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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
- -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to ______
Commission File Number 0-19453
HOLOPAK TECHNOLOGIES, INC.
Exact name of registrant as specified in its character
DELAWARE 51-0323272
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 COTTERS LANE, EAST BRUNSWICK, NEW JERSEY 08816
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (908) 238-2883
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
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Title of each class Name of exchange on which registered
<S> <C> <C>
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK -- PAR VALUE $.01 PER SHARE
(Title of Class)
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 and (2) has been subject to such filing for the past 90
days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this From 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 26, 1997 was $7,480,378.
The number of shares of all classes of the registrant's common stock at May 31,
1997:
COMMON STOCK 2,796,403
CLASS A COMMON STOCK 753,086
Documents incorporated by reference: Portions of the Registrant's definitive
proxy statement for the year ended March 31, 1997 are incorporated by reference
into Part III hereof.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
HoloPak Technologies, Inc., ("HoloPak" or the "Company") through its
principal operating subsidiaries, Transfer Print Foils, Inc. ("TPF" or the
"Predecessor"), and Alubec Industries Inc. ("Alubec"), is a manufacturer and
distributor of hot stamp foils in the United States, and is a major manufacturer
of laminated foil and direct metallized paper in Canada. Hot stamp foil is
primarily used to decorate or label a wide variety of products such as greeting
cards, paperback book covers, cosmetics, other paper and plastic packaging,
appliances and sporting goods. Laminated foil paper is used in a variety of
consumer packaging applications. The Company services over 1,200 customers,
including Hallmark Cards, American Greetings, Upper Deck, and Data Card. The
Company is also one of the leading producers in the United States of holographic
foil, which is a specialized type of hot stamp foil that is embossed with a
three-dimensional image called a hologram. The Company has been involved in the
development of holographic foil since 1984, shortly after the first commercial
uses of holograms began.
"Hot stamping" is the term that describes a decorating process
performed by transferring a coating from a film to the surface of a product by
simultaneously stamping it with heat and pressure. The Company manufactures the
specialized foils used for hot stamping by coating polyester film in a
multi-step process. These foils are produced in a wide range of colors, patterns
and surface finishes designed to meet specific customer requirements. The
Company supplies foils to its customers, who then hot stamp it to their
products. In addition, the Company produces holographic foil by embossing a
hologram on technologically advanced base foils specially created for this
application. Holograms, which are difficult to duplicate, make holographic foil
useful as a security device for credit cards, driver's licenses, collectible
cards, checks, event tickets and other items for which counterfeiting is a
problem. The distinctive appearance of holograms and holographic patterns also
makes this type of foil appealing as a device to increase the visibility of
consumer packaging.
HoloPak was organized in 1989 to acquire the Predecessor. Although the
Company was organized in 1989, the business conducted by the Predecessor has
been in continuous operation since 1978. On September 27, 1991, the Company
completed an initial public offering in which the Company issued and sold
800,000 shares of its Common Stock, par value $.01 per share ("Common Stock"),
and certain stockholders of the Company sold 350,000 shares of Common Stock.
On March 17, 1993, the Company acquired 100% of the outstanding shares
of Alubec for $5.2 million in cash, 223,000 shares of common stock of HoloPak,
and warrants to acquire an additional 200,000 shares, which lapsed on June 30,
1996 due to Alubec's failure to achieve certain earnings targets.
On May 3, 1993, the Company acquired 100% of the outstanding shares of
Jaeger Graphic Technology, S.A. ("JGT"). In June 1994 the Company announced that
it would dispose of JGT, which it has since done. Please refer to Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General."
On February 1, 1996, Mr. Robert E. Coghan became Chief Executive
Officer, replacing Mr. Harry Parker, who resigned. Mr. Coghan has been President
of the Company or TPF since 1978. Mr. Parker remains with the Company as a
consultant.
HoloPak's executive offices are located at 9 Cotters Lane, East
Brunswick, New Jersey, 08816, and its telephone number is (908) 238-2883.
PRODUCTS AND MARKETS
HOT STAMP FOILS
Hot stamp foils, the Company's traditional core product, are
manufactured by TPF. Using specialty types of its hot stamp foil as a base, TPF
also produces holographic foils and foil laminates. While the Company's foils
all have similar basic characteristics, the foils are produced in a wide range
of colors, patterns, surface finishes and adhesive backings to meet customer
requirements. Approximately 80% of the Company's sales consist of custom-made
products.
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Customers use a heated die to apply the Company's foils to their
products, which effects a permanent transfer of the coatings. Hot stamping has
many advantages over other methods of applying designs, lettering and imprints
to substrate materials. No treatment of the surface of the product is required
before or after applying the hot stamp foil. Unlike many "wet" methods such as
ink printing, no overruns or drying time is required, thereby reducing energy
and labor needs. As no potentially hazardous coatings, inks or solvents are
required for hot stamping, the environmental risk for the customer of handling,
using and adequately disposing of such materials is reduced. Hot stamping also
enables a customer to produce different colors and patterns easily and
eliminates long downtime and set up procedures.
The Company produces more than 3,500 different metallic, pigmented and
patterned hot stamp foils, which are resistant to peeling, cracking, scuffing,
fading, color change, moisture, oils and smudging. Management estimates there
are more than 20,000 users of hot stamp foils in the United States in a large
number of diverse industries. The majority of the Company's hot stamp foils are
produced for application on paper and plastic products, with a lesser portion of
its foils being used on fabric, metal and other substrates. The use of foils for
all these applications has continued to increase in recent years due to the
importance of the visual impact of the end users' products.
The largest portion of the Company's hot stamping foils business is to
the graphic arts industry, which includes packaging and greeting cards. In the
fiscal year ended March 31, 1997, sales of the Company's foils to manufacturers
of greeting cards accounted for 19% of the Company's overall net revenues. The
Company believes it produces over 60% of the hot stamp foils used by the
greeting card market. Sales of the Company's foils to the paper packaging market
also represent a significant portion of the Company's business. The Company
produces foils for use on film boxes, cosmetics and personal care packaging,
ribbons for gift packaging and covers of paperback and hardback books, as well
as many other paper-based products.
The Company's hot stamp foils are also used for application on plastic
products such as plastic packaging for consumer products and decorative
components of appliances and automobiles. The durability of the Company's foils
is especially important to customers in these markets. The Company's metallic
and pigmented foils are used to decorate and label plastic cosmetic packaging,
shampoo and powder bottles as well as for lettering and imprinting small plastic
items such as toys, rulers, pens and novelty items. The Company's foils are used
on packaging for major cosmetic and personal-care lines. The Company also sells
chrome, wood-grained, marbled and patterned foils for use on appliances,
automobiles and other consumer durable goods. The Company supplies wood-grain
foil for air conditioner grilles and automobile interior, and chrome foil for
automotive trim and tail lights. The Company supplies foils to major appliance
manufacturers, and to all three major domestic automobile manufacturers.
The Company also produces hot stamp foil for various other uses such as
decorating and imprinting applications on fabric and leather products, pencils,
sporting goods, apparel and banners, and extrusion applications for vertical
window coverings and picture frames.
HOLOGRAPHIC FOILS
The Company is one of the leading producers of holographic foil in the
United States. Holographic foil is a specialized type of hot stamp foil embossed
with a holographic image or pattern. Holographic foils are used to provide
decoration on packaging and graphics products, and more importantly, on products
that require anti-counterfeiting protection. The Company has developed
production methods that permit the mass replication of high quality holographic
images on foil in a secure environment.
A hologram is originated by creating a master image through split beam
laser photography. The master image is provided to the Company by the customer
or produced by an independent holographer. Once the master image is created, the
Company produces shims that are used to replicate the holographic image. The
final step in the process uses the shims to emboss the image into special
hot-stamping foil, which receives special coatings so it will accept an image.
When a hologram is viewed from different angles, features of the
depicted object can be seen that would not be visible in a photograph.
Identification of an authentic hologram when used as a security device is
convenient and inexpensive and can be done by sight without any special
machinery. Moreover, high security holograms can also be produced to carry
information that is readable only with the aid of special devices. The high
degree of technological skill and capital investment required to replicate
holograms acts as an obstacle to unauthorized duplication, thereby making
holograms useful as anti-counterfeiting and security devices.
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The Company's holographic foil is used by a producer of baseball cards
to add a small distinctive hologram which increases the difficulty of
reproducing or otherwise counterfeiting the card. The Company produces and sells
holographic foil with whole-card holographic figures for baseball cards and
other collectible cards depicting comic book characters, rock and roll groups
and other figures. The Company sells optically enhanced base foil for use in
producing holograms on driver's licenses and other security sensitive products.
The Company also sells holographic foils for use as protection against
counterfeiting of transit passes, event tickets and checks.
The visual appeal and uniqueness of holograms also makes them ideal for
many graphic applications on paper-based products. The Company has continued to
supply holographic foils for use on products such as greeting cards, ribbon for
gift packaging, paper and box packaging and paperback books. The Company
believes that there is potential for significant growth in this area as
additional holographic products are developed and advances in the replication of
holograms lead to lower production costs, thus making holographic foil practical
for additional applications.
FOIL LAMINATES
The Company also produces a full line of hot stamp foils that can be
laminated on a wide variety of plastic surfaces and used in diverse products.
The Company produces decorative foil finishes such as wood grains, marbles,
patterns, glosses, colors and metallics which are sold in engraving sheets for
use in producing office nameplates, interior and exterior signs and other
engraving applications. The Company also produces laminated sheets for stock and
custom uses, and vacuum-formed products for the marine, automobile and appliance
industries. These products include automobile dashboards and pleasure boat
instrument panels. Miscellaneous laminates produced by the Company include wood
grain appliques for office products and silver decoration of vinyl sheets for
telephone calling cards.
METALLIZED PAPER
The Company manufactures metallized paper through Alubec. Alubec's
principal laminated foil products are paper and paperboard to which aluminum
foil is laminated in accordance with customer specifications. Alubec's customers
use its products in making decorative and attractive labels or packages for
various manufacturers of consumer goods such as food, beverages, candy,
cosmetics, cigarettes and household products. The users of packages or labels
containing foil believe that the attractiveness of the package or label catches
the consumer's attention and helps distinguish their products from those of
their competitors. Alubec also manufactures direct metallized paper, which is
used in a wide variety of packaging applications and has the advantage of being
fully recyclable.
Quality control is an integral part of Alubec's manufacturing process.
Alubec only purchases raw materials from those suppliers who meet its stringent
quality standards. In addition, on-line quality inspection is continuous. Alubec
inspects raw materials (foil, paper, paperboard, lacquer, etc.) prior to
production. Spot checking during in-line production is continuous and each sheet
of sheeted products is inspected as it comes off the sheeter. A final inspection
is made prior to packaging for shipment.
MANUFACTURING
The manufacture of hot stamp foil is a three-step process. The primary
raw materials are polyester film, pigments, resins, dyes, aluminum and a variety
of adhesives. The Company maintains more than 3,500 product formulations to meet
varying customer needs, depending on the final product. Polyester film is used
as a carrier for all products. The film ranges in width from 25 to 52 inches and
in thickness from 0.5 to 3 mils. The first production step is the application of
a release coat, which allows the foil to separate from the polyester film during
hot stamping by the customer. In the second step, the polyester film is coated
with solvent based pigments or dye solutions to achieve the desired color and
pattern. The performance requirements of the decorated surface determine the
number and type of coatings required. For metallic foils, the roll of color
coated film is then metallized by direct vacuum deposition. Other multicoated
foils, such as wood grains, undergo a more extensive manufacturing process. In
the final step of all foil manufacturing, an adhesive is applied to the back of
the foil. Different adhesive properties are required depending on the surface to
which the foil will be applied and the conditions under which the end product
will be used. Rolls of foil are cut or slit to customer specifications before
shipping. For laminated products, the Company laminates a completed roll of foil
onto plastic sheets.
To produce holographic foils, in the second step of the foil production
process the Company adds specially developed coatings to produce a base foil
flexible enough to accept a holographic embossing, but durable enough to
maintain image fidelity. The base foil produced is then embossed with a
holographic image by one of the Company's proprietary holographic embossing
machines. After the embossing process, the holographic foil is returned to the
standard foil production cycle to receive an adhesive coating.
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Much of the Company's machinery and equipment was developed and built
on site by the Company. The Company currently has the capacity to increase foil
production by approximately 25%, based on historical production statistics,
without the need of any additional expansion. The Company is currently in the
midst of a program to upgrade existing machinery and to install new and more
technologically advanced machinery to improve production efficiency.
The Company has made a number of advances in the development of
machinery to emboss holographic images and patterns on base foils to produce
holographic foil. The Company is now embossing holograms on rolls of foil up to
40 inches wide. Management believes that by embossing on wider rolls, the
Company increases the potential applications for its holographic foil.
Alubec manufactures its products at its plant in Montreal, Quebec.
Laminated foil paper is manufactured using specialized machinery to laminate
aluminum foil to packaging paper and paperboard, which is then rolled, cut or
sheeted for delivery to customers. The customer prints the appropriate words and
designs on the laminated foil and then uses the laminated products in making
labels, boxes or other packaging containers for its customers' products. Direct
metallized paper is manufactured by vacuum-metallizing paper in roll form.
Alubec also has the capability of manufacturing hot stamping foil at its plant.
The Company's manufacturing expertise lies in producing durable high
quality foil and papers that will consistently perform according to
specifications. The Company has an extensive quality control program for all
production processes to further the Company's goal of reducing defects in all
products. The Company's quality control program is carried out by all
manufacturing employees and is an integral part of the production process.
SALES AND MARKETING
The Company currently has 13 full time sales people, including regional
and country managers, with sales offices and distribution centers in East
Brunswick, New Jersey; Evansville, Indiana; Chicago, Illinois; Irvine,
California; and Montreal, Quebec. The Company's products are sold to more than
1,200 active accounts. The majority of its products are sold directly to
end-users, although the Company makes limited sales to distributors who service
small accounts. The Company's sales personnel are compensated on a salary plus
commission basis. The Company is also an active participant in various trade
shows and conducts an advertising campaign in various trade magazines.
Alubec markets its products, with few exceptions, directly to printers
and manufacturers primarily in and around Montreal, Quebec.
The Company operates on a purchase order basis and has no long term
sales contracts with customers. Because the Company is required to provide
prompt turnaround time from order to delivery, backlog comparisons are not
indicative of sales trends at any given time. Sales to one major customer
amounted to $5,986,000 (14.6%), $5,419,000 (12.3%), and $5,555,000 (12.1%) of
consolidated net revenues for the fiscal years ended March 31, 1997, 1996 and
1995, respectively.
RESEARCH AND DEVELOPMENT
The Company's research and development program is devoted to the
development of new products and applications. In addition, the research and
development department frequently works directly with customers to develop
products to meet their specific needs. A factor in the Company's growth and
success has been management's investment in new dye, resin and film formulations
so that new decorative effects can be achieved. The Company continues to improve
the workability, abrasion resistance, physical and aesthetic characteristics of
its foils. The Company has a laboratory on site at its East Brunswick, New
Jersey facilities, which employs five persons dedicated to research and
development. The Company employs four persons with a background in chemistry,
two of whom are dedicated to research and development and quality control and
two of whom are members of senior management. The Company expenses its research
and development costs as incurred. Such expenses amounted to approximately
$416,000, $532,000, and $480,000 in fiscal 1997, 1996 and 1995, respectively.
The Company also has a design group that creates new patterns, designs,
colors, shades, patterns and textures, including holographic designs, to offer
customers. The Company also develops original patterns, wood grains or finishes
designed to customers' specifications.
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COMPETITION
The Company competes with a number of companies in the hot stamp foil
and metallized paper industries. In these markets, it competes on the basis of
quality, service and price. The Company believes that its product quality,
long-standing customer relationships, proprietary machinery and processes,
continuity of management and experienced personnel are competitive advantages.
Some of the Company's competitors are divisions or subsidiaries of larger
companies with financial and other resources greater than those of the Company.
The Company competes primarily in the high quality and high value added
end of its markets, where the Company's commitment to and reputation for quality
provides a competitive advantage. Historically, the Company does not
aggressively compete in markets where competition is largely price-based.
However over the past year, segments of the Company's business have become more
price sensitive, thereby compelling the Company to respond to price competition.
The hot stamp industry in general has certain technological and
economic barriers to entry. The Company's processes and machinery for the
production of hot stamp foils and holographic foils have been developed over
years of research and development effort, and require a blend of art and
chemistry based on years of experience working with foils for a broad range of
applications. Also, the capital equipment required to produce hot-stamping and
holographic foil is extremely costly. The operation of a facility for the
production of hot stamp foils also requires large capital expenditures for the
construction of additional equipment to comply with federal, state and local
environmental laws and regulations, which may deter new entrants from commencing
the production of hot stamp foils.
The market for holographic foil is relatively new and has been
developing quickly over the last several years. The Company is one of the
leading producers of holographic foil in the United States. The Company believes
that there are currently two other significant domestic producers of holographic
foil; however, there are also foreign producers of holographic foil. The Company
has invested significant time and effort developing processes and machinery for
the production and embossing of holographic foil which, management believes,
gives it certain competitive advantages.
In foil laminates, the Company competes with several other producers.
Management believes that the Company has an advantage over such competitors
because it is the only producer of both the overlying foil and the laminated
sheets. This integration allows the Company to ensure both the quality of the
foils used and the quality of the final foil laminate.
The laminated foil and metallized paper markets are highly competitive.
This competition is based upon price, availability, and performance of products.
There are more than fifty laminated foil companies and three direct metallized
paper companies in the United States and Canada. Most of these companies are
larger and have greater financial resources and marketing capabilities than
Alubec.
RAW MATERIALS AND SUPPLIERS
The Company is not dependent on any one supplier for any single raw
material. The Company's suppliers fall into four general groups: Suppliers of
the polyester film that serves as the carrier for the foil; suppliers of
chemicals for producing the coatings and adhesives; suppliers of plastic sheets
for the foil laminates, and suppliers of paper for metallized paper.
The Company purchases from suppliers on a purchase order basis and,
consequently, has no long term supply contracts.
During fiscal 1997, the price of polyester film declined by
approximately 30%. The decline in price of this key raw material relieved
pressure on the Company's gross margins. Management believes that supplies of
polyester film will be adequate for the coming year, although further declines
in price appear unlikely. However, other raw material prices have increased. The
chemicals that the Company uses fall into three broad categories: solvents;
specialty resins, dyes, and pigments; and adhesives. Of these, solvents have
shown the most fluctuation. Solvents, however, are basically commodities -- the
price can be expected to decline in response to the business cycle. Specialty
chemicals, on the other hand, tend to have smaller, but regular (and permanent)
increases. Unlike polyester film where the Company is a major consumer in North
America, it is a minor chemical consumer and therefore has limited leverage with
suppliers. Also, increasing stringency of environmental laws has made first
quality materials more difficult to obtain.
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ENVIRONMENTAL MATTERS
The Company and its facilities are subject to federal, state and local
environmental law and regulations relating to discharges into the environment
and to worker health and safety. The Company believes that it is in compliance
with these laws and regulations in all material respects.
The Company is currently involved in two environmental cleanup
proceedings as a result of waste delivered to large landfills. One matter
involves the cleanup of a New Jersey landfill (the "New Jersey Cleanup"). The
New Jersey Cleanup has been divided into two parts. In the first part, the
Company was joined in a federal action with numerous other parties as the
alleged successor-in-interest to another company whose assets were purchased by
the Company and whose waste was allegedly disposed of at the landfill. The first
part was settled at no cost to the Company because the $132,000 portion of the
total settlement that was allocable to the Company's predecessor was paid by
such predecessor's insurance coverage. In the second part of the New Jersey
Cleanup, the United States Environmental Protection Agency (the "EPA") has
requested over 300 potentially responsible parties ("PRPs") to offer a proposal
for ground water remediation. The EPA has estimated the costs of such
remediation at $10 million to $12 million. There can be no assurance that the
predecessor's insurance coverage that was available for the first part of the
New Jersey Cleanup will be available for the second part. Although each PRP is
jointly and severally liable for all such cleanup costs, the Company does not
anticipate that the final outcome of this second part of the New Jersey Cleanup
will have a material adverse effect on the Company.
In the other pending proceeding, the Pennsylvania Department of
Environmental Resources (the "PADER") has notified over 1,000 parties, including
the Company, that they may be liable as PRP's for cleanup of a Pennsylvania
landfill that has soil and ground water contamination (the "Pennsylvania
Cleanup"). The Company believes that any waste it allegedly disposed of at the
landfill would represent less than 1% of the total waste disposed of at the site
by the over 1,000 parties alleged to have disposed of waste at the landfill. In
February 1997, the Company entered into a Buyout Agreement with PADER in which
the Company paid approximately $39,000 to settle its obligations in this matter.
The Company has made a claim under the terms of the Environmental
Indemnification Agreement described below for the costs associated with this
matter.
The Buyout Agreement with PADER contains a re-opener provision in the
event the cost of the remedial plan approved by PADER exceeds $30 million. PADER
has not estimated the total cleanup costs of the landfill. As with the New
Jersey Cleanup, the Company does not anticipate the final outcome of the
Pennsylvania Cleanup will have a material adverse effect on the Company, even
though the Company and every other PRP in the Pennsylvania Cleanup may be
jointly and severally liable for all cleanup costs.
In addition, the Company received test results showing ground water
contamination surrounding its facilities in East Brunswick, New Jersey. The
Company believes that it cannot make an accurate assessment at this time of the
total cleanup costs because additional testing and consultation with various
regulatory agencies is still required. The Company does believe, however, that
the soil remediation and the ground water contamination cleanup costs, in the
aggregate, will not exceed the remaining amount available to the Company under
the Environmental Indemnification Agreement described below. The Company has
made a claim under the Environmental Indemnification Agreement for the costs
associated with this matter.
Due to the broad scope of existing environmental cleanup laws, it is
possible that the Company may be joined or named as a PRP in other cleanup
proceedings, not only with respect to waste that the Company disposed of, but
also with respect to the waste disposed of by a business acquired by the
Company. There can be no assurance that any such subsequent proceedings would
not have a material adverse effect upon the Company. The Company does not
maintain environmental impairment insurance coverage in respect of such
liability.
For the fiscal years ended March 31, 1997, 1996 and 1995, the Company
made expenditures of $138,000, $267,000, and $64,000, respectively, on
environmental matters. The Company has filed claims or received reimbursements
of $39,000, $212,000, and $0, respectively, under the Environmental
Indemnification Agreement.
Under an Environmental Indemnification Agreement between the Company
and certain stockholders of the Predecessor, the Company is indemnified for
certain environmental liabilities for claims made prior to January 4, 1993. The
maximum indemnity under such Agreement is $950,000 plus the aggregate value of
the greater of the value of the shares of Common Stock owned by the former CEO,
as determined when a claim or claims are paid, or $4 million. As of March 31,
1997, the Company has been reimbursed under the Environmental Indemnification
Agreement for claims totaling approximately $935,000.
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PATENTS AND PROPRIETARY INFORMATION
The Company has seven patents on processes for producing high quality
durable foils. Management believes, however, that its reputation, know-how and
experience in manufacturing hot stamp foils are more important than patent
protection. Accordingly, the Company relies upon trade secrets and other
unpatented proprietary information in its product development activities.
Forty-two of the Company's employees are parties to employment agreements
providing for confidentiality and the assignment of rights to innovations
developed by them while employed by the Company. The Company also requires key
employees to enter into confidentiality and noncompetition agreements to protect
its confidential information. There can be no assurance that these types of
agreements will effectively prevent disclosure of the Company's confidential
information.
EMPLOYEES
The Company employs 240 people, including 136 direct labor, 52 indirect
labor, 13 outside sales, 10 sales and support and 29 administrative and
management personnel, 194 of which are at TPF, and 46 at Alubec. None of the
Company's employees is or has ever been represented by a union. The Company
believes that its relationships with its employees are excellent.
The executive officers of the Company, as well as many of the other
employees, have had extensive experience in the hot stamp foil industry. Three
of the executive officers each have over 20 years experience in the industry.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and key employees of the Company are as follows:
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NAME AGE POSITION WITH THE COMPANY
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Robert J. Simon 38 Chairman of the Board of Directors
Robert E. Coghan 68 Chief Executive Officer, President and Director
David W. Jaffin 43 Chief Financial Officer and Vice President
Marc O. Woontner 51 Vice President, Sales and Marketing
Charles Yetka 44 Manager of Research and Development
Joseph T. Webb 55 Vice President, Manufacturing
</TABLE>
There are no family relationships between any executive officers,
directors or key employees of the Company.
Officers of the Company are elected by the Board of Directors and serve
at the discretion of the Board.
Robert J. Simon -- Mr. Simon has been Chairman of the Board of
Directors since May 1992 and a Director since January 1990. Mr. Simon has been a
general partner of Bradford Associates since 1989 and a Senior Managing Director
of Bradford Ventures Ltd., a private investment firm, since 1992. Prior to that
time, Mr. Simon held the following positions at Bradford Ventures, Ltd.,
Managing Director (1990-1992), Senior Vice President (1987-1990) and Vice
President (1985-1987). Mr. Simon is also a director of Tufco Technologies, Inc.
and Adco Technologies, Inc. and several privately held companies.
Robert E. Coghan -- Mr. Coghan became Chief Executive Officer of the
Company on February 1, 1996. He has been President of the Company or TPF since
1978, when he joined TPF. Mr. Coghan has over 36 years of experience in the hot
stamp foil business. Mr. Coghan is also a director of Tufco Technologies, Inc.
David W. Jaffin -- Mr. Jaffin has been Chief Financial Officer and Vice
President of the Company since February 1992.
Marc O. Woontner -- Mr. Woontner has been Vice President, Sales and
Marketing of the Company or TPF since 1986, when he joined TPF. Mr. Woontner has
over 21 years of experience in the hot stamp foil business.
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Charles Yetka -- Mr. Yetka has been Manager of Research and Development
of the Company or TPF since 1986. He has been employed by the Company or TPF
since 1979. Mr. Yetka has over 21 years of experience in the hot stamp foil
business.
Joseph T. Webb -- Dr. Webb has been Vice President of Manufacturing of
the Company or TPF since November 1995. From 1994 to 1995 Dr. Webb was a Vice
President of Operations at Ivex Packaging Corporation. From 1974 to 1994 he held
a series of positions at James River Corp. and Rexham as Vice President of
Manufacturing, Vice President General Manager, and Technical Management jobs.
9
<PAGE> 10
ITEM 2. PROPERTIES
The Company leases approximately 143,000 square feet of space in three
buildings in East Brunswick, New Jersey with leases expiring in 1997 through
2000. The building at 9 Cotters Lane contains the corporate headquarters, the
manufacturing plant, laboratory space for research and development activities,
shipping, sales office, and certain administrative offices. The building at 15
Cotters Lane contains a distribution warehouse, laminations department and
certain administrative offices. The building at 21 Cotters Lane houses the
holography department. The Company also has leased facilities in Irvine,
California; Chicago, Illinois; and Evansville, Indiana, each of which contains a
distribution warehouse and sales office. Alubec leases 66,000 and owns 12,000
square feet of manufacturing and warehousing facilities, located in Montreal,
Quebec. Management believes that all its facilities are in good condition and
are suitable for the purposes for which they are being used.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ National
Market System under the trading symbol "HOLO". The range of the high
and low closing bid prices for the Common Stock, as reported on NASDAQ National
Market System by quarter is set forth below.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Quarter Ended June 30, 1995 ............... $9.00 $6.25
Quarter Ended September 30, 1995 .......... $9.00 $6.00
Quarter Ended December 30, 1995 ........... $7.25 $4.50
Quarter Ended March 31, 1996 .............. $5.50 $3.75
Quarter Ended June 30, 1996 ............... $4.63 $3.87
Quarter Ended September 30, 1996 .......... $4.50 $3.37
Quarter Ended December 30, 1996 ........... $3.87 $2.87
Quarter Ended March 31, 1997 .............. $3.75 $2.25
</TABLE>
As of June 12, 1997, there were approximately 153 holders of record of
the Common Stock.
The Company has never paid dividends on its capital stock. The Company
intends to retain earnings to finance future operations and expansion and does
not expect to pay any cash dividends within the foreseeable future.
During fiscal 1996, the Company repurchased 172,300 shares of its
common stock at prices ranging from $5.125 to $5.875 per share. The total amount
expended was $1.0 million.
11
<PAGE> 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net Revenues $ 40,960 $ 43,954 $ 45,866 $ 45,350 $ 33,098
Cost of Sales 33,176 35,205 34,150 33,038 23,556
----------- ----------- ---------- ----------- -----------
Gross Profit 7,784 8,749 11,716 12,312 9,542
Selling, General and Administrative Expenses 7,913 7,786 8,172 8,623 6,892
Restructuring Charge 130 -- -- -- --
----------- ----------- ---------- ----------- -----------
Operating (Loss) Income (259) 963 3,544 3,689 2,650
Interest Income 166 134 100 81 88
Interest Expense 272 440 540 408 33
----------- ----------- ---------- ----------- -----------
Net Interest Expense (Income) 106 306 440 327 (55)
----------- ----------- ---------- ----------- -----------
(Loss) Income From Continuing Operations Before
Income Taxes (365) 657 3,104 3,362 2,705
(Benefit) Provision for Income Taxes (165) 145 1,041 1,285 1,071
----------- ----------- ---------- ----------- -----------
(Loss) Income From Continuing Operations (200) 512 2,063 2,077 1,634
Discontinued Operations:
Loss From Operations -- -- -- (782) --
Loss Upon Disposition (160) (191) -- (1,975) --
----------- ----------- ---------- ----------- -----------
NET (LOSS) INCOME $ (360) $ 321 $ 2,063 $ (680) $ 1,634
=========== =========== ========== =========== ===========
(Loss) Earnings Per Common Share and Common
Share Equivalents
Net (Loss) Income:
Continuing Operations $ (0.06) $ 0.15 $ 0.59 $ 0.59 $ 0.49
Discontinued Operations (0.05) (0.06) -- (0.78) --
----------- ----------- ---------- ----------- -----------
NET (LOSS) INCOME $ (0.11) $ 0.09 $ 0.59 $ (0.19) $ 0.49
=========== =========== ========== =========== ===========
Weighted Average Number of Common Shares and
Common Share Equivalents Outstanding 3,347,689 3,518,476 3,517,989 3,517,989 3,364,505
Balance Sheet Data
Working Capital $ 11,560 $ 13,272 $ 12,256 $ 10,954 $ 12,366
Total Assets 33,966 36,474 40,901 38,878 38,026
Long-term Debt, Including Current Maturities 2,833 4,585 6,338 6,600 4,850
Stockholders' Equity 26,012 26,506 27,002 25,012 26,177
</TABLE>
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is involved in serving a wide variety of different
industries with some growing slowly or not at all, and some growing considerably
faster than GNP. Also, while the Company as a whole does not show marked
cyclical and seasonal trends, certain lines of business do fluctuate seasonally
and cyclically.
The Company acquired 100% of the outstanding shares of Alubec on March
17, 1993. Alubec is a manufacturer of laminated foil paper and direct-metallized
paper. Because many of the consumers for hot-stamping foil are also users of
metallized and foil papers, management believes that there are many possible
areas of synergy. To this end, significant additional capacity was added at
Alubec in 1995 to increase the ability to produce direct metallized paper and to
provide additional capacity to produce hot-stamping foil.
In May of 1993, the Company acquired 100% of the outstanding shares of
Jaeger Graphic Technology, S.A., a distributor of certain types of foils and
hot-stamping machinery based in Brussels, Belgium. The acquisition strategy of
the Company was based upon the assumption that the two different businesses
would combine well, and that the addition of JGT would enable the Company to
increase sales to its own European markets. As a result of the Company's
inability to achieve anticipated synergies, the Board of Directors concluded
that the best interest of the Company's stockholders were not being served
by remaining in Europe. Accordingly, in June 1994, a formal plan was adopted to
dispose of JGT. In March 1994, the Company recorded an estimated loss from these
discontinued operations based on anticipated operating losses through
disposition and losses arising from the liquidation of the JGT business. In
December 1995, the Company wrote-off the remaining asset of $318,000 pretax as
the likelihood of further recovery was deemed to be minimal. (See Fiscal 1996
compared to Fiscal 1995 discussion on Loss from Disposition.) In fiscal 1997,
the Company incurred an additional $160,000 in costs after taxes to settle a
lawsuit relating to the disposition of JGT.
Inflation has had a minimal effect on the results of the Company.
YEAR TO YEAR COMPARISONS
The following table sets forth for the periods indicated the
percentages of net revenues represented by certain items included in the
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0%
Cost Of Sales 81.0% 80.1% 74.5%
----- ----- -----
Gross Profit 19.0% 19.9% 25.5%
Selling, General and Administrative Expenses 19.3% 17.7% 17.8%
Restructuring Charge 0.3% -- --
----- ----- -----
Operating (Loss) Income (0.6%) 2.2% 7.7%
Interest Income 0.4% 0.3% 0.2%
Interest Expense 0.7% 1.0% 1.1%
----- ----- -----
(Loss)Income From Continuing Operations Before Income (0.9%) 1.5% 6.8%
Taxes
(Benefit) Provision for Income Taxes (0.4%) 0.3% 2.3%
----- ----- -----
(Loss) Income From Continuing Operations (0.5%) 1.2% 4.5%
===== ===== =====
</TABLE>
13
<PAGE> 14
FISCAL 1997 COMPARED TO FISCAL 1996
Net Revenues for the year ended March 31, 1997 decreased by $3.0
million, a decrease of 6.8% from the $44.0 million recorded in fiscal 1996. The
decrease was attributable to a decline of $2.2 million in the sale of metallic
graphics foils, and a decline of $1.5 million in the sale of laminated foil
papers. These declines were offset by an increase of $533,000 in holography
sales and increases in other specialty foils manufactured by the Company.
The decline in metallic graphics foils resulted from an extremely slow
market for general graphics stamping, price competition for existing business,
and slow sales in certain segments of the greeting card industry. Price
competition in these segments has become far more intense over the past year,
with selling prices declining to record low levels. Accordingly, the Company has
been forced to cut its prices in order to remain competitive in this market and
has lost share of market compared to certain low-price competitors. This decline
persisted throughout the year, as all quarters showed negative comparisons to
the corresponding quarter in the prior year.
The sales decline at Alubec was concentrated in the fourth quarter;
revenues from this operation of $1.5 million were 50% below the levels achieved
in the fourth quarter of fiscal 1996. The decline in metallized and laminated
papers resulted from a continuing shift from laminated papers to direct
metallized paper and no business for metallized paper for trading cards in the
fourth quarter. The Company did not lose this business to a competitor; rather,
designs in trading cards changed and demand did not exist. The Company was able
to increase its sales of direct metallized papers, but the increase was not
sufficient to offset the shortfall.
Holographic sales increased due to very strong sales of specialty
security products. In particular, sales of holographic products increased
strongly in the fourth quarter.
Gross Profits declined to $7.8 million from $8.7 million in the prior
year, a decrease of 11%. The major cause of the decline was the decline in
revenues. The level of sales achieved was simply not sufficient to fully absorb
fixed costs at either one of the Company's operating subsidiaries. The effect of
the shortfall in revenues upon gross margins was particularly acute at Alubec in
the fourth quarter. TPF, by contrast, was under absorbed throughout the year.
The Company had a mixed experience with raw materials during the year.
During the first six months of the year, the price of polyester film, which is
the primary raw material in the manufacture of hot stamping and holographic
foils, stood at levels substantially higher than those prevailing during prior
periods. The price of this material declined sharply during the last six months
of the year, and ended the year at levels 30% below those of the first half of
the year. This decline improved margins, although much of the decrease was
passed through to customers in the form of rebates and lower prices. The price
of film appears to have stabilized at current pricing levels. Although the
Company does not anticipate increases in the price of film during fiscal 1998,
if such increases were to occur, it cannot be guaranteed that the Company would
be able to recoup them through increased selling prices.
The Company also experienced quality problems with certain other key
raw materials during the year, which increased scrap rates and reduced
production speeds and efficiencies during the year at TPF.
Selling, General, and Administrative Expenses were $7.9 million, an
increase of $100,000, or 1.6% from the $7.8 million recorded in fiscal 1996. The
increase was attributable to an increase in legal fees of $134,000 resulting
from the settlement of various legal actions, data processing expenses incurred
to install bar coding for inventory and job coating control at the Company's
foil manufacturing operations and an increase in the Company's reserve for
doubtful accounts of $75,000, due to an increase in overdue accounts receivable,
offset by decreases in other expense lines.
Restructuring Charge was $130,000. In August 1996, the Company
restructured its production organization at TPF and, as a result, eliminated
certain positions and incurred a one-time charge of $130,000 to provide for
severance and other separation benefits.
Operating Income was a loss of $259,000, compared to income of $963,000
in fiscal 1996. The shortfall in sales and gross profits were entirely
responsible for the decline.
Net Interest Expense was $106,000, compared to expense of $306,000 in
the prior year. The decline was attributable to lower outstanding balances on
debt, and higher average cash balances. Also, in the forth quarter of fiscal
1997, the Company recognized interest income of $63,816 on tax refunds received.
14
<PAGE> 15
Income Taxes were a benefit of $165,000, compared to income tax
provision of $145,000 in the prior year. The benefit arises primarily from
losses sustained in the Company's U.S. operations that can be carried back to
offset prior years' tax liabilities. The Canadian operations were profitable,
and the Company provided for taxes on these profits at the statutory rate.
Loss from Discontinued Operations reflects the cost of settling a
lawsuit brought against the Company by Bollore Technologies concerning a supply
contract to the Company's discontinued European operations. This operation has
now been completely closed.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Revenues for the year ended March 31, 1996 decreased by $1.9
million to $44.0 million, a decrease of 4.2% from the $45.9 million recorded in
fiscal 1995. The decrease was primarily attributable to a decrease in several
hot stamping foil products. The key decline was a decline of $1.3 million in the
metallic foils market, due to slowness in the trading card business in the last
six months of the year. Also, there was a decline of $435,000 in the Company's
laminated foil division. Sales declined here because of slow demand in the
automotive and signage industries. Holographic sales increased by $300,000 to
$6.8 million, due to sales of specialty security products. During the year
holographic sales to security products customers increased substantially but
were offset by a decline in the market for trading card holographic foil. Paper
sales at Alubec declined by $370,000 due to slowness in the packaging market,
particularly liquor packaging.
There was little change in the average selling prices of the Company's
products.
Gross Profits declined to $8.7 million from $11.7 million in the prior
year. The major causes of the decline, in addition to the decline in revenues,
were a negative purchase variance on polyester film of $850,000, $700,000 in
incremental material costs incurred in perfecting the Company's optically
enhanced holographic foil, and $220,000 in incremental depreciation resulting
from the 1995 capital expansion at Alubec.
Selling, General, and Administrative Expenses were $7.8 million, a
decline of $386,000 or 4.7% from the prior year. The primary causes of the
decline were lower selling expenses at TPF on decreased overall revenues and
lower administrative expenses due to the elimination of executive positions at
TPF.
Operating Income decreased by $2.6 million, or 72.8%, to $963,000 from
$3.5 million in the prior year. The decline is entirely attributable to the
decline in gross profits from TPF. Operating margin decreased to 2.2% from 7.7%
in fiscal 1995.
Net Interest Expense decreased to $306,000, a decline of $134,000 or
30.5%. The decrease is attributable to higher income earned on higher cash
balances during the year, and an accelerated paydown of debt resulting from
extra cash received in connection with tax refunds and recovery of assets from
the liquidation of JGT, and the scheduled paydown of the Company's acquisition
debt.
Income Taxes decreased to $145,000 from $1.0 million in fiscal 1995.
The decrease is attributable to lower pretax income and the differential between
United States and Canadian tax rates. Since U. S. tax rates are higher than
Canadian tax rates, and U. S. operations had losses before income taxes, the net
effective tax rate is quite low.
Loss from Disposition The Company recorded an additional loss from the
disposition of Jaeger Graphic Technology SA ("JGT") of $191,000, net of tax
benefits. This loss stemmed from the write-off of $318,000 in net assets of JGT.
The Company engaged professional liquidators to perform the liquidation of the
JGT operations and relied upon their estimates of asset recovery. During the
third quarter of fiscal 1996, the liquidators changed their estimate of recovery
of certain assets, primarily receivables of the discontinued operations.
Accordingly, HoloPak management decided that the low likelihood of further
recovery necessitated the write-off of the remaining assets.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had working capital of $11.6 million,
compared to working capital of $13.3 million at March 31, 1996. The decline is
attributable to a decline in receivables of $1.0 million, reflecting lower sales
at both subsidiaries, and a decline in inventory of $500,000, reflecting lower
raw material prices at TPF and reduced
15
<PAGE> 16
production requirements. Prepaid income taxes declined by $870,000, reflecting
in part the receipt of income tax refunds related to losses generated by the
liquidation of JGT.
During fiscal 1997, the Company generated $4.7 million in cash
from operating activities compared to $3.1 million in the prior year. The
increase is attributable to the positive changes in working capital accounts,
offset by the losses recorded for the year.
The Company had net investments of $2.0 million in fiscal
1997, compared to positive cash flow of $1.4 million in fiscal 1996. Capital
expenditures for fiscal 1997 were $1.8 million compared to $1.3 million in the
prior year. The bulk of the expenditures were for enhancing converting
operations at TPF and for the purchase of pollution control equipment at Alubec.
The Company is currently contemplating a major plant
relocation of its TPF facility with a concomitant upgrade to equipment. For a
project of this magnitude, it will be necessary to turn to outside funding
sources.
During the year, the Company repaid $1.8 million in long-term
debt.
The Company has available to it up to $3 million in a revolver
to be used for working capital and other general requirements. The facility is
secured by the Company's assets and bears interest at a rate of LIBOR (London
Interbank Offered Rate) plus 150 basis points. At March 31, 1997, this rate was
6.4%. As of June 27, 1997 there were no amounts outstanding under this facility.
The Company's long term debt is comprised of two pieces. The
first piece is a term loan made to fund the acquisition of Alubec. It calls for
fixed quarterly payments of principal of $303,125, has a fixed interest rate of
5.9% and has a final maturity date of March 17, 1998. The second piece is a term
loan resulting from loans made under a former capital expenditure facility,
which converted to a five year term loan in March of 1995. This loan calls for
quarterly payments of principal of $135,000, with a final maturity on March 17,
2000. The interest rate on this loan is LIBOR plus 150 basis points.
The conditions of the Company's banking facilities call for
the Company to maintain certain financial ratios regarding debt service
coverage, working capital, and certain amounts of tangible net worth. At March
31, 1997, the Company had violated certain of these covenants; however, the
Company obtained a waiver on these covenants as of said date.
The Company has historically depended upon funds generated
from operations and its borrowings to provide both short and long term
liquidity. The Company expects these sources of liquidity to be sufficient to
supply its working capital and capital expenditure requirements for the
foreseeable future.
The excess of cost of acquisitions over amounts assigned to
identifiable assets and liabilities assumed is being amortized on a
straight-line basis over 40 years. The amount of impairment, if any, in Excess
of Cost Over Fair Value of Net Assets Acquired ("Goodwill") is measured based on
projected future undiscounted cash flows of the operation acquired as compared
to the unamortized balance of Goodwill at each balance sheet date. If the
results of such comparison indicate that an impairment may be likely, the
Company will recognize a charge to operations at that time based upon the
difference between the present value of expected cash flows from future
operating results (utilizing a discount rate equal to the Company's average cost
of funds at the time), and the balance sheet value of goodwill as of such time.
The recoverability of Goodwill is at risk to extent the Company is unable to
achieve its forecast assumptions regarding cash flows from operating results.
The Company has determined that there is no impairment since future undiscounted
cash flows through the period over which such Goodwill is being amortized are
expected to be sufficient to absorb the amortization of Goodwill.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as part of this report are the
financial statements and supplementary data listed in the list of Financial
Statements and Schedules under Item 14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
For information concerning executive officers called for by
this item, see Part I -- Executive Officers of the Registrant. Other information
called for by Item 10 is incorporated by reference from the 1997 Proxy Statement
which is to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days of the end of the fiscal year covered by this
report.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by item 11 is incorporated by
reference from the 1997 Proxy Statement which is to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the end of
the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by item 12 is incorporated by
reference from the 1997 Proxy Statement which is to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the end of
the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by item 13 is incorporated by
reference from the 1997 Proxy Statement which is to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the end of
the fiscal year covered by this report.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(1) Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets -- March 31, 1997 and 1996 F-2
Consolidated Statements of Operations -- Years
Ended March 31, 1997, 1996, and 1995. F-3
Consolidated Statements of Stockholders'
Equity -- Years Ended March 31, 1997, 1996, and 1995. F-4
Consolidated Statements of Cash Flows -- Years
Ended March 31, 1997, 1996, and 1995. F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedule:
Independent Auditors' Report S-1
Schedule II -- Valuation and Qualifying Accounts
for the three years ended March 31, 1997 S-2
</TABLE>
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.
(3) Index of Exhibits
The Following is a list of exhibits filed as part of this
annual report on Form 10-K. Where indicated by footnote,
exhibits which were previously filed are incorporated by
reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in
parenthesis.
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM
----------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation. (Exhibit 3.1)(1)
3.2 Bylaws. (Exhibit 3.2)(1)
10.1 Stock Purchase and Contribution Agreement, dated as of January 4, 1990, among
the Company, TPF and the Stockholders of TPF. (Exhibit 10.1)(1)
10.2 Environmental Indemnification Agreement, dated as of January 4, 1990, among the
Company, TPF and the Warranting Sellers. (Exhibit 10.2)(1)
10.3 Escrow Agreement, dated as of January 4, 1990, among the Company, Midlantic
National Bank ("Midlantic"), the Warranting Sellers and Harry Parker, not in his
individual capacity, but solely as Sellers' Representative. (Exhibit 10.3)(1)
10.4 Employment Agreement, dated as of January 4, 1990, among the Company, TPF
and Harry Parker, and Amendment to Employment Agreement dated as of July 31,
1991. (Exhibit 10.4)(1)
10.5 Form of Employment Agreement, dated as of January 4, 1990, among the
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM
----------- ----
<S> <C> <C>
Company, TPF and certain executive officers and key employees of the Company.
(Exhibit 10.5)(1)
10.6 Amended and Restated Consulting Agreement, dated October 1, 1991, among the
Company, TPF and Bradford Associates. (Exhibit 10.1)(3)
10.7 Registration Rights Agreement, dated as of January 4, 1990, among the Company,
Stockholders of the Company and certain executive officers and key employees of
the Company. (Exhibit 10.7)(1)
10.8 Stock Option Agreement, dated as of January 4, 1990, among the Company, Wayne
Parker, Charles Yetka and March Woontner. (Exhibit 10.8)(1)
10.9 Stock Option Agreement, dated as of January 4, 1990, among the Company, Wayne
Parker, Charles Yetka and Marc Woontner. (Exhibit 10.9)(1)
10.10 Stock Option Agreement, dated as of July 31, 1991, between the Company and
Harry Parker. (Exhibit 10.10)(1)
10.11 Stock Option Agreement, dated as of July 31, 1991, between the Company and
Robert E. Coghan. (Exhibit 10.11)(1)
10.12 Loan Agreement, dated March 17, 1993, between the Company and First Fidelity
Bank N.A., relating to a $4.0 million revolving credit facility and a $4.85 million
term acquisition loan. (Exhibit 10.12)(2)
10.13 Lease Agreement, dated December 11, 1989, between Carol Parker and TPF,
relating to premises at 9 Cotters Lane, East Brunswick, New Jersey. (Exhibit
10.13)(1)
10.14 Lease Agreement, dated May 22, 1985, between Highveiw Industrial Park and TPF,
relating to premises at 15 Cotters Lane, East Brunswick, New Jersey and First
Extension to Lease, dated July 1, 1990. (Exhibit 10.14)(1)
10.15 Lease Agreement, dated May 1,1 991, between Highveiw Associates and TPF,
relating to premises at 21 Cotters Lane, East Brunswick, New Jersey. (Exhibit
10.15)(1)
10.16 Lease Agreement, dated August 15, 1989, between Highveiw Tices Associated and
TPF, relating to premises at 124 Tices Lane, East Brunswick, New Jersey. (Exhibit
10.16)(1)
10.17 Loft Lease, dated September 29, 1988, between Chicago Title and Trust Company,
as Trustee, and TPF, relating to premises located in Chicago, Illinois. (Exhibit
10.17)(1)
10.18 Lease Agreement, dated October 1, 1987, between Mill Road Office Building and
TPF relating to premises in Evansville, Indiana. (Exhibit 10.18)(1)
10.19 Lease Agreement, dated February 1, 1990, between Olen Properties Corporation
and TPF, relating to premises located in Irvine, California. (Exhibit 10.19)(1)
10.20 Lease Agreement, between the Company and JWP Credit Corp., relating to a
thermal oxidizer. (Exhibit 10.20)(1)
10.21 Form of Indemnification Agreement, dated July 23, 1991, between the Company
and directors and certain executive officers of the Company. (Exhibit 10.21)(1)
10.22 Amalgamation Agreement, dated November 17, 1992, as amended among Alubec,
HoloPak and Purchaser. (Exhibit 2.1)(2)
10.23 Acquisition Agreement, dated November 12, 1992, as amended, among Alubec,
HoloPak and Purchaser. (Exhibit 2.2)(2)
10.24 Escrow Agreement, dated November 12, 1992, as amended, among HoloPak,
Alubec, certain shareholders of Alubec and First Fidelity Bank N.A., New Jersey, as
escrow agent. (Exhibit 10.23)(2)
10.25 Indemnity Agreement, dated November 12, 1992, between HoloPak and Leslie M.
Sandler. (Exhibit 10.24)(2)
10.26 Warrant Agreement, between HoloPak and First Fidelity Bank N.A., New Jersey, as
warrant agent dated March 17, 1993. (Exhibit 4.1)(2)
10.27 Form of Warrant Certificate. (Exhibit 4.2)(2)
10.28 Employment Agreement, dated as of December 13, 1995, among the Company,
TPF and J. T. Webb. (4)
10.29 Note and Pledge Agreement between the Company and Robert E. Coghan, dated
June 26, 1996.(5)
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM
----------- ----
<S> <C> <C>
10.30 Note and Pledge Agreement between the Company and David W. Jaffin, dated
September 5,1996. (6)
10.31 Third Amendment and Supplement to Loan Agreement between the Company and
First Union National Bank, relating to a $2.0 million Capital Expenditures Facility,
dated November 1,1996. (7)
10.32 Change of Control Agreement between the Company and David W. Jaffin, dated
November 13,1996. (7)
10.33 Change of Control Agreement between the Company and Robert E. Coghan, dated
November 13,1996. (7)
10.34 Change of Control Agreement between the Company and J.T. Webb, dated
November 13, 1996. (7)
21* Subsidiaries of the Company.
</TABLE>
* Filed herewith
(1) Filed as an Exhibit to the Registration Statement on Form S-1
filed with the Securities and Exchange Commission on August 5,
1991. (Registration No. 33-42049)
(2) Filed as an Exhibit to HoloPak's Annual Report on Form 10-K
for the year ended March 31, 1993.
(3) Filed as an Exhibit to HoloPak's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992.
(4) Filed as an Exhibit to HoloPak's Annual Report on Form 10-K
for the year ended March 31, 1996.
(5) Filed as an Exhibit to HoloPak's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996.
(6) Filed as an Exhibit to HoloPak's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(7) Filed as an Exhibit to HoloPak's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
(b) There was no Form 8-K report filed.
(c) See (a)(3) above for the list of Exhibits required to be filed by Item
601 or Regulation S-K attached hereto, and are filed as part of the
Annual Report on Form 10-K.
(d) Those financial statement schedules required by Regulation S-X which
are excluded from Registrant's 1995 Annual Report by Rule 14a-3(b)(1),
and which are required to be filed as financial statement schedules to
this report, are indicated in the accompanying Index to Financial
Statements and Financial Statement Schedules.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
HOLOPAK TECHNOLOGIES, INC.
Dated: JUNE 27, 1997
By: /S/ ROBERT E. COGHAN
-----------------------------------
Robert E. Coghan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacity and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Robert E. Coghan,
Chief Executive Officer, his true and lawful attorney-in-fact, in his name,
place and stead to execute and cause to be filed with the Securities and
Exchange Commission any or all amendments to this report.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/S/ ROBERT E. COGHAN Chief Executive Officer, President & Director June 27, 1997
- ------------------------- (Principal executive officer)
Robert E. Coghan
/S/ DAVID W. JAFFIN Chief Financial Officer & Vice President June 27, 1997
- ------------------------- (Principal financial & accounting officer)
David W. Jaffin
/S/ ROBERT J. SIMON Chairman of the Board of Directors June 27, 1997
- -------------------------
Robert J. Simon
/S/ MICHAEL S. MATHEWS Director June 27, 1997
- -------------------------
Michael S. Mathews
/S/ JOHN J. COLLINS Director June 27, 1997
- -------------------------
John J. Collins
/S/ BRIAN KELLY Director June 27, 1997
- -------------------------
Brian Kelly
</TABLE>
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
HoloPak Technologies, Inc.
East Brunswick, New Jersey
We have audited the accompanying consolidated balance sheets of HoloPak
Technologies, Inc. and subsidiaries (the "Company") as of March 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended March 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of HoloPak Technologies, Inc. and
subsidiaries as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
June 27, 1997
<PAGE> 23
HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents .................................................................. $ 3,004,356 $ 1,999,609
Accounts Receivable, less allowance
for doubtful accounts of $174,838 and $81,402 .......................................... 5,548,899 6,582,515
Inventories (Notes 3 & 4) ................................................................. 7,665,210 8,149,598
Prepaid Expenses ........................................................................... 348,538 411,748
Due From Related Parties (Note 14) ......................................................... 20,793 1,979
Prepaid Income Taxes ....................................................................... 329,713 1,200,162
Deferred Income Taxes (Notes 3 & 8) ........................................................ 124,944 307,468
Other Current Assets ....................................................................... 119,400 14,491
------------ ------------
TOTAL CURRENT ASSETS ........................................................................... 17,161,853 18,667,570
Property and Equipment, Net (Notes 3 & 5) ...................................................... 9,827,042 10,638,555
Excess of Cost over Fair Value of Net Assets Acquired, less
accumulated amortization of $1,561,260 in 1997 and $1,361,930 in 1996) (Notes 2 & 3) ....... 6,799,555 6,998,885
Other Assets (Note 14) ......................................................................... 177,155 169,088
------------ ------------
TOTAL ASSETS .................................................................................. $ 33,965,605 $ 36,474,098
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt (Note 7) .............................................. $ 1,752,500 $ 1,752,500
Accounts Payable and Accrued Liabilities (Note 6) ........................................... 3,849,267 3,642,661
------------ ------------
TOTAL CURRENT LIABILITIES ...................................................................... 5,601,767 5,395,161
Long-Term Debt (Note 7) ....................................................................... 1,080,000 2,832,500
Deferred Income Taxes (Notes 3 & 8) ............................................................ 1,272,247 1,740,128
------------ ------------
TOTAL LIABILITIES .............................................................................. 7,954,014 9,967,789
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock: $.01 par value: 10,000,000 shares authorized; none issued ................. -- --
Common Stock; $.01 par value; 10,000,000 shares authorized; 2,796,403 shares issued ....... 27,964 27,964
Class A Common Stock; non voting; $.01 par value: 2,000,000 shares authorized;
753,086 shares convertible to Common Stock at any time at the stockholder's option ...... 7,531 7,531
Class B Common Stock, $.01 par value; 700,000 shares authorized; none issued ............... -- --
Additional Paid-in Capital ................................................................. 22,228,094 22,228,094
Retained Earnings .......................................................................... 5,566,451 5,926,661
Cumulative Translation Adjustment .......................................................... (546,964) (412,456)
------------ ------------
27,283,076 27,777,794
Less: Common Stock (201,800 shares) Held In the Treasury , at cost (Note 21) .............. (1,271,485) (1,271,485)
------------ ------------
Total Stockholders' Equity ..................................................................... 26,011,591 26,506,309
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................................... $ 33,965,605 $ 36,474,098
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 24
HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET REVENUES ..................................................... $ 40,960,196 $ 43,954,343 $45,866,001
Cost of Sales .................................................... 33,175,903 35,205,141 34,150,410
------------ ------------ -----------
Gross Profit ..................................................... 7,784,293 8,749,202 11,715,591
Selling, General and Administrative Expenses ..................... 7,913,550 7,785,996 8,171,800
Restructuring Charge (Note 12) ................................... 130,000 -- --
------------ ------------ -----------
Operating (Loss) Income .......................................... (259,257) 963,206 3,543,791
Interest Income .................................................. 166,073 134,082 100,675
Interest Expense ................................................. 271,922 440,211 540,022
------------ ------------ -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ................................................ (365,106) 657,077 3,104,444
(Benefit) Provision for Income Taxes (Note 8) .................. (164,896) 144,905 1,041,015
------------ ------------ -----------
(Loss) Income From Continuing Operations ........................ (200,210) 512,172 2,063,429
Loss From Discontinued Operations (net of tax benefit of
$88,000 in 1997 and $127,000 in 1996) (Notes 2 & 17) ..... 160,000 191,279 --
------------ ------------ -----------
Net (Loss) Income ................................................ $ (360,210) $ 320,893 $ 2,063,429
============ ============ ===========
(LOSS) EARNINGS PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS (NOTE 3)
Continuing Operations .................................... $ (0.06) $ 0.15 $ 0.59
Discontinued Operations .................................. (0.05) (0.06) --
------------ ------------ -----------
NET (LOSS) INCOME ............................................ $ (0.11) $ 0.09 $ 0.59
============ ============ ===========
Weighted average number of common shares
and common share equivalents outstanding (Note 18) ........... 3,347,689 3,518,476 3,517,989
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE> 25
HoloPak Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Class A Class B Additional
Common Stock Common Stock Common Stock Paid
Shares $ Shares $ Shares $ In Capital
------ - ------ - ------ - ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, April 1, 1994 ........................... 2,796,403 $27,964 753,086 $7,531 0 $ 0 $22,228,094
Cumulative Translation Adjustment .................
Net Income For The Period .........................
------------------------------------------------------------------
Balances, March 31, 1995 .......................... 2,796,403 27,964 753,086 7,531 0 0 22,228,094
Purchase of 172,300 Common Shares (Note 21) .......
Sale of 2,000 Common Shares (Note 21) .............
Cumulative Translation Adjustment .................
Net Income For The Period .........................
------------------------------------------------------------------
Balances, March 31, 1996 .......................... 2,796,403 27,964 753,086 7,531 0 0 22,228,094
Cumulative Translation Adjustment .................
Net Loss For The Period ...........................
------------------------------------------------------------------
Balances, March 31, 1997 .......................... 2,796,403 $27,964 753,086 $7,531 0 $ 0 $22,228,094
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Retained Translation Treasury
Earnings Adjustment Stock
-------- ---------- -----
<S> <C> <C> <C>
Balances, April 1, 1994 ........................... $3,542,339 $(519,422) $ (274,625)
Cumulative Translation Adjustment ................. (73,429)
Net Income For The Period ......................... 2,063,429
------------------------------------
Balances, March 31, 1995 .......................... 5,605,768 (592,851) (274,625)
Purchase of 172,300 Common Shares (Note 21) ....... (1,006,860)
Sale of 2,000 Common Shares (Note 21) ............. 10,000
Cumulative Translation Adjustment ................. 180,395
Net Income For The Period ......................... 320,893
------------------------------------
Balances, March 31, 1996 .......................... 5,926,661 (412,456) (1,271,485)
Cumulative Translation Adjustment ................. (134,508)
Net Loss For The Period ........................... (360,210)
------------------------------------
Balances, March 31, 1997 .......................... $5,566,451 $(546,964) $(1,271,485)
------------------------------------
</TABLE>
See notes to consolidated financial statements
F - 4
<PAGE> 26
HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
NET (LOSS) INCOME ............................................................... $ (360,210) $ 320,893 $2,063,429
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Discontinued operations (Note 17 ) ......................................... 160,000 191,279 --
Depreciation ............................................................... 2,538,103 2,371,968 2,169,422
Amortization ............................................................... 199,330 234,930 255,996
Gain on sale of fixed assets ............................................... -- (20,512) (6,690)
Increase in allowance for doubtful accounts ................................ 93,436 24,443 13,017
Decrease (Increase) in accounts receivable ................................. 907,337 382,219 (205,800)
Decrease (Increase) in inventories ......................................... 453,919 (821,382) (1,208,886)
Decrease (Increase) in prepaid expenses .................................... 60,892 81,021 (99,131)
Decrease (Increase) in due from related parties ............................ (18,814) 136,843 30,258
Decrease (Increase) in prepaid income taxes ................................ 870,455 (218,731) (608,370)
Decrease (Increase) in other current assets ................................ (104,909) 23,618 (7,311)
Decrease (Increase) in other assets ........................................ (8,067) (21,686) 7,816
(Decrease) Increase in accounts payable and accrued liabilities ............ 223,004 (170,379) 361,491
(Decrease) Increase in deferred income taxes ............................... (278,171) 569,832 1,058,183
Other items ................................................................ -- -- (2,213)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .............................. 4,736,305 3,084,356 3,823,424
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ........................................................ (1,777,719) (1,340,261) (2,402,352)
Proceeds from sale of fixed assets .......................................... -- 27,506 18,759
Proceeds from government grants (Note 20 ) .................................. -- 220,006 --
Proceeds from (advances to) discontinued operations ......................... (160,000) 591,035 (2,112,766)
Purchase price adjustment resulting from income tax refunds (Note 8) ........ -- 1,924,424 --
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ..................... (1,937,719) 1,422,710 (4,496,359)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net (decrease) increase from short-term borrowings .......................... -- (2,029,120) 1,112,197
Proceeds from long-term borrowings .......................................... -- -- 950,000
Repayment of long-term borrowings ........................................... (1,752,500) (1,752,500) (1,212,500)
Purchase of treasury stock (Note 21) ........................................ -- (1,006,860) --
Proceeds from sale of treasury stock (Note 21) .............................. -- 10,000 --
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ..................... (1,752,500) (4,778,480) 849,697
----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents .................... (41,339) (29,313) (4,207)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ........................... 1,004,747 (300,727) 172,555
Cash and Cash Equivalents, Beginning of Period ................................. 1,999,609 2,300,336 2,129,994
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................................ $3,004,356 $1,999,609 $2,302,549
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F - 5
<PAGE> 27
HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1. ORGANIZATION
HoloPak Technologies, Inc., and Subsidiaries (the "Company") was
organized in 1989 to acquire Transfer Print Foils, Inc. ("TPF" or the
"Predecessor"). The Company is a manufacturer and distributor of hot
stamp foils and holograms. The Company is also a manufacturer of
metallized paper through its wholly-owned subsidiary Alubec Industries
Inc. ("Alubec").
2. ACQUISITIONS
TPF Acquisition
On January 4, 1990, the Company purchased all the Common Stock of TPF
and Anmarc, Inc., an affiliated corporation that owned a single machine
and provided manufacturing services to TPF (the "Acquisition"). Anmarc
was subsequently merged into TPF.
The Acquisition was accounted for as a purchase and, accordingly, the
Company recorded the assets and liabilities of TPF and Anmarc, Inc., at
fair value. The Company has elected to retain historical tax basis for
the assets and liabilities acquired. In fiscal 1996, 1994 and 1993, net
adjustments to reduce the purchase price of the Acquisition were
recorded as a result of refunds due to amendments filed to the
Company's corporate income tax returns for certain compensation
deductions that should have been taken for tax purposes related to the
sale of the stock by certain former employee-stockholders of the
Predecessor. (See Note 8).
Alubec Acquisition
On March 17, 1993, the Company purchased all of the outstanding shares
of Alubec of Montreal, Quebec, a publicly traded company on the
Montreal Stock Exchange, for $5.2 million cash, 223,000 common shares
of the Company, and warrants to purchase an additional 200,000 common
shares of the Company at $10 per share, which would have become
exercisable if Alubec had achieved a certain earnings target for the
three years ending December 31, 1995. These earning targets were not
met; therefore, the warrants lapsed on June 30, 1996. The assets of
Alubec include a plant for the manufacture of laminated foil paper in
Montreal. The cash portion of the acquisition was financed by the
issuance of $4.85 million of long-term bank debt (see Note 7), and
excess funds remaining from the Company's initial public offering. The
value of the 223,000 common shares issued was $2,007,000 which was
added to common stock and paid in capital, less the costs of issuance.
An excess purchase price of approximately $2.3 million was recorded,
based upon the fair values of the assets acquired and the liabilities
assumed.
JGT Acquisition
On May 3, 1993, the Company acquired 100% of the outstanding shares of
Jaeger Graphic Technology, S.A. ("JGT"). In June 1994, the Company
announced that it would dispose of JGT through either sale or
liquidation. The liquidation was substantially complete as of March 31,
1996 (see Note 17). In fiscal 1997, the Company incurred a cost of
$160,000 after taxes to settle a lawsuit with Bollore Technologies
relating to the disposition of JGT.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation -- The consolidated financial statements include
the accounts of HoloPak and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated.
Inventories -- Inventories are stated at the lower of cost, determined
on a first-in, first-out basis, or market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using principally the straight-line method
based on estimated useful lives which range from four to twenty years.
F-6
<PAGE> 28
Foreign Currency Translation -- In accordance with the Financial
Accounting Standards Board's Statement No. 52, balance sheet accounts
of the Company's foreign subsidiary are translated into U.S. dollars at
the rate of exchange in effect on the balance sheet date; income and
expenses are translated at the average rates of exchange prevailing
during the year. The related translation adjustments are shown as a
separate component of stockholders' equity. Gains and losses resulting
from foreign currency transactions are included in determining net
income.
Income Taxes -- Deferred income taxes result from temporary differences
between the financial statements and tax basis of the assets and
liabilities, primarily property and equipment.
Equity -- Primary earnings (loss) per share of Common Stock was
determined by dividing net earnings by the weighted average number of
common shares and common share equivalents outstanding during the year,
based upon the treasury stock method, for the years ended March 31,
1997 and 1996 and the modified treasury stock method for the year ended
March 31, 1995. Common share equivalents are excluded from the
computation if their effect is anti-dilutive.
Revenue Recognition -- The Company recognizes revenue when goods are
shipped to the customer. In the case of goods on consignment, revenue
is recognized as goods are consumed by the customer.
Excess of Cost Over Fair Value of Net Assets Acquired -- The excess of
cost of acquisitions over amounts assigned to identifiable assets and
liabilities assumed is being amortized on a straight-line basis over 40
years. The amount of impairment, if any, in Excess of Cost Over Fair
Value of Net Assets Acquired ("Goodwill") is measured based on
projected future undiscounted cash flows of the operation acquired as
compared to the unamortized balance of Goodwill at each balance sheet
date. If the results of such comparison indicate that an impairment may
be likely, the Company will recognize a charge to operations at that
time based upon the difference between the present value of expected
cash flows from future operating results (utilizing a discount rate
equal to the Company's average cost of funds at the time), and the
balance sheet value of goodwill as of such time. The recoverability of
Goodwill is at risk to extent the Company is unable to achieve its
forecast assumptions regarding cash flows from operating results. The
Company has determined that there is no impairment since future
undiscounted cash flows through the period over which such Goodwill is
being amortized are expected to be sufficient to absorb the
amortization of Goodwill.
Cash Equivalents -- All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash
equivalents.
Derivative Financial Instruments -- The Company may periodically enter
into forward foreign exchange contracts to effectively fix the foreign
exchange rates on purchases denominated in foreign currency in order to
reduce the Company's risk to movements in foreign exchange rates. There
were no foreign exchange contracts outstanding at March 31, 1997.
Reclassifications -- Certain reclassifications have been made to prior
years' financial statements to conform to the current year
presentation.
Recent Pronouncements -- The Financial Accounting Standards Board has
issued statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128"). The Company is required to adopt SFAS 128 for
both interim and annual periods ending after December 15, 1997. SFAS
128 requires the Company to present Basic Earnings Per Share which
excludes dilution and Diluted Earnings Per Share which includes
potential dilution. The Company believes that the adoption of SFAS 128
will not have a material effect on the Company's earnings per share
calculations.
Estimates-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities 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.
F-7
<PAGE> 29
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Finished Goods $4,248,769 $3,765,214
Work in Process 768,927 1,005,554
Raw Materials 2,647,514 3,378,830
--------- ---------
Total $7,665,210 $8,149,598
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Land $154,728 $157,591
Building 727,172 707,110
Machinery and Equipment 17,873,712 16,770,975
Computer Equipment 87,521 115,814
Leasehold Improvements 2,045,089 1,906,427
Automobiles and Trucks 237,181 271,357
Furniture and Fixtures 77,073 95,976
Construction in Progress (including deposits for
purchase of machinery) 745,423 509,236
------- -------
21,947,899 20,534,486
Less Accumulated Depreciation and Amortization 12,120,857 9,895,931
---------- ---------
Property and Equipment, Net $9,827,042 $10,638,555
========== ===========
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Accounts Payable $1,748,555 $1,984,594
Accrued Payroll and Vacation 239,898 580,759
Other Accrued Liabilities 1,860,814 1,077,308
--------- ---------
Total $3,849,267 $3,642,661
========== ==========
</TABLE>
7. BANK BORROWINGS AND LONG-TERM DEBT
The Company has available through August 1997 a secured revolving line
of credit in the amount of $3,000,000 to be used for general corporate
purposes. The Company had remaining availability under this general
facility of $3,000,000 at March 31, 1997 and 1996, respectively. It is
the Company's intention to renew this facility at the appropriate time.
In addition, the Company had a line of credit for capital expenditures
which converted into a five year term loan in March 1995. This loan
requires equal quarterly payments of $135,000, which began on June 17,
1995, with a final maturity of March 17, 2000. Outstanding borrowings
on this capital expenditures loan at March 31, 1997 and 1996 were
$1,620,000 and $2,160,000, respectively. Both facilities bear interest
at the three month London Interbank Offered Rate ("LIBOR") plus 150
basis points. The interest rates in effect at March 31, 1997 and 1996
were 6.4% and 6.5% respectively.
On March 17, 1993, the Company acquired all of the outstanding stock of
Alubec and borrowed $4,850,000 in term debt to partially finance the
acquisition. The term debt is payable in equal quarterly installments
of $303,125 through 1998 and bears interest at 5.9%. The balance
outstanding on this term loan at March 31, 1997 and 1996 was $1,212,500
and $2,425,000, respectively.
F-8
<PAGE> 30
The conditions of the Company's bank borrowings and long-term debt call
for the Company to maintain certain financial ratios regarding debt
service coverage and certain amounts of tangible net worth. At March
31, 1997, the Company was not in compliance with certain financial
ratios; however, the Company obtained a waiver on these covenants as of
March 31, 1997.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31, PAYMENTS
--------- --------
<S> <C> <C>
1998 $1,752,500
1999 540,000
2000 540,000
----------
Total $2,832,500
==========
</TABLE>
8. INCOME TAXES
The domestic and foreign components of (loss) income from continuing
operations before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Domestic $(917,000) $(640,000) $1,375,000
Foreign 552,000 1,297,000 1,729,000
------- --------- ---------
Total $(365,000) $657,000 $3,104,000
========== ======== ==========
</TABLE>
The components of the (benefit) provision for taxes on income from
continuing operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Current
Federal $(62,000) $(819,000) $(378,000)
State (16,000) (64,000) (30,000)
Foreign 238,000 445,000 396,000
------- ------- -------
160,000 (438,000) (12,000)
------- --------- --------
Deferred
Federal (242,000) 585,000 780,000
State (23,000) 32,000 131,000
Foreign (60,000) (34,000) 142,000
------- -------- -------
(325,000) 583,000 1,053,000
--------- ------- ---------
Total $(165,000) $145,000 $1,041,000
========== ======== ==========
</TABLE>
The income tax (benefit) provision differs from amounts computed by
applying Federal income tax statutory rates to income taxes. The reason
for these differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal Domestic Income Taxes Computed
at Statutory Rates $(312,000) $(217,000) $468,000
State Income Tax (Benefit) Provision (29,000) (38,000) 76,000
Foreign Income Taxes 178,000 411,000 538,000
Purchase Accounting Adjustments 68,000 78,000 87,000
Tax Benefit of Foreign Sales Corporation (40,000) (55,000) (46,000)
Other Items (30,000) (34,000) (82,000)
------- -------- --------
Total (Benefit) Provision for Income Taxes $(165,000) $145,000 $1,041,000
========== ======== ==========
</TABLE>
F-9
<PAGE> 31
Deferred income taxes as recorded in the accompanying consolidated
balance sheets were comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Net Current Deferred Tax Assets:
State Net Operating Loss Carry Forwards $77,000 $182,000
Rent 14,000 65000
Other 34,000 (60,000)
------ --------
Total $125,000 $307,000
======== ========
Non Current Deferred Tax Liabilities:
Prepaid Insurance --- $100,000
Property and Equipment 1,351,000 1,640,000
Other (79,000) ---
-------- ---
Total $1,272,000 $1,740,000
========== ==========
</TABLE>
The Company has approximately $2.4 million of state carry forward net
operating losses of which $0.7 million, $1.4 million and $0.3 million
will expire as of March 31, 2002, 2003, and 2004, respectively.
At March 31, 1995, the Company recorded a benefit to be realized of
$848,000, pending the final dissolution and liquidation of JGT. At
March 31, 1996, this liquidation was substantially complete.
Accordingly, the benefit was recorded as prepaid income taxes and
subsequently realized in fiscal 1997.
On November 2, 1995, the Company received $2.7 million in Federal
income tax refunds and interest. These refunds resulted from deductions
included in amended corporate income tax returns for the period
preceding the acquisition. As a result, the Excess of Cost over Fair
Value of Net Assets Acquired was reduced by approximately $2.0 million
after taxes, fees, and related expenses.
9. COMMITMENTS AND CONTINGENCIES
a. Rent expense for the years ended March 31, 1997, 1996 and 1995 was
$1,067,000, $1,061,000, and $1,029,000, respectively. Approximately
$523,000, $488,000 and $471,000 for the above respective periods, was
paid to an officer at Alubec and to the spouse of the former CEO of the
Company under a lease agreement expiring in 1999, with two five year
renewal options, for manufacturing and office space. The lease
agreement with the affiliate includes scheduled rent increases. The
Company recognizes rental expense on a straight-line basis.
Minimum annual rental commitments under noncancelable operating leases,
in total and to an affiliate, are as follows:
<TABLE>
<CAPTION>
MARCH 31, TOTAL AFFILIATE
--------- ----- ---------
<S> <C> <C> <C>
1998 $866,000 $537,000
1999 869,000 555,000
2000 779,000 465,000
2001 353,000 156,000
---------- ----------
Total $2,867,000 $1,713,000
========== ==========
</TABLE>
b. In connection with the Acquisition, the Company entered into employment
agreements with eight key executives which expired January 4, 1995. In
January 1995, the Company terminated five of these agreements and three
agreements were automatically extended one year expiring January 4,
1996. In January 1996, these three agreements were extended for one
year expiring January 4, 1997. The agreement with Mr. Harry Parker, the
former CEO, was modified to provide for his retirement from active duty
with the Company. In April 1996, the agreement with the current CEO was
modified to provide for one payment of a bonus of $75,000 at the end of
fiscal 1997, while the other agreements do not provide for bonuses. On
December 13, 1995, the Company initiated an employment contract with
its new Vice President of Manufacturing. This contract is for a two
year term expiring December 13, 1997. This agreement provides for
bonuses based on the achievement of certain earnings levels by the
Company. The agreements provide for minimum salary levels as well as
specific fringe benefits. The aggregate annual commitment for future
salaries at March 31, 1997, is approximately $93,000.
F-10
<PAGE> 32
c. The Company is currently involved in two environmental cleanup
proceedings as a result of waste delivered to large landfills. One
matter involves the cleanup of a New Jersey landfill (the "New Jersey
Cleanup"). The New Jersey Cleanup has been divided into two parts. In
the first part, the Company was joined in a federal action with
numerous other parties as the alleged successor-in-interest to another
company whose assets were purchased by the Company and whose waste was
allegedly disposed of at the landfill. The first part was settled at no
cost to the Company because the $132,000 portion of the total
settlement that was allocable to the Company's predecessor was paid by
such predecessor's insurance coverage. In the second part of the New
Jersey Cleanup, the United States Environmental Protection Agency (the
"EPA") has requested over 300 potentially responsible parties ("PRPs")
to offer a proposal for ground water remediation. The EPA has estimated
the costs of such remediation at $10 million to $12 million. There can
be no assurance that the predecessor's insurance coverage that was
available for the first part of the New Jersey Cleanup will be
available for the second part. Although each PRP is jointly and
severally liable for all such cleanup costs, the Company does not
anticipate that the final outcome of this second part of the New Jersey
Cleanup will have a material adverse effect on the Company.
In the other pending proceeding, the Pennsylvania Department of
Environmental Resources (the "PADER") has notified over 1,000 parties,
including the Company, that they may be liable as PRP's for cleanup of
a Pennsylvania landfill that has soil and ground water contamination
(the "Pennsylvania Cleanup"). The Company believes that any waste it
allegedly disposed of at the landfill would represent less than 1% of
the total waste disposed of at the site by the over 1,000 parties
alleged to have disposed of waste at the landfill. In February 1997,
the Company entered into a Buyout Agreement with PADER in which the
Company paid approximately $39,000 in order to settle its obligations
in this matter. The Company has made a claim under the terms of the
Environmental Indemnification Agreement described below for the costs
associated with this matter.
The Buyout Agreement with PADER contains a re-opener provision in the
event the cost of the remedial plan approved by PADER exceeds $30
million. PADER has not estimated the total cleanup costs of the
landfill. As with the New Jersey Cleanup, the Company does not
anticipate the final outcome of the Pennsylvania Cleanup will have a
material adverse effect on the Company, even though the Company and
every other PRP in the Pennsylvania Cleanup may be jointly and
severally liable for all cleanup costs.
In addition, the Company received test results showing ground water
contamination surrounding its facilities in East Brunswick, New Jersey.
The Company believes that it cannot make an accurate assessment at this
time of the total cleanup costs because additional testing and
consultation with various regulatory agencies is still required. The
Company does believe, however, that the soil remediation and the ground
water contamination cleanup costs, in the aggregate, will not exceed
the remaining amount available to the Company under the Environmental
Indemnification Agreement described below. The Company has made a claim
under the Environmental Indemnification Agreement for the costs
associated with this matter.
Due to the broad scope of existing environmental cleanup laws, it is
possible that the Company may be joined or named as a PRP in other
cleanup proceedings, not only with respect to waste that the Company
disposed of, but also with respect to the waste disposed of by a
business acquired by the Company. There can be no assurance that any
such subsequent proceedings would not have a material adverse effect
upon the Company. The Company does not maintain environmental
impairment insurance coverage in respect of such liability.
For the fiscal years ended March 31, 1997, 1996 and 1995, the Company
made expenditures of $138,000, $267,000, and $64,000, respectively, on
environmental matters. The Company has filed claims or received
reimbursements of $39,000, $212,000, and $0, respectively, under the
Environmental Indemnification Agreement.
Under an Environmental Indemnification Agreement between the Company
and certain stockholders of the Predecessor, the Company is indemnified
for certain environmental liabilities for claims made prior to January
4, 1993. The maximum indemnity under such Agreement is $950,000 plus
the aggregate value of the greater of the value of the shares of Common
Stock owned by the former CEO, as determined when a claim or claims are
paid, or $4 million. As of March 31, 1997, the Company has been
reimbursed under the Environmental Agreement for claims totaling
approximately $935,000.
F-11
<PAGE> 33
d. As part of the acquisition of Alubec (see Note 2), the Company acquired
contingent liabilities on certain lease agreements pertaining to
certain discontinued operations of Alubec. As part of the Alubec
acquisition, the former primary shareholder of Alubec, agreed to
indemnify the Company against any losses arising from these claims. The
approximate annual contingent liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31, TOTAL
--------- -----
<S> <C> <C>
1998 $93,000
1999 27,000
</TABLE>
e. As a result of the discontinuance of the operations of JGT, on October
13, 1995, Bollore Technologies S.A. filed suit in the Commercial Court
of Paris against JGT and the Company. This suit was settled at an
after-tax cost of $160,000 in August 1996.
10. MAJOR CUSTOMERS
Net sales to one major customer totaled $5,986,000 (14.6%), $5,419,000
(12.3%), $5,555,000 (12.1%) for the fiscal years ended March 31, 1997,
1996, and 1995, respectively.
11. PROFIT-SHARING PLAN
The Company has a defined contribution profit-sharing plan which
provides benefits to employees who have reached 21 years of age and
completed one year of service. Employees are fully vested after five
years. Contributions are made to the Profit Sharing Plan at the
discretion of the Company's Board of Directors. Contribution expense
was $50,000 for each of the years ended March 31, 1997, 1996 and 1995.
12. RESTRUCTURING CHARGE
In August 1996, the Company restructured its production organization at
TPF and, as a result, eliminated certain positions and incurred a
one-time charge of $130,000 to provide for severance and other
separation benefits.
13. STOCK OPTIONS
In connection with the Acquisition, the Company granted three key
employees two forms of stock options to purchase up to 301,812 shares
of Common Stock at a price of $3.55 per share. The first form of stock
options, which are options to purchase 150,906 shares of Common Stock,
become exercisable in 2011, but may become exercisable earlier upon the
satisfaction of certain conditions relating to the Company's initial
stockholders, other than the former CEO, receiving a total of $7.5
million from sales of their shares. The second form of stock options,
which are options to purchase 150,906 shares of Common Stock, also
become exercisable in 2011, but may become exercisable earlier if the
foregoing $7.5 million target from the sale of shares of Common Stock
is achieved by the Company's initial stockholders other than the former
CEO.
The Company also entered into Stock Option Agreements with the
President and the former CEO on July 31, 1991 (the "1991 Options").
Under the 1991 Options, the President and the former CEO have the right
to acquire 151,522 shares and 50,608 shares, respectively, of Common
Stock at an exercise price of $16.00 per share. The 1991 Options become
exercisable on July 31, 2011. The 1991 Options granted to the President
would be canceled if his employment was terminated prior to the
exercise of such options, but the 1991 Options granted to the former
CEO do not have any employment related restrictions.
At the April 1992 Board of Directors meeting, 10,000 options were
issued to an officer of the Company at an exercise price of $13.58 per
share and were exercisable at the issuance date.
During the year ended March 31, 1996, 150,906 options were canceled.
The options canceled were originally granted to a former Executive Vice
President and Director.
The following table summarizes stock option activity not covered under
the Plan defined below:
F-12
<PAGE> 34
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
<S> <C> <C> <C>
Outstanding at April 1, 1994 513,942 $ 8.64
Granted - -
Exercised - -
Canceled or expired - -
Outstanding at March 31, 1995 513,942 $ 8.64
Granted - -
Exercised - -
Canceled or expired 150,906 $ 3.55
Outstanding at March 31, 1996 363,036 $ 10.76
Granted - -
Exercised - -
Canceled or expired - -
Outstanding at March 31, 1997 363,036 $ 10.76
Options exercisable at March 31,
1997 and 1996 10,000 $ 13.58
</TABLE>
At the Annual Meeting of Stockholders on September 17, 1993, the
Stockholders approved the adoption of a non-Qualified Stock Option Plan
(the "Plan"). Under the terms of the Plan, 150,000 shares of the
Company's Common Stock shall be reserved for issuance or transfer to
officers, directors, and other employees of the Company, subject to
proposal by the Compensation Committee. All options granted pursuant to
the Plan expire ten years from the date of grant.
During the year ended March 31, 1994, options to acquire 60,000 shares
were issued under the terms of the Plan which were exercisable at the
issuance date.
At the November 1994 Board of Directors meeting, 10,000 options were
issued to the Board of Directors of the Company and were exercisable at
the issuance date.
At the December 1995 Board of Directors meeting, 14,000 options were
issued to the Board of Directors of the Company and were exercisable at
the issuance date.
Each non-employee director is entitled to receive options for 2,000
shares annually under the terms of the Plan.
During the year ended March 31, 1996, 10,000 options were canceled. The
options canceled were held by individuals who have since left the
Company's employ.
During the year ended March 31, 1997, 66,341 options were granted and
8,800 options were canceled. The options were issued to the Board of
Directors and employees of the Company and were exercisable at the
issuance date. The options canceled were a result of a director
stepping down and an employee leaving the company.
F-13
<PAGE> 35
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
<S> <C> <C> <C>
Outstanding at April 1, 1994 60,000 $ 9.94
Granted 10,000 9.15
Exercised - -
Canceled or expired - -
Outstanding at March 31, 1995 70,000 $ 9.83
Granted 14,000 6.00
Exercised - -
Canceled or expired 10,000 10.00
Outstanding at March 31, 1996 74,000 $ 9.08
Granted 66,341 3.49
Exercised - -
Canceled or expired 8,800 6.75
Outstanding at March 31, 1997 131,541 $ 6.41
Options exercisable at March 31, 1996 74,000 9.08
Options exercisable at March 31, 1997 131,541 6.41
</TABLE>
For options outstanding and exercisable at March 31, 1997, the exercise
price ranges and average remaining lives were:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
NUMBER WEIGHTED- WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE AT REMAINING EXERCISE AT EXERCISE
PRICES MARCH 31, 1997 LIFE PRICE MARCH 31, 1997 PRICE
<S> <C> <C> <C> <C> <C> <C>
$3.25-$9.63 242,447 12 $ 4.04 91,541 $ 4.85
$9.64-$16.00 252,130 14 $ 14.95 50,000 10.72
-------
494,577
</TABLE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation,"("SFAS 123") in October 1995. Under SFAS 123, companies
can either continue to account for stock compensation plans pursuant to
existing accounting standards or elect to expense the value derived
from using an option model such as Black-Scholes. The Company will
continue to apply existing accounting standards. However, SFAS 123
requires disclosure of pro forma net income and earnings per share as
if the Company had adopted the expensing provisions of SFAS 123. Based
on Black-Scholes values, pro forma net (loss) income for 1997 and 1996
would be $(430,922) and $299,128, respectively; the pro forma net
loss per common share for fiscal 1997 would be $0.13 and there would
be no effect on the reported amounts of (loss) earnings per common
share for 1997 and 1996 had the Company adopted these provisions.
The weighted average Black-Scholes value per option granted in 1997 and
1996 was $1.11 and $1.81, respectively. The following weighted average
assumptions were used in the Black-Scholes option pricing model for
options granted in 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Dividend yield 0.0 % 0.0 %
Volatility 52.0 % 48.0 %
Risk-free interest rate 6.5 % 6.2 %
Expected term of options (in years) 10 10
</TABLE>
F-14
<PAGE> 36
14. RELATED PARTY TRANSACTIONS
Due from related parties at March 31, 1997 and 1996, include escrowed
funds in the amount of approximately $20,000 and $2,000, respectively,
which is due from certain stockholders pursuant to which such
stockholders will fund certain environmental cleanup costs. This escrow
agreement was established in connection with the Acquisition as further
described in Note 2.
The Company entered into an agreement with Bradford Associates
("Bradford"), an affiliate of the two largest stockholders of the
Company, under which Bradford will provide various financial consulting
services until January 2000, when the agreement will be automatically
renewed unless terminated by either party. The Company expects to use
the services of Bradford in the future for any major transactions, such
as loans and acquisitions. The Company is obligated to pay Bradford a
monthly fee of $16,667 under the agreement, plus reasonable
out-of-pocket expenses. Consulting expenses under this agreement were
$200,000 for each of the years ended March 31, 1997, 1996 and 1995.
The Company's purchases from affiliates of Bradford were approximately
$150,000, $92,000, and $154,000, for the years ended March 31, 1997,
1996 and 1995, respectively. The Company's sales to affiliates of
Bradford were $380,000, $141,000 and $141,000, for the years ended
March 31, 1997, 1996 and 1995, respectively.
Accounts receivables at March 31, 1997 and 1996 included balances due
from affiliates of Bradford of approximately $35,000 and $82,000,
respectively. Accounts payable at March 31, 1997 and 1996 includes
balances due to affiliates of Bradford of approximately $8,000 and
$6,000, respectively.
The Company additionally utilized the services of the son-in-law of its
President for the purpose of performing various repairs and
improvements to Company machinery and incurred obligations in the
amount of $98,184 for the fiscal year ended March 31, 1997.
During the years ending March 31, 1997 and 1996, the Company loaned
$81,539 and $20,000, respectively, to officers and employees of the
Company. The loans bear interest at 5%. Principal and related accrued
interest is to be repaid in five years.
15. RESEARCH AND DEVELOPMENT
The Company expensed research and development costs associated with the
development of new products and processes in the amounts of
approximately $416,000, $532,000, and $480,000 for the years ended
March 31, 1997, 1996 and 1995, respectively.
F-15
<PAGE> 37
16. OPERATION IN GEOGRAPHIC AREAS
The Company operates in the foil industry in North America.
Sales and transfers between geographic areas are generally priced to recover
cost plus an appropriate markup for profit. A summary of the Company's
operations by geographical area for the years ended March 31, 1997, 1996 and
1995 is presented below.
<TABLE>
<CAPTION>
UNITED STATES CANADA ELIMINATIONS CONSOLIDATED
------------- ------ ------------ ------------
(AMOUNTS IN 000'S)
<S> <C> <C> <C> <C>
MARCH 31, 1997
Net revenues $31,340 $9,620 $--- $40,960
Inter-area transfers --- 126 (126)
(Loss) Income from continuing operations
before income taxes (917) 552 --- (365)
(Loss) income from continuing operations (574) 374 --- (200)
Identifiable assets 25,373 8,593 --- 33,966
MARCH 31, 1996
Net revenues $32,708 $11,246 $--- $43,954
Inter-area transfers 7 1,026 (1,033) ---
Income from continuing operations before
income taxes (640) 1,297 --- 657
Income from continuing operations (375) 887 --- 512
Identifiable assets 28,466 8,008 --- 36,474
MARCH 31, 1995
Net revenues $35,808 $10,058 $--- $45,866
Inter-area transfers 97 1,506 (1,603) ---
Income from continuing operations before 1,375 1,729 --- 3,104
income taxes
Income from continuing operations 872 1,191 --- 2,063
Identifiable assets 33,561 7,340 --- 40,901
</TABLE>
17. DISCONTINUED OPERATIONS
In May 1993, the Company acquired 100% of the outstanding shares of
Jaeger Graphic Technology SA ("JGT") and the operations of a related
entity. JGT was a distributor of certain types of foils and
hot-stamping machinery based in Brussels, Belgium. As a result of the
Company's inability to achieve anticipated synergies, the Board of
Directors of HoloPak concluded that the best interests of its
shareholders were not being served by remaining in Europe. The products
and end-users of JGT were substantially different from those of TPF and
Alubec. JGT sold its products and machinery to distributors; TPF and
Alubec sell products with completely different formulations to end
users. Accordingly, the Company was unable to supply JGT with product
for its markets; nor was JGT able to sell products manufactured by TPF
or Alubec, except in token quantities. Accordingly, in June 1994, a
formal plan was adopted to dispose of JGT. As a result, JGT was never
integrated into the Company's operations, and was accounted for as a
discontinued operation.
As of March 31, 1996, the assets of the German office of JGT were sold
to Eurofoil, Ltd., a subsidiary of Illinois Tool Works, and the Belgian
office was closed. The assets of the French office were sold to MGT,
SARL in July 1995. The remaining assets of each office are being, or
have been, liquidated.
In December 1995, the Company wrote off $318,000 of remaining assets
from the JGT disposition ($191,000 net of tax benefits). HoloPak hired
professional liquidators to liquidate the operations and assets of each
of the JGT subsidiaries. Based upon the analysis of these liquidators,
and their assessment of asset recoverability, the Company wrote off the
remaining asset.
F-16
<PAGE> 38
As a result of the discontinuance of the operations of JGT, on October
13, 1995, Bollore Technologies S.A. filed suit in the Commercial Court
of Paris against JGT and the Company. The suit claimed noncompliance by
the Company and JGT with a supply agreement and sought damages in the
amount of approximately 5.76 million French francs (approximately $1.3
million as of March 31, 1996). In August 1996 the Company settled this
claim at the cost of $160,000, net of income tax benefit.
18. AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted Average Number of Common Shares Outstanding 3,347,689 3,452,215 3,517,989
Common Stock Equivalents Based Upon the Treasury Stock
Method for 1997 and 1996 and the Modified Treasury
Stock Method for 1995 --- 66,261 ---
--------- --------- ---------
Total 3,347,689 3,518,476 3,517,989
--------- --------- ---------
</TABLE>
19. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income Taxes Paid $499,924 $453,995 $727,046
Interest Paid 275,213 446,137 542,113
</TABLE>
20. GOVERNMENT GRANT
In August 1995, the Company received $300,000 Canadian ($220,000 U.S.)
from Hydro Quebec for the installation of new metallizing equipment in
Quebec. The grant has been accounted for as a reduction in the bases of
the assets, which are being depreciated over a ten year life.
21. TREASURY STOCK
During the quarter ended December 31, 1995, the Company repurchased
172,300 shares of its common stock at prices ranging between $5.125 to
$5.875 per share for a total repurchase of $1,006,860. In December
1995, the Company sold 2,000 shares of treasury stock to an officer of
the Company for $5.00 per share.
F-17
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
HoloPak Technologies, Inc.
East Brunswick, New Jersey
We have audited the consolidated balance sheets of HoloPak Technologies, Inc.
and subsidiaries (the "Company") as of March 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended March 31, 1997,
and have issued our report thereon dated June 27, 1997. Our audits also include
the financial statement schedule of HoloPak Technologies, Inc. and subsidiaries,
listed in the index at item 14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Parsippany, New Jersey
June 27, 1997
S-1
<PAGE> 40
HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
OPENING OTHER CLOSING
BALANCE EXPENSED DEDUCTIONS ADD/(DED) BALANCE
------- -------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1997
Allowance for Doubtful Accounts $81,402 $188,000 $94,334 $(230)(a) $174,838
YEAR ENDED MARCH 31, 1996
Allowance for Doubtful Accounts $56,959 $132,417 $108,028 $54(a) $81,402
YEAR ENDED MARCH 31, 1995
Allowance for Doubtful Accounts $43,942 $65,000 $51,850 $(133)(a) $56,959
</TABLE>
(a) Represents the effect of translating balance sheets of foreign
subsidiary to U. S. dollars.
S-2
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
A.
<S> <C> <C> <C>
1. Name of Subsidiary: Transfer Print Foils, Inc.
2. State of Incorporation: New Jersey
3. Names under which Subsidiary does business:
a. Transfer Print Foils, Inc.
b. All Purpose Roll Leaf
B.
1. Name of Subsidiary: TPF Foreign Sales Corporation
2. State of Incorporation: Barbados
3. Names under which Subsidiary does business:
C.
1. Name of Subsidiary: Alubec Industries Inc.
2. State of Incorporation: Province of Quebec, Canada
3. Names under which Subsidiary does business:
a. Alubec Industries Inc.
D. 1. Name of Subsidiary: 2945-5649 Quebec, Inc.
2. State of Incorporation: Province of Quebec, Canada
3. Names under which Subsidiary does business:
</TABLE>
S-3
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,004,356
<SECURITIES> 0
<RECEIVABLES> 5,548,899
<ALLOWANCES> 0
<INVENTORY> 7,665,210
<CURRENT-ASSETS> 119,400
<PP&E> 9,827,042
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,9965,605
<CURRENT-LIABILITIES> 5,601,762
<BONDS> 1,080,000
0
0
<COMMON> 10,327
<OTHER-SE> 27,272,749
<TOTAL-LIABILITY-AND-EQUITY> 33,965,605
<SALES> 40,960,196
<TOTAL-REVENUES> 40,960,196
<CGS> 33,175,903
<TOTAL-COSTS> 33,175,903
<OTHER-EXPENSES> 8,043,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271,922
<INCOME-PRETAX> (365,106)
<INCOME-TAX> (164,896)
<INCOME-CONTINUING> (200,210)
<DISCONTINUED> 160,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (360,210)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
