SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(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, 1998
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) (732) 238-2883
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
None None
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 19, 1998 was $8,214,338. The number of shares of all
classes of the registrant's common stock at May 31, 1998:
Common Stock 2,796,403
Class A Common Stock 756,086
Documents incorporated by reference: Portions of the Registrant's definitive
proxy statement for the year ended March 31, 1998 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"), manufactures and
distributes hot stamp foils in the United States, and manufactures 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 1,300 customers, including Hallmark
Cards, Upper Deck, and Data Card. The Company also produces 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, drivers 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 and 223,000 shares of Common Stock of HoloPak.
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.
On September 2, 1997, Mr. James L. Rooney became Chief Executive Officer,
replacing Mr. Robert Coghan, who resigned. Mr. Coghan remains with the Company
in a sales capacity.
HoloPak's executive offices are located at 9 Cotters Lane, East Brunswick,
New Jersey, 08816, and its telephone number is (732) 238-2883.
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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.
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. 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 interiors, 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 a producer 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.
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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.
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. Metallized paper
and board, a process that transfers metallized foils to board and paper
manufactured at Alubec, is expecting growth in this market. 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 to quality inspection before and after each phase
of the process, there are continuous on-line inspection.
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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 hot stamping foil are cut or slit to customer
specifications before shipping. For plastic 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.
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 50 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 11 full time sales people, including regional and
country managers, with sales offices and distribution centers in East Brunswick,
New Jersey; Evansville, Indiana; Chicago, Illinois; Corona, California; and
Montreal, Quebec. The Company's products are sold to more than 1,300 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 and the United States.
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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. Net sales to two major customers amounted to
$4,201,000 (11.1%) and $3,853,000 (10.2%) for the fiscal year ended March 31,
1998, and to one major customer, Hallmark Cards, amounted to $5,986,000 (14.6%)
and $5,419,000 (12.3%) for the fiscal years ended March 31, 1997 and 1996,
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 six persons dedicated to research and
development. The Company employs three persons with a background in chemistry.
The Company expenses its research and development costs as incurred. Such
expenses amounted to approximately $370,000, $416,000, and $532,000 in fiscal
1998, 1997 and 1996, respectively.
The Company also has a design group that creates new patterns, designs,
colors, shades, and textures, including holographic designs, to offer customers.
The Company also develops original patterns, wood grains or finishes designed to
customers' specifications.
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, 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 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 produces 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.
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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.
Management believes that supplies of polyester film will be adequate for
the coming year. 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.
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 recyclers. 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 in the last paragraph of this section 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.
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In addition, the Company received test results showing ground water
contamination at one location 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 in the last
paragraph of this section. The Company has made a claim under the Environmental
Indemnification Agreement for the costs incurred to date 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, 1998, 1997 and 1996, the Company made
net expenditures of $57,000, $138,000, and $267,000, respectively, on
environmental matters. These amounts are net of claims of $116,000, $39,000, and
$212,000, respectively, under the Environmental Indemnification Agreement.
Under an Environmental Indemnification Agreement between the Company and
certain stockholders of the Predecessor, the Company will be indemnified for
certain environmental liabilities for claims made relating to conditions
existing prior to January 4, 1993. The maximum indemnity under such Agreement is
$950,000 plus 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, 1998, the Company has been reimbursed under the Environmental
Indemnification Agreement for claims totaling approximately $1,061,000 including
insurance claim recoveries.
Patents and Proprietary Information
The Company has eight 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. One
hundred and eight 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 235 people, including 144 direct labor, 35 indirect
labor, 11 outside sales, 20 sales support and 25 administrative and management
personnel, 190 of which are at TPF, and 45 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. One of
the executive officers has over 20 years experience in the industry.
Executive Officers of the Registrant
The executive officers and key employees of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Robert J. Simon 39 Chairman of the Board of Directors
James L. Rooney 61 Chief Executive Officer, President and Director
Marc O. Woontner 52 Vice President, Sales and Marketing
Joseph T. Webb 56 Chief Operating Officer, Secretary and Acting Chief Financial Officer
</TABLE>
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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.
James L. Rooney -- Mr. Rooney became Chief Executive Officer of the Company
on September 1, 1997. Mr. Rooney brings 38 years of experience in the paper and
film coating and converting industry. He was most recently a consultant to Rexam
Inc., Coated Products Group until August 1997. From 1994 to 1996, Mr. Rooney
served as Senior Vice President at Rexam Inc., Coated Products Group. In 1993,
he was President of Release International, a Rexam Inc. company and from 1984 -
1993 he was President of H.P. Smith Inc., a division of Specialty Coatings
International, formerly James River Corp.
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 20 years of experience in the hot stamp foil and holographic business.
Joseph T. Webb -- Dr. Webb was appointed Chief Operating Officer effective
May 18, 1998 and serves as Acting Chief Financial Officer. Prior to that, he
served as Vice President of Manufacturing of the Company or TPF since November
1995. He was also appointed Secretary of the Corporation in 1998. 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.
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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 2001 through
2005. 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 Corona,
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>
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, 1996 .................. $4.63 $3.87
Quarter Ended September 30, 1996 ............. $4.50 $3.37
Quarter Ended December 31, 1996 .............. $3.87 $2.87
Quarter Ended March 31, 1997 ................. $3.75 $2.25
Quarter Ended June 30, 1997 .................. $3.13 $2.38
Quarter Ended September 30, 1997 ............. $4.19 $2.75
Quarter Ended December 31, 1997 .............. $4.13 $2.63
Quarter Ended March 31, 1998 ................. $3.25 $2.69
</TABLE>
As of March 31, 1998, there were approximately 135 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>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Net Revenues $ 37,955 $ 40,960 $ 43,954 $ 45,866 $ 45,350
Cost of Sales 30,291 33,176 35,205 34,150 33,038
----------- ----------- ----------- ----------- -----------
Gross Profit 7,664 7,784 8,749 11,716 12,312
Selling, General and Administrative Expenses 7,876 7,913 7,786 8,172 8,623
Restructuring Charge -- 130 -- -- --
----------- ----------- ----------- ----------- -----------
Operating (Loss) Income (212) (259) 963 3,544 3,689
Interest Income 142 166 134 100 81
Interest Expense 142 272 440 540 408
----------- ----------- ----------- ----------- -----------
Net Interest Expense -- 106 306 440 327
----------- ----------- ----------- ----------- -----------
(Loss) Income From Continuing Operations Before
Income Taxes (212) (365) 657 3,104 3,362
Provision (Benefit) for Income Taxes 52 (165) 145 1,041 1,285
----------- ----------- ----------- ----------- -----------
(Loss) Income From Continuing Operations (264) (200) 512 2,063 2,077
Discontinued Operations:
Loss From Operations -- -- -- -- (782)
Loss Upon Disposition -- (160) (191) -- (1,975)
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (264) $ (360) $ 321 $ 2,063 $ (680)
=========== =========== =========== =========== ===========
Basic and Diluted (Loss) Earnings Per Share
Continuing Operations $ (0.08) $ (0.06) $ 0.15 $ 0.59 $ 0.59
Discontinued Operations (0.05) (0.06) -- (0.78)
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (0.08) $ (0.11) $ 0.09 $ 0.59 $ (0.19)
=========== =========== =========== =========== ===========
Weighted-Average Number of Common Shares and
Common Share Equivalents Outstanding 3,347,689 3,352,281 3,517,635 3,517,989 3,517,989
Balance Sheet Data
Working Capital $ 11,686 $ 11,560 $ 13,272 $ 12,256 $ 10,954
Total Assets 30,761 33,966 36,474 40,901 38,878
Long-term Debt, Including Current Maturities 1,080 2,833 4,585 6,338 6,600
Stockholders' Equity 25,574 26,012 26,506 27,002 25,012
</TABLE>
12
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company serves a wide variety of different industries with some areas
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.
Alubec, a wholly-owned subsidiary, 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. 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. In fiscal 1997, the
Company incurred an additional $160,000 in cost 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 Statement
of Operations.
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0%
Cost Of Sales 79.8% 81.0% 80.1%
----- ----- -----
Gross Profit 20.2% 19.0% 19.9%
Selling, General and Administrative Expenses 20.8% 19.3% 17.7%
Restructuring Charge -- 0.3% --
----- ----- -----
Operating (Loss) Income (0.6%) (0.6%) 2.2%
Interest Income 0.4% 0.4% 0.3%
Interest Expense 0.4% 0.7% 1.0%
----- ----- -----
(Loss) Income from Continuing Operations (0.6%) (0.9%) 1.5%
Before Income Taxes
Income Taxes 0.1% (0.4%) 0.3%
----- ----- -----
(Loss) Income From Continuing Operations (0.7%) (0.5%) 1.2%
===== ===== =====
</TABLE>
13
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Net Revenues for the year ended March 31, 1998 decreased by $3.0 million,
or 7.3% from the $41.0 million recorded in fiscal 1997. The decrease was
attributable to a decline of $5.0 million in sales of graphic foils and $1.5
million of laminated foil papers. Offsetting these declines were increases of
$2.9 million in revenues attributed to the sale of holographic security and
other specialty holographic products and a $.5 million increase in the sales of
laminated plastic products.
Specifically, the decline in graphic foils resulted from the continuation
of an extremely soft market demand for general graphics stamping and intense
price competition for existing business. Overall, the Company experienced a 17%
decrease in sales volume in the greeting card business and other major business
areas primarily as a result of lost customers in favor of better competitor
pricing.
The decline in Alubec (primarily laminated foil papers) net revenue of $1.5
million is due to the continued market shift for laminated papers and weaker
demand for laminated board in the trading card markets.
The increase in holographic sales continue to reflect increases due to very
strong sales of specialty security products. New applications, development of
specialty products and equipment purchases continue to strengthen this area.
Net revenue in the fourth quarter fiscal 1998 compared to the previous
quarter in fiscal 1997 reflected a decrease in revenues of $.2 million caused by
pricing pressures and lower volumes in graphic foils adversely impacted the
fourth quarter of fiscal 1998. Offsetting these decreases where increases in
holographic sales of $.3 million and $.3 million in laminated paper products
manufactured at Alubec. Revenue reductions attributable to pricing had an
adverse affect on profitability for the fourth quarter.
Gross Profits declined to $7.7 million from $7.8 million in the prior year.
As a percentage of net revenues, gross profit margins improved to 20.2% in
fiscal 1998 from 19.0% in 1997. These improvements were primarily the result of
reduced prices of polyester film, offset in part by lower revenue pricing, and
overhead cost reduction programs initiated by the Company.
The pricing of raw materials has stabilized with polyester film pricing at
levels of approximately 24% below prior year levels. The Company does not
anticipate increases in film pricing for fiscal 1999, however, if such increases
do materialize, there can be no guarantee that price increases to customers
could be timely and sufficient to offset raw material cost increases.
The Company continues to experience quality problems with certain other key
raw materials in its domestic operations which reduced production speeds and
efficiencies during the year for certain products. Operating efficiencies were
improved with shift adjustments for 24-hours continuous running on key coating
equipment.
Selling, General, and Administrative Expenses were $7.9 million for both
fiscal periods. As a percentage of net revenues, SGA expenses amounted to 20.8%
and 19.3%, for fiscal 1998 and 1997. Advertising expenses increased from $0.1
million in 1997 to $0.8 million in 1998. The increased spending was primarily
attributable to an aggressive advertising campaign, production of new product
charts and the Company's increased participation at trade shows. Cost reductions
in several other spending lines accounted for the major portion of the offset to
increased advertising related expenses.
Operating Income in fiscal 1998 was a loss of $212,000, compared to a loss
of $259,000 in fiscal 1997. The shortfall in sales is the primary reason for the
operating losses.
Income Taxes in fiscal 1998 were an expense of $52,000, compared to an
income tax benefit of $165,000 in the prior year. Fiscal 1998 reflects tax
expense of $7,000 from domestic operations and $45,000 from Canadian operations.
The effective tax rate reported for the year is 24.5% which reflects add backs
to pre-tax losses for, among the major items, amortization of goodwill and FASB
109 depreciation charges which are not deductible in the calculation for both
book and tax return provisions. Fiscal 1998 additionally provides for a $48,000
tax expense on the receipt of a foreign deemed dividend which was not present in
fiscal 1997.
14
<PAGE>
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 (primarily laminated foil papers) 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 away
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 as compared to fiscal 1996.
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.
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 Charges in fiscal 1997 were $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 expense of $130,000 to
provide for severance and other separation benefits.
Operating Income in fiscal 1997 was a loss of $259,000, compared to income
of $963,000 in fiscal 1996. The shortfall in sales and gross profits was
primarily responsible for the decline.
15
<PAGE>
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 fourth quarter of fiscal 1997,
the Company recognized interest income of $ 63,816 on tax refunds received.
Income Taxes in fiscal 1997 were a benefit of $165,000, compared to income
tax cost of $145,000 in the prior year. The benefit arises primarily from losses
sustained in the Company's US operations that can be carried back to offset
prior years' tax liabilities. The Canadian operations were profitable, and the
Company paid 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.
Liquidity and Capital Resources
As of March 31, 1998, the Company had working capital of $11.7 million,
compared to working capital of $11.6 million at March 31, 1997. The increase is
primarily attributable to a reduction in the current portion of long-term debt
by $0.7 million and accounts payable and accruals of $.8 million, offset by a
decrease in cash of $1.1 million.
During fiscal 1998, the Company generated $1.6 million in cash from
operating activities compared to $4.7 million in the prior year. The prior
year's operating activities generated high volumes of cash as a result of the
collection of income tax refunds ($.9 million) and accounts receivable
reductions ($1.0 million), which were not repeated in the current year. In
addition, the Company's accounts payable decreased in the amount of $748,000 for
fiscal year 1998 as compared to fiscal year 1997.
The Company had net investments of $.9 million in fiscal 1998 compared to
$1.9 million in fiscal 1997. Capital expenditures for fiscal 1998 were $.9
million compared to $1.8 million in the prior year.
The Company previously contemplated a major plant relocation of its TPF
facility with a concomitant upgrade to equipment. Relocation plans have been
abandoned with the renegotiation of the main plant lease. The upgrade of
equipment continues to be a commitment and will require outside funding sources.
During the year, the Company repaid $1.8 million in long-term debt.
The Company has up to $3 million available to it through a revolving credit
line to be used for working capital and other general requirements. The facility
is secured by the Company's assets and bear interest at a rate of LIBOR (London
Interbank Offered Rate) plus 150 basis points. At March 31, 1998, this rate was
6.9%. As of June 19, 1998 there was $.5 million outstanding on the facility,
used to finance a major equipment purchase.
The Company's long-term debt is comprised of two loans. The first loan is a
term loan made to fund the acquisition of Alubec. It called for fixed quarterly
payments of principal of $303,125, had a fixed interest rate of 5.9% and was
paid off on March 17, 1998. The second loan 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 Company's financial covenants under the Company's $3,000,000 credit
line consist of a Fixed Charge Coverage Ratio of 1.1 to 1.0 for the preceding
twelve months calculated at the end of each fiscal quarter and a minimum
Tangible Net Worth Covenant of $19,450,000 calculated at the end of each fiscal
quarter. At March 31, 1998, the Company was not in compliance with its Fixed
Charge Coverage Ratio of 1.1 to 1.0; however, the Company obtained a waiver on
this covenant as of March 31, 1998. The bank has not waived this covenant for
future potential noncompliance and, therefore, all amounts under this agreement
have been classified as current liabilities.
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 requirements for the foreseeable future.
16
<PAGE>
Many of the Company's systems must be modified due to the computer program
limitations in recognizing dates beyond 1999. If not corrected, the systems
could fail or cause erroneous results by, at or after January 1, 2000.
Substantial changes to, and some replacements of, present systems will be needed
to mitigate potential Year 2000 issues. Costs will be expensed as incurred in
accordance with Emerging Issues Task Force (EITF) Issue No. 96-14, "Accounting
for the Costs Associated with Modifying Computer Software for the Year 2000".
The Company is in the process of identifying and implementing solutions for the
Company's systems and surveying its top vendors to assess its plans for the Year
2000 readiness. The Company plans to have critical systems for the Year 2000
ready by mid-1999. The modification of systems will be performed by a composite
of both Company personnel and external consultants. Management is in the process
of determining the total anticipated cost for compliance with Year 2000 issues.
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 the 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.
17
<PAGE>
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 1998 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 1998 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 1998 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 1998 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.
18
<PAGE>
PART IV
<TABLE>
<S> <C>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
----
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements Page Independent Auditors' Report F-1
Consolidated Balance Sheets -- March 31, 1998 and 1997 F-2
Consolidated Statements of Operations -- Years Ended
March 31, 1998, 1997, F-3 and 1996. F-3
Consolidated Statements of Stockholders' Equity -- Years Ended F-4
March 31, 1998, 1997, and 1996.
Consolidated Statements of Cash Flows -- Years Ended
March 31, 1998, F-5 1997, and 1996. 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 S-2
March 31, 1998
Exhibit 21 - Subsidiaries of the Company S-3
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>
<TABLE>
<CAPTION>
Exhibit No. Item
- ----------- ----
<S> <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 Company, TPF and certain executive
officers and key employees of the Company. (Exhibit
10.5)(1)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Item
- ----------- ----
<S> <C>
Amended and Restated Consulting Agreement, dated October 1, 1991, among the
Company, TPF and Bradford Associates. (Exhibit 10.1)(3)
10.6
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>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Item
- ----------- ----
<S> <C>
Note and Pledge Agreement between the Company and David W. Jaffin, dated September
10.30 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)
10.35 Employment Agreement with James L. Rooney dated August 16, 1997 (8)
10.36 Revised Employment Agreement with Robert Coghan dated August 27, 1997 (8)
21* Subsidiaries of the Company.
</TABLE>
* Previously filed
(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.
(8) Files as an Exhibit to HoloPak's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(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.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
HOLOPAK TECHNOLOGIES, INC.
Dated: March 2, 1999
By: /s/ James L. Rooney
----------------------
James L. Rooney
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.
Signature Title Date
- --------- ----- ----
/s/ James L. Rooney Chief Executive Officer & Director March 2, 1999
- ------------------------ (Principal executive officer)
James L. Rooney
/s/ Arthur Karmel Chief Financial Officer March 2, 1999
- ------------------------
Arthur Karmel
* Chairman of the Board of Directors March 2, 1999
- ------------------------
Robert J. Simon
* Director March 2, 1999
- ------------------------
Michael S. Mathews
/s/ Harvey S. Share Director March 2, 1999
- ------------------------
Harvey S. Share
* Director March 2, 1999
- ------------------------
Brian Kelly
* By /s/ James L. Rooney Attorney in Fact March 2, 1999
-------------------
James L. Rooney
22
<PAGE>
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 its subsidiaries as of March 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of HoloPak Technologies, Inc. and its
subsidiaries as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
June 26, 1998
F-1
<PAGE>
HoloPak Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents ............................................................ $ 1,939,764 $ 3,004,356
Accounts Receivable, less allowance
for doubtful accounts of $217,604 in 1998 and $174,838 in 1997 .................... 5,740,100 5,548,899
Inventories (Notes 3 & 4) ............................................................ 7,413,759 7,665,210
Prepaid Expenses ..................................................................... 477,020 348,538
Prepaid Income Taxes ................................................................. 104,876 329,713
Deferred Income Taxes (Notes 3 & 8) .................................................. 129,834 124,944
Other Current Assets (Note 14) ....................................................... 40,120 140,193
------------ ------------
Total Current Assets ..................................................................... 15,845,473 17,161,853
Property and Equipment, Net (Notes 3 & 5) ................................................ 8,169,074 9,827,042
Excess of Cost over Fair Value of Net Assets Acquired, less
accumulated amortization of $1,761,669 in 1998 and $1,561,260 in 1997 (Notes 2 & 3) .. 6,599,146 6,799,555
Other Assets ............................................................................. 147,102 177,155
------------ ------------
Total Assets ............................................................................ $ 30,760,795 $ 33,965,605
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Current Maturities of Long-Term Debt (Note 7) ......................................... $ 1,080,000 $ 1,752,500
Accounts Payable and Accrued Liabilities (Note 6) ..................................... 3,079,475 3,849,267
------------ ------------
Total Current Liabilities ................................................................ 4,159,475 5,601,767
Long-Term Debt (Note 7) ................................................................. -- 1,080,000
Deferred Income Taxes (Notes 3 & 8) ...................................................... 1,027,353 1,272,247
------------ ------------
Total Liabilities ........................................................................ 5,186,828 7,954,014
------------ ------------
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; nonvoting; $.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 .................................................................... 5,302,398 5,566,451
Cumulative Translation Adjustment .................................................... (720,535) (546,964)
------------ ------------
26,845,452 27,283,076
Less: Common Stock (201,800 shares) Held In Treasury, at cost ....................... (1,271,485) (1,271,485)
------------ ------------
Total Stockholders' Equity ............................................................... 25,573,967 26,011,591
------------ ------------
Total Liabilities and Stockholders' Equity ............................................... $ 30,760,795 $ 33,965,605
============ ============
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
HoloPak Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Revenues ........................................................... $ 37,954,734 $ 40,960,196 $ 43,954,343
Cost of Sales .......................................................... 30,291,065 33,175,903 35,205,141
------------ ------------ ------------
Gross Profit ........................................................... 7,663,669 7,784,293 8,749,202
Selling, General and Administrative Expenses ........................... 7,875,475 7,913,550 7,785,996
Restructuring Charge (Note 12) ......................................... -- 130,000 --
------------ ------------ ------------
Operating (Loss) Income ................................................ (211,806) (259,257) 963,206
Interest Income ........................................................ 141,519 166,073 134,082
Interest Expense ....................................................... 141,868 271,922 440,211
------------ ------------ ------------
(Loss) Income From Continuing Operations
Before Income Taxes ........................................... (212,155) (365,106) 657,077
Provision (Benefit) for Income Taxes (Note 8) .......................... 51,898 (164,896) 144,905
------------ ------------ ------------
(Loss) Income From Continuing Operations ............................... (264,053) (200,210) 512,172
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 ...................................................... $ (264,053) $ (360,210) $ 320,893
============ ============ ============
Basic and diluted (loss) earnings per share (Note 18):
Continuing Operations ........................................... $ (0.08) $ (0.06) $ 0.15
Discontinued Operations ......................................... -- (0.05) (0.06)
------------ ------------ ------------
Net (Loss) Income .................................................. $ (0.08) $ (0.11) $ 0.09
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
HoloPak Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Common Stock
Shares $ Shares $ Shares $
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balances, April 1, 1995..................... 2,796,403 $27,964 753,086 $7,531 0 $0
Purchase of 172,300 Common Shares (Note 21).
Sale of 2,000 Common Shares (Note 21).......
Cumulative Translation Adjustment...........
Net Income..................................
----------------------------------------------------------
Balances, March 31, 1996.................... 2,796,403 27,964 753,086 7,531 0 0
Cumulative Translation Adjustment...........
Net Loss....................................
----------------------------------------------------------
Balances, March 31, 1997.................... 2,796,403 27,964 753,086 7,531 0 0
Cumulative Translation Adjustment...........
Net Loss....................................
----------------------------------------------------------
Balances, March 31, 1998.................... 2,796,403 $27,964 753,086 $7,531 0 $0
==========================================================
<CAPTION>
Additional Cumulative
Paid- Retained Translation Treasury
In Capital Earnings Adjustment Stock
======================================================================================================
<S> <C> <C> <C> <C>
Balances, April 1, 1995..................... $22,228,094 $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.................................. 320,893
---------------------------------------------------------
Balances, March 31, 1996.................... 22,228,094 5,926,661 (412,456) (1,271,485)
Cumulative Translation Adjustment........... (134,508)
Net Loss.................................... (360,210)
----------------------------------------------------------
Balances, March 31, 1997.................... 22,228,094 5,566,451 (546,964) (1,271,485)
Cumulative Translation Adjustment........... (173,571)
Net Loss.................................... (264,053)
Balances, March 31, 1998.................... $22,228,094 $5,302,398 $(720,535) $(1,271,485)
==========================================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
HoloPak Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net (Loss) Income ....................................................................... $ (264,053) $ (360,210) $ 320,893
Adjustments to reconcile net (loss) income to net cash provided by operating activites:
Discontinued Operations (Note 17) .................................................. -- 160,000 191,279
Depreciation ....................................................................... 2,444,056 2,538,103 2,371,968
Amortization ....................................................................... 200,409 199,330 234,930
Loss (gain) on equipment ........................................................... 17,539 -- (20,512)
Decreases (Increases) In:
Accounts receivable .............................................................. (233,964) 1,000,773 406,662
Inventories ...................................................................... 211,974 453,919 (821,382)
Prepaid expenses ................................................................. (131,561) 60,892 81,021
Prepaid Income taxes ............................................................. 219,235 870,455 (218,731)
Other current assets ............................................................. 100,073 (104,909) 23,618
Other assets ..................................................................... 13,915 (26,881) 115,157
(Decreases) Increases In:
Accounts payable and accrued liabilities ......................................... (748,470) 223,004 (170,379)
Deferred income taxes ............................................................ (242,000) (278,171) 569,832
----------- ----------- -----------
Net cash provided by operating activities ....................................... 1,587,153 4,736,305 3,084,356
----------- ----------- -----------
Cash Flows From Investing Activities
Capital expenditures ................................................................ (893,039) (1,777,719) (1,340,261)
Proceeds from sale of equipment ..................................................... 5,200 -- 27,506
Proceeds from government grant (Note 20) ............................................ -- -- 220,006
(Advances to) proceeds from discontinued operations ................................. -- (160,000) 591,035
Purchase price adjustment resulting from income tax refunds (Note 8) ................ -- -- 1,924,424
----------- ----------- -----------
Net cash (used in) provided by investing activities ............................. (887,839) (1,937,719) 1,422,710
----------- ----------- -----------
Cash Flows From Financing Activities
Repayment of long-term borrowings ................................................... (1,752,500) (1,752,500) (1,752,500)
Net decrease in short-term borrowings ............................................... -- -- (2,029,120)
Purchase of treasury stock (Note 21) ................................................ -- -- (1,006,860)
Proceeds from sale of treasury stock (Note 21) ...................................... -- -- 10,000
----------- ----------- -----------
Net cash used in financing activities ........................................... (1,752,500) (1,752,500) (4,778,480)
----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents ............................ (11,406) (41,339) (29,313)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents .................................... (1,064,592) 1,004,747 (300,727)
Cash and Cash Equivalents, Beginning of Period ......................................... 3,004,356 1,999,609 2,300,336
----------- ----------- -----------
Cash and Cash Equivalents, End of Period ................................................ $1,939,764 $ 3,004,356 $ 1,999,609
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
Notes to Consolidated Financial Statements
For the years ended March 31, 1998, 1997 and 1996
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
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 and 223,000 common shares of the Company.
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.
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.
Cash Equivalents -- All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents.
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 the estimated useful lives which range from four to twenty years.
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.
F-6
<PAGE>
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.
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.
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.
Earnings per Common Share -- During fiscal 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This standard revises the methodology for computing earnings per
common share and requires the reporting of two earnings per share figures:
basic earnings per share and diluted earnings per share. Basic earnings per
share is computed by dividing net income by the weighted-average number of
common shares outstanding. Diluted earnings per share reflects the
potential dilution that could occur upon the exercise of common stock
equivalents. This standard also requires previously presented earnings per
share amounts to be restated to conform with the provisions of SFAS 128.
Common share equivalents are excluded from the computation if their effect
is anti-dilutive. This new standard did not have a material effect on prior
year amounts disclosed herein.
Impairment of Long-Lived Assets -- The Company reviews long-lived assets
and certain identifiable intangibles to be held and used for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
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.
Recent Pronouncements -- In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Both standards are
effective for the Company beginning in fiscal 1999. SFAS No. 130 will
require the Company to add the reporting of Comprehensive Income to its
financial statements. The Company is currently evaluating the impact of
SFAS No. 131 on its current disclosures.
Reclassifications -- Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
F-7
<PAGE>
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
---------- ----------
<S> <C> <C>
Finished Goods $3,859,107 $4,248,769
Work in Process 839,991 768,927
Raw Materials 2,714,661 2,647,514
---------- ----------
Total $7,413,759 $7,665,210
========== ==========
</TABLE>
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
---------- ----------
<S> <C> <C>
Land $150,936 $154,728
Building 708,830 727,172
Machinery and Equipment 19,031,574 17,873,712
Computer Equipment 101,933 87,521
Leasehold Improvements 2,049,937 2,045,089
Automobiles and Trucks 150,284 237,181
Furniture and Fixtures 80,087 77,073
Construction in Progress
(including deposits for purchase of machinery) 278,320 745,423
---------- -------
22,551,901 21,947,899
Less Accumulated Depreciation and Amortization 14,382,827 12,120,857
---------- ----------
Property and Equipment, Net $8,169,074 $9,827,042
========== ==========
</TABLE>
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
---------- ----------
<S> <C> <C>
Accounts Payable $1,443,236 $1,748,555
Accrued Payroll and Vacation 461,536 239,898
Rebates and Allowances 184,285 253,457
Other Accrued Liabilities 990,418 1,607,357
---------- ----------
Total $3,079,475 $3,849,267
========== ==========
</TABLE>
7. Bank Borrowings and Long-Term Debt
The Company has available through August 1998, 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, 1998 and 1997, respectively. It is the
Company's intention to renew this facility at the appropriate time. In
addition, the Company has a five year term loan. 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, 1998 and 1997 were $1,080,000 and $1,620,000
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, 1998 and 1997 were 6.9% and 6.4%, 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 was payable in equal quarterly installments of
$303,125 and bore interest at 5.9%. During 1998 this loan was paid in full.
The balance outstanding on this term loan at March 31, 1997 was $1,212,500.
F-8
<PAGE>
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, 1998, the
Company was not in compliance with a financial ratio; however, the Company
obtained a waiver on this covenant as of March 31, 1998. The bank has not
waived the covenants for future potential noncompliance and, therefore, all
amounts under this agreement have been classified as current liabilities.
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,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Domestic $ (349,000) $ (917,000) $ (640,000)
Foreign 137,000 552,000 1,297,000
----------- ----------- -----------
Total $ (212,000) $ (365,000) $ 657,000
=========== =========== ===========
</TABLE>
The components of the provision (benefit) for taxes on (loss) income from
continuing operations are as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ 115,000 $ (62,000) $ (819,000)
State 43,000 (16,000) (64,000)
Foreign 136,000 238,000 445,000
----------- ----------- -----------
294,000 160,000 (438,000)
----------- ----------- -----------
Deferred
Federal (116,000) (242,000) 585,000
State (35,000) (23,000) 32,000
Foreign (91,000) (60,000) (34,000)
----------- ----------- -----------
(242,000) (325,000) 583,000
----------- ----------- -----------
Total $ 52,000 $ (165,000) $ 145,000
=========== =========== ===========
</TABLE>
The income tax provision (benefit) differs from amounts computed by
applying the Federal income tax at the statutory rates to income taxes. The
reason for these differences are as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal Domestic Income Taxes Computed
at Statutory Rates $(119,000) $(312,000) $(217,000)
State Income Taxes, Net of Federal Benefit -- (29,000) (38,000)
Foreign Income Taxes 45,000 178,000 411,000
Purchase Accounting Adjustments 91,000 68,000 78,000
Tax on Foreign Deemed Dividend 48,000 -- --
Tax Benefit of Foreign Sales Corporation (19,000) (40,000) (55,000)
Other Items 6,000 (30,000) (34,000)
--------- --------- ---------
Total Provision (Benefit) for Income Taxes $ 52,000 $(165,000) $ 145,000
========= ========= =========
</TABLE>
F-9
<PAGE>
Deferred income taxes as recorded in the accompanying consolidated balance
sheets were comprised of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Net Current Deferred Tax Assets:
State Net Operating Loss Carry Forwards $ 35,000 $ 77,000
Doubtful Accounts 66,000 15,000
Other 29,000 19,000
Rent -- 14,000
----------- -----------
Total $ 130,000 $ 125,000
=========== ===========
Net Long-Term Deferred Tax Liabilities:
Property and Equipment $ 1,037,000 $ 1,351,000
State Net Operating Loss Carry Forwards (117,000) (138,000)
Other 107,000 59,000
----------- -----------
Total $ 1,027,000 $ 1,272,000
=========== ===========
</TABLE>
The Company has approximately $1.9 million of state carry forward net
operating losses of which $0.2 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, 1998, 1997 and 1996 was
$995,000, $1,067,000, and $1,061,000 respectively. Approximately
$535,000, $523,000, and $488,000, 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 renewed in April 1998 and
expiring in 2005, with a purchase option, for manufacturing and office
space.
Minimum annual rental commitments under noncancelable operating leases, in
total and to affiliates, are as follows:
<TABLE>
<CAPTION>
March 31, Total Affiliates
-------- --------- ----------
<S> <C> <C> <C>
1999 $1,079,000 $426,000
2000 1,012,000 426,000
2001 806,000 426,000
2002 309,000 297,000
2003 285,000 285,000
Thereafter 570,000 570,000
---------- ----------
Total $4,061,000 $2,430,000
========== ==========
</TABLE>
b. The Company is party to employment agreements with several key
executives. As a result of the above agreements, the aggregate annual
commitment for future salaries at March 31, 1998 is approximately
$486,000.
F-10
<PAGE>
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 alleged 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 alleged 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 was paid a claim under the terms of the
Environmental Indemnification Agreement described in the last
paragraph of this section 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. The 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 in the last
paragraph of this section. 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
businesses 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, 1998, 1997 and 1996, the Company
made net expenditures of $57,000, $138,000, and $267,000,
respectively, on environmental matters. These amounts are net of
reimbursement on claims of $116,000, $39,000, and $212,000,
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
relating to conditions existing prior to January 4, 1993. The maximum
indemnity under such Agreement is $950,000 plus 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, 1998, the Company has been reimbursed under the Agreement for
claims totaling approximately $1,061,000 including insurance claim
recoveries.
F-11
<PAGE>
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 Company is contingently liable for a lease payment of $26,000 due
in fiscal 1999.
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 two major customers amounted to $4,201,000 (11.1%) and
$3,853,000 (10.2%) for fiscal year ended March 31, 1998, and to one major
customer amounted to $5,986,000 (14.6%) and $5,419,000 (12.3%) for fiscal
years ended March 31, 1997 and 1996, 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, 1998, 1997 and 1996.
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.
The full amount of these benefits were paid during fiscal 1997.
13. Stock Options
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.
F-12
<PAGE>
The following table summarizes stock option activity not covered under the
Plan defined below:
<TABLE>
<CAPTION>
Weighted-
Average
Number Exercise
of Shares Price
--------- -----
<S> <C> <C>
Outstanding at April 1, 1995 513,942 $8.64
Canceled or expired 150,906 3.55
-------
Outstanding at March 31, 1996 363,036 10.76
-------
Outstanding at March 31, 1997 363,036 10.76
-------
Outstanding at March 31, 1998 363,036 10.76
=======
Options exercisable at March 31, 1998, 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. In March 1998, the Board of Directors
authorized an increase in the number of shares reserved for issuance under
the Plan to 300,000.
Each non-employee director is entitled to receive options for 2,000 shares
annually under the terms of the Plan.
In September 1997, 100,000 options were issued to the CEO at an exercise
price of $3.25 per share. Of the options issued, 33,334 became exercisable
during fiscal 1998, while the remainder become exercisable during fiscal
1999.
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, 1995 70,000 $9.83
Granted 14,000 6.00
Canceled 10,000 10.00
-------
Outstanding at March 31, 1996 74,000 9.08
Granted 66,341 3.49
Canceled 8,800 6.75
-------
Outstanding at March 31, 1997 131,541 6.41
115,000 3.25
Granted
Canceled 16,000 7.09
-------
Outstanding at March 31, 1998 230,541 4.79
=======
Options exercisable at March 31, 1996 74,000 9.08
Options exercisable at March 31, 1997 131,541 6.41
Options exercisable at March 31, 1998 163,875 5.42
</TABLE>
F-13
<PAGE>
For options outstanding and exercisable at March 31, 1998, 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, 1998 Life Price March 31, 1998 Price
------ -------------- ---- ----- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
$3.25 - $9.63 341,447 11 $3.63 123,875 $3.94
$9.64 - $16.00 252,130 13 $14.95 50,000 $10.72
------- ------
593,577 173,875
======= =======
</TABLE>
The Company accounts for its stock options under the provisions of
Accounting Principles Board Opinion No. 25. However, the Company discloses
pro forma net income and earnings per share as if it had elected to expense
the value of such options under alternative accounting treatment. Based on
Black-Scholes values, pro forma net (loss) income for 1998, 1997 and 1996
would be ($339,714), ($430,922) and $299,128, respectively; the pro forma
basic and diluted (loss) earnings per share for fiscal 1998, 1997 and 1996
would be ($0.10), ($0.13) and $0.09, respectively.
The weighted-average Black-Scholes value per option granted in 1998, 1997
and 1996 was $0.97, $1.11 and $1.81, respectively. The following
weighted-average assumptions were used in the Black-Scholes option pricing
model for options granted in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividend yield 0.0% 0.0% 0.0%
Volatility 49.0% 52.0% 48.0%
Risk-free interest rate 6.1% 6.5% 6.2%
Expected term of options ( in years) 10.0 10.0 10.0
</TABLE>
14. Related Party Transactions
Included in other current assets are amounts due from a former CEO and
stockholder at March 31, 1998 and 1997. The amounts due represent escrowed
funds in the amount of approximately $18,000 and $21,000, respectively,
which are due from certain stockholders pursuant to which such stockholders
will fund certain environmental cleanup costs. (See Note 9)
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, 1998, 1997 and 1996.
The Company's purchases from affiliates of Bradford were approximately
$74,000, $150,000 and $92,000, for the years ended March 31, 1998, 1997 and
1996, respectively. The Company's sales to affiliates of Bradford were
$320,000, $380,000 and $141,000 for the years ended March 31, 1998, 1997
and 1996, respectively.
The Company additionally utilized the services of the son-in-law of its
former President for the purpose of performing various repairs and
improvements to Company machinery and incurred obligations in the amount of
$56,475 and $98,184 for the fiscal years ended Mach 31, 1998 and 1997,
respectively.
Accounts receivable at March 31, 1998 and 1997 included balances due from
affiliates of Bradford of approximately $32,000 and $35,000, respectively.
Accounts payable at March 31, 1997 includes balances due to affiliates of
Bradford of approximately $8,000.
F-14
<PAGE>
During the years ending March 31, 1998, 1997 and 1996, the Company (was
reimbursed) loaned ($26,759), $81,539 and $20,000, respectively, (by) 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.
The Company is obligated under a real estate lease with a former CEO and
shareholder. (See Note 9.)
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
$370,000, $416,000, and $532,000 for the years ended March 31, 1998, 1997
and 1996, respectively.
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. A
summary of the Company's operations by geographical area for the years
ended March 31, 1998, 1997 and 1996 is presented below.
<TABLE>
<CAPTION>
United States Canada Eliminations Consolidated
------------- ------ ------------ ------------
(amounts in 000's)
<S> <C> <C> <C> <C>
March 31, 1998
Revenue $29,756 $8,199 $ -- $37,955
Inter-area transfers 38 85 (123) --
(Loss) Income from continuing (349) 137 -- (212)
operations before taxes
(Loss) Income from continuing operations (356) 92 -- (264)
Identifiable assets 22,509 8,252 -- 30,761
March 31, 1997
Revenue $31,340 $9,620 $ -- $40,960
Inter-area transfers -- 126 (126) --
(Loss) Income from continuing operations (917) 552 -- (365)
before taxes
(Loss) Income from continuing operations (574) 374 -- (200)
Identifiable assets 25,373 8,593 -- 33,966
March 31, 1996
Revenue $32,708 $11,246 $ -- $43,954
Inter-area transfers 7 1,026 (1,033) --
(Loss) Income from continuing operations (640) 1,297 -- 657
before taxes
(Loss) Income from continuing operations (375) 887 -- 512
Identifiable assets 28,466 8,008 -- 36,474
</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. 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.
F-15
<PAGE>
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.
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,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted-Average Number of Common Shares Outstanding 3,347,689 3,347,689 3,452,215
Common Stock Equivalents Based Upon the
Treasury Stock Method -- 4,592 65,420
--------- --------- ---------
Total 3,347,689 3,352,281 3,517,635
========= ========= =========
</TABLE>
19. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income Taxes Paid $313,303 $499,924 $453,995
Interest Paid $145,962 $275,213 $446,137
</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-16
<PAGE>
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 its subsidiaries as of March 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1998, and have issued our report
thereon dated June 26, 1998. Our audits also included the financial statement
schedule of HoloPak Technologies, Inc. and its 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 26, 1998
S-1
<PAGE>
HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and Other End of
Period Expenses Deductions Add/(Ded) Period
------ -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1998
Allowance for Doubtful Accounts $174,838 $121,906 $78,844 $(296)(a) $217,604
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
</TABLE>
(a) Represents the effect of translating balance sheets of foreign subsidiary
to U. S. dollars.
S-2
