAL
Hosposable Products, Inc., a New York corporation incorporated in
1971(hereinafter "Hosposable"), and its wholly-owned subsidiaries, Bridgewater
Manufacturing Corp., a New Jersey corporation ("Bridgewater"), and IFC
Disposables, Inc., a Tennessee corporation ("IFC"), manufacture disposable
medical products, wiping products, and nonwoven roll goods. The disposable
medical products are produced by various converting equipment some of which
utilize in-house "airlaid" processing technology and equipment. The
disposable medical products include bedpads incorporating unique designs for
incontinent patients. Wiping products include disposable airlaid nonwoven
patient washcloths and general wiping products in addition to the use of other
nonwoven materials which are purchased and converted in-house. (The "Company"
is used herein to make general references, without distinction among
Hosposable, Bridgewater and IFC.)
The majority of the sales of the Company's branded products are to
distributors for eventual use by hospitals, nursing homes and other health
care institutions, and to government agencies. The bedpads are the Company's
principal products. Their end-use is for protection against mattress-soiling,
caused primarily by incontinence. A portion of the Company's revenue is
derived through the sale of finished products as private label brands for
major customers. The Company's airlaid fabrics (AirlayTM )are used as
components of end-products manufactured by the Company, and also are sold in
roll good form to converters who produce a wide range of health care, consumer
and industrial products.
The Company's products are manufactured on a number of continuous
production lines that automatically assemble the various layers of product
materials, bond them with various fixative means, cut the materials to
specific lengths, and fold, count, stack and bag/box the completed products.
During 1995, the Company produced the vast majority of its products with its
own equipment, at leased facilities in Fresno, California and Jackson,
Tennessee, and at the premises and plant facility in Branchburg, New Jersey
purchased by Hosposable in December 1993. (See "The 1993 Purchase of
Property, The Related Bond Issue and Loan Agreement.")
i. The 1993 Purchase of Property, The
Related Bond Issue and Loan Agreement
In December 1993, the Company entered into a loan agreement with
the New Jersey Economic Development Authority (the "Authority"), pursuant to
which the Authority issued Economic Development Bonds with an aggregate
principal amount of $5,325,000, to be loaned to the Company to finance the
acquisition of additional airlaid production equipment, land and a warehouse-
type facility with 111,640 square feet of space situated in Branchburg, New
Jersey (the "Branchburg Property"). (Although the property is in Branchburg,
the mailing address is 100 Readington Road, Somerville, New Jersey 08876.)
On December 22, 1993, the Company purchased the Branchburg
Property for $3,741,331. The purchase was an 'arms-length' purchase from
Green Acres Partnership. Neither the Company nor any member of its management
had any prior relations with that partnership or any of its partners.
<PAGE>
The bonds issued by the Authority have maturity dates which
commenced on December 1, 1994 and continue annually through December 1, 2013.
They bear interest at fixed rates of 3.1% to 5.7%. In connection with the
bond financing, The Company made the following principal agreements, all dated
as of December 1, 1993 and effected December 23, 1993: a Loan Agreement with
the Authority, a Letter of Credit and Reimbursement Agreement with the First
Fidelity Bank, National Association, New Jersey (the "New Jersey Bank") and a
Trust Indenture Agreement with the Bank of New York. In consequence, the
Authority sold the bonds and proceeds of $5,325,000 therefrom were paid to the
Bank of New York, as trustee of The Company. The Bank of New York then paid
approximately $3,200,000 to The Company for and in respect of the Branchburg
Property acquisition, and approximately $127,000 to reimburse The Company for
new purchases of equipment. As of December 31, 1995, total proceeds of
approximately $5,000,000 had been distributed to the Company in order to
complete its purchase of the Branchburg Property (land and building), and
machinery and equipment. During 1995 an additional $1,070,000 of the fund was
utilized by The Company for purchases of new equipment.
The bonds are secured by the New Jersey Bank's letter of credit,
and the New Jersey Bank therefore holds (a) a first mortgage upon the
Branchburg Property, (b) an assignment of all of The Company's right, title
and interest in and to all leases with respect to the Branchburg Property,(c) a
security interest in machinery and equipment purchased with a portion of the
bond proceeds and (d) IFC's and Bridgewater's guarantees of The Company's
obligations.
ii. The 1990/1991 Agreements with G.H. Wood + Wyant Inc.
On July 10, 1990, the shareholders of the Company approved a
series of agreements with Wyant & Company Limited, now known as G.H. Wood +
Wyant Inc., a Canadian corporation ("Wood-Wyant"), pursuant to which and among
other things Wood-Wyant (a)purchased 229,288 shares of the Company's common
stock and received an option to purchase an additional 456,157 of such shares
(see "Security Ownership of Certain Beneficial Owners and Management"); (b)
agreed, for a six-year term, to purchase 72 hours of production time, per
week, of the Company's airlaid fabric production ("Supply Agreement"); and (c)
agreed to pay $1,900,000 ($100,000 "down" and nine semi-annual payments of
$200,000) for six years of The Company's services, in the nature of
consultation concerning product research and development, sales training,
marketing and advertising.
On February 27, 1991, the Supply Agreement was amended. The
Company believed that it might be unable to fulfill all Supply Agreement
commitments because IFC's purchase of the assets of IFC Nonwovens, Inc. (see
"The 1991 Start-up of IFC") would result in additional utilization of the
Company's airlaid equipment. Thus, pursuant to the amendment, the Company was
required only to advise Wood-Wyant of the availability of production time, to
use its best efforts to meet Wood-Wyant's demands and, if unable to meet such
demands, to use its best efforts to obtain additional equipment. In turn,
Wood-Wyant provided the Company with a right of first refusal in respect of
all Wood-Wyant's requirements for airlaid product.
iii. The 1991 "Start-up" of IFC
In December 1990, IFC was incorporated in Tennessee, and in
January 1991 purchased substantially all of the assets of IFC Nonwovens, Inc.
for $4,722,831. (The purchase was made pursuant to an 'arms-length' agreement
from the unrelated entity. IFC Nonwovens, Inc. was required to change its
name, and discontinued its business in the field in which IFC competes.)
IFC produces disposable, industrial and "clean-room" wiping
products, some of which utilize airlaid, nonwoven fabric. The Company, prior
to 1991, was a supplier of such fabric to IFC Nonwovens, Inc.
<PAGE>
B. INDUSTRY SEGMENTS
The Company operates in one industry segment. Its assets, net
sales and net income are shown in "Selected Financial Data" (Part II, Item 6)
and "Consolidated Financial Statements" (Part IV, Item 14).
C. SUPPLY OF RAW MATERIALS
The Company purchases raw materials necessary for the manufacture
of its products from several unaffiliated suppliers. These raw materials are
readily available from numerous sources. The Company is not dependent upon
any one major source of supply, and is not limited by any supply contracts.
D. MARKETING AND SALES
The Company's products are sold by 13 sales and marketing
personnel who are paid salaries and several independent sales organizations
that work on a commission basis.
Most of the Company's sales (other than inter-company transactions
with IFC) are made to distributors that, in turn, sell the Company's products
to institutional users such as hospitals and nursing homes, and to industrial
users. Other sales are made to retail outlets through private labellers that
sell to individual/chain stores. The distributors and retail chains usually
sell the products under private label.
The following table shows, for the years-ended as indicated,
percentage information in respect of the Company's net sales.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Major Distributor . . . . . . . . . 8.7 12.5 12.5 11.1 11.8
Other Distributors. . . . . . . . . 50.2 51.0 52.9 55.9 47.9
Government Agencies . . . . . . . . 0.5 1.5 1.0 0.8 1.0
Private Label . . . . . . . . . . . 4.3 3.2 3.1 2.5 7.2
Converters (airlaid/non-
woven fabrics). . . . . . . . . . . 5.8* 4.7* 6.1* 7.0* 8.2*
Industrial Wiping Products
(IFC Disposables, Inc.) . . . . . . 30.5 27.1 24.4 22.7 23.9
</TABLE>
* Does not include inter-company sales of $1,709,494, $1,266,306, $1,235,853,
$1,428,746 and $1,353,087, in 1995, 1994, 1993, 1992 and 1991, respectively,
to IFC Disposables, Inc.
At December 31, 1995, the Company had 'backlogs' of firm orders of
approximately $2,700,000, or approximately 29% less than the backlog at
December 31, 1994. The Company has fairly consistently maintained a four to
five week "backlog" of orders.
There is no seasonal fluctuation in demand for the Company's products.
Delivery of the Company's products to its customers is primarily
accomplished through the use of unaffiliated truckers. The Company leases two
tractor-trailer trucks, which it uses for some 'local' deliveries. The
majority of sales are delivered in trailer-load quantities.
<PAGE>
E. COMPETITION
The industry in which the Company competes is highly competitive.
Among the competitors are such major firms as Inbrand Corporation, Paper-Pak
Products, Inc. and others with substantially greater resources than the
Company's, as well as many firms comparable to the Company in 'size' and the
primary businesses of which are directly competitive. The Company is not a
significant factor in its market.
The Company's ability to compete successfully is dependent upon
its ability to make timely deliveries of value added products of the quality
of its competitors and at competitive prices.
F. EMPLOYEES/UNION CONTRACT
The Company has 276 employees. 162 are employed in New Jersey, 62
in Fresno, California and 52 in Jackson, Tennessee. Over 90% work in sales
and production.
The Company is party to collective bargaining agreements with the
International Production Service & Sales Employees Union that serves its New
Jersey factory-labor employees. The agreements expire in 1998. The Company
considers its relations with its employees to be satisfactory, and no labor
disputes are anticipated or have affected operations negatively to date.
G. PATENTS AND TRADEMARKS
The Company is the owner of one unexpired United States patent;
No. 4,391,010. (It expires July 5, 2000.) The patent concerns features of
the construction or method of producing the Company's "TuckableTM" underpads.
While the sale of "TuckableTM" underpads has increased in recent years, the
Company cannot assess any economic advantage particularly attributable to the
patent.
The Company acquired a group of 13 trademarks with its purchase of
the assets of IFC Nonwovens, Inc. ("Presto Wipes," "Bench-Pac," "Busboy,"
"IFC," "Jumbies," "Lab Grade," "Like-Rags," "Redd Rags," "Suit-All," "Tuff-
Job," "Ultras," "Drawing of Hand on Wiper" and "Vacuumed and Packaged in a
Class 100 Clean Room"). Trademarks are used to protect the individual
identifications of products, but the Company cannot assess any economic
advantage particularly attributable to any trademark. Moreover, there is no
assurance that trademark rights are enforceable as mere consequence of
trademark registration.
Item 2. PROPERTIES
For several years and through the first half of 1994, the Company
was a tenant under two leases for an aggregate of approximately 82,650 square
feet in two one-story buildings in the Central Jersey Industrial Park, Bound
Brook, New Jersey. The leases expired in January 1994 and May 1994,
respectively. Now (and since May 31, 1994), all New Jersey operations are
(and have been) conducted at the Branchburg Property. (See Item 1, "Business
- -- The 1993 Purchase of Property, The Related Bond Issue and Loan Agreement".)
The Company leases approximately 80,000 square feet, used for
manufacturing and warehousing, in a building at 95 Santa Fe Avenue, Fresno,
California, from Len-Sid Realty Co. Leonard Schramm, the former President of
the Company is a partner in Len-Sid Realty Co. The terms of the lease
agreement, including $109,968 as annual rent, are comparable to terms that
might be obtainable from an unaffiliated lessor of like property in the
immediate vicinity of the Fresno warehouse. The lease term is for one year,
but terminable on 90 days' notice (essentially, because the landowner, The
Atchison, Topeka and Santa Fe Railroad, has the right to terminate Len-Sid
Realty CO.'s 'possession' on 90 days' notice).
IFC leases a warehouse-type facility in Madison County, Tennessee.
The base rent was $428,480 in 1995. The lease expires in 1997, and provides
for a base-rent increase of $20,000 in 1996 with no change in 1997. The lease
contains an option to renew for a seven year term ending in 2004 (with rent
escalation potential based upon consumer-price indices). IFC subleases
approximately 85,000 square feet in its leased premises to an unrelated party
and is paid rent of $150,000 per annum. The sub-lease expires May 31, 1996.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 24, 1995, the Company held its annual meeting of
shareholders. 1,496,669 shares, a quorum, were represented in person or by
proxy. Gerald W. Wyant, James A. Wyant, Richard L. Cohan, John B. Wight, Jane
Curtis, and Leonard Schramm were each elected to serve as a director for a
one-year period expiring in 1996. (1,490,916 'for'). The appointment of Arthur
Andersen LLP as auditors for the year ended December 31, 1995 was ratified
(1,493,316 'for'). Mr. Schramm resigned as a director.
The Board of Directors meeting was held directly following the
annual meeting. Mr. G.W. Wyant was approved as Chairman of the Board of
Directors. Mr. Joseph H. Weinkam, Jr. was elected as a Director to serve
until the next annual meeting and named President and Chief Operating Officer.
Mr. Schramm was retained and appointed as a consultant for a three-year term.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
a. Principal Market and Sales Prices
The Company's Common Stock is traded on the NASDAQ National Market.
The sales highs and lows during each quarter of the last three fiscal
years, as reported by the National Quotation Bureau, Inc. are as follows:
<TABLE>
<CAPTION>
High Low
1993
<S> <C> <C>
1st Quarter 6 3/4 5
2nd Quarter 6 4 3/8
3rd Quarter 6 1/2 4 3/4
4th Quarter 7 1/4 6
1994
1st Quarter 7 1/2 5 3/4
2nd Quarter 9 1/2 6 3/4
3rd Quarter 9 1/4 7
4th Quarter 8 1/4 7 1/4
1995
1st Quarter 7 3/4 5 1/2
2nd Quarter 7 5/8 5
3rd Quarter 8 1/4 4
4th Quarter 8 3/4 6 3/4
</TABLE>
b. Holders
The number of holders of the Company's Common Stock as at March
22, 1996, was approximately 600 based on the number of holders of record and
an estimate of the number of individual participants represented by security
position listings.
c. Dividends
The Company has never paid a cash dividend, and does not anticipate
paying dividends in the foreseeable future.
<PAGE>
Item 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993 1992 1991
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operations Data:
Net Sales $40,481 $34,515 $29,909 $29,748 $27,120
Cost of Sales 33,000 26,534 22,253 22,384 20,873
Selling, general and
administrative expenses 7,417 6,619 6,115 6,134 5,376
Operating income 64 1,362 1,541 1,230 871
Other income, Net (436) 288 385 358 316
Income before income taxes (372) 1,650 1,926 1,588 1,187
Income taxes (163) 613 726 637 477
Net income (209) 1,037 1,200 951 710
Per Share Data:
Net income:
Primary $ (.12) $ .61 $ .70 $ .56 $ .41
Fully-diluted (.12) .61 .70 .56 .41
Weighted average
number of Common and
Common equivalent
shares outstanding 1,692 1,692 1,704 1,703 1,716
</TABLE>
<TABLE>
<CAPTION>
At December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 7,950 $ 7,836 $ 8,859 $ 9,259 $ 8,656
Total assets 23,531 21,572 23,023 16,799 15,860
Long-term obligations
(excluding current
maturities) 4,290 4,637 6,120 2,209 2,884
Stockholders' equity 13,192 13,402 12,357 11,121 10,149
Cash Dividends declared
per common share -- -- -- -- --
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Introduction
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the consolidated financial
statements and accompanying notes. (See Item 14.)
Results of Operations for Year Ended December 31, 1995
Compared to Year Ended December 31, 1994
SALES: Sales were $40,480,738 in 1995 as compared to $34,515,494 in 1994.
The increase of 17.3% was due to significantly higher sales in the health
care and airlaid nonwoven segments of the business.
COST OF SALES AND GROSS PROFIT: Gross profit was 18.5% of sales in 1995
compared with 23.1% in 1994. As a ratio to sales, cost of sales was 81.5% of
sales in 1995 and 76.9% in 1994. The decrease in gross profit was primarily
dueto significantly higher raw material costs, particularly for paper pulp.
OTHER INCOME (EXPENSES): Selling, general and administrative expenses
increased to $7,416,448 in 1995 from $6,619,308 in 1994, a decrease to 18.3%
of sales in 1995 from 19.2% in 1994.
Interest income decreased to $148,571 compared with $216,638 in 1994, due to
lower rates on portfolio holdings. Other income declined to $286,647 compared
with $455,783 in 1994, due to reduced rental income at the Branchburg
corporate facility. An assessment of the IFC segment of business resulted in
taking a pre-tax charge to earnings of $550,000 for machinery and equipment,
leasehold improvements and leased space not currently being utilized for
operations.
NET INCOME: A net loss of $209,206 was incurred in 1995 as compared to net
income of $1,036,350 in 1994.
Results of Operations for Year Ended December 31, 1994
Compared to Year Ended December 31, 1993
SALES: Sales were $34,515,494 in 1994 as compared to $29,909,296 in 1993.
The increase of 15.4% was due to increased sales in the health care and
airlaid nonwoven businesses.
COST OF SALES AND GROSS PROFIT: Gross profit was 23.1% of sales in 1994
compared with 25.6% in 1993. Cost of sales was 76.9% of sales in 1994 and
74.4%in 1993. The decrease in gross profit was mainly attributable to
sharply rising raw material costs, particularly for paper pulp.
OTHER INCOME (EXPENSES): Selling, general and administrative expenses
increased to $6,619,308 in 1994 from $6,115,045 in 1993, but that represented
a decrease to 19.2% of sales in 1994 from 20.4% in 1993.
Interest expense increased to $384,638 in 1994 compared to $161,893 in 1993
(see Liquidity and Capital Resources). Other income increased to $455,783 in
1994 compared with $334,857 in 1993.
NET INCOME: Net income was $1,036,350 in 1994 as compared to $1,199,478 in
1993, a decrease of 13.6%.
<PAGE>
Liquidity and Capital Resources
In December 1993, the Company entered into a loan agreement with the New
Jersey Economic Development Authority (the "Authority") and a bank, whereby
the Authority issued Economic Development Bonds with an aggregate principal
amount of $5,325,000 to be loaned to the Company to finance the acquisition
of a building and the land on which it is situated (the "Branchburg Property"),
as well as the purchase of machinery and equipment to add a production line
(see Item 14). As of December 31, 1995, total proceeds of approximately
$5,000,000 had been distributed to the Company in order to purchase the
Branchburg Property, and machinery and equipment. The remaining balance is
held in escrow and will be distributed to the Company as new machinery and
equipment is purchased.
The bonds are secured by a letter of credit provided by a bank which has
obtained; (a) a first mortgage and security interest on the building and land
that was acquired; (b) an assignment of the Company's right, title and
interest in and to all leases with respect to the building and land; and (c)
a security interest on any machinery and equipment purchased with a portion
of the bond proceeds and (d) IFC's and Bridgewater's guarantees of The
Company's obligations.
The agreement contains several restrictive financial covenants which
include; (a) minimum net worth requirement; (b) maximum leverage ratio; (c)
minimum debt service coverage ratio; (d) minimum current ratio; and (e)
maximum amount of annual capital expenditures.
The remaining bond maturity dates range from December 1, 1996 to
December 1, 2013 and bear interest at fixed rates between 4.1% and 5.7%. The
bonds mature at various amounts throughout this period in amounts ranging
from $140,000 to $940,000. The bonds maturing December 1, 2007, 2009 and
2013 are to be redeemed commencing December 1, 2005 and on each December 1
thereafter through sinking fund payments ranging from $165,000 to $255,000.
The Company's stockholders' equity was $13,192,426 at December 31, 1995
and $13,401,632 at December 31, 1994. The decrease resulted from a net loss
of $209,206 in 1995.
The Company's working capital position amounted to $7,959,164 at
December 31, 1995, including cash and marketable securities of $4,281,702.
Funds for the Company's current operations are derived from the sale of
its products and the ability, when necessary, to borrow on a secured line of
credit with First Fidelity Bank, N.A., New Jersey. (As at December 31, 1995,
none of the credit line was utilized.)
As a result, the Company believes that it has adequate funds available to
conduct and continue to expand its business and that of its subsidiaries. In
addition, the Company believes that, if necessary, it will be able to make
favorable financial arrangements for any future capital requirements.
Backlog, Impact of Inflation, Seasonality
The Company attempts to maintain sufficient inventory levels for all
products to allow shipment against most orders within a three week period.
To some extent, however, certain components must be inventoried further in
advance of actual orders to ensure availability. For the most part,
purchases are based upon quarterly requirements as projected after
calculating sales indications from the sales and marketing departments.
The Company's products are not subject to seasonal influences.
<PAGE>
Because its products are sold to distributors and wholesale and retail
outlets throughout the United States, the Company is affected by general
economic conditions. Accordingly, any adverse change in the economic climate
may have an adverse impact on the Company's sales and financial condition.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
Information as required for this Item 10 is incorporated by reference to
the Company's definitive proxy statement for its Annual Meeting of
Shareholders (the "1996 Proxy Statement"), to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A.
Item 11. EXECUTIVE COMPENSATION
Information as required in respect of this Item 11 is incorporated by
reference to the 1996 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information as required in respect of this Item 12 is incorporated by
reference to the 1996 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as required in respect of this Item 13 is incorporated by
reference to the 1996 Proxy Statement.
<PAGE>
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following Financial Statements are included in Item 8.
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994. F-2
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993. F-3
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1995, 1994 and 1993. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993. F-5
Notes to Consolidated Financial Statements. F-6
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts. F-13
All other schedules are omitted because they are not applicable or not
required, or the applicable information is shown in the Consolidated Financial
Statements or in notes thereto.
(b) Exhibit Table
1. Articles of Incorporation and Amendments thereof and By-Laws are
incorporated by reference. They were filed as exhibits with the Company's
February 2, 1984 and January 7, 1987 Registration Statements and the
Registrant's Proxy Statement filed May 1990 (the "May 1990 Proxy").
2. Material Contracts and Amendments: The Stock Purchase and Option
Agreement, the Supply Agreement and the Marketing and Sales Support
Agreement, each between the Company and Wood-Wyant and filed as exhibits with
the May 1990 Proxy, are incorporated by reference thereto; as are, and by the
same reference, the Stock Option Agreement between Leonard Schramm and
Wood-Wyant, the Employment Agreement between Leonard Schramm and the Company,
and the Non-Competition Agreement between Leonard Schramm and Wood-Wyant.
3. The Purchase Contract for the "Branchburg Property," the Loan Agreement,
and the Letter of Credit and Reimbursement Agreement (see Item 1, BUSINESS -
The 1993 Purchase of Property, The Related Bond Issue and Loan Agreement) and
the Company's 1991 Stock Option Plan, filed with the Company's 1994 Proxy
Statement, are incorporated by reference thereto.
Shareholders may obtain a copy of any exhibit not filed herewith by writing to
Hosposable Products, Inc., P.O. Box 8609, Somerville, New Jersey 08876.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOSPOSABLE PRODUCTS, INC.
BY:
-----------------------------------
G.W. Wyant
Chairman of the Board of Directors
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this annual report has been signed below by the named persons in the indicated
capacities and on the indicated dates.
Signature Title Date
- -------------------------
G. W. Wyant Chairman of the Board March 22, 1996
of Directors
_________________________
Joseph H. Weinkam, Jr. President and Chief March 22, 1996
Operating Officer
_________________________
John C. Zisko Vice President, Finance March 22, 1996
Secretary/Treasurer
_________________________
J. Curtis Director March 22, 1996
_________________________
D. C. MacMartin Director March 22, 1996
_________________________
J. B. Wight Director March 22, 1996
_________________________
J. A. Wyant Director March 22, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders' of
Hosposable Products, Inc.:
We have audited the accompanying consolidated balance sheets of Hosposable
Products, Inc. (a New York corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Hosposable Products, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements. The schedule in Item 14(a)2 is not a required part of
the basic financial statements but is supplementary information required by
the Securities and Exchange Commission. This information has been subjected
to the auditing procedures applied in our audit of the basic financial
statements, and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
New York, New York
February 15, 1996
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<CAPTION>
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,919,469 $ 25,178
Marketable securities (Note 2) 1,362,233 2,412,169
Receivables-
Trade accounts(less allowance for
doubtful accounts of $133,048 in 1995
and 118,759 in 1994) 5,263,137 4,024,567
Other 40,000 49,061
--------- ---------
5,303,137 4,073,628
--------- ---------
Inventories (Note 3) 3,407,080 3,875,355
Prepaid income taxes 286,424 83,686
Prepaid expenses and other current assets 196,659 318,043
--------- ---------
Total current assets 13,475,002 10,788,059
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $6,887,558 in
1995 and $5,933,940 in 1994 (Note 5) 9,445,198 9,410,826
ACQUISITION ESCROW FUND (Note 4) 347,346 1,060,083
OTHER ASSETS 263,888 312,785
---------- ----------
Total assets 23,531,434 21,571,753
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt
(Note 4) $ 350,000 $ 340,000
Accounts payable 4,051,197 1,638,256
Accrued expenses-
Compensation 235,837 252,003
Other 887,750 721,992
--------- ----------
Total current liabilities 5,524,784 2,952,251
--------- ----------
LONG-TERM LIABILITIES:
Long-term debt, excluding current poriton(Note4) 4,289,805 4,637,274
Deferred income taxes (Note 7) 424,419 580,596
Other liabilities (Note 9) 100,000 -
COMMITMENTS (Note 6 and 10)
STOCKHOLDERS' EQUITY (Note 8):
Common stock, par value $.01 per share;
authorized 3,000,000 shares; issued 1,703,676
in 1995 and 1994 17,037 17,037
Additional paid-in capital 6,894,249 6,894,249
Retained earnings 6,312,670 6,521,876
Less-cost of 11,200 shares of common stock
held in treasury (31,530) (31,530)
---------- ----------
Total stockholders' equity 13,192,426 13,401,632
---------- ----------
Total liabilities and stockholder's equity 23,531,434 21,571,753
---------- ----------
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
NET SALES $ 40,480,738 $ 34,515,494 $ 29,909,296
COST OF SALES 33,000,141 26,534,271 22,253,329
------------- ------------ ------------
Gross Profit 7,480,597 7,981,223 7,655,967
OTHER EXPENSES (INCOME):
Selling, General & Administrative 7,416,448 6,619,308 6,115,045
Interest Income (148,571) (216,638) (211,769)
Interest Expense 321,655 384,638 161,893
Other Income (286,647) (455,783) (334,857)
Write-down of assets(Note 9) 550,000 - -
------------- ------------ ------------
Income(loss)before income tax expense (372,288) 1,649,698 1,925,655
INCOME TAX (BENEFIT) EXPENSE (Note 7) (163,082) 613,348 726,177
------------- ----------- -------------
Net Income (loss) $ (209,206) 1,036,350 1,199,478
EARNINGS (LOSS)PER SHARE $ (.12) $ .61 $ .70
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 1,692,476 1,691,906 1,704,158
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Common Additional Total
Stock, $.01 Paid-in Retained Treasury Stockholders'
Par Value Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,1993 $ 17,017 $6,885,769 $5,485,526 $(31,530) $12,356,782
Net Income for the Year - - 1,036,350 - 1,036,350
Exercise of 2,000 Stock Options 20 8,480 - - 8,500
--------- ---------- ---------- --------- -----------
BALANCE, December 31, 1994 17,037 6,894,249 6,521,876 (31,530) 13,401,632
Net loss for the Year - - (209,206) - (209,206)
--------- ---------- ---------- --------- -----------
BALANCE, December 31, 1995 $ 17,037 $6,894,249 $6,312,670 $(31,530) $13,192,426
========= ========== ========== ========== =========== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (209,206) $1,036,350 $1,199,478
Adjustments to reconcile net income (loss) to net cash provided
by operating activities-
Depreciation and Amortization 982,352 1,064,718 795,076
Provision for Doubtful Accounts 14,289 37,000 25,497
Loss on Sale of Fixed Assets 33,426 - -
Deferred Income Tax Benefit (156,157) (38,365) (51,209)
Writedown of Assets 550,000 - -
Changes in Assets and Liabilities-
(Increase)Decrease in-
Accounts Receivable, trade (1,252,859) (485,657) (596,109)
Advances to Officers and Directors - - 17,373
Other Accounts Receivable 9,061 13,383 137,089
Prepaid Income Taxes (202,738) (83,686) 4,939
Inventories 468,275 (485,848) 84,365
Prepaid Expenses and Other 147,784 (74,419) (162,480)
Increase (decrease) in-
Accounts Payable and Accrued Expenses 2,462,532 240,905 193,703
Income Taxes Payable - (178,931) 178,931
--------- ---------- --------
Net Cash Provided by Operating Activities 2,846,759 1,045,450 1,826,653
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (1,505,141) (2,433,372) (4,155,724)
Cash Proceeds from Sale of Fixed Asset 130,000 - -
Sale (purchase) of Marketable Securities 1,049,936 2,265,376 (549,378)
--------- ---------- ---------
Net Cash Used in Investing Activities (325,205) (167,996) (4,705,102)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Utilization of Acquisition Escrow Fund 712,737 843,150 -
Principal Payments Under Borrowing Agreements (340,000) (2,520,114) (666,608)
Borrowing Under Long-term Debt Agreement, Net Acquisition Escrow Fund - - 3,401,510
Proceeds from Issuance of Common Stock - 8,500 36,250
--------- ---------- ---------
Net Cash Provided by (Used in) Financing Activities 372,737 (1,668,464) 2,771,152
--------- ---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 2,894,291 (791,010) (107,297)
CASH AND CASH EQUIVALENTS, Beginning of Year 25,178 816,188 923,485
--------- ---------- ---------
CASH AND CASH EQUIVALENTS, End of Year $2,919,469 $ 25,178 $ 816,188
--------- ---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Year for-
Interest $ 296,530 $ 368,920 $ 150,584
Income Taxes 287,037 863,046 618,128
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 & 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Hosposable Products, Inc., a New York corporation incorporated in 1971, and
its wholly owned subsidiaries, Bridgewater Manufacturing Corp., a New Jersey
corporation ("Bridgewater"), and IFC Disposables, Inc., a Tennessee
corporation ("IFC"), manufacture disposable medical products, wiping products,
and nonwoven roll goods. The disposable medical products are produced by
various converting equipment, some of which utilize in-house "airlaid"
processing technology and equipment. The disposable medical products include
bedpads incorporating unique designs for incontinent patients. Wiping
products include disposable airlaid nonwoven patient washcloths and general
wiping products in addition to the use of other nonwoven materials which are
purchased and converted in-house.
Principles of Consolidation
The consolidated financial statements include the accounts of Hosposable
Products, Inc. and its wholly owned subsidiaries, Bridgewater Manufacturing
Corp. and IFC (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
Utilization 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation of property,
plant and equipment is provided over the estimated useful life of the
respective assets on the straight-line basis ranging from 5 to 30 years.
Leasehold improvements are amortized on a straight-line basis over the term
of the related leases or the estimated useful life, whichever is shorter.
Income Taxes
The Company files a consolidated federal income tax return. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the year in which those temporary differences are
expected to be recovered or settled. Deferred income taxes result primarily
from differences between financial and tax reporting of depreciation.
<PAGE>
Per Share Data
Per share data is based on the weighted average number of common shares and
common equivalent shares which would arise from the exercise of dilutive stock
options (Note 8).
2. MARKETABLE SECURITIES
Marketable securities at December 31, consist of:
1995 1994
U.S. Treasury Bills $ - $ 358,115
U.S. Government Obligations 623,048 327,755
Municipal Bonds 654,035 1,633,314
Other Bonds 85,150 92,985
--------- ------------
$ 1,362,233 $ 2,412,169
As of December 31, 1995 and 1994, substantially all short-term investments
have been classified as held to maturity. These investments are stated at
amortized cost.
3. INVENTORIES
Inventories at December 31, consist of:
1995 1994
Raw Materials $ 2,308,121 $ 2,812,716
Finished Goods 1,098,959 1,062,639
------------ ------------
$ 3,407,080 $ 3,875,355
4. LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
1995 1994
Authority Bonds - II(a) $ 4,655,000 $ 4,995,000
------------ ------------
Total long-term debt $ 4,655,000 $ 4,995,000
Less:
Unamortized discount on bonds 15,195 17,726
Current maturities 350,000 340,000
------------ ------------
$ 4,289,805 $ 4,637,274
Maturities of long-term debt over the next five years are as follows:
1996 $ 350,000
1997 365,000
1998 380,000
1999 395,000
2000 415,000
(a) In December 1993, the Company entered into a loan agreement with the New
Jersey Economic Development Authority (the "Authority") and a bank, whereby
the Authority issued Economic Development bonds with an aggregate principal
amount of $5,325,000 to be loaned to the Company to finance the acquisition
of a building and the land upon which it is situated, as well as to purchase
machinery and equipment to add a production line. As of December 31, 1995,
total proceeds of approximately $4,978,000 had been distributed to the Company
in order to complete its purchase of the above-mentioned land and building and
machinery and equipment. The remaining balance is held in escrow, as
identified in the accompanying consolidated balance sheets, and will be
distributed to the Company as machinery and equipment is purchased. The
bonds are secured by a letter of credit provided by a bank which has
obtained: (i) a first mortgage and security interest on the building and land
that was acquired; (ii) an assignment of all of the Company's right, title
and interest in and to all leases with respect to the building and land; and
(iii) a security interest in any machinery and equipment purchased with a
portion of the bond proceeds.
<PAGE>
The agreement contains several restrictive financial covenants which include:
(i) minimum net worth requirement; (ii) maximum leverage ration; (iii) minimum
debt service coverage ratio; (iv) minimum current ratio; and (v) maximum
amount of annual capital expenditures.
The remaining bond maturity dates range from December 1, 1996 to December 1,
2013, and bear interest at fixed rates from 4.1% to 5.7%. The bonds mature
at various amounts throughout this period ranging from $140,000 to $940,000.
The bonds maturing December 1, 2007, 2009 and 2013 are to be redeemed
commencing December 1, 2005 and on each December 1 thereafter through sinking
fund payments ranging from $165,000 to $255,000.
Line of Credit
The Company has available a secured line of credit from a bank which expires
on July 31, 1996, in the amount of $2,000,000 which bears interest at the
prime rate (8.5% at December 31, 1995). The Company had no borrowing
outstanding under the line at December 31, 1995 and 1994. Under the
agreement, the Company is required to provide the bank a first priority lien
on accounts receivable and inventory.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, consisted of the following:
1995 1994
Land $ 374,133 $ 374,133
Building and improvements 3,639,338 3,589,752
Capitalized equipment leases 72,311 126,997
Machinery and equipment 9,208,427 9,344,140
Machinery and equipment -
in progress 2,196,677 1,124,608
Trucks and automobiles 68,198 68,198
Furniture and fixtures 659,913 604,176
Leasehold improvements 113,759 112,762
------------ -----------
$16,332,756 $15,344,766
Less-Accumulated depreciation
and amortization 6,887,558 5,933,940
------------ -----------
$ 9,445,198 $ 9,410,826
6. RELATED-PARTY TRANSACTIONS
On July 10, 1990, the Company entered into a six-year marketing and sales
support agreement with a significant shareholder, G.H. Wood + Wyant Inc.
("Wood + Wyant"), pursuant to which the Company would be paid by Wood +
Wyant, over a five-year period, for providing services based upon and in
respect of its air-laid fabric production and marketing expertise. At the
closing, $100,000 was paid and thereafter $200,000 was payable on June 30,
and December 31, of each year through December 1994. Income recognized in
connection with this agreement amounted to $316,667 in each of the three
years ended 1995, 1994 and 1993. Deferred income of $166,662 and $283,450 is
included in other accrued liabilities as of December 31, 1995 and 1994
respectively.
Sales made to Wood + Wyant amounted to approximately $222,000, $373,000 and
$313,000 in 1995, 1994 and 1993 respectively. Purchases made from Wood +
Wyant amounted to approximately $1,040,000, $261,799 and $124,000 in 1995,
1994 and 1993 respectively.
<PAGE>
7. INCOME TAXES
Components of income tax expense (benefit) are as follows:
Current Deferred Total
1995:
Federal $ (19,407) $ (119,339) $ (138,746)
State 12,482 (36,818) (24,336)
--------- ---------- ----------
$ (6,925) $ (156,157) $ (163,082)
1994:
Federal $ 581,251 $ (73,302) $ 507,949
State 120,249 (14,850) 105,399
--------- ---------- ----------
$ 701,500 $ (88,152) $ 613,348
1993:
Federal $ 618,438 $ (27,211) $ 591,227
State 158,948 (23,998) 134,950
--------- ---------- ----------
$ 777,386 $ (51,209) $ 726,177
The actual tax expense differed from the "expected" amounts by applying the
U.S. federal income tax rate of 34% as follows:
Years Ended December 31
1995 1994 1993
Federal income tax expense at statutory rate $(126,578) $560,897 $ 654,723
State income taxes net of federal income
tax benefit (16,062) 69,563 89,067
Other (20,442) (17,112) (17,613)
--------- -------- ---------
Actual tax (benefit) expense $(163,082) $613,348 $ 726,177
8. COMMON STOCK
During 1991, 1987, and 1986, the stockholders of the Company approved the
adoption of stock option plans that each permit the granting of options for
up to 250,000 shares of the Company's common stock. Options under these three
plans may be either incentive or nonqualified stock options. Incentive stock
options may be granted to employees only, while nonqualified stock options may
be granted to directors, employees, and consultants of the Company. The
exercise price of the nonqualified and incentive stock options must be equal
to 85% and 100% respectively, of the fair market value of common stock on the
date of grant. Any plan participant who is granted an incentive stock option
and possesses more than 10% of the voting rights of the Company's outstanding
common stock is granted an option price of 110% of the fair market value on
the date of grant and the option must be exercised within five years from the
date of grant. Other participants also must exercise the options within five
years of the date of grant.
Number Option Price
of Shares Per Share
Outstanding and exercisable, December 31, 1993 93,700 $ 2.50 - $ 6.00
Exercised (2,000) 4.25
Expired/Canceled (3,000) 2.50 - 6.00
-------- ---------------
Outstanding and exercisable, December 31, 1994 88,700 4.25 - 6.00
Expired/Canceled (47,700) 4.25 - 6.00
Granted 65,000 5.00 - 7.25
-------- ---------------
Outstanding and exercisable, December 31, 1995 106,000 $ 4.25 - $ 7.25
<PAGE>
On July 10, 1990, the Company's stockholders approved a series of
capitalization agreements between the Company and Wood + Wyant in which Wood
+ Wyant acquired 229,288 newly issued shares from the Company for $5.75 per
share, 448,702 shares from the President of the Company and received a
five-year option to acquire an additional 456,157 common shares from the
Company at $7.00 per share or 1.25 times the market price, whichever is
greater. These options expired in 1995. Wood + Wyant's current ownership is
55%.
9. WRITE-DOWN OF ASSETS
During the fourth quarter of 1995, the Company recorded a charge of $550,000
($340,000 or $.20 per share after tax) for selected asset write-downs
including machinery and equipment, leasehold improvements, and leased
property. The charge resulted from management's decision to dispose of
certain machinery and accrue for under-utilized space at its IFC facility.
10. COMMITMENTS
The Company occupies manufacturing and office facilities under an operating
lease which expires on December 31, 1997. At December 31, 1995, the minimum
rental commitment under this lease is as follows:
Year:
1996 $ 448,480
1997 448,480
---------
$ 896,960
Aggregate rental expense amounted to $410,148 (net of sublease income of
$152,000), $525,301 and $967,493 for the years ended December 31, 1995, 1994
and 1993, respectively.
The Company maintains a consulting agreement with its former president which
expires on July 9, 1998. The aggregate commitment for future fees on this
agreement is approximately $400,000.
11. SIGNIFICANT CUSTOMERS/CONCENTRATIONS OF CREDIT
The Company operates primarily in the disposable health care products
industry.
For the years ended December 31, 1995, 1994 and 1993, the largest customer
accounted for approximately 11.8%, 11% and 13% of net sales, respectively.
12. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards
for the impairment of long-lived assets and certain identifiable intangibles
to be disposed of. This statement is effective for financial statements for
fiscal years beginning after December 15, 1995, although earlier application
is encouraged. The Company has not concluded its evaluation of the effect,
if any, the adoption of SFAS No. 121 will have on its financial position or
results of operations.
In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes a fair value-based method of
accounting for an employee stock option or similar equity instrument but allows
companies to continue to measure compensation cost for those plans using the
intrinsic value-based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Companies electing to remain with
the accounting under APB Opinion No. 25 must, however, make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS No. 123 has been applied. These
disclosure requirements are effective for years beginning after
December 15, 1995.
<PAGE>
<TABLE>
SCHEDULE II
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions(6) of Year
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31 -
1995 $118,759 $125,399 $111,110 $133,048
1994 95,643 37,000 13,884 118,759
1993 170,795 25,497 100,649 95,643
<FN>
(1)Represents amounts written off, net of recoveries
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2919469
<SECURITIES> 1362233
<RECEIVABLES> 5436185
<ALLOWANCES> 133048
<INVENTORY> 3407080
<CURRENT-ASSETS> 13475002
<PP&E> 16332756
<DEPRECIATION> 6887558
<TOTAL-ASSETS> 23531434
<CURRENT-LIABILITIES> 5524784
<BONDS> 4289805
<COMMON> 17037
0
0
<OTHER-SE> 13192426
<TOTAL-LIABILITY-AND-EQUITY> 23531434
<SALES> 40480738
<TOTAL-REVENUES> 40480738
<CGS> 33000141
<TOTAL-COSTS> 7416448
<OTHER-EXPENSES> 550000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (321288)
<INCOME-PRETAX> (372288)
<INCOME-TAX> (163082)
<INCOME-CONTINUING> (209206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (209206)
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
