<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1999
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)
(978) 462-7300
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark 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 PAST FIVE YEARS:
Indicate by checkmark 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 par value common stock 7,905,750
<PAGE>
FOILMARK, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEX 2
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements
Consolidated Balance Sheets - September 30, 1999 (Unaudited)
and June 30, 1999 3
Consolidated Statements of Operations for the Three Months Ended
September 30, 1999 and September 30, 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 1999 and September 30, 1998 (Unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Conditions
and Results of Operations 7-9
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings 10
Item 2 - Changes in Securities 10
Item 3 - Defaults Upon Senior Security 10
Item 4 - Submission of Matters to Vote of Security Holders 10
Item 5 - Other Information 10
Item 6 - Other Proceedings 10
Signatures 11
Schedule of Financial Data 12
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1999 1999
------ ---- ----
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,462,106 $ 1,326,231
Accounts receivable - trade (less allowance for doubtful
accounts) of $1,233,970 and $1,397,000 11,258,650 10,747,909
Inventories 13,392,286 13,039,186
Other current assets 816,839 989,242
Deferred income taxes 1,957,661 1,957,661
------------------- -------------------
Total current assets 28,887,542 28,060,229
Property, plant and equipment, net 14,090,052 14,164,745
Bond and mortgage financing costs 322,560 335,381
Intangible assets, net 4,070,349 4,133,206
Restricted cash 115,688 33,333
Other assets 333,539 223,368
Notes receivable 616,936 641,591
------------------- -------------------
$ 48,436,666 $ 47,591,853
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current installments of notes payable - stockholders $ 124,435 $ 124,024
Current installments of other long-term debt 1,129,517 414,831
Accounts payable 3,267,797 6,266,153
Accrued expenses 5,102,205 1,094,806
Income tax payable 402,425 230,720
Merger integration costs and related liabilities 1,137,339 1,839,505
Customer deposits 64,082 64,949
------------------- -------------------
Total current liabilities 11,227,800 10,034,988
LONG-TERM DEBT:
Notes payable to stockholders, net of current installments 454,375 471,280
Other long-term debt, net of current installments 11,598,303 12,743,848
------------------- -------------------
12,052,678 13,215,128
Deferred Income Taxes 1,083,385 1,083,385
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value; 15,000,000 shares authorized:
7,905,750 and 7,903,715 shares issued and outstanding) 79,057 79,037
Additional paid-in capital 21,212,497 21,208,036
Retained earnings 2,775,123 1,983,308
Accumulated other comprehensive income 6,126 (12,029)
------------------- -------------------
Total stockholders' equity 24,072,803 23,258,352
------------------- -------------------
$ 48,436,666 $ 47,591,853
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 16,322,965 $ 7,881,025
Cost of sales 11,376,109 5,511,211
---------------- ---------------------
Gross profit 4,946,856 2,369,814
Selling, general and administrative expenses 3,462,961 1,862,005
Income from operations 1,483,895 507,809
Other income (expense):
Interest expense - net (215,276) (168,341)
Other income 9,196 -
---------------- ---------------------
Income from operations before income taxes 1,277,815 339,468
Income tax expense 486,000 98,432
================ =====================
Net income $ 791,815 $ 241,036
================ =====================
Net income (loss) per share
From operations--basic $ 0.10 $ 0.06
From operations--diluted $ 0.10 $ 0.06
Weighted average shares outstanding
Basic 7,905,750 4,174,356
Diluted 8,186,851 4,174,356
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30
---------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from operations $ 791,815 $ 256,366
Adjustments to reconcile net income to net cash provided
by continuing operations:
Depreciation 735,931 326,453
Amortization 79,907 82,181
Provision for doubtful accounts (163,030) -
Deferred taxes - -
Change in assets and liabilities, net of effects of acquisitions: -
Increase in accounts receivable (347,711) (382,956)
(Increase) decrease in inventories (353,100) 444,030
Decrease in income taxes receivable - 687,470
Decrease (increase) in bond & mtg financing costs
and other assets 82,658 (80,464)
Decrease in customer deposits (867) -
Increase (decrease) in accounts payable and accrued expenses 1,009,043 (253,389)
Increase in income taxes payable 171,705 -
Decrease in merger integration costs (702,166) -
------------------- ------------------
Net cash provided by operating activities 1,304,185 1,079,691
------------------- ------------------
Net cash used in discontinued operations - (217,638)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (661,238) (198,483)
Increase in cash - restricted (82,355) -
------------------- ------------------
Net cash used in investing activities (743,593) (198,483)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable to stockholders (16,494) (15,540)
Proceeds of other long-term debt 5,019,725 -
Payments of other long-term debt (5,450,584) (875,420)
Proceeds from shares issued under benefit plans 4,481 10,026
------------------- ------------------
Net cash used for financing activities (442,872) (880,934)
------------------- ------------------
Effect of exchange rate changes on cash 18,155 -
------------------- ------------------
NET INCREASE (DECREASE) IN CASH 135,875 (217,364)
Cash - beginning of period 1,326,231 367,011
------------------- ------------------
Cash - end of period $ 1,462,106 $ 149,647
=================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest $ 154,588 $ 102,404
Income taxes $ 549,845 $ 5,007
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FOILMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. The accompanying consolidated financial statements of Foilmark, Inc.,
and subsidiaries (the "Company") for the three-month period ended
September 30, 1999 and 1998 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 included 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 September 28, 1999, as filed with the Securities and Exchange
Commission, a copy of which is available from the Company upon request.
The results for the three months ended September 30, 1999 are not
necessarily indicative of the operating results for the remainder of the
year.
2. In April 1999, the Board of Directors of Foilmark, Inc., changed the
fiscal year end from December 31 to June 30. The change was in
anticipation of the merger with HoloPak, which had a March 31 fiscal
year. The change became effective for the six months ended June 30, 1999.
3. On April 23, 1999, HoloPak Technologies, Inc., merged into a subsidiary
of Foilmark. HoloPak shareholders received 1.11 shares of Foilmark common
stock, par value $.01 per share, plus $1.42 in cash for each share of
HoloPak common stock, or a total of 3,715,935 shares of common stock
and aggregate merger consideration of $4,735,718 in cash. The results
of the operations for the year ended June 30, 1999 include HoloPak
from April 23, 1999.
4. The classification of inventories as of September 30, 1999 and June 30,
1999 was as follows:
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
------------------ -------------
<S> <C> <C>
Raw Materials $ 4,082,470 $ 4,073,544
Work in Progress 2,476,752 2,347,004
Finished Goods 6,833,064 6,618,638
----------- -----------
Total $13,392,286 $13,039,186
=========== ===========
</TABLE>
5. The following table sets forth the segment financial information for the
three months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Hot Stamp Pad Print Corporate and
Foil Holography and Supplies Unallocated Total
---- ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Sales to External Customers 1999 8,668,047 6,026,482 1,628,436 -- 16,322,965
1998 4,827,305 986,538 2,067,182 -- 7,881,025
Segment Profit 1999 1,007,748 578,719 (88,092) (220,560) 1,277,815
1998 540,293 15,379 (62,081) (154,123) 339,468
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion and analysis includes certain forward-looking
statements which are subject to a number of risks and uncertainties as described
in Management's Discussion and Analysis in the Company's Annual Report on Form
10-K for the year ended June 30, 1999. Such forward-looking statements are based
on current expectations, and actual results may differ materially.
RECENT INFORMATION
On April 23, 1999, HoloPak Technologies, Inc., merged into a subsidiary of
Foilmark. HoloPak shareholders received 1.11 shares of Foilmark common stock,
par value $0.01 per share, plus $1.42 in cash for each share of HoloPak common
stock. Foilmark issued a total of 3,715,935 shares and $4,753,718 in cash. The
results of operations for the three months ended September 30, 1999 include
HoloPak for the complete three-month period.
NET SALES for the three months ended September 30, 1999 were $16.3 million,
compared to $7.9 million for the same three-month period in 1998. The 107%
increase in revenues, or $8.4 million, was primarily the result of the
addition of HoloPak. Due to general softness for the pad print machines
during the first quarter, sales declined by $400,000, compared to the same
quarter in 1998. This decrease was offset by the Foilmark hot stamp foil
segment, which increased sales by $400,000 on strong demand in the three
months ended September 30,1999, compared to the comparable three-month period
of 1998.
GROSS PROFIT increased to 30.3% for the three months ended September 30, 1999
from 30.1% for the three months ended September 30, 1998. On a true
comparison basis, by eliminating the HoloPak results, the actual gross profit
for the 1999 first quarter would have been 35%. This indicates a 16.3%
increase in gross profit percentage from the three months ended September 30,
1998. Including the HoloPak group, which operated at a 25.9% gross profit for
the three months ended September 30, 1999, the overall gross profit was
reduced to 30.3%. The HoloPak gross profit of 25.9% is an improvement over
the period ended June 30, 1999 at 22.1%.
The improvements in both the HoloPak and Foilmark gross profits are the result
of changes made in manufacturing through longer production runs, reduction of
low-volume products and elimination of duplication of products, all of which
increased efficiencies and reduced waste.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $3.5 million for the three
months ended September 30, 1999, an increase of $1.6 million from the three
months ended September 30, 1998. $1.3 million of the increase is the result
of the HoloPak acquisition, which was not comparable in the 1998 quarter. The
balance of the increase was the result of computer-training costs associated
with implementation of a new computer system that became operational November
1, 1999 and increases in professional fees over the prior year.
INCOME FROM OPERATIONS increased by 192% to $1,484,000 for the three months
ended September 30, 1999, compared to $508,000 for the three months ended
September 30, 1998. The increase in income from operations is the result of
higher sales amounting to $8.4 million.
7
<PAGE>
INTEREST EXPENSE rose to $215,000 for the three months ended September 30, 1999
from $168,000 for the three months ended September 30,1998. The increase in
interest expense is due to the $3.7 million increase in bank debt as a result of
the HoloPak acquisition.
PROVISION FOR INCOME TAXES totaled $486,000 for the three months ended September
30, 1999, compared to $98,000 for the comparable 1998 three-month period. It is
anticipated that the effective tax rate for the current fiscal year will be 38%.
NET INCOME AND EARNINGS PER SHARE were $791,815, or $0.10 per share, for the
three months ended September 30, 1999, compared to $241,036, or $0.06 per share,
for the three months ended September 30, 1998. The increase in net income and
earnings per share was directly attributable to the $8.4 million increase in
revenues, resulting in a $2.6 million increase in gross profit and a $550,000
increase in net profit. Earnings per share increased by 67% on a 90% increase in
average shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a new loan agreement with its principal bank on August
6, 1999, which provides for a $10 million line of credit, a $5 million term
loan and a $4 million equipment line of credit, subject to covenant
compliance. At September 30, 1999, the Company was in compliance with all
covenants under the new loan agreements. Total availability under the line of
credit is $9.7 million. The Company expects that cash from operations and the
new credit facility will be sufficient to meet its operating needs for the
foreseeable future.
OTHER MATTERS
Year 2000--Management believes that substantially all of its computer systems,
including those of HoloPak, are Year 2000 compliant as of November 1, 1999. The
Company performed an assessment of its Year 2000 readiness, which included
financial, operational and information systems. The majority of the Company's
manufacturing equipment does not include software or have embedded
microprocessors, and of those that do, all have been determined to be Year 2000
compliant.
As a result of the assessment phase, the Hewlett-Packard UNIX platform on which
the Company operates its software was upgraded in order to be Y2K compliant. The
new server, at a cost of $100,000, was installed in the second quarter of 1999
and is operational. As a result of the recent acquisition of HoloPak, the
Company decided to implement a new software application, which is Y2K compliant.
The cost of the software was $264,000. It was installed and tested in the third
quarter of calendar 1999 and was operational November 1, 1999. The Company
currently does not believe that any future costs to ensure the Company's Y2K
readiness will be necessary.
None of Foilmark's or HoloPak's products are date-sensitive. Hot stamping foils
and supplies have no computerized equipment embedded in them, and pad printing
machines have no date-sensitive embedded microprocessors. The Company's new
network hardware and software are fully compliant and not date-sensitive.
Foilmark sent out Y2K questionnaires to suppliers, customers and critical
service providers. Evaluations of Foilmark's and HoloPak's critical suppliers
were completed on June 30, 1999. Although Foilmark cannot control external
suppliers' and customers' ability to be Y2K compliant, it can certainly
express its concerns regarding customers' and suppliers' non-compliance. The
questionnaire assessed whether the suppliers and customers were compliant and
whether and to what extent they will be compliant prior to January 1, 2000.
If respondents indicated non-compliance, Foilmark intends to assess the
consequences and include any steps it deems necessary in its contingency
plan, which has been completed.
8
<PAGE>
Y2K compliance has been a senior management priority for some time. The
Company believes that it has state-of-the-art technology, which will not
require as comprehensive a program as compared to older systems.
Nevertheless, the Company cannot reasonably predict the effect on its
operations if customers, vendors and service providers are not Y2K compliant.
Although senior management does not think this will be the case, the
Company's business and results of operations could be adversely affected in
the first quarter of calendar 2000 if its customers, vendors or service
providers are not Y2K compliant.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS Not Applicable
ITEM 2 - CHANGES IN SECURITIES Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITY Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the stockholders of the Company was held on November 4,
1999 for the following purposes: to elect each of Michael Bertuch, Michael
Foster and Harvey Share as directors of the Company; to adopt an amendment to
the Foilmark, Inc. Amended and Restated 1995 Stock Incentive Compensation Plan
to increase the number of shares of common stock reserved for issuance under the
1995 Plan from 400,000 to 600,000; to adopt an amendment to the Foilmark, Inc.
Non-Employee Directors Stock Plan to increase the number of shares of common
stock reserved for issuance under the Directors Plan from 75,000 to 150,000; and
to approve KPMG LLP as the Company's independent auditors for the fiscal year
ended June 30, 2000.
1. With respect to the proposal to elect each of Michael Bertuch, Michael
Foster and Harvey Share as directors of the Company, there were votes
cast for the nominees as follows:
<TABLE>
<CAPTION>
Votes Cast For Votes Withheld
-------------- --------------
<S> <C> <C>
Michael Bertuch 7,336,576 213,253
Michael Foster 7,345,384 204,253
Harvey Share 7,345,384 204,253
</TABLE>
2. With respect to the proposal to adopt an amendment to the Foilmark, Inc.
Amended and Restated 1995 Stock Incentive Compensation Plan to increase
the number of shares of common stock reserved for issuance under the 1995
Stock Incentive Compensation Plan to increase the number of shares of
common stock reserved for issuance under the 1995 Plan from 400,000 to
600,000, there were 7,306,007 votes cast for this proposal, 478,455 votes
cast against this proposal and 67,575 votes abstaining.
3. With respect to the proposal to adopt an amendment to the Foilmark, Inc.
Non-Employee Directors Stock Plan to increase the number of shares of
common stock reserved for issuance under the Directors Plan from 75,000
to 150,000, there were 7,005,922 votes cast for this proposal, 479,014
votes cast against this proposal and 64,701 votes abstaining.
4. With respect to the proposal to approve KPMG LLP as the Company's
independent auditors for the fiscal year ended June 30, 2000, there were
7,524,882 votes cast for this proposal, 21,295 votes cast against this
proposal and 3,460 votes abstaining. There were no broker non-votes with
respect to any of the proposals.
ITEM 5 - OTHER INFORMATION Not Applicable
ITEM 6 - OTHER PROCEEDINGS Not Applicable
10
<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.
(Registrant)
Date: November 9, 1999 /s/ FRANK J. OLSEN, JR.
--------------------------------
Frank J. Olsen, Jr.
President and
Chief Executive Officer
Date: November 9, 1999 /S/ PHILIP LEIBEL
--------------------------------
Philip Leibel
Vice President-Finance and
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000914066
<NAME> FOILMARK, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,426,106
<SECURITIES> 0
<RECEIVABLES> 12,492,620
<ALLOWANCES> 1,233,970
<INVENTORY> 13,392,286
<CURRENT-ASSETS> 28,887,542
<PP&E> 31,119,969
<DEPRECIATION> 17,029,917
<TOTAL-ASSETS> 48,436,666
<CURRENT-LIABILITIES> 11,227,800
<BONDS> 0
0
0
<COMMON> 79,057
<OTHER-SE> 23,993,746
<TOTAL-LIABILITY-AND-EQUITY> 48,436,666
<SALES> 16,322,965
<TOTAL-REVENUES> 16,322,965
<CGS> 11,376,109
<TOTAL-COSTS> 14,839,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,276
<INCOME-PRETAX> 1,277,815
<INCOME-TAX> 486,000
<INCOME-CONTINUING> 791,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791,815
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
