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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-19453
HOLOPAK TECHNOLOGIES, INC.
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Exact name of registrant as specified in its charter
Delaware 51-0323272
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 COTTERS LANE, EAST BRUNSWICK, NEW JERSEY 08816
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (908) 238-2883
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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT 1/31/97
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Common Stock, $ .01 Par Value 2,796,403
Class A Common Stock, $ .01 Par Value 753,086
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HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Page Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996
(Unaudited) and March 31, 1996 1
Consolidated Statements of Operations (Unaudited) for the Three
Months and Nine Months ended December 31, 1996 and 1995 2
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended December 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II: OTHER INFORMATION 10
SIGNATURES 11
EXHIBIT 12
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HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1996 1996
UNAUDITED AUDITED
---------- ---------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents........................................................................ $ 1,920,482 $ 1,999,609
Accounts Receivable, less allowance
for doubtful accounts of $58,000 and $81,000................................................. 6,306,302 6,582,515
Inventories .................................................................................... 7,586,160 8,149,598
Prepaid Expenses ................................................................................ 338,891 411,748
Due From Related Parties......................................................................... 66,789 20,000
Prepaid Income Taxes ............................................................................ 1,472,887 1,200,162
Deferred Income Taxes ........................................................................... 287,468 307,468
Other Current Assets............................................................................. 47,232 16,470
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TOTAL CURRENT ASSETS................................................................................. 18,026,211 18,687,570
Property and Equipment, Net ......................................................................... 10,195,143 10,638,555
Excess of Cost over Fair Value of Assets Acquired, less
accumulated amortization of $1,461,410 as of December, 1996 and $1,361,930 as of March, 1996 ... 6,867,745 6,998,885
Other Assets......................................................................................... 162,456 149,088
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TOTAL ASSETS........................................................................................ $35,251,555 $36,474,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank Borrowings ................................................................................. $ 350,000 $ --
Current Maturities of Long- Term Debt ........................................................... 1,752,500 1,752,500
Accounts Payable and Accrued Liabilities ......................................................... 3,801,287 3,642,661
----------- -----------
TOTAL CURRENT LIABILITIES............................................................................ 5,903,787 5,395,161
Long-Term Debt ..................................................................................... 1,518,125 2,832,500
Deferred Income Taxes .............................................................................. 1,458,929 1,740,128
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TOTAL LIABILITIES.................................................................................... 8,880,841 9,967,789
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Commitments and Contingencies ....................................................................... -- --
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; $.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................................................................................ 5,849,444 5,926,661
Cumulative Translation Adjustment ............................................................... (470,834) (412,456)
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27,642,199 27,777,794
LESS: Common Stock (201,800 shares) Held In the Treasury , at cost ............................. (1,271,485) (1,271,485)
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Total Stockholders' Equity........................................................................... 26,370,714 26,506,309
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................................... $35,251,555 $36,474,098
=========== ===========
See notes to consolidated financial statements.
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HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED, NINE MONTHS ENDED,
DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1996 1995 1996 1995
---------- ----------- ----------- ------------
NET REVENUES. ...................................................... $9,978,397 $10,250,777 $32,146,953 $33,295,683
Cost of Sales ...................................................... 8,209,891 8,207,268 26,228,333 26,257,791
---------- ----------- ----------- -----------
Gross Profit........................................................ 1,768,506 2,043,509 5,918,620 7,037,892
Selling, General and Administrative Expenses........................ 1,819,183 2,038,911 5,599,275 6,081,399
Restructuring Charge ............................................... -- -- 130,000 --
---------- ----------- ----------- -----------
Operating Income ................................................... (50,677) 4,598 189,345 956,493
Interest Income..................................................... 23,734 36,392 65,095 107,410
Interest Expense.................................................... 67,197 95,380 217,056 361,003
---------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE ....................
INCOME TAXES (94,140) (54,390) 37,384 702,900
Provision (Benefit) for Income Taxes .............................. (1,722) (78,390) (45,399) 127,986
---------- ----------- ----------- -----------
Income From Continuing Operations................................... (92,418) 24,000 82,783 574,914
Loss From Discontinued Operations (net of tax benefit of $86,000)... -- 191,279 160,000 191,279
---------- ----------- ----------- -----------
NET INCOME (LOSS)................................................... $ (92,418) $ (167,279) $ (77,217) $ 383,635
========== =========== =========== ===========
EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT
Continuing Operations ...................................... (0.03) 0.01 0.03 0.16
Discontinued Operations .................................... 0.00 (0.06) (0.05) (0.05)
---------- ----------- ----------- -----------
NET INCOME (LOSS)............................................... $ (0.03) $ (0.05) $ (0.02) $ 0.11
========== =========== =========== ===========
Weighted average number of common shares
and common share equivalents outstanding........................ 3,347,689 3,424,771 3,361,890 3,559,970
========== =========== =========== ===========
See notes to consolidated financial statements.
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HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
DECEMBER 31
1996 1995
(UNAUDITED) (UNAUDITED)
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OPERATING ACTIVITIES
NET INCOME .................................................... $ (77,217) $ 383,635
Adjustments to reconcile net income to net cash provided by
operating activities:
Discontinued Operations .................................. 160,000 191,279
Depreciation ............................................. 1,930,819 1,808,966
Amortization ............................................. 131,140 177,681
Decrease in accounts receivable .......................... 258,458 409,329
Decrease (Increase) in inventories ....................... 547,127 (712,371)
Decrease in prepaid expenses ............................ 72,327 114,762
Decrease (Increase) in due from related parties ......... (46,789) 138,822
(Increase) in prepaid income taxes ....................... (273,446) (435,609)
Decrease in deferred income tax receivable ............... 20,000 520,262
(Increase) in other current assets ....................... (30,762) 3,342
(Increase) in other assets ............................... (13,368) (2,435)
(Decrease) in accounts payable and accrued liabilities ... 165,854 (506,316)
(Decrease) in deferred income taxes ...................... (277,857) --
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NET CASH PROVIDED BY OPERATING ACTIVITIES ............ 2,566,287 2,091,347
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ...................................... (1,515,615) (907,065)
Proceeds from government grants ........................... -- 220,006
Purchase price adjustment resulting from income tax refunds -- 1,969,933
(Advances to) Proceeds from discontinued operations ....... (160,000) 591,035
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NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES ...... (1,675,615) 1,873,909
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CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) from short-term borrowings ....... 350,000 (2,029,120)
Repayment of long-term borrowings ......................... (1,314,375) (1,314,375)
Purchase of Treasury Stock ................................ -- (996,860)
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NET CASH (USED) IN FINANCING ACTIVITIES ............... (964,375) (4,340,355)
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Effect of exchange rate changes on cash and cash equivalents .. (5,424) (58,854)
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Net increase in Cash and Cash Equivalents .................... (79,128) (433,953)
Cash and Cash Equivalents, Beginning of Period ............... 1,999,609 2,300,336
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CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... 1,920,482 $ 1,866,383
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See notes to consolidated financial statements.
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HOLOPAK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared by HoloPak Technologies, Inc. ("HoloPak" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended
December 31, 1996 are not necessarily indicative of the results that
may be expected for the year ending March 31, 1997. The Company's
financial statements do not include certain information and footnotes
required by generally accepted accounting principles and accordingly,
should be read in conjunction with the financial statements and the
notes thereto included in HoloPak's Annual Report on Form 10-K for the
year ended March 31, 1996.
2. INVENTORIES
The components of inventories were as follows:
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
Finished Goods $4,210,493 $3,765,000
Work in Process 810,308 1,006,000
Raw Materials 2,565,359 3,379,000
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TOTAL $7,586,159 $8,150,000
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3. NOTE PAYABLE & LONG-TERM DEBT
The Company has available a secured revolving line of credit in the
amount of $3,000,000 to be used for general corporate purposes, and a
secured capital expenditures facility of $2,000,000.
Both facilities bear interest at LIBOR plus 150 basis points which was
approximately 6% at December 31, 1996. At December 31, 1996, there was
$350,000 outstanding under the line of credit, and working outstanding
against the capital expenditure facility. The Company also owes
$1,755,000 under a five year term loan. This term loan requires
quarterly payments of $135,000, which began on June 17, 1995 and also
bears interest at three-month LIBOR plus 150 basis points. Final
maturity will be on March 17, 2000.
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The Company also has outstanding $1,515,625 in long term debt incurred
to fund the acquisition of Alubec in March 1993. This debt bears
interest at a fixed rate of 5.9%. Principal payments are $303,125 per
quarter and will mature on March 31, 1998.
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 December
31, 1996, the Company was not in comp debt service coverage ratio;
however, the Company obtained a waiver on this covenant as of December
31, 1996.
Annual maturities of long-term debt are as follows:
FOR THE YEAR ENDED
DECEMBER 31, PAYMENTS
------------ --------
1997 1,752,500
1998 843,125
1999 540,000
2000 135,000
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TOTAL $3,270,625
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4. STOCK OPTIONS
During November 1996, 5,300 options were issued at $3.50 per share to
one employee under an Employee Stock Option Plan.
The above stock options were issued with strike prices equal to the
market value as of the date of issuance, and are exercisable as of the
date of issuance.
5. RECEIPT OF INCOME TAX REFUNDS
On November 2, 1995, the Company received $2.7 million in Federal
income tax refunds and interest. These refunds resulted from deductions
not taken by the Company in connection with the acquisition of Transfer
Print Foils, Inc., the Company's primary operating subsidiary. As a
result of these refunds the Excess Cost over Fair Value of Assets
Acquired was reduced by approximately $2.0 million (after taxes, fees,
and related expenses) and the related annual amortization expense will
be reduced by approximately $59,000 per year.
6. 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 basis of
the assets, which are being depreciated over a ten year life.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE NINE MONTHS
AND THREE MONTHS ENDED DECEMBER 31, 1995
NET REVENUES:
For the three months ended December 31, 1996, net revenues were $10.0 million,
compared to $10.3 million in the prior year period. For the nine months ended
December 31, 1996, net revenues were $32.2 million, compared to $33.3 million in
the prior year period, which is a decline of $1.1 million or 3.3%.
The decline in the third quarter is attributable to a decline in holographic
foils and metallized papers, offset by gains in hot-stamp foils. The major part
of the decline was a steep decline in the sale of metallized paper from Alubec
Industries, Inc. Paper revenues for the quarter were $2.1 million, compared to
$2.5 million for the quarter ended December 31, 1995. The decline is
attributable to weakness in the laminated foil paper market, which continues to
decline as packaging customers replace this product with direct metallized
paper. The Company's own sales of direct metallized paper have still not grown
to a level adequate to replace this lost business.
Holography sales declined on weaker sales of security foils. Total sales of
holographic products were $1.8 million, compared to $2.2 million in the prior
year.
Sales of hot-stamping foil were up in all major categories, reflecting strong
orders from major customers, particularly in the graphics and specialty areas.
For the nine months ended December 31, 1996, revenues of $32.2 million were $1.1
million less than the $33.3 million recorded for the comparable period last
year. The primary reason for the decline is a decline in sales of metallic foils
of $1.2 million. Specialty foils have generally shown increases; however, the
gains here do not offset the decline in metallics. Also, pattern diffraction
foils were down $300,000, or 11% for the year.
The primary reason for the slowness in graphics foils was slow demand in the
packaging and printing industries.
COST OF GOODS SOLD AND GROSS PROFITS:
Cost of goods sold for the nine month period ended December 31, 1996, was $26.2
million, compared to $26.3 million for the year earlier period. For the quarter
ended December 31, 1996, cost of goods sold was $8.2 million, compared to $8.2
million for the same period last year.
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Gross profits for the nine month period ended December 31, 1996, were $5.9
million for a gross margin of 18.4%, compared to $7.0 million and gross margin
of 21.1% for the same period last year. For the quarter ended December 31, 1996,
gross profit was $1.8 million for gross margin of 17.7%, compared to $2.0
million and gross margin of 19.9% for the comparable period last year.
The decline in gross profits year-to-date is attributable primarily to the
decline in revenues. Fixed costs at the Company's Transfer Print Foils, Inc.
subsidiary, which manufactures hot stamping and holographic foils, are
relatively high. Accordingly, a decline in sales has a highly correlative effect
on margins. Also, the decline in paper revenues at Alubec had a similar effect
on margins.
The second major contributing factor to reduced gross margins has been quality
problems with key raw materials, and adverse pricing of polyester film for the
first six months of the year. The quality problems with raw materials have
reduced production efficiency and increased scrap rates at Transfer Print Foils,
Inc.
Polyester prices declined during the quarter ended December 31, 1996. It is
believed that prices of this key raw material will remain stable for the
remainder of the year, and will be at levels lower than those prevailing one
year ago.
The Company in August 1996 reorganized production responsibilities, and was able
to reduce its production labor force. Accordingly, the Company incurred a
one-time charge of $130,000.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Selling, general, and administrative expenses were $5.6 million, compared to
$6.1 million for the prior year period. For the three months ended December 31,
1996, selling, general, and administrative expenses were $1.8 million, compared
to $2.0 million in the prior year.
The positive variance for the year-to-date period results from lower executive
salaries and legal expenses.
OPERATING PROFITS (LOSS):
Operating loss for the quarter ended December 31, 1996, was $51,000, compared to
operating profit of $5,000 for the same period last year. Year-to-date operating
profit is $189,000, compared to $956,000 in the prior year. The decline in sales
and gross profits is wholly responsible for the decline in profitability.
INTEREST EXPENSE:
Net interest expense for the quarter ended December 3,1 996 is $43,000 and
year-to-date is $152,000, compared to expense of $59,000 and $254,000 for the
prior year periods. Lower outstanding debt balances are responsible for the
decrease.
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INCOME TAXES:
Income taxes were a benefit of $1,700 for the quarter ended December 31, 1996
and $45,000 for the year-to-date, compared to a benefit of $78,000 and a
provision of $128,000 for the prior year periods. The benefits were recorded
because of losses recorded at the Company's U.S. operations. These losses carry
a benefit of approximately 38%. All benefits have been recorded based on both a
carry back and carry forward basis.
Income realized from the Company's operations in Canada have an effective tax
rate of 20%. The Company is paying taxes on these profits.
LOSS FROM DISCONTINUED OPERATIONS:
The loss from discontinued operations reflects the cost of settling the 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.
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FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 1996, the Company had working capital of $12.1 million,
compared to working capital of $13.3 million at March 31, 1996. The decrease is
attributable to a decrease in inventories of $564,000 and an increase in
short-term borrowings of $350,000. The borrowings were made primarily to fund
the settlement of the lawsuit with Bollore Technologies and partially fund the
Company's capital expenditures.
The Company has a general purpose line of credit of $3.0 million, against which
$350,000 had been drawn as of December 31, 1996, and capital expenditures
facility of $2.0 million, against which there were no outstandings at December
31, 1996.
Capital expenditures for the nine months ended December 31, 1996 were $1.5
million. The primary expenditures were made to consolidate and reorganize
production operations at the Company's plant in New Jersey, and for expenditures
necessary to begin the production of hot stamping foil in Canada.
STOCKHOLDER'S EQUITY:
Stockholder's equity declined to $26.4 million as a result of the losses from
operations.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Change in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10.1 Change of Control Agreement between
the Company and D. W. Jaffin, dated 11/13/96
Exhibit 10.2 Change of Control Agreement between
the Company and R. E. Coghan, dated 11/13/96
Exhibit 10.3 Change of Control Agreement between
the Company and J. T. Webb, dated 11/13/96
Exhibit 11 Computation of Earnings Per Share
b. Report on Form 8-K None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
HOLOPAK TECHNOLOGIES, INC.
/s/ ROBERT E. COGHAN Dated: February 12, 1997
--------------------------
Robert E. Coghan,
Chief Executive Officer
/s/ DAVID W. JAFFIN Dated: February 12, 1997
--------------------------
David W. Jaffin,
Chief Financial Officer
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