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 September 30, 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)
(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 IN 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 __X__ 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 4,164,527
<PAGE>
FOILMARK, INC.
INDEX TO FORM 10-Q
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<CAPTION>
PAGE
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<S> <C>
Index 3
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 4
Consolidated Statements of Operations for
the Three (3) and Nine (9) months September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Nine (9) months ended September 30, 1997 and September 30, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
of Financial Conditions and Results of Operations 8-10
Part II - Other Information:
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 5 - Other Information 11
Item 6 - Exhibits and Report on Form 8-K 11
Item 8 - Signatures 12
</TABLE>
3
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Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
Foilmark, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 1997 December 31, 1996
Assets (Unaudited) (Audited)
------ ----------- ---------
<S> <C> <C>
Current Assets:
Cash $ 601,214 $ 199,923
Accounts receivable - trade (less allowance for doubtful 5,644,553 4,864,671
accounts of $416,000 and $339,000 in 1997 and 1996)
Inventories 7,871,638 9,501,682
Current assets of discontinued operations 2,600,000 5,320,313
Other current assets 171,649 185,669
Income tax receivable 478,787 468,271
Deferred income taxes 2,923,818 760,246
---------------------------------
Total Current Assets 20,291,659 21,300,775
Property, plant and equipment, net - at cost 8,854,480 9,130,741
Bond and mortgage financing costs 369,207 523,636
Intangible assets, net 4,585,143 4,780,658
Noncurrent assets of discontinued operations 300,000 4,506,713
Other assets 74,490 89,594
---------------------------------
34,474,979 40,332,117
=================================
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Current installments of notes payable - stockholders 110,506 132,113
Current installments of other long term debt 595,984 1,385,598
Accounts payable and accrued expenses 4,808,176 5,016,236
Customer deposits 209,856 450,451
Current liabilities of discontinued operations 1,417,448 1,534,322
---------------------------------
Total Current Liabilities 7,141,970 8,518,720
Long Term Debt:
Notes payable to stockholders, net of current installments 696,076 767,054
Other long term debt, net of current installments 10,402,165 11,398,034
---------------------------------
11,098,241 12,165,088
Deferred Income Taxes 1,398,528 1,398,528
Commitments and Contingencies:
Stockholders' Equity:
Common Stock ($.01 par value: authorized 10,000,000
shares; issued 4,164,527) 41,645 41,517
Additional paid-in capital 13,386,528 13,364,404
Retained earnings 1,408,067 4,843,860
---------------------------------
Total Stockholders' equity 14,836,240 18,249,781
---------------------------------
---------------------------------
$34,474,979 $40,332,117
=================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Part I. Financial Information
Foilmark, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 8,417,036 $ 7,819,024 $ 25,741,355 $ 22,507,427
Cost of Sales 5,922,028 5,468,348 18,347,366 16,127,908
------------------------------------------------------------
Gross Profit 2,495,008 2,350,676 7,393,989 6,379,519
Selling, General and Administrative Expenses 1,734,415 1,757,847 4,973,353 5,226,100
------------------------------------------------------------
760,593 592,829 2,420,636 1,153,419
------------------------------------------------------------
Other Income (expense):
Interest Expense - Net (137,144) (149,732) (384,293) (260,662)
Other Income 454 21,646 450 104,668
------------------------------------------------------------
Income from Continuing Operations Before
Income Taxes 623,903 464,743 2,036,793 997,425
Income Tax Expense (227,956) (171,020) (806,406) (409,564)
------------------------------------------------------------
Income from Continuing Operations 395,947 293,723 1,230,387 587,861
Discontinued Operations
(Loss) from Operations, Net of Income Tax Benefit (376,253) (223,478) (648,119) (557,719)
(Loss) upon Disposition, Net of Income Tax Benefit (4,018,061) -- (4,018,061) --
------------------------------------------------------------
Net Income (loss) (3,998,367) 70,245 (3,435,793) 30,142
============================================================
Net Income (loss) Per Share
From Continuing Operations 0.10 0.07 0.30 0.14
From Discontinued Operations (1.06) (0.05) (1.12) (0.13)
------------------------------------------------------------
(0.96) 0.02 (0.82) 0.01
============================================================
Weighted Average Number of Common and Common
Equivalent Shares Outstanding 4,163,482 4,144,254 4,159,972 4,144,254
============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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<TABLE>
<CAPTION>
Foilmark, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Nine Months Ended
(Unaudited)
September 30, September 30,
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from continuing operations $ 1,230,387 $ 587,861
Adjustments to reconcile net income to net cash provided
by continuing operations:
Depreciation and amortization 1,268,404 1,005,396
Provision for doubtful accounts 157,200 80,445
Increase in deferred taxes -- 103,865
Changes in assets and liabilities:
(Increase) in accounts receivable (937,082) (1,195,045)
Decrease (increase) in inventories 1,630,044 (1,560,271)
Decrease in income tax receivable (10,516) --
Decrease (increase) in bond and mortgage 116,819 (33,383)
(Increase) in other assets (321,760) (191,220)
(Decrease) increase in accounts payable
and accrued expenses (1,361,060) 1,045,181
Decrease in restricted short-term investments -- 1,037,590
-------------------------------
Net cash provided by continuing operations 1,772,436 880,419
-------------------------------
Net cash provided by (used in) discontinued operations (1,394,466) 207,753
-------------------------------
Cash Flows from Investing Activities:
Capital expenditures (657,420) (1,984,349)
Proceeds from sale of facilities 2,536,557 --
-------------------------------
Net cash provided by (used in) investing activities 1,879,137 (1,984,349)
Cash Flows from Financing Activities:
Proceeds of stockholder loans and long-term debt -- 690,345
Payments of notes payable to stockholders (92,585) (126,962)
Proceeds of other long-term debt 1,512,445 --
Payments of other long-term debt (3,297,928) --
Proceeds from shares issued under benefit plans 22,252 28,893
-------------------------------
Net cash (used in) provided by financing activities (1,855,816) 592,276
Net increase (decrease) in Cash 401,291 (303,901)
Cash - Beginning of Period 199,923 464,256
-------------------------------
Cash - End of Period $ 601,214 $ 160,355
===============================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Foilmark, Inc.
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(Unaudited)
1. The accompanying consolidated financial statements of Foilmark, Inc. and
subsidiaries (the "Company") for the three and nine month periods ended
September 30, 1997 have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q and Article 10
of Regulation S-X. These financial statements have not been audited by
independent public accountants, but include all adjustments (consisting of
only normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial condition, results of
operations and cash flows for such periods. These consolidated financial
statements do not include all disclosures associated with annual financial
statements and accordingly should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K dated April 11, 1997 as filed with the
Securities and Exchange Commission, a copy of which is available from the
Company upon request. The results for the nine months ended September 30,
1997 are not necessarily indicative of the operating results for the
remainder of the year.
2. On October 15, 1997 the Company announced that it was discontinuing the
manufacture of hot stamping equipment. Accordingly, Kensol-Olsenmark, Inc.,
the hot stamping manufacturing company, is reported as a discontinued
operation at September 30, 1997. The consolidated financial statements have
been reclassified to report separately the net assets and operating results
of the business. The Company's prior years operating results have been
restated to reflect continuing operations.
3. The classification of inventories as of September 30, 1997 and December 31,
1996 was as follows:
September 30, 1997 December 31, 1996
Raw Materials $1,023,312 $ 785,499
Work in Progress 1,613,686 3,283,109
Finished Goods 5,234,640 5,433,074
---------- ----------
Total $7,871,638 $9,501,682
========== ==========
7
<PAGE>
Item 2. Management's Discussion Analysis of Financial Conditions and Result of
Operations
GENERAL
On October 15, 1997 the Company announced the discontinuance of the manufacture
of hot stamping equipment in order to focus on its hot stamping foil and
holographic film products and its pad printing machinery and supply business
segments.
Discontinuation of the hot stamp equipment line resulted in a charge of
$4,018,061 net of tax benefit, including a restructuring charge of $1,153,000
for severance and other costs related to the discontinuation. Loss from
discontinued operations for the three and nine months ended September 30, 1997
net of income tax benefits were $376,253 and $648,119 respectively. The Company
incurred a $1.06 and $1.12 per share charge from discontinued operations for the
three and nine months ended September 30,1997.
Net revenues from continuing operations increased by 7.7% for the three months
ended September 30, 1997 compared to the same 1996 period. Net income rose to
$395,947 or $.10 per share for the third quarter 1997 compared to $293,723 or
$.07 per share for the three months ended September 30, 1996. This represents a
34.8% increase in net income and a 42.9% increase in earnings per share.
For the nine months ended September 30, 1997 revenues from continuing operations
increased by 14.4% to $25,741,355 up from $22,507,427 for the nine months ended
September 30, 1996. Net income totaled $1,230,387 or $.30 per share compared to
$587,861 or $.14 per share for the 1996 nine month period. This represents a
109.3% increase in net income and a 114.3% increase in earnings per share.
The 1997 third quarter and nine months improvement in revenues and net income
compared to 1996 reflect continuing strong demand for Foilmark's hot stamping
foil and holographic products, ongoing cost reductions, and a reduction in
selling, general and administrative expenses as a percentage of sales.
NET SALES:
Net sales of continuing operations for the three months ended September 30, 1997
increased 7.7% to $8,417,036 from $7,819,024 for the three months ended
September 30, 1996. For the nine months ended September 30, 1997, net sales were
$25,741,355 a 14.4% increase over the comparable 1996 period. The nine month
1997 revenues benefited from the shipment to China for equipment to manufacture,
convert, and apply hot stamping foils and holographic products, general
acceptance and demand for the recently introduced "OG" series hot stamping foil
product line, and the increase in sales of the Foilmark Holographic division.
GROSS PROFIT:
For the three months ended September 30, 1997 gross profit from continuing
operations increased by $144,332 or 6.1% on a 7.7% increase in net revenues
compared to the same period in 1996. Gross profit as a percentage of sales
increased to 28.7% from 28.3% for the nine months ended September 30, 1997
compared to the same nine month period in 1996. Total gross profit increased by
$1,014,470 or 15.9% in the nine months of 1997 compared to the same nine months
of 1996. The improvement in overall gross profit was a result of increased
revenues, improved manufacturing efficiencies at the hot stamping foil
manufacturing plant, continuing cost reductions, availability of the
state-of-the-art metallizer for the complete nine months, and increased
contributions of the Foilmark Holographic division.
8
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses from continuing operations declined
to 19.3% from 23.2% as a percentage of sales for the nine months ended September
30,1997 compared to the same nine months of 1996. The total reduction was
$252,747 or 4.8% for the nine months of 1997 compared to 1996. For the 1997
third quarter expenses as a percentage to sales declined to 20.6% from 22.5%
compared to the 1996 third quarter.
The reduction was due primarily to lower selling costs as a result of changes
made in the marketing strategy, by expanding the direct outside sales force to
provide the Company with more effective sales coverage.
INCOME FROM OPERATIONS:
Income from continuing operations increased by 110% or $1,267,217 to $2,420,636
for the nine months ended September 30, 1997 as compared to $1,153,419 for the
nine months ended September 30, 1996.For the three months ended September 30,
1997 income from operations increased to $760,593 a gain of $167,764 or 28.3%
from the comparable 1996 period.
The primary reasons for the increase in income from continuing operations was
the return to profitability of the foil group in 1997 compared to 1996 due to
the availability of the state-of-the-art metallizer for manufacturing during the
entire nine month period, continued cost reductions, and reduction in selling
expenses.
INTEREST EXPENSE:
For the three months ended September 30,1997 interest expense from continuing
operations declined slightly to $137,144 from $149,732 for the comparable three
month period of 1996. The decrease in interest expense in the 1997 third quarter
resulted from a reduction in long term bank debt upon application of the
proceeds from the sale of the Melville, New York and Norwood, MA properties
which sales were completed in the 1997 second and third quarters.
PROVISION FOR INCOME TAXES:
Provision for income taxes from continuing operations for the nine months ended
September 30, 1997 was $806,406 based on income before taxes of $2,036,793 as
compared to $409,564 on pre-tax income of $997,425 for 1996. The effective tax
rate used was 39.6% and 41.0 % respectively for the 1997 and 1996 nine months.
NET INCOME:
For the nine and three months ended September 30, 1997 the Company had net
income from continuing operations of $1,230,387 and $395,947 respectively as
compared to $587,861 and $293,723 for the nine and three months ended September
30, 1996. The increase in net income for the nine months of 1997 was due to a
14.4% increase in net sales, a 15.9% increase in gross profit and a 16.8%
decrease in selling, general and administrative expenses as a percentage of net
sales. The increase in net income for the three months ended September 30, 1997
as compared to the three months ended September 30, 1996 was due primarily to
7.7% increase in net sales and a 8.4% decrease in expenses as a percentage of
net sales.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
The sale of the Norwood, Massachusetts property was completed on August 13,
1997. The proceeds from this sale together with the proceeds from the sale of
the Melville, New York property which had been finalized on June 19, 1997 were
used for bank debt reduction with the remaining balance used for working capital
purposes. As of September 30, 1997 total bank debt declined to $10,998,149 from
$12,783,632 at December 31, 1996, and total indebtedness declined by $2,443,597
for the same period.
On October 15, 1997 the Company announced discontinuing the manufacture of hot
stamping equipment which resulted in a charge of $4,018,061 net of income tax
benefit. In addition the Company incurred a loss from operations for the
discontinued operations of $376,253 net of tax benefit for the three months
ended September 30, 1997.This charge to retained earnings has caused the
stockholders equity to decline to $14,836,240 at September 30, 1997 from
$18,249,781 at December 31, 1996. Additionally tangible net worth declined from
$12,945,487 to $9,881,890 for the same period. The Company had received from its
bank a waiver for non-compliance with the loan agreement tangible net worth and
debt to worth covenants to December 31, 1997.
At September 30, 1997 the Company had outstanding under the revolving line of
credit a total of $6,995,944 leaving a total of $3,004,056 available under its
revolving credit facility. The Company expects that cash from operations and the
existing credit facility will be sufficient to meet its operating needs for the
foreseeable future.
The Company's working capital at September 30, 1997 was $13,149,689 an increase
of $367,634 from December 31,1996. The increase in working capital was due
primarily to the refinancing of the revolving line of credit on more favorable
terms by the elimination of current installments of long term debt, the sale of
the two properties, the reduction of debt and the profitability of the
continuing operations for the nine months ended September 30, 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 Not Applicable
Item 2 - Changes in Securities Not Applicable
Item 5 - Other Information Not Applicable
Item 6 - Exhibits and Report on Form 8-K
1. No reports on form 8-K have been filed during the quarter
ended September 30, 1997.
11
<PAGE>
SIGNATURE
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.
(Registrant)
/s/ Frank J. Olsen, Jr.
Date: November 12, 1997 --------------------------------------
Frank J. Olsen, Jr.
President and
Chief Executive Officer
/s/ Philip Leibel
Date: November 12, 1997 --------------------------------------
Philip Leibel
Vice President (Finance) and
Chief Financial and Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 601,214
<SECURITIES> 0
<RECEIVABLES> 6,060,553
<ALLOWANCES> 416,000
<INVENTORY> 7,871,638
<CURRENT-ASSETS> 20,291,659
<PP&E> 16,271,947
<DEPRECIATION> 7,417,467
<TOTAL-ASSETS> 34,474,979
<CURRENT-LIABILITIES> 7,141,970
<BONDS> 0
0
0
<COMMON> 41,645
<OTHER-SE> 14,794,595
<TOTAL-LIABILITY-AND-EQUITY> 34,474,979
<SALES> 25,741,355
<TOTAL-REVENUES> 25,741,355
<CGS> 18,347,366
<TOTAL-COSTS> 23,320,719
<OTHER-EXPENSES> 450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 384,293
<INCOME-PRETAX> 2,036,793
<INCOME-TAX> 806,406
<INCOME-CONTINUING> 1,230,387
<DISCONTINUED> (4,666,180)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,435,793)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
