SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
Minnesota 41-0730027 ---------------------------------------- ------------------------------- (State of incorporation or organization) (I.R.S. Employer Identification No.) 4832 Grand Avenue Duluth, Minnesota 55807 ---------------------------------------- ------------------------------- (Address of principal executive offices) (Zip Code) |
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Chromaline Corporation ("Chromaline" or the "Company") was incorporated in Minnesota as Chroma-Glo, Inc. in 1952 and changed its name to The Chromaline Corporation in 1982. The Company develops, manufactures and sells light sensitive liquid coatings ("emulsions") and light sensitive films for commercial and industrial applications in the United States and abroad. The Company also markets ancillary chemicals and equipment to provide a full line of products and services to its customers. The Company's products serve the screen printing and decorative sand blasting markets. The screen printing products represent the Company's largest product line. These products are used by screen printers to create stencil images. These images produce basic designs for fabric decoration and product identification, as well as complex designs for compact discs and electronic circuits. The sand blasting products are used by many consumers to create architectural glass, art pieces and awards. Some of the Company's customers use both the screen printing and the sand blasting products.
Over the past three years, Chromaline has completed building additions which add additional manufacturing and warehouse space and has installed equipment which doubles the Company's coated film production capacity. During this period, the Company has grown by developing new products, including:
- Chroma/Tech SR - a new solvent resistant pure photopolymer
emulsion.
- Magna/Cure UDC1, 2 and 3 - universal dual care emulsions.
- Chroma/Tech PL-2 - pure photopolymer emulsion for use with
plastisol inks.
- Magna/Cure UDC-HV - universal dual cure with high viscosity.
- MAX-R film - for maximum resistance to water or solvent base
inks.
- MAX-R emulsion - for maximum resistance to water or solvent
base inks.
- PHAT film - for screen printing images that require 100
microns to 700 microns of new high density plastisol inks.
Prior to 1996, the Company sold products to several European distributors and dealers and established a branch sales office in Europe. In 1996, the Company converted its European branch office to a marketing and sales joint venture with Europeans involved in the screen printing industry, including several Chromaline distributors and dealers. The joint venture entity, Chromaline Europe, S.A., a French corporation located in Saverne, France ("Chromaline Europe"), began operations in January 1997. The Company is a 19.5% owner of the joint venture.
PRODUCTS
Chromaline's core technology is photochemical imaging systems. This technology is similar to photographic film technology except that the Company uses organic polymers or natural protein rather than silver to make the product photo-reactive ("light sensitive"). The products Chromaline targets at the screen printing industry are light sensitive films and light sensitive liquid coatings ("emulsions") used by customers to create an image on a printing screen; the equivalent of a printing plate in other types of printing processes. In the sand blasting market, the Company's products are also films and emulsions. These products are used to create a stencil by decorators of glass and other hard surfaces including crystal, marble, metals, wood, stone and plastics. The stencil is applied directly to the article to be decorated by the sand blasting process through a self-adhesive feature or with a separate adhesive. The open areas of the stencil permit the sand blast grit to erode the surface while the closed areas of the stencil repel the sand blast grit, protecting areas of the surface being decorated.
All of Chromaline's light sensitive products are sensitive to ultraviolet radiation. The Company uses different chemicals to create sensitivity to light including a molecule which it developed internally and patented.
DISTRIBUTION
The Company currently has approximately 140 domestic and international distributors. Chromaline sells its products through non-exclusive distributors in competitive markets, such as the United States, Canada and Mexico. The Company has exclusive distribution arrangements in markets without access to alternative products, such as South and Central America, Australia, South Africa, Canada, India and other Asian countries. The Company also sells its products through direct sales to certain end users who do not require the services of a distributor or dealer to service their account. In addition, Chromaline markets and sells its products through magazine advertising, trade shows and the internet.
Chromaline is engaged in international sales through three channels. Chromaline Europe imports the Company's products and distributes them to dealers throughout Western and Eastern Europe and North Africa. The Company is also currently developing its business in India through an exclusive distributor in that country. It is the Company's intent that an entity to be formed by the Company and the Indian distributor will eventually become a licensed manufacturer of certain low cost products which have been developed by Chromaline expressly for distant markets where shipping costs and low market prices would otherwise preclude the Company's participation. The Company markets products to foreign areas not served by the European or Indian facilities from its corporate headquarters in Duluth, Minnesota.
Chromaline has a diverse customer base both domestically and abroad and does not depend on one or a few customers for a material portion of its revenues.
QUALITY CONTROL IN MANUFACTURING
In March 1994, Chromaline became the first firm in northern Minnesota to receive ISO 9001 certification. ISO 9000 is a series of worldwide standards issued by the International Organization for Standardization that provide a framework for quality assurance. ISO 9001 is the most comprehensive standard of the ISO 9000 series. The Company was recertified in 1997 and 1999. The recertification process will occur every three years hereafter. Chromaline's quality function goal is to train all employees properly in both their work and in the importance of their work. Responsibility for efficient and correct work has meant that authority for proposing changes has been given to all employees. Internal records of quality related graphs and tables are reviewed regularly and discussions are held among management and employees regarding how improvements might be realized. The Company has rigorous materials selection procedures and also uses environmental testing and screen print equipment tailored to fit customers' needs.
RESEARCH AND DEVELOPMENT/INTELLECTUAL PROPERTY
Chromaline spent 7.3% of sales ($680,000) on research and development in 1998 and 6.8% ($604,000) in 1997. In its research program, Chromaline has developed unique light sensitive molecules which have received two U.S. patents. These patents expire in 2011 and 2014, respectively. The Company also has four United States patent applications pending. There can be no assurance that any patent granted to the Company will provide adequate protection to the Company's intellectual property. Within Chromaline, steps are taken to protect the Company's trade secrets, including physical security, confidentiality and non-competition agreements with employees and confidentiality agreements with vendors. In its product development program, Chromaline is fully equipped to simulate customer uses of its products. The Company's facilities include a walk-in environmental chamber which simulates customer uses and storage conditions of Chromaline products for different climatic zones.
In addition to its patents, the Company has various trademarks including the "Chromaline" and "PhotoBrasive" trademarks.
RAW MATERIALS
The primary raw materials used by Chromaline in its production are photopolymers, polyester films, polyvinylacetates, polyvinylalcohols and water. The Company purchases raw materials from a variety of domestic
and foreign sources with no one supplier being material to the Company. The purchasing staff at the Company's headquarters leads in the identification of both domestic and foreign sources for raw materials and negotiates price and terms for all domestic and foreign markets. Chromaline's involvement in foreign markets has given it the opportunity to become a global buyer of raw materials at lower overall cost than it had previously enjoyed. The Company has a number of suppliers and no one supplier is essential to the Company's operations. To date there have been no significant shortages of raw materials and alternative sources for nearly all raw materials are available. The Company believes it has good supplier relations.
COMPETITION
The Company competes in its markets based on product development capability, quality, reliability, availability, technical support and price. The screen printing market is much larger than the decorative sand blasting market, however, the sand blasting market is currently experiencing faster growth. Chromaline has two primary competitors in its screen printing film business. Both are larger than Chromaline and possess greater resources than the Company in many areas. One is a privately owned U.S. firm and the other is owned by a large British conglomerate. The Company has numerous competitors in the market for screen print emulsions many of whom are larger than Chromaline and possess greater resources. The market for the Company's sand blasting products has relatively few competitors, however, those in this market compete aggressively on price and in other areas. Chromaline considers itself to be a significant factor in this market.
GOVERNMENT REGULATION
The Company is subject to a variety of federal, state and local industrial laws and regulations, including those relating to the discharge of material into the environment and protection of the environment. The governmental authorities primarily responsible for regulating the Company's environmental compliance are the Environmental Protection Agency, the Minnesota Pollution Control Agency and the Western Lake Superior Sanitary District. Failure to comply with the laws promulgated by these authorities may result in monetary sanctions, liability for environmental clean-up and other equitable remedies. To maintain compliance, the Company may make occasional changes in its waste generation and disposal procedures.
These laws and regulations have not had a material effect upon the capital expenditures or competitive position of the Company. The Company believes that it complies in all material respects with the various federal, state and local regulations that apply to its current operations. Failure to comply with these regulations could have a negative impact on the Company's operations and capital expenditures and such negative impact could be significant.
EMPLOYEES
As of May 10, 1999, the Company had 73 employees, including 71 full-time employees, all of whom are located at the Company's headquarters in Duluth, Minnesota with the exception of four outside technical sales representatives in various locations around the United States. None of the Company's employees are subject to a collective bargaining agreement and the Company believes that its employee relations are good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis focuses on those factors that had a material effect on the Company's financial results of operations and financial condition during 1998 and 1997 and should be read in connection with the Company's audited financial statements and notes thereto for the years ending December 31, 1998 and 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements made in this Registration Statement on Form 10-SB, which are summarized below, are forward-looking statements that involve risks and uncertainties, and actual results may be materially different. Factors that could cause actual results to differ include, but are not limited to, those identified as follows:
- THE COMPANY'S BELIEF THAT FOREIGN ECONOMIES ARE STABILIZING--This belief may be impacted by economic, political and social conditions in foreign markets and changes in regulatory and competitive conditions.
- THE BELIEF THAT THE COMPANY'S CURRENT FINANCIAL RESOURCES, CASH GENERATED FROM OPERATIONS AND THE COMPANY'S CAPACITY FOR DEBT AND/OR EQUITY FINANCING WILL BE SUFFICIENT TO FUND CURRENT AND ANTICIPATED BUSINESS OPERATIONS--Changes in anticipated operating results, credit availability and equity market conditions may further enhance or inhibit the Company's ability to maintain or raise appropriate levels of cash.
- THE COMPANY'S PLANS TO EXPAND ITS RESEARCH AND DEVELOPMENT EFFORTS AND THE EXPECTED FOCUS AND RESULTS OF SUCH EFFORTS--These plans and expectations may be impacted by general market conditions, unanticipated changes in expenses or sales, delays in the development of new products, technological advances or other changes in competitive conditions.
- THE COMPANY'S EFFORTS TO GROW ITS INTERNATIONAL BUSINESS--These efforts may be impacted by economic, political and social conditions in current and anticipated foreign markets, regulatory conditions in such markets, unanticipated changes in expenses or sales, changes in competitive conditions or other barriers to entry or expansion.
- THE COMPANY'S BELIEF THAT EVALUATIONS AND MODIFICATIONS OF YEAR 2000 COMPLIANCE ISSUES, INCLUDING YEAR 2000 COMPLIANCE OF THIRD-PARTY SUPPLIERS, WILL NOT HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S OPERATIONS OR FINANCIAL POSITION--This belief may be impacted by presently unanticipated delays in assessment or remediation, unanticipated increases in costs or non-compliance by third parties.
- THE COMPANY'S EXPECTATIONS OF THE TIME AND COSTS ASSOCIATED WITH ITS YEAR 2000 PROJECT--These expectations may be impacted by presently unanticipated delays in assessment, unanticipated increases in costs or non-compliance by third parties.
- THE EXPECTATION THAT THE COMPANY WILL HAVE A MANUFACTURER OF CERTAIN LOW COST PRODUCTS IN INDIA--This expectation may be impacted by economic, political and social conditions or regulatory changes in India, unanticipated delays or expenses, acceptance of the Company's products or changes in competitive conditions.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
SALES. The Company's sales in the first quarter of 1999 decreased to $2.2 million, a 4.5% decrease from $2.3 million during the same period in 1998. The decline is attributable to weak markets in Asia and Europe. The Company believes that this trend is improving as foreign economies show signs of stabilizing.
COST OF GOODS SOLD. The cost of goods sold during the first quarter of 1999 was $1.1 million, or 47.5% of sales, compared to $1.1 million, or 46.5% of sales, during the same period in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $789,000, or 35.3% of sales, in the first quarter of 1999 from $713,000, or 30.5% of sales, for the same period in 1998. The increase resulted from increased expenditures on the promotion of new products and the costs associated with the filing of a registration statement under the Securities Exchange Act of 1934, as amended, covering the Company's Common Stock.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during the first quarter of 1999 increased to $162,000, or 7.2% of sales, from $157,000, or 6.7% of sales, during the first quarter of 1998. The increase resulted from expenditures to maintain and increase the technological development of the Company's products.
INCOME TAXES. Income taxes decreased to $84,000 in the first quarter of 1999 from $148,000 in the first quarter of 1998. The decrease was primarily due to a reduction in the Company's pretax income in 1999.
NET INCOME. Net income decreased in the first quarter of 1999 to $143,000 from $242,000 during the same period in 1998. The decrease was primarily due to reduced sales and increased expenses for the development of new products.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SALES. The Company's sales increased by 4.4% to $9.3 million in 1998 from $8.9 million in 1997. This increase was primarily due to a 15.2% increase in international sales.
COST OF GOODS SOLD. The cost of goods sold was $4.2 million, or 45.1% of sales, in 1998 and $4.2 million, or 46.9% of sales, in 1997, gross margins improved as overhead and labor costs increased slightly and the cost of raw materials remained relatively flat.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $3.1 million, or 33.1% of sales, in 1998 from $2.7 million, or 30.0% of sales, in 1997. This increase was primarily due to approximately $240,000 of one-time costs associated with the retirement and replacement of two senior officers and increased sales and marketing expenses associated with the launch of new products.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased to $680,000, or 7.3% of sales, in 1998 from $604,000, or 6.8% of sales, in 1997. This increase was primarily due to expenses incurred to complete development of PHAT film, a film which utilizes new high density inks to create suede-like and 3-D images, and the MAX-R emulsion, an emulsion which has maximum resistance to breakdown thus improving screen printers' production efficiency. PHAT film and the MAX-R emulsion were launched at the Screenprinting and Graphics Imaging Association trade show in October 1998.
PATENT LITIGATION EXPENSES. Recognized expenses related to the Company's patent litigation decreased to zero in 1998 from $445,000 in 1997. This decrease was due to the fact that all patent litigation costs incurred in 1998 were covered by the $250,000 accrual which was included in the $445,000 patent litigation expense incurred in 1997.
INTEREST INCOME. Interest income increased to $29,000 in 1998 from $10,000 in 1997. This increase was primarily due to the Company's purchase of certain interest-bearing securities in 1998.
INCOME TAXES. While the Company's effective tax rate decreased to 35.8% in 1998 from 38.6% in 1997, federal and state income tax expense increased to $492,000 in 1998 from $371,000 in 1997. This increase in expense was due to the increase in the Company's pretax income for 1998.
NET INCOME. Net income increased to $881,000 in 1998 from $638,375 in 1997. Net income in 1997 was negatively impacted by a total of $445,000 in patent litigation costs during the year, while 1998 saw $240,000 of one-time costs related to the retirement and replacement of two senior officers. Without these one-time costs, net income in 1998 increased by 12.6% over 1997. This increase was due to a 4.4% increase in sales and continuing efforts to improve operating efficiencies and reduce costs.
LIQUIDITY AND CAPITAL RESOURCES
Chromaline has financed its operations principally with funds generated from operations. These funds have been sufficient to cover the Company's normal operating expenditures and annual capital spending requirements, as well as research and development expenditures.
Cash and cash equivalents were $479,000, $275,000 and $732,000 at March 31, 1999, December 31, 1998 and December 31, 1997, respectively. The Company generated $225,000 in cash from operating activities in the quarter ending March 31, 1999 and $507,000 and $1,117,000 in cash from operating activities in 1998 and 1997, respectively. Cash generated by operating activities is primarily provided by net income as adjusted for non-cash depreciation. In 1998, inventories increased by $289,000 due to additional finished goods in inventory to support new product launches. During 1998, the Company also expended $445,000 to reduce accruals for sales and marketing costs, legal costs and income taxes. In 1997, an increase in non-cash accrued expenses of $250,000 related to legal costs was offset in part by a net reduction of $147,000 in accounts payable.
The Company used $23,000 in cash for investing activities in the quarter ending March 31, 1999. The Company used $1,015,000 and $421,000 in cash for investing activities in 1998 and 1997, respectively. In each period, net cash used for investing activities relates primarily to the purchases of property and equipment. In addition, during 1998 the Company purchased municipal revenue bonds with maturities of three years or less for $909,000 and generated $401,000 in cash from the sale of such marketable securities. The Company also purchased a patent for $109,000 in 1998.
The Company generated $2,000 in cash from financing activities for the quarter ending March 31, 1999 as a result of stock options exercised. The Company generated $50,000 in cash from financing activities in 1998. In 1998, financing activities included net proceeds of $72,000 from the exercise of stock options, offset in part by a $22,000 payment on an outstanding note payable. The Company used $34,000 in cash from financing activities in 1997. In 1997, financing activities included a $38,000 payment on an outstanding note payable, offset in part by $4,000 in exercised stock options.
A bank line of credit exists providing for borrowings of up to $1,250,000. Outstanding debt under this line of credit is collateralized by accounts receivable and bears interest at 2.25 percentage points over the 30-day LIBOR rate. The Company has not utilized this line of credit to a material extent and there was no debt outstanding under this line as of March 31, 1999. A possible second source of funding is Tax Increment Financing ("TIF"). The Company resides in one of several TIF districts in Duluth, Minnesota. TIF uses the increase in tax revenues that results from development to fund the costs of such development. This funding may be used to help facilitate improvements or additions to the Company's property and buildings.
The Company believes that current financial resources, cash generated from operations and the Company's capacity for debt and/or equity financing will be sufficient to fund current and anticipated business operations.
Future activities undertaken to expand the Company's business may include acquisitions, building expansion and additions, equipment additions, new product development and marketing opportunities.
CAPITAL EXPENDITURES
In 1998, the Company purchased over an acre of additional land immediately adjacent to its manufacturing facility in Duluth at a cost of $64,000. In addition, the Company acquired the E-Z Mask patent at a cost of $109,000 to aid in the development of its decorative sand blasting business. Additional plant equipment, research and development instrumentation, and computers were purchased during 1998 and the quarter ended March 31, 1999 to improve product quality and operating efficiency.
Commitments for capital expenditures include building maintenance, research and development of equipment to modernize the capabilities and processes of Chromaline's laboratory and research and development of equipment to improve measurement and quality control processes. These commitments will be funded by cash generated from operating activities.
INTERNATIONAL ACTIVITY
The Company markets its products to over 50 countries in North America, Europe, Latin America, Asia and other parts of the world. Foreign sales were approximately 32% and 29% of total sales in 1998 and 1997. Recent weakening of certain foreign currencies has not significantly impacted the Company's operations, because the Company's foreign sales are not concentrated in any one region of the world. The Company believes its vulnerability to uncertainties due to foreign currency fluctuations and general economic conditions in foreign countries is not significant.
Substantially all of the Company's foreign transactions are negotiated, invoiced and paid in U.S. dollars. Chromaline has not implemented a hedging strategy to reduce the risk of foreign currency translation exposures, which management does not believe to be significant based on the scope and geographic diversity of the Company's foreign operations as of May 10, 1999.
Effective January 1, 1999, eleven states of the European Union began the conversion to a common currency, called the "euro." This action will most likely cause a portion of Chromaline's European transactions to be negotiated, invoiced and paid in "euros." The conversion will most likely add currency exchange costs and risks. Although such costs and risks are not quantifiable at this time, they are not expected to be significant.
YEAR 2000 ISSUE
The year 2000 issue is the result of certain computer systems that recognize the year using the last two digits. Any system utilizing time-sensitive programming may recognize the date using "00" as the year 1900 rather than the year 2000. This could result in systems failure that may disrupt normal business operations.
The Company began a comprehensive project in 1998 to test and prepare its internal systems for the year 2000. The Company expects this project to be completed in the third quarter of 1999. The project is on track to be completed as planned. The project will replace all non-compliant software and hardware with systems that are year 2000 compliant. This includes a review of both information technology and non-information technology systems. A survey of major suppliers is also being conducted as part of the project to assess the readiness of the Company's business associates. If the necessary conversions are not completed on a timely basis, the year 2000 could have a material adverse effect on Chromaline's operations. Overall, management believes the year 2000 will not have a significant impact on operations.
As of May 10, 1999, the Company has spent approximately $55,000 on the project. The total cost of the project is expected to be approximately $75,000. This includes replacing non-compliant hardware and software. It also includes the internal human resource time to conduct systems and vendor surveys and implement the required
changes to become year 2000 compliant. Management believes that this expenditure is not material to the Company and will not adversely impact Chromaline's financial condition or liquidity.
Chromaline faces risk to the extent that suppliers of products and services purchased by the Company and others with whom it transacts business on a world-wide basis do not have business products and services that are year 2000 compliant. The Company distributed a survey to its suppliers during the second quarter of 1999 regarding their state of readiness for the year 2000. As of May 10, 1999, the Company has received responses from 74% of its major suppliers, all of which gave assurances that they will be year 2000 compliant. In the event that a significant number of these third parties cannot, in a timely manner, provide the Company with products and services because of the year 2000 issue, Chromaline's operating results could be materially adversely affected.
The Company is addressing contingency plans in the event of year 2000 disruptions. With respect to the Company's internal production and administrative systems, the Company believes sufficient alternative plans are in place to adequately conduct business. These plans include the identification of back-up and manual systems necessary to conduct normal business operations. While Chromaline believes that its year 2000 project and contingency plans are sufficient, there can be no assurance that the year 2000 will not materially adversely affect its business, operating results or financial condition.
FUTURE OUTLOOK
Chromaline has invested over 6% of sales dollars for the past several years on research and development. The Company plans to expand its efforts in this area and expedite internal product development as well as form technological alliances with outside experts to ensure the commercialization of new product opportunities. In addition to its film, emulsion and self-adhesive products, Chromaline's research and development efforts will also focus on improving the efficiency of its automated photo developers for the decorative sand blasting product line. The Company will also be looking at natural adjuncts to its product line if extremely reliable sources of supply can be obtained and resale margins are acceptable.
In addition to its traditional emphasis on domestic markets, the Company will continue efforts to grow its business internationally by attempting to develop new markets and expanding its market share where it has already established a presence.
In its search for new opportunities, Chromaline will actively investigate experimental technology sharing, joint ventures, and acquisitions to complement its core strengths of innovative technology and recognized market presence.
ITEM 3. DESCRIPTION OF PROPERTY
The Company conducts its entire operations in Duluth, Minnesota. The administrative, sales, research and development, quality and manufacturing activities are housed in a 60,000 square-foot four-story building, including a basement level. The building is approximately seventy years old and has been maintained in good condition. Shipping and distribution for the Company operates from a three-year old 5,625 square-foot warehouse adjacent to the existing plant building. These facilities are owned by the Company with no existing liens or leases.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 10, 1999, the number of shares of Common Stock beneficially owned by each person who is a beneficial owner of more than 5% of the outstanding Common Stock of the Company, by each officer named in the Summary Compensation Table, by each director, and by all officers and directors as a group. All persons have sole voting and dispositive power over such shares unless otherwise indicated.
NAME AND ADDRESS NUMBER PERCENTAGE OF OF BENEFICIAL OWNER: OF SHARES OUTSTANDING SHARES --------------------------------------------- ----------------------------------- -------------------------------- Directors and executive officers: William C. Ulland 130,500(1) 11.0% Philip J. Hourican 5,500 * Charles H. Andresen 6,870(2) * Gerald W. Simonson 55,200 4.7 David O. Harris 42,817 3.6 Thomas L. Erickson (retired July 1998) 69,775(3) 5.9 All directors and executive officers as 329,112(4) 27.7 a group (9 persons, including those named above) Other beneficial owners: Leigh Severance 115,192(5) 9.7 |
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The Directors, Executive Officers and Significant Employees of the Company are as follows:
Name Age Position --------------------- --------- ---------------------------------------------------- William C. Ulland 58 Chairman of the Board of Directors Philip J. Hourican 55 President, Chief Executive Officer and Director Jeffery A. Laabs 45 Vice President of Finance, Controller, Treasurer and Secretary Claude P. Piguet 41 Vice President of Operations Toshifumi Komatsu 44 Vice President of Technology Robert D. Banks, Jr. 47 Vice President of International Sales Charles H. Andresen 58 Director Gerald W. Simonson 68 Director David O. Harris 64 Director |
WILLIAM C. ULLAND has been a director and Chairman of the Board of the Company since 1972. Since 1977, Mr. Ulland has been Managing Partner of American Shield Company, a mineral exploration and development company located in Duluth, Minnesota.
PHILIP J. HOURICAN has been President and Chief Executive Officer of the Company since July 1998. He was elected to the Board of Directors shortly thereafter. Mr. Hourican came to the Company from Balchem Corporation of Slate Hill, New York. At Balchem, Mr. Hourican served as Vice President and General Manager from July 1996 to February 1998. Balchem is an international marketer of repackaged chemicals. From October 1994 to July 1996, Mr. Hourican was the Vice President of Sales and Marketing on a nationwide basis for Techalloy, a manufacturer of stainless steel and nickel wire located in Mahwah, New Jersey. Mr. Hourican was a senior manager for Crosfield Chemicals, a manufacturer of silicas, silicates, zeolites and catalysts located in Joliet, Illinois, from May 1988 to October 1994. Mr. Hourican received a B.S. in Chemical Engineering from the University of Pittsburgh in 1967 and an M.B.A. from the University of Akron in 1972.
JEFFERY A. LAABS, CMA has been Vice President of Finance and Controller of the Company since May 1998. He was named Treasurer and Secretary of the Company shortly thereafter. Mr. Laabs was a Senior Financial Analyst for Lake Superior Paper Industries ("LSPI") in Duluth, Minnesota from September 1986 until he joined Chromaline in 1998. LSPI is a manufacturer of supercalendered paper for newspaper inserts and magazines. His prior experience includes various financial positions with Kimberly Clark Corporation, a manufacturer of paper products, from September 1981 until September 1986. Mr. Laabs received a Bachelor of Science degree in Accounting from Lake Superior State University in 1976. He earned the designation of Certified Management Accountant in 1996.
CLAUDE P. PIGUET has been the Company's Vice President of Operations since May 1994. Previously, he was the Company's Director of Operations from January 1992 to May 1994. Mr. Piguet joined Chromaline in 1990 and holds a diploma of Engineer ETS/HTL from the Ecole D'Ingenieurs de l'Etat de Vaud in Switzerland.
TOSHIFUMI KOMATSU has been the Company's Vice President of Technology since September 1993. Previously, he served as Chromaline's Director of Research and Development for two years. Mr. Komatsu has been with Chromaline's Research and Development Department for 15 years. His prior experience includes positions in research and development at Alberta Gas Chemicals, a manufacturer of organic acids. He received a B.S. in Chemistry and Mathematics from the College of Saint Scholastica in 1980.
ROBERT D. BANKS, JR. has been the Company's Vice President of International Sales since February 1997. Previously, he was the Company's Director of International Sales and Marketing from 1989 to 1997.
CHARLES H. ANDRESEN was elected as a director of the Company in 1979. Mr. Andresen has been a shareholder in the law firm of Magie, Andresen, Haag, Paciotti, Butterworth & McCarthy, P.A., in Duluth, Minnesota for more than the past five years.
GERALD W. SIMONSON was elected as a director of the Company in 1978. He has been the President of Omnetics Connector Corporation, a manufacturer of microminiature connectors for the electronics industry located in Minneapolis, Minnesota, for more than the past five years. Mr. Simonson is also a director of Medtronic, Inc., a manufacturer of medical devices, and Northwest Teleproductions, Inc., a film and video production company.
DAVID O. HARRIS was elected a director of the Company in 1965. He has been President of David O. Harris, Inc., a manufacturer's representative firm in Minneapolis, Minnesota, for more than the past five years.
ITEM 6. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation earned by the individuals who served as Chief Executive Officer of the Company during the fiscal years ended December 31, 1998, 1997 and 1996.
No other executive officers of the Company received remuneration exceeding $100,000 for the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ------------- COMPENSATION SHARES ------------------------ UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS(2) COMPENSATION(3) ------------------------------------ ---- ----------- ------- ------------ ----------------- Philip J. Hourican 1998 $ 55,400 $ 2,990 20,526 $ 32,496 President and Chief Executive Officer Thomas L. Erickson, 1998 66,635 31,853 2,000 165,000 President and Chief Executive 1997 110,000 41,474 2,000 - Officer 1996 102,500 41,786 2,000 - |
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option grants made during 1998 to the Chief Executive Officer of the Company.
INDIVIDUAL GRANTS ---------------------------------------------------------- PERCENTAGE POTENTIAL REALIZABLE VALUE NUMBER OF OF TOTAL AT ASSUMED ANNUAL RATES SHARES OPTIONS OF STOCK APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(1) OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------- NAME GRANTED(2) FISCAL YEAR SHARE DATE 5% 10% ------------------------- ---------- -------------- ----------- ----------- ------------------------- Philip J. Hourican 20,526 87.2% $9.50 7/13/05 $274,380 $379,991 |
appreciates at the indicated rate for the entire term of the option
and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price.
(2) Options granted pursuant to the Company's 1995 Stock Incentive Plan are
exercisable at an exercise price equal to the fair market value on the
date of grant. The 20,526 share option granted to Mr. Hourican at $9.50
per share vests in three equal increments on the day prior to the
first, second and third anniversaries of the date of grant. This option
has a maximum term of seven years, subject to earlier termination in
the event of Mr. Hourican's cessation of service with the Company.
AGGREGATED OPTION
EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END OPTION VALUES
The purpose of the following table is to report exercise of stock options by the Chief Executive Officers of the Company during 1998 and the value of his unexercised stock options as of December 31, 1998.
NUMBER OF SHARES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1) SHARES -------------------------- --------------------- ACQUIRED VALUE NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ------------------------ ----------- -------- ----------- ------------- ----------- ------------- Philip J. Hourican - - - 20,526 - $0 |
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Thomas L. Erickson retired from his position as President and Chief Executive Officer of the Company on July 12, 1998 and entered into a Separation Agreement with the Company effective July 13, 1998. The Separation Agreement provides for severance compensation of $65,000 which was paid during 1998. Mr. Erickson also entered into an Agreement regarding Non-Disclosure of Confidential Information and Non-Competition with the Company dated July 22, 1998. Pursuant to this Agreement, Mr. Erickson has agreed not to compete with the Company prior to December 31, 2002 in exchange for payments totaling $123,500 over the term of the Agreement. Finally, Mr. Erickson agreed to act as a consultant to the Company until December 31, 1999 and entered into a Consulting Agreement with the Company dated July 22, 1998 providing for compensation of $80,000, all of which was paid in 1998.
DIRECTOR COMPENSATION
During 1998, each non-employee director of the Company who beneficially owns not more than 5% of the Company's outstanding Common Stock received a one-time grant of an option to purchase 3,000 shares of the Company's Common Stock under the 1995 Stock Incentive Plan. These options have an exercise price equal to the fair market value on the date of grant and will expire seven years from the date of grant. In addition, each non-employee director of the Company who beneficially owns not more than 5% of the Company's outstanding Common Stock receives a quarterly retainer of $1,000, plus per meeting fees of $700 for each meeting of the Board of Directors attended in person, $350 for each meeting of the Board of Directors attended by telephone, $300 for each committee meeting attended in person and $150 for each committee meeting attended by telephone.
On April 26, 1999, each non-employee director of the Company who beneficially owns not more than 5% of the Company's outstanding Common Stock received a one-time grant of an option to purchase 1,200 shares of the Company's Common Stock under the 1995 Stock Incentive Plan. These options have an exercise price equal to the fair market value on the date of the grant and will expire seven years from the date of the grant. William C. Ulland also received a grant of an incentive stock option to purchase 3,000 shares of the Company's Common Stock under the 1995 Stock Incentive Plan in connection with his position as Chairman of the Board of Directors. Mr. Ulland's options have an exercise price equal to 110% of the fair market value on the date of the grant and will expire five years from the date of the grant.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The Company's Restated Articles of Incorporation, as amended, authorize the issuance of up to 5,000,000 shares of capital stock. The shares are classified into two classes, consisting of 4,750,000 shares of Common Stock, $.10 par value, and 250,000 shares of Preferred Stock, $.10 par value.
The Board of Directors is authorized to establish one or more series of Preferred Stock by resolution, set forth the designation of each such series and fix the relative rights and preferences of each such series, provided that certain voting, dividend and liquidation terms specified in the Restated Articles of Incorporation may not be altered by the Board.
COMMON STOCK
At May 10, 1999, there were 1,180,061 shares of Common Stock issued and outstanding and held by approximately 450 shareholders of record. Holders of Common Stock are entitled to one vote per share for the election of directors and on all matters submitted to a vote of shareholders, and there are no cumulative voting rights for the election of directors. Holders of Common Stock are entitled to receive dividends as and when declared by the Board of Directors out of funds legally available therefor. Holders of Common Stock are not entitled to preemptive rights. In the event of the liquidation, dissolution or winding up of the Company, the holder of each share of Common Stock is entitled to share equally in any balance of the Company's assets available for distribution to shareholders after the holders of any Preferred Stock have received the full distribution to which such holders are entitled. Outstanding shares of Common Stock are not subject to any further call or assessment.
PREFERRED STOCK
The Company does not currently have any issued and outstanding shares of Preferred Stock. Pursuant to the Company's Articles of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to 250,000 shares of Preferred Stock in one or more classes or series. The Board is authorized to determine the designation of and number of shares in each series and to fix the dividend, redemption, liquidation, retirement and conversion rights, if any, of such series, and any other rights and preferences thereof, subject to certain limitations in the Company's Restated Articles of Incorporation. These limitations state that holders of the Company's Preferred Stock shall not have any voting rights unless required by Minnesota law, shall be paid all accumulated or accrued dividends prior to a dividend being declared or paid on the Company's Common Stock and shall be entitled to receive the liquidation price of their Common Stock and any accrued dividends thereon prior to any distributions being made to the holders of Common Stock in the event of the liquidation, dissolution or winding up of the Company. Any shares of Preferred Stock which may be issued may have greater rights in many areas than the Common Stock, including preferences as to payment of dividends and upon liquidation, and may be convertible into shares of Common Stock. Preferred Stock could be issued quickly with terms calculated to delay or prevent a change in control of the Company or make removal of management more difficult. Additionally, the issuance of Preferred Stock may have the
effect of decreasing the market price of the Common Stock, and may adversely affect the rights of the holders of Common Stock. The Company has no present plans to issue shares of Preferred Stock.
OPTIONS
At May 10, 1999, the Company had outstanding options to purchase up to an aggregate of 76,776 shares of Common Stock to directors, officers and employees of the Company at exercise prices ranging from $4.04 to $10.13 per share.
ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT; RESTATED ARTICLES OF INCORPORATION
Certain provisions of Minnesota law and the Company's Restated Articles of Incorporation described below could have an anti-takeover effect. These provisions are intended to provide management flexibility to enhance the likelihood of continuity and stability in the composition of the Company's Board of Directors and in the policies formulated by the Board and to discourage an unsolicited takeover of the Company, if the Board determines that such a takeover is not in the best interests of the Company and its shareholders. However, these provisions could have the effect of discouraging certain attempts to acquire the Company which could deprive the Company's shareholders of opportunities to sell their shares of Common Stock at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions, to any acquisitions of voting stock of the Company (from a person other than the Company, and other than in connection with certain mergers and exchanges to which the Company is a party) resulting in the beneficial ownership of 20% or more of the voting stock then outstanding. Section 302A.671 requires approval of the granting of voting rights for the shares received pursuant to any such acquisition by a majority vote of the shareholders of the Company. In general, shares acquired without such approval are denied voting rights and are redeemable at their then fair market value by the Company within 30 days after the acquiring person has failed to deliver a timely information statement to the Company or the date the shareholders voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business combination by the Company, or any subsidiary of the Company, with any shareholder which purchases 10% or more of the Company's voting shares (an "interested shareholder") within four years following such interested shareholder's share acquisition date, unless the business combination is approved by a committee of all of the disinterested members of the Board of Directors of the Company before the interested shareholder's share acquisition date.
In addition, the existence of undesignated Preferred Stock in the Restated Articles of Incorporation allows the Board of Directors of the Company, without further shareholder action, to issue Preferred Stock with certain rights and in amounts that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, National Association, is the transfer agent and registrar for the Company's Common Stock.
PART II
ITEM 1. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the local over-the-counter market in the Minneapolis-St. Paul area under the symbol CMLH. The following table sets forth, for the fiscal quarters indicated, the high and low bid prices for the Company's Common Stock as reported on the local over-the-counter market in the Minneapolis-St. Paul area. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
HIGH LOW ------ ------ FISCAL YEAR ENDED DECEMBER 31, 1999: First Quarter............................................................ $ 7.75 $ 6.75 Second Quarter (through May 24, 1999).................................... 9.25 8.00 FISCAL YEAR ENDED DECEMBER 31, 1998: First Quarter............................................................ $ 8.88 $ 7.00 Second Quarter........................................................... 9.00 7.38 Third Quarter............................................................ 10.38 7.75 Fourth Quarter........................................................... 8.06 7.00 FISCAL YEAR ENDED DECEMBER 31, 1997: First Quarter............................................................ $ 6.67 $ 5.00 Second Quarter........................................................... 9.00 6.00 Third Quarter............................................................ 10.17 8.00 Fourth Quarter........................................................... 10.00 8.50 |
As of May 10, 1999, the Company had approximately 450 shareholders of record. The Company has never declared or paid any dividends on its Common Stock. The Company currently intends to retain any earnings for use in its business and therefore does not anticipate paying any dividends in the near future.
ITEM 2. LEGAL PROCEEDINGS
On October 22, 1996, Aicello North America, Inc., a Canadian corporation ("ANA"), filed suit against the Company in the United States District Court for the Western District of Washington, alleging infringement by the Company of U.S. Patent No. 5,427,890 (the "890 patent"). Later, ANA added U.S. Patent No. 5,629,132 (the "132 patent") to the lawsuit. The 890 patent and the 132 patent had been assigned to Aicello Chemical Co. Ltd. of Japan ("ACLJ") on October 22, 1996 and were licensed to ANA shortly before filing of the present infringement action. At Chromaline's request, ACLJ was joined to the suit. The subjects of the patents and the allegedly infringing Chromaline products are three-layer photosensitive films used to engrave patterns or designs into hard surfaces such as metal, glass, stone and wood.
The Company and ANA attempted to settle the suit with two mediation sessions that did not result in a settlement. Following these mediations, Chromaline requested in August 1998 that the U.S. Patent and Trademark Office ("USPTO") reexamine the 890 patent and the 132 patent. This request was granted as to both patents in November 1998 and the lawsuit was stayed pending this review. The reexamination process will require approximately twelve to eighteen months to complete. A favorable ruling by the USPTO may result in the dismissal of the case. In the USPTO's OFFICE ACTION IN REEXAMINATION dated February 23, 1999, the USPTO initially rejected the plaintiff's claims of patent infringement. The OFFICE ACTION required the ANA and ACLJ to respond within 60 days, which they have done. The Company is waiting for the USPTO's subsequent OFFICE ACTION, which is expected within a few months of the USPTO's receipt of the ANA and ACLJ responses.
The Company has made provisions to cover certain legal proceedings and related costs and expenses as described in note 2 to its audited financial statements included herein. However, the ultimate outcome and materiality of these matters cannot be determined. Accordingly, no provision for any liability that may result therefrom has been made in the audited financial statements.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Company has sold the following securities pursuant to exemptions from registration under the Securities Act of 1933, as amended (the "Act"). The sales referred to below were all made in reliance upon the exemptions from registration provided by Rule 701 under the Act for securities sold pursuant to certain compensatory benefit plans and contracts relating to compensation, and related state securities laws. All shares were issued directly by the Company, no underwriters were involved, and no discount, commission or transaction-related remuneration was paid.
1. On February 18, 1997, the Company granted options to purchase an aggregate of 3,750 shares of the Company's Common Stock at $5.6667 per share to four of the Company's employees.
2. On June 15, 1998, the Company granted an option to purchase an aggregate of 3,000 shares of the Company's Common Stock at $8.625 per share to an executive officer of the Company.
3. On July 13, 1998, the Company granted an option to purchase an aggregate of 20,526 shares of the Company's Common Stock at $9.50 per share to an executive officer of the Company.
4. On August 19, 1998, the Company granted options to purchase an aggregate of 9,000 shares of the Company's Common Stock at $10.125 per share to three of the Company's directors.
5. On April 26, 1999, the Company granted options to purchase an aggregate of 24,500 shares of the Company's Common Stock at $9.00 per share to fifteen of the Company's employees, five of the Company's officers and three of the Company's directors. On the same date, the Company granted an option to purchase an aggregate of 3,000 shares of the Company's Common Stock at $9.90 per share to the Chairman of the Company's Board of Directors.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article V, Sections 1 and 2 of the Company's By-Laws, as amended, and Article VIII, Section 8.5 of the Company's Restated Articles of Incorporation, as amended, the Company indemnifies its directors and officers and advances litigation expenses to the fullest extent required or permitted by Minnesota Statutes Section 302A.521. This indemnification is subject to the requirement in the case of legal judgments, that the individual seeking indemnification is not finally adjudged to have been guilty of willful misconduct detrimental to the best interests of the Company. Section 302A.521 requires the Company to indemnify a person made or threatened to be made a party to a proceeding, by reason of the former or present official capacity of the person with respect to the Company, against judgments, penalties, fines, including without limitation, excise taxes assessed against the person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorneys' fees and disbursements, if, with respect to the acts or omissions of the person complained of in the proceeding, such person (1) has not been indemnified by another organization or employee benefit plan for the same judgments, penalties, fines, including without limitation, excise taxes assessed against the person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorneys' fees and disbursements, incurred by the person in connection with the proceeding with respect to the same acts or omissions; (2) acted in good faith; (3) received no improper personal benefit, and statutory procedure has been followed in the case of any conflict of interest by a director; (4) in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and (5) in the case of acts or omissions occurring in the person's performance in the official capacity of director or, for a person not a director, in the official capacity of officer, committee member, employee or agent, reasonably believed that the conduct was in the best interests of the Company, or in the case of performance by a director, officer, employee or agent of the Company as a director, officer, partner, trustee, employee or agent of another organization or employee benefit plan, reasonably believed that the conduct was not opposed to the best interests of the Company. In addition, Section 302A.521, subd. 3, requires payment by the Company upon written request, of reasonable expenses in advance of final disposition in certain instances.
The Restated Articles of Incorporation of the Company, as amended, eliminate the personal liability of a director to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, except under certain circumstances involving any breach of the director's duty of loyalty to the Company or its shareholders, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or for any unlawful acts under Sections 302A.559 or 80A.23 of Minnesota Statutes.
PART F/S
INDEX TO FINANCIAL STATEMENTS PAGE NUMBER ----------- Independent Auditors' Report 19 Balance Sheets as of December 31, 1998 and 1997 and March 31, 1999 (unaudited) 20 Statements of Earnings for the Years Ended December 31, 1998 and 1997 and for the Three Months Ended March 31, 1998 (unaudited) and and 1999 (unaudited) 21 Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1997 and for the Three Months Ended March 31, 1999 (unaudited) 22 Statements of Cash Flows for the Years Ended December 31, 1998 and 1997 and the Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited) 23 Notes to Financial Statements 24 |
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
The Chromaline Corporation
We have audited the accompanying balance sheets of The Chromaline Corporation (the Company) as of December 31, 1998 and 1997 and the related statements of earnings, stockholders' equity, and cash flows for the years ended December 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Chromaline Corporation as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles.
Minneapolis, Minnesota
January 15, 1999
THE CHROMALINE CORPORATION BALANCE SHEETS ---------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31 MARCH 31 ----------------------------- 1999 1998 1997 (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 478,957 $ 274,757 $ 732,381 Trade receivables, less allowance for doubtful accounts of $14,400, $14,400, and $14,700, respectively 1,246,789 1,128,568 1,201,146 Trade receivable from related party 251,741 271,443 235,116 Inventories 1,065,456 1,255,192 966,458 Prepaid expenses and other assets 245,074 97,409 41,338 Marketable securities 507,680 508,445 Income tax refund receivable 61,801 61,801 Deferred taxes (Note 4) 54,000 54,000 128,000 ---------- ---------- ---------- Total current assets 3,911,498 3,651,615 3,304,439 PROPERTY, PLANT, AND EQUIPMENT, at cost: Land and building 1,171,560 1,171,560 1,045,560 Machinery and equipment 2,013,715 1,991,566 1,856,700 Office equipment 518,254 516,935 463,350 Vehicles 199,335 199,335 165,678 ---------- ---------- ---------- 3,902,864 3,879,396 3,531,288 Less accumulated depreciation 2,553,600 2,455,816 2,109,752 ---------- ---------- ---------- 1,349,264 1,423,580 1,421,536 PATENTS, net of amortization of $8,194, $5,752, and $0, respectively 101,273 103,715 OTHER 38,733 38,733 38,733 DEFERRED TAXES (Note 4) 43,000 43,000 17,000 ---------- ---------- ---------- $5,443,768 $5,260,643 $4,781,708 ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable, bank $ 21,897 Accounts payable $ 180,768 $ 207,813 228,808 Accrued expenses 195,862 129,673 281,752 Accrued legal costs (Note 3) 61,692 63,324 250,000 Income taxes payable 106,109 ---------- ---------- ---------- Total current liabilities 438,322 400,810 888,566 CONTINGENCIES (Note 3) STOCKHOLDERS' EQUITY: Preferred stock, par value $.10 per share; authorized 250,000 shares; issued none Common stock, par value $.10 per share; authorized 4,750,000 shares; issued and outstanding 1,178,811, 1,178,311, and 1,161,061 shares, respectively 117,881 117,831 116,107 Additional paid-in capital 410,795 408,225 323,789 Retained earnings 4,476,770 4,333,777 3,453,246 ---------- ---------- ---------- Total stockholders' equity 5,005,446 4,859,833 3,893,142 ---------- ---------- ---------- $5,443,768 $5,260,643 $4,781,708 ---------- ---------- ---------- ---------- ---------- ---------- |
See notes to financial statements.
THE CHROMALINE CORPORATION
STATEMENTS OF EARNINGS
THREE MONTHS YEARS ENDED ENDED MARCH 31, DECEMBER 31, ---------------------------- ------------------------------ 1999 1998 1998 1997 (UNAUDITED) SALES $2,236,725 $2,343,227 $9,289,328 $8,899,849 COSTS AND EXPENSES: Cost of goods sold 1,061,908 1,089,896 4,193,050 4,178,797 Selling, general, and administrative 789,183 713,490 3,072,636 2,672,986 Research and development 161,998 157,206 679,734 603,521 Patent litigation costs (Note 3) 445,000 ---------- ---------- ---------- ---------- 2,013,089 1,960,592 7,945,420 7,900,304 ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS 223,636 382,635 1,343,908 999,545 INTEREST INCOME 3,257 7,111 28,623 9,830 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 226,893 389,746 1,372,531 1,009,375 FEDERAL AND STATE INCOME TAXES (Note 4) 83,900 148,000 492,000 371,000 ---------- ---------- ---------- ---------- NET INCOME $ 142,993 $ 241,746 $ 880,531 $ 638,375 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- BASIC EARNINGS PER COMMON SHARE $ 0.12 $ 0.21 $ 0.75 $ 0.55 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- DILUTED EARNINGS PER COMMON SHARE $ 0.12 $ 0.21 $ 0.75 $ 0.54 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,170,153 1,162,039 1,169,689 1,160,297 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 1,186,134 1,177,230 1,178,613 1,178,730 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- |
See notes to financial statements.
THE CHROMALINE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL BALANCE AT DECEMBER 31, 1996 $ 116,007 $ 319,849 $ 2,814,871 $ 3,250,727 Net income 638,375 638,375 Issuance of 1,000 shares of common stock upon exercise of options 100 3,940 4,040 ---------- ----------- ------------ ------------ BALANCE AT DECEMBER 31, 1997 116,107 323,789 3,453,246 3,893,142 Net income 880,531 880,531 Issuance of 12,000 shares of common stock upon exercise of options 1,724 70,420 72,144 Tax benefit resulting from exercise of options 14,016 14,016 ---------- ----------- ------------ ------------ BALANCE AT DECEMBER 31, 1998 117,831 408,225 4,333,777 4,859,833 Net income, unaudited 142,993 142,993 Issuance of 500 shares of common stock upon exercise of options, unaudited 50 1,970 2,020 Tax benefit resulting from exercise of options, unaudited 600 600 ---------- ----------- ------------ ------------ BALANCE AT MARCH 31, 1999 (unaudited) $ 117,881 $ 410,795 $ 4,476,770 $ 5,005,446 ---------- ----------- ------------ ------------ ---------- ----------- ------------ ------------ |
See notes to financial statements.
THE CHROMALINE CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS YEARS ENDED ENDED MARCH 31, DECEMBER 31, ----------------------------- ------------------------------- 1999 1998 1998 1997 (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 142,993 $ 241,746 $ 880,531 $ 638,375 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 100,226 83,116 389,626 329,878 Loss on disposal of assets 11,452 5,079 Deferred income taxes 48,000 (100,000) Changes in working capital components: Decrease (increase) in: Trade receivables (98,519) (108,817) 36,251 (83,638) Prepaid expenses and other assets (147,665) 1,490 (56,071) 54,347 Inventories 189,736 (106,498) (288,734) 75,860 Income taxes refund receivable (47,785) (Decrease) increase in: Accounts payable (27,045) 101,769 (20,995) (147,438) Accrued expenses 66,789 (125,022) (152,079) 250,000 Accrued legal costs (1,632) (10,804) (186,676) 14,568 Income taxes payable 62,054 (106,109) 80,109 ------------- -------------- -------------- --------------- Net cash provided by operating activities 224,883 139,034 507,411 1,117,140 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (23,468) (67,195) (399,209) (445,502) Proceeds on sale of property and equipment 1,839 24,556 Purchases of marketable securities (909,429) Proceeds from sale of marketable securities 765 400,984 Purchase of patents (109,467) ------------- -------------- -------------- --------------- Net cash used in investing activities (22,703) (67,195) (1,015,282) (420,946) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on note payable (21,897) (21,897) (37,818) Proceeds from exercise of stock options 2,020 4,041 72,144 4,040 ------------- -------------- -------------- --------------- Net cash provided by (used in) financing activities 2,020 (17,856) 50,247 (33,778) ------------- -------------- -------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 204,200 53,983 (457,624) 662,416 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 274,757 732,381 732,381 69,965 ------------- -------------- -------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 478,957 $ 786,364 $ 274,757 $ 732,381 ------------- -------------- -------------- --------------- ------------- -------------- -------------- --------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for interest $ - $ 55 $ 55 $ 3,224 ------------- -------------- -------------- --------------- ------------- -------------- -------------- --------------- Cash payments for income taxes $ 30,000 $ 86,000 $ 598,000 $ 390,000 ------------- -------------- -------------- --------------- ------------- -------------- -------------- --------------- |
See notes to financial statements.
THE CHROMALINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (unaudited)
AND YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - The Chromaline Corporation (the Company) develops and manufactures high-quality photochemical imaging systems for sale primarily to a wide range of printers and decorators of surfaces. Customers' applications include textiles, billboards, electronics, glassware, fine china, and many other industrial and commercial applications. The Company's principal markets are throughout the United States. In addition, the Company sells to Western Europe, Latin America, Asia, and other parts of the world. The Company extends credit to its customers, all on an unsecured basis, on terms that it establishes for individual customers.
Fifty-one percent and 44%, respectively, of the Company's accounts receivable at December 31, 1998 and 1997 are due from foreign customers. The foreign receivables are composed primarily of open credit arrangements with terms ranging from 45 to 90 days. No receivable from a single unrelated customer exceeded 10% of total accounts receivable at March 31, 1999 and December 31, 1998 and 1997. No single customer represented greater than 10% of total revenue.
A summary of the Company's significant accounting policies follows:
UNAUDITED FINANCIAL STATEMENTS - The financial statements as of March 31, 1999 and for the three months ended March 31, 1999 and 1998 are unaudited. In the opinion of management, such unaudited financial statements include all adjustments, consisting of only normal, recurring accruals, necessary for a fair presentation thereof. The results of operations for any interim period are not necessarily indicative of the results for the year.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents consist of money market funds in which carrying value approximates market value because of the short maturity of these instruments.
INVENTORIES - Inventories are stated at the lower of cost (last-in, first-out) or market.
DEPRECIATION - Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives:
YEARS Building 25 Machinery and equipment 5 Office equipment 5 Vehicles 3 |
IMPAIRMENT OF LONG-LIVED ASSETS - Management periodically reviews the carrying value of long-term assets for potential impairment by comparing the carrying value of these assets to the estimated undiscounted future cash flows expected to result from the use of these assets. Should the sum of the related, expected future net cash flows be less than the carrying value, an impairment loss would be measured. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset with fair value being determined using discounted cash flows. To date, management has determined that no impairment of these assets exists.
PATENTS - The Company purchased a patent in 1998 for $109,467. Amortization of the patent is computed using the straight-line method over its remaining estimated useful life of 13 years.
LEGAL COSTS - The Company accrues legal costs expected to be incurred in connection with lawsuits in which the Company is the defendant. These costs are accrued by the Company, on a case-by-case basis, in the period during which the Company is able to estimate the probable amount of future legal cost to be incurred with respect to a given matter.
REVENUE RECOGNITION - The Company recognizes revenue on products when title passes, which is usually upon shipment.
INCOME TAXES - Deferred income taxes are provided on an asset and liability method. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rate on the date of enactment.
EARNINGS PER COMMON SHARE (EPS) - Basic EPS is calculated using income available to common shareholders divided by the weighted average of common shares outstanding during the year. Diluted EPS is similar to Basic except that the weighted average of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares, such as options, had been issued.
Shares used in the calculation of diluted earnings per share are summarized below:
MARCH 31 DECEMBER 31 ----------------------- ------------------------ 1999 1998 1998 1997 Weighted Average Common Shares Outstanding 1,170,153 1,162,039 1,169,689 1,160,297 Dilutive Effect of Stock Options 15,981 15,191 8,924 18,433 --------- --------- --------- --------- Weighted Average Common and Common Equivalent Shares Outstanding 1,186,134 1,177,230 1,178,613 1,178,730 --------- --------- --------- --------- --------- --------- --------- --------- |
USE OF ESTIMATES - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
MARKETABLE SECURITIES - Marketable securities consist of investments in municipal revenue bonds with maturities of three years or less. Marketable securities are recorded at market which approximates cost.
STOCK OPTIONS - As described in Note 7, the Company has adopted only the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Stock options granted to employees and board members continue to be accounted for under Accounting Principles Board Opinion No. 25.
FOREIGN OPERATIONS - The Company markets in Europe, Latin America, Asia, and other parts of the world. Foreign sales approximated 35%, 39%, 32%, and 29% of total sales in the three months ended March 31, 1999 and 1998 and the years ended December 31, 1998 and 1997, respectively. All foreign revenues are denominated in U.S. dollars.
In December 1996, the Company purchased a 19.5% interest in Chromaline Europe, S.A., a French corporation. On January 2, 1997, the Company sold the assets of the French representative office to Chromaline Europe, S.A. for an amount which approximated cost. In the three months ended March 31, 1999 and 1998 and the years ended December 31, 1998 and 1997, less than 10% of total sales were made through Chromaline Europe, S.A. The Company accounts for its investment in Chromaline Europe, S.A., at historical cost.
NOTE PAYABLE, BANK - The Company has a bank line of credit that provides for up to $1,250,000 of working capital financing. This line of credit is subject to annual renewal on each May 1, is collateralized by inventory and trade receivables, and at December 31, 1998 bears interest at 2.5 percentage points over 30-day LIBOR. The line of credit has been extended to April 30, 2000. The outstanding balance at March 31, 1999, and December 31, 1998 and 1997 was $0, $0, and $21,897, respectively.
ACCOUNTING PRONOUNCEMENT - In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which changes the way public companies report information about operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entitywide disclosures about products and services, major customers, and material countries in which the entity holds assets and reports revenue. The Company adopted SFAS No. 131 as of December 31, 1998. The Company operates within a single operating segment.
2. INVENTORIES
Components of inventories at March 31, 1999 and December 31, 1998 and 1997 were as follows:
MARCH 31, DECEMBER 31, 1999 1998 1997 Raw materials $ 462,630 $ 524,199 $ 511,435 Work-in-process 368,874 409,539 240,97 Finished goods 351,952 459,454 377,051 ------------- -------------- ------------ 1,183,456 1,393,192 1,129,458 Less allowance to reduce carrying value to LIFO cost 118,000 138,000 163,000 ------------- -------------- ------------ Total $ 1,065,456 $ 1,255,192 $ 966,458 ------------- -------------- ------------ ------------- -------------- ------------ |
If the first-in, first-out cost method had been used, inventories would have been approximately $118,000, $138,000, and $163,000 higher than reported at March 31, 1999 and December 31, 1998 and 1997, respectively.
3. CONTINGENCIES
The Company is a defendant in a claim filed in the United States District Court, Western District of Washington at Seattle, in which the claimant alleges that certain of the Company's products infringe on a U.S. patent owned by the claimant. The Company has filed an answer denying infringement and further believes the claimant's patent to be invalid, and to have been procured through inequitable conduct. During fiscal 1997, the Company incurred $445,000 of legal costs for this matter, including a $250,000 accrual at December 31, 1997 to cover future legal costs.
During fiscal 1998, the lawsuit was stayed after Chromaline filed a Request for Reexamination with the United States Patent and Trademark Office with respect to the patents involved in the suit. The request was granted and the reexamination is presently ongoing. The reexamination is not expected to be completed for 12 to 18 months. During the three months ended March 31, 1999 and 1998 and the year ended December 31, 1998, the Company paid approximately $188,000 in legal and related costs in the defense of this matter. Such payments were applied against the accrual established at December 31, 1997. At March 31, 1999, the Company had a remaining accrual of $61,700 for expected future legal costs relating to this matter.
4. INCOME TAXES
Income tax expense for the three months ended March 31, 1999 and 1998 and the years ended December 31, 1998 and 1997 consists of the following:
THREE MONTHS ENDED YEARS ENDED MARCH 31, DECEMBER 31, --------------------------------- ----------------------------- 1999 1998 1998 1997 Current: Federal $ 75,000 $ 133,000 $ 399,000 $ 427,000 State 8,900 15,000 45,000 44,000 ------------- ------------ ------------ ------------ 83,900 148,000 444,000 471,000 Deferred 48,000 (100,000) ------------- ------------ ------------ ------------ $ 83,900 $ 148,000 $ 492,000 $ 371,000 ------------- ------------ ------------ ------------ ------------- ------------ ------------ ------------ |
The expected provision for income taxes, computed by applying the U.S. federal income tax rate of 35% to income before taxes, is reconciled to income tax expense as follows:
THREE MONTHS ENDED YEARS ENDED MARCH 31, DECEMBER 31, --------------------------------- ----------------------------- 1999 1998 1998 1997 Expected provision for federal income taxes $ 79,400 $ 136,200 $ 465,000 $ 346,000 State income taxes 4,900 10,500 30,000 44,000 -27- |
Research tax credits (21,000) Foreign sales corporation (2,900) (500) (17,000) (12,000) Meals and entertainment 1,700 1,000 10,000 8,000 Other 800 800 4,000 6,000 ------------- ------------ ------------ ------------ $ 83,900 $ 148,000 $ 492,000 $ 371,000 ------------- ------------ ------------ ------------ ------------- ------------ ------------ ------------ |
Deferred tax assets consist of the following as of March 31, 1999 and December 31, 1998 and 1997:
MARCH 31, DECEMBER 31, 1999 1998 1997 Property and equipment $ 43,000 $ 43,000 $ 25,000 Accrued vacation 13,000 13,000 14,000 Inventory 10,000 10,000 9,000 Allowance for doubtful accounts 5,000 5,000 6,000 Allowance for sales returns 10,000 10,000 6,000 Accrued legal costs 23,000 23,000 95,000 Other (7,000) (7,000) (10,000) --------------- ------------ ------------ $ 97,000 $ 97,000 $ 145,000 --------------- ------------ ------------ --------------- ------------ ------------ |
5. PENSION PLAN
The Company has a defined contribution pension plan which covers substantially all of its employees. The Company contributes an amount equal to 5% of a covered employee's compensation. Total pension expense for the three months ended March 31, 1999 and 1998, and for the years ended December 31, 1998 and 1997 was approximately $34,000, $29,000, $115,000, and $112,000, respectively.
5. GEOGRAPHIC INFORMATION
The Company manages its business on the basis of one reportable segment. See Note 1 for a brief description of the Company's business. As of December 31, 1998, the Company had operations established in various countries throughout the world. The Company is exposed to the risk of changes in social, political, and economic conditions inherent in foreign operations and the Company's results of operations are affected by fluctuations in foreign currency exchange rates. In no single country did operations account for more than 10% of the Company's net sales for the three months ended March 31, 1999 and 1998, and for the years ended December 31, 1998 and 1997. Net sales by geographic area are presented by attributing revenues from external customers on the basis of where the products are sold.
THREE MONTHS ENDED YEARS ENDED MARCH 31, DECEMBER 31, --------------------------------- ------------------------------ 1999 1998 1998 1997 Net sales by geographic area: United States $ 1,446,624 $ 1,415,373 $ 6,316,743 $ 6,318,893 International 790,101 927,854 2,972,585 2,580,956 --------------- -------------- -------------- ------------- $ 2,236,725 $ 2,343,227 $ 9,289,328 $ 8,899,849 --------------- -------------- -------------- ------------- --------------- -------------- -------------- ------------- |
7. STOCK OPTIONS
During 1995, the Company adopted a stock incentive plan for the issuance of up to 35,000 shares of common stock. In 1997, the Company increased the number of shares reserved for issuance under this plan to 70,000 shares. The plan provides for granting eligible participants stock options or other stock awards, as described by the plan, at option prices ranging from 85% to 110% of fair market value at date of grant. Options granted expire up to ten years after the date of grant. Such options become exercisable over a three-year period.
The Company has adopted the disclosure provisions of SFAS No. 123 and has continued to apply APB Opinion No. 25 and related interpretation in accounting for its plan. Accordingly, no compensation cost has been recognized for its plan. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates as calculated in accordance with SFAS No. 123, the Company's net income and earnings per share for the years ended December 31, 1998 and 1997 would have been reduced to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31, --------------------------- 1998 1997 Net income: As reported $ 880,531 $ 638,375 Pro forma 838,723 601,774 Net income per share (basic): As reported $ 0.75 $ 0.55 Pro forma 0.72 0.52 Net income per share (diluted): As reported $ 0.75 $ 0.54 Pro forma 0.71 0.51 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1998 1997 Dividend yield - - Expected volatility 52.2% 55.0% Risk-free interest rate 5.5% 5.5% Average expected life 7 years 7 years |
Based upon these assumptions, the weighted-average fair value at grant date of options granted during the years ended December 31, 1998 and 1997 was $5.76 and $3.69, respectively.
A summary of the status of the Company's stock option plan is presented below:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE Outstanding at December 31, 1996 36,000 $ 4.06 Granted 3,750 5.67 Exercised (1,000) 4.04 Expired (1,500) 4.04 -------- Outstanding at December 31, 1997 37,250 4.22 Granted 32,527 9.67 Exercised (17,250) 4.04 Expired (1,500) 4.04 -------- Outstanding at December 31, 1998 51,027 7.70 -------- -------- |
The following tables summarize information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------ ------------------------------ NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE PRICE 1998 LIFE PRICE 1998 PRICE $4.04 - $4.45 14,750 6.32 $ 4.06 13,000 $ 4.06 5.67 3,750 8.13 5.67 1,250 5.67 8.63 - 10.13 32,527 9.54 9.67 ----------- ------------- 51,027 8.50 7.70 14,250 4.20 ----------- ------------- ----------- ------------- |
Stock option activity during the three months ended March 31, 1999 was not significant.
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Exhibit Description ----------- ------------------- 3.1 Restated Articles of Incorporation of the Company, as amended. 3.2 By-Laws of the Company, as amended. 4 Specimen of Common Stock certificate. 10.1 The Chromaline Corporation 1995 Stock Incentive Plan, as amended. 10.2 Separation Agreement effective as of July 13,1998 between Thomas L. Erickson and the Company. 10.3 Consulting Agreement dated July 22, 1998 between Thomas L. Erickson and the Company. 10.4 Agreement regarding Non-Disclosure of Confidential Information and Non-Competition dated July 22, 1998 between Thomas L. Erickson and the Company. 10.5 Revolving Credit Agreement dated April 30, 1999 between the Company and M&I Bank. 27 Financial Data Schedule. |
ITEM 2. DESCRIPTION OF EXHIBITS
Not applicable.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
THE CHROMALINE CORPORATION
Dated: May 26, 1999 By /s/ Philip J. Hourican ----------------------------------------- Philip J. Hourican President and Chief Executive Officer By /s/ Jeffery A. Laabs ----------------------------------------- Jeffery A. Laabs Vice President of Finance, Controller, Treasurer and Secretary |
INDEX TO EXHIBITS
Method Exhibit Description of Filing ------- ----------- --------- 3.1 Restated Articles of Incorporation of the Company, as amended................ Previously Filed 3.2 By-Laws of the Company, as amended........................................... Previously Filed 4 Specimen of Common Stock certificate......................................... Filed Electronically 10.1 The Chromaline Corporation 1995 Stock Incentive Plan, as amended............. Previously Filed 10.2 Separation Agreement effective as of July 13,1998 between Thomas L. Erickson and the Company.............................................................. Previously Filed 10.3 Consulting Agreement dated July 22, 1998 between Thomas L. Erickson and the Company...................................................................... Previously Filed 10.4 Agreement regarding Non-Disclosure of Confidential Information and Non-Competition dated July 22, 1998 between Thomas L. Erickson and the Company.............................................................. Previously Filed 10.5 Revolving Credit Agreement dated April 30, 1999 between the Company and M&I Bank......................................................................... Filed Electronically 27 Financial Data Schedule...................................................... Filed Electronically |
EXHIBIT 4
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THE CHROMALINE CORPORATION
DULUTH, MINNESOTA
COMMON SHARES
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, OF THE PAR VALUE OF TEN
CENTS EACH, OF THE CHROMALINE CORPORATION, transferable only on the books of the
company by the shareholder hereof, in person or duly authorized ATTORNEY, UPON
SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTERED BY THE REGISTRAR.
IN WITNESS WHEREOF, THE CHROMALINE CORPORATION, HAS CAUSED THIS CERTIFICATE TO
BE SIGNED IN FACSIMILE BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO
BE HEREUNTO AFFIXED IN FACSIMILE.
DATED
SECRETARY PRESIDENT
EXHIBIT 10.5
BUSINESS Wisconsin Bankers Association 1995 Page 1 of 6 ACCT: 455 NOTE: 27247 Boxes not checked are inapplicable.
REVOLVING CREDIT AGREEMENT
(Business Loans)
THE CHROMALINE CORPORATION
(Name of Customer)
The above named customer ("Customer", whether one or more) agrees with M&I BANK ("Lender") as follows:
1. REVOLVING LOANS. Customer requests that Lender lend to Customer from time to time such amounts as Customer may request in accordance with this Agreement (the "Loans"), and, subject to the terms of this Agreement, Lender agrees to lend such amounts up to the aggregate principal amount of $1,250,000.00 at any time outstanding (the "Credit Limit"). Within the Credit Limit, Customer may borrow, repay and reborrow under this Agreement. Lender is not obligated to but may make Loans in excess of the Credit Limit, and in any event Customer is liable for and agrees to pay all Loans.
2. BORROWING BASE. The aggregate amount of all Loans at any time outstanding under this Agreement shall never exceed the lesser of the Credit Limit or the Borrowing Base described on Exhibit A.
3. CONDITIONS FOR LOANS. Lender's obligation to make the initial Loan is subject to satisfaction of the following conditions:
(b) Lender shall have received copies:
X certified by the Secretary of Customer of the articles of incorporation
and bylaws of Customer, and resolutions of the Board of Directors
authorizing the issuance, execution and delivery of this Agreement and the
Security Documents, if any;
certified by a general partner of Customer of the partnership agreement of Customer, and an authorization signed by all of the general partners of Customer authorizing the issuance, execution and delivery of this Agreement and the Security Documents, if any;
certified by a member or manager of Customer, as appropriate, of the articles of organization and operating agreement of Customer, and an authorization signed by a member or manager of Customer, as appropriate, authorizing the issuance, execution and delivery of this Agreement and the Security Documents, if any;
and a certification of the names and addresses of the representatives of Customer authorized to sign this Agreement and the Security Documents, if any, and request Loans under this Agreement, together with true signatures of such representatives.
(c) Lender shall have received an affidavit of sole ownership executed by the sole proprietor.
(d) Lender shall have received from counsel for Customer a favorable opinion satisfactory to Lender covering the matters described in sections 5(c) and 5(d) or 5(e) as applicable, and 5(h) of this Agreement and such other matters as Lender may reasonably request.
(f) All proceedings taken by Customer in connection with the Loans, the Security Documents and other documents provided to Lender shall be satisfactory to Lender and Lender shall have received copies of all documents reasonably required by it.
4. LOAN PROCEDURES. Customer may obtain Loans under this Agreement as provided in (a), (b) or (c) below.
(a) X Customer shall give Lender at least ___________ business days' prior notice or TELEPHONIC NOTICE FOLLOWED BY NEXT BUSINESS DAY WRITTEN CONFIRMATION of any Loan requested under this Agreement, specifying the date and amount of the Loan. Lender will make the Loan available to Customer X by crediting the amount of the Loan to Customer's account (acct. no. 1002280) with lender or
Each Loan which is less than the full amount available to Customer under this Agreement shall be in an amount not less than $ 1000.00.
(b) Lender will credit Customer's account (acct. no,__________) with Lender whenever the ledger balance in the account is less than $_________ on any banking day (the "Target Amount"), far whatever reason. The Loan will be in an amount within the Credit Limit and Borrowing Base sufficient to increase the balance to the Target Amount. Lender may decline to make any Loan and may refuse to pay any check drawn on the account if the amount available to Customer under this Agreement would not be sufficient to increase the balance in the account to the Target Amount.
Lender's obligation to make each Loan (including the initial Loan) is subject to the further condition that Lender shall have received a certificate signed by Customer, dated the date of the Loan request and stating that the representations and warranties in section 5 are true and correct as of the date of the request and that no event of default has occurred and is continuing or would result from such Loan.
5. REPRESENTATIONS. Customer represents and warrants to Lender that on the date of each Loan:
(a) No part of any Loan will be used for personal, family, household or agricultural purposes.
(b) Customer will not use any part of the proceeds of Loans to purchase any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System.
(c) The execution and delivery of this Agreement and the Security Documents, and the performance by Customer of its obligations under this Agreement and the Security Documents, are within its power, have been duly authorized by proper action on the part of Customer, are not in violation of any existing law, rule or regulation, any order or decision of any court, the articles of incorporation, bylaws, articles of organization, operation agreement, partnership agreement or other governing documents of Customer, as applicable, or the terms of any agreement or restriction to which Customer is a party or by which it is bound, and do not require the approval or consent of any person or entity. This Agreement and the Security Documents, when executed and delivered, will constitute the valid and binding obligations of Customer enforceable in accordance with !heir terms.
(d) Customer is a corporation validly existing and in good standing under the laws of the State of MINNESOTA and is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business or its ownership of properties requires such qualification.
(e) Customer is a ______________ (general or limited) partnership legally organized and validly existing under the laws of the State of:________________.
(f) Customer is a limited liability company validly existing and in good standing under the laws of the State of _______________ and is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business or its ownership of property requires such qualification.
(g) All financial statements of Customer furnished to Lender were prepared in accordance with generally accepted principles of accounting consistently applied throughout the periods involved and are correct and complete as of their dates.
(h) (i) There is no substance which has been, is or will be present, used, stored, deposited, treated, recycled or disposed of on, under, in or about any real estate now or at any time owned or occupied by Customer ("Property") during the period of Customer's ownership or use of the Property in a form, quantity or manner which if known to be present on, under, in or about the Property would require clean-up, removal or some other remedial action ("Hazardous Substance") under any federal, state or local laws, regulations, ordinances, codes or rules ("Environmental Laws"); (ii) Customer has no knowledge, after due inquiry, of any prior use or existence of any Hazardous Substance on the Property by any prior owner of or person using the Property; (iii) without limiting the generality of the foregoing, Customer has no knowledge, after due inquiry, that the Property contains asbestos, polychlorinated biphenyl (PCBs) or underground storage tanks; (iv) there are no conditions existing currently or likely to exist during the term of this Agreement which would subject Customer to any damages, penalties, injunctive relief or clean-up costs in any governmental or regulatory action or third-party claim relating to any Hazardous Substance; (v) Customer is not subject to any court or administrative proceeding, judgment, decree, order or citation relating to any Hazardous Substance; and (vi) Customer in the past has been, at the present is, and in the future will remain in compliance with all Environmental Laws. Customer shall indemnify and hold harmless Lender, its directors, officers, employees and agents from all loss, cost (including reasonable attorneys' fees and legal expenses), liability and damage whatsoever directly or indirectly resulting from, arising out of, or based upon (1) the presence, use, storage, deposit, treatment, recycling or disposal, at any time, of any Hazardous Substance described above on, under, in or about the Property, or the transportation of any Hazardous Substance to or from the Property, (2) the violation or alleged violation of any Environmental Law, permit, judgment or license relating to the presence, use, storage, deposit, treatment, recycling or disposal of any Hazardous Substance on, under, in or about the Property, or the transportation of any Hazardous Substance to or from the Property, (3) the imposition of any governmental lien for the recovery of environmental cleanup costs expended under any Environmental Law, or (4) breach of this representation or warranty. Customer shall immediately notify Lender in writing of any governmental or regulatory action or third-party claim instituted or threatened in connection with any Hazardous Substance on, in, under or about the Property.
(i) There is no litigation or administrative proceeding pending or, to the knowledge of Customer, threatened against Customer which might result in any material adverse change in the business or condition of Customer. Credit Agreement Cent. ACCT:455 NOTE: 27247
6. FEES. Customer agrees to pay the following nonrefundable fees as a condition of access to credit under this Agreement:
(a) Commitment fee in the amount of $_____________.
(b) Commitment fee in an amount equal to ______% per year of the average daily unused portion of the Credit Limit from the date of this Agreement until the Termination Date specified in section 15, payable at the times interest is payable under section 9 on the day of each
7. CAPITAL ADEQUACY. If Lender shall determine that any existing or future law, rule, regulation, directive, interpretation, treaty or guideline regarding capital adequacy (whether or not having the force of law) increases or would increase, from that required on the date of !his Agreement, the amount of capital required or expected to be maintained by the Lender, or any corporation controlling Lender, and if such increase is based upon the existence of Lender's obligations under this Agreement and other commitments of this type, then from time to time, within ten days after demand from Lender, the Customer shall pay to Lender such amount or amounts as will compensate Lender for expenses or costs required to meet such increased capital requirement. For purposes of calculating the amount of compensation required, Lender, or any corporation controlling Lender, may conclusively be deemed to have maintained the minimum amount of capital required on the date of this Agreement, and may base such compensation on the assumption that Lender (or such corporation) will need to increase its capital from such minimum amount to the new required amount. The determination of any amount to be paid by Customer under this section shall take into consideration policies of Lender, or any corporation controlling Lender, with respect to capital adequacy and shall be based upon any
reasonable method of attribution. A certificate of Lender setting forth such amount or amounts as shall be necessary to compensate Lender as specified in this section shall be delivered to Customer and shall be conclusive absent manifest error.
8. INTEREST RATE AND OTHER CHARGES. Customer agrees to pay interest to Lender on
the unpaid principal balance outstanding from time to time under this Agreement
[Check (a) or (b); only one shall apply.]:
(a) At the rate of______________% per year.
(b) X At a rate per year equal to 2.25 percentage points over the 30 DAY LIBOR ("Index Rate"). The Index Rate may or may not be the lowest rate charged by Lender. Any change in the interest rate resulting from a change in the Index Rate shall become effective without notice to Customer as of the day on which such change in the Index Rate becomes effective. A change in the interest rate will apply both to the outstanding principal balance and to new Loans. If the Index Rate ceases to be made available to Lender during the term of this Agreement, Lender may substitute a comparable index. INITIAL NOTE RATE IS 8.188%
Interest under (a) or (b) is computed on the basis of the actual number of days the principal balance s unpaid based upon a year of 360 days, 365 days. If any payment (other than the final payment) is not made on or before the *** day after its due date, Lender may collect a delinquency charge of ***% of the unpaid amount. Unpaid principal and interest bear interest after maturity (whether by acceleration or lapse time) until paid at the rate which would otherwise be applicable plus 4 percentage points of___% per year, computed on the same basis.
9. PAYMENT SCHEDULE. Customer agrees to pay to Lender the unpaid principal balance and interest as follows: [Check (a), (b), (c) or (d); only one shall apply.]
(a) In one payment on the Termination Date specified in section 15.
(b) X In payments of interest, beginning 05/31/1999, and on the same day of each CONSECUTIVE month thereafter, plus a final payment of unpaid principal and interest due on the Termination Date specified in section 15.
(c) In installments each equal to _________% of the unpaid principal balance, plus interest, beginning ___________ and on the same day of each ______ month thereafter, plus a final payment of unpaid principal and interest due on the Termination Date specified in section 15.
In addition, Customer shall immediately pay any amount by which the Loans exceed the Credit Limit or the Borrowing Base established under section 2, if any, and any prior unpaid payments. Lender is authorized to automatically charge payments due under this Agreement to any account of Customer with Lender. if payments are not automatically charged to Customer's account, payments must be made to the Lender at its address shown above and are not credited until received in Lender's office. Lender is authorized to make book entries evidencing Loans and payments under this Agreement and the aggregate unpaid amount of all Loans as evidenced by those entries is presumptive evidence that those amounts are outstanding and unpaid to Lender.
*** See late charge clause on page 6
10. COVENANTS. Customer shall, so long as any amounts remain unpaid, or Lender has any commitment to make Loans under this Agreement:
(a) Furnish to Lender, as soon as available, such financial information respecting Customer as Lender from time to time requests, and without request furnish to Lender:
(i) Within 120 days after the end of each fiscal year of Customer a balance sheet of Customer as of the close of such fiscal year and related statements of income and retained earnings and cash flow for such year all in reasonable detail and satisfactory in scope to Lender, prepared in accordance with generally accepted principles of accounting applied on a consistent basis, certified by an independent certified public accountant acceptable to Lender the chief financial representative of Customer, and
(ii) Within 30 days after the end of each THIRD month a balance sheet of Customer as of the end of such month and related statements of income and retained earnings and cash flow for the period from the beginning of the fiscal year to the end of such month, prepared in accordance with generally accepted principles of accounting applied on a consistent basis, certified, subject to normal year-end adjustments, by an officer or partner of Customer.
(b) Keep complete and accurate books of records and accounts and permit any representatives of Lender to examine and copy any of the books and to visit and inspect any of Customer's tangible or intangible properties as often as desired.
(c) Maintain insurance coverage in the forms (together with any lender's loss payee clause requested by Lender), amounts and with companies which would be carried by prudent management in connection with businesses engaged in similar activities in similar geographic areas. Without limiting this section or the requirements of any Security Document, Customer will [i] keep all its physical property insured against fire and extended coverage risks in amounts and with deductibles at least equal to those generally maintained by businesses engaged in similar activities in similar geographic areas, [ii] maintain all such workers' compensation and similar insurance as may be required by law and [iii] maintain, in amounts and with deductibles at least equal to those generally maintained by businesses engaged in similar activities in similar geographic areas, general public liability insurance against claims for bodily injury, death or property damage occurring on, in or about the properties of Customer, business interruption insurance and product liability insurance.
(d) Pay and discharge all lawful taxes, assessments and governmental charges upon Customer or against its properties prior to the date on which penalties attach, unless and to the extent only that such taxes, assessments and charges are contested in good faith and by appropriate process by Customer.
(e) Do all things necessary to maintain its existence, to preserve and keep in full force and effect its rights and franchises necessary to continue its business and comply with all applicable laws, regulations and ordinances.
(f) Timely perform and observe the following financial covenants, all calculated in accordance with generally accepted principles of accounting applied on a consistent basis:
(g) Furnish to Lender the Borrowing Base Certificates required under Exhibit A, if any.
(h) Not create or permit to exist any lien or encumbrance with respect to Customer's properties, except liens in favor of Lender, liens for taxes if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained, liens or encumbrances permitted under any Security Document and
(if left blank, to other permitted liens or encumbrances)
(i) Not take any action or permit any event to occur which materially impairs Customer's ability to make payments under this Agreement when due. Such events include, without limitation, the fact that Customer, Customer's spouse or any surety for Customer's obligations under this Agreement ceases to exist, dies, changes marital status or domicile or becomes insolvent or the subject of bankruptcy or insolvency proceedings.
(j) Timely perform all duties and responsibilities imposed on Customer under
Section 5(h).
(k) Unless otherwise consented to in writing by Lender, timely perform and observe all additional covenants described on Exhibit C.
11. SECURITY INTEREST. This Agreement is secured by all existing and future security agreements, assignments and mortgages from Customer to Lender, from any guarantor of this Agreement to Lender, and from any other person to Lender providing collateral security for Customer's obligations, and payment of the Loans may be accelerated according to any of them. However, if Customer is a natural person, and unless checked here Lender disclaims as security for this Agreement any existing or future first lien mortgage or equivalent security interest Lender may have on a 1-4 family dwelling used as Customer's principal place of residence. Unless a lien would be prohibited by law or would render a nontaxable account taxable, Customer also grants to Lender a security interest and lien in any deposit account Customer may at any time have with Lender. Lender may at any time after the occurrence of an event of default set-off any amount unpaid under this Agreement against any deposit balances or other money now or hereafter owed to Customer by Lender.
12. DEFAULT AND ACCELERATION. Upon the occurrence of any one or more of the
following events of default: (a) Customer fails to pay any amount when due under
this Agreement or under any other instrument evidencing any indebtedness of
Customer, (b) any representation or warranty made under this Agreement or
information provided by Customer in connection with this Agreement is or was
false or fraudulent in any material respect, (c) a material adverse change
occurs in Customer's financial condition, (d) Customer fails to timely observe
or perform any of the covenants or duties contained in this Agreement, (a) any
guaranty of Customer's obligations under this Agreement is revoked or becomes
unenforceable far any reason or any such guarantor dies or ceases to exist, or
(f) an event of default occurs under any Security Document;
then, at Lender's option, and upon written or verbal notice to Customer, Lender's obligation to make Loans under this Agreement shall terminate and the total unpaid balance shall become immediately due and payable without presentment, demand, protest, or further notice of any kind. all of which are hereby expressly waived by Customer. Lender's obligation to make loans under this Agreement shall automatically terminate and the total unpaid balance shall automatically become due and payable in the event Customer becomes the subject of bankruptcy or other insolvency proceedings. Lender may waive any default without waiving any other subsequent or prior default. Customer agrees to pay Lender's costs of administration of this Agreement. Customer also agrees to pay all costs of collection before and after judgment, including reasonable attorneys' fees (including those incurred in successful defense or settlement of any counterclaim brought by Customer or incident to any action or proceeding involving Customer brought pursuant to the United States Bankruptcy Code).
13. INDEMNIFICATION. Customer agrees to defend, indemnify and hold harmless Lender, its directors, officers, employees and agents, from and against any and all loss, cost, expense, damage or liability (including reasonable attorneys' fees) incurred in connection with any claim, counterclaim or proceeding brought as a result of, arising out of or relating to any transaction financed or to be financed, in whole or in part, directly or indirectly, with the proceeds of any Loan or the entering into and performance of this Agreement or any document or instrument relating to this Agreement by Lender or the activities of Customer. This indemnity will survive termination of this Agreement, the repayment of all Loans and the discharge and release of any Security Documents.
14. VENUE. To the extent not prohibited by law, venue for any legal proceeding relating to enforcement of this Agreement shall be, at Lender's option, the county in which Lender has its principal office in this state, the county in which Customer resides, or the county in which this agreement was executed by Customer.
15. TERMINATION. Unless sooner terminated under section 12, Customer's right to obtain Loans and lender's obligation to extend credit under this Agreement shall terminate on April 30, 2000 (the "Termination Date"). Customer may terminate Customer's right to obtain Loans under this Agreement at any time and for any reason by written notice to the lender. Such notice of termination signed by a Customer shall be binding on each Customer who signs this Agreement. Termination, for whatever reason, does not affect Lender's rights, powers and privileges, nor Customer's duties and liabilities, with regard to the then existing balance under this Agreement.
16. AMENDMENT. No amendment, modification, termination or waiver of any provision of this Agreement shall in any event be effective unless it is in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purposes for which given.
17. ENTIRE AGREEMENT. This Agreement, including the Exhibits attached or referring to it, and the Security Documents, are intended by Customer and Lender as a final expression of their Agreement and as a complete and exclusive statement of its terms, there being no conditions to the full effectiveness of this Agreement except as set forth in this Agreement and the Security Documents.
18. NO WAIVER; REMEDIES. No failure on the part of Lender to exercise, and no delay in exercising, any right, power or remedy under this Agreement shall operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise of the right or the exercise of any other right. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law.
19. MORE THAN ONE CUSTOMER. If more than one person signs this Agreement as Customer, Lender may at its option and without notice refuse any request for a Loan upon notice from any of the undersigned. Any of the undersigned Customers may request Loans under this Agreement. Each of the undersigned Customers is jointly and severally liable for all Loans and other obligations under this Agreement.
20. NOTICE. Except as otherwise provided in this Agreement, all notices required or provided for under this Agreement shall be in writing and mailed, sent or delivered, if to Customer, at any Customer's last known address as shown on the records of Lender, and if to Lender, at its address shown below, or, as to each party, at such other address as shall be designated by such party in a written notice to the other party. All such notices shall be deemed duly given when delivered by hand or courier, or three business days after being deposited in the mail (including any private mail service), postage prepaid, provided that notice to Lender pursuant to section 15 shall not be effective until received by Lender.
21. ADDRESS. Customer's address is shown below. Customer shall immediately notify Lender in writing of any change of address.
22. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of Lender and Customer and their respective heirs, personal representative, successors and assigns except that Customer may not assign or transfer any of Customer's rights under this Agreement without the prior written consent of Lender.
23. INTERPRETATION. The validity, construction and enforcement of this Agreement are governed by the internal laws of Wisconsin. Invalidity of any provision of this Agreement shall not effect the validity of any other provisions of this Agreement.
24. OTHER PROVISIONS. (If none stated, there are no other provisions.)
Dated as of April 30, 1999
M&I BANK (SEAL) THE CHROMALINE CORPORATION (SEAL) --------------------- -------------------------------- (Name of Lender) (Name of Customer) By Todd Fedora JEFFERY A. LAABS ------------------------------ -------------------------------- VICE PRESIDENT (SEC/TREAS) -------------------------------- -------------------------------- 1425 TOWER AVENUE 4832 GRAND AVE -------------------------------- -------------------------------- SUPERIOR, WI 54880 DULUTH MN 55807 -------------------------------- -------------------------------- (Address) (Address) |
LATE CHARGE
If any payment is not paid on or before the 20th day after it is due, late
payment charge of 2/10 of 1% of the note on the 20th day will be charged, but in
no event shall such charge be less than $1. Any payment received after the 20th
day after its due date shall be applied first to the late charge, then to
interest, and the remainder, if any, to the outstanding principal balance of the
note.
ACCOUNT NUMBER: 455 NOTE NUMBER: 27247 JN |
EXHIBIT B TO |
REVOLVING CREDIT AGREEMENT (WBA 448R)
DATED APRIL 30, 1999
SECURITY DOCUMENTS (SECTION 3 (a))
General Business Security Agreement.
X Selective Business Security Agreement covering INVENTORY AND ACCOUNTS RECEIVABLE
Collateral Pledge Agreement together with
Certificates representing ___________ shares of the voting common stock of_______________________________ endorsed in blank or accompanied by signed stock powers.
Other (specify)________________________________________________________
Assignment of life insurance policy in the amount of $________ on life of ______________________________ by___________________________________________
MVD-1 forms covering_________________________________ accompanied by appropriate title certificates.
APPROVED
For Lender by Todd Fedora VICE PRESIDENT
For Customer by JEFFERY A. LAABS SEC/TREAS
ARTICLE 5 |
PERIOD TYPE | YEAR | 3 MOS |
FISCAL YEAR END | DEC 31 1998 | DEC 31 1999 |
PERIOD START | JAN 01 1998 | JAN 01 1999 |
PERIOD END | DEC 31 1998 | MAR 31 1999 |
CASH | 274,757 | 478,957 |
SECURITIES | 508,445 | 507,680 |
RECEIVABLES | 1,414,411 | 1,512,930 |
ALLOWANCES | 14,400 | 14,400 |
INVENTORY | 1,255,192 | 1,065,456 |
CURRENT ASSETS | 3,651,615 | 3,911,498 |
PP&E | 3,879,396 | 3,902,864 |
DEPRECIATION | 2,455,816 | 2,553,600 |
TOTAL ASSETS | 5,260,643 | 5,443,768 |
CURRENT LIABILITIES | 400,810 | 438,322 |
BONDS | 0 | 0 |
PREFERRED MANDATORY | 0 | 0 |
PREFERRED | 0 | 0 |
COMMON | 117,831 | 17,881 |
OTHER SE | 4,742,002 | 4,887,565 |
TOTAL LIABILITY AND EQUITY | 5,260,643 | 5,443,768 |
SALES | 9,289,328 | 2,236,725 |
TOTAL REVENUES | 9,317,951 | 2,239,982 |
CGS | 4,193,050 | 1,061,908 |
TOTAL COSTS | 7,945,420 | 2,013,089 |
OTHER EXPENSES | 0 | 0 |
LOSS PROVISION | 0 | 0 |
INTEREST EXPENSE | 0 | 0 |
INCOME PRETAX | 1,372,531 | 226,893 |
INCOME TAX | 492,000 | 83,900 |
INCOME CONTINUING | 880,531 | 142,993 |
DISCONTINUED | 0 | 0 |
EXTRAORDINARY | 0 | 0 |
CHANGES | 0 | 0 |
NET INCOME | 880,531 | 142,993 |
EPS BASIC | 0.75 | 0.12 |
EPS DILUTED | 0.75 | 0.12 |