SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
---------------------------------------------
OR
[ ] 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 0-8410
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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
incorporation or organization) No.)
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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NONE
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(Former name, former address and former fiscal year, if changed since last
report.)
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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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at September 30, 1996
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Common Stock, $.01 par Value 1,692,476
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The attached unaudited consolidated financial statements of Hosposable
Products, Inc.("Hosposable") and Subsidiaries reflect all adjustments which
are, in the opinion of management, necessary to present a fair statement of
the operating results for the interim periods.
Consolidated balance sheets 3-4
Consolidated statements of operations 5-6
Consolidated statements of cash flows 7-8
Note to consolidated financial statements 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
September 30, December 31,
1996 1995
---------------- ------------------
(unaudited) (see note
below)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 645,158 $ 2,919,469
--------------- ---------------
Marketable securities 41,312 1,362,233
--------------- ---------------
Receivables:
Trade accounts 6,744,513 5,396,185
Other 12,199 40,000
--------------- ---------------
6,756,712 5,436,185
Less: allowance for doubtful
accounts 247,356 133,048
--------------- ---------------
6,509,356 5,303,137
--------------- ---------------
Inventories:
Raw materials 3,143,830 2,308,121
Finished goods 1,430,263 1,098,959
--------------- ---------------
4,574,093 3,407,080
--------------- ---------------
Prepaid income taxes 536,477 286,424
Prepaid expenses and other 265,478 196,659
--------------- ---------------
Total current assets 12,571,874 13,475,002
--------------- ---------------
Property, plant and equipment 19,023,833 16,332,756
Less: accumulated depreciation
and amortization 7,743,899 6,887,558
--------------- ---------------
Net property, plant and
equipment 11,279,934 9,445,198
--------------- ---------------
Acquisition escrow fund 94,593 347,346
--------------- ---------------
Other assets 303,828 263,888
--------------- ---------------
Total assets $ 24,250,229 $ 23,531,434
=============== ===============
<FN>
Note: The balance sheet at December 31, 1995 has been taken from
the audited financial statements at that date.
See accompanying note.
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
1996 1995
-------------- ---------------
(unaudited) (See note
below)
<S> <C> <C>
Current liabilities:
Current maturities of
long-term debt $ 350,000 $ 350,000
Accounts payable-trade 4,315,720 4,016,185
Accrued expenses 1,031,211 1,158,599
--------------- ---------------
Total current liabilities 5,696,931 5,524,784
--------------- ---------------
Long-term debt, excluding current
maturities 5,386,641 4,389,805
--------------- ---------------
Deferred income taxes 387,419 424,419
--------------- ---------------
Total liabilities 11,470,991 10,339,008
--------------- ---------------
Stockholders' equity:
Common stock, par value
$.01 per share 17,037 17,037
Additional paid-in capital 6,894,249 6,894,249
Retained earnings 5,899,482 6,312,670
Less:Cost of 11,200 shares of
common stock held in treasury (31,530) (31,530)
--------------- ---------------
Total stockholders' equity 12,779,238 13,192,426
--------------- ---------------
Total liabilities and
stockholders' equity $ 24,250,229 $ 23,531,434
=============== ===============
<FN>
Note: The balance sheet at December 31, 1995 has been taken from
the audited financial statements at that date.
See accompanying note.
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 31,871,537 $ 30,065,150
Cost of sales 26,473,449 24,375,052
--------------- ---------------
Gross profit 5,398,088 5,690,098
Selling, general and administrative
expenses 6,175,297 5,268,409
--------------- ---------------
Operating income (loss) (777,209) 421,689
--------------- ---------------
Other income (expense):
Interest income 118,315 100,502
Interest expense (188,852) (247,898)
Other 166,558 205,294
--------------- ---------------
96,021 57,898
--------------- ---------------
Income (loss) before income taxes (681,188) 479,587
--------------- ---------------
Income tax expense (benefit):
Current (231,000) 233,300
Deferred (37,000) (52,800)
--------------- ---------------
(268,000) 180,500
--------------- ---------------
Net income (loss) $ (413,188) $ 299,087
=============== ===============
Net income (loss) per share-primary
and fully diluted $ (.24) $ .18
=============== ===============
Weighted average number of common
and common equivalent shares 1,692,476 1,692,476
=============== ===============
<FN>
See accompanying note.
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 10,533,883 $ 10,096,938
Cost of sales 8,821,406 8,213,801
--------------- ---------------
Gross profit 1,712,477 1,883,137
Selling, general and administrative
expenses 2,219,209 1,839,451
--------------- ---------------
Operating income (loss) (506,732) 43,686
--------------- ---------------
Other income (expense):
Interest income 28,339 13,473
Interest expense (69,782) (73,678)
Other 6,997 78,811
--------------- ---------------
(34,446) 18,606
--------------- ---------------
Income (loss) before income taxes (541,178) 62,292
--------------- ---------------
Income tax expense (benefit):
Current (205,400) 44,856
Deferred (10,600) (25,600)
--------------- ---------------
(216,000) 19,256
--------------- ---------------
Net income (loss) $ (325,178) $ 43,036
=============== ===============
Net income (loss) per share-primary
and fully diluted $ (.19) .03
=============== ===============
Weighted average number of common
and common equivalent shares 1,692,476 1,692,476
=============== ===============
<FN>
See accompanying note.
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (413,188) $ 299,087
--------------- ---------------
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization 856,341 714,028
Loss on sale of equipment - 33,425
Provision for doubtful accounts 114,308 22,400
Deferred income tax expense (benefit) (37,000) (52,800)
Changes in assets and liabilities -
(Increase) decrease in -
Accounts receivable, trade (1,348,328) (947,877)
Accounts receivable, other 27,801 ( 1,736)
Inventories (1,167,013) (120,567)
Prepaid income taxes (250,053) 83,686
Prepaid expenses and other (68,819) 82,979
Other assets (39,940) -
(Decrease) increase in -
Accounts payable/Accrued expenses 172,147 1,196,138
--------------- ---------------
Total adjustments (1,740,556) 1,009,676
--------------- ---------------
Net cash provided by(used in)
operating activities (2,153,744) 1,308,763
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (2,691,077) (1,128,125)
Proceeds from sale of equipment - 130,000
Sale (purchase) of marketable securities 1,320,921 (382,325)
--------------- ---------------
Net cash (used in)
investing activities (1,370,156) (1,380,450)
--------------- ---------------
<FN>
See accompanying note.
</TABLE>
<PAGE>
<TABLE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from financing activities:
Utilization of acquisition escrow
fund $ 252,753 $ 717,103
Borrowings 1,320,000 17,726
Decrease (increase) in other assets - (53,988)
Principal payments under borrowing
agreements (323,164) (237,274)
Principal payments under capital
lease obligations - (5,870)
--------------- ---------------
Net cash provided by
financing activities 1,249,589 437,697
--------------- ---------------
Net increase (decrease) in cash and
cash equivalents (2,274,311) 366,010
Cash and cash equivalents, beginning
of year 2,919,469 25,178
--------------- ---------------
Cash and cash equivalents, September 30 $ 645,158 $ 391,188
=============== ===============
Supplemental disclosure of cash flow
information:
Cash paid during the nine months for-
Interest $ 188,851 $ 189,028
Income taxes 19,053 83,686
--------------- ---------------
$ 207,904 $ 272,714
=============== ===============
<FN>
See accompanying note.
</TABLE>
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the accompanying consolidated financial statements contain all adjustments,
consisting only of normal recurring accruals considered necessary to present
fairly the financial position as of September 30, 1996, the results of
operations for the nine months and three months ended September 30, 1996 and
1995 and cash flows for the nine months ended September 30, 1996 and 1995.
For further information, refer to the financial statements and notes thereto
included in the Company's annual report for the year ended December 31, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Sales for the three months ended September 30, 1996 were $10,533,883 as
compared with $10,096,938 in 1995, an increase of 2.6%. The increase
resulted from higher sales volume in the health care and airlaid wiper
segments of the business due to general business growth. This improved
performance was partially offset by lower sales volume of the airlaid roll
goods product line. Selling price movement did not factor in significantly
in the sales change.
Cost of sales for the three months ended September 30, 1996 increased to
83.7% of sales compared with 81.3% in 1995. The increase was due to several
operational matters including increased overhead spending, unfavorable
material usage and to volume variances associated with reduced activity,
principally in the airlaid roll goods business.
Gross profit decreased to 16.3% in the third quarter of 1996 compared to
18.7% in 1995. This change is due to the previously mentioned operational
issues.
Selling, general and administrative expenses for the third quarter of 1996
totalled $2,219,209 or 21.1% of sales as compared with $1,839,451 or 18.2%
of sales in 1995. This change is principally due to higher professional and
consulting fees, increased research and development spending and employee
separation costs.
Other income and expense resulted in an expense of $34,446 in the third
quarter of 1996 as compared with income of $18,606 in the third quarter of
1995. The change was primarily due to the lower other income associated
with the expiry of the sales and marketing consulting agreement between the
Company and G.H. Wood + Wyant.
The pre-tax loss of $541,178 in 1996 compares to a pre-tax profit of $62,292
in 1995, an unfavorable change of $603,470, which resulted from a reduced
gross profit margin performance in 1996 as well as higher selling, general
and administrative expenses.
The net loss for the three months ended September 30, 1996 amounted to
$325,178 compared to net income of $43,036 in 1995. The net loss per share
was $.19 in 1996 compared with net income per share of $.03 in 1995. The
per share calculation reflects a weighted average of 1,692,476 shares
outstanding in both 1996 and 1995.
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995.
Sales for the nine months ended September 30, 1996 were $31,871,537 as
compared with $30,065,150 in 1995. The increase of $1,806,387 or 6.0%
resulted from general business growth in the health care and airlaid wiper
segments of the business, partially offset by lower sales in the airlaid
roll goods product line. Selling price movement did not factor in
significantly into the change.
Cost of sales for the nine months ended September 30, 1996 increased to
83.1% of sales in 1996 compared with 81.1% in 1995. The increase was due to
operational matters in both the second and third quarters of 1996. Issues
include downtime, unfavorable material usage and production volume variances
and unfavorable labor and overhead spending associated with the installation
of machine enhancements.
Gross profit decreased to 16.9% of sales for the nine months ended
September 30, 1996 as compared with 18.9% in 1995. The decrease was due to
operational matters in the second and third quarters mentioned above.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 amounted to $6,175,297 or 19.4% of sales compared with
$5,268,409 or 17.5% of sales in 1995. The increase was due to higher
research and development expenditures as well as higher professional and
consulting fees.
Other income and expense resulted in income of $96,021 for the nine months
ended September 30, 1996 compared with $57,898 in 1995. The principal
components of this change were slightly higher interest income and lower
interest expense due to the retirement of debt.
The pre-tax loss incurred for the nine months ended September 30, 1996
amounted to $681,188 compared to a pre-tax profit of $479,587 in 1995.
This unfavorable change was principally due to the gross profit shortfall in
the second and third quarters and higher selling, general and administrative
expenses.
The net loss for the nine months ended September 30, 1996 amounted to
$413,188 compared with net income of $299,087 in 1995. The net loss per
share was $.24 in 1996 compared with net income per share of $.18 in 1995.
The per share calculation reflects a weighted average of 1,692,476 shares
outstanding in both 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
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. At September 30, 1996,
$1,320,000 was utilized by the company for the short term financing of
equipment. Equipment term financing was subsequently established during
October, 1996 and the secured line of credit was replenished at that time.
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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEMS 2,3, & 4
Not applicable
ITEM 6 - EXHIBITS
a. EXHIBITS
Exhibit 27. Financial Data Schedule
<PAGE>
HOSPOSABLE PRODUCTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPOSABLE PRODUCTS, INC.
(Registrant)
Date: 11/08/96 SIGNATURE: JOSEPH H. WEINKAM, JR.
---------------- -------------------------------------
Joseph H. Weinkam, Jr.
President and
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 645158
<SECURITIES> 41312
<RECEIVABLES> 6756712
<ALLOWANCES> 247356
<INVENTORY> 4574093
<CURRENT-ASSETS> 12571874
<PP&E> 19023833
<DEPRECIATION> 7743899
<TOTAL-ASSETS> 24250229
<CURRENT-LIABILITIES> 5696931
<BONDS> 5386641
<COMMON> 17037
0
0
<OTHER-SE> 12779238
<TOTAL-LIABILITY-AND-EQUITY> 24250229
<SALES> 31871537
<TOTAL-REVENUES> 31871537
<CGS> 26473449
<TOTAL-COSTS> 6175297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188852
<INCOME-PRETAX> (681188)
<INCOME-TAX> (268000)
<INCOME-CONTINUING> (413188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (413188)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
