<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (fee required)
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[_] Transaction Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required)
COMMISSION FILE NUMBER 0 - 14358
PARIS CORPORATION
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1645493
(State or other Jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
122 KISSEL ROAD, BURLINGTON, NEW JERSEY 08016
(Address of principal executive office) (zip code)
Telephone: (609) 387-7300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act:
TITLE
Capital Stock, $.004/par value per share
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 twelve 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 [_]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of November 15, 1998 was $1,503,960.
Number of shares of outstanding common stock as of November 15, 1998 -
3,554,645 shares.
Definitive Proxy Statement for the February 5, 1999 annual meeting of
the stockholders has been filed within 120 days after the end of the fiscal year
covered by this annual report.
<PAGE>
ITEM 1 - BUSINESS
GENERAL
- -------
Paris Corporation ("Paris"), formerly Paris Business Forms, Inc.,
incorporated in 1964 under the laws of the Commonwealth of Pennsylvania, is a
holding company with four wholly owned subsidiaries, viz., two active operating
companies in New Jersey and Texas, one inactive Florida corporation, and a
Delaware corporation which owns the Company's trademarks. Paris Business
Products, Inc., a New Jersey corporation and Paris Business Forms, Inc., a Texas
corporation (dba, Paris Business Products, Inc.), are the two operating
companies, with plants in New Jersey and Texas, respectively. PBF Corporation
is the Delaware corporation. The Texas and Florida corporations are both wholly
owned subsidiaries of the New Jersey corporation. Paris also has a 44% interest
in a corporation, Signature Corporation, formed in 1992, to market office
products through the supermarket and drug chain channels. Xerox Corporation and
two individuals own the remainder of the interest in Signature Corporation.
In January, 1996, Paris changed its corporate name to Paris Corporation
from Paris Business Forms, Inc.
The Company converts mill paper rolls to business forms at its two
manufacturing and distribution plants in New Jersey and Texas and distributes
office products, through a number of market channels including forms dealers,
paper merchants, stationers, office product and computer superstores, consumer
electronics retailers, buying groups, supermarkets, and drugstore chains.
Products include stock and custom continuous forms; mill cut, value added, and
custom cut sheets; paper handling products for small offices and home offices.
Geographically the Company markets its products throughout the United States and
Canada through Company sales representatives, independent representatives,
brokers, dealers, and distributors.
Traditionally, the principal focus of the business was the manufacture
of continuous forms designed to run on dot matrix and high speed impact
printers. The company serves the stock continuous forms market and the custom
forms market, providing business forms to commercial businesses to
specification. Laser and inkjet printer technology continues to replace impact
printers and, accordingly, the Company's market for continuous forms is
shrinking at a pace estimated at 5-10% per year. The negative growth is more
accelerated in the retail market serving small business/home business customers
since the printer equipment investment is minimal and easy to replace. As a
result, the Company has been shifting its focus to the development, manufacture,
and sale of value-added and custom cut sheet products used on laser and inkjet
printers. Perfed, punched, lined, collated, colored, photo quality, and novelty
cut sheet products have been added to the product line. The continuous forms
products segment as a percentage of total sales has decreased from 77% to 70% to
50% in fiscal years 1996, 1997, and 1998, respectively. It is estimated that
this segment will only account for 45% of total sales in fiscal 1999.
The Burlington product line of value-added cut sheet products targeted
to the small office and home office user has continued to expand with various
offerings to meet the everyday needs of inkjet and laser printer paper demand as
well as specialty products for photographic quality and other applications
requiring maximum color contrast and optimal ink absorption. Growth in this
product segment is expected to grow 50% in FY99.
Signature Corporation, the 44% owned joint venture with Xerox Corporation to
distribute office products to the food and drug store markets, continues to
improve their operations. Formed in late 1992, Signature has continued to
increase their stores served from 6800 in 1996 to 13,500 in 1998. In 1999,
sales are expected to increase from $6.5 million in 1998 to $8.5 million in
1999, reflecting continuing growth with existing customers and new account
acquisitions.
2
<PAGE>
COMPETITION
- -----------
The business forms market is divided into two major segments,
competitively. One segment sells directly to end users, principally the 500 to
1000 largest corporations. The other segment, which Paris serves, distributes
forms through resellers and retailers. In the reseller market, there are three
or four major competitors in stock continuous forms who are larger than Paris
and committed to stock computer paper for the foreseeable future due to capital
investment, albeit the negative growth rate. The Company does not compete
directly with the approximate dozen direct sellers. There have been a number of
acquisitions and mergers within the industry and the consolidation mode is
expected to continue going forward to lower unit costs. Paris does not expect
to pursue any acquisitions within this business segment and will continue to
shrink capacity commensurate with the reduced demand for stock continuous forms.
The cut sheet market is growing at a rapid pace fueled by the
installation of laser and inkjet printers throughout the major U.S. corporations
and home and small businesses. Sales volume is expected to grow due to the
Company's penetration of the retail market, serving a number of major retail
stores. However, competition in this market is increasing rapidly. The major
paper mills have developed marketing subsidiaries to serve the retail market.
SUPPLIERS
- ---------
The Company purchases registered bond paper, (consisting of a wide
variety of weights, widths, colors, sizes and qualities), cut sheet, and
carbonless paper principally from the major United States paper mills. The
Company believes that it has good relationships with all of its suppliers.
During the fiscal year ended September 30, 1995, the major paper mills
shifted some capacity, or in some cases eliminated capacity, creating a shortage
in raw paper supply for the Company and the paper industry at large. As a
result, paper costs accelerated at a rapid pace, nearly doubling during the
period of July to December, 1994, and increased another 25% from January, 1995
to September, 1995. The tight supply conditions ceased after September, 1995,
with reduced demand from manufacturers and distributors throughout the supply
channel due to high inventory levels. During the fiscal year ended September
30, 1996, supplier pricing declined as much as the previous year increase and
returned to price levels of two years prior. Paper prices remained relatively
stable during fiscal 1997 and softened in fiscal 1998.
Boise Cascade, one of the Company's paper suppliers, has indicated plans
to significantly reduce its capacity, by the year 2000, of forms bond rolls
which are used by Paris in the production of continuous forms. The Company
believes that the reduced supply available will be consistent with its plans to
shrink this business segment. However, the Company has expanded its source of
suppliers in the past year to ensure adequate paper supply in the near future.
The Company has partnered or formed strategic alliances to provide raw
material, market support, and/or name recognition for its value added cut sheet
product and non-paper products. Xerox and the Company have formed Signature
Corporation to market office products under the Xerox brand name through the
supermarket and drugstore chains. Currently, the Company represents the largest
volume customer of Boise Cascade for certain specialty retail cut sheet
products. The Company believes the strong relationship between Paris and Boise
will provide the Company a solid footing for future cut sheet supply.
3
<PAGE>
SEGMENTS AND MAJOR CUSTOMERS
- ----------------------------
The Company operates in three segments or lines of business, including
stock continuous forms and cut sheets; custom continuous forms and cut sheets;
retail papers and office products. Financial information for each of the
Company's segments including net sales, operating income, total assets, capital
expenditures and sales to major customers, are included in the accompanying
financial statements.
No customer accounts for more than 10% of custom shipments or stock
shipments in FY98, but two customers accounted for more than 10% of the
Company's stock computer business in fiscal 1997, viz., Office Depot (14%) and
Corporate Express (28%). Both accounts were lost to competition during the
latter part of the year. Although the loss of these two major accounts had a
material adverse effect on sales revenue, the margin loss is no longer
significant since competitive pricing reached a level that provided little
profit on either account.
EMPLOYEES
- ---------
As of September 30, 1998, the Company employed approximately 113 people
in manufacturing, sales and administrative functions in its corporate offices
and plants in New Jersey and Texas.
DISTRIBUTION AND MARKETING
- --------------------------
The Company markets the custom and stock forms products through
approximately 2,500 independent dealers in the United States and Canada, as well
as through retail superstores. The independent distributors rely on several
manufacturers, like the Company, to supply these end users. The distributors
range in size from a single individual to a distributorship with several offices
and an extensive sales force. The Company operates, or contracts for storage
space, in several strategically located warehouses along the east coast,
southeast and southwest regions of the country. These locations are used as the
storage and shipping points for its stock forms. Currently, the Company's
primary method of generating sales contacts is through its own sales force,
sales representatives, extensive marketing programs, referral and reputation.
The sales force consists of a eight salespersons covering New England,
Mid-Atlantic, Southeast, Midwest and Southwest regions of the eastern United
States. A network of independent sales representatives covering the entire
United States has been assembled over the past two years to sell the new non-
paper products through major resellers and retailers.
MANUFACTURING
- -------------
The Company's custom paper products are manufactured in the New Jersey
plant with five rotary presses and one collator. The rotary presses provide the
Company with the ability to produce a broad spectrum of form sizes. Each
piece of machinery requires a skilled operator; support personnel are required
on some equipment. The custom forms operation runs primarily two shifts per
day, however some equipment runs three shifts. The estimated annual capacity of
the custom business is approximately $10 million in sales at current prices.
The Company's stock form business is manufactured from two locations.
The New Jersey facility has six presses and one collator, and Texas has one
press as of September 30,, 1998. The majority of the stock forms is produced to
be sold from inventory. Each plant is also capable of producing customized
computer paper or stock forms upon order. The stock operation is three shifts
per day, five days per week, with overtime on an as-needed basis. The estimated
annual capacity of the stock business is approximately $30 million in sales at
current prices.
4
<PAGE>
The Company's equipment is very well suited to produce nearly all of the forms
products required by a forms distributor or retailer. The Company continues to
monitor any new product requirements of its forms distributors and assess what
new equipment or equipment modifications are required to produce the products.
OPERATIONS
- ----------
The Company rents a 159,000 square foot plant and corporate office in
Burlington, New Jersey and leases a 45,000 square foot plant in Fort Worth,
Texas, with 5% devoted to offices, 45% to paper conversion, and 50% to
warehouse. There are no union affiliations among employees at the two
locations.
During the year, the Company operated 5 custom presses, 6 stock presses,
and 2 collators. The Company is evaluating the needs for an additional press to
increase capacity in the custom plant.
Utilization of production capacity approximated 60% in New Jersey and
50% in Texas during the year.
Custom forms capacity continues to be converted from roll to sheeting
capability as demand shifts from continuous to cut sheet custom forms.
Currently, 50% of custom capacity is directed to cut sheets.
The Company has adequate domestic paper supply sources with paper mills
and brokers at the present time. However, the mills are reallocating capacity
to higher grade papers and are de-emphasizing forms bond used in continuous form
production.
Inventory levels were maintained at approximately two weeks supply for
raw material and 4-6 weeks supply for finished goods during the year.
OTHER MATTERS
- -------------
The corporate structure of the Company's legal entities was reorganized
in fiscal 1995. Paris Business Forms, Inc. (PBFI), the public company,
transferred substantially all of the operating assets and liabilities to a newly
formed subsidiary corporation, Paris Business Products, Inc. (PBP). The Texas
operating corporation, Paris Business Forms, Inc. (PBFITX) and a newly formed
Florida corporation, Paris Business Products, Inc. (PBPFL), are subsidiaries of
PBP. PBP, PBFITX and PBPFL are operating corporations. PBF Corporation, a
Delaware corporation, owns the Company trademarks and remains a subsidiary of
PBFI.
In 1995, the Board of Directors approved, upon the termination of his
employment, the payment to the President and Chairman of the Board of $100,000
per year for four years in recognition of past services. Accordingly, $400,000
in deferred compensation liability was recognized and included in the 1995
financial statements. As a result of the losses from operations in 1996, the
Board of Directors terminated the Chairman's deferred compensation plan.
Accordingly, the $400,000 liability was reversed in 1996 as a reduction of
general and administrative expenses.
In April, 1997 the former President resigned his position with a
severance and consulting agreement at full salary for two years guaranteed and
the third year dependent on profitability of the Company. The total cost of the
severance package was expensed in fiscal 1997 in the amount of $328,000.
5
<PAGE>
ITEM 2 - PROPERTIES
In May 1998, the Company entered into a contract to sell the office and
production facility in New Jersey for a total price of $4,500,000. In addition,
the Company entered into an agreement to lease the facility back for a period of
three years plus, at the Company's option, an additional two three-year renewal
periods. The Company has no obligation to renew the lease beyond its original
term. The total gain of $1,070,661 has been deferred and is being recognized
over the term of the original lease in the monthly amount of $29,741. The
amount of the gain deferred at September 30, 1998 was $932,664. The total gain
recognized to date was $137,997 at September 30, 1998. The lease calls for
monthly rental payments of $41,667 over the term of the lease.
The Fort Worth, Texas facility was sold in June, 1994 and replaced by a
45,000 square foot leased facility.
6
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings in process as of the date of this
filing.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
year ended September 30, 1998.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
MATTERS
(A) The Company's common stock is traded in the over-the-counter market and is
listed on the National Association Of Stock Dealers Daily Quotation Service
(NASDAQ) National Market System. The Symbol for the Company is PBFI. The
registrar and transfer agent is ChaseMellon Bank. The table below shows the
quarterly price range of Paris Corporation common shares, as shown by the
National Daily Quotation Service.
<TABLE>
<CAPTION>
RANGE OF SALE PRICES
--------------------
1998 FISCAL YEAR 1997 FISCAL YEAR
---------------- ----------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
First Quarter 2.125 1.5 3.844 1.375
Second Quarter 2.25 1.5625 2.375 1.75
Third Quarter 2.375 1.5625 2.375 1.625
Fourth Quarter 3.125 2.125 2.375 1.625
</TABLE>
(B) The approximate number of shareholders of record as of December 11, 1998
was 200.
(C) The company's common stock trades on the NASDAQ Stock Market under the
symbol PBFI. The registrar and transfer agent is ChaseMellon Shareholder
Services.
7
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
FOR THE YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET SALES $34,864 $51,674 $57,442 $64,916 $57,892
INCOME (LOSS) (763) (3,372) (5,495) 5,722 297
FROM OPERATIONS
NET INCOME (LOSS) (16) (2,469) (3,401) 3,451 429
EARNINGS PER SHARE (0.004) (0.68) (.92) .91 .12
TOTAL ASSETS 20,470 23,477 28,741 41,188 24,747
WORKING CAPITAL 10,286 9,999 12,048 15,255 11,866
LONG TERM DEBT 0 0 0 0 2,061
(excluding current portion)
SHAREHOLDERS' EQUITY 14,256 $14,701 $17,184 $21,108 $17,494
CASH DIVIDENDS PER SHARE NONE NONE NONE NONE NONE
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. ($ IN THOUSANDS, EXCEPT STATISTICAL DATA)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at the end of fiscal years 1998, 1997 and 1996 was $10286,
$9999 and $12048, respectively. Working capital increased $287 during the
fiscal year ended September 30, 1998.
Cash and cash equivalents at the end of fiscal years 1998, 1997 and 1996 were
$4073, $2742 and $916, respectively. Cash and cash equivalents increased $1331
in fiscal 1998.
Inventories were maintained at normal supply levels during 1998, decreasing
beginning inventories of $4592 to $3456 by year-end. Trade receivables were
$1110 lower than the previous year, decreasing from $4774 to $3664. Accounts
payable and accrued expenses were reduced $1058, from $3360 to $2302. All of
the changes above are a direct reflection of the lower sales volume.
8
<PAGE>
The Company has a $5500 line of credit available through a commercial bank at
the prime rate plus 1% on advances against inventories and at prime plus 1/2%
on advances against accounts receivable (9% at September 30, 1998), with a
maturity of December 31, 1998. The outstanding balance on the line at year-end
was $2459, compared to $3932 and $3927 at the end of the preceding years,
respectively. See Note 6 in the Notes to the Consolidated Financial Statements
for additional information. In addition, the Company has available $4073 in
cash and cash equivalents and $4397 in diversified investments as of September
30, 1998.
"YEAR 2000" ISSUE
The Company has conducted a comprehensive review of their computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed an implementation plan to resolve the issues. Items that are being
addressed under the Company's "Year 2000" compliance program are as follows:
1) Replacement of the main business application software and hardware with
"Year 2000" compliant hardware and software.
2) Replacement of our Electronic Data Interchange application with "Year 2000"
compliant software.
3) The upgrade of our automated call-processing and voice-mail software to a
"Year 2000" compliant release.
We believe all other manufacturing, computer systems, and communications
equipment are "Year 2000" compliant.
In October of 1998, the Company reached an agreement with a software vendor
for the purchase of the replacement of the main business application software.
The Company will have the software installed and on site in January 1999 for the
commencement of the employee training program. The estimated cost of the
conversion project is $250. Included in this estimate is $60 in training and
travel expenses, which will be charged against income of FY99. In addition to
the conversion expense for the business software, the Company will expend an
estimated $45 for the upgrade of our automated call-processing and voice-mail
software. The Company expects that the conversion of all non-compliant systems
will be completed in June of 1999.
The Company will complete a "Year 2000" compliance survey of all vendors by
June 30, 1999, at which time alternative vendors will be identified if there is
exposure due to non "Year 2000" compliance. The Company is in the process of
assessing their risk and developing a contingency plan if they do not achieve
"Year 2000" compliance before the new millenium.
1998 COMPARED TO 1997
Net sales for the fiscal year ended September 30, 1998 decreased 33% or
$16810 due to (1) a 49% decline in stock forms ($17172), attributable to the
loss of two major customers and lower overall demand for these products; (2) the
Company's decision to exit the computer hardware business resulted in a sales
decline of $2912 for this product line; (3) sales of miscellaneous business
products decreased $262 as a result of an increased focus on other product
lines; (4) offsetting these decreases was a 27% increase in custom forms,
Laser3/DocuGard and Burlington, the retail line; (5) sales discounts, rebates
and allowances were reduced $893, or 66% due to lower rebate expense due to the
loss of the two major stock forms customers and the decision to exit the
hardware business.
9
<PAGE>
Cost of sales for the fiscal year ended September 30, 1998 decreased 35%
($17564) compared to last year. The decrease in the cost of sales is relative
to the decrease in sales of 33%. The incremental decrease in cost of sales
relative to the sales decline is due to (1) favorable paper costs; (2) decreased
freight and distribution costs due to tighter management controls on both the
costs of shipping and the pass-through of freight cost to the customer; (3)
offsetting these cost reductions was increased overhead expense due to
production inefficiencies and excess capacity.
Gross profit increased $754 in fiscal 1998 as compared to fiscal 1997 from
$2258 to $3012 due to the above factors.
Selling expenses, marketing costs and administration expenses decreased $1855
this year, from $5630 to $3775. Sales and marketing expenses were $487 lower in
fiscal 1998 due principally to the reduction of salary and benefit expenses as a
result of head count reductions, and general and administrative expenses
decreased $1367 on a comparative basis due to (1) decreased salary and benefits
of $728; (2) a reduction in professional fees of $133; (3) lower depreciation of
$132; (4) decreased telephone expenses of $77; (5) reduced bad debt expense of
$128, and a reduction in other sundry expenses of $177.
Interest expense decreased $44, or 14%, due to a reduced level of bank debt
maintained over the last two years.
Other income, net in fiscal 1998 exceeded fiscal 1997 by $483 due to (1)
increased investment income and lower investment fees, net, of $250; (2) the
settlement of a third-party warehouse services contract in 1997 of $150; (3)
increased gain on fixed asset disposal of $108 due to the amortization of the
gain on the sale of the New Jersey production facility.
Inflation is not expected to have a material adverse effect on future sales or
earnings.
1997 COMPARED TO 1996
Net sales for the fiscal year ended September 30, 1997 decreased 10% or $5769
due to (1) a 16% decline in stock and custom continuous forms volume ($7287),
attributable to the lower overall market demand for these products and 13% lower
sell prices; (2) 9% lower year to year sales of cut sheet products despite
valued added stock and custom products gains of 28% ($1348) due to offsetting
35% lower sales of commodity cut sheets ($2470); and (3) an increase in hardware
(primarily computer scanners) sales ($2417) primarily reflecting purchases by
one major retail store.
Fiscal 1997 was characterized by significant price pressure with average sell
prices dropping 21% across all paper products, both continuous and cut sheet.
Cut sheet unit volume was up 44% due to greater market demand for inkjet and
laser printer papers. Continuous form unit volume was down 16% if sales to two
major former accounts are excluded, but down only 4% overall.
Cost of sales for the fiscal year ended September 30, 1997 decreased 13%
($7370) compared to last year. The lower product costs this year relative to
sales (costs decreased 13% vs. a sales decrease of 10%) were primarily due, on a
comparative basis, to the buying and inventory problems of the prior year which
had caused disproportionately high product costs. Normal inventory levels were
maintained throughout fiscal 1997 and sell prices moved in unison with lower raw
paper costs. In addition, the company reduced product costs at a faster rate
than the decrease in sales by increasing factory productivity and by
implementing cost reduction programs in the company's two plants. Freight costs
as
10
<PAGE>
a percentage of sales increased 21% due to the cost of distributing to the west
coast in support of the company's former largest customer.
Gross profit increased $1601 in fiscal 1997 as compared to FY96 from $656 to
$2257. The disproportionately high product costs of last year, due to the
effect of the excessive inventories, contributed approximately $2500 of the
gross profit gain. This comparative gain was offset by the effect of sell
prices dropping at a faster rate than the cost of raw paper ($600), lower unit
volumes ($600), and higher freight costs ($260). Labor productivity and cost
reduction programs added $300 of gross profit to fiscal 1997. In addition,
hardware sales contributed approximately $260 to the gross profit increase.
Selling expenses, marketing costs, and administration expenses decreased $522
this year, from $6151 to $5629.
Sales and marketing expenses were $833 lower in fiscal 1997 due principally to
the elimination or reduction of advertising, promotion, direct mail campaigns,
public relations, travel and entertainment expenses deemed unnecessary to
support our new product offerings, as well as the reduction of payroll costs.
General and administrative expenses increased $417 on a comparative basis due
(1) to the termination of a deferred compensation plan in FY96 resulting in a
reversal of accrued liabilities ($400) in that year; (2) an increase in the
required bad debt reserve ($240) due to customer bankruptcies; (3) offset by a
reduction in payroll cost ($183).
Interest expense in the comparative years was relatively flat proportionate to
the equal level of bank debt maintained over the last two years.
Other income, net in FY96 exceeded fiscal 1997 by $294 due to (1) lower
investment income this year ($479); (2) the settlement of a third party
warehouse services contract ($150), offset by (3) equity in the earnings of
Signature Corp., a 44% owned affiliate ($279); and (4) gains on the sale of
equipment ($56).
Income tax benefit in fiscal 1997 is at an effective tax rate of 25% due to
the lack of assurance of realization of the loss carryforward benefits for state
income taxes. All operating losses for federal income taxes can be carried back
and fully utilized.
Inflation is not expected to have a material adverse effect on future sales or
earnings.
11
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
<S> <C>
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998
AND 1997 13
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS
ENDED SEPTEMBER 30, 1998, 1997, AND 1996 14
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR
THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 15
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS
ENDED SEPTEMBER 30, 1998, 1997 AND 1996 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17 - 28
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 29
INDEPENDENT AUDITOR'S REPORT 30
</TABLE>
FINANCIAL STATEMENT SCHEDULES NOT INCLUDED IN THIS FORM 10-K HAVE BEEN OMITTED
BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE
FINANCIAL STATEMENTS OR NOTES THERETO.
12
<PAGE>
CONSOLIDATED BALANCE SHEET
--------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1998 1997
----------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,073,427 $ 2,741,874
Restricted cash 2,140,338 0
Investments:
Marketable Securities 1,466,654 1,177,192
Other 2,903,559 2,271,991
Accounts receivable, less allowance for doubtful accounts of
$317,458 and $627,039 at September 30, 1998 and 1997, respectively 3,664,242 4,774,165
Inventories 3,455,799 4,591,835
Recoverable income taxes 0 922,078
Prepaid expenses 225,033 266,639
Deferred tax asset 135,600 882,000
--------------- ---------------
Total Current Assets 18,064,652 17,627,774
Property and equipment, net 1,560,554 5,098,162
Deferred Tax Asset 786,400 0
Other assets 158,200 244,827
--------------- ---------------
Total Assets $20,569,806 $22,970,763
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Note payable, bank $ 2,459,052 $ 3,932,020
Accounts payable and accrued expenses 2,301,903 3,359,576
Accrued payroll and related expenses 264,208 336,877
Income taxes payable 237,875 0
Deferred revenue 375,464 0
--------------- ---------------
Total Current Liabilities 5,638,502 7,628,473
Deferred Tax Liability 0 641,000
Deferred Revenue, net of current portion 575,778 0
--------------- ---------------
Total Liabilities 6,214,280 8,269,473
--------------- ---------------
Shareholders' equity:
Common stock, $.004 par value; authorized 10,000,000
shares; issued 3,937,517 shares 15,751 15,751
Additional paid-in capital 8,588,243 8,588,243
Retained earnings 7,797,181 7,812,962
Unrealized (loss) gain on marketable securities (163,412) 24,070
--------------- ---------------
16,237,763 16,441,026
Less: common stock held in treasury, at cost; 382,872 and
308,086 shares at September 30, 1998 and 1997, respectively (1,882,237) (1,739,736)
--------------- ---------------
Total Shareholders' Equity 14,355,526 14,701,290
--------------- ---------------
Total Liabilities and Shareholders' Equity $20,569,806 $22,970,763
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
13
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997 1996
----------------- ------------------ -----------------
<S> <C> <C> <C>
Net sales $34,863,609 $51,673,925 $57,442,027
----------------- ------------------ -----------------
Costs and expenses:
Cost of products sold 31,851,996 49,416,175 56,786,409
Selling expenses 1,639,866 2,127,330 3,065,770
General and administrative expenses 2,135,234 3,502,307 3,085,272
Interest expense 272,473 316,807 347,113
Other income, net (874,617) (391,293) (685,082)
----------------- ------------------ -----------------
Total costs and expenses 35,024,952 54,971,326 62,599,482
----------------- ------------------ -----------------
Loss before income taxes (161,343) (3,297,401) (5,157,455)
Income tax benefit 145,562 828,654 1,756,611
----------------- ------------------ -----------------
Net loss $ (15,781) $(2,468,747) $(3,400,844)
================= ================== =================
Loss per share $ (0.004) $ (0.680) $ (0.917)
================= ================== =================
</TABLE>
See Notes to Consolidated Financial Statements
14
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
---------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID IN RETAINED UNREALIZED TREASURY
SHARES AMOUNT CAPITAL EARNINGS GAIN (LOSS) SHARES AMOUNT
----------------------- ------------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 3,937,517 $15,751 $8,588,243 $13,682,553 $ 121,314 (208,111) $(1,299,737)
Purchase of 116,875 treasury
shares (116,875) (503,024)
Sale of 20,000 treasury shares 20,000 77,000
Net loss (3,400,844)
Decrease in unrealized gain
On marketable securities
During 1996: (97,244)
---------- --------- ------------- ------------ ----------- ------------------------
Balance at September 30, 1996 3,937,517 15,751 8,588,243 10,281,709 24,070 (304,986) (1,725,761)
Purchase of 13,100 Treasury Shares (13,000) (33,975)
Sale of 10,000 treasury shares 10,000 20,000
Net Loss (2,468,747)
---------- --------- ------------- ------------ ----------- ------------------------
Balance at September 30, 1997 3,937,517 15,751 8,588,243 7,812,962 24,070 (308,086) (1,739,736)
Purchase of 86,786 treasury shares (86,786) (166,501)
Sale of 12,000 treasury shares 12,000 24,000
Net Loss (15,781)
Decrease in Unrealized gain on
Marketable Securities during 1998 (187,482)
---------- --------- ------------- ------------ ----------- ---------- ------------
Balance at September 30, 1998 3,937,517 $15,751 $8,588,243 $ 7,797,181 $(163,412) (382,872) $(1,882,237)
========== ========= ============= ============ =========== ========== ============
<CAPTION>
TOTAL
------------
<S> <C>
Balance at September 30, 1995 $21,108,124
Purchase of 116,875 treasury shares (503,024)
Sale of 20,000 treasury shares 77,000
Net loss (3,400,844)
Decrease in unrealized gain
On marketable securities
During 1996: (97,244)
------------
Balance at September 30, 1996 17,184,012
Purchase of 13,100 Treasury Shares (33,975)
Sale of 10,000 treasury shares 20,000
Net Loss (2,468,747)
------------
Balance at September 30, 1997 14,701,290
Purchase of 86,786 treasury shares (166,501)
Sale of 12,000 treasury shares 24,000
Net Loss (15,781)
Decrease in Unrealized gain on
Marketable Securities during 1998 (187,482)
------------
Balance at September 30, 1998 $14,355,526
============
</TABLE>
See Notes to Consolidated Financial Statements
15
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (15,781) $(2,468,747) $(3,400,844)
-------------- --------------- -------------
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Depreciation 769,618 1,089,003 1,134,320
Gain on sale of property and equipment (122,975) (88,453) (46,066)
Gain on sale of investments (61,366) (72,132) (218,623)
Equity in limited partnership interests (461,316) (401,108) (642,836)
Provision for bad debts 120,000 240,000 40,000
Equity in (gain) loss of investment in joint venture 46,958 (74,843) 303,500
Deferred income tax (benefit) expense (581,000) (142,871) 114,458
(Increase) decrease in assets:
Accounts receivable 989,923 1,682,009 (186,724)
Inventories 1,136,036 2,093,917 10,662,097
Recoverable income taxes 922,078 943,424 (1,865,502)
Prepaid expenses 41,606 47,725 (14,829)
Other assets 39,669 11,430 5,196
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (1,057,674) (2,833,935) (4,582,116)
Accrued payroll and related expenses (72,669) 24,974 (290,699)
Income taxes payable 237,875 0 (1,105,000)
-------------- --------------- -------------
Total adjustments 1,946,763 2,519,140 3,307,176
-------------- --------------- -------------
Net cash provided by (used in) operating activities 1,930,982 50,393 (93,668)
-------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITES:
Increase in restricted cash (2,140,338) 0 0
Investment in joint venture 0 0 (390,000)
Proceeds from sale of investments 588,635 2,478,627 901,901
Purchase of investments (1,274,464) (703,274) (1,258,088)
Proceeds from sale of property and equipment 4,310,688 130,000 61,000
Purchase of property and equipment (468,481) (121,855) (455,931)
-------------- --------------- -------------
Net cash provided by (used in) investing activities 1,016,040 1,783,498 (1,141,118)
-------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt 0 0 (1,650,000)
Sales of treasury stock 24,000 20,000 77,000
Purchase of treasury stock (166,501) (33,975) (503,024)
Proceeds (repayments) of note payable, bank (1,472,968) 5,520 (1,000,000)
-------------- --------------- -------------
Net cash used in financing activities (1,615,469) (8,455) (3,076,024)
-------------- --------------- -------------
Net increase (decrease) in cash and cash equivalents 1,331,553 1,825,436 (4,310,810)
Cash and cash equivalents, at beginning of year 2,741,874 916,438 5,227,249
-------------- --------------- -------------
Cash and cash equivalents, at end of year $ 4,073,427 $ 2,741,874 $ 916,439
============== =============== =============
Supplemental Disclosures of cash flow information:
Interest paid $ 272,473 $ 316,807 $ 347,113
============== =============== =============
Income taxes received $ (740,465) $(1,650,419) $ 0
============== =============== =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTE 1 - NATURE OF OPERATIONS
Paris Corporation and subsidiaries (collectively, the "Company") manufacture
stock and custom business forms, provide value added services to cut sheet
products and distribute office products and computer/printer peripheral
products. The Company manufactures stock and custom forms in Burlington, New
Jersey and stock forms in Fort Worth, Texas. The Company markets through
retailers, resellers, and dealers throughout the United States and Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and money market accounts.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash, marketable
securities, accounts receivable, , prepaid expenses, accounts payable, and
notes payable, bank approximate their fair values at September 30, 1998 and
1997.
INVESTMENTS
At September 30, 1998 and 1997, marketable debt and equity securities have been
categorized as available for sale. Such securities are stated at fair value
based upon quoted market prices. Cost is determined using the specific
identification method. Unrealized holding gains and losses are reported as a
separate component of stockholders' equity. The Company accounts for
investments in limited partnerships under the equity method of accounting. It
is reasonably possible that the value of the investments can change from the
reported amount in the financial statements at September 30, 1998.
INVENTORIES
Inventories are stated at the lower cost or market. Cost is determined by the
first-in, first-out method (FIFO).
PROPERTY AND EQUIPMENT
Property, and equipment are stated at cost. Expenditures for renewals and
betterments which increase the useful life or capacity of property and equipment
are also capitalized at cost. Expenditures for repairs and maintenance are
charged to expense as incurred. Gain or loss on the retirement or disposal of
capital assets is reflected in income in the period of disposal.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
<PAGE>
PER SHARE DATA
In 1998, the Company adopted Financial Accounting Standards Board Statement No.
128, "Earnings Per Share". Earnings per share information has been restated for
all prior periods presented as prescribed by SFAS No. 128. The adoption of SFAS
No. 128 had no effect on previously reported loss per share. The anti-dilutive
effect of conversion of the Company's stock options causes such conversion to be
excluded from the computation of diluted net loss per share for the years ended
September 30, 1998, 1997 and 1996.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss available to common
shareholders $ (15,781) $(2,468,747) $(3,400,844)
Denominator:
Weighted-average shares 3,554,654 3,629,431 3,707,700
Basic and diluted loss per
share $ (.004) $ (.68) $ (.917)
</TABLE>
STOCK-BASED COMPENSATION
As permitted by Financial Accounting Standards Board Statement No. 123,
"Accounting For Stock-Based Compensation", the Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under APB 25, no compensation expense is recognized at
the time of option grant because the exercise price of the Company's employee
stock option equals the fair market value of the underlying common stock on the
date of grant.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany transactions and balances have
been eliminated.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" (SFAS No. 130"). SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components and is applicable to all enterprises. SFAS No. 130 is effective for
financial statements relating to fiscal years beginning after December 15, 1997.
The adoption of SFAS NO. 130 will have no impact on the Company's results of
operations, financial position or cash flow.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131)". SFAS No. 131 establishes standards for the way the public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements relating to
18
<PAGE>
fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131
will have no impact on the Company's present segment reporting.
In February 1998, the Financial Accounting Standards Board issued Statement No.
132, "Employers' Disclosure about Pensions and Other Postretirement Benefits"
("SFAS No. 132"). SFAS No. 132 expands and standardizes the disclosure
requirements for pensions and postretirement benefits. SFAS No. 132 is
effective for financial statements relating to fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 132 will have no impact on the
Company's results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 establishes standards for derivative instruments and hedging
activities to be recognized as either assets or liabilities and to measure those
instruments at fair value. SFAS No. 133 is effective for financial statements
relating to fiscal years beginning after June 15, 1999. The adoption of SFAS
No. 133 will have no impact on the Company's results of operations, financial
position or cash flows.
RECLASSIFICATIONS
Certain amounts reported in the 1997 financial statements have been reclassified
to conform to the 1998 presentation.
NOTE 3 - INVESTMENTS
MARKETABLE SECURITIES:
- ----------------------
Marketable securities classified as current assets at September 30,
1998 and 1997, are summarized as follows:
<TABLE>
<CAPTION>
1998
----
FAIR VALUE COST
-------------- -------------
<S> <C> <C>
Stocks $1,037,005 $1,080,483
Mutual Funds 429,649 649,583
-------------- -------------
Total $1,466,654 $1,730,066
============== =============
</TABLE>
<TABLE>
<CAPTION>
1997
----
FAIR VALUE COST
-------------- -------------
<S> <C> <C>
Stocks $750,764 $ 664,028
Mutual Funds 426,428 537,234
-------------- -------------
Total $1,177,192 $1,201,262
============== =============
</TABLE>
19
<PAGE>
Gross unrealized holding gains and losses at September 30, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1998 1997
UNREALIZED UNREALIZED
GAINS GAINS
(LOSSES) (LOSSES)
------------ ------------
<S> <C> <C> <C>
Stocks $ (43,478) Stocks $ 134,875
Mutual Funds (219,934) Mutual Funds (110,805)
------------ -------------
Total $ (263,412) Total $ 24,070
============ =============
</TABLE>
During 1998 and 1997, sales proceeds and gross realized gains and losses on
investments classified as available for sale were:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales proceeds $ 588,635 $ 2,478,627
============= =================
Gross realized gains $ 85,701 $ 112,409
============= =================
Gross realized losses $ (24,335) $ (40,277)
============= =================
</TABLE>
OTHER INVESTMENTS:
Other investments consist of interests in limited partnerships. The limited
partnerships invest in publicly traded securities with readily determinable
market values. The Company accounts for these investments utilizing the equity
method of accounting. Income and losses are recorded based on the Company's
beneficial interest. The balance in the limited partnership interests were
$2,903,559 in 1998 and $2,271,991 in 1997.
20
<PAGE>
NOTE 4 - INVENTORIES:
Inventories consist of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 819,331 $ 1,690,741
Work in progress 47,594 91,721
Finished goods 2,588,874 2,809,373
----------- -----------
Total $ 3,455,799 $ 4,591,835
=========== ===========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Land $ 0 $ 489,600
Building and building
Improvements 0 4,966,712
Machinery and equipment 8,177,427 7,996,624
Furniture and fixtures 366,285 366,285
Automobiles and trucks 159,309 159,308
-------------- ---------------
8,703,021 13,978,529
Less - accumulated depreciation (7,142,467) (8,880,367)
-------------- ---------------
Property, plant and equipment, net $ 1,560,554 $ 5,098,162
============== ===============
</TABLE>
21
<PAGE>
NOTE 6 - NOTE PAYABLE BANK:
The Company has a revolving line of credit with a bank, which expires December
31, 1998. In February, 1998, the agreement was amended to reduce the amount
available from $7,500,000 to $5,500,000 subject to a borrowing base of 80% of
eligible accounts and 50% of eligible inventory less $250,000. Eligible
inventory is limited to $1,500,000. The line of credit is collateralized by
substantially all assets of the New Jersey and Texas operating companies, a
pledge of a certain money market account totaling $2,140,338 at September 30,
1998 and the guarantee of the debt by the Delaware holding company. Interest is
payable monthly at the prime rate (8% at September 30, 1998) plus 1/2%. The
amount outstanding against the line of credit at September 30, 1998 and 1997 was
$2,459,052 and $3,932,020, respectively. The balance outstanding on the line of
credit at September 30, 1998 includes checks issued in excess of amounts on
deposit in the amount of $409,009.
The line of credit agreement contains certain limitations and measurement
requirements. At September 30, 1998, the Company was in violation of three of
these covenants. The Company has received a waiver of these violations from its
bank at September 30, 1998. In addition, the line of credit restricts the
companies obligated under the agreement from paying dividends to its parent
company. At September 30, 1998 and 1997, net assets of $5,145,302 and
$6,464,009, respectively, were restricted.
NOTE 7 - INCOME TAXES:
The composition of the (provision) benefit for income taxes for the years ended
September 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $(237,875) $701,765 $1,786,483
State 0 (15,983) 0
--------- -------- ----------
(237,875) 685,782 1,786,483
--------- -------- ----------
Deferred:
Federal 234,068 119,864 5,136
State 149,369 23,008 (35,008)
--------- -------- ----------
383,437 142,872 (29,872)
--------- -------- ----------
Total $ 145,562 $828,654 $1,756,611
========= ======== ==========
</TABLE>
The fiscal 1997 and 1996 federal tax provision reflects the realization of the
Company's net deferred tax assets due to the carryback of the taxable loss. At
September 30, 1997 approximately $922,000 of recoverable income taxes relate to
the carryback. The Company has state net operating loss carryforwards of
$8,527,000, available to offset future state taxable income. These state net
operating loss carryforwards expire in the years 2000 through 2004.
Reconciliations of income taxes with the amounts which would result from
applying the U.S statutory rate are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Benefit at statutory rate $ 54,858 $1,121,116 $1,753,535
State income taxes, net of federal income tax
benefit 11,650 0 0
Prior year (over) under accruals 79,054 (292,462) 0
Other, net 0 0 3,076
-------- ---------- ----------
Income tax benefit $145,562 $ 828,654 $1,756,611
======== ========== ==========
</TABLE>
22
<PAGE>
The components of the deferred tax asset (liability) at September 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Inventory reserves $ 289,000 $ 499,700
Allowance for doubtful accounts 133,600 307,300
Reserve accruals 112,900 258,700
Gain on sale of building 805,800 0
Unrealized loss on securities 100,100 9,100
Other 246,400 221,500
Limited Partnership income (39,500) (281,600)
Depreciation (251,000) (775,800)
State net operating loss 505,500 557,100
---------- ---------
Total 1,902,800 796,000
Less Valuation Allowance (980,800) (555,000)
---------- ---------
Net deferred tax asset $ 922,000 $ 241,000
========== =========
</TABLE>
The valuation allowance increased primarily as a result of the gain on the sale
of the building.
These amount have been presented in the financial statements as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current deferred tax asset $135,600 $ 882,000
Noncurrent deferred tax asset 786,400 0
Noncurrent deferred tax liability 0 (641,000)
-------- ---------
$922,000 $ 241,000
======== =========
</TABLE>
NOTE 8 - SHAREHOLDERS' EQUITY:
In November 1995, the Board of Directors adopted the Company's 1995 Stock Option
Plan to permit the issuance of incentive stock options under Section 422 of the
Internal Revenue Code. There are 500,000 shares of common stock authorized for
non-qualified and incentive stock options under the 1995 plan, which are subject
to adjustment in the event of stock splits, stock dividends and other
situations. Under the plan, no options may be grated more than ten years after
the effective date of plan. The exercise price of all incentive stock options
granted under the option plan may be no less than fair market value of such
shares on the date of grant. Stock option activity for 1998, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Options outstanding at October 1 347,300 316,300 303,300
Options granted 61,000 115,000 48,000
Options expired/exercised (38,000) (84,000) (35,000)
--------- --------- ---------
Options outstanding at September 30 370,300 347,300 316,300
========= ========= =========
Options exercisable at September 30 309,300 347,300 316,300
========= ========= =========
Options available for grant at September 30 276,000 337,000 452,000
========= ========= =========
Options price range at September 30 $1.875 to $1.875 to $1.875 to
$7.975 $7.975 $7.975
</TABLE>
23
<PAGE>
Options outstanding at September 30, 1998 have an average exercise price of
$3.65 and a remaining contractual life of 5.8 years. Options outstanding at
September 30, 1997 have an average exercise price of $3.97 and a remaining
contractual life of 6.8 years. Options outstanding at September 30, 1996 have
an average exercise price of $4.31 and a remaining life of 6.4 years.
Financial Accounting Standards Board Statement No. 123 ("SFAS No. 123") requires
pro forma information regarding net loss and loss per share as if the Company
has accounted for its employee stock options granted under the fair value method
of SFAS No. 123. The fair value of these equity awards was estimated at the
date of granting using the Black-Scholes option pricing methods. The weighted
average assumptions used were: risk free interest rate of 5.47%; expected
volatility of 1.08%; expected option life of five to ten years and an expected
dividend rate of 0.0%.
The proforma effect on net loss per share is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net Loss As reported $ (15,781) $(2,468,747) $(3,400,844)
Proforma (102,582) (2,589,424) (3,474,315)
Loss per share As reported (.004) (.68) (.917)
Proforma (.03) (.71) (.96)
</TABLE>
24
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
LEASES:
The Company has certain operating leases, primarily for the New Jersey and Texas
operating facilities, expiring at various dates.
Total rental expenses amounted to $372,773 in 1998; $323,076 in 1997; and
$410,508 in 1996.
As of September 30, 1998, minimum rental payments under noncancelable operating
leases were as follows:
YEAR AMOUNT
---- ------
1999 $ 551,045
2000 500,000
2001 307,796
------------
Total $1,358,841
============
In May 1998, the Company entered into a contract to sell the office and
production facility in New Jersey for a total price of $4,500,000. In addition,
the Company entered into an agreement to lease the facility back for a period of
three years plus, at the Company's option, an additional two three-year renewal
periods. The Company has no obligation to renew the lease beyond its original
term. The total gain of $1,070,661 has been deferred and is being recognized
over the term of the original lease in the monthly amount of $29,741. The
amount of the gain deferred at September 30, 1998 was $932,664. The total gain
recognized to date was $137,997 at September 30, 1998. The lease calls for
monthly rental payments of $41,667 over the term of the lease.
SERVICE CONTRACTS:
The Company had an agreement with an outside contractor to perform warehousing
and distribution services for the Fort Worth, Texas facility. The services
included staffing and managing personnel, provision of all equipment, material,
and services in order to maintain the facility, and the design of a warehouse
management system. The agreement was terminated in May 1997. The Company
incurred a charge of $150,000 which is classified in other income, net related
to the early termination of the contract. Total service contract expense was
$91,322 in 1997 and $204,844 in 1996.
CONTINGENCIES:
The Company has agreements with certain customers and vendors which include
potential rebates, commissions and other liabilities upon the fulfillment of
certain terms and conditions. Management has estimated and recorded contingent
liabilities of approximately $54,000, $145,000 and $690,000 at September 30,
1998, 1997 and 1996, respectively, related to these agreements and other
potential liabilities.
25
<PAGE>
NOTE 10 - PROFIT SHARING AND DEFERRED COMPENSATION PLAN:
The company has a defined contribution plan covering substantially all employees
and provides benefits upon retirement, death or termination of employment.
Amounts attributable to participant accounts are based on their compensation and
the meeting of a required vesting schedule. The plan provides for contributions
determined annually by the Board of Directors. The Company's policy is to
currently fund all contributions determined by the Board of Directors. The
Company makes matching contributions equal to 50% of employee contributions up
to 5%. Total employer contributions were $73,591 in 1998, $105,262 in 1997 and
$337,408 in 1996.
In April, 1997 the Board of Directors approved a severance and consulting
agreement with the former President upon his resignation. The agreement provides
for guaranteed payments for two years aggregating $164,000 for severance and
$164,000 for consulting services, respectively. The Company expensed the entire
$328,000 liability in fiscal 1997.
In 1995, the Board of Directors approved upon the termination of his employment,
the payment to the President and Chairman of the Board, of $100,000 per year for
four years in recognition of past services. Accordingly, $400,000 in deferred
compensation liability was recognized and included in the 1995 financial
statements. As a result of the losses from operations in 1996, the Board of
Directors terminated the Chairman's deferred compensation plan. Accordingly, the
$400,000 liability was reversed in 1996 as a reduction of general and
administrative expenses.
NOTE 11 - SEGMENT INFORMATION:
The Company currently operates in three basic segments or lines of business.
These segments are (1) stock continuous forms and cut sheets, (2) custom
continuous forms and cut sheets, and (3) retail papers and office products,
including computer/printer hardware and software products. The following table
sets forth certain financial information with respect to these segments and
reconciles such information to the consolidated financial statements.
<TABLE>
<CAPTION>
YEAR-ENDED SEPTEMBER 30,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales of products and services:
Stock forms $19,108,304 $41,855,871 $48,231,271
Custom forms 6,208,368 5,938,617 7,232,703
Retail, office products, hardware/software 9,546,937 3,879,437 1,978,053
----------- ----------- -----------
Total $34,863,609 $51,673,925 $57,442,027
=========== =========== ===========
Segment operating income (loss):
Stock forms $(1,673,109) $(2,742,349) $(4,460,757)
Custom forms 189,875 291,784 (159,855)
Retail, office products, hardware/software 620,575 (492,929) (999,189)
Corporate 99,173 (428,393) 124,376
----------- ----------- -----------
Total $ (763,486) $(3,371,887) $(5,495,424)
=========== =========== ===========
Corporate Consolidated income (loss) before
taxes:
Segment operating loss $ (763,486) $(3,371,887) $(5,495,424)
Interest expense (272,473 (316,807) (347,113)
Other income, net 874,616 391,293 685,082
----------- ----------- -----------
Total $ (161,343) $(3,297,401) $(5,157,455)
=========== =========== ===========
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C> <C>
Assets:
Stock forms $ 6,319,829 $ 8,458,771 $12,844,233
Custom forms 2,339,987 2,028,064 2,921,664
Corporate 11,809,990 12,483,928 12,975,104
----------- ----------- -----------
Total consolidated $20,469,806 $22,970,763 $28,741,001
=========== =========== ===========
Capital expenditures:
Stock forms $ 334,549 $ 64,134 $ 190,683
Custom forms 113,159 8,697 85,258
Corporate 20,773 49,024 179,990
----------- ----------- -----------
Total consolidated $ 468,481 $ 121,855 $ 455,931
=========== =========== ===========
Depreciation expense:
Stock forms $ 372,453 $ 425,974 $ 451,835
Custom forms 154,808 227,020 263,688
Corporate 242,357 436,009 418,797
----------- ----------- -----------
Total consolidated $ 769,618 $ 1,089,003 $ 1,134,320
=========== =========== ===========
</TABLE>
Segment operating income is determined by deducting from sales of products and
services, cost of products sold, and selling, general and administrative
expenses directly related or allocable to the segment. Not included in segment
operating income are certain income and expense items such as interest income
and expense, other income and income taxes.
NOTE 12 - OTHER EXPENSE (INCOME), NET:
Other expense (income), net, consists of the following for the years ending
September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Equity in Limited partnership interests $(461,316) $(401,108) $(642,836)
Gain on sale of investments (61,366) (72,132) (218,623)
Gain on sale of property and equipment (122,975) (88,453) (46,066)
Interest income (247,928) (124,713) (152,373)
Service contract settlement 0 150,000 0
Other, net 18,968 145,113 374,816
--------- --------- ---------
Total $(874,617) $(391,293) $(685,082)
========= ========= =========
</TABLE>
27
<PAGE>
NOTE 13: CONCENTRATIONS OF CREDIT RISK
The Company maintains accounts with several stock brokerage firms. The accounts
contain cash and securities. Balances are insured up to $500,000 (with a limit
of $100,000 for cash) by the Securities Investor Protection Corporation.
NOTE 14: RELATED PARTY TRANSACTIONS
The Company has made certain advances and sales to a related company. The total
amount due from the related party at September 30, 1998 and 1997 was $399,880
and $15,065, respectively. Total sales to the company for the years ended
September 30, 1998, 1997 and 1996 were $298,000, $150,735 and $83,857,
respectively.
NOTE 15: STOCK BUY-BACK PROGRAM
In September 1998, the Company began a buy-back program of up to 100,000 shares
of its common stick at prevailing market prices. At September 30, 1998, the
company had not purchased any of its common shares under this program.
NOTE 16: SUBSEQUENT EVENTS
In October 1998, the Company declared a special one-time cash dividend of $.20
per share, payable on January 5, 1999. The amount of the dividend to be paid
will be approximately $715,000.
In addition, the Company established a new wholly-owned subsidiary, Retail
Converters, Inc., which markets converting, packaging and fulfillment service of
retail paper products to branded aftermarket suppliers. At September 30, 1998,
there was no activity related to this subsidiary.
28
<PAGE>
PARIS CORPORATION
-----------------
SCHEDULE II
-----------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
<TABLE>
<CAPTION>
BALANCE AT BEGINNING ADDITIONS CHARGED TO BALANCE AT
OF PERIOD COST AND EXPENSES DEDUCTIONS END OF PERIOD
-------------------- -------------------- ---------- -------------
<S> <C> <C> <C> <C>
For the year ended
September 30, 1998:
Allowance for
doubtful accounts: $ 627,039 $120,000 $429,581 $ 317,458
Allowance for
contingency reserve: $ 98,362 $ 0 $ 98,362 $ 0
Allowance for
inventory obsolescence: $1,314,919 $ 0 $554,328 $ 760,591
For the year ended
September 30, 1997:
Allowance for
doubtful accounts: $ 415,536 $240,000 $ 28,497 $ 627,039
Allowance for
contingency reserve: $ 690,000 $ 0 $591,638 $ 98,362
Allowance for
inventory obsolescence $ 989,990 $406,164 $ 81,235 $1,314,919
For the year ended
September 30, 1996:
Allowance for
doubtful accounts: $ 505,379 $ 40,000 $129,843 $ 415,536
Allowance for
contingency reserve: $ 0 $690,000 $ 0 $ 690,000
Allowance for
inventory obsolescence $1,078,588 $ 0 $ 88,598 $ 989,990
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
None.
29
<PAGE>
INDEPENDENT AUDITORS REPORT
---------------------------
To The Shareholders and
Board of Directors
Paris Corporation
Burlington, New Jersey:
We have audited the accompanying consolidated balance sheets of Paris
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended September 30, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Paris
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
Our audits referred to above also included audits of the financials statement
schedules listed under Item 14(a) (2). In our opinion, those financial
statement schedules present fairly, in all material respects, in relation to the
basic consolidated financial statements taken as a whole, the information
required to be stated therein.
Parente, Randolph, Orlando, Carey & Associates, LLC
Philadelphia, Pennsylvania
November 11, 1998
30
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Company are elected for a term of one year. The current
Directors and Officers of the Company, together with their ages, positions,
backgrounds, and business experiences are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Dominic P. Toscani, Sr. 70 President, Chief Executive
(4) Officer, Treasurer and
Chairman of the Board of
Directors
Gerard M. Toscani 38 Senior Vice President
(3), (4) and Director
Thomas A. Baglio 37 Vice President of Retail Sales
Palmer E. Retzlaff 67 Director
(2), (3)
Frank A. Mattei, M.D. 77 Director
(1), (2)
Oscar Tete 74 Director
(1)
John V. Petrycki 58 Director
(1), (3)
James Quinn 50 Vice President, Operations
William L. Lomanno 31 Chief Financial Officer
</TABLE>
(1) Member of Compensation and Stock Option Committee
(2) Member of Audit Committee
(3) Member of the Investment and Finance Committee
(4) Dominic P. Toscani, Sr. is the father of Gerard M. Toscani
Dominic P. Toscani, Sr. is the founder of the Company, has served as a
Director and has been responsible for its management since its inception.
Prior to the founding of the Company, Mr. Toscani was a practicing attorney.
Gerard M. Toscani became a Director of the Company in 1992. He was appointed
Senior Vice President during fiscal 1990 and was the Company's Vice President
of Sales and Marketing since January 1987. He previously served as Sales and
Marketing Manager since September 1982.
Thomas A. Baglio became Vice President of Sales in May of 1992. He served as
Regional Sales Manager for the Company since January 1991. For the three
years prior to January 1991 he was a Sales Manager with SCM Allied Paper.
31
<PAGE>
Palmer E. Retzlaff became a Director in November 1993. He has been President
of Southwest Grain Co., Inc. since 1973. Previously he was the General Manager
of the Philadelphia Eagles.
Frank A. Mattei was elected to the Board of Directors in March 1986. He has
been a practicing orthopedic surgeon over the past five years and is
associated with North Philadelphia Health System, (formerly Girard Medical
Center), and St. Agnes Medical Center in Philadelphia.
Oscar Tete was elected to the Board of Directors in March 1986. Mr. Tete
retired in 1990. He was an Executive Vice President of First Fidelity Bank in
Burlington, New Jersey since 1972.
John Petrycki was elected to the Board of Directors in August 1995. Mr.
Petrycki retired in 1995. He was President and CEO of PNC Bank in south
central Pennsylvania.
James Quinn became Vice President Operations in August 1998. For the prior
three years he was Vice President Operations at RapidForms. During the
preceding eight years he was Director of Manufacturing for Histacount
Corporation.
William L. Lomanno became Chief Financial Officer in April 1998. He has been
with the Company for eight years and has previously served as the Controller
and Accounting Manager for the Company.
32
<PAGE>
ITEM 11 - SUMMARY COMPENSATION
The following table contains information regarding the individual
compensation of the three most highly compensated officers of the Company in
fiscal years 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------------
NAME AND FISCAL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS ANNUAL
COMPENSATION (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dominic P. Toscani, Sr. 1998 $262,415 $ 2,521 $2,604
Chairman of the Board 1997 $268,040 0 $5,630
and President 1996 $303,102 $20,000 $5,630
Gerard M. Toscani 1998 $164,008 $ 1,577 $3,164
Senior Vice President 1997 $177,622 0 $4,625
1996 $198,712 $20,000 $4,625
Dominic P. Toscani, Jr. 1998 $198,404 0 $ 0
Senior Vice President 1997 $145,232 0 $2,785
and Secretary (2) 1996 $198,712 $20,000 $2,785
</TABLE>
(1) Represents the use of a company car.
(2) The 1998 Salary represents payout of the April 1997 severance and
consulting agreement.
33
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(AS NOVEMBER 15, 1998)
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership (1) Class (1)
- -------- ------------------- ------------------------ ----------
<S> <C> <C> <C>
Common Dominic P. Toscani (2) 1,128,278 31.7%
Stock and Nancy C. Toscani
122 Kissel Road
Burlington, NJ 08016
Common Frank A. Mattei 1,064,831 30%
Stock 1016 Mercer Street
Cherry Hill, NJ 08034
Common The Caritas Foundation (3) 363,835 10.2%
Stock 700 Hobbs Road
Wayne, PA 19087
</TABLE>
(1) Based on 3,554,645 shares outstanding and 350,300 options currently
exercisable on November 15, 1998.
(2) Includes 995,027 shares personally held; 41,506 shares held by Paris
Corporation Profit Sharing Plan of which Mr. Toscani is the Plan Trustee;
14,745 shares held by Toscani Investment Company, a family partnership; and
77,000 options exercisable as of November 15, 1998.
(3) The Caritas Foundation, a tax exempt organization formed under Section
501(C)(3) of the Internal Revenue Code of 1954, as amended, was organized
in 1984 by Dominic P. Toscani, Sr. to promote the objectives of free
enterprise and to support individual freedom. At the present time Reverend
Peter Toscani, O.S.A., is sole trustee of the foundation.
34
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AS OF NOVEMBER 15, 1998
<TABLE>
<CAPTION>
Shareholder Shares owned (1) Percent (1)
<S> <C> <C>
Dominic P. Toscani, Sr. (2) (4) 1,128,278 31.7%
and Nancy C. Toscani
122 Kissel Road
Burlington, NJ 08016
Frank A. Mattei 1,064,831 30%
122 Kissel Rd.
Burlington, NJ 08016
The Caritas Foundation (3) 363,835 10.2%
Henry Partners, L.P. 187,000 5.3%
Gerard M. Toscani (4) 135,487 3.8%
Dominic P. Toscani, Jr. (4) 101,210 2.8%
Palmer E. Retzlaff 11,000 *
Oscar Tete 9,102 *
John Petrycki 7,000 *
All Directors (present and proposed) 2,752,533 77.4%
and officers as a group (10 persons) (4)
</TABLE>
* Less than 1%
(1) Based on 3,554,645 shares outstanding and 350,300 options currently
exercisable on November 15, 1998.
(2) Includes 995,027 shares personally held; 41,506 shares held by Paris
Corporation Profit Sharing Plan of which Mr. Toscani is the Plan Trustee;
14,745 shares held by Toscani Investment company, a family partnership; and
77,000 options exercisable as of November 15, 1998.
(3) The Caritas Foundation, a tax exempt organization formed under Section 501
(c) (3) of the Internal Revenue code of 1954, as amended, was organized in
1984 by Dominic P. Toscani, to promote the objectives of free enterprise
and to support individual freedom. At the present time Reverend Peter
Toscani, O.S.A., is sole trustee of the Foundation. The Foundation's
address is 700 Hobbs Road, Wayne, Pennsylvania 19087.
(4) Includes options currently exercisable individually and all officers as a
group (196,000).
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no other material relationships or transactions which qualify for
disclosure under this caption.
35
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
This consolidated financial statements and related schedules filed as part of
this Annual Report on Form 10-K are included in Part II, Item 8.
EXHIBITS:
The following exhibits (with the exception of Exhibit 3.4, 10.5(b), 10.7 And
22(a)) are incorporated by reference to the Company's registration statement on
Form S-18 (no.-3-3344-W) filed February 13, 1986 with the Securities and
Exchange Commission and effective march 25, 1986. Exhibit 3.4, 10.5(b) And 10.7
are incorporated by reference to the Company's fiscal 1989 Form 10-K filed with
the Securities and Exchange Commission on December 19, 1989. Exhibit 22(a) is
incorporated by reference to the Company's fiscal 1990 Form 10-K filed with the
Securities and Exchange Commission on December 27, 1991.
3.1 Articles of Incorporation of the Company.
3.2 Amendment to Articles of Incorporation, dated January 6, 1986.
3.3 Amendment to Articles of incorporation, dated January 7, 1986.
3.4 By-laws of Company, as amended.
4.2(a) Form of Warrant to Purchase Common Stock of Company.
10.5 Company's Profit Sharing Plan, dated October 1, 1979.
10.5(a) Amendment to Profit Sharing Plan, dated October 2, 1985.
10.5(b) Amendment to Profit Sharing Plan, dated October 1, 1986.
10.6 Company's Stock Option Plan, dated October 1, 1985.
10.7 Line of Credit (loan agreement) of $2,000,000 from the Fidelity
Bank.
10.9 Bucks County Industrial Development Authority Loan Agreement for
1,500,000 dated April 10, 1985.
10.9(a) Letter Amendment, dated March 4, 1986 from Special Counsel to
Fidelity Bank.
10.9(b) Letter Amendment, dated March 5, 1986 from Fidelity Bank to
Special Counsel.
10.10 New Jersey Economic Development Authority Note for 3,000,000 by
Company, dated September 10, 1985.
10.10(a) Letter Agreement, dated March 4,1986 from Special Counsel to
Fidelity Bank.
10.10(b) Letter Amendment dated March 5, 1986 from Fidelity Bank to
Special Counsel.
10.10(c) Letter dated, March 24, 1986 from Special Counsel to Fidelity
Bank with respect to the New Jersey Economic Development
Authority Loan.
21(a) List of Subsidiaries.
REPORTS ON FORM 8-K
None.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on behalf
by the undersigned, thereunto duly authorized.
PARIS CORPORATION
Date: 12/29/98 By: /s/ Dominic P. Toscani, Sr.
-------------------- ------------------------------
Dominic P. Toscani, Sr.,
(President, Chairman Board of Directors)
Date: 12/29/98 By: /s/ William L. Lomanno
-------------------- ------------------------------
William L. Lomanno
(Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES
/s/ Dominic P. Toscani, Sr. 12/29/98 /s/ Frank A. Mattei 12/29/98
_____________________________________ ______________________________
Dominic P. Toscani, Sr. (Date) Frank A. Mattei (Date)
(President, Chairman Board of Directors) (Director)
/s/ William L. Lomanno 12/29/98 /s/ Palmer E. Retzlaff 12/29/98
____________________________________ _______________________________
William L. Lomanno (Date) Palmer E. Retzlaff (Date)
(Chief Financial Officer) (Director)
/s/ Gerard M. Toscani 12/29/98 /s/ Oscar Tete 12/29/98
____________________________________ ____________________________
Gerard M. Toscani (Date) Oscar Tete (Date)
(Director) (Director)
/s/ John V. Petrycki 12/29/98
____________________________________
John V. Petrycki (Date)
(Director)
37
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 4,073,427
<SECURITIES> 4,370,213
<RECEIVABLES> 3,981,700
<ALLOWANCES> 317,458
<INVENTORY> 3,455,799
<CURRENT-ASSETS> 18,064,652
<PP&E> 8,703,021
<DEPRECIATION> 7,142,467
<TOTAL-ASSETS> 20,569,806
<CURRENT-LIABILITIES> 5,638,502
<BONDS> 0
0
0
<COMMON> 16,851
<OTHER-SE> 14,339,775
<TOTAL-LIABILITY-AND-EQUITY> 20,569,806
<SALES> 34,863,609
<TOTAL-REVENUES> 34,863,609
<CGS> 31,851,996
<TOTAL-COSTS> 35,024,952
<OTHER-EXPENSES> (874,617)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272,473
<INCOME-PRETAX> (161,343)
<INCOME-TAX> (145,562)
<INCOME-CONTINUING> (15,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,781)
<EPS-PRIMARY> (.004)
<EPS-DILUTED> (.004)
</TABLE>
