SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-K/A
AMENDMENT NO. 1
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 12/31/95
------------------------------------
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ------------------
Commission file number 0-8410
------------------------------------
HOSPOSABLE PRODUCTS, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2236837
- ---------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Readington Road Somerville, New Jersey 08876
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 908-707-1800
-----------------------------
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
------ ------
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 [X]
<PAGE>
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).
-ii-
<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.
-iii-
<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.
(Registrant)
Date: February 11, 1997 Signature:/c/ Joseph H. Weinkam, Jr.
----------------- --------------------------
Joseph H. Weinkam, Jr.
President and
Chief Operating Officer
-iv-
<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.
Arthur Andersen, LLP
New York, New York
February 15, 1996
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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
The accompanying notes are an integral part of these consolidated financial
statements
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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
========= ========== =========== ========= =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
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 Asset 33,426 - -
Deferred Income Tax Benefit (156,157) (38,365) (51,209)
Write-down 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
The accompanying notes are an integral part of these consolidated financial
statements
</TABLE>
F-3
<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
F-4
<PAGE>
result primarily from differences between financial and tax reporting of
depreciation.
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
F-5
<PAGE>
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.
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 +
F-6
<PAGE>
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.
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.
F-7
<PAGE>
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
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,
F-8
<PAGE>
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.
F-9
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions(6) of Year
----------- ---------- ---------- ------------ ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31 -
<S> <C> <C> <C> <C> <C>
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
(1) Represents amounts written off, net of recoveries
</TABLE>
F-10
<PAGE>