FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 0000914066
FOILMARK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-3101034
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Malcolm Hoyt Drive
Newburyport, MA 01950
(Address of principal executive offices) (Zip code)
(508) 462-7300
(Registrant's telephone number including area code)
40 Melville Park Road
Melville, New York 11747
(Former name, former address, and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
APPLICABLE ONLY TO REGISTRANTS INVOLVED BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
<PAGE>
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
$.01 per value Common Stock 4,158,183
<PAGE>
FOILMARK, INC.
INDEX TO FORM 10-Q
PAGE
----
Index 3
Part I - Financial Information:
Item 1 - Financial Statements Condensed
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 4
Consolidated Statement of Income for the
Three (3) months March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows
Three (3) months ended March 31, 1997
and March 31, 1996 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2 - Management's Discussion and Analysis
of Financial Conditions and Results of
Operations 8-10
Part II - Other Information:
Item 1 - Legal Proceedings 11
Item 6 - Other Proceedings 11
Signatures 12
3
<PAGE>
Part I. Financial Information
Item I. Financial Statements
Foilmark, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
Assets (Unaudited) (Audited)
----------- ------------
<S> <C> <C>
Current Assets:
Cash $ 334,213 $ 199,923
Accounts receivable - trade (less allowance for
doubtful accounts of $605,220 and $539,000
in 1997 and 1996) 6,697,343 5,730,924
Inventories 12,389,702 13,910,815
Other current assets 369,281 206,952
Income tax receivable 327,206 491,915
Deferred income taxes 760,246 760,246
----------- -----------
Total current assets 20,877,991 21,300,775
Property, plant and equipment, net - at cost 12,280,165 12,518,552
Bond and mortgage financing costs 518,934 533,868
Intangible assets, net 5,749,606 5,840,242
Other assets -- 138,680
39,426,696 40,332,117
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of notes payable-stockholders 105,866 132,113
Current installments of other long-term debt 1,151,425 1,385,598
Accounts payable and accrued expenses 5,210,712 6,173,197
Customer deposits 769,203 827,812
----------- -----------
Total current liabilities 7,237,206 8,518,720
Long-term debt
Notes payable to stockholders, net of
current installments 755,227 767,054
Other long-term debt, net of current installments 11,545,429 11,398,034
----------- -----------
12,300,656 12,165,088
Deferred income taxes 1,398,528 1,398,528
Commitments and Contingencies
Stockholders' equity:
Common stock (.01 par value: authorized
10,000,000 shares; issued 4,158,183) 41,582 41,517
Additional paid-in capital 13,369,863 13,364,404
Retained earnings 5,078,861 4,843,860
----------- -----------
Total stockholders' equity 18,490,306 18,249,781
----------- -----------
39,426,696 40,332,117
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
Part I. Financial Information
Foilmark, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
Net sales $ 11,384,275 $ 8,846,543
Cost of sales 8,695,467 6,599,958
------------ ------------
Gross profit 2,688,808 2,246,585
Selling, general and administrative expenses 2,067,535 2,424,835
------------ ------------
621,273 (178,250)
------------ ------------
Other income (expense):
Interest expense - net (238,832) (142,857)
Other income 19,269 4,510
------------ ------------
Income (loss) before income taxes 401,710 (316,597)
Income tax (expense) benefit (166,709) 133,000
------------ ------------
Net income (loss) 235,001 (183,597)
============ ============
Net income (loss) per share 0.06 (0.04)
============ ============
Weighted average number of common and common
equivalent shares outstanding 4,156,183 4,135,844
============ ============
See accompanying notes to consolidated financial statements
5
<PAGE>
Foilmark, Inc., and Subsidiaries
Consolidated Statements of Cash Flows - three (3) months ended
(Unaudited)
March 31, March 31,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 235,001 $ (183,597)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 399,521 380,458
Amortization 90,636 73,626
Provision for doubtful accounts 66,220 65,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,032,639) 697,986
Decrease (increase) in inventories 1,521,113 (1,904,877)
Decrease in income tax receivable 164,709 --
Decrease in bond and mortgage 14,934 13,517
Increase in other assets (23,649) (219,957)
(Decrease) increase in accounts payable (962,485) 964,250
and accrued expenses
(Decrease) increase in customer deposits (58,609) 131,032
Decrease in cash restricted -- 817,799
Net cash provided by operating activities 414,752 835,237
----------- -----------
Cash flows from investing activities:
Capital expenditures (161,134) (1,342,138)
Net cash used in investing activities: (161,134) (1,342,138)
----------- -----------
Cash flows from financing activities:
Proceeds of other long-term debt -- 293,393
Payments of notes payable to stockholders (38,054) --
Payments of other long-term debt (86,798) --
Proceeds from shares issued under benefit plans 5,524 --
Net cash (used) provided by financing activities (119,328) 293,393
----------- -----------
Net (decrease) in cash 134,290 (213,508)
Cash - beginning of period 199,923 464,256
----------- -----------
Cash - end of year 334,213 250,748
=========== ===========
See accompanying notes to consolidated financial statements
6
<PAGE>
Foilmark, Inc.
Notes to Condensed Consolidated Financial Statement Sheets
March 31, 1997 and 1996
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all the adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the Company as of March 31, 1997 and 1996, the results of
operations for the three (3) months ended March 31, 1997 and 1996 and
statements of cash flows for the three (3) months ended March 31, 1997 and
1996.
Results for an interim period are not necessarily indicative of results of
the entire year and such results are subject to year end adjustments and
independent audit.
The classification of inventories as of March 31, 1997 and December 31,
1996 was as follows:
March 31, 1997 December 31, 1996
Unaudited Audited
Raw Materials $ 867,279 $ 795,856
Work in Progress 2,601,837 3,768,067
Finished Goods 8,920,586 9,346,892
----------- -----------
$12,389,702 $13,910,815
=========== ===========
7
<PAGE>
Item II. Management's Discussion Analysis of Financial Conditions and Result of
Operations
GENERAL
The Company's net revenues for first quarter 1997 increased by 28.7% to
$11,384,275 compared to $8,846,543 in the same quarter last year. The increase
resulted from the shipment to North China Industries for equipment to
manufacture, convert, and apply hot stamping foils and holographic products and
the improvement in the general hot stamping foil product line due to the
favorable acceptance of the Optimum Gold, OG Series and a 508% increase in the
Foilmark Holographic division.
The Company had net income of $235,001 or $0.06 per share for the three months
ended March 31, 1997 compared to a net loss of $183,597 or $04 per share in the
first quarter of 1996. The improvement in net income was due to increased
revenues, a decline in polyester prices, full production from the Company's new
metallizer, and consolidation of its machinery production facilities.
During March 1997 the Company began serious settlement negotiations in
connection with the personal injury litigation filed against the Company in 1995
and described in its prior financial statements and filings. These ongoing
negotiations required the Company to delay the filing of its annual report form
10-K. On April 8, 1997 the Company reached a settlement with all the plaintiffs
in the litigation requiring the Company to pay $200,000 in excess of the
proceeds available under the insurance policy. The Company included the total
cost of the settlement including legal and other costs of $305,000 in the 1996
net loss and will have no impact on the 1997 operations.
NET SALES:
Net sales for the three (3) months ended March 31, 1997 increased by $2,537,732
or 28.7% compared to the three months ended March 31, 1996. Included in the 1997
sales was the shipment to China as part of a contract received in July 1996 to
supply equipment to manufacture, convert and apply hot stamping foils and
holographic products. Additionally the Company's Foilmark Holographic division
experienced a 508% increase in sales in the 1997 first quarter. The hot stamping
and pad printing machinery product lines were generally flat during the three
months ended March 31, 1997 as compared to the comparable 1996 period.
8
<PAGE>
GROSS PROFIT:
Gross profit increased $442,223 or 19.6% for the three months ended March 31,
1997 compared to the 1996 first quarter. Gross profit as a percentage of sales
however declined by 7.1% to 23.6% for the three months ended March 31, 1997 from
25.4% for the comparable 1996 three months.
The reduction was caused by decline in gross profit from the machinery group due
to continuing inefficiencies as a result of soft market conditions that existed
for all of the 1997 first quarter. In addition the shipment of the equipment to
China was below the normal gross profit percentage due to the future benefits
that are expected to be derived from this sale. Partially offsetting the
decrease in gross profit percentage was the foil product line gross profit which
experienced a 33% increase due to the reduction in polyester film prices,
operation of the new metallizer for all of the 1997 first quarter and the
favorable contributions of the Foilmark Holographic division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses declined by $357,300 or 14.7% for
the three months ended March 31, 1997 compared to the comparable 1996 period.
The reduction was due primarily in the area of selling expenses due to an
expansion of the outside sales force and the reduction of manufacturers
representatives to provide the Company with more cost effective sales coverage.
INCOME FROM OPERATIONS:
Income from operations increased to $621,273 for the three months ended March
31, 1997 compared to a loss of $178,250 for the three months ended March 31,
1996. The primary reason for the increase was the return to profitability of the
foil group in the 1997 first quarter compared to the comparable 1996 quarter. In
addition, the sale for the equipment to China was recorded in the current first
quarter which had a positive impact on income from operations.
INTEREST EXPENSE
Interest expense increased to $238,832 for the three months ended March 31, 1997
compared to $142,857 for the comparable 1996 period. The increase in interest
expense was due to additional bank debt required to provide working capital.
PROVISION FOR INCOME TAXES
Provision for income taxes for the three months ended March 31, 1997 was
$166,709 based on income before taxes of $401,710 compared to an income tax
benefit of $133,000 as a result of a pre-tax loss of $316,597 for the three
months ended March 31, 1996. The effective tax rate used was 41.5% and 42%
respectively for the 1997 and 1996 first quarter.
9
<PAGE>
NET INCOME:
For the three months ended March 31, 1997 The Company had net income of $235,001
compared to a net loss of $183,597 for the three months ended March 31,1996. The
increase in income was attributable to a 29% increase in sales volume, a 20%
increase in gross profit and a 14.7% decrease in selling, general and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES:
On March 31, 1997, the Company amended the six million dollar ($6,000,000)
revolving credit agreement. The amended agreement does not require principal
payments prior to June 30, 1998 and has less restrictive financial covenants
than the Company had prior to the amendment. At March 31, 1997 the Company had
borrowed $5.483,329 under the revolving credit agreement.
During the first quarter the Company began negotiations for the sale of the
Melville, New York property, which resulted in a purchase and sale agreement to
be signed on April 4, 1997 for two million dollars ($2,000,000). Closing on the
property is scheduled for June 30, 1997. The Company also received during April
1997 an offer to purchase the Norwood, Massachusetts property, that had been
under utilized since the consolidation of the machinery operation had been
completed in June 1996. The Company has accepted the $900,000 offer and is in
the process of finalizing the purchase and sales agreement. Closing is expected
to be completed within ninety days, which should take place during July 1997.
The net proceeds to be received of approximately $2,745,000 will result in an
approximate break even, and will have no income tax effect. Total amount of the
proceeds from the sale of the buildings will be used for bank debt reduction.
At March 31, 1997 the Company increased the working capital to $13,640,785 from
$11,052,622 at March 31, 1996. The increase was due primarily due to amending
the revolving credit agreement which eliminated the current installment of long
term debt until after June 30, 1997, the refinancing of two existing mortgages
completed in December 1996 resulting in longer maturities of the long term debt,
and an increase in deferred income taxes.
As of March 31, 1997 the Company had $516,671 available under its revolving
credit facility. The Company expects that cash from operations and existing
credit facilities will be sufficient to meet its operating needs for 1997.
OTHER MATTERS:
In March of 1997, the Financial Accounting Standards Board issued Statement
Number 128, "Earnings Per share", which establishes standards of computing and
presenting earnings per share. The Company will adopt the provisions of this new
standard effective December 31, 1997, and all prior periods will be restated.
The effect of adoption will not have a material impact on the Company's
financial condition, result of operations or cash flows.
10
<PAGE>
Part II. Other Information
Item 1. LEGAL PROCEEDINGS
For all of 1996, the Company was a defendant in a group of consolidated
lawsuits brought in 1995 alleging personal injuries arising out of a motor
vehicle accident involving a vehicle leased by one of the Company's subsidiaries
and operated by an employee of that subsidiary. Plaintiffs sought damages for an
amount significantly in excess of the Company's insurance policy limits. During
1996 the Company settled two (2) of the cases within the limits of its liability
insurance policy. On April 8, 1997 the Company settled the remaining cases by
agreeing to pay $200,000.00 to the remaining Plaintiffs. In connection with the
settlement, the Company's liability carrier paid the balance of the amount
available under the policy after giving effect to the prior settlement. These
settlements have been confirmed by the Superior Court and Dismissal Stipulations
have been entered dismissing the litigation with prejudice.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITY
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. OTHER PROCEEDINGS
On April 4, 1997 the Company entered into an agreement to sell its
Melville, New York property for $2,000,000.00 dollars. The closing is scheduled
for June 30, 1997. Additionally in April 1997, the Company accepted an offer of
$900,000.00 to sell its Norwood, Massachusetts property. The Company and the
Buyer are in the process of negotiating a definitive purchase and sales
agreement. The closing of this sale is expected to take place in July 1997. The
Company expects to incur no material earnings or tax gain or loss on the
combination of these transactions. The net proceeds will be used to reduce bank
debt.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOILMARK, INC.
May 8, 1997 By: /s/ Philip Leibel
- ----------- ----------------------------------------------------------
Date Philip Leibel, Vice President-Finance (Chief Financial &
Accounting Officer)
May 8, 1997 By: /s/ Frank J. Olsen, Jr.
- ----------- ----------------------------------------------------------
Date Frank J. Olsen, Jr., President and Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000914066
<NAME> FOILMARK, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 334,213
<SECURITIES> 0
<RECEIVABLES> 7,302,563
<ALLOWANCES> 605,220
<INVENTORY> 12,389,702
<CURRENT-ASSETS> 20,877,991
<PP&E> 21,414,667
<DEPRECIATION> 9,134,502
<TOTAL-ASSETS> 39,426,696
<CURRENT-LIABILITIES> 7,237,206
<BONDS> 0
0
0
<COMMON> 41,582
<OTHER-SE> 18,448,724
<TOTAL-LIABILITY-AND-EQUITY> 39,426,696
<SALES> 11,384,275
<TOTAL-REVENUES> 11,384,275
<CGS> 8,695,467
<TOTAL-COSTS> 10,763,002
<OTHER-EXPENSES> (19,269)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238,832
<INCOME-PRETAX> 401,710
<INCOME-TAX> 166,709
<INCOME-CONTINUING> 235,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,001
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
