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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from January 1, 2000 to June 30, 2000
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Commission file number 0-17458
WRP CORPORATION
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(Exact name of registrant as specified in its charter)
MARYLAND 73-1326131
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(State of incorporation) (I.R.S. Employer Identification No.)
500 PARK BOULEVARD, SUITE 1260
ITASCA, IL 60143
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(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 285-9191
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $0.01 per share None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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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. [ ]
Aggregate market value of voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the stock as reported on Nasdaq
on September 19, 2000: $4,655,838.
At September 19, 2000, 5,603,892 shares of the Registrant's Common
Stock and 1,252,538 shares of Series A Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
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WRP CORPORATION
FORM 10-K
FOR THE SIX MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PART I PAGE
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ITEM 1. BUSINESS.................................................................................1
ITEM 2. PROPERTIES...............................................................................5
ITEM 3. LEGAL PROCEEDINGS........................................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................8
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................................................9
ITEM 6. SELECTED FINANCIAL DATA..................................................................10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................................11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..............................................................................21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE......................................................27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................27
ITEM 11. EXECUTIVE COMPENSATION...................................................................31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...........................................................................35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS OF FORM 8-K...................................36
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PART I
ITEM I. BUSINESS(1)
GENERAL
WRP Corporation is a leading marketer of medical examination and
surgical gloves in the United States through our wholly owned subsidiary,
American Health Products Corporation ("AHPC"). We are also a manufacturer of
high quality disposable latex examination gloves through our 70% owned
Indonesian manufacturing facility. We were reincorporated in Maryland in
December 1995 and have been involved in several business operations. Since
July 1, 1997, we have been solely focused on the glove business and all other
business activities ceased. In June 1997, we discontinued our sales of Playboy
condoms after we reached an agreement with Playboy Enterprises, Inc. to
terminate its license agreement under which we distributed condoms in 15
countries.
In October, 1995, we acquired a 70% interest in an Indonesian latex
examination glove manufacturing plant, PT WRP Buana Multicorpora ("PT Buana"),
which was in the start-up phase of operations at that time. We purchased PT
Buana from MBf International Limited ("MBf International"), a Hong Kong
corporation, which was a subsidiary of MBf Holdings Bhd. ("MBf Holdings"), a
Malaysian publicly traded company which was listed on the Kuala Lumpur Stock
Exchange. PT Buana began shipping powdered latex examination gloves to AHPC in
May 1996 after operations commenced in April 1996. During 1999, PT Buana
purchased machinery and equipment which enabled the factory to manufacture
powder-free latex exam gloves.
On February 27, 1992, we acquired AHPC from MBf International. As a
result of such acquisition, MBf International acquired control of us by virtue
of the issuance of 1,252,538 shares or 100% of the Series A Common Stock, which
controls the election of a majority of our Board of Directors.
The Series A Common Stock is substantially the same as our Common Stock
except that each share of Series A Common Stock is convertible into one share of
our Common Stock and the Series A Common Stock entitles the holder to elect all
Class A directors, which represent a majority of our Board of Directors.
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(1) Some of the statements included in Item 1, "Business", may be
considered to be "forward looking statements" since such statements relate to
matters which have not yet occurred. For example, phrases such as "we
anticipate," "believe" or "expect" indicate that it is possible that the event
anticipated, believed or expected may not occur. Should such event not occur,
then the result which we expected also may not occur or occur in a different
manner, which may be more or less favorable to us. We do not undertake any
obligations to publicly release the result of any revisions to these forward
looking statements that may be made to reflect any future events or
circumstance.
Readers should carefully review the items included under the subsection
"Risks Affecting Forward Looking Statements and Stock Prices" set forth under
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" as they relate to forward looking statements since actual results
could differ materially from those projected in the forward looking statements.
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At December 31, 1997, MBf International owned all 1,252,538 shares of
our Series A Common Stock and 1,682,275 shares of our Common Stock. On March 31,
1998, we announced that our majority shareholder, MBf International, had
consummated the closing of two separate agreements (entered into in May 1997)
with WRP Asia Pacific Sdn. Bhd. ("WRP Asia"), formerly known as Wembley Rubber
Products (M) Sdn. Bhd., our supplier of latex powder-free exam gloves. These
agreements transferred majority ownership in us to WRP Asia and were as follows:
1. MBf International sold all of our Series A Common Stock (1,252,538
shares) to WRP Asia for $5.00 per share or $6,262,690; and
2. WRP Asia purchased 2,500,000 shares of our unregistered Common
Stock for $2.70 per share for a total of $6,750,000. The purchase
price of $2.70 per share reflected a 12% discount from the average
stock price over a seven consecutive business day range ended May
9, 1997, as detailed by a fairness opinion received from an
independent valuation firm.
These transactions provided WRP Asia with a 55.0% ownership interest in
us at March 31, 1998. At June 30, 2000, WRP Asia had a 54.6% ownership interest
in us.
WRP Asia is one of the world's leading manufacturers of high quality
disposable gloves, primarily for use by healthcare professionals in the acute
care, alternative care and foodservice markets, and for critical environments in
the electronics industries, scientific laboratories, pharmaceutical industries
and other related industries. AHPC has been purchasing the majority of its
powder-free latex exam gloves from WRP Asia for several years and continues to
do so.
At December 31, 1998, MBf International owned 1,682,275 shares of our
Common Stock which represented a 24.4% ownership interest in us at that time. In
January 1999, MBf International sold its 1,682,275 shares to several U.S.
institutional investors, thus eliminating any ownership interest in us.
As of September 19, 2000, the shares of Series A Common Stock issued to
WRP Asia constituted 18.3% of the total combined issued and outstanding shares
of Series A Common Stock and Common Stock. Upon conversion, such shares (when
coupled with the 2,500,000 shares of Common Stock acquired by WRP Asia) will
represent a total ownership in us by WRP Asia of 54.7% of the then outstanding
shares of Common Stock, excluding shares subject to issuance pursuant to
outstanding warrants and stock options.
GLOVE PRODUCTS
Through our wholly owned subsidiary, AHPC, we market a full product
line of disposable gloves including latex, vinyl, synthetic and nitrile
examination and surgical gloves used primarily in the medical, foodservice,
dental and retail industries. Gloves marketed by AHPC are manufactured by PT
Buana, WRP Asia and other third parties. Gloves are marketed by AHPC under the
brand names "DermaSafe(R)", "Glovetex(R)", "ProFeel(R)" and "SafePrep(TM)" to
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medical/surgical distributors, dental distributors, nursing homes and
foodservice distributors. AHPC also sells gloves to other companies which market
the gloves under their own brand names or "private labels." The gloves are sold
in cases which are generally comprised of 10 boxes with 100 gloves per box.
During April 2000, AHPC announced the launch of a surgical glove line
under the "ProFeel(R)" brand label. Surgical glove sales are expected to begin
in October 2000. Expansion of the product line into other products is planned
and AHPC has identified for possible introduction in the future such products as
dry wipe towels for use in the foodservice market and other products related to
safety and contamination control. For the six months ended June 30, 2000, AHPC's
sales ratios of latex powdered, latex powder-free and non-latex glove sales were
approximately 27%, 48% and 25%, respectively. We anticipate that our sales ratio
of latex powdered exam gloves will continue to decline and be replaced with
powder-free and synthetic gloves, which is consistent with market trends.
Manufacturing Operations. The production of latex gloves begins with
the tapping of raw latex (natural polysporene) from rubber trees located on
plantations in Malaysia and Indonesia. Once gathered, the raw latex is sent to a
centrifuge where the latex is concentrated. PT Buana purchases the latex
concentrate and ships it to its production plant where the latex concentrate is
compounded in a proprietary formula to enhance glove durability, elasticity and
tactility. A controlled dipping process causes consistency from batch to batch
and eliminates air bubbles which can create pinholes. Glove-making formers,
which are in five sizes and designed for the American hand, are dipped in the
latex compound. The formers are cleansed both chemically and mechanically to
prevent residue buildup which could compromise glove integrity.
The PT Buana factory, which is 70% owned by us, has a production
capacity of approximately 840,000,000 latex gloves per year. The factory can be
expanded with additional manufacturing equipment to double its production
capacity. Prior to 1999, PT Buana manufactured only powdered latex exam gloves.
During the second quarter of 1999, PT Buana began purchasing and installing
chlorination equipment which enables the factory to produce powder-free latex
gloves. PT Buana has the capability to produce powder-free latex gloves equal to
approximately 50% of its total production capacity. PT Buana will continue to
produce powdered latex exam gloves to meet existing demand for these products
and will increase its powder-free glove production capabilities as needed. The
benefit to manufacturing powder-free exam gloves is increased profit margins
over powdered gloves and alignment with market trends towards powder-free
gloves.
Continuous quality control inspections are performed on the production
line by trained supervisors and independent quality control inspectors. Each
glove is visually inspected and a sample of gloves from each batch is tested in
the laboratory for leakage and visual defects.
Gloves are packaged in non-fibrous cases and then shipped either to a
leased warehouse in Itasca, Illinois, or to public warehouses located in Nevada,
Georgia, California, Wisconsin or Maryland, where they are warehoused for
delivery to medical, surgical, dental, nursing home and foodservice dealers.
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Powdered Latex Examination and Foodservice Glove Suppliers. PT Buana
and an unrelated Malaysian glove manufacturer supplied AHPC with its powdered
latex gloves inventory during the six months ended June 30, 2000. On July 12,
1995, AHPC entered into a five-year distribution agreement with this unrelated
factory to purchase a minimum quantity of powdered latex examination gloves each
year. During 1999, AHPC negotiated with this factory to reduce the minimum
monthly quantity of gloves to be purchased and extended the distribution
agreement through July 2001.
Latex Powder-Free Examination and Foodservice, Nitrile and Surgical
Glove Supplier. AHPC continues to purchase the majority of its latex powder-free
gloves from WRP Asia. In addition, WRP Asia supplies AHPC with its nitrile
gloves and will supply the Company with all its latex surgical glove needs. AHPC
also purchases latex powder-free gloves from PT Buana.
Non-Latex Examination and Foodservice Glove Suppliers. AHPC purchases
its non-latex examination and foodservice gloves from two unrelated suppliers in
Taiwan and China.
Non-Latex Surgical Glove Supplier. AHPC entered into an agreement to
purchase its non-latex surgical gloves from an unrelated supplier in Canada.
Markets and Methods of Distribution. AHPC markets its gloves through a
network of national, regional and local medical/surgical dealers that sell
primarily to hospitals and nursing homes. AHPC also markets to alternate care
and home health care dealers, dental dealers, food service distributors and
major retail outlets. The principal methods of marketing are trade shows,
telesales, advertising, seminars, direct mail and brokers, as well as sales
representatives. AHPC employs a sales force comprised of regional sales managers
and representatives, manufacturer sales representatives, tele-sales staff and an
in-house sales and marketing staff to cover the U.S.
FDA Regulation of Examination Glove Products. The quality control
procedures for the manufacture of examination gloves marketed in the United
States are regulated by the U.S. Food and Drug Administration ("FDA"). Included
within such procedures are minimum testing requirements, as well as FDA current
Quality Systems Regulations and American Society for Testing and Materials
("ASTM") standards.
Competition. The market for examination gloves is highly competitive.
With the discovery of the Acquired Immune Deficiency Syndrome/HIV virus ("AIDS")
in the 1980's, and the perception of the latex glove as being a barrier to
infection from AIDS and other communicable diseases, several companies entered
the glove industry, many of which failed or were acquired by other companies.
Further consolidation of companies in the industry may be expected to occur in
the future. The primary means of competition are price, product quality,
service, product availability and the reliability of the manufacturer.
Customers. During the six months ended June 30, 2000, two of AHPC's
national customers, Owens & Minor, Inc. and Sysco Corporation, accounted for 30%
and 45%, of net sales, respectively. The loss of either of such customers would
have a materially adverse effect on us. However, our products are ultimately
distributed by these two diversified distribution companies, through their
combined networks of over 100 operating companies, to thousands of
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medical facilities and foodservice organizations throughout the United States.
The ultimate end user of our products are the medical facilities, foodservice
organizations, professionals and individuals.
Patents and Trademarks. AHPC owns the trademarks "Dermasafe" and
"Glovetex", which are registered in the United States. AHPC is currently in the
process of registering the trademark name "SafePrep." AHPC's surgical glove line
will utilize the trademark name "ProFeel," which is a registered name owned by
WRP Asia.
LATEX CONDOM PRODUCTS
Through June 30, 1997, we sold condoms in packaging bearing the
Playboy(R) name and rabbit-head logo. Under the termination agreement, we
continued to sell Playboy(R) condoms until June 30, 1997 in the 15 countries
where it has launched the product. As of December 31, 1998, we completely
disposed of all assets and liabilities associated with the discontinued condom
operations.
Suppliers. Prior to October 1996, condoms bearing the Playboy(R) brand
name and rabbit-head design were manufactured primarily by MBf Personal Care
Sdn. Bhd. ("MBf Personal Care"), a Malaysian company owned indirectly by MBf
Holdings, which accounted for 95% of the condoms sold. Subsequent to October
1996, we purchased condoms from an unrelated manufacturer following the sale of
MBf Personal Care by its parent.
EMPLOYEES
As of June 30, 2000, our U.S. operations employed a total of 67
full-time and one part-time employee. AHPC also uses the services of one
manufacturer sales representative organization and 12 broker representative
organizations which do not work exclusively for AHPC and which are paid on a
commission basis. Our 70% owned Indonesian subsidiary, PT Buana, employed 1,002
full-time and part-time workers in its factory and administrative staff as of
that date. None of our employees are represented by a collective bargaining
agreement. We consider relations with our employees to be good.
INVESTMENT IN LSAI
In connection with the sale of the operations of LSAI (a drug testing
business purchased by certain members of former management), we received stock
of LSAI. During 1998, we sold all remaining shares of LSAI and thus have
entirely liquidated our investment in LSAI.
ITEM 2. PROPERTIES
Our principal executive and administrative office is located in Itasca,
Illinois. The lease term for this location, which was approximately five years,
commenced on March 1, 1995 and expired in May 2000. We are currently on a
month-to-month lease arrangement at the expired
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monthly lease rate. The first six months of 2000 lease cost was approximately
$78,000. We expect to enter into a new lease agreement for this office during
the second half of 2000.
In May 1999, we entered into a five-year lease agreement for a 55,000
square-foot warehouse facility located in Itasca, Illinois. The lease term for
this location commenced on August 1, 1999 and expires in July 2004. The annual
rental expense for this lease is approximately $316,700 per year.
AHPC also uses public warehouse facilities, as needed, to store its
inventory in Sparks, Nevada, Atlanta, Georgia, Union City, California, Fond Du
Lac, Wisconsin and Baltimore, Maryland. Public warehouse charges are dependent
upon the volume of products stored and the frequency of shipping or receiving
products.
In February 1999, AHPC entered into a three-year lease agreement for
1,877 square feet of office space located in San Diego, California to service
our TeleSales operations office. The lease term for this office space commenced
on June 1, 1999 and expires in May 2002. The current rental expense for this
lease is approximately $30,500 per year, with annual increases of approximately
3.5% per year.
ITEM 3. LEGAL PROCEEDINGS
At June 30, 2000, we, AHPC and PT (jointly the "WRP Defendants"),
had a total of 61 latex glove product liability suits pending against us
throughout the United States. Management believes all legal claims are
adequately provided for and, if not provided for, are without merit or involve
such amounts that would not materially adversely affect the Company. We were an
active defendant in three claims, AHPC in 35 claims and PT Buana in three
claims. Additionally, through a series of Private Label Supply and Trademark
Licensing Agreements with VHA, Inc. ("VHA"), AHPC agreed to defend and indemnify
VHA in 14 suits; AHPC was joined as a third party defendant in six claims by
distributors of AHPC latex gloves (collectively the "Vendors").
All of the claims involve plaintiffs that have worked in the medical
and health industries and who allege injuries associated with the continued use
and/or exposure to latex gloves products. In each of the claims, the WRP
Defendants are one of several glove distributors and manufacturers named in the
suits. Each of the claims allege damages of an unspecified amount and is in a
different stage of discovery or other pre-trial proceeding. One of the claims is
scheduled for trial in California in October 2000. It is not currently possible
to determine a favorable or unfavorable outcome for the WRP Defendants in any of
the claims.
Subsequent to June 30, 2000, AHPC was served with one additional
product liability lawsuit and agreed to defend and indemnify VHA in two
additional suits. In each of these claims the plaintiff alleged damages
associated with the use of or exposure to latex gloves. AHPC is one of several
defendants named in each of the suits.
AHPC possesses product liability insurance coverage which covers the
defense costs and certain damage awards associated with the product liability
claims against AHPC and the indemnity of AHPC's customers to the limits of the
policies. Management believes all legal claims are adequately provided for and,
if not provided for, are without merit or involve such amounts that would not
materially adversely affect the Company. However, there is no assurance that
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AHPC's insurance will be sufficient to meet all damages for which AHPC may be
held liable. Likewise, there is no assurance that the outcome of these suits
will not adversely affect our operations or financial condition.
AHPC will vigorously contest any latex claim initiated against it but
will enter into a settlement agreement, where, after careful consideration, our
management determines that our best interests will be served by settling the
matter. During the six months ended June 30, 2000, AHPC and the Vendors were
dismissed from ten latex gloves product liability claims.
From time to time we are involved in other litigation relating to
claims arising out of our operations in the normal course of business. At
September 19, 2000, we are not party to any other legal proceedings, the adverse
outcome of which, in management's opinion, individually or in the aggregate,
would have a material adverse effect on our financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on June
21, 2000. The purpose of the Annual Meeting was to consider the vote on the
following matters:
1. To elect six Class A directors and two Class B directors to hold office
until the next Annual Meeting of Shareholders or otherwise as provided
in the Company's By-Laws.
Class A Director Nominees
Kamaruddin Taib
Richard C.M. Wong
Edward J. Marteka
Kwong Ann Lew
George Jeff Mennen
Richard Swanson
Class B Director Nominees
Robert J. Simmons
Don L. Arnwine
The nominees for Class A directors received all 1,252,538 votes for
their election.
Each of the nominees for Class B directors received the following
number of votes:
For 5,210,622
Against 0
Abstain 50,770
Non-votes 407,300
2. To concur in the selection of Arthur Andersen LLP as independent
auditor for the six months ending June 30, 2000. The vote of the
Shareholders was as follows:
For 6,471,063
Against 42,430
Abstain 437
Non-votes 407,300
All of the above matters were approved by the Shareholders. There were
no other matters voted on at the meeting.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") SmallCap Stock Market under the
symbol "WRPC." The range of high and low sale prices as reported by Nasdaq for
the Common Stock is shown below.
COMMON STOCK PRICES
PERIOD ENDED:
LOW HIGH
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JUNE 30, 2000
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2nd quarter $ 1.13 $ 2.00
1st quarter $ 1.75 $ 2.38
DECEMBER 31, 1999
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4th quarter $ 2.00 $ 3.75
3rd quarter $ 3.50 $ 5.88
2nd quarter $ 5.25 $ 7.19
1st quarter $ 4.88 $ 7.88
DECEMBER 31, 1998
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4th quarter $ 4.75 $ 7.00
3rd quarter $ 4.28 $ 6.87
2nd quarter $ 5.50 $ 7.37
1st quarter $ 3.06 $ 5.87
There were approximately 300 shareholders of record of our Common Stock
as of September 19, 2000. We believe that there are approximately an additional
2,000 holders whose stock is held in "street name."
We have not paid a dividend with respect to the Common Stock. We expect
to reinvest our earnings for expansion of our operations and do not intend to
pay a dividend in the forseeable future.
In March 2000, we announced that our Board of Directors had authorized
a program to repurchase up to 10% of our public Common Stock. These purchases
may be made in the open market and in block transactions over a two-year period.
The program is subject to market conditions and its impact on share price as
well as other investment options that we may consider to enhance shareholder
value. During the six months ended June 30, 2000, we purchased 47,500 shares of
our Common Stock under this program. Subsequent to June 30 through September 19,
2000, we purchased 22,300 shares of our Common Stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of WRP Corporation presented
below for the six months ended June 30, 2000 and 1999 and for the five calendar
years ended December 31, 1999 should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included herein.
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SIX MONTHS ENDED
JUNE 30, 2000(1) FOR THE YEAR ENDED DECEMBER 31,
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(In thousands except per share amounts) 2000 1999 1999 1998 1997 1996 1995
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STATEMENT OF OPERATIONS DATA:
Net sales* $ 31,737 $ 30,946 $ 65,280 $ 64,968 $ 51,403 $ 45,811 $ 39,789
Gross profit 9,040 8,088 16,635 18,111 10,643 7,453 3,611
Selling, general & administrative
expenses* 6,997 5,484 6,160 12,295 9,955 8,227 6,684
Restructure charge -- -- -- -- -- -- 1,809
Minority interest in loss (income)
of subsidiary, net of tax (207) 128 97 (594) (300) (78) (2)
Income (loss) from continuing operations
before loss from discontinued operations 1,420 1,324 2,453 5,879 1,249 (248) (4,093)
Loss from discontinued operations -- -- -- -- (784) (917) (771)
Net income (loss) $ 1,420 $ 1,324 $ 2,453 $ 5,879 $ 466 $ (1,165) $ (4,864)
PER SHARE DATA:
Diluted earnings (loss) per share $ 0.21 $ 0.19 $ 0.35 $ 0.93 $ 0.11 $ (.32) $ (2.00)
BALANCE SHEET DATA (END OF PERIOD):
Total assets $ 35,854 $ 42,631 $ 40,194 $ 35,800 $ 29,531 $ 27,514 $ 26,373
Long-term debt $ 750 $ 1,477 $ 1,100 $ 1,669 $ 5,648 $ 7,098 $ 10,343
Total shareholders' equity $ 20,827 $ 18,346 $ 19,475 $ 16,941 $ 4,313 $ 3,531 $ 1,320
</TABLE>
* The 1995 through 1997 figures have been restated to reflect rebates as a
reduction of net sales to conform to the 2000, 1999 and 1998 presentation for
comparability purposes.
(1) In 2000, we elected to change our reporting period from a calendar year
ending December 31 to a fiscal year ending June 30. As a result, 2000 represents
a six-month transition period.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(2)
Our wholly owned subsidiary, American Health Products Corporation
("AHPC"), is engaged in the marketing and distribution of high quality medical
grade examination and surgical gloves and foodservice gloves in the United
States. We have been in the glove business since our incorporation in January
1989. For the six months ended June 30, 2000, we recorded net glove sales of
over $31.7 million.
Our 70% owned subsidiary, PT WRP Buana Multicorpora ("PT Buana"), owns
an Indonesian glove manufacturing plant which commenced operations in April
1996. PT Buana manufactures high quality, disposable powdered and powder-free
latex examination gloves.
PT Buana sold over 24% of its production to AHPC during the six months
ended June 30, 2000 as compared to 16% during the same period in 1999. PT Buana
recorded glove sales totaling $7.3 million and $5.2 million during the six
months ended June 30, 2000 and 1999, respectively. PT Buana's remaining
production was primarily sold to WRP Asia. All significant inter-company
transactions and sales have been eliminated in consolidation.
This analysis of our results of operations and financial condition
should be viewed in conjunction with the financial statements and other
information concerning us included throughout this Annual Report. The
consolidated financial statements for the six months ended June 30, 2000 and
1999 and for the years ended December 31, 1999, 1998 and 1997 include our
results of operations and statements of cash flows, as well as for AHPC and PT
Buana.
During the six months ended June 30, 2000, several significant events
transpired. In January, we announced that the group purchasing organization,
Novation, will not renew its glove supply contract with AHPC, which expired on
April 30, 2000. We have been working toward the retention of the end user
medical facilities as our clients and converting business to AHPC's branded
glove products, DermaSafe and Glovetex. Through June 30, 2000, we have converted
over 35% of this business. We are emphasizing our own brand products which
creates brand loyalty and awareness in the marketplace.
During February 2000, our Board of Directors elected to change our
reporting period from a calendar year ending December 31, to a fiscal year
ending June 30, which corresponds to the year-end of our majority shareholder,
WRP Asia. As a result, this Form 10-K represents a transition period report
covering the period January 1, 2000 through June 30, 2000. The first full year
to be reported on a fiscal year basis will be for the twelve-month period ended
June 30, 2001.
In March 2000, we announced that our Board of Directors had authorized
a program to repurchase up to 10% of our publicly traded Common Stock. These
purchases may be made in
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(2) Forward looking statements in this Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, including statements
regarding new products and markets, gross margins, selling, general and
administrative expenses, liquidity and cash needs and our plans and strategies,
are all based on current expectations and we assume no obligation to update this
information. Numerous factors could cause actual results to differ from those
described in the forward looking statements, including the factors set forth
below under the heading "Risks Affecting Forward Looking Statements and Stock
Prices." We caution investors that our business is subject to significant risks
and uncertainties.
11
<PAGE> 14
the open market and in block transactions over a two-year period. The program is
subject to market conditions as well as other investment options that we may
consider to enhance shareholder value. During the six months ended June 30,
2000, we repurchased 47,500 shares of our Common Stock under this program.
We announced in April 2000 the launch of a surgical glove line, the
ProFeel(R) brand, through a newly created surgical product division, EPIC
Surgical. These new surgical products have synergy with out present customer
base and allow our sales force to increase their call point and create new
growth opportunities in a related and significant market sector. The ProFeel(R)
surgical glove line utilizes an advanced technology that provides outstanding
tactile sensitivity which maximizes functionality in the surgical suite. We
anticipate sales of our surgical gloves to commence in October 2000.
In July 2000, we announced our partnership with Owens & Minor, Inc.
through an enhanced logistics agreement as well as an e-commerce strategic
alliance, called eMedExpress. We believe that this partnership should expand our
market share through more efficient warehousing and distribution and through an
e-commerce platform. We believe that our customers will benefit from the
eMedExpress business model as costs are taken out of the supply chain through
the streamlining of distribution costs.
We are continuing to evaluate and investigate new products to
compliment our glove product line. We have plans to develop and introduce other
new products in the near future, including dry wipe towels and possibly other
infection control and safety products.
RESULTS OF OPERATIONS
The following table summarizes our operating results as a percentage of net
sales for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
----------------- --------------------------
2000 1999 1999 1998 1997
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 71.5 73.9 74.5 72.1 79.3
----- ----- ----- ----- -----
Gross profit 28.5 26.1 25.5 27.9 20.7
Selling, general & administrative expenses 22.1 17.7 18.8 15.3 16.0
----- ----- ----- ----- -----
Income from operations 6.4 8.4 6.7 12.6 4.7
Interest (expense) / other income, net (1.2) (0.8) (1.3) (1.2) (2.3)
Provision for (benefit from) income taxes -- (3.7) 1.8 1.5 (0.6)
Minority interest in loss (income) of subsidiary (0.7) 0.4 0.2 (0.9) (0.6)
Net loss from discontinued operations -- -- -- -- (1.5)
----- ----- ----- ----- -----
Net income 4.5% 4.3% 3.8% 9.0% 0.9%
===== ===== ===== ===== =====
</TABLE>
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<PAGE> 15
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
The Company's net sales are derived from the sales of finished product,
net of allowable rebates, discounts and returns. Net sales include glove sales
from AHPC's glove product line and exam glove sales from PT Buana, exclusive of
its sales to AHPC. Net sales for the six months ended June 30, 2000 were
$31,737,482, which represents a 2.6% sales growth over the comparable 1999
period with net sales of $30,946,476. The increase in net sales is attributed to
an increase in external sales by PT Buana, our Indonesian manufacturing plant, a
better than expected retention of glove sales from the Novation contract medical
facilities after its expiration in April 2000, as well as an increase in the
AmeriNet group purchasing organization and foodservice product sales, which
commenced in the third quarter of 1999. Additionally, the 1999 six-month period
included a nonrecurring sales reduction of approximately $2.3 million associated
with a change to an inventory consignment arrangement with a major foodservice
customer.
Cost of goods sold includes all costs to manufacture and purchase the
finished product plus the related costs associated with ocean freight, customs
duty and warehousing. Cost of goods sold decreased 0.7% from $22,858,509 for the
six month period ended June 30, 1999 to $22,697,004 for the six months ended
June 30, 2000. As a percentage of net sales, cost of goods sold decreased from
73.9% for the six months ended June 30, 1999 to 71.5% for the six months ended
June 30, 2000; the gross profit percentage increased from 26.1% in the first
half of 1999 to 28.5% in the same period of 2000. The Company's gross profit
margin was favorably impacted by reduced glove purchase prices, improved
manufacturing margins obtained from full capacity operating efficiencies at PT
Buana during the first half of 2000, and a more favorable product mix, offset by
lower selling prices. The Company continues to expect its gross margins to be
affected by the price of latex, changes in product mix, competition,
manufacturing capacity levels and other factors.
Selling expenses include all salaries and payroll related costs for
sales and marketing staff together with other sales related expenses such as
sales commissions, travel costs, trade shows, advertising, promotions and
delivery costs. Selling, general and administrative ("SG&A") expenses increased
by 27.6% from $5,484,190 for the six months ended June 30, 1999 to $6,996,574
for the six months ended June 30, 2000. As a percentage of net sales, SG&A
expenses increased from 17.7% for the six months ended June 30, 1999 to 22.1%
for the six months ended June 30, 2000. This increase of $1,512,384 in SG&A
expenses is primarily attributable to an increase in selling compensation
related costs of $968,300 associated with the 1999 expansion of our sales force.
We made an investment in our sales force in 1999 to support our expansion plans.
Because of the loss of the Novation contract, we are strategically planning and
evaluating our manpower needs to maximize sales productivity per sales
representative. We also incurred increased selling expenses from higher levels
of advertising, marketing, promotions and tradeshow costs of $289,300, as well
as travel costs which increased by $89,400. There was also an increase in
depreciation expense of $47,300 associated with our computer system placed in
service in 1999.
Income from operations decreased by 21.5% from $2,603,777 for the six
months ended June 30, 1999 to $2,043,904 for the six months ended June 30, 2000.
Operating margins
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<PAGE> 16
decreased from 8.4% in the 1999 period to 6.4% in the 2000 period. For the six
months ended June 30, 2000 and 1999, EBITDA was $3,073,637 and $3,577,201,
respectively.
Interest expense increased in the first half of 2000 to $416,429
compared to $374,692 in the first half of 1999. This 11.1% increase is
attributable to increased line of credit borrowings in the second half of 1999
used to finance increased inventory levels.
Other income consists of rental income, interest income and
miscellaneous income. Other income decreased by $103,537 from the first half of
1999 compared to the first half of 2000. This decrease is due to the expiration
in 1999 of all rental leases and subleases associated with previous executive
offices.
We recorded a foreign currency exchange loss of $6,223 in the first
half of 2000 versus a foreign exchange gain of $9,021 in the comparable period
in 1999, from our Indonesian subsidiary, PT Buana. As currency exchange rates
fluctuate and depending upon the mix of assets and liabilities in PT Buana's
books in Indonesian rupiah, an exchange gain or loss will be incurred. Foreign
currency exchange gains and losses are reported as a component of the SG&A
expense category in the consolidated statements of operations. PT Buana
continues to be exposed to foreign currency exchange rate fluctuations and may
incur exchange gains or losses in the future.
Indonesia continues to be exposed to economic and political
instability, which is characterized with fluctuations in its foreign currency
exchange rate, interest rates, stock market and inflation rate. Our financial
statements do not include any adjustment that might result from these
uncertainties and any related effects will be reported in the financial
statements as they become known and estimable.
The provision for income taxes for the six months ended June 30, 2000
and 1999 was $22,769 and $1,159,051, respectively. This decline in income tax
expense of $1,136,282 is primarily due to a reduction of pre-tax income
generated in the U.S. during the first half of 2000 compared to the same period
in 1999. Also, PT Buana recorded deferred tax assets during the first half of
2000 associated with its prior period tax losses and recorded a tax benefit of
$161,979 during the period. In addition, we were able to utilize prior year net
operating loss carry-forwards (NOL's) of approximately $650,000 during the six
months ended June 30, 2000 and 1999. Lastly, PT Buana recorded a significant
income tax expense of $480,051 during the first half of 1999 as a result of the
Indonesian rupiah strengthening against the U.S. dollar, which created a large
unrealized foreign currency gain on PT Buana's tax reporting rupiah financial
statements. Due to this additional income tax expense, the effective tax rate in
the first half of 1999 is greater than U.S. statutory corporate income tax
rates. At June 30, 2000, we had NOL's of approximately $1.3 million, which will
be available to reduce future U.S. federal taxable income.
For the six months ended June 30, 2000, net income for the Company was
$1,420,262 compared to net income of $1,324,270 in the same period of 1999.
Diluted earnings per share for the six months ended June 30, 2000 and 1999 were
$0.21 and $0.19, respectively.
14
<PAGE> 17
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
The results of operations for 1999 and 1998 include only the revenue
and expenses of the glove business. Net sales include glove sales from AHPC's
examination glove product line and external exam glove sales from PT Buana. Net
sales totaled $65,290,104 and $64,968,401 for the years ended December 31, 1999
and 1998, respectively. This increase represents less than a 1% increase in
glove sales in 1999 over 1998. Sales for the year ended December 31, 1999 were
reduced by $2.3 million as we changed to a consignment inventory arrangement
with a key food service customer in the second quarter. The medical division
experienced average sale price reductions of 8% during 1999 due to a sharp
decline in the price of raw material latex and competitive forces. The medical
division experienced a 16.1% increase in case volume over 1998 and product mix
continues to reflect increased powder-free latex and synthetic glove sales.
Cost of goods sold increased 3.8% from $46,857,229 for the year ended
December 31, 1998 to $48,645,076 for the year ended December 31, 1999. As a
percentage of net sales, cost of goods sold increased from 72.1% for the year
ended December 31, 1998 to 74.5% for the same period in 1999. The primary
factors associated with the increase in cost of goods sold as a percentage of
net sales were lower average selling prices, increased warehousing costs
associated with higher inventory levels, the change to consignment inventory and
increased ocean freight rates, partially offset by an increased mix of higher
margin powder-free glove sales and reductions in glove purchase prices from
manufacturers. As a result of the above factors, our gross profit decreased 8.2%
from $18,111,172 for the year ended December 31, 1998 to $16,635,028 for the
year ended December 31, 1999.
During the third quarter of 1999, the Indonesian factory, PT Buana,
completed its installation of chlorination equipment used for the manufacturing
of latex powder-free gloves, which produce a higher gross profit margin than
powdered gloves. PT Buana produced only a small quantity of powder-free gloves
in the second half of 1999, as it was selling its product on a trial basis in
the European market prior to selling to the U.S. market.
The domestic market for exam gloves is converting from latex powdered
to latex powder-free gloves and to synthetic gloves. This move is a result of
greater user receptivity to powder-free gloves. The chlorination process used to
make powder-free gloves reduces the protein content in latex and eliminates the
powder, which also carries proteins. Due to customer demand, we are providing
and selling more latex powder-free exam gloves and synthetic gloves. We expect
that this trend will continue. Our sales of latex powder-free exam gloves and
synthetic gloves were approximately 73% of sales in 1999 versus 63% in 1998.
Selling, general and administrative ("SG&A") expenses increased by
23.5% from $9,954,785 in 1998 to $12,295,192 in 1999. As a percentage of 1999
net sales, SG&A expenses increased to 18.8% in 1999 compared with 15.3% in 1998.
This increase of $2,340,407 in SG&A expenses is primarily attributable to an
increase in selling compensation related costs of $1,298,900 due to the planned
expansion of our telesales and medical sales force, additional travel, telephone
and sample expense of $321,000 associated with the larger sales staff and an
increase in depreciation expense and consulting fees of $362,000 associated with
our recently implemented computer system.
15
<PAGE> 18
Income from operations decreased by 46.8% from $8,156,387 for 1998 to
$4,339,836 for 1999. Operating margins decreased from 12.6% in the 1998 period
to 6.7% in the 1999 period.
Interest expense decreased from $1,192,405 during 1998 to $984,159 in
1999. This decrease in interest expense of $208,246 is due to (i) approximately
$7.5 million of PT Buana's debt having been repaid in 1998 as Indonesian
interest rates were very high and (ii) our new debt agreement entered into on
December 1, 1998 carries a lower rate than the previous debt facility, offset by
increased borrowings in 1999 on the line of credit used to finance its increased
inventory levels and capital expenditures. The 1998 PT Buana debt repayments
were made with our proceeds from the sale of Common Stock to WRP Asia on March
31, 1998. All inter-company interest income and interest expense is eliminated
in consolidation.
Other income consists of rental income, interest income and
miscellaneous income. Other income for the year ended December 31, 1999 was
$166,155 compared to $461,386 for the comparable period in 1998. This decrease
in other income of $295,231 is primarily due to the disposal of the investment
in LSAI in 1998, which generated a gain of $168,375.
The provision for income taxes increased from $952,146 for the year
ended December 31, 1998 to $1,166,121 for the year ended December 31, 1999. The
1998 income tax provision is less than the U.S. statutory rates. During the
first quarter of 1998, we had net operating loss carry-forwards ("NOL's") which
were used to reduce taxable income for that period. In accordance with tax
regulations, usage of the NOL's is subject to limitations if certain ownership
changes occur. Due to the WRP Asia ownership change on March 31, 1998, our NOL's
became limited and subsequent to that date, we began recording a provision for
income taxes. At December 31, 1999, we had NOL's of approximately $1.975
million, which will be available to reduce federal taxable income in the U.S. in
future periods not to exceed approximately $1.3 million per year.
The minority interest in loss (income) of subsidiary represents the
non-owned 30% profit or loss from PT Buana. The minority interest in loss
(income) of PT Buana was ($594,062) during 1998 compared to $97,033 in 1999.
During 1999, PT Buana's profitability decreased primarily due to the reductions
in its gross profit triggered by lower selling prices for powdered latex exam
gloves in the marketplace as well as due to reduced production output.
Net income decreased by $3,426,416 or 58.3% from $5,879,160 for the
year ended December 31, 1998 to $2,452,744 for the year ended 1999 due to the
previously mentioned factors. The diluted earnings per share was $.35 in 1999
compared to $.93 in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
The results of operations for 1998 and 1997 include only the revenue
and expenses of the glove business. The discontinued operations of the
Playboy(R) condom business are reflected in the net loss from discontinued
operations as separate line items in the consolidated statements of operations.
16
<PAGE> 19
Net sales include glove sales from AHPC's examination glove product
line and external powdered exam gloves sales from PT Buana. Net sales totaled
$64,968,401 and $51,402,691 for the years ended December 31, 1998 and 1997,
respectively. This increase represents a 26.4% increase in glove sales in 1998
over 1997. This increase is attributable to AHPC's more developed customer
relationships and increased PT Buana sales to external customers, the
introduction of new products, growth in markets for its products and a shift in
the product mix toward higher priced products, particularly powder-free exam
gloves.
Revenues from the Playboy(R) condom business were $376,422 for the year
ended December 31, 1997. These revenues are included in the net loss from
discontinued operations in the consolidated statements of operations. Under our
exit plan, we sold Playboy(R) condoms through June 30, 1997.
Cost of goods sold increased 15.0% from $40,760,146 for the year ended
December 31, 1997 to $46,857,229 for the year ended December 31, 1998. As a
percentage of net sales, cost of goods sold decreased from 79.3% for the year
ended December 31, 1997 to 72.1% for the same period in 1998. This reduction in
the cost of goods sold as a percentage of net sales and improvement in the gross
profit margin is attributed to: (i) more favorable glove purchase prices
obtained in 1998 due to a continued reduction in raw material latex prices; (ii)
an increase in sales of higher profit margin glove products, particularly
powder-free examination gloves; (iii) improved operating efficiency in the
Indonesian facility, and (iv) reduced duty importation fees associated with
examination gloves in 1998. As a result of the above, gross profit increased by
70.2% from $10,642,545 for the year ended December 31, 1997 to $18,111,172 for
the year ended December 31, 1998.
The market for exam gloves is converting from latex powdered to latex
powder-free gloves and to non-latex gloves. Being customer driven, we are
providing and selling more latex powder-free exam gloves and expect that this
trend will continue in the future. Our sales of latex powder-free exam gloves
were approximately 44% of net sales in 1998 versus 37% in 1997.
Selling, general and administrative ("SG&A") expenses increased 21.0%
from $8,226,945 in 1997 to $9,954,785 in 1998. The increase is attributable to
an increase in AHPC's delivery and selling expenses commensurate with its sales
growth and the expansion of our sales force. As a percentage of 1998 net sales,
SG&A expenses decreased to 15.3% compared with 16.0% in 1997. We currently
expect to make additional investments in sales and marketing to further develop
established markets and to introduce new products to the marketplace.
Prior to July 1, 1997, the financial statements and transactions of PT
Buana were maintained in the functional currency, Indonesian rupiahs, and
translated into U.S. dollars. Due to our business and operating facility in
Indonesia, we experienced transaction and translation gains and losses because
of currency fluctuations. Assets and liabilities were translated at the current
exchange rate in effect at the balance sheet date and shareholders' equity was
translated at historical exchange rates. Revenues and expenses were translated
at the average exchange rate for each period. Translation adjustments, which
result from the process of translating Indonesian rupiahs into U.S. dollars,
were accumulated in a separate component of shareholders' equity in
17
<PAGE> 20
accordance with Statement of Financial Accounting Standards No. 52. Such
adjustments were unrealized.
Effective July 1, 1997, in accordance with Statement No. 52, PT Buana
changed its functional currency for financial statements reporting purposes from
the Indonesian rupiah to the U.S. dollar. The net effect of this change in
functional currency resulted in a positive $277,035 foreign currency translation
adjustment by PT Buana which is recorded in 1997 as a component of cost of goods
sold.
Interest expense decreased from $1,481,467 in 1997 to $1,192,405 in
1998. This decrease is attributable to the repayment of all of PT Buana's debt
in 1998. The funds for these debt payments were primarily from the proceeds from
our sale of Common Stock to WRP Asia on March 31, 1998.
Other income increased by $168,024 from $293,362 for the year ended
December 31, 1997 to $461,386 for the year ended December 31, 1998. The increase
is primarily due to the disposal of the investments in LSAI which generated a
gain of $168,375 in 1998.
We did not record income taxes in 1997 due to net operating loss
carryforwards ("NOL's") which were generated in prior years. During 1998, the
WRP Asia ownership change limited to NOL's which are available to reduce taxable
income in current and future years. Because of these NOL limitations, we began
recording a provision for income taxes in 1998. We did not record any taxes to
be paid for our foreign subsidiary in Indonesia (PT Buana). PT Buana, based on
Indonesian tax reporting, has generated losses and thus has no current tax
provision. As a result, we have generated tax NOL's in Indonesia that can be
utilized in the future. During 1998, we have also reviewed the adequacy of the
valuation allowance it had recorded for deferred tax assets that were generated
during the current and prior years. As a result of this assessment and our
continued profitability, we recorded a reduction in our deferred tax valuation
allowance of $412,646. This amount has been reflected as a reduction in the 1998
tax provision. The income tax provision recorded in 1998 of $952,146 is less
than statutory rates due to the utilization of NOL's in 1998 and to the
reduction of the valuation allowance for deferred tax assets which was recorded
in 1998.
At December 31, 1998 we had NOL's of approximately $3.3 million which
will be available to reduce federal taxable income in the U.S. in future
periods, subject to limitations.
For the year ended December 31, 1998, our net income was $5,879,160,
compared to a net income of $456,722 in 1997. The overall diluted earnings per
share was $.93 in 1998 compared to $.11 in 1997.
SEGMENT INFORMATION
Six-Month Period Ended June 30, 2000 and Years Ended December 31, 1999
and 1998. During the six-month period ended June 30, 2000 and during the years
ended December 31, 1999 and 1998, we were engaged solely in the business of
manufacturing and distributing disposable gloves. We have two business segments,
manufacturing and distribution. These
18
<PAGE> 21
segments are managed as separate strategic business units. The manufacturing
segment, which represents the Indonesian operations of PT Buana, manufactures
powdered and powder-free latex gloves and sells them primarily to AHPC and WRP
Asia. The distribution segment involves the procurement and sale of gloves
purchased from the manufacturing segment and other glove manufacturers and then
sold to national and regional healthcare, foodservice, retail and other
distributors within the U.S. The operations of the distribution segment are
located entirely within the U.S.
Year Ended December 31, 1997. At December 31, 1997, we were in the
business of manufacturing and distributing examination gloves in the U.S. We
also distributed Playboy(R) condoms through June 30, 1997 in accordance with the
termination agreement with Playboy(R) Enterprises Inc. As such, the Playboy(R)
condom business is reported as a discontinued operation.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 2000
Cash and cash equivalents at June 30, 2000 was $224,054, an increase of
$52,592 from $171,462 at December 31, 1999. We experienced an increase in cash
flows in the first half of 2000 primarily from cash provided by operating
activities, offset by uses of cash in financing and investing activities.
Our operations generated cash of $5,670,575 during the first half of
2000 as a result of net income of $1,420,262 plus non-cash depreciation of
$973,685 and a decline in inventories and accounts receivable, offset by net
reductions in the amount owed to our majority shareholder, WRP Asia.
Net trade accounts receivable at June 30, 2000 decreased by 29% to
$5,621,417 from $7,969,369 at December 31, 1999. This decline of $2,347,952 is
primarily due to a record sales month in December 1999 as customers were
preparing for the year 2000 rollover and any unknown events associated with it,
as well as to a reduction in May and June 2000 sales caused by the loss of the
Novation contract which expired on April 30, 2000.
Net inventories at June 30, 2000 decreased by 24% to $10,124,411 from
$12,930,569 at December 31, 1999. This decline of $2,806,158 is primarily due to
the reduction in NovaPlus brand inventory levels associated with the loss of the
Novation group purchasing organization supply contract.
During the six months ended June 30, 2000, the cash generated from
operations was used primarily for debt repayments. We used cash in financing
activities of $5,402,813 during the first half of 2000 comprised of net
reductions on notes payable and line of credit debt of $5,258,659 and for
repurchasing 47,500 shares of our Common Stock totaling $68,558 under our stock
repurchase program.
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<PAGE> 22
During the six months ended June 30, 2000, we used cash in net
investing activities of $215,170. We spent $448,610 for capital expenditures
during the first six months of 2000 primarily at PT Buana, our Indonesian
manufacturing plant, for capital improvements.
On December 1, 1998, we obtained a domestic three-year credit facility
from GE Capital, a large commercial credit company. This asset based lending
loan and security agreement included a $10,000,000 revolving line of credit with
a $7,000,000 letter of credit subfacility. On March 31, 1999, we amended our
loan and security agreement by increasing the maximum credit loan limit from
$10,000,000 to $15,000,000. As part of the amendment, the letter of credit
subfacility was increased from $7,000,000 to $11,000,000. The line of credit
borrowings carry an interest rate of commercial paper plus 2.75% (9.33% at June
30, 2000). At June 30, 2000, we had outstanding $2,737,138 on the revolving line
of credit and $1,252,814 of letter of credit liabilities under the credit
facility.
In October 1994, pursuant to two debenture and warrant purchase
agreements between us and two trusts affiliated with one of our directors, we
issued, and each trust purchased, a convertible subordinated debenture in the
amount of $1,000,000 payable in seven years with interest at 1.5% over the prime
rate. Each debenture is convertible into our Common Stock at a conversion price
of $25.00 per share. In addition, each trust received a warrant exercisable over
five years to purchase 3,750 shares of our Common Stock at an exercise price of
$22.20 per share. At June 30, 2000 the total outstanding debt associated with
these debentures was $1,350,000. During the six months ended June 30, 2000, we
repaid $350,000 against this debt. We anticipate repayments of $600,000 within
the next twelve months and have classified $750,000 of this debt as long-term at
June 30, 2000.
We currently expect to have cash needs during the second half of 2000
and beyond, in addition to funding the growth of the existing glove business.
These cash needs may arise in connection with various events such as for: (i)
the expansion into new products such as surgical gloves; (ii) paying off debt
obligations, particularly the remaining long-term debt; (iii) the hiring of
additional marketing staff; (iv) the hiring of additional support staff; (v) the
expansion of the manufacturing facility in Indonesia; (vi) purchasing our Common
Stock in connection with our stock repurchase program; and (vii) possible
acquisitions. We believe that our cash and cash generated form future operations
plus our credit facility will be sufficient to fund our ongoing operations.
YEAR ENDED DECEMBER 31, 1999
Cash and cash equivalents at December 31, 1999 decreased $508,263 from
December 31, 1998 levels. We experiences this decline in cash flow in 1999 due
to cash used in operations, the funding of capital expenditures and net
repayments of letter of credit obligations.
Our operations used cash of $1,182,339 in 1999 as a result of an
increase in accounts receivable, inventories and amounts due from affiliate,
offset by net income of $2,452,744 and non-cash depreciation expenses of
$1,750,261. In 1999, we used cash of $2,972,837 for the purchase of capital
expenditures. Capital expenditures were made in 1999 for the acquisition of
$2,084,939 of manufacturing equipment by PT Buana primarily to product latex
powder-free
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<PAGE> 23
exam gloves and by AHPC of $887,898 primarily to install and implement a new
enterprise wide computer system. We experienced increased cash flow from
financing activities of $3,743,556. The generation of cash for financing
purposes was from net borrowings on the line of credit facility of $5,657,396,
offset by net reductions in letter of credit obligations.
Net inventories at December 31, 1999 increased 9.0% to $12,930,569
compared with $11,860,855 at December 31, 1998 due to the addition of several
inventory product lines. Net trade accounts receivable at December 31, 1999
increased by 44% to $7,969,369 from $5,532,405 at December 31, 1998 due to a
record sales month in December 1999 and a strong collection effort made at the
end of 1998.
YEAR 2000
In preparation for the rollover to the year 2000, we initiated a year
2000 readiness project, the scope of which included the following steps:
ensuring the compliance of all applications, operating systems and hardware on
mainframe, personal computer, local area network and wide area network
platforms; addressing issues related to non-IT imbedded software and equipment;
and addressing the compliance of key suppliers and customers. We did not
experience any significant malfunctions or errors in our operating or business
systems when the date changed from 1999 to 2000. Based on operations since
January 1, 2000, we do not expect any significant impact to our ongoing business
operations as a result of the Year 2000 issue. However, Year 2000 compliance has
many elements and potential consequences, some of which may not be forseeable or
may be realized in future periods. Consequently, there can be no assurance that
unforeseen circumstances may not arise or that we will not in the future
identify equipment or systems which are not Year 2000 compliant. We are
currently not aware of any significant Year 2000 or similar problem that may
have arisen with our key customers, suppliers or other significant third
parties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to the impact of interest rate changes, foreign currency
fluctuations and changes in the market value of investments. We have not entered
into interest rate caps or collars or other hedging instruments.
Exposure to changes in interest rates is limited to borrowings under
revolving credit and debt agreements, which have variable interest rates tied to
the prime and commercial paper rates. We estimate that the fair value of each
debt instrument approximated its market value at June 30, 2000.
We are subject to fluctuations in the value of the Indonesian Rupiah
vis-a-vis the U.S. dollar. The investment in the Indonesian subsidiary is
remeasured into the U.S. dollar and the book value of the assets and liabilities
of our Indonesian operation at June 30, 2000 approximated its fair value. For
the six-month period ended June 30, 2000, the foreign exchange loss included in
the determination of net income was approximately $6,000.
21
<PAGE> 24
RISKS AFFECTING FORWARD LOOKING STATEMENTS AND STOCK PRICES
In addition to those matters already set forth in Item 1, Business and
this Item 7, the following may result in us not achieving certain results
included in any statement that may be considered a forward looking statement. We
caution the reader that the following risks may not be exhaustive.
Variations in Quarterly Results. Our quarterly operating results are
subject to various risks and uncertainties, including risks and uncertainties
related to: local and international political and economic conditions; foreign
currency volatility; competitive pressures; the composition, timing and size of
orders from and shipments to major customers; variations in product mix and the
size mix between sales; variations in product cost; infrastructure costs;
obsolescence of inventory; and other factors as discussed below. Accordingly,
our operating results may vary materially from quarter to quarter.
We operate with little backlog and, as a result, net sales in any
quarter are substantially dependent on the orders booked and shipped in that
quarter. Because our operating expenses are based on anticipated revenue levels
and because a high percentage of our expenses are relatively fixed, if
anticipated shipments in any quarter do not occur as expected, our operating
results may be adversely affected and may fall significantly short of
expectations. Any other unanticipated decline in the growth rate of our net
revenues, without a corresponding and timely reduction in the growth of
operating expenses, could also have an adverse effect on us and our future
operating results.
We aim to prudently control our operating expenses. However, there is
no assurance that, in the event of any revenue, gross margin or other shortfall
in a quarter, we will be able to control expenses sufficiently to meet
profitability objectives for the quarter.
Financing. Our current credit facility expires in December 2001. There
can be no assurances that it will be renewed, extended or sufficient to finance
continued growth of the Company.
Dependence on Gloves. We are currently almost exclusively engaged in
the manufacture and sale of disposable gloves. Accordingly, our results of
operations and financial condition are highly dependent on the level of supply
of and demand for disposable gloves. There can be no assurance that the supply
of or demand for disposable gloves will continue at current levels or that
changes in such supply or such demand will not have a material adverse effect on
our results of operations or financial condition. It addition, we currently have
a supply contract with an unrelated Malaysian glove manufacturing company for
the purchase of powdered gloves. Should the demand for powdered gloves continue
to decline, we will continue to be subject to the aforementioned commitments or,
if such commitments cannot be fulfilled, we will be subject to certain penalty
provisions within the supply contract.
Dependence on Rubber Harvest and Latex Concentrate. Our ability to
produce and purchase our products profitably is entirely dependent upon the
consistent availability, at competitive prices, of raw rubber harvested by
independent growers in Malaysia, Thailand and
22
<PAGE> 25
Indonesia and locally processed by us and others into latex concentrate. Any
disruption in the consistent supply of rubber for latex concentrate due to
weather or other natural phenomena, labor or transportation stoppages, shortages
or other factors, could cause significant adverse effects to our results of
operations and financial condition. In addition, rubber is a commodity traded on
world commodities exchanges and is subject to price fluctuations driven by
changing market conditions over which we have no control. Increases in the price
of latex concentrate have adversely affected our raw material costs in the past
and could continue to do so.
Asia Pacific Risk Factors. Social, political and economic instability
may be significantly greater in many of the Asian-Pacific countries than that
typically associated with the United States and other industrialized countries.
Varying degrees of social, political and economic instability could
significantly disrupt the source of our supply of glove products.
Currencies of several Asian-Pacific countries, including Indonesia,
Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand have
experienced significant fluctuations against the U.S. dollar. Our Indonesian
factory maintains its books in the Indonesian currency, the rupiah, and reports
its Indonesian income taxes with rupiah financial reports. The Indonesian rupiah
experienced volatile currency fluctuations against the U.S. dollar which caused
significant income tax adjustments in 1999. Foreign currency exchange volatility
may continue and could cause us to incur significant income tax adjustments in
the future.
In the past, interest rates in many Asian-Pacific countries have risen
sharply and credit availability was reduced. Companies in these countries, with
significant indebtedness or costs denominated in foreign currencies that have
appreciated in relation to the local currency, may have difficulty passing on
increased local currency costs to their customers and may face financial
difficulties and losses and may be unable to meet their obligations. The
economics of most Asian-Pacific companies are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Union. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the economies of the Asian-Pacific countries.
Governments in certain of the Asian-Pacific countries participate to a
significant degree, through ownership interests or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on the economies of such countries.
Changes in Gross Margins. Certain of our net product sales are derived
from products and markets which typically have lower gross margins compared to
other products and markets, due to higher costs and/or lower prices associated
with the lower gross margin products and markets. We currently expect that our
net product sales from powder-free and synthetic gloves will continue to
increase as a percentage of total net product sales. In addition, we are
currently experiencing pricing pressures due to a number of factors, including
competitive conditions, consolidation within certain groups of suppliers, excess
supply of products, changing technologies in the production of powder-free
gloves and increasing demand for new glove
23
<PAGE> 26
products. Additionally, we may not be able to pass on price increases to our
customers in a timely manner, or at all. To the extent that these factors
continue, our gross margins could decline, which would adversely affect us and
our future operating results.
Downward pressure on our gross margins may be mitigated by other
factors, such as a reduction in product costs and/or an increased percentage of
new product sales from higher gross margin products, such as powder-free and
synthetic gloves. We are aiming to reduce our product costs and to increase our
percentage of net product sales from powder-free and synthetic gloves. However,
there is no assurance that these efforts will be successful.
New Products. We are planning to distribute new glove products,
including surgical gloves. We may begin to distribute other safety and infection
control products besides gloves. There is no assurance that these development
efforts will be successful or that, if successfully developed, these products
will achieve commercial success.
Growth Dependencies. In general, our future growth is dependent on our
ability to successfully and timely enhance existing products, develop and
introduce new products, establish new distribution channels, develop
affiliations with leading market participants and continue to develop our
relationships with our existing customer base.
The failure to achieve these and other objectives could limit future
growth and have an adverse effect on us and our future operating results. In
addition, the pressure to develop and enhance products and to establish and
expand markets may cause our SG&A expenses to increase substantially, which
could also have an adverse effect on us and our future operating results.
Manufacturing in Indonesia - International Operations. Our
international manufacturing operation has grown substantially and, thus, we are
increasingly affected by the risks associated with international operations.
Such risks include: managing an organization in Indonesia; fluctuations in
currency exchange rates; the burden of complying with international laws and
other regulatory and product certification requirements; changes in such laws
and requirements; tariffs and other trade barriers; import and export controls;
international staffing and employment issues; and political and economic
stability. The inability to effectively control and manage these and other risks
could adversely affect us and our future operating results.
Competition. The various markets in which we operate are becoming
increasingly competitive as a number of other companies develop and sell
products that compete with our products in these markets. Certain of these
competitors have significantly more financial and technical resources than us.
We face additional competitive factors besides price, such as product quality,
timeliness of delivery, service and the size and reliability of the
manufacturer. These competitive factors may result in, among other things, price
discounts by us and sales lost by us to competitors that may adversely affect us
and our future operating results.
Reliance Upon Distributors. We use various channels to market and
distribute our products primarily by sales to end-users via third-party
distributors. Third-party distributors are a substantial channel for
distribution to medical facilities. Accordingly, our ability to market and
24
<PAGE> 27
distribute our products depends significantly on our relationship with
third-party distributors, as well as the performance and financial condition of
these distributors. In the event that our relationship with these distributors
deteriorates or the performance or financial condition of the distributor
becomes unsatisfactory, our future operating results could be adversely
affected.
Reliance Upon Significant Contracts and Customers. A significant
portion of our acute care and medical division business has been obtained
through the achievement of being selected to supply group purchasing
organizations and integrated delivery networks ("IDN's") in the U.S. These group
purchasing organizations and IDN's, made up of a few or thousands of health care
facilities, centralize medical product purchases and offer its members the
ability to enjoy larger purchasing powder discounts than an individual hospital
or member might enjoy independently. We reported in early 2000 that the group
purchasing organization, Novation, did not renew its supply contract with AHPC,
which expired in April 2000. Our sales of NovaPlus products to Novation members
accounted for over half of our sales in 1999. We have converted about 35% of
NovaPlus accounts to our branded products. There can be no assurance that we
will be successful in our attempts to maintain this business. Our inability to
retain a significant portion of this business could materially adversely affect
our sales, results of operations and financial condition.
In addition, during the six months ended June 30, 2000, two of AHPC's
customers accounted for 75% of net sales. The loss of either of such customers
would have a materially adverse effect on us and our operating results.
Excess or Obsolete Inventory. Managing our inventory of various size
mix and product mix is a complex task. A number of factors, including the need
to maintain a significant inventory of certain sizes or products which are in
short supply or which must be purchased in bulk to obtain favorable pricing, the
general unpredictability of demand for specific products and customer requests
for quick delivery schedules, may result in us maintaining excess inventory.
Other factors, including changes in market demand and technology, may cause
inventory to become obsolete. Any excess or obsolete inventory could result in
price reductions and inventory write-downs, which, in turn, could adversely
affect us and our operating results.
Hiring and Retention of Employees. Our continued growth and success
depends to a significant extent on the continued service of senior management
and other key employees and the hiring of new qualified employees. Competition
for highly skilled business, technical, marketing and other personnel is
intense, particularly in the strong economic cycle currently prevailing in the
U.S. The loss of one or more key employees or our inability to attract
additional qualified employees or retain other employees could have an adverse
effect on us and our future operating results. In addition, we may experience
increased compensation costs in order to compete for skilled employees.
Product Liability Insurance. Participants in the medical supplies
business are potentially subject to lawsuits alleging product liability, many of
which involve significant damage claims and defense costs. A successful claim
against us in excess of our insurance coverage could have a material adverse
effect on our results of operations and financial condition. Claims made against
us, regardless of their merit, could also have a material adverse effect on our
reputation.
25
<PAGE> 28
There is no assurance that the coverage limits of our insurance policy will be
adequate or that present levels of coverage will be available at affordable
rates in the future. While we have been able to obtain product liability
insurance in the past, such insurance varies in cost, is difficult to obtain and
may not be available in the future on acceptable terms or at all. We are subject
to a number of lawsuits filed against us and other manufacturers. This
litigation is still in the early stages and there can be no assurance that our
insurance will be sufficient to meet any recovery for which we may be found
liable, that the outcome of such suits will not materially adversely affect our
results of operations or financial condition, or that our deductible obligation
(to fund a portion of the initial cost of defense and/or liability of each such
lawsuit) will not prove financially burdensome.
Stock Market Fluctuations. In recent years, the stock market in
general, including our Common Stock, have experienced extreme price
fluctuations. The market price of our Common Stock may be significantly affected
by various factors such as: quarterly variations in our operating results;
changes in our revenue growth rates; the loss of a significant customer or sales
contract; changes in earnings estimates by market analysis; the announcement of
new products or product enhancements by us or our competitors; speculation in
the press or analyst community; the inability of the market to absorb selling
pressure from one or more large institutional shareholders; and general market
conditions or market conditions specific to particular industries. There can be
no assurance that the market price of our Common Stock will not experience
significant fluctuations in the future.
Governmental Regulations. Our products are subject to regulation by
numerous governmental authorities in the United States and other countries,
particularly to safety and adherence to Quality System Regulations ("QSR's") for
medical devices. In the United States, examination gloves are classified as
Class I medical device products regulated by the FDA. Noncompliance with these
FDA regulations can result in administrative enforcement, such as warning
letters, import alerts, administrative detention or in civil penalties, product
bans and recalls. Periodically, the FDA inspects shipments of medical gloves as
they arrive in the United States ports.
FDA inspections and reviews may cause delays in product delivery and
this can result in a loss or delay in recognition of sales and income by us. In
addition, the FDA may inspect our manufacturing facilities for compliance with
QSRs, which incorporate pre-production design and development to achieve
consistency with quality system requirements worldwide. Failure to comply with
regulatory requirements could have a material adverse effect on our business
financial condition and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A list of financial statements and financial statement schedules for
the Registrant is contained in "Index to Financial Statements and Financial
Statement Schedules of WRP Corporation" on page F-1.
26
<PAGE> 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are as follows:
Name Age Position
---- --- --------
Richard Wong 55 Chairman and Chief Executive Officer
Edward J. Marteka 63 President
Kenneth Ling 34 CFO, Acting COO, Secretary and Treasurer
Robert C. Carter 38 Controller and Assistant Secretary
Biographies for Messrs. Wong, Marteka, Ling and Carter are included below.
At September 19, 2000, our directors consist of six Class A Directors
and two Class B Directors are as follows:
Class A Directors
Name Age Director Since
---- --- --------------
Kamaruddin Taib 42 1998
Richard C.M. Wong 55 1997
Edward J. Marteka 63 1995
Kwong Ann Lew 39 1997
George Jeff Mennen 60 1994
Richard Swanson 65 1998
Class B Directors
Name Age Director Since
---- --- --------------
Robert J. Simmons 57 1995
Don L. Arnwine 67 1995
The following sets forth brief statements of the principal occupations
and other biographical information of each of the directors and executive
officers.
KAMARUDDIN TAIB was elected Class A Director on April 1, 1998. Mr. Taib
is currently the Deputy Executive Chairman of WRP Asia. He formerly served as
the Group Managing Director of various Malaysian publicly listed companies. Mr.
Taib holds a Bachelor of Science (Mathematics) degree from the University of
Salford, United Kingdom. Upon completing his
27
<PAGE> 30
studies, he joined a leading local merchant bank for three years (1980-1983)
where he had extensive exposure in corporate and financial advisory work.
RICHARD C.M. WONG was elected Class A Director of the Company on May
20, 1997. Mr. Wong currently serves as Chairman of the Board and Chief Executive
Officer of the Company. Mr. Wong is the President and Chief Executive Officer of
WRP Asia. In addition, he is also Deputy Chairman of Nylex Malaysia Bhd. and a
director of two other publicly listed companies in Malaysia. Mr. Wong is the
founder of TEC Asia Centre, an international organization of Chief Executive
Officers who share ideas to manage change and remain competitive.
EDWARD J. MARTEKA was the founder and is the President and Director of
our subsidiary, AHPC since its incorporation in 1989. As our President and the
President of AHPC, Mr. Marteka is responsible for their overall operations. From
1968 to 1988, Mr. Marteka held various positions with Baxter Healthcare
Corporation, having served as Vice President of its International Division.
KWONG ANN LEW was elected Class A Director of the Company on May 20,
1997. Mr. Lew was our Chief Financial Officer, Secretary and Treasurer from 1997
through March 2000. Mr. Lew is an Executive Director and Chief Financial Officer
of WRP Asia. He is a member of the Malaysian CPA Society and Institute of
Taxation and was with Arthur Andersen LLP from 1988 to 1991. Prior to joining
WRP Asia, he held various key management positions in two public listed
companies, primarily in the corporate and judicial advisory areas.
GEORGE JEFF MENNEN was elected to the Board of Directors on October 12,
1994. For over five years, Mr. Mennen has headed the G.J. Mennen Group, a
consulting firm specializing in family-owned businesses. Mr. Mennen had a
distinguished career at the Mennen Company, including being the Vice Chairman of
that company. The Mennen Company was founded by Mr. Mennen's great grandfather
in 1878 and remained privately owned until it was sold in 1992 to
Colgate-Palmolive.
RICHARD SWANSON was elected Class A Director on June 12, 1998. Mr.
Swanson is presently a consultant with The Executive Committee, an international
company that focuses on strategic coaching and corporate troubleshooting for
CEO's of public and private companies. Also, since 1980, Mr. Swanson has been
the president of two Denver, Colorado based companies, Investment Partners, Inc.
and Real Estate Associates, Inc.. Investment Partners is engaged in the
restructuring and recapitalization of troubled companies and Real Estate
Associates focuses on the acquisition and development of real estate projects.
ROBERT J. SIMMONS was elected to the Board of Directors in December
1995. He is currently President of RJS Healthcare, Inc., a healthcare consulting
company, founded in 1990. He served as Executive Vice President at Baxter
International, Inc., from 1987 until founding RJS in 1990. Mr. Simmons joined
Baxter after serving over 20 years at American Hospital Supply Corporation. His
last position at American Hospital Supply was vice president of corporate
marketing.
28
<PAGE> 31
DON L. ARNWINE was elected to the Board of Directors in December 1995.
He is currently President of Arnwine Associates, a company he formed in 1989 to
provide specialized advisory services to the health care industry. From 1961 to
1972, Mr. Arnwine served as Director of the Hospital at the University of
Colorado Medical Center. From 1972 to 1982, he served as President and CEO of
the Charleston Area Medical Center. Mr. Arnwine became President and CEO of
Voluntary Hospitals of America (VHA) in 1982 and was named Chairman and CEO in
1985, in which capacity he served until founding Arnwine Associates.
KENNETH LING joined us in April 2000 as Chief Financial Officer, Acting
COO, Treasurer and Secretary. He is a member of the Institute of Chartered
Accountants in Australia. From September 1998 to April 2000, Mr. Ling held the
position of Vice President-Group Affairs at WRP Asia. Prior to that he was an
Assistant Director with the Prudential Asia Group based in Singapore involved in
private equity investment. He has also worked with Coopers & Lybrand and Price
Waterhouse in Singapore and Australia in consulting and audit capacities.
ROBERT C. CARTER joined us in March 1992 and has served as the
Controller of AHPC since that time. He became the Assistant Secretary in 1995.
From February 1987 to March 1992, Mr. Carter was a CPA with Clifton, Gunderson &
Co., CPA's. Prior to that, Mr. Carter worked for Arthur Andersen LLP as an
auditor.
On March 31, 2000, Mr. Lew Kwong Ann resigned as the CFO, Secretary and
Treasurer. In April 2000, Mr. Kenneth Ling was appointed as CFO, Acting COO,
Secretary and Treasurer.
BOARD MEETINGS AND COMMITTEES
During the six months ended June 30, 2000, our Board of Directors held
two meetings. All other actions by the Board of Directors were taken by
unanimous written consent without a meeting.
The Board of Directors has a Compensation Committee for the purpose of
administering our Omnibus Equity Compensation Plan (the "Plan"). The Board has
not delegated its functions to any other standing committees except for the
Audit Committee which was formed in 1997. During the six months ended June 30,
2000, the Compensation Committee and the Audit Committee each held one meeting.
All other actions were taken by unanimous written consent without a meeting.
During the six-month period ended June 30, 2000, our Board of Directors
adopted an Audit Committee Charter and restructured the composition of the Audit
Committee in accordance with the Nasdaq rules. At June 30, 2000, our Audit
Committee consisted of Don Arnwine, Richard Swanson and George Jeff Mennen.
COMPENSATION OF DIRECTORS
All directors who are not also executive officers, which group is
comprised of Kamaruddin Taib, George Jeff Mennen, Richard J. Swanson and the
Class B Directors, receive (1) an annual Board member retainer of $5,000, (2)
compensation of $1,000 for each Board
29
<PAGE> 32
meeting attended, (3) $500 for each committee meeting attended, and (4) an
annual Committee member retainer of $1,000. Each new Director is presently
entitled to receive stock options under the Plan to purchase 2,000 shares of our
Common Stock in connection with his election and 1,000 share of our Common Stock
per Board meeting attended, up to a maximum of 5,000 shares for Board meetings
attended. Under the terms of the Plan, the Compensation Committee shall
determine the exercise price of a Director Option, provided that the exercise
price shall not be less than the lowest fair market value of our Common Stock
during the six months preceding the election and qualification of such Director.
All Director options are immediately exercisable for a period of ten years from
the date of grant. All Directors will be reimbursed for expenses incurred in
attending meetings of the Board and meetings of Committees.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires certain officers, directors and beneficial owners of more than 10% of
our Common Stock to file reports of ownership and changes in their ownership of
our equity securities with the Securities and Exchange Commission and Nasdaq.
Specific due dates for these reports have been established and we are required
to report in this transition period any failure to file by these due dates
during our last fiscal year.
During the six-month transition period ended June 30, 2000, we reviewed
the filings and noted that several filings were not made on a timely basis. Mr.
Simmons, Arnwine, Marteka, Mennen, Swanson and Ling did not file a Form 3 upon
their commencement as a director or officer of the Company. In September 2000,
all Form 3 filings with respect to these individuals were made as required.
Based upon our review of the filings, we became aware of late Form 4
filings specifically with respect to stock options issued to directors and
officers as follows.
<TABLE>
<CAPTION>
Number
of Late
Individual Position Reports Number of Late Transactions
---------- -------- ------- ---------------------------
<S> <C> <C> <C>
Mr. Simmons Director 6 6 Stock Option Awards Granted
-----------------------------------------------------------------------------------------
Mr. Arnwine Director 6 6 Stock Option Awards Granted
-----------------------------------------------------------------------------------------
Mr. Mennen Director 6 6 Stock Option Awards Granted
-----------------------------------------------------------------------------------------
Mr. Swanson Director 5 5 Stock Option Awards Granted
-----------------------------------------------------------------------------------------
Mr. Taib Director 4 4 Stock Option Awards Granted
-----------------------------------------------------------------------------------------
Mr. Lew Director 1 1 Stock Option Award Granted
-----------------------------------------------------------------------------------------
Mr. Wong Chairman 1 1 Stock Option Award Granted
-----------------------------------------------------------------------------------------
Mr. Marteka President 1 1 Stock Option Award Granted
-----------------------------------------------------------------------------------------
Mr. Ling CFO 1 1 Stock Option Award Granted
-----------------------------------------------------------------------------------------
Mr. Carter Controller 1 1 Stock Option Award Granted
-----------------------------------------------------------------------------------------
</TABLE>
In addition, Mr. Arnwine failed to file on a timely basis one report in
March 1999 relating to a single transaction in Common Stock owned by him. During
September 2000, all of the Form 4 filings were made with respect to all late
filings.
30
<PAGE> 33
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses the compensation paid by the Company for
services rendered in all capacities to the Company during the six-month
transition period ended June 30, 2000 and fiscal years ended December 31, 1999,
1998 and 1997 to (i) the Company's President and (ii) the Company's executive
officers at June 30, 2000 whose aggregate annual salary and bonus are expected
to exceed $100,000 for the 2000 calendar year.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- ----------------------------------------
Name and Other Annual Stock All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- ------ -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Marteka 2000 $112,500 $ 34,500 $ 3,600 -- $ 0
President 1999 $200,000 $ 20,000 $ 7,200 -- $ 0
1998 $200,000 $100,000 $ 7,200 50,000 $ 0
1997 $160,000 $ 26,667 $ 7,200 5,000 $ 0
Kenneth Ling 2000 $ 25,000 $ 0 $ 0 30,000 $ 5,400(1)
CFO, Acting COO
</TABLE>
(1) Includes housing and automobile costs associated with Mr. Ling's relocation
to the U.S.
EMPLOYMENT AGREEMENTS
On April 1, 1994, we entered into an employment agreement with Edward
J. Marteka (the "Marteka Agreement"). The Marteka Agreement, as amended on June
30, 1995 and on July 22, 1996, provides for: (i) Mr. Marteka to serve as our
President (since May 31, 1995) and AHPC; (ii) a base salary of $140,000 per
annum; (iii) non-qualified stock options to purchase 35,000 shares of Common
Stock under the Plan; and (iv) life and medical insurance, automobile allowance
and other additional customary benefits. The amended Marteka Agreement also
granted to Mr. Marteka additional non-qualified stock options to purchase 14,000
shares of Common Stock.
As approved by the Compensation Committee, all of Mr. Marteka's options
outstanding, totaling 101,000 stock options at February 29, 2000, were repriced
to $2.07, the closing price on that date. Effective January 1, 2000, Mr.
Marteka's base salary was increased to $225,000 per year as approved by the
Compensation Committee.
On April 12, 2000, we entered into an employment agreement with Kenneth Ling
(the "Ling Agreement"). The Ling Agreement provides for: (i) Mr. Ling to serve
as our CFO, Acting COO, Secretary and Treasurer; (ii) a base salary of $120,000
per annum; (iii) housing costs associated with his relocation to the U.S.; (iv)
incentive stock options to purchase 30,000 shares of Common Stock; and (v) an
automobile provided for his use. Mr. Ling was issued 30,000 stock options at
$1.44, the exercise price of the closing price of the Common Stock on April 17,
2000, the date of the grant. Mr. Ling's stock options are immediately
exercisable for a period of ten years from the date of grant.
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<PAGE> 34
OPTION GRANTS DURING THE SIX MONTHS ENDED JUNE 30, 2000
The following table sets forth certain information concerning
individual grants of stock options to each of the persons named in the Summary
Compensation Table made during the six-month transition period ended June 30,
2000.
Option Grants in Transition Period
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Rates of Stock
Price Appreciation for
Individual Grants Option Term(1)
------------------------------------------------------------------------ --------------------------
% of Total
Options
Number of Granted to
Securities Employees
Underlying in Exercise
Options Transition or Expiration
Name Granted (#) Period Base Price Date 5% ($) 10% ($)
--------------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Ling 30,000 100% $1.44 4/17/91 $ 70,371 $112,047
</TABLE>
(1) Represents the value of such options at the end of its ten year term
assuming the market prices of the Common Stock appreciates from the grant date
at an annual compound rate of 5% or 10%. These amounts represent rates of
appreciation only. Actual gains will be dependent on overall market conditions
and on the future performance of our Common Stock. There can be no assurance
that the amounts reflected in this table will be achieved.
AGGREGATE OPTION EXERCISES DURING THE SIX MONTHS ENDED JUNE 30, 2000 AND FISCAL
PERIOD-END OPTION VALUES
The following table provides information on option exercises during the
six-month transition period ended June 30, 2000 by the executive officers named
in the Summary Compensation Table and the value of such officer's unexercised
stock options as of June 30, 2000.
<TABLE>
<CAPTION>
Number of Unexercised Value of In-the-Money
Shares Value Options at 6/30/00 Options at 6/30/00(1)
Acquired on Realized --------------------------- ----------------------------
Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Marteka 0 $ - 0 - 101,000 - 0 - $ - 0 - $ - 0 -
Kenneth Ling 0 $ - 0 - 30,000 - 0 - $ - 0 - $ - 0 -
</TABLE>
(1) Represents the total gain which would have been realized if all such options
had been exercised on June 30, 2000.
32
<PAGE> 35
REPRICING OF STOCK OPTIONS
The following table sets forth information concerning all such
repricing of stock options to an executive officer during the six-month
transition period ended June 30, 2000.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Number of Market Length of
Securities Price of Original
Stock Underlying Stock at Exercise Price New Option Term
Options Options Time of at Time of Exercise Remaining at
Repricing Repriced Repricing Repricing Price Date of
Name and Position Date (#) ($) ($) ($) Repricing
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard Wong, Chairman 2/29/00 90,000 $2.07 $6.3125 $2.07 8 Years
-------------------------------------------------------------------------------------------------------------------
Edward J. Marteka, President 2/29/00 101,000 $2.07 $2.75 - $6.3125 $2.07 4 to 8 Years
-------------------------------------------------------------------------------------------------------------------
Kwong Ann Lew, CFO 2/29/00 30,000 $2.07 $6.3125 $2.07 8 Years
-------------------------------------------------------------------------------------------------------------------
Robert C. Carter, Controller 2/29/00 27,000 $2.07 $3.66 - $6.3125 $2.07 7 to 8 Years
-------------------------------------------------------------------------------------------------------------------
</TABLE>
As approved by the Board of Directors, all outstanding stock options at
February 29, 2000 to current employees, officers and directors were repriced
effective February 29, 2000 to $2.07, the closing price on that date. The Board
of Directors repriced the stock options to provide an incentive to current
employees, officers and directors for their continued employment. All of the
stock options which were repriced, totaling 483,600 options, originally
contained exercise prices which were significantly higher than the market price.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Compensation Committee of the Board of Directors is currently
comprised of the following four Class A Directors who are Kamaruddin Taib,
Richard Wong, George Jeff Mennen and Richard Swanson, each of whom was appointed
by the Board of Directors. The Committee oversees administration of our Omnibus
Equity Compensation Plan. The purpose of the Plan is to attract and retain
capable and experiences officers and employees by compensating them with
equity-based awards whose value is connected to our continued growth and
profitability. Under the Plan, awards may be made in the form of stock options
or restricted stock. In general, we compensate executive officers and senior
management through salary, bonus (where appropriate) and the grant of stock
options. During the six months ended June 30, 2000, all action of the
Compensation Committee was made during the one meeting held or was taken by the
Committee by unanimous written consent without a meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Kamaruddin Taib, Richard Wong and Kwong Ann Lew are executive directors
and officers of WRP Asia. Accordingly, these members should not be considered as
independent Directors when serving on the Board of Directors or the Compensation
Committee.
33
<PAGE> 36
STOCK PERFORMANCE CHART
The following graph compares the yearly percentage change in the
cumulative total shareholder return on our Common Stock for each of our last
five fiscal years ended June 30 with the cumulative total return (assuming
reinvestment of dividends) of (i) the NYSE/AMEX/Nasdaq Stock Market - U.S. Index
and (ii) a peer group selected by us, in good faith. The peer group consists of
American Shared Hospital Services, Daxor Corp., DVI, Inc., Hemacare Corp.,
National Home Health Care Inc. and Prime Medical Services Inc. During the
six-month transition period ended June 30, 2000, our peer group was changed to
exclude two companies which were no longer publicly traded.
[PERFORMANCE GRAPH]
* $100 invested on June 30, 1995 in stock or Index - including reinvestment
of dividends. Fiscal year ending June 30.
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99 6/30/00
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
WRP Corporation 100 31.8 31.8 57.6 53.4 12.4
NYSE/AMEX/Nasdaq Stock 100 126.2 162.7 209.6 251.4 278.1
Peer Group 100 220.5 157.4 196.9 148.4 143.4
</TABLE>
34
<PAGE> 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 19, 2000,
with respect to the beneficial ownership of our Common Stock and Series A Common
Stock by (i) each shareholder known by us to be the beneficial owner of more
than 5% of our Common Stock and Series A Common Stock, (ii) each director,
nominee and certain executive officers and (iii) all directors and executive
officers, as a group. Unless otherwise indicated, the shareholders named below
have sole voting and investment power with respect to such shares of Common
Stock and Series A Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
Percent
of
Amount and Nature of Total Voting
TITLE OF CLASS NAME OF BENEFICIAL OWNER Beneficial Ownership Stock(4)
-------------- ------------------------ -------------------- ------------
<S> <C> <C> <C> <C>
Series A Common Stock WRP Asia Pacific Sdn. Bhd.(1) -- 1,252,538 18.3%
Common Stock WRP Asia Pacific Sdn. Bhd.(1) -- 2,500,000 36.4%
Common Stock Heartland Advisors, Inc.(2) -- 432,200 6.3%
Common Stock Kamaruddin Taib -- 7,000(3) *
Common Stock Richard Wong -- 90,000(3) 1.3%
Common Stock Kwong Ann Lew -- 30,000(3) *
Common Stock Edward J. Marteka 101,000(3) --
Common Stock Edward J. Marteka 13,500 114,500 1.7%
-------
Common Stock George Jeff Mennen 10,000(3) --
Common Stock George Jeff Mennen 10,000 20,000 *
-------
Common Stock Robert J. Simmons 10,000(3)
Common Stock Robert J. Simmons 5,000 15,000 *
-------
Common Stock Don L. Arnwine 10,000(3)
Common Stock Don L. Arnwine 3,000 13,000 *
-------
Common Stock Richard Swanson 7,000(3) --
Common Stock Richard Swanson 1,000 8,000 *
-------
Common Stock Kenneth Ling -- 30,000(3) *
Common Stock Robert C. Carter 27,000(3)
Common Stock Robert C. Carter 3,000 30,000 *
-------
Common Stock Total Executive Officers & Directors 322,000(3)
as a group (10 persons) 35,500 357,500 5.2%
-------
</TABLE>
---------------
*Represents less than 1%
(1) WRP Asia Pacific Sdn. Bhd. (formerly known as Wembley Rubber Products (M)
Sdn. Bhd.) is located at 28th Floor, Wisma Denmark, 86, Jalan Ampang,
50450, Kuala Lumpur, Malaysia.
(2) Heartland Advisors, Inc. is located at 789 North Water Street, Milwaukee,
Wisconsin 53202.
(3) Represents shares to be issued upon exercisable options granted under our
Omnibus Equity Compensation Plan.
(4) Percent of class is based on 6,856,430 shares of the combined number of
Series A Common Stock and Common Stock outstanding on September 19, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the six months ended June 30, 2000, we purchased latex
powder-free exam gloves amounting to $6.6 million from our majority shareholder,
WRP Asia. In addition, our Indonesian factory sold approximately $5.2 million of
powdered latex exam gloves to WRP Asia during the first half of 2000. We believe
that the terms and conditions of such glove purchases were similar to those
which we could have obtained from unaffiliated third parties.
35
<PAGE> 38
During the six months ended June 30, 2000, we received consulting
services from Healthcare Alliance, Inc. ("Alliance"), a company 60% owned by
Robert Simmons, one of our directors. We engaged Alliance to assist us in
marketing our products with the expressed purpose of negotiating and executing a
purchase agreement with various healthcare group purchasing organizations. We
paid Alliance $42,216 during the six-month period ended June 30, 2000 for its
services.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements. A list of financial statements
for the Registrant is contained in "Index to Financial
Statements of WRP Corporation" on page F-1.
(a)(3) Exhibits. The following exhibits are included with this report:
EXHIBIT NO. NAME OF EXHIBIT
----------- ---------------
3.1 Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit No. 3.1 to the Company's Form
S-1 Registration Statement (Registration No. 33-36206).
3.2 Certificate of Amendment to Certificate of Incorporation of the
Company, incorporated herein by reference to Exhibit No. 3.2 to
the Company's Form S-1 Registration Statement (Registration No.
33-36206).
3.3 Certificate of Amendment to Certificate of Incorporation of the
Company, incorporated herein by reference to Exhibit 3.3 to the
Company's form 10-K Annual Report for the fiscal year ended
December 31, 1991 (File No. 0-17458).
3.4 Bylaws of the Company, incorporated herein by reference to
Exhibit No. 3.4 to the Company's Form S-18 Registration
Statement (Registration No. 33-23164-FW).
3.5 Amendment to Bylaws of the Company, incorporation herein by
reference to Exhibit 3.5 to the Company's Form 10-K Annual
Report for the fiscal year ended December 31, 1991 (File No.
0-17458).
4.2 Warrant Agreement with The Liberty National Bank & Trust
Company, incorporated by reference to Exhibit No. 4.2 to the
Company's Form S-1 Registration Statement (Registration No.
33-36206).
4.3 Warrant, incorporated by reference to Exhibit No. 4.3 to the
Company's Form S-1 Registration Statement (Registration No.
33-36206).
36
<PAGE> 39
10.37 Debenture and Warrant Purchase Agreement dated October 12, 1994
between the Company and Wilmington Trust Company and George
Jeff Mennen as Co-Trustees U/A dated 11/25/70 with George S.
Mennen for Christina M. Andrea incorporated herein by reference
to Exhibit 10.37 included in the Company's Form 10-K Annual
Report for the fiscal year ended December 31, 1994 (File No.
0-17458).
10.38 Debenture and Warrant Purchase Agreement dated October 12, 1994
between the Company and Wilmington Trust Company and George
Jeff Mennen as Co-Trustees U/A dated 11/25/70 with George S.
Mennen for John Henry Mennen incorporated herein by reference
to Exhibit 10.38 included in the Company's Form 10-K Annual
Report for the fiscal year ended December 31, 1994 (File No.
0-17458).
10.42 Articles of Amendment to Certificate of Incorporation,
incorporated herein by reference to Exhibit 10.42 included in
the Company's Form 10-K Annual Report for the fiscal year ended
December 31, 1997 (File No. 0-17458).
10.43 Amended and Restated Omnibus Equity Compensation Plan,
incorporated herein by reference to Exhibit 10.43 included in
the Company's Form 10-K Annual Report for the fiscal year ended
December 31, 1997 (File No. 0-17458).
10.44 Loan and Security Agreement dated as of December 1, 1998
between General Electric Capital Corporation and American
Health Products Corporation, incorporated herein by reference
to Exhibit 10.44 included in the Company's Form 10-K Annual
Report for the fiscal year ended December 31, 1998 (File No.
0-17458).
21 Subsidiaries of the Company (1).
23.1 Consent of Arthur Andersen LLP (1).
(b) During the 3 months ended June 30, 2000, the Company did not
file any reports on Form 8-K.
(1) Filed herewith.
37
<PAGE> 40
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
its behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
WRP CORPORATION
Date: September 28, 2000 By: /s/ Edward J. Marteka
---------------------------------------
Edward J. Marteka, President
Date: September 28, 2000 By: /s/ Kenneth Ling
---------------------------------------
Kenneth Ling, Chief Financial Officer,
Acting COO, Treasurer and Secretary
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.
Date: September 28, 2000 By: /s/ Richard Wong
---------------------------------------
Richard Wong, Chief Executive Officer
and Chairman of the Board of Directors
Date: September 28, 2000 By: /s/ Kamaruddin Taib
---------------------------------------
Kamaruddin Taib, Director
Date: September 28, 2000 By: /s/ Edward J. Marteka
---------------------------------------
Edward J. Marteka, Director
Date: September 28, 2000 By: /s/ Kwong Ann Lew
---------------------------------------
Kwong Ann Lew, Director
Date: September 28, 2000 By: /s/ George Jeff Mennen
---------------------------------------
George Jeff Mennen, Director
Date: September 28, 2000 By: /s/ Richard Swanson
---------------------------------------
Richard Swanson, Director
Date: September 28, 2000 By: /s/ Robert J. Simmons
---------------------------------------
Robert J. Simmons, Director
Date: September 28, 2000 By: /s/ Don L. Arnwine
---------------------------------------
Don L. Arnwine, Director
38
<PAGE> 41
WRP CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
As of June 30, 2000 and 1999, and
December 31, 1999, 1998 and 1997
Together With Auditors' Report
<PAGE> 42
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, AND DECEMBER 31, 1999 AND 1998
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 2000, and December 31, 1999 and
1998 F-3
Consolidated Statements of Operations for the Six-Month Periods Ended
June 30, 2000 and 1999, and for the Years Ended December 31, 1999, 1998
and 1997 F-5
Consolidated Statements of Shareholders' Equity for the Six-Month Periods
Ended June 30, 2000 and 1999, and for the Years Ended December 31, 1999,
1998 and 1997 F-6
Consolidated Statements of Cash Flows for the Six-Month Periods Ended
June 30, 2000 and 1999, and for the Years Ended December 31, 1999, 1998
and 1997 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of WRP Corporation:
We have audited the accompanying consolidated balance sheets of WRP CORPORATION
(a Maryland corporation) AND SUBSIDIARIES as of June 30, 2000, and December 31,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the six-month periods ended June 30,
2000 and 1999, and for the years ended December 31, 1999, 1998 and 1997. These
consolidated 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 auditing standards generally accepted
in the United States. 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 WRP Corporation and
Subsidiaries as of June 30, 2000, and December 31, 1999 and 1998, and the
results of their operations and their cash flows for the six-month periods ended
June 30, 2000 and 1999, and for the years ended December 31, 1999, 1998 and
1997, in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen LLP
Chicago, Illinois
August 25, 2000
F-2
<PAGE> 44
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000, AND DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 2000 1999 1998
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 224,054 $ 171,462 $ 679,725
Accounts receivable--trade, net of allowance for
doubtful accounts of $175,000 in 2000, $270,000
in 1999 and $240,000 in 1998 5,621,417 7,969,369 5,532,405
Inventories, net 10,124,411 12,930,569 11,860,855
Prepaid expenses 431,150 562,919 958,318
Due from affiliate 3,870,315 2,519,347 1,340,261
Deferred tax assets 953,847 691,314 962,190
Other receivables 104,831 248,030 509,003
Total current assets 21,330,025 25,093,010 21,842,757
PROPERTY, PLANT AND EQUIPMENT:
Land rights and land improvements 736,535 736,535 736,535
Construction in progress 75,616 11,737 1,275,667
Equipment, furniture and fixtures 15,225,249 14,955,236 11,357,924
Building improvements 2,237,677 2,232,249 1,689,878
Vehicles 116,704 166,273 149,958
Total property, plant and equipment 18,397,781 18,102,030 15,204,962
Less- Accumulated depreciation and amortization (5,255,541) (4,407,304) (2,733,225)
Property, plant and equipment, net 13,136,240 13,694,726 12,476,737
OTHER ASSETS:
Goodwill, net of accumulated amortization of $573,443 in
2000, $539,827 in 1999 and $472,595 in 1998
1,176,557 1,210,173 1,277,405
Other assets 211,565 196,262 203,040
Total other assets 1,388,122 1,406,435 1,480,445
$ 35,854,387 $ 40,194,171 $ 35,799,939
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 45
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000, AND DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 1998
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable--trade $ 1,925,628 $ 1,143,258 $ 2,504,225
Trade notes payable to bank 1,252,814 1,328,410 3,322,882
Notes payable and current portion of long-term
obligations 3,404,552 8,313,211 2,086,833
Due to affiliate 1,613,185 3,210,576 3,891,944
Accrued expenses 3,639,335 3,443,599 3,507,487
Total current liabilities 11,835,514 17,439,054 15,313,371
LONG-TERM DEBT 750,000 1,100,000 1,668,982
DEFERRED TAX LIABILITY 608,402 553,225 152,037
COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTEREST IN SUBSIDIARY 1,833,955 1,627,080 1,724,113
SHAREHOLDERS' EQUITY:
Series A common stock, $.01 par value; 1,252,538 shares authorized;
1,252,538 shares issued and outstanding in 2000, 1999 and 1998 12,525 12,525 12,525
Common stock, $.01 par value; 10,000,000 shares authorized; 5,803,692 shares
issued and outstanding in 2000 and 1999 and 5,785,525 shares issued and
outstanding in 1998 58,037 58,037 57,855
Additional paid-in capital 17,942,471 17,942,471 17,862,021
Retained earnings 4,205,077 2,784,815 332,071
Less- Common stock in treasury, at cost, 177,500 shares
in 2000 and 130,000 shares in 1999 and 1998 (1,391,594) (1,323,036) (1,323,036)
Total shareholders' equity 20,826,516 19,474,812 16,941,436
$ 35,854,387 $ 40,194,171 $ 35,799,939
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-4
<PAGE> 46
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999, AND
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
NET SALES $ 31,737,482 $ 30,946,476 $ 65,280,104 $ 64,968,401 $ 51,402,691
COST OF GOODS SOLD 22,697,004 22,858,509 48,645,076 46,857,229 40,760,146
GROSS PROFIT 9,040,478 8,087,967 16,635,028 18,111,172 10,642,545
OPERATING EXPENSES:
Selling, general and administrative 6,996,574 5,484,190 12,295,192 9,954,785 8,226,945
INCOME FROM OPERATIONS 2,043,904 2,603,777 4,339,836 8,156,387 2,415,600
INTEREST EXPENSE 416,429 374,692 984,159 1,192,405 1,481,467
OTHER INCOME 22,432 125,969 166,155 461,386 293,362
Income from continuing operations before
provision for (benefit from) income
taxes, minority interest and loss from
discontinued operations 1,649,907 2,355,054 3,521,832 7,425,368 1,227,495
PROVISION FOR (BENEFIT FROM) INCOME TAXES 22,770 1,159,051 1,166,121 952,146 (322,042)
Income from continuing operations before
minority interest and loss from
discontinued operations 1,627,137 1,196,003 2,355,711 6,473,222 1,549,537
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARY 206,875 (128,267) (97,033) 594,062 300,145
Income from continuing operations before
loss from discontinued operations 1,420,262 1,324,270 2,452,744 5,879,160 1,249,392
LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS -- -- -- -- (783,670)
Net income $ 1,420,262 $ 1,324,270 $ 2,452,744 $ 5,879,160 $ 465,722
BASIC NET INCOME PER COMMON SHARE:
Continuing operations $ 0.21 $ 0.19 $ 0.35 $ 0.94 $ 0.29
Discontinued operations -- -- -- -- (0.18)
$ 0.21 $ 0.19 $ 0.35 $ 0.94 $ 0.11
DILUTED NET INCOME PER COMMON SHARE:
Continuing operations $ 0.21 $ 0.19 $ 0.35 $ 0.93 $ 0.29
Discontinued operations -- -- -- -- (0.18)
$ 0.21 $ 0.19 $ 0.35 $ 0.93 $ 0.11
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 47
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999,
AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
SERIES A ADDITIONAL RETAINED
COMMON STOCK COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
BALANCE, December 31, 1996 1,252,538 $ 12,525 3,188,333 $ 31,883 $ 10,875,897 $ (6,012,811)
Issuance of common stock upon exercise
of stock options -- -- 3,334 34 9,135 --
Net income -- -- -- -- -- 465,722
Foreign currency translation adjustment -- -- -- -- -- --
Indonesian paid-in capital adjustment -- -- -- -- (8,808) --
Unrealized gain on LSAI common stock -- -- -- -- -- --
BALANCE, December 31, 1997 1,252,538 12,525 3,191,667 31,917 10,876,224 (5,547,089)
Issuance of common stock to WRP Asia
Pacific Sdn. Bhd (see Note 2) -- -- 2,500,000 25,000 6,725,000 --
Issuance of common stock upon
exercise of stock options -- -- 93,858 938 260,797 --
Net income -- -- -- -- -- 5,879,160
Unrealized gain on LSAI common stock -- -- -- -- -- --
BALANCE, December 31, 1998 1,252,538 12,525 5,785,525 57,855 17,862,021 332,071
Issuance of common stock upon exercise
of stock options -- -- 18,167 182 80,450 --
Net income -- -- -- -- -- 1,324,270
BALANCE, June 30, 1999 1,252,538 12,525 5,803,692 58,037 17,942,471 1,656,341
Net income -- -- -- -- -- 1,128,474
BALANCE, December 31, 1999 1,252,538 12,525 5,803,692 58,037 17,942,471 2,784,815
Net income -- -- -- -- -- 1,420,262
Common stock repurchases -- -- -- -- -- --
BALANCE, June 30, 2000 1,252,538 $ 12,525 5,803,692 $ 58,037 $ 17,942,471 $ 4,205,077
<CAPTION>
CUMULATIVE UNREALIZED
FOREIGN GAIN ON
CURRENCY LSAI
TRANSLATION COMMON TREASURY SHAREHOLDERS' COMPREHENSIVE
ADJUSTMENT STOCK STOCK EQUITY INCOME
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ (53,034) $ -- $ (1,323,036) $ 3,531,424
Issuance of common stock upon exercise
of stock options -- -- -- 9,169
Net income -- -- -- 465,722 $ 465,722
Foreign currency translation adjustment 53,034 -- -- 53,034 53,034
Indonesian paid-in capital adjustment -- -- -- (8,808)
Unrealized gain on LSAI common stock -- 261,979 -- 261,979 261,979
BALANCE, December 31, 1997 -- 261,979 (1,323,036) 4,312,520 $ 780,735
Issuance of common stock to WRP Asia
Pacific Sdn. Bhd (see Note 2) -- -- -- 6,750,000
Issuance of common stock upon exercise
of stock options -- -- -- 261,735
Net income -- -- -- 5,879,160 $ 5,879,160
Unrealized gain on LSAI common stock -- (261,979) -- (261,979) (261,979)
BALANCE, December 31, 1998 -- -- (1,323,036) 16,941,436 $ 5,617,181
Issuance of common stock upon exercise
of stock options -- -- -- 80,632
Net income -- -- -- 1,324,270 $ 1,324,270
BALANCE, June 30, 1999 -- -- (1,323,036) 18,346,338
Net income -- -- -- 1,128,474 $ 1,128,474
BALANCE, December 31, 1999 -- -- (1,323,036) 19,474,812
Net income -- -- -- 1,420,262 $ 1,420,262
Common stock repurchases -- -- (68,558) (68,558)
BALANCE, June 30, 2000 $ -- $ -- $ (1,391,594) $ 20,826,516
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 48
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999, AND
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,420,262 $ 1,324,270 $ 2,452,744 $ 5,879,160 $ 465,722
Adjustments to reconcile net income to net cash provided
by (used in) operating activities-
Depreciation 973,685 813,839 1,750,261 1,247,111 898,831
Amortization 33,616 33,616 67,232 67,232 41,058
Deferred income taxes (207,356) 550,015 672,064 (657,319) (133,169)
Change in net assets of discontinued operations -- -- -- (214,294) (340,021)
Loss from disposal of discontinued operations -- -- -- -- 783,670
Loss on disposal of property, plant and equipment 6,846 -- 4,197 2,913 15,606
Gain on sales of LSAI common stock -- -- -- (168,375) (79,483)
Changes in operating assets and liabilities-
Accounts receivable--trade, net 2,347,952 (591,249) (2,436,964) (121,562) (733,353)
Inventories, net 2,806,158 (5,369,264) (1,069,714) (3,656,994) (109,212)
Prepaid expenses 131,769 (184,786) 395,399 97,470 (56,084)
Other assets 127,896 195,348 267,751 (628,752) 52,860
Accounts payable--trade 782,370 367,739 (1,360,967) (118,316) (668,965)
Accrued expenses 195,736 (1,281,639) (63,888) 1,140,503 1,147,070
Amounts due to and from affiliates (2,948,359) 278,903 (1,860,454) 2,415,695 303,840
Net cash provided by (used in) operating
activities 5,670,575 (3,863,208) (1,182,339) 5,284,472 1,588,370
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (448,610) (2,428,223) (2,972,837) (2,005,123) (3,063,735)
Proceeds on sales of LSAI common stock -- -- -- 982,892 280,083
Proceeds on sales of property, plant and equipment 26,565 -- 390 1,761 7,747
Minority interest in subsidiary 206,875 (128,268) (97,033) 594,062 900,070
Net cash used in investing activities (215,170) (2,556,491) (3,069,480) (426,408) (1,875,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on trade notes payable to bank (75,596) (1,685,904) (1,994,472) (2,126,299) (1,561,272)
Net (payments) borrowings on notes payable (5,258,659) 7,394,144 5,657,396 (8,603,711) 1,346,480
Net proceeds from stock option exercises -- 80,632 80,632 261,735 9,168
Proceeds from issuance of stock -- -- -- 6,750,000 --
Payments for treasury stock repurchases (68,558) -- -- -- --
Net payments to Indonesian minority interest shareholders -- -- -- (622,045) 280,998
Net cash (used in) provided by financing
activities (5,402,813) 5,788,872 3,743,556 (4,340,320) 75,374
IMPACT OF EXCHANGE RATES ON CASH -- -- -- -- 53,034
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 52,592 (630,827) (508,263) 517,744 (159,057)
CASH AND CASH EQUIVALENTS, beginning of period 171,462 679,725 679,725 161,981 321,038
CASH AND CASH EQUIVALENTS, end of period $ 224,054 $ 48,898 $ 171,462 $ 679,725 $ 161,981
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE> 49
WRP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000, AND DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
WRP Corporation and Subsidiaries (the "Company") is a manufacturer and
distributor of high-quality, disposable medical examination gloves and
markets examination gloves in the U.S. through its wholly owned
subsidiary, American Health Products Corporation ("AHPC"). The Company
sells its gloves primarily to the medical, food service, dental and retail
markets.
The Company's, through its subsidiary in Indonesia, PT WRP Buana
Multicorpa ("PT Buana") manufactures medical examination gloves.
In November, 1996, the Company adopted a plan to discontinue its condom
operations and has reflected it as such in the accompanying consolidated
financial statements. The Company continued to distribute condoms through
June 30, 1997 (Note 4).
During the first half of 2000, the Company's Board of Directors approved a
change in the Company's fiscal year-end from December 31 to June 30, which
corresponds to the year-end of the Company's majority shareholder, WRP
Asia Pacific Sdn. Bhd. (formerly known as Wembley Rubber Products (M) Sdn.
Bhd.), a Malaysian corporation ("WRP Asia"). The new fiscal year will
commence July 1, 2000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
WRP Corporation, AHPC and PT Buana, a 70% owned Indonesian glove
manufacturing subsidiary. All significant intercompany transactions have
been eliminated.
WRP Asia owns the Series A common stock of the Company and is the majority
shareholder of the Company.
CASH AND CASH EQUIVALENTS
The Company considers cash in banks and highly liquid debt instruments
with a maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are accounted for on a first-in, first-out ("FIFO") basis and
are valued at the lower of actual cost or market. Inventories consist of
the following at June 30, 2000, and December 31, 1999 and 1998:
F-8
<PAGE> 50
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Raw materials $ 79,232 $ 137,180 $ 79,213
Work in process 351,825 442,089 120,700
Finished goods 10,230,169 13,096,039 12,430,942
Reserves (536,815) (744,739) (770,000)
Total $ 10,124,411 $ 12,930,569 $ 11,860,855
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided by both the straight-line and accelerated
methods over lives ranging from 3 to 20 years. Building improvements are
amortized on a straight-line basis over their estimated useful lives or
lease terms, whichever is shorter. Accumulated construction in progress
costs are reclassified to the appropriate property, plant, and equipment
account when completed. The useful lives of property, plant and equipment
at June 30, 2000, and December 31, 1999 and 1998, are as follows:
USEFUL LIVES
Land rights and land improvements 20 years
Equipment, furniture and fixtures 3-15 years
Building improvements 5-20 years
Vehicles 5 years
When property or equipment is retired or otherwise disposed of, the net
book value of the asset is removed from the Company's books and the net
gain or loss is included in the determination of income.
GOODWILL
The excess purchase price over the value of the net assets of AHPC
acquired in February, 1992, was recorded as goodwill in the accompanying
consolidated balance sheets and is being amortized using the straight-line
method over 40 years.
On an ongoing basis, the Company reviews goodwill and other long-lived
assets for impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable. To date, no such events or
changes in circumstances have occurred. If such events or changes in
circumstances occur, the Company will recognize an impairment loss if the
undiscounted future cash flows expected to be generated by the asset (or
acquired business) are less than the carrying value of the related asset.
The impairment loss would adjust the asset to its fair value.
REVENUE RECOGNITION
Revenues from product sales are recognized at the time the product is
shipped from the Company's warehouse, or upon the customer's receipt of
the goods, depending upon the terms of the sale. Product sales are stated
net of rebates, sales returns, and sales discounts and allowances.
F-9
<PAGE> 51
INCOME TAXES
The Company records income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS
No. 109 utilizes the liability method and deferred taxes are determined
based on the estimated future tax effects of differences between the
financial statement and tax basis of assets and liabilities given the
provisions of enacted tax laws. Deferred income tax provisions and
benefits are based on the changes in the deferred tax asset or tax
liability from period to period.
NET INCOME PER COMMON SHARE
Basic EPS amounts are based on the weighted-average number of shares of
common stock outstanding during each year, while diluted EPS amounts are
based on the weighted-average number of shares of common stock outstanding
during the year and the effect of any dilutive stock options and warrants
(common stock equivalents). The weighted-average number of common shares
and common share equivalents outstanding for the six-month periods ended
June 30, 2000 and 1999, and for the years ended December 31, 1999, 1998
and 1997, are as follows:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Basic weighted-average number
of common shares outstanding 6,921,010 6,921,877 6,924,538 6,265,312 4,312,132
Dilutive effect of common share
equivalents 2,273 63,277 40,318 68,198 49,077
Diluted weighted-average number
of common shares outstanding 6,923,283 6,985,154 6,964,856 6,333,510 4,361,209
</TABLE>
The Company had additional vested stock options and warrants outstanding
of 483,609, 127,500, 455,000, 492,324 and 229,324 at June 30, 2000 and
1999, and December 31, 1999, 1998 and 1997, respectively, which were not
included in the computation of diluted earnings per share because the
exercise price was greater than the average market price of the common
shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Company:
a. CURRENT ASSETS AND CURRENT LIABILITIES--The carrying amount
approximates fair value due to the short maturity of these items;
F-10
<PAGE> 52
b. LONG-TERM OBLIGATIONS--The fair value of the Company's long-term debt
is based on secondary market indicators. Since the Company's debt is
not quoted, estimates are based on each obligation's characteristics,
including maturities, interest rate, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates
fair value; and
c. AMOUNTS DUE TO/DUE FROM AFFILIATE--Amounts due to/due from affiliate
are non-interest-bearing and do not specify maturity dates and,
therefore, it is not practicable to estimate the fair value of these
financial instruments.
FOREIGN CURRENCY TRANSLATION
PT Buana's financial statements are prepared from the records maintained
in the Republic of Indonesia, the country in which PT Buana was
established and operates. On July 1, 1997, the Company changed its
functional currency from the Indonesia rupiah to the U.S. dollar. This
change in functional currency is primarily the result of the PT Buana
operations becoming more dependent on U.S. dollar-denominated transactions
and economic trends. In accordance with SFAS No. 52, "Foreign Currency
Translation," the Company recorded a gain of $277,035 during 1997 as a
result of remeasuring the foreign currency of record (rupiah) into the
functional currency (U.S. dollar).
Gains and losses from foreign currency transactions are included in net
income in the period in which they occur. For the six-month periods ended
June 30, 2000 and 1999, and for the years ended December 31, 1999, 1998
and 1997, the foreign exchange gain (loss) included in the determination
of net income is $(6,223), $9,021, $3,563, $(30,292) and $205,457,
respectively.
The Company does not use any derivative or financial instruments to manage
its foreign exchange exposures. The Company is subject to foreign currency
fluctuation risk in the regular course of business on sales, raw materials
and fixed asset purchase transactions denominated in a foreign currency.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation," related to
options and warrants issued to employees and directors.
INTERNAL USE SOFTWARE COSTS
In March, 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP
provides guidance on the financial reporting of costs associated with
purchased or developed software for internal use. As the Company has
adopted the provisions of this SOP, the Company has capitalized or
expensed as incurred certain of these software costs as appropriate.
F-11
<PAGE> 53
2. MAJORITY SHAREHOLDER TRANSACTION
On March 31, 1998, WRP Asia entered into the following two agreements,
which transferred majority ownership in the Company to WRP Asia:
a. MBf International, Ltd. ("MBf International") sold all of the
Company's Series A common stock (1,252,538 shares), which was owned
by MBf International, to WRP Asia for $5.00 per share for a total of
$6,262,690; and
b. WRP Asia purchased 2,500,000 shares of the Company's unregistered
common stock for $2.70 per share for a total of $6,750,000. The
purchase price of $2.70 per share reflected a 12% discount from the
average stock price over a seven consecutive business day range ended
May 9, 1997, as detailed by a fairness opinion received from an
independent valuation firm.
These transactions provided WRP Asia with a 55% ownership interest in the
Company at March 31, 1998. At June 30, 2000 and 1999, and December 31,
1999, WRP Asia had a 54.6% and 54.2%, respectively, ownership interest in
the Company.
At December 31, 1998, MBf International owned 1,682,275 shares of the
Company's common stock which represented a 24.4% ownership interest in the
Company. In January, 1999, MBf International sold its 1,682,275 shares to
several U.S. institutional investors, thus eliminating its entire
ownership interest in the Company.
WRP Asia owns one of the largest glove manufacturing plants in Malaysia
and principally manufactures high quality powder-free latex exam gloves.
During the six-month periods ended June 30, 2000 and 1999, and the years
ended December 31, 1999, 1998 and 1997, total purchases of gloves from WRP
Asia were $6,621,531, $8,813,942, $18,409,600, $18,629,717 and
$11,150,721, respectively.
3. COMMON STOCK
Each share of Series A common stock is convertible into one share of the
Company's common stock, $.01 par value. The Company has reserved 1,252,538
shares of common stock for issuance upon conversion of the Series A common
stock. The terms of the Series A common stock are substantially the same
as the Company's common stock except that Series A common stock entitles
WRP Asia, the majority shareholder of the Company, to elect all Class A
directors, which represent a majority of the Company's Board of Directors
and to vote with the holders of common stock as a single class with
respect to any matters subject to a vote of the shareholders. (See Note 9
for further information on the Company's shareholders' equity.)
On February 29, 2000, the Company approved a stock repurchase plan which
may include the repurchase of up to 10% of the Company's public common
stock. These purchases may be made in the open market and in block
transactions over a two-year period. The program is subject to market
conditions and its impact on share price as well as other investment
options that the Company may consider to enhance shareholder value. As of
June 30, 2000, 47,500 shares of public common stock have been repurchased
by the Company as part of this plan.
F-12
<PAGE> 54
4. CORPORATE DEVELOPMENT
DISTRIBUTION AGREEMENT
Effective July 12, 1995, the Company entered into a five-year distributor
agreement with PIE Healthcare Products Sdn. Bhd. ("PIE") that requires the
Company to purchase a certain quantity of gloves from PIE each year. The
Company's net sales include glove products that are purchased under the
terms of this agreement. In connection with the loss of the Novation
contract as discussed in Note 8, on March 1, 2000, the Company
renegotiated the PIE contract to allow the Company to satisfy its
remaining purchase obligations through July 31, 2001. The Company believes
that the amount of the purchase obligations agreed to will not be in
excess of customer demand. Additionally, the purchase obligations are to
be satisfied at prices similar to prevailing market rates. As such, the
Company does not believe that the purchase obligations as part of the PIE
agreement will result in financial hardship to the Company. As of June 30,
2000, the Company is in compliance with the agreement.
DISCONTINUED OPERATIONS
In November, 1996, the Company reached a settlement with Playboy
Enterprises, Inc. to terminate its license agreement under which the
Company distributed Playboy(R) brand condoms in 15 countries. Under the
negotiated agreement, until June 30, 1997, the Company continued to sell
Playboy(R) condoms in the countries where it had launched the product.
In accordance with the termination agreement with Playboy Enterprises,
Inc., the Company's Playboy(R) condom operations ceased June 30, 1997. As
such, the Company has accounted for the Playboy(R) condom business as a
discontinued operation effective December 31, 1996. At June 30, 2000 and
December 31, 1999 and 1998, there were no assets or liabilities recorded
which were associated with the condom discontinued operations.
Revenues from the Company's discontinued condom business were $376,422 for
the year ended December 31, 1997.
During 1997, the Company revised its estimate of costs to dispose of its
condom operations. This change resulted in the Company recording
additional costs of $783,670 equal to $0.18 basic and diluted loss per
common share for the year ended December 31, 1997.
INVESTMENT IN LSAI
During 1998, the Company liquidated its investment in Laboratory
Specialists of America, Inc. ("LSAI"). The Company sold all of its
remaining shares of LSAI and discounted its notes receivable from LSAI
which resulted in a net gain on sales of the investments in LSAI of
$168,375 in 1998. During 1997, the Company sold 68,000 shares of LSAI
which resulted in a gain of $79,483.
The Company has adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which requires that equity securities that
have readily determinable fair values shall be classified as
"available-for-sale" if not held for the objective of generating profits
on short-term differences in price. Accordingly, the Company's common
stock investment in LSAI was classified and treated as available for sale.
F-13
<PAGE> 55
SFAS No. 115 further requires that unrealized holding gains and losses
related to available-for-sale securities shall be excluded from earnings
and reported as a net amount in a separate component of shareholders'
equity until realized.
5. RELATED-PARTY TRANSACTIONS
At June 30, 2000, and December 31, 1999 and 1998, amounts due from/to
affiliates consist of the following:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Due from affiliate-
Current-
WRP Asia $ 3,870,315 $ 2,519,347 $ 1,340,261
Due to affiliate-
Current-
WRP Asia $(1,613,185) $(3,210,576) $(3,891,944)
</TABLE>
The amount due from WRP Asia primarily represents trade receivables from
WRP Asia for the sale of inventories from PT Buana and AHPC to WRP Asia.
The liability to WRP Asia represents amounts owed to WRP Asia primarily
for inventory purchases by AHPC of latex powder-free exam gloves that are
manufactured by WRP Asia. AHPC purchased virtually all of its latex
powder-free exam gloves from WRP Asia in 2000, 1999 and 1998. Management
believes transactions between operating segments are made at prevailing
rates.
In January, 1997, the Company entered into a consulting and services
agreement with Healthcare Alliance, Inc. ("Alliance"), a company 60% owned
by a director of the Company. The agreement engaged Alliance to assist the
Company in marketing its products with the expressed purpose of
negotiating and executing a purchase agreement with various healthcare
group purchasing organizations. The Company paid Alliance $42,216,
$36,000, $66,160, $36,000 and $48,000 in the six-month periods ended June
30, 2000 and 1999, and the years ended December 31, 1999, 1998 and 1997,
respectively, for its services.
6. TRADE NOTES PAYABLE TO BANK
Trade notes payable to bank consist of amounts financed through letter of
credit arrangements which totaled $1,252,814, $1,328,410 and $3,322,882 at
June 30, 2000, and December 31, 1999 and 1998, respectively. These bank
obligations are secured by the inventory and accounts receivable of AHPC.
As of June 30, 2000, and December 31, 1999 and 1998, the Company was
contingently liable for outstanding letters of credit liabilities totaling
$1,053,324, $355,081 and $788,437, respectively.
7. NOTES PAYABLE
Notes payable and long-term debt as of June 30, 2000, and December 31,
1999 and 1998, consist of the following:
F-14
<PAGE> 56
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Borrowings under a bank revolving line-of-credit agreement with available
borrowings up to $15,000,000 at June 30, 2000, and December 31, 1999, and
$10,000,000 at December 31, 1998, bearing interest at the commercial paper
rate plus 2.75% (9.33% at June 30, 2000, 8.30% at December 31, 1999, and
8.05% at December 31, 1998), secured by inventories and accounts receivable $ 2,737,138 $ 7,423,064 $ 1,100,000
Subordinated debentures convertible into warrants to purchase shares of common
stock at $25.00 per share, interest payable quarterly at prime plus 1.5%
(11.0% at June 30, 2000, and 10.0% at December 31, 1999), due November, 2001 1,350,000 1,700,000 2,000,000
Insurance premium financing loans, bearing interest at 6.95% at June 30, 2000,
and December 31, 1999 and 1998, payable in monthly installments through
August, 2000 67,414 286,309 640,294
Other -- 3,838 15,521
4,154,552 9,413,211 3,755,815
Less- Current portion (3,404,552) (8,313,211) (2,086,833)
Long-term debt $ 750,000 $ 1,100,000 $ 1,668,982
</TABLE>
The bank revolving line-of-credit agreement noted above contains covenants
which require, among other things, maintenance of financial ratios and
limitations on borrowings, investments and capital expenditures. As of
June 30, 2000, the Company was in compliance with its covenants.
On December 1, 1998, AHPC entered into a new $10,000,000 three-year bank
credit agreement through December 1, 2001. Subsequently, on March 31,
1999, the limit was increased to $15,000,000. The new credit facility
includes a $15,000,000 revolving line of credit with a $11,000,000 letter
of credit subfacility. The facility carries an interest rate of commercial
paper plus 2.75% (9.33% at June 30, 2000). The new bank facility was used
to repay all obligations under the previous bank facility.
The principal portion of long-term debt becomes due as follows:
Fiscal year ending June 30-
2001 $600,000
2002 150,000
$750,000
8. COMMITMENTS AND CONTINGENCIES
LITIGATION
Over the last several years, numerous product liability lawsuits have been
filed against suppliers
F-15
<PAGE> 57
and manufacturers of latex gloves alleging, among other things, adverse
allergic reactions. The Company is one of numerous defendants that have
been named in such lawsuits. At June 30, 2000, the Company was involved in
a total of 61 lawsuits, either as a named defendant, third-party
defendant, or an indemnitor. During the six-month period ended June 30,
2000, the Company was named in 17 lawsuits and was dismissed from 10
lawsuits. The Company carries product liability insurance. Management
believes all legal claims are adequately provided for, and if not provided
for, are without merit, or involve such amounts that would not materially
adversely affect the Company's results of operations or financial
condition.
SIGNIFICANT CUSTOMERS
The following summary presents the total percentage of sales the Company
made to Owens and Minor Inc., composed of numerous operating branch
locations throughout the U.S., and Sysco and the total percentage of
Accounts Receivable ("A/R") these two customers accounted for:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Owens and Minor sales as a
percentage of net sales 30.0% 35.5% 37.9% 36.3% 37.6%
Sysco sales as a percentage of
net sales 44.8% 32.8% 30.6% 35.0% 31.0%
Sysco and Owens and Minor A/R
as percentage of total A/R 65.1% 61.0% 63.4% 62.0% 66.8%
</TABLE>
These two distribution companies distribute the Company's products to
numerous medical and food service facilities throughout the U.S. The
ultimate end users of the Company's product are these various medical
facilities, food service organizations and professionals who purchase the
product from these distributors.
During January, 2000, Novation, a large customer of the Company, did not
renew its GPO contract with the Company; this contract expired in April,
2000. The Novation GPO NovaPlus product sales totaled nearly one half of
the total Company sales in 1999 and 28% of sales during the six-month
period ended June 30, 2000. The Company is focusing on converting the
end-users of the Novation GPO NovaPlus products to the Company's own
branded product labels.
OPERATING LEASES
The Company conducts all of its operations in leased facilities. Total
rent expense, net of rental income, included in the accompanying
statements of income for the six-month periods ended June 30, 2000 and
1999, and for the years ended December 31, 1999, 1998 and 1997, was
$289,886, $169,980, $440,441, $291,685 and $296,358, respectively. The
following summary presents future minimum rental payments required under
the terms of present operating leases:
F-16
<PAGE> 58
Fiscal year ending June 30-
2001 $ 628,658
2002 622,717
2003 566,907
2004 569,129
2005 265,988
2006 59,886
$2,713,285
9. SHAREHOLDERS' EQUITY
In November, 1994, warrants were issued to purchase 7,500 shares of the
Company's common stock at an exercise price of $22.20. These warrants
expired in November, 1999.
In 1994, warrants to purchase 125,000 shares of the Company's common stock
were issued at an exercise price of $15.00. These warrants expired in
March, 1999.
At June 30, 2000, the Company had outstanding debt which is convertible at
any time at the noteholder's option (see Note 7) into warrants to purchase
54,000 shares of common stock at $25.00 per share. These convertible
debentures expire in November, 2001.
10. STOCK OPTION PLAN
On June 12, 1998, the Board of Directors approved an amendment and
restatement of the Company's Omnibus Equity Compensation Plan (the
"Plan"), which authorized and adjusted the number of shares issuable from
400,000 to 1,400,000. Effective on February 29, 2000, the Board of
Directors approved the repricing of all current director and employee
options to $2.07, the closing market price on that date. A summary of
options outstanding under the Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISE
OPTIONS PRICE EXPIRATION
<S> <C> <C> <C>
Balance, December 31, 1996 181,449 $2.63-$14.40
Grants 92,500 3.66 2007
Rescissions/expirations (24,833) 2.75-3.66 2004-2007
Exercises (3,334) 2.75 2006
Balance, December 31, 1997 245,782 2.63-14.40
Grants 369,000 5.1875-6.3125 2008
Rescissions/expirations (16,500) 2.75-3.66 2005-2008
Exercises (93,858) 2.75-3.66 2006
Balance, December 31, 1998 504,424 2.63-14.40
Grants 54,000 4.75-7.1875 2009
Rescissions/expirations (56,657) 2.75-14.40 1999-2009
Exercises (18,167) 2.75-6.3125 2005-2009
Balance, December 31, 1999 483,600 2.63-7.1875
Repricing of options 483,600 2.07 2003-2009
Rescission of repriced options (483,600) 2.63-7.1875 2003-2009
Grants 30,000 1.44 2010
Rescissions/expirations (23,000) 2.07 2008-2009
Balance, June 30, 2000 490,600 $1.44-$2.07
</TABLE>
F-17
<PAGE> 59
The exercise price of the stock options granted in 2000, 1999, 1998 and
1997 was established at the market price on the date of the grants. Of the
490,600 options outstanding at June 30, 2000, 459,609 are currently
exercisable, 18,664 become exercisable in 2000, 11,327 become exercisable
in 2001 and 1,000 become exercisable in 2002. The Company has reserved
common stock for issuance upon conversion of these options.
The Company accounts for employee stock options under APB Opinion No. 25
and FASB Interpretation No. 44, as permitted under generally accepted
accounting principles. No compensation cost has been recognized in the
accompanying financial statements related to these options. Had
compensation costs for these options been determined consistent with SFAS
No. 123, which is an accounting alternative that is permitted but not
required, the Company's net income and net income per share (diluted) for
the six-month periods ended June 30, 2000 and 1999, and for the years
ended December 31, 1999, 1998 and 1997, would have been $1,190,558,
$1,098,470, $1,780,936, $4,560,341 and $397,292 and $0.17, $0.16, $0.26,
$0.72 and $0.09, respectively.
The pro forma disclosure is not likely to be indicative of pro forma
results which may be expected in future years. This primarily relates to
the fact that options vest over several years and pro forma compensation
cost is recognized as the options vest. Furthermore, the compensation cost
is dependent on the number of options granted which may vary in future
periods.
The fair value of each option is estimated on the date of grant based on
the Black-Scholes option pricing model using the following assumptions:
<TABLE>
<CAPTION>
SIX-MONTH PERIOD YEAR ENDED
ENDED JUNE 30 DECEMBER 31
ASSUMPTION 2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Risk-free interest rates 6.26% 4.75% 5.43% 5.26% 6.12%
Dividend yield - - - - -
Expected volatility 70.34% 85.00% 84.74% 96.00% 90.00%
Expected life 4 years 4 years 4 years 4 years 3 years
</TABLE>
F-18
<PAGE> 60
Options outstanding at June 30, 2000, are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
PRICES JUNE 30, 2000 LIFE PRICE JUNE 30, 2000 PRICE
<S> <C> <C> <C> <C> <C>
$2.07 460,600 3-9 years $2.07 429,609 $2.07
1.44 30,000 10 years 1.44 30,000 1.44
$1.44-$2.07 490,600 3-10 years $2.03 459,609 $2.03
</TABLE>
11. INCOME TAXES
The components of the Company's income tax provision (benefit) from
continuing operations consisted of:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Current-
Federal $ 148,986 $ 282,174 $ 285,482 $ 1,446,909 $ (25,006)
State 81,140 116,326 153,295 162,556 (2,809)
Foreign -- 209,909 55,280 -- --
Total current 230,126 608,409 494,057 1,609,465 (27,815)
Deferred-
Federal (29,378) 245,718 408,690 (640,720) --
State (15,999) 34,782 67,324 (90,696) --
Foreign (161,979) 270,142 196,050 74,097 (294,227)
Total deferred (207,356) 550,642 672,064 (657,319) (294,227)
Total income tax provision (benefit) $ 22,770 $ 1,159,051 $ 1,166,121 $ 952,146 $ (322,042)
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Tax provision at statutory rate of 34% $ 560,968 $ 800,718 $ 1,197,423 $ 2,322,644 $ 48,851
State income taxes, net of federal
income tax provision 79,196 111,099 169,048 257,811 --
Foreign tax rate difference (426,461) 464,880 383,035 (422,385) (322,042)
Increase (decrease) in deferred tax
asset valuation allowance -- -- (198,710) (412,646) 6,702
Utilization of loss carryforwards (220,097) (220,097) (454,897) (836,538) (82,890)
Goodwill amortization and other 29,164 2,451 70,222 43,260 27,337
Total income tax provision (benefit) $ 22,770 $ 1,159,051 $ 1,166,121 $ 952,146 $ (322,042)
</TABLE>
The Company's subsidiary in Indonesia has generated tax losses in current
and prior years. As a result, the Company does not have any current
foreign taxes payable as of June 30, 2000.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
F-19
<PAGE> 61
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Deferred income tax asset:
Accruals not deductible until paid $ 377,954 $ 238,741 $ 350,589
Net operating loss carryforwards-
U.S 451,442 671,539 1,041,921
PT Buana 252,464 -- 216,520
Inventory 255,529 347,813 301,961
Allowance for doubtful accounts 67,900 104,760 93,120
Valuation allowance (451,442) (671,539) (1,041,921)
Total net deferred tax assets
$ 953,847 $ 691,314 $ 962,190
Deferred income tax asset:
Difference between book and tax basis of
property, plant and equipment
$ (400,604) $ (435,912) $ (14,254)
Other noncurrent liabilities--PT Buana (207,798) (117,313) (137,783)
Total deferred tax liabilities
$ (608,402) $ (553,225) $ (152,037)
</TABLE>
The Company has net operating loss carryforwards at June 30, 2000, of
approximately $1.3 million which are available to reduce federal taxable
income in future periods and will begin expiring in 2004. In accordance
with federal tax regulations, usage of the net operating loss
carryforwards is subject to limitations in future years as a direct result
of certain ownership changes that have occurred. Because of these factors,
the utilization of the net operating loss at June 30, 2000, is limited.
The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109. The Company continually reviews the adequacy
of the valuation allowance and is recognizing these benefits only as
reassessment indicates that it is more likely than not that the benefits
will be realized.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest on debt outstanding for the six-month periods ended
June 30, 2000 and 1999, and for the years ended December 31, 1999, 1998
and 1997, was $321,945, $228,560, $690,496, $1,286,619 and $1,488,211,
respectively.
Cash paid for income taxes during the six-month periods ended June 30,
2000 and 1999, and for the years ended December 31, 1999 and 1998, was
$30,000, $740,000, $780,000 and $1,270,000, respectively. There were no
income taxes paid during 1997.
During June, 1997, PT Buana converted debt obligations, owed to minority
shareholders, to equity in the amount of $316,187.
At December 31, 1997, the Company recorded an unrealized gain in
shareholders' equity on the market value of the common stock of LSAI
exceeding its cost in the amount of $261,979.
The following represents significant related-party operating transactions
during the six-month
F-20
<PAGE> 62
periods ended June 30, 2000 and 1999, and the years ended December 31,
1999, 1998 and 1997, which are included in the consolidated statements of
cash flows as amounts due to affiliate under the cash flows from operating
activities.
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Operating cash transactions-
Purchases from affiliate $ 6,621,531 $ 8,813,942 $ 18,409,600 $ 18,629,717 $ 240,654
Sales to affiliate (5,188,011) (4,155,636) (9,512,942) (6,421,590) --
Cash payments (7,433,706) (7,626,099) (19,491,663) (16,501,784) (796,317)
Cash receipts 3,051,827 3,246,696 8,734,551 6,709,352 859,503
Amounts due (from) to affiliate $ (2,948,359) $ 278,903 $ (1,860,454) $ 2,415,695 $ 303,840
</TABLE>
13. VALUATION AND QUALIFYING ACCOUNTS
The following tables summarize the activity of the allowance for doubtful
accounts and the reserve for excess and obsolete inventory during 2000,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
BALANCE AT ACCOUNTS BALANCE
ALLOWANCE FOR BEGINNING WRITTEN ADDITIONS AT END
DOUBTFUL ACCOUNTS OF PERIOD OFF TO ACCOUNT OF PERIOD
<S> <C> <C> <C> <C>
Allowance for doubtful accounts activity
for the year ended December 31, 1997 $ 73,000 $ (11,735) $ 133,735 $ 195,000
Allowance for doubtful accounts activity
for the year ended December 31, 1998 195,000 (12,199) 57,199 240,000
Allowance for doubtful accounts activity
for the year ended December 31, 1999 240,000 -- 30,000 270,000
Allowance for doubtful accounts activity
for the six-month period ended June 30, 2000 270,000 -- (95,000) 175,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT ACCOUNTS BALANCE
RESERVE FOR EXCESS AND BEGINNING WRITTEN ADDITIONS AT END
OBSOLETE INVENTORY OF PERIOD OFF TO ACCOUNT OF PERIOD
<S> <C> <C> <C> <C>
Reserve for excess and obsolete inventory
activity for the year ended
December 31, 1997 $ -- $ -- $ 350,000 $ 350,000
Reserve for excess and obsolete inventory
activity for the year ended
December 31, 1998 350,000 (66,870) 486,870 770,000
Reserve for excess and obsolete inventory
activity for the year ended
December 31, 1999 770,000 (180,261) 155,000 744,739
Reserve for excess and obsolete inventory
activity for the six-month period ended
June 30, 2000 744,739 (422,924) 215,000 536,815
</TABLE>
F-21
<PAGE> 63
14. SEGMENT REPORTING
The Company has two business segments: Manufacturing and Distribution.
These segments are managed as separate strategic business units due to the
distinct nature of their operations and customer bases. The Manufacturing
segment, which represents the operations of PT Buana, manufactures latex
gloves and sells them primarily to the Company and WRP Asia. All
operations of the Manufacturing segment are located in Indonesia. The
Distribution segment involves the procurement and sale of gloves purchased
from the Manufacturing segment and other glove vendors and then sold to
national and regional healthcare, food service, retail and other
distributors. The Distribution segment's significant customers include
those discussed in Note 8. The operations of the Distribution segment are
located entirely within the U.S.
Accounting policies for measuring segment assets and earnings are
substantially consistent with those described in Note 1. The Company
evaluates segment performance based on income from operations before
provision for (benefit from) income taxes and minority interest ("Pretax
income"). Management believes transactions between operating segments are
made at prevailing market rates.
The following tables provide financial data for the six-month periods
ended June 30, 2000 and 1999, and for the years ended December 31, 1999,
1998 and 1997, for these segments:
<TABLE>
<CAPTION>
JUNE 30, 2000 MANUFACTURING DISTRIBUTION ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues from external customers $ 5,499,811 $26,237,671 $ -- $31,737,482
Revenues from other operating segments 1,766,036 -- (1,766,036) --
Pretax income 527,608 1,122,299 -- 1,649,907
Depreciation and amortization expense 791,388 215,913 -- 1,007,301
Interest income 821 421,200 421,200 821
Interest expense 539,729 297,900 (421,200) 416,429
Total assets 16,183,414 19,670,973 -- 35,854,387
Capital expenditures 386,853 61,757 -- 448,610
Long-lived assets 11,647,386 2,876,976 -- 14,524,362
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999 MANUFACTURING DISTRIBUTION ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues from external customers $ 4,373,701 $26,572,775 $ -- $30,946,476
Revenues from other operating segments 809,537 -- (809,537) --
Pretax income 36,493 2,318,561 -- 2,355,054
Depreciation and amortization expense 678,839 168,616 -- 847,455
Interest income 4,345 490,943 (490,777) 4,511
Interest expense 581,260 284,209 (490,777) 374,692
Total assets 16,025,896 26,605,210 -- 42,631,106
Capital expenditures 1,830,824 597,399 -- 2,428,223
Long-lived assets 12,542,322 2,997,350 -- 15,539,672
</TABLE>
F-22
<PAGE> 64
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MANUFACTURING DISTRIBUTION ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues from external customers $ 8,610,232 $ 56,669,872 $ -- $ 65,280,104
Revenues from other operating segments 1,726,945 -- (1,726,945) --
Pretax income (loss) (88,115) 3,609,947 -- 3,521,832
Depreciation and amortization expense 1,465,593 351,900 -- 1,817,493
Interest income 5,949 912,553 (912,004) 6,498
Interest expense 1,128,629 767,534 (912,004) 984,159
Total assets 15,420,491 24,773,680 -- 40,194,171
Capital expenditures 2,084,939 887,898 -- 2,972,837
Long-lived assets 12,060,563 3,040,598 -- 15,101,161
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MANUFACTURING DISTRIBUTION ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues from external customers $ 6,894,637 $ 58,073,764 $ -- $64,968,401
Revenues from other operating segments 6,120,366 -- (6,120,366) --
Pretax income 2,054,301 5,371,067 -- 7,425,368
Depreciation and amortization expense 1,162,918 151,425 -- 1,314,343
Interest income 13,680 565,536 (477,786) 101,430
Interest expense 1,279,705 390,486 (477,786) 1,192,405
Total assets 14,184,928 21,615,011 -- 35,799,939
Capital expenditures 952,910 1,052,213 -- 2,005,123
Long-lived assets 11,402,620 2,554,562 -- 13,957,182
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MANUFACTURING DISTRIBUTION ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues from external customers $ 1,675,136 $49,727,555 $ -- $51,402,691
Revenues from other operating segments 7,595,760 -- (7,595,760) --
Pretax income 856,259 371,236 -- 1,227,495
Depreciation and amortization expense 787,277 152,612 -- 939,889
Interest income 8,029 105,357 (76,076) 37,310
Interest expense 1,095,493 462,050 (76,076) 1,481,467
Total assets 12,991,497 16,539,748 -- 29,531,245
Capital expenditures 3,009,885 53,850 -- 3,063,735
Long-lived assets 11,590,157 1,768,055 -- 13,358,212
</TABLE>
F-23
<PAGE> 65
15. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
2000 QUARTERS FIRST SECOND
(in thousands except for per share data)
<S> <C> <C>
Net Revenues $17,234 $14,503
Income from operations 1,146 898
Income from extraordinary item and cumulative
effect of change in accounting principle -- --
Net income 871 549
Net income per share:
Basic $ 0.13 $ 0.08
Diluted 0.13 0.08
</TABLE>
<TABLE>
<CAPTION>
1999 QUARTERS FIRST SECOND THIRD FOURTH
(in thousands except for per share data)
<S> <C> <C> <C> <C>
Net Revenues $17,082 $13,865 $17,068 $17,265
Income from operations 1,740 873 943 784
Income from extraordinary item and cumulative
effect of change in accounting principle -- -- -- --
Net income 1,214 111 851 277
Net income per share:
Basic $ 0.18 $ 0.02 $ 0.12 $ 0.03
Diluted 0.17 0.02 0.12 0.04
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTERS FIRST SECOND THIRD FOURTH
(in thousands except for per share data)
<S> <C> <C> <C> <C>
Net Revenues $15,213 $15,685 $16,259 $17,811
Income from operations 1,526 2,204 2,347 2,079
Income from extraordinary item and cumulative
effect of change in accounting principle -- -- -- --
Net income 1,101 1,339 1,420 2,019
Net income per share:
Basic $ 0.25 $ 0.20 $ 0.21 $ 0.28
Diluted 0.25 0.19 0.20 0.29
</TABLE>
F-24
