<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 December 31, 1999
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: 0000914066
FOILMARK, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 11-3101034
(State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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 7,942,239
<PAGE>
FOILMARK, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
INDEX 2
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements
Consolidated Balance Sheets - December 31, 1999 (Unaudited) and June 30, 1999 3
Consolidated Statements of Operations for the Three and Six Months Ended
December 31, 1999 and December 31, 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1999 and December 31, 1998 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-10
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults Upon Senior Security 11
Item 4 - Submission of Matters to Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Other Proceedings 11
Signatures 12
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1999 1999
- ------ ---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 459,437 $ 1,326,231
Accounts receivable - trade (less allowance for doubtful
accounts of $1,037,000 and $1,397,000, respectively) 10,307,942 10,747,909
Inventories 13,916,622 13,039,186
Other current assets 914,116 989,242
Deferred income taxes 1,957,661 1,957,661
------------ ------------
Total current assets 27,555,778 28,060,229
Property, plant and equipment, net 13,933,703 14,164,745
Bond and mortgage financing costs, net 309,739 335,381
Intangible assets, net 3,988,954 4,133,206
Restricted cash 233,333 33,333
Other assets 273,111 223,368
Notes receivable 1,137,762 641,591
------------ ------------
$ 47,432,380 $ 47,591,853
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current installments of notes payable - stockholders $ 127,155 $ 124,024
Current installments of other long-term debt 1,282,993 414,831
Accounts payable 2,025,233 3,895,250
Accrued expenses 5,269,542 3,465,709
Income tax payable 135,602 230,720
Merger integration costs and related liabilities 1,794,063 1,839,505
Customer deposits 64,359 64,949
------------ ------------
Total current liabilities 10,698,947 10,034,988
LONG-TERM DEBT:
Notes payable to stockholders, net of current installments 407,450 471,280
Other long-term debt, net of current installments 10,322,930 12,743,848
------------ ------------
10,730,380 13,215,128
Deferred income taxes 1,083,385 1,083,385
STOCKHOLDERS' EQUITY:
Preferred stock ($.01 par value; 500,000 shares authorized; 0 shares
issued and outstanding) - -
Common stock ($.01 par value; 15,000,000 shares authorized:
7,929,024 and 7,903,715 shares issued, respectively) 79,290 79,037
Additional paid-in capital 21,242,731 21,208,036
Retained earnings 3,535,776 1,983,308
Treasury stock, at cost (18,800 shares) (59,088) -
Accumulated other comprehensive income (loss) 120,959 (12,029)
------------ ------------
Total stockholders' equity 24,919,668 23,258,352
------------ ------------
$ 47,432,380 $ 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 AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
------------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 16,048,647 $ 7,172,603 $ 32,371,612 $ 15,053,628
Cost of sales 11,022,554 5,256,124 22,398,663 10,767,335
------------ ----------- ------------ ------------
Gross profit 5,026,093 1,916,479 9,972,949 4,286,293
Selling, general and administrative expenses 3,560,585 2,062,733 7,023,546 3,924,738
------------ ----------- ------------ ------------
Income (loss) from operations 1,465,508 (146,254) 2,949,403 361,555
Other income (expense):
Interest expense - net (218,017) (178,291) (433,293) (346,632)
Other (20,838) 23,363 (11,642) 23,363
------------ ----------- ------------ ------------
Income (loss) from operations before
(provision for) benefit of taxes 1,226,653 (301,182) 2,504,468 38,286
(Provision for) benefit of income taxes (466,000) 143,908 (952,000) 45,476
------------ ----------- ------------ ------------
Net income (loss) $ 760,653 $ (157,274) $ 1,552,468 $ 83,762
============ =========== ============ ============
Net income (loss) per share:
Basic $ 0.10 $ (0.04) $ 0.20 $ 0.02
Diluted $ 0.09 $ (0.04) $ 0.19 $ 0.02
Weighted average shares outstanding:
Basic 7,914,275 4,172,447 7,909,548 4,172,447
Diluted 8,180,622 4,172,447 8,183,834 4,172,447
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,552,468 $ 83,762
Adjustments to reconcile net income to net cash
provided by continuing operations:
Depreciation 1,480,900 676,223
Amortization 169,894 153,699
Provision for doubtful accounts 39,932 91,000
Deferred taxes - 311,320
Change in assets and liabilities:
Decrease in accounts receivable 443,041 2,655
(Increase) decrease in inventories (851,156) 517,679
Decrease in income taxes receivable - 845,774
Increase in notes receivable and other assets (441,216) (172,844)
Decrease in customer deposits (590) (39,494)
Decrease in accounts payable and accrued expenses (81,875) (549,227)
Decrease in income taxes payable (97,081) -
Decrease in merger integration costs and
related liabilities (45,442) -
----------- ----------
Net cash provided by operating activities 2,168,875 1,920,547
----------- ----------
Net cash used in discontinued operations - (253,421)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,249,858) (598,864)
Increase in cash - restricted (200,000) -
----------- ----------
Net cash used in investing activities (1,449,858) (598,864)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable to stockholders (60,699) (57,183)
Proceeds of other long-term debt 5,019,725 -
Payments of other long-term debt (6,572,481) (922,474)
Treasury stock purchases (59,088) -
Proceeds from exercise of stock options 34,948 15,278
----------- ----------
Net cash used in financing activities (1,637,595) (964,379)
----------- ----------
Effect of exchange rate changes on cash 51,784 -
----------- ----------
NET INCREASE (DECREASE) IN CASH (866,794) 103,883
Cash - beginning of period 1,326,231 367,011
----------- ----------
Cash - end of period $ 459,437 $ 470,894
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD:
Interest $ 326,250 $ 297,374
Income taxes $ 1,366,523 $ 3,007
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FOILMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNUADITED)
1. The accompanying consolidated financial statements of Foilmark, Inc., and
subsidiaries (the "Company") for the three and six month periods ended
December 31, 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 consolidated 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 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 and
six months ended December 31, 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 $0.01 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
$4,753,718 in cash. The Company's results of operations for the three and
six month periods ended December 31, 1999 include HoloPak for the complete
three and six month periods. As of December 31, 1999, accrued merger
integration costs totaled $1,794,063, down from $1,839,505 at June 30,
1999. The decrease is due to payments made during the fiscal 2000 period
against the accrued merger integration liability account. These accrued
costs are principally related to personnel costs, expected to be paid out
in the next twelve months, and costs associated with lease terminations,
expected to be paid out during the term of the underlying agreements.
4. The composition of inventories as of December 31, 1999 and June 30, 1999
was as follows:
<TABLE>
<CAPTION>
December 31, 1999 June 30, 1999
----------------- -------------
(unaudited)
<S> <C> <C>
Raw Materials $ 4,242,019 $ 4,073,544
Work in Process 2,990,973 2,347,004
Finished Goods 6,683,630 6,618,638
----------- -----------
Total $13,916,622 $13,039,186
=========== ===========
</TABLE>
6
<PAGE>
5. The following table sets forth the segment financial information for the
three months ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Hot Stamp Pad Print Corporate and
Foil Holography and Supplies Unallocated Total
---- ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales to External Customers 1999 8,636,824 5,673,075 1,738,748 -- 16,048,647
1998 5,307,556 387,065 1,477,982 -- 7,172,603
Segment Profit (Loss) 1999 109,347 1,337,439 83,946 (304,079) 1,226,653
1998 (86,732) 8,639 (52,474) (170,615) (301,182)
</TABLE>
The following table sets forth the segment financial information for the
six months ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Hot Stamp Pad Print Corporate and
Foil Holography and Supplies Unallocated Total
---- ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales to External Customers 1999 17,304,871 11,699,557 3,367,184 -- 32,371,612
1998 10,134,861 1,373,603 3,545,164 -- 15,053,628
Segment Profit (Loss) 1999 1,117,095 1,916,158 (4,146) (524,639) 2,504,468
1998 453,561 24,018 (114,555) (324,738) 38,286
</TABLE>
6. Accumulated other comprehensive income (loss) included in the accompanying
consolidated balance sheets represents the effect of the change in foreign
currency exchange rates. Comprehensive income for the three and six month
periods ended December 31, 1999 was $875,486 and $1,685,456, respectively.
Comprehensive income (loss) for the three and six months ended December 31,
1998 was (157,274) and 83,762, respectively.
7. Basic income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares outstanding for the year. Diluted
income (loss) per share is similar except that the weighted average number
of shares outstanding is increased by shares issuable upon exercise of
stock options and warrants for which market price exceeds exercise price,
less shares which could have been purchased by the Company with the related
proceeds unless the effect is antidilutive.
A reconciliation of the weighted average number of shares outstanding used
in the computation of the basic and diluted income (loss) per share for the
three and six months ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
3 Mos. Ended 3 Mos. Ended 6 Mos. Ended 6 Mos. Ended
12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Shares--Basic 7,914,275 4,172,447 7,909,548 4,172,447
Effect of Dilutive Stock Options 266,347 -- 274,286 --
--------- --------- --------- ---------
Weighted Average Shares--Diluted 8,180,622 4,172,447 8,183,834 4,172,447
========= ========= ========= =========
Weighted Average Shares--
Antidilutive Stock Options 970,424 552,397 918,057 558,397
========= ========= ========= =========
</TABLE>
7
<PAGE>
8. In the fiscal 2000 second quarter, the Company sold a supply product line
for cash and notes receivable amounting to $600,000. The sale consisted
primarily of inventory at cost and intangibles, including trade name and
engineering drawings. The Company did not recognize any gain or loss on
this transaction.
8
<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 and six months ended December 31, 1999
include HoloPak.
NET SALES for the three months ended December 31,1999 were $16.0 million,
compared to $7.2 million for the same 1998 three month period. The 124% increase
in revenues, or $8.9 million, was primarily the result of the addition of
HoloPak. The balance of the increase, amounting to $1.2 million, was from
increased demand in the hot stamping foil and holographic product lines.
Revenues for the six months ended December 31, 1999 increased by 115% to $32.4
million from $15.1 million for the same six months in 1998, primarily as a
result of the HoloPak merger.
GROSS PROFIT for the three and six months ended December 31, 1999 was 31.3% and
30.8%, respectively, compared to 26.7% and 28.5% for the three and six months
ended December 31, 1998, respectively. The improvement in gross profit
percentages, which began in the first quarter, accelerated in the second quarter
as the transfer of specific products manufactured in the New Jersey and
Massachusetts plants, a strategic goal for the HoloPak acquisition, was
completed. This change to focused facilities resulted in longer production runs
at both locations, improving efficiencies and lowering waste. As part of the
integration of operations, the Company also began to eliminate duplication of
products to reduce low-volume products. All of these factors helped to increase
gross profit percentages during the three and six months ended December 31,
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $3.6 million and $7.0 million,
respectively, for the three and six months ended December 31, 1999, compared to
$2.1 million and $3.9 million for the same three and six month periods in 1998.
The 1999 increase of $1.5 and $3.1 million, respectively, was primarily the
result of the HoloPak acquisition, which did not have any effect on the 1998
periods. Expenses as a percentage of sales were 21.7% for the six months ended
December 31, 1999, down from 26.1% for comparable period in 1998, as a result of
the 115% increase in revenues while expenses increased by 79% for the same six
month period.
INCOME FROM OPERATIONS increased to $1.5 million for the three months ended
December 31, 1999, compared to a loss of $146,000 for the three months ended
December 31, 1998. For the six months ended December 31, 1999, income from
operations was $2.9 million, compared to $362,000 for the comparable period in
1998, an increase of more than seven times. The increase in income from
operations for both the three and six months of 1999 compared to the
corresponding periods in 1998 was a result of more than a 100% increase in
revenues at higher gross profit percentages and a decrease in selling, general
and administrative expenses as a percentage to sales.
9
<PAGE>
INTEREST EXPENSE increased to $218,000 for the three months ended December 31,
1999 from $178,000 for the same three month period in 1998. For the six month
period in 1999, interest expense rose to $433,000, compared to $347,000 for the
comparable period in 1998. The increase in interest expense is due to the $2.6
million increase in bank debt as a result of the HoloPak acquisition.
PROVISION FOR INCOME TAXES totaled $952,000 for the six months and $466,000 for
the three months ended December 31, 1999. This compares to an income tax benefit
of $45,476 and $143,908 for the comparable 1998 six and three month periods,
respectively. The effective tax rate for the current fiscal year is expected to
be 38%.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE were $760,653, or $0.09 per
diluted share, for the three months ended December 31, 1999 and $1,552,468, or
$0.19 per diluted share, for the six months ended December 31, 1999. This
compares to a loss of $157,274, or $0.04 per share, and net income of $83,762,
or $0.02 per share, respectively, for the three and six months ended December
31,1998. The increase in net income and income per share for the three and six
months ended December 31, 1999, compared to 1998, is attributable to the
substantial increase in revenues of $8.9 million and $17.3 million,
respectively, at higher gross profit percentages, and a decrease in selling,
general and administrative expenses as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
At December 31,1999, tangible net worth increased to $20.6 million from $18.8
million at June 30, 1999. Working capital was $16.8 million at December 31,
1999, down from $18.0 million at June 30, 1999. The Company has used available
current working capital in fiscal 2000 amounting to $1,250,000 to finance
capital expenditures rather than the available bank equipment line of credit.
Total bank debt declined by $1.6 million from June 30, 1999. At December 31,
1999, availability under the bank line of credit was $10.3 million. The Company
was in full compliance with the financial covenants of the bank loan agreement
as of December 31, 1999. The Company believes there are sufficient funds from
operations and available bank lines to meet its operating needs for the
foreseeable future.
In the fiscal 2000 second quarter, the Company sold a supply product line for
cash and notes receivable amounting to $600,000. The sale consisted primarily of
inventory at cost and intangibles, including trade name and engineering
drawings. The Company did not recognize any gain or loss on this transaction.
During the fiscal 2000 second quarter, the Company purchased 18,800 shares in
the open market under the stock buyback program previously authorized by the
Board of Directors. It is the Company's intention to continue to repurchase
Foilmark shares while the stock, in the Board's opinion, remains a good
investment opportunity.
OTHER MATTERS
During the last quarter of calendar 1999, the Company implemented a new software
application that was Y2K compliant. The software was installed and tested in
October and was operational November 1, 1999. The Company's new network hardware
and software were fully compliant. We are not aware of any year 2000 issues that
have affected our business.
To date, we are not aware of any Y2K-related problems experienced by the
Company, its customers or vendors subsequent to January 1, 2000.
10
<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 Not Applicable
ITEM 5 - OTHER INFORMATION Not Applicable
ITEM 6 - OTHER PROCEEDINGS Not Applicable
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.
(Registrant)
Date: February 14, 2000 /s/
------------------------------------
Frank J. Olsen, Jr.
President and
Chief Executive Officer
Date: February 14, 2000 /s/
------------------------------------
Philip Leibel
Vice President-Finance and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000914066
<NAME> FOILMARK, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 459,437
<SECURITIES> 0
<RECEIVABLES> 11,344,942
<ALLOWANCES> 1,037,000
<INVENTORY> 13,916,622
<CURRENT-ASSETS> 27,555,778
<PP&E> 50,146,029
<DEPRECIATION> 36,212,326
<TOTAL-ASSETS> 47,432,380
<CURRENT-LIABILITIES> 10,698,947
<BONDS> 0
0
0
<COMMON> 79,290
<OTHER-SE> 24,840,378
<TOTAL-LIABILITY-AND-EQUITY> 47,432,380
<SALES> 32,371,612
<TOTAL-REVENUES> 32,371,612
<CGS> 22,398,663
<TOTAL-COSTS> 29,422,209
<OTHER-EXPENSES> 11,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 433,293
<INCOME-PRETAX> 2,504,468
<INCOME-TAX> 952,000
<INCOME-CONTINUING> 1,552,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,552,468
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.19
</TABLE>
