Item 1. Business - ----------------- (a) In General. The Registrant was organized in October, --------------- 1967, and commenced doing business on January 1, 1968. The Registrant is engaged in the rental and development of real estate and was formerly engaged in developing surgical staples and the technology used to apply the staples. b) Industry Segments. For financial information in regard to ----------------------- Industry Segments, reference is made to Note 12 to the Financial Statements for the years ended September 30, 2004, 2003 and 2002. (c) Description of Business. ----------------------------- (I) Principal Activities and (ii) Status of products and Real Estate Properties. Medical Staples --------------- The Registrant has discontinued its efforts in the area of medical staples for use in internal surgery. Several United States Patents and foreign patents were received covering a novel staple. The staple has been produced and animal testing took place during 2003, 2002 and 2001. Final test results indicated insufficient commercial value for the staple. As a result, the Registrant discontinued funding for the project during 2003. Real Estate Development and Rental Activities --------------------------------------------- The Registrant has rented two buildings it owns located at A&S Drive, Paramus, New Jersey: one to The Sports Authority, Inc. and the other to CompUSA, both for retail purposes. (iii) Raw Materials The Registrant believes that the components and materials necessary or useful to its operations will be available from diverse sources of supply. The materials used for the Registrant's research activities were acquired through commercial businesses engaged in the distribution of such supplies.
(iv) Patents. The Registrant has filed several patent applications and has several patents issued in connection with medical staples for use in internal surgery. These applications and patents are as follows:
No. Serial No. Title of Invention Issue Date - --- ---------- ------------------ ----------
1. PCT/US94/02227 Staples 03/01/94
2. 08/512,766 Staples 08/09/95
3. 08/228,058 Staples 08/29/95
4. Canadian Pat. No. 2,155,750 Improved Staples (PCT NAT) 08/18/98
5. European Pat. 94910801.3 Staples 03/01/94
6. Australian Pat. 63568/94 Improved Staples 09/15/94
7. Japanese Pat. 6-520120 Staples 03/01/94
8. Brazilian Pat. PCT/US94/02227 Staples 03/01/94
9. 08/502,988 Staple Overlap 08/18/95
10. 07/753,116 Surgical Stapling Method 01/19/93
11. 07/934,858 Surgical Stapling Method 11/23/93
12. 08/024,501 Staples 08/30/94
13. US Pat. #5,445,648 Staples 08/29/95
14. US Pat. #5,342,396 Staples 08/30/94
15. US Pat. #5,263,973 Surgical Stapling Method 11/23/93
16. US Pat. #5,667,527 Staples 09/16/97
17. US Pat. #5,749,896 Staple Overlap 05/12/98
18. Japanese Pat. #2672713 Improved Staples 07/11/97
19. Brazilian Pat. #9405840-7 Improved Staples 09/01/95
20. US Pat. #6,083,242 Improved Staples 07/04/00
21. Australian Pat. #704533 Improved Staples 08/05/99
During 2003 the Registrant's research activities in connection with the surgical staples was terminated. As a result, the unamortized portion of the Patents and Patent Applications costs associated with the surgical staple project were written off and charged to operations. Such write-off amounted to $60,052. (v) Non-seasonal Business. The Registrant does not believe that its products are subject to material seasonal changes. (vi) Working Capital. Not relevant. (vii) Customers. Not relevant. (viii) Backlog. Not relevant. (ix) Governmental Contracts. Not relevant. (x) Competition. During 2003 the Registrant discontinued its activities with respect to medical staples and their application. Results of the final phase of tests did not indicate sufficient commercial feasibility for the technology developed by the Registrant and funding of engineering and research was terminated. Competition in the real estate office rental segment of the Registrant's business activities was significant in the Bergen County, New Jersey market in which the Registrant competes during the period when the Registrant was seeking suitable tenants for its rental properties. The obsolete style of the building owned by the Registrant prior to and during 1991 made the attraction of suitable tenants difficult. In an effort to increase the marketability of the Registrant's properties, the Registrant applied to the Borough of Paramus for a zoning change to allow retail use for the office building and for the adjacent site.
In December 1991, the necessary change in zoning was approved. The then existing building was rented to The Sports Authority, Inc., a retailer of sporting goods. This building was substantially renovated by The Sports Authority, Inc. and Holobeam reimbursed them for their costs in connection with this renovation. During 1994, a 31,000 sq. ft. building was constructed on the Registrant's site located adjacent to the building leased to The Sports Authority, Inc. for use as a Computer City retail store. Tandy Corp., parent corporation of Computer City, commenced paying rent in October 1994. Holobeam reimbursed Tandy Corporation $1,189,675 as an allowance for costs of constructing the building and paving of the site, after a permanent Certificate of Occupancy was obtained. During 1998, Computer City Retail Stores were acquired by Comp USA. On January 23, 2000, Comp USA entered into a merger agreement with Grupo Sanborns, S.A. de C.V. and TPC Acquisition Corp., a subsidiary of Grupo Sanborns, S.A. de C.V. Tandy Corp. remains on the lease as guarantor. (xi) Research and Development. The Registrant has investigated methods for applying surgical staples and the technology presently used to fabricate and apply such staples. During 2004, 2003 and 2002, the Registrant expended $-0-, $172,746. and $214,031., respectively, in connection with the furtherance of this activity. Such costs were expensed to operations and consist principally of materials, supplies and costs associated with design and development. During 2003 the Registrant terminated funding for the surgical staples project. (Reference is made to Form 10Q, Management's Discussion and Analysis of Financial Conditions and Results of Operations for the Quarter Ended June 30, 2003.) (xii) Environmental Compliances. The Registrant does not believe that compliance with Federal, State or
Local provisions of a governmental nature which have been enacted or adopted regulating the discharge of material into the environment will have a materially adverse effect upon the capital expenditure requirements, earnings or competitive position of the Registrant. The Registrant's activities with regard to medical staple technology were limited to engineering, development and animal testing of medical staple design with fabrication and manufacturing of prototypes and models sub-contracted to other firms. The Registrant is not aware of any potential liabilities or costs associated with the disposal or handling of waste materials and is not aware of any potential violations of local, state or federal laws which regulate the technology. (xiii) Employees. At September 30, 2004 the Registrant employed three persons as compared to three persons at September 30, 2003 and three persons at September 30, 2002. (d) Financial Information About Foreign and Domestic ---------------------------------------------------- Operations and Export Sales. ---------------------------- The Registrant is not engaged in foreign operations and does not export to foreign countries.
Item 2.
Item 2. Properties - ------------------- The Registrant's headquarters and principal facilities are located at 217 First Street, Ho-Ho-Kus, New Jersey 07423-0287. The Registrant leases approximately 1,000 square feet of office and laboratory space. The Registrant owns two office buildings, one of 62,000 square feet and another of 31,000 square feet located at 50 A&S Drive, Paramus, New Jersey. One building was placed in service in October 1994, the other in 1982. (Reference is made to Notes 4, 8, 9 and 10 to the Financial Statements for the fiscal years ended September 30, 1995, 1991, 1990 and 1989.)
Pertinent information concerning the Registrant's properties is as follows. (Reference is made to Schedule XI of the Registrant's Financial statements accompanying Form 10K for the years ended September 30, 1997 and 1996.)
Building Building Paramus, NJ Paramus, NJ ----------- ----------- Year Acquired 1971 1994
Gross Square Footage 62,000 31,000
Percent Leased at 09/30/04 100% 100%
Acquisition Cost $ 718,881 $2,592,513 (2)
Capital Improvements Since Acquisition $3,649,850 (1) -0-
Total Investment $4,587,133 (3) $2,826,843 (4)
Mortgage Balance $4,059,353 $ -0-
(1) Includes $3,567,267. of improvements to the building repaid to The Sports Authority, Inc. (the Tenant) upon closing of the Mortgage, but does not include additional amounts expended by The Sports Authority, Inc. since said closing.
(2) Includes construction allowance of $1,189,675. for Tandy Corporation pursuant to the Operating Lease Agreement. (Now Comp USA.)
(3) Includes land cost of $218,402 for the 62,000 sq. ft. building.
(4) Includes land cost of $234,370 for the 31,000 sq. ft. building.
In 1983, the Registrant purchased 2.799 acres of land located in Paramus, New Jersey and adjacent to the building owned by the Registrant at 50 A&S Drive. The purchase price was $173,565 which was paid in cash. Since 1983, the Registrant incurred costs in the amount of $60,805 for various improvements and architectural work relating to development of this property. During 1992, 1991 and 1990, the Registrant spent $293,784, $78,051 and $50,667 respectively in connection with an application for a use variance for the site and various site improvements that would enable the construction of a commercial or retail building on the site. The change in zoning to retail use was approved by the
Borough of Paramus in December 1991. The change in zoning to allow retail use also required new site plan approval because the change in use required new traffic pattern studies, parking lot re-design and significant additional changes in order to comply with governmental requirements. In addition, the Registrant expended $964,505 through September 30, 1994 for site plan approval and changes, and toward construction of a building on the site. No depreciation or amortization was recorded until the building and site were put into service. During October 1994, construction was completed by Tandy Corporation of a retail building on the Registrant's site. The building is now being used for a CompUSA retail store. (Reference is made to Note 13 to the Registrant's 1994 Financial Statements and to Item 1, Part X of the 1994 Annual Report on Form 10K.) The zoning change approval allowed for retail use of the property and significantly enhanced the opportunities for attracting a suitable tenants for the site. When purchased, the site adjacent to the building owned by the Registrant, required site engineering and costs to acquire site plan approval for a building from the appropriate governmental regulatory authorities. In addition, the Registrant expended funds during its efforts to change the zoning of the property from office use to retail use. This change in zoning allowed the Registrant to seek tenants engaged in retail operations and resulted in the October 1994 tenancy of Computer City. (Reference is made to Note 12 of the Financial Statements for the year ended September 30, 1997.) The Registrant was not able to lease the property since the original site plan allowing office use was not approved for retail use until the Computer City occupancy of October 1994. The market for office space had seen significant decline during 1990, 1991, 1992, 1993 and 1994. The occupancy rate for the building owned by the Registrant and under lease to The Sports Authority Inc. for the past five (5) years is as follows:
2004 100% 2003 100% 2002 100% 2001 100% 2000 100%
The building owned by the Registrant and under lease to Tandy Corp. (now occupied by CompUSA) has been 100% occupied since October 1994. A summary of the amounts expended for such approvals for the three most recent fiscal years during which such expenditures were made appears below. No such expenditures were made in 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003 or 2004.
1994 1993 1992 ---- ---- ---- Zoning Changes and Site Plan Approvals: Legal Fees $ 2,859 $ 10,093 $ 15,840 Governmental Fees 11,827 55,811 19,990 Engineering 11,049 39,171 57,954 Paramus Park -0- -0- 200,000 ------- -------- -------
Total Related Costs $25,735 $105,075 $293,784 ======= ======= =======
The payment of $200,000 during 1992 to Paramus Park was a one-time fee in connection with removal of an existing deed restriction which prohibited adjacent retail activity. The balance of the payments for site plan approvals were paid to various engineering, legal and surveying firms in connection with professional services rendered to obtain governmental approvals. No payments to affiliated parties were made in connection with the zoning changes nor were any payments made to affiliated or related parties for the acquisition of site plan approval. During 1998, Computer City, Inc. retail stores were acquired by CompUSA, Inc., another retailer of computers, computer accessories and software. The Registrant accepted assignment of the Computer City lease by CompUSA and Tandy Corporation remains on the lease as the guarantor. Item 3.
Item 3. Legal Proceedings. - --------------------------- There are no legal proceedings of a material nature to which the Registrant is a party other than ordinary, routine litigation incidental to the business of
the Registrant. Item 4.
Item 4. Submission to Matters to a Vote of Security Holders. - ------------------------------------------------------------- None. PART II Item 5.
Item 5. Market for the Registrant's Common Stock Related Stockholder - --------------------------------------------------------------------- Matters and Issuer Purchases of Equity Securities. -------------------------------------------------- (a) The Registrant's common stock is traded on the over-the-counter market. The bid price listed (Source: S&P Comstock) on November 22, 2004 was $27. per share. On July 18, 1983, the Registrant's shares were deleted from the NASDAQ system when no market maker for the Registrant's common stock any longer maintained registration as such with the NASDAQ System. (b) The approximate number of holders of Common Stock securities of the Registrant as of November 22, 2004 was 399. (c) No dividends have been paid or declared on the Common Stock of the Registrant during the 2004, 2003 or 2002 fiscal years. In making decisions regarding the possible payment of dividends, the Board of Directors considers the Requirements of the Registrant in such ongoing activities as real estate development and the research, development and engineering efforts of the Registrant as well as such obligations as mortgages and debentures. (d) Changes in Securities. (Reference is made for Form 10Q for the six-month period ended March 31, 1984, wherein the Registrant completed an exchange of common stock for 5% Debentures payable March 1, 1989. Reference is made to Notes 9 and 10 to the Financial Statements for the years ended September 30, 1989 and 1990.) The high and low bid information of the Registrant's common stock for the last two years was estimated to be as follows: (Source: Over the Counter Bulletin Board [OTCBB]).
2004 2003 ---- ---- high low high low ----- --- ---- --- Quarter Ended Dec. 31 25.00 23.00 25.50 20.00
Quarter Ended Mar. 31 30.00 22.50 26.00 17.00
Quarter Ended June 30 40.00 33.00 24.00 17.00
Quarter Ended Sept. 30 27.00 26.50 23.00 17.00
Such quotation represents prices offered by purchases without retail mark-up, mark-down or commission and may not represent actual sales transactions. Item 6.
Item 6. Selected Financial Data. - --------------------------------- Financial information for the five-year period commencing October 1, 1999 and ending September 30, 2004 is presented below.
It should be noted that the year ended 2000 was restated. (Reference is made to Note 16 to the financial statements of the Registrant for the year ending September 30, 2001.)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition - -------------------------------------------------------------------- and Results of Operations. - -------------------------- (1) Liquidity. - ---------------- Cash flows generated from operating activities during 2004 were $535,386. and were produced primarily from the Registrant's real estate rental properties. The Registrant anticipates that cash flows associated with the Registrant's real estate rental activities will be sufficient to fund and sustain operations during the terms of the operating leases on the properties owned by the Registrant in Paramus, New Jersey. (Reference is made to Note 3 of the accompanying Financial Statements for the years ended September 30, 2004 and 2003. The minimum future rental income associated with the non-cancelable operating leases approximates $15,187,400. and is expected to generate sufficient cash flows to support the Registrant's activities through 2012 when The Sports Authority, Inc.'s operating lease expires. (Reference is made to Form 10K, Item 7(1)for the year ended September 30, 2003.) During 2004 the Registrant's Working Capital decreased to ($49,408.) which represents a decrease of $87,976. when compared to the Registrant's Working Capital at September 30, 2004. Such decrease results principally from the increased current portion of long term debt associated with the Registrant's mortgage and from increases in Deferred Rent resulting from tenants remitting rents prior to the period in which it is earned. It is the opinion of the Registrant that cash flows associated with its real estate rental activities will be sufficient to maintain liquidity during the terms of the operating leases.
2) Capital Resources. - -------------------------- The Registrant discontinued its activities associated with the surgical staples technology during 2003. As a result, the costs associated with the project were classified as Discontinued Operations on the Registrant's Statement of Operations for 2003. (Reference is made to Notes 4 and 12 to the accompanying Financial Statements for the years ended September 30, 2004 and 2003.) There were no expenditures made in connection with the surgical staples technology during 2004. The research and development activities associated with the project were discontinued because the final phase of testing did not indicate sufficient commercial value for the Registrant to continue its financial support. During 2004 the Registrant contributed $479,009. to its defined benefit pension plan. The contribution is charged to operations during each quarter of the Registrant's fiscal year in amounts sufficient to fully provide for all eligible employees' benefits by the time they retire. The Registrant expects to continue funding the plan in 2005 and expects no materially adverse effect upon its financial condition. (Reference is made to Note 14 of the accompanying financial statements for the years ended September 30, 2004 and 2003.) At the present time the Registrant's rental properties, located at 50 A&S Drive, Paramus, New Jersey do not require renovation or refurbishment and none are planned for 2005. The tenants are responsible for real estate taxes, maintenance expenses and insurance costs. The Registrant's projected costs and expenses associated with these properties is limited to depreciation and costs that are routine, normal and incidental to its real estate rental activities. The Registrant has investigated potential sites in the Bergen
County, New Jersey area where it conducts its present real estate rental activities. It is the intention of the Registrant to locate and develop suitable properties in the area in and around Paramus, New Jersey. During meetings with local real estate brokers planning for the future leasing situation, the lack of direct access to New Jersey Route 17 could be a serious detriment to the Registrant's ability to attract suitable replacement tenants when the lease terms expire. A Shell Oil Co. gasoline station presently blocks such direct access to the highway and there was some possibility that the owner may sell the property for a suggested price of $2,200,000. Since an engineering study indicated that a 7,200 square foot addition to the building presently occupied by CompUSA would justify the price and increase the value of the properties, the Board of Directors authorized the Registrant's management to place a bid on the property at $2,200,000. and begin negotiations to purchase the tract. The Registrant intends to fund the acquisition with financing based upon the equity appreciation presently contained in the Registrant's rental properties. Any purchase of new properties is not expected to have a materially adverse effect upon the Registrant's capital resources or financial condition.
(3) Results of Operations. - ----------------------------- (a)During the year ended September 30, 2004 the Registrant recorded after-tax income in the amount of $184,936., which represents a decrease of $19,434. when compared to the income recorded in 2003. Earnings per weighted average number of common shares outstanding were $0.68 and $0.74, respectively.
Revenues for the year were $2,058,348., down $28,287. from 2003. The decrease results principally from reduced interest income during 2004 ($12,574.) and reduced gains on sales of short term investments ($13,630.). Total costs and expenses for the fiscal year ended September 30, 2004 were $1,708,489. as compared to $1,673,465. for the year ended 2003. The increased costs resulted from increases in expenses that are normal, routine and incidental to the Registrant's administrative and real estate rental activities. During 2001 the Registrant adopted FASB 13 Accounting for leases. The effect of FASB 13 is to apportion escalation rental income contained in the operating leases in equal annual adjustments over the remaining terms of the leases. The Registrant's Statement of Operations for the year ended September 2000 has been restated to reflect this change. (Reference is made to Note 16 to the Registrant's financial statements for the years ended September 30, 2002 and 2001.) The Registrant's rental properties had occupancy rates of 100% during 2004 and 2003 and such rates are expected to continue through 2009 when the CompUSA lease expires. Rental expenses for which the Registrant is responsible are expected to increase at or below the inflation rate for the geographical area in which the Registrant conducts its real estate rental activities. These inflationary increases are not expected to adversely effect the Registrant's results of operations or financial condition. (b)The Registrant recorded after-tax income of $275,642. for the fiscal year ended September 30, 2003 which represents an increase of $37,971. when compared to the results of operations for the fiscal year
ended September 30, 2002. Earnings per weighted average number of common shares outstanding were $0.74 and $0.58, respectively. Revenues for the period were $2,026,583., down $44,925. when compared to the total revenues recorded in 2002. The net decrease resulted principally from the write-off of the unamortized costs of patents as a result of the Registrant discontinuing activities associated with the surgical staples project. The abandonment of patents in connection with the surgical staples resulted in a charge to revenues in the amount of $60,052. Total costs and expenses for the fiscal year ended September 30, 2003 were $1,673,405., down $146,506. from the $1,819,911. recorded in 2002. The reduced costs and expenses result from lower costs associated with the Registrant's surgical staple projects as activities were concluding during the third and fourth quarter of the year; reduced interest expense in connection with the Registrant's mortgage as the loan matures; and lower costs associated with the General and Administrative expenses. During 2001 the Registrant adopted FASB 13, accounting for leases. The effect of FASB 13 is to apportion escalation rental income contained in the operating leases in equal annual adjustments over the remaining terms of the leases. The Registrant's Statement of Operations for the years ended September 30, 2000 and 1999 have been restated to reflect this change. (Reference is made to Note 16 to the accompanying financial statements for the years ended September 30, 2002 and 2001.) The Registrant's rental properties had occupancy rates of 100% during 2003 and 2002 and such rates are expected to continue through 2009 when the CompUSA lease expires. Rental expenses for which the Registrant
is responsible are expected to increase at or below the inflation rate for the geographical area in which the Registrant conducts its real estate rental activities. These inflationary increases are not expected to have a materially adverse effect upon the Registrant's results of operations or its financial condition. The Registrant has no off-balance sheet contractual obligations or arrangements. (c)After-tax earnings for the year ended September 30, 2002 were $166,399., representing a decrease of $2,431. when compared to the results of operations for the previous year. Earnings per share were $0.58 for 2002 and 2001. Revenues decreased $33,512. to $2,071.508. when compared to 2001. Such decrease resulted from lower interest income received on the Registrant's money market fund investments during 2002. Total costs and expenses increased from $1,805,735. in 2001 to $1,819,911. in 2002, reflecting increases in costs incidental and necessary for the Registrant's administrative business activities. During 2001 the Registrant adopted FASB 13, Accounting for Leases. The effect of FASB 13 is to apportion escalation rental income contained on the operating leases in equal annual adjustments over the remaining terms of the operating leases. The Registrant's Statements of Operations for the years ended September 30, 2000, 1999 and 1998 have been restated to reflect this change. (Reference is made to Note 16 to the accompanying financial statements for the years ended September 30, 2002 and 2001.) Funding for the Registrant's surgical staple project was $214,031. for the year ended September 30, 2002 as compared to $183,089. for the
twelve months ended September 30, 2001. The expenses represent costs associated with the engineering, research and development of the surgical staples and their application. During 2002 the project entered into a final phase of tests that ultimately determined the project's commercial feasibility and definitive tests were published during 2003. There was no decision regarding additional funding beyond 2003 until such results were published. The continued funding of the project did not have any materially adverse effect. Revenues associated with the Registrant's real estate rental activities were $2,053,703. for the year ended September 30, 2002 and 2001 and are expected to continue t the same rate until the leases expire in 2009 and 2012. The properties have had occupancy rates of 100% during 2002 and 2001 and are expected to continue until 2009 when the CompUSA lease expires. Rental expenses were $258,572. for 2002 and are expected to increase at or below the current inflation rate for the geographical area in which the Registrant conducts its activities. Any such increases are not expected to have any materially adverse effect upon the Registrant's financial condition.
Off-Balance Sheet Arrangements - ------------------------------ As of September 30, 2004 the Registrant had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates - ------------------------------------------ The preparation of the Registrant's financial statements
in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying footnotes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates and such differences may be material to the financial statements. The process of determining significant estimates is fact specific and takes into account such factors as historical experience and current and expected economic conditions. Historically, actual results have not differed significantly from those determined using estimates.
Contractual Commitments - ----------------------- The following table represents the Registrant's contractual commitments associated with long term debt and other obligations at September 30, 2004.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market - --------------------------------------------------------------- Risk. - ----- The Registrant has operating leases with tenants for the two properties it owns. The leases expire in 2009 and 2012. The primary market risk is the remote possibility that one or both tenants will default on the lease prior to the end of the lease term. If tenants had defaulted on the leases at the beginning of 2004, the Registrant would have been impacted by approximately $2,000,000.
Item 8.
Item 8. Financial Statements and Supplemental Data. - ---------------------------------------------------- Financial statements, supplementary financial information and Accountant's Report are filed with this report.
HOLOBEAM, INC.
FINANCIAL STATEMENTS WITH INDEPENDENT ACCOUNTANTS' REPORT
YEARS ENDED
SEPTEMBER 30, 2004, 2003 AND 2002
R.A. FREDERICKS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS MANAGEMENT CONSULTANTS
HOLOBEAM, INC. YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
CONTENTS
PAGE
INDEPENDENT ACCOUNTANTS' REPORT 26
FINANCIAL STATEMENTS:
BALANCE SHEETS 27-28
STATEMENTS OF OPERATIONS 29
STATEMENTS OF SHAREHOLDERS' EQUITY 30
STATEMENTS OF CASH FLOWS 31
NOTES TO FINANCIAL STATEMENTS 32-45
SCHEDULES FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003, AND 2002
XI REAL ESTATE AND ACCUMULATED DEPRECIATION 46
XII MORTGAGE LOANS ON REAL ESTATE 47
ALL OTHER SCHEDULES HAVE BEEN OMITTED BECAUSE THEY ARE NOT APPLICABLE, OR THE INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
R.A. FREDERICKS & COMPANY, LLP Certified Public Accountants Ralph A. Fredericks, CPA Ellen T. O'Donnell, CPA Mary V. Fox, CPA, CFE (retired)
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders' Holobeam Inc. Ho-Ho-Kus , New Jersey
We have audited the accompanying balance sheets of Holobeam, Inc. as of September 30, 2004 and 2003 and the related statements of operations, shareholders' equity, and cash flows for each of the years in the period ended September 30, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 that 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 Holobeam, Inc. as of September 30, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2004, in conformity with U. S. generally accepted accounting principles. Further, it is our opinion that the schedules referred to in the accompanying index present fairly the information set forth therein.
R.A. FREDERICKS & COMPANY, LLP Montville, New Jersey December 15, 2004 170 Changebridge Road Unit B-4, Montville, New Jersey 07045 Tel: (973) 575-6200 Fax: (973) 575-5444 Members of the Center for Public Company Audit Firms.
HOLOBEAM, INC.
BALANCE SHEETS SEPTEMBER 30, 2004 AND 2003
ASSETS
2004 2003
CURRENT ASSETS Cash (including cash equivalents of $613,404 in 2004 and $809,349 in 2003) $ 917,971 $ 913,436 Prepaid Expenses 7,697 6,391 Prepaid Income Taxes 7,698 7,688 Other Receivables 18 18 									--------	--------
TOTAL CURRENT ASSETS 933,384 927,533 									--------	--------
PROPERTY AND EQUIPMENT-COST Real Estate: Land 452,772 452,772 Buildings and Building Improvements 6,961,244 6,961,244 									--------	-------- TOTAL 7,414,016 7,414,016
Machinery and Equipment 88,815 88,815 Furniture and Fixtures 33,468 29,939 									--------	-------- TOTAL 7,536,299 7,532,770
Less: Accumulated Depreciation and Amortization 2,805,099 2,584,733 									--------	-------- PROPERTY AND EQUIPMENT-NET 4,731,200 4,948,037 									--------	--------
OTHER ASSETS Deferred Charges 263,404 304,513 Unbilled Rents Receivable 1,055,818 1,118,581 									--------	-------- TOTAL OTHER ASSETS 1,319,222 1,423,094 									--------	-------- TOTAL ASSETS $ 6,983,806 $ 7,298,664 									========	========
The accompanying notes are an integral part of the financial statements.
HOLOBEAM, INC.
BALANCE SHEETS SEPTEMBER 30, 2004 AND 2003
LIABILITIES AND SHAREHOLDERS' EQUITY
2004 2003 									--------	-------- CURRENT LIABILITIES Mortgage Payable-Current Portion $ 493,177 $ 451,982 Accounts Payable 6,934 6,376 Deferred Rent 185,430 60,375 Other Accrued Expenses 50,165 43,066 Accrued Pension 148,006 217,906 Income Taxes Payable 69,460 76,341 Accrued Interest Payable 29,620 32,918 									--------	-------- TOTAL CURRENT LIABILITIES 982,792 888,964 									--------	-------- LONG-TERM LIABILITIES Mortgage Payable (Net of Current Portion) 3,566,176 4,059,346 Deferred Income Taxes 422,327 447,432 									--------	-------- TOTAL LONG-TERM LIABILITIES 3,988,503 4,506,778 									--------	-------- TOTAL LIABILITIES 4,971,295 5,395,742 									--------	-------- SHAREHOLDERS' EQUITY Common Stock, Par Value $.10 Per Share Authorized 2,000,000 Shares, Issued 271,209 in 2004 and 275,015 in 2003 27,121 27,502 Additional Paid in Capital 9,137,868 9,226,979 Accumulated Deficit (7,152,478) (7,337,414) 									--------	-------- 2,012,511 1,917,067 Less: Cost of Shares in Treasury (0 in 2004 and 600 in 2003) - (14,145) 									--------	-------- TOTAL SHAREHOLDERS' EQUITY 2,012,511 1,902,922 									--------	-------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,983,806 $7,298,664 									========	========
The accompanying notes are an integral part of the financial statements.
HOLOBEAM, INC.
STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
2004 2003 2002 ----	 ----	 ---- REVENUES
Rental Income $ 2,053,703 $2,053,703 $2,053,703 Interest Income 4,645 17,219 13,805 Gain on sale of fixed assets - - 4,000 Gain on sale of investments - 13,630 - Other income - 2,083 - 						 ----------	 ---------	----------
TOTAL 2,058,348 2,086,635 2,071,508 						 ----------	 ---------	----------
COSTS AND EXPENSES
Rental Expense 260,093 255,552 258,572 General Expense 1,069,407 828,081 895,350 Interest Expense 378,989 417,026 451,958 Research and Development - - 214,031 						 ----------	 ---------	---------- TOTAL 1,708,489 1,500,659 1,819,911 						 ----------	 ---------	----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 349,859 585,976 251,597
INCOME TAX EXPENSE 164,923 241,927 85,198 						 ----------	 ---------	---------- EARNINGS FROM CONTINUING OPERATIONS 184,936 344,049 166,399 						 ----------	 ---------	---------- DISCONTINUED OPERATIONS: Operating Loss - (172,746) - Loss on Disposition - (60,052) - Tax Benefit - 93,119 - 						 ----------	 ---------	---------- NET LOSS FROM DISCONTINUED OPERATIONS - (139,679) - 						 ----------	 ---------	---------- NET INCOME $ 184,936 $ 204,370 $ 166,399 						 ==========	 =========	==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 271,873 275,642 287,518 						 ==========	 =========	==========
EARNINGS PER SHARE - CONTINUING $ .68 $ 1.25 $ .58 						 ==========	 =========	========== LOSS PER SHARE - DISCONTINUED $ - $ (.51) $ - 						 ==========	 =========	==========
EARNINGS PER SHARE - NET INCOME $ .68 $ .74 $ .58 						 ========== =========	==========
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
HOLOBEAM, INC.
STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
2004 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $184,936 $204,370 $168,399 								-------- ------- -------
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 220,366 219,866 216,888 Amortization 41,109 41,108 55,535 Patent and Patent Application Costs - (3,524) (10,002) Gain on Sale of Fixed Assets - - (4,000) Gain on Sale of Investment - (13,630) - Loss on Disposition of Discontinued Operations - 60,052 - Increase (Decrease) in: Accounts Payable and Accrued Expenses (65,541) 13,251 (28,126) Deferred Income Taxes (25,105) (25,106) 10,186 Deferred Rent 125,055 60,375 - Income Taxes Payable (6,881) 76,341 -
Decrease (Increase) in: Unbilled Rents Receivable 62,763 62,764 (25,465) Accounts and Other Receivables - 84 (56) Prepaid Expenses (1,306) (678) 21,546 Prepaid Income Taxes (10) 41,094 (3,782) 								-------- ------- -------
Total Adjustments 350,450 531,999 288,976 								-------- ------- -------
Net Cash Provided by Operating Activities 535,386 736,367 455,375 								-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Short-term Investments - (290,779) - Capital Expenditures (3,529) (4,214) (49,082) Sale of Short-Term Investments - 304,409 - Sale of Capital Assets - - 4,000 								-------- ------- -------
Net Cash Provided by (Used in) Investing Activities (3,529) 9,416 (45,082) 								-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on First Mortgage (451,975) (414,214) (379,609) Purchase of Treasury Stock (75,347) (254,175) (119,105) 								-------- ------- -------
Net Cash Used in Financing Activities (527,322) (668,389) (498,714) 								-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,535 77,394 (88,421)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 913,436 836,042 924,463 								-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 917,971 $ 913,436 $ 836,042 								======== ======= =======
SUPPLEMENTAL CASH FLOWS DISCLOSURES Interest Paid $ 382,287 $ 420,048 $ 454,728
Income Taxes Paid $ 196,909 $ 55,131 $ 78,799
The accompanying notes are an integral part of the financial statements.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 1. SUMMARY OF MAJOR ACCOUNTING POLICIES
a. Description of Business
The Company is engaged primarily in the rental of real property located in New Jersey for retail use. During 2003, the Company terminated its activities in the development of surgical staples and the technology used to apply the staples for use in internal surgery.
b Basis of Presentation
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management's prudent judgements and estimates. While actual results may differ from these estimates, management does not expect the differences, if any, to have a material effect on the financial statements.
c. Cash and Cash Equivalents
For purposes of reporting cash flows, all liquid investments with original maturities of three months or less are considered cash equivalents.
d. Property and Equipment
Depreciation is provided on a straight-line and accelerated basis in amounts sufficient to write-off the cost of the assets over their estimated useful lives, which are as follows:
Building and Building Improvements 31.5 to 40 years Machinery and Equipment 5 to 7 years Furniture and Fixtures 7 to 10 years
Maintenance and repairs are charged to operations in the year in which incurred, while replacements and betterments are capitalized by charges to the appropriate asset accounts. The cost and accumulated depreciation and amortization with respect to assets retired or otherwise disposed, are eliminated from the assets and related accumulated depreciation and amortization accounts and any profit or loss resulting therefrom is reflected in operations.
Patent and patent application costs are amortized on a straight-line basis over a ten year period.
e. Earnings Per Share
Earnings per share of common stock has been computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share of common stock is the same as earnings per share prior to dilution.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Capital Stock
Each share of common stock is entitled to one vote. No such shares of common stock were reserved at September 30, 2004, 2003, or 2002. On October 20, 2004, the Company amended its Certificate of Incorporation in order to reduce its authorized shares from 2,000,000 to 272,000. Between May 10, 2004 and July 13, 2004, the Company retired 3,806 shares of Treasury Stock purchased during the years ended September 30, 2004 and 2003 at a cost of $89,492. On May 1, 2003, the Company retired 12,682 shares of Treasury Stock purchased between May 2002 and March 2003, at a cost of $314,760. On May 6, 2002, the Company retired 17,901 shares of Treasury Stock purchased between 1998 and April of 2002, at a cost of $286,816.
g. Income Taxes
The Company provides for federal and state income taxes on items included in the Statements of Operations regardless of the period when such taxes are payable. Deferred taxes are recognized for temporary differences between financial and income tax reporting based on enacted tax laws and rates.
h. Deferred Charges
It is the policy of the Company to charge costs associated with the acquisition of long term debt (mortgages) to expense over the term of the mortgage.
In addition, the Company charges costs associated with the procurement of operating leases, specifically real estate brokers commissions, to expense during the term of the operating lease.
i. Short-Term Investments
The Company accounts for marketable securities in accordance with the provisions of SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities".
Short-term investments have an original maturity of more than three months and a remaining maturity of less than 1 year. These investments consist of marketable debt securities which are stated at amortized cost as the Company has classified these securities as held-to- maturity.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j Revenue Recognition
Base rental revenue is recognized on a straight-line basis over the terms of the respective leases. Unbilled rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements.
k. Reclassifications
Earnings from discontinued operations were previously classified under earnings from continuing operations and have been reclassified within the Statement of Operations for the year ended September 30, 2003.
NOTE 2. INCOME TAXES
2004 2003 2002 Current taxes: Federal $ 149,230 $131,321 $70,952 State 40,799 42,593 4,060 					 ------- ------- ------ Total 190,029 173,914 75,012 					 ------- ------- ------
Deferred taxes: Federal (21,339) (21,340) 8,660 State (3,767) (3,766) 1,526 					 ------- ------- ------ Total (25,106) (25,106) 10,186 					 ------- ------- ------
Provision for 		 income taxes $164,923 $148,808 $85,198 					 ======= ======= ======
The deferred tax assets and liabilities recorded on the balance sheet as of September 30, are as follows: 2004 2003 2002 Deferred tax liabilities: Federal $358,978 $380,317 $401,657 State 63,349 67,115 70,881 					 ------- ------- ------- Total $422,327 $447,432 $472,538 					 ======= ======= =======
The sources of deferred income taxes for the years ended September 30, are as follows: 2004 2003 2002
Unbilled Rents Receivable $1,055,817 $1,118,581 $1,181,345
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 2. INCOME TAXES (continued)
The difference between the statutory federal income tax rate on income before income taxes and the Company's effective income tax rate is as follows:
2004 2003 2002
Federal statutory 		 income tax rate 34% 34% 34% State tax provisions, 	 net of federal benefits 6 6 6 Other 7 2 (6) 							--	 --		 --
Effective income tax rate 47% 42% 34% 							==	 ==		 ==
NOTE 3. RENTAL INCOME UNDER OPERATING LEASES
The Company leases two buildings at it's A & S Drive, Paramus, N.J. site for retail use. The Sports Authority, Inc. has leased a 62,000 sq. ft. building for a lease term of twenty (20) years and the Tandy Corporation has leased a 30,000 sq. ft. building for use as a Comp USA retail store for a lease term of fifteen (15) years. The tenants are responsible for real estate taxes and other assessments as defined in the operating lease agreements.
2004 2003 2002
Buildings and building improvements:
Cost $ 6,961,244 $6,961,244 $6,961,244
Accumulated depreciation 2,726,359 2,526,400 2,326,441 							 ----------- --------- ---------
Net buildings and building improvements $ 4,234,885 $4,434,844 $4,634,803 							 =========== ========== ==========
The minimum future rentals on noncancellable operating leases for the years ending September 30, are as follows:
2005 $2,225,142 2009 $2,331,017 2006 2,225,142 2010 1,497,842 2007 2,233,965 2011 1,275,697 2008 2,331,017 2012 1,067,573 --------- Total $15,187,395 								 ==========
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 3. RENTAL INCOME UNDER OPERATING LEASES (Continued)
Net rental income consists of the following:
2004 2003 2002
Rental income $2,053,703 $2,053,703 $2,053,703 Depreciation expense (199,959) (199,959) (199,959) Other expenses (60,134) (55,593) (58,613) 						--------	--------	--------
Rental income, net $1,793,610 $1,798,151 $1,795,131 					 ========= ========= =========
In 2004, 2003, and 2002, depreciation expense included all depreciation of the rental buildings and building improvements.
a) In September 1992, the Company entered into a triple net lease agreement with The Sports Authority, Inc. The term of the lease is twenty (20) years with four (4) options to extend the term for an additional period of five (5) years in each option.
The base annual rents under the amended lease were increased as follows:
2nd through 5th years $1,208,217 6th through 10th years 1,295,716 11th through 15th years 1,391,967 16th through 20th years 1,497,842
b) Tandy Corporation has constructed a 30,000 sq. ft. building on the Company's site located in Paramus, N.J. for use as a Comp USA retail store. Tandy Corporation commenced paying rent to the Company pursuant to the terms of the operating lease on October 1, 1994. The lease term is for fifteen (15) years at an annual rental of $630,000 for the first five years, $724,500 for the second five years and $833,175 for the last five years. Tandy Corporation has three (3) options to extend the term of the lease for an additional period of five (5) years for each such option.
Tandy Corporation sold Computer City, Inc. to CompUSA, Inc. on September 1, 1998, the lease was assigned to CompUSA, Inc. and continues to be guaranteed by Tandy Corporation. On May 18, 2000 Tandy Corporation changed its name to Radioshack Corporation.
On January 23, 2000, CompUSA, Inc. entered into a merger agreement with Grupo Sanborns, S.A. de C.V. and TPC Aquisition Corp., a subsidiary of Grupo Sanborns, S.A. de C.V. The financial information for Grupo Sanborns, S.A. de C.V. is unavailable. The lease continues to be guaranteed by Tandy Corporation.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 3. RENTAL INCOME UNDER OPERATING LEASES (Continued)
The following is a condensed summary of financial information on the above publicly held companies: Radioshack The Sports Corporation Authority 12/31/03 1/31/04 (In Millions) (In Thousands) Current assets $ 1,667 $ 880,623 ------ --------- Total assets 2,244 1,339,556 ------ --------- Current liabilities 858 501,714 ------ --------- Total liabilities 1,475 900,290 ------ --------- Total stockholders' equity 769 439,266 ------ --------- Net sales 4,649 1,760,450 ------ --------- Cost of sales 2,333 1,274,721 ------ --------- Gross profit 2,315 485,729 ------ --------- Income before income taxes 473 24,086 ------ --------- Income tax expense 174 7,719 ------ --------- Net income $ 299 $ 16,367 ------ ---------
NOTE 4. DISCONTINUED OPERATIONS
During the year ended September 30, 2003, the Company abandoned its activities in the development of surgical staples and the technology used to apply the staples for use in internal surgery. Assets totaling $60,052, associated with this segment, were written off to operations during 2003; therefore, there are no remaining assets included on the balance sheet as of September 30, 2003. There were no sales associated with this segment. The operating loss from this segment for 2003 was $172,746, with a tax benefit of $93,119 for a net loss from discontinued operations of $139,679.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 5. RESEARCH AND DEVELOPMENT
Research and development expenses in the amount of $214,031 in 2002 was charged to operations and included in costs and expenses.
NOTE 6. RENT EXPENSE
The Company leases approximately 1,000 square feet of office and laboratory space on an annual basis. Lease payments are $950 per month. Rent expense was $11,400 in 2004, $11,400 in 2003 and $11,400 in 2002.
NOTE 7. PATENTS AND PATENT APPLICATION COSTS
The Company has discontinued efforts relating to solar cells and semi-conductor technology. Work in the field has moved in other directions than that of the Company's technology and there has been a substantial reduction of government support in this technical area. The funding that had been received by laboratories exploring the Company's technology has also terminated.
The Company terminated its efforts in the area of surgical staple development for use in internal surgery. Several United States Patents had been issued and foreign applications had been filed on a novel staple. Research and development costs in the amounts of $172,746 and $214,031 have been expended in connection with the surgical staple during 2003 and 2002, respectively.
NOTE 8. LONG-TERM DEBT
Long-term debt consists of two loans, one in the amount of $6,000,000 payable in monthly installments of $55,328 including interest at 8.77% until 2011. The second loan in the amount of $1,500,000 is payable in monthly installments of $13,767 including interest at 8.7% until 2011.
Costs incurred in connection with this mortgage amounted to $102,520 and are charged to expense over the life of the mortgage. This amount is included in the balance of deferred charges as detailed in Note 8. The expense for the next five (5) years is presented below:
2005 $5,126 2006 5,126 2007 5,126 2008 5,126 2009 5,126
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 8. LONG-TERM DEBT (Continued)
The combined balance outstanding for each debt issued at the end of 2004, 2003, and 2002 is as follows: 2004 2003 2002 First Mortgage on 62,000 sq. ft. Building $4,059,353 4,511,328 $4,925,542
Less Current Portion 493,177 451,982 414,221 --------- --------- ---------
Long-Term Portion $3,566,176 $4,059,346 $4,511,321 ========= ========= =========
The mortgage is secured by the land, building and operating lease agreement with The Sports Authority, Inc. (See Note 3).
The principle payments of long-term debt for the term of the mortgage is as follows:
2005 $493,177 2009 $699,136 2006 538,140 2010 762,870 2007 587,197 2011 338,106 2008 640,727
NOTE 9. DEFERRED CHARGES
The composition of deferred charges and related amortization is as follows:
Real Estate Mortgage Brokers Commissions Total Costs Sports Tandy Authority Corp. Original Cost $712,160 $102,520 $279,584 $330,056 Accumulated Amortization 448,756 59,804 168,915 220,037 ------- ------- ------- -------
Balance 9/30/04 $263,404 $ 42,716 $110,669 $110,019 ======= ======= ======= =======
Original Cost $712,160 $102,520 $279,584 $330,056 Accumulated Amortization 407,647 54,677 154,936 198,034 ------- ------- ------- -------
Balance 9/30/03 $304,513 $ 47,843 $124,648 $132,022 ======= ======= ======= =======
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 10. OTHER EMPLOYEE BENEFITS
The Financial Accounting Standards Board issued SFAS No. 106 " Employers Accounting for Post Retirement Benefits", and SFAS No. 112 "Employers Accounting for Post Employment Benefits", which changed employers' accounting for these benefits. Since the Company has no post-retirement benefit plans, and does not offer post employment benefits, SFAS No. 106 and SFAS No. 112 are not applicable. The Financial Accounting Standards Board issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Post Retirement Benefits." SFAS No. 132 is not applicable for post employment benefits, but is applicable to the company's pension plan (See Note 14).
NOTE 11. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's income is rental income received from two tenants. These tenants are subject to long- term lease agreements (See Note 3).
The Company is also subject to concentrations of credit risk with respect to cash and cash equivalents which the Company attempts to minimize by entering into arrangements with major banks and financial institutions and investing in high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations.
NOTE 12. BUSINESS SEGMENTS
The Company adopted Financial Accounting Standards Board Statement (SFAS) No. 131 "Disclosures about Segments of an Enterprise and Related Information". The Company's reportable segments are strategic business units that involve different products and services. They are managed by a single management team.
The Company's business segments are as follows:
Surgical Staples-Engaged in engineering and design of surgical staples for use in internal surgery, and in the technology used to fabricate the equipment issued to apply the staples. The Company has discontinued its research efforts relating to the surgical staple segment of its business during 2003.
Electro-Optical-Engaged in engineering and development of equipment for the semi-conductor industry. The company has discontinued efforts relating to the electro-optical segment of its business.
Rental-Engaged in the leasing of real estate the two retail buildings owned by the Company at 50 A&S Drive, Paramus, New Jersey. Approximately 98% of the Company revenues are earned by this segment, all of which is received from two tenants (see Note 10).
The accounting policies of the segments are the same as those described in the summary of major accounting policies. The Company evaluates the performance of its operating segments based on income before income taxes. There are no intercompany sales. The Company derives all of its revenue in the United States.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 12. BUSINESS SEGMENTS (Continued)
Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes corporate income and expense items not allocated to reportable segments.
Revenues
2004 2003 2002 Business Segments:
Surgical Staples $ - $ - $ - Electro-Optical - - - Real Estate Rental 2,053,703 2,053,703 2,053,703 Other 4,645 32,932 17,805 --------- --------- ---------
Total $ 2,058,348 $2,086,635 $2,071,508 ========= ========= =========
Income (Loss)
2004 2003 2002 Business Segments:
Surgical Staples $ - $ (139,679)* $ (214,031) Electro-Optical - - - Real Estate Rental 1,793,610 1,798,151 1,795,131 --------- --------- ---------
Total 1,793,610 1,658,472 $1,581,100 --------- --------- ---------
General and Administrative Expenses (1,069,407) (828,081) (895,350) Interest Expense (378,989) (417,026) (451,958) Other Income 4,645 32,932 17,805 Income Tax Expense (164,923) (241,927) (148,808) --------- --------- --------- Total (1,608,674) (1,454,102) (1,414,701) --------- --------- --------- Net Income $ 184,936 $ 204,370 $ 166,399 ========= ========= =========
Identifiable Assets
2004 2003 2002 Business Segments:
Surgical Staples $ - $ - $ 55,179 Electro-Optical - - 1,349 Real Estate Rental 6,006,879 6,310,711 6,614,542 Other 976,927 987,953 966,752 --------- --------- ---------
TOTAL ASSETS $ 6,983,806 $7,298,664 $7,637,822 ========= ========= =========
* Discontinued operations
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 12. BUSINESS SEGMENTS (Continued)
Business Segments: Capital Expenditures 2004 2003 2002 Surgical Staples $ - $ - $ - Electro-Opitical - - - Real Estate Rental - - - Other 3,529 4,214 49,083 --------- --------- --------- $ 3,529 $ 4,214 $ 49,083 ========= ========= =========
Property and Equipment Business Segments Depreciation 2004 2003 2002 Surgical Staples $ - $ - $ - Electro-Optical - - - Real Estate Rental 199,959 199,959 199,959 Other 20,407 19,908 16,929 --------- --------- --------- $220,366 $219,867 $216,888 ========= ========= =========
Intangible Assets Amortization 2004 2003 2002 Surgical Staples $ - $ - $ 11,728 Electro-Optical - - 2,698 Real Estate Rental 41,109 41,108 41,109 Other - - - --------- --------- --------- $ 41,109 $ 41,108 $ 55,535 ========= ========= =========
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at September 30, 2004, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 14. PENSION PLAN
The Company established a defined benefit plan covering all eligible employees, who have completed one year of service. Benefits are based on years of service and the average compensation during the best three years of participation.
The Company's funding policy is to make annual contributions to the plan in amounts such that all employees' benefits will be fully provided for by the time they retire. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
Although it has not expressed any intention to do so, the Company has the right under the plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA.
The Company has adopted SFAS No. 132 "Employers' Disclosures about Pensions and Other Post Retirement Benefits". The provisions of SFAS No. 132 revise employers' disclosures about pension and other post retirement benefit plans. It does not change the measurement or recognition of this plan. It standardizes the disclosure requirements for pensions and other post retirement benefits to the extent practicable.
The Company provides defined benefit pension plan to the employees. The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plan.
2004 2003 2002 Changes in benefit obligation: Benefit obligation at October 1 $2,371,343 $1,925,510 $1,782,702 Service cost 440,931 306,184 370,905 Interest cost 211,676 167,601 162,099 --------- --------- --------- Benefit obligation at September 30 $3,023,950 $2,394,295 $2,315,706 ========= ========= =========
2004 2003 2002 Change in plan assets: Fair value of plan assets at October 1 $2,096,090 $1,810,644 $1,407,957 Company contributions 479,009 334,764 398,584 Benefit payments (100,000) - - Actual return on plan assets 242,794 (49,318) 4,103 --------- --------- ---------
Fair value of plan assets at September 30, $2,717,893 $2,096,090 $1,810,644 ========= ========= =========
Funded status of Plan $(306,057) $(298,205) $(505,062) Unrecognized Net (Gain) Loss 158,051 177,071 396,204 --------- --------- ---------
Accrued Pension $(148,006) $(121,134) $(108,858) ========= ========= =========
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 14. PENSION PLAN (Continued)
The net periodic pension cost for the year ended September 30, includes the following components: 2004 2003 2002 1. Service cost - benefits earned during the period $ 440,931 $ 306,184 $370,905 --------- --------- ---------
2. Interest cost on projected benefit obligation 211,676 167,601 162,099 --------- --------- --------- 3. Actual return on plan assets (142,794) 49,318 (4,103) --------- --------- --------- 4. Net amortization and deferral: a. Amortization of unrecognized net obligation (asset) at transition - - - b. Amortization of unrecognized prior service cost - - - c. Amortization of unrecognized net (gain) or loss (3,932) (176,063) (94,454) d. Asset gain or (loss) deferred - - - --------- --------- ---------
e. Total ( 3,932) (176,063) $(94,454) --------- --------- ---------
5. Net periodic pension cost (credit) = (Item 1+item 2+item 3+item 4(e) $505,881 $ 347,040 $434,447 --------- --------- ---------
The net periodic pension cost for 2004, 2003 and 2002 was determined based on a 7% discount rate and a long - term rate of return of 7% on plan assets.
HOLOBEAM, INC.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE 15. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
For the Fiscal Year Ended September 30, 2004
First Second Third Fourth Quarter Quarter Quarter Quarter Total Revenues $505,955 $505,371 $505,498 $541,524
Gross Profit N/A N/A N/A N/A
Income Before Extraordinary Items 75,707 33,653 37,346 38,230
Weighted Average Number of Shares 273,420 271,505 271,346 271,211
Earnings Per Share .28 .12 .14 .14
Net Income $75,707 $33,653 $37,346 $38,230
For the Fiscal Year Ended September 30, 2003
First Second Third Fourth Quarter Quarter Quarter Quarter
Total Revenues $505,843 $531,467 $507,841 $481,432
Gross Profit N/A N/A N/A N/A
Income Before Extraordinary Items 50,021 67,758 64,226 22,365
Weighted Average Number of Shares 278,277 274,985 271,242 274,492
Earnings Per Share .18 .25 .24 .08
Net Income $50,021 $67,758 $64,226 $22,365
The aggregate cost for Federal income tax purposes at September 30, 2004 is $7,414,016.
The accompanying notes are an integral part of these financial statements.
Activity for the three years ended September 30, 2004 is as follows: 2004 2003 2002 Balance at Beginning of Year $4,511,328 $4,925,542 $5,305,152
Additions During Year: Commercial Loans 0 0 0 New Mortgages 0 0 0 --------- --------- ---------
4,511,328 4,925,542 5,305,152 Deductions During Year: Principal Payments 451,975 414,214 379,610 Mortgage Payments 0 0 0 --------- --------- ---------
Balance at End of Year $4,059,353 $4,511,328 $4,925,542 ========= ========= =========
(1) The cost for Federal income tax purposes at 9/30/04 is $4,059,353
The accompanying notes are an integral part of these financial statements.
Item 9.
Item 9. Changes and Disagreements with Accountants on - ------------------------------------------------------ Accounting and Financial Disclosure. - ------------------------------------ None.
Item 9A.
Item 9A. Controls and Procedures. - --------------------------------- Under the supervision and with the participation of the Officers, including the President and the Treasurer, the Board of Directors has evaluated the effectiveness of the design and operation of the Registrant's disclosure controls and procedures as of the end of the period covered by this report, and based upon their evaluation, the President and Treasurer have concluded that these controls and procedures are effective. There were no significant changes in internal controls or in other factors that could materially affect these controls subsequent to the date of their evaluation.
Item 9B.
Item 9B. Other Information - -------------------------- Subsequent Events ----------------- On October 20, 2004, the Registrant filed an amendment to is Restated Certificate of Incorporation for the purpose of reducing the number of Authorized Common Shares to 272,000 from 2,000,000. The amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware and was approved by the affirmative vote of approximately 81% of the Registrant's shareholders.
PART III Item 10.
Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------- (a) The following Table identifies each Director of the Registrant and indicates his position with the Registrant, the duration of his term as Director and the date when he was first elected.
Name and Age Title Term Date First Elected - -------------------------------------------------------------------------
Melvin S. Cook Chairman of the Board 2005 Annual 1968 Age 73 President of Registrant Meeting
William M. Hackett Treasurer of Registrant 2006 Annual 1984 Age 61 Meeting
Beverly Cook Office Manager and 2007 Annual 1995 Age 68 Secretary of Registrant Meeting
(b) The following Table represents the name and age of each officer of the Registrant, the positions and offices held by each, the term of each office and the period which each has served in the indicated office.
Name and Age Title Term Date First Elected - ------------------------------------------------------------------------
Melvin S. Cook Chairman of the Board Annual 1968 Age 73
William M. Hackett Treasurer of Registrant Annual 1975 Age 61
Beverly Cook Secretary of Registrant Annual 1997 Age 68
(1) Each officer has been selected to serve until the next Annual Meeting of the Board of Directors or until his respective successor shall be elected and shall quality. (c) There are no significant employees other than those identified in (a) and (b) above. (d) The following Table summarizes the business experience and
principal occupation during the last five years of each person who serves as a director of executive officer of the Registrant, as well as any other directorship held by persons serving as directors of the Registrant.
Other Name Business Experience/Occupation Directorship - ----------------------------------------------------------------
Melvin S. Cook Chairman of the Board of Directors and None President of the Registrant since its formation.
William M. Hackett Vice President of Registrant from None August 23, 1975 until June 1, 1981 and Controller of Registrant and member of accounting staff from October 1973 to August 1975. Treasurer of Registrant from June 1981 to present. Vice President of CMA Co., Inc. from November 1986 to present. Elected President of CMA Co., Inc. in 1998.
Beverly Cook Office Manager of Registrant from June 1, None 1981 until present. Married to Melvin S. Cook, President and Chairman of the Board of Directors.
(f) Not applicable.
Item 11.
Item 11. Executive Compensation. - --------------------------------- (a) The following Table shows all direct remunerations paid by the Registrant during the fiscal year ended September 30, 2004 to each Director or Officer of the Registrant whose aggregate direct remuneration exceeds $100,000., and the direct remuneration paid all Directors and Officers of the Registrant as a group for such fiscal year.
Item 11 (cont'd.) The Summary Compensation Table represents all aggregate forms of remuneration to the executive officers of the Registrant. There were no other payments or compensation awarded to the officers of the Registrant. (b) The Directors who are not employees of the Registrant receive standard attendance fees of $200 plus applicable expenses for travel. No Directors' fees were paid during 2004, 2003 and 2002. (c) The following Table sets forth all the options to purchase securities from the Registrant which were granted to or exercised by any of its directors and each officer whose direct remuneration exceeds $100,000. as well as all officers and directors as a group since October 1, 2003.
All Directors and Officers as a Group ------------------------------------- Options Granted Options Exercised Unexercised Options Held at 9/30/04 0
(d)The following Table sets forth information about the Company's defined benefit pension plan benefits: Pension Plan Table Years of Service ---------------- Remuneration 37 ------------ ------- $ 60,000. $ 60,000.
160,000. 160,000.
200,000. 160,000.
Pensions are based upon average annual earnings (salary and bonus) for the highest three consecutive years of employment with the Registrant. For Melvin Cook and Beverly Cook, the amounts equaled $200,000. and $137,500., respectively, as of September 30, 2004. Melvin Cook and Beverly Cook will be credited at
normal retirement date with 37 years service each under the Pension Plan as of September 30, 2004. Pensions may be adjusted for a surviving spouse's pension or other options under the Pension Plan. Pensions are not subject to any other deduction for Social Security or any other amounts. (Reference is made to Note 14 of the accompanying Financial Statements for the year ended September 30, 2004.)
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and - ------------------------------------------------------------- Management and Related Stockholder Matters. - ------------------------------------------- (a) The stockholding of each person who is known by the Registrant to own beneficially more than 5% of any classes of securities as of December 10, 2004 is as follows:
Title of Class Name & Address Amount Owned % of Class - -----------------------------------------------------------------
Common Stock, Par Melvin S. Cook 124,500 46.1% Value $0.10 Per Share 217 First Street Ho-Ho-Kus, NJ 07423
Common Stock, Par Beverly Cook 95,000 35.1% Value $0.10 Per Share 217 First Street Ho-Ho-Kus, NJ 07423
(b) The stockholding of Officers and Directors as a group as of December 10, 2004 are as follows:
Title of Class Amount Beneficially Owned % of Class - ---------------------------------------------------------------
Common Stock, Par Value 219,500 81.2% $0.10 Per Share
(c) There are no contractual arrangements that might result in a change of control of Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions - Not - -------------------------------------------------------- Applicable Item 14.
Item 14. Principal Accountant Fees and Services. - ------------------------------------------------- The Board of Directors and Officers of the Registrant appointed R.A.
Fredericks and Co., LLP, independent registered public accounting firm, to audit the Registrant's books, records and accounts for the Fiscal Year ended September 30, 2004. The Board of Directors approves all services rendered by R.A. Fredericks and Co., LLP and approves all fees paid to the audit firm. The Board of Directors requires that the Treasurer and the President approve all audit and other permissible non-audit services provided by R.A. Fredericks and Co., LLP. The Board of Directors will not approve non-audit engagements that would violate rules of the U.S. Securities and Exchange Commission or impair the independence of R.A. Fredericks and Co., LLP. For the fiscal years ended September 30, 2004 and 2003, R.A. Fredericks and Co., LLP was paid the following fees for services provided to the Registrant:
2004 2003 Audit Fees $20,000 $16,000 Tax Fees 2,500 2,500 All Other Fees -0- -0- ------ ------ Total $22,500 $18,500 ====== ======
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules and Reports - ------------------------------------------------------------- on Form 8K - ---------- The following documents are filed as part of the Annual Form 10-K: 1. Index to Exhibits A. Officers' Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 B. Certification of Chief Executive Officer pursuant to U.S.C., Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 C. Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 D.Amended and restated Certificate of Incorporation of Holobeam, Inc. E.Code of Ethics
HOLOBEAM, INC. Form 10K September 30, 2004
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Holobeam, Inc. ------------------------- By William M. Hackett ------------------ Date December 10, 2004 -----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
HOLOBEAM, INC.
By: Melvin S. Cook -------------- Melvin S. Cook President and Chairman of the Board
Date: December 10, 2004 -----------------
By: William M. Hackett ------------------ William M. Hackett Director and Treasurer
Date: December 10, 2004 -----------------
By: Beverly Cook ------------ Beverly Cook Director and Secretary
Date: December 10, 2004
EXHIBIT A
CERTIFICATIONS
(a)The Registrant maintains disclosure controls and procedures that provide reasonable assurance that the Registrant is able to record, process and summarize and report the information required to comply with the Registrant's Exchange Act disclosure obligations and for the Registrant's own internal purposes. The Registrant has evaluated these controls and procedures at September 30, 2003 and has determined the controls and procedures to be effective in recording, processing, summarizing and reporting the information required by the Registrant's quarterly and annual Exchange Act reports.
(b)There have been no significant changes in the Registrant's procedures or internal controls or in other factors that could significantly affect these controls subsequent to September 30, 2004, including corrective actions with regard to significant deficiencies and material weaknesses. As of September 30, 2004, the examination of controls and procedures did not disclose any significant deficiencies or material weaknesses.
I, William M. Hackett, Treasurer, certify that:
1.I have reviewed this annual report on Form 10-K of Holobeam, Inc.;
2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a)designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.The Registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):
a)all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and
6.The Registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: 12/05/04 --------
William M. Hackett, Treasurer -----------------------------
William M. Hackett Treasurer
I, Melvin S. Cook, President, certify that:
1.I have reviewed this annual report on Form 10-K of Holobeam, Inc.;
2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a)designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c)presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):
a)all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and
6.The Registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: 12/10/04 --------
Melvin S. Cook, President ------------------------- Melvin S. Cook President
EXHIBIT D
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
HOLOBEAM, INC.
*****
Holobeam, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation in a meeting duly held, unanimously adopted a resolution proposing and declaring advisable the following amendment to the Restated Certificate of Incorporation of said corporation:
RESOLVED, That the Restated Certificate of Incorporation of the corporation be amended by changing the FOURTH Article thereof so that, as amended said Article shall be and read as follows: "FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is Two Hundred Seventy Two Thousand (272,000) shares of Common Stock having a par value of Ten Cents ($0.10) per share amounting in the aggregate to Twenty-Seven Thousand Two Hundred Dollars ($27,200)."
SECOND: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware.
THIRD: That this Certificate of Amendment of the Restated Certificate of Incorporation shall be effective on October 20, 2004.
IN WITNESS WHEREOF, said Board of Directors of said Holobeam, Inc. has caused this certificate to be signed by the Chairman this 4th day of October 2004.
Melvin S. Cook by Melvin S. Cook Chairman