10-K 1 form10k.txt FORM 10-K SECURITIES EXCHANGE COMMISSION WASHINGTON, DC 20549 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File No. 1-7215 PEERLESS TUBE COMPANY New Jersey (State of Jurisdiction) 22-1191280 (E.I.N.) 58-76 LOCUST AVENUE BLOOMFIELD, NEW JERSEY 07003 TELEPHONE: 973-743-5100 Securities registered pursuant to section 12 (g) of the act: Title of Class Exchange -------------- -------- Common stock $1.33-1/3 par value Over the counter (PLSU) Indicate by a check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes[x] No[ ] Common Stock, Par Value $1.33-1/3 Outstanding at December 30, 2000. 2,462,973 shares PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 1

*These items are omitted since the Registrant has simultaneously filed with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A involving the election of directors. Certain information relating to the Executive Officers of the Registrant appears on page 7 and 10 of this report. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 2 -------------------------------------------------------------------------------- Part I. -------------------------------------------------------------------------------- ITEM 1: BUSINESS The Company's primary product shipped in the United States is aluminum aerosol pressurized cans. The market size is an estimated 3.0 billion units. Major product groups include personal products, household products, automotive and industrials, paints and finishes, insect sprays, and food products. Aluminum containers historically comprise 10% of the aerosol market with personal products and hair sprays comprising the largest segments The tube industry is comprised of plastic, laminate, and metal products. The major markets are pharmaceutical, dentifrice, cosmetic, and personal care. The estimated annual tube volume is 2.95 billion units. The metal tube market, which represents the Company's segment of the market, has become a small part of the Company's overall sales mix. The Company does not fill any containers that it manufacturers. The other product lines mentioned previously are of relatively minor importance, are in a highly competitive market, and are sold to a small number of specialty customers. The industry in which the Company competes is extremely price competitive. The Company continues to offer a high quality product, meet customer product demands, and at the same time remain price competitive.

The Company supplies approximately 100 customers including 15-20 major accounts. In 2000, three customers accounted for 43% (17%, 16% and 10%) of the Company's sales. In 1999, two customers accounted for 45% (32% and 13%) of the Company's sales. In 1998, two customers accounted for 60% (48% and 12%) of the Company's sales. Excess capacity in the industry has had an adverse effect on the Company. However, steps are currently being taken to implement operational changes and reduce costs in order to offset the loss in volume. The change in sales mix from 1998 to 2000 is a result of increased demand in collapsible metal tubes and increased price pressure brought on by a stronger U.S. dollar. The current sales backlog of production orders and inventory on hand is slightly less than last year. This position can change rapidly as customers PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 3 release new orders or adjust desired quantities. The Company's production is against firm orders and subject to firm and final pricing. THE MANUFACTURING PROCESS While production lines for aluminum aerosols and tubes can be dissimilar, automatic production machinery and equipment perform each of the following steps in a continuous process: Extruding the can or tube: 1. Trimming the can or tube to its proper length. 2. Heating and cleaning the can or tube shell. 3. Coating or lining the interior and/or exterior of the shell. 4. Decorating and over lacquering the container. 5. Necking or forming the orifice or shoulders of the can or tube. 6. Packaging the product. Solid aluminum slugs are first fed through a hopper into an impact extrusion press 250-400 tons pressure at impact point. Then the containers, now recognizable as such, are fed by conveyors, during which time a micrometer and other tests are made periodically to check wall and bottom thickness, into a trimmer that shears the side wall to correct length. After the container shells have been trimmed, the containers are conveyed through one or more ovens and washing tanks. Then they are fed back onto a production line where they are spun on spindles or other transfer devices, and sprayed with coats of the desired internal resin liner. To set these resins for maximum resistance to certain product corrosivity, the containers are preheated and baked in an oven at very high temperatures (over 500(Degree) F). A vinyl or epoxy-type base coat of the desired color is then sprayed on the outside of the container. After going through another drying oven, the containers are positioned for lithography (of up to six colors) on an offset press and then dried. If specifications call for a high degree of protection of the container finish against possible marring by product spray or drip, the containers are then given a coating with an external clear lacquer, usually of the epoxy type. After final drying, a rolling machine turns the neck inward or outward, so that the lip touches the inside of the neck to form a continuous interior circumferential bead leaving the mouth circular. In addition to product compatibility discussed below, this necking process, plus the seamless construction and the exceptionally high bursting strength, gives the aerosol its chief selling appeal from a technical standpoint; while the seamless construction combined with the printing capability provides the aesthetic appeal and marketability. The finished products, at a rate of up to 150 per minute, are packed for shipment to the customer. Though each container has the same physical characteristics, they may differ widely as to special features. Selection of internal liners, lithographic print inks, base coat formulation and external lacquers are all conditioned by the chemical characteristics of product and propellant and how each reacts with the other. Also acting to differentiate the containers of one customer from those of another are the form of product dispersal, the type of metal or plastic overcap, and possible corrosive characteristics of the valve components intended for a particular product. The Company obtains samples of all the components after the custom filler or marketer has achieved product and propellant compatibility, and parallel tests are conducted to evolve the right liners and coatings to use so that they fit the particular product. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 4 Frequently, the customer changes his source of supply, and seemingly minor changes may throw out all the formulation specifications. Some of the external coating problems are ameliorated by the use of aluminum, which has surface especially suited to receive coatings. Aerosol cans contain 99.4% aluminum (or slightly less than metal tubes to impart greater rigidity), and under a microscope, the aluminum surface looks like a series of raw teeth which readily pick up high quality coating and inks with good hard adhesive qualities. SEGMENT DATA The Company has one segment of business, which is the manufacture of containers, either aluminum cans or tubes. All of its major product lines are sold to the same marketer and/or manufacturing industries for highly similar end uses. All products are fabricated by the extrusion method of forming metal and many customers are buying all product lines for sale to essentially the same markets. The products are manufactured under the same roof with overlapping labor forces and overhead, and on similar machinery. RAW MATERIALS The basic raw materials essential to the operation of the Company are aluminum ingot, paint, ink and paper products for packaging and shipping containers. All necessary supplies are readily available. The Company has a supply agreement for aluminum slugs that expires in the year 2005. The Company has the right to purchase from a third party supplier if the supplier is unable to ship slugs when needed. ENVIRONMENT The Company is subject to federal, state, and local requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is the Company's policy to comply with these requirements, and the Company believes that as a general matter its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with its business. Some risk of environmental damage is, however, inherent in particular operations and products of the Company, as is the case with other companies engaged in similar businesses. The Company is and has been engaged in handling, manufacture, use or disposal of several substances, which are classified as hazardous or toxic by one or more regulatory agencies. The Company believes that its handling, manufacture, use and disposal of such substances have generally been in accord with environmental law and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect such substances in the environment, increasingly strict environmental laws and standards and enforcement policies there under, could bring into question the Company's handling, manufacture, use, or disposal of such substances. EMPLOYEES The Company presently employs approximately 110-120 persons at its facility located in Bloomfield, New Jersey. The Company is a non-union organization and management's relationship with its employees is considered excellent. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 5 ITEM 2: PROPERTIES The Company's facility is located in Bloomfield, New Jersey. The land, building, and equipment are pledged as collateral under various loan agreements with the Company's secured working capital lender, which has a security interest in substantially all the Company's assets. The executive, administrative, marketing and engineering offices along with the manufacturing and warehouse facilities are contained in three (3) buildings, a total of 261,000 square feet. There is adequate space to expand the operations if required. ITEM 3: LEGAL PROCEEDINGS In January 1998, a jury verdict was rendered against the Company in a lawsuit filed by a former employee alleging age discrimination and breach of contract. The amount of damages and attorney's fees awarded to the employee approximated $638,000. On June 5, 1998, a settlement agreement with the former employee was reached whereby the Company will pay, over a two-year period, a total of $700,000 including interest, of which $60,000 was paid in 1998. In June 1999, as part of a further agreement, $600,000 was paid as full and final settlement of the suit. Under the terms of the agreement, the former employee was granted a lien subordinated in priority to the Company's asset based lender on substantially all of the Company's assets. There are several other suits arising in the normal course of business. The Company believes these suits are without merit and is vigorously defending its position in each suit. Counsel for the Company cannot offer an opinion as to the probable outcome of such cases. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Shareholders at the annual meeting, expected to be held on or before December 2001, will be asked to elect the Board of Directors and ratify the Company's independent auditors. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 6

PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 7 -------------------------------------------------------------------------------- Part II -------------------------------------------------------------------------------- ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Peerless Tube Company Corporation Common Stock is traded over-the-counter. The Company is traded under the symbol PLSU. There has been a relatively small number of trades during 1997. The range of the high and low common stock sale's prices as reported by the NASD bulletin board over the counter for each of the quarters for the years ended December 31, 2000, 1999, and 1998 are listed as follows: ------------------------------------------------------------------------ Quarter 2000 1999 1998 ------------------------------------------------------------------------ 1 $0.3500 $0.4400 $0.3125 $0.2000 $0.3750 $0.2600 2 $0.4600 $0.4400 $0.4375 $0.2000 $0.4400 $0.2800 3 $0.2800 $0.6250 $0.2800 $0.1000 $0.5000 $0.1250 4 $0.2400 $0.6600 $0.2500 $0.0400 $0.3750 $0.0625 ------------------------------------------------------------------------ There were no stock or cash dividends declared or paid since 1989. Under the Company's loan agreement, the Company is restricted from the payment of dividends. The approximate number of record holders of the Company's Common Stock, at December 31, 2000, was 1,100. ITEM 6: SELECTED FINANCIAL DATA Selected financial data for the five years ended December 31, 2000 is presented on page 20 of this report. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis is presented on pages 4 to 11 of this report. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements, together with the reports therein of Goldstein Golub Kessler LLP dated April 19, 2001 appear on pages 22-34, of this report. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 8 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements on any auditing, accounting or financial disclosure in 2000. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 9 -------------------------------------------------------------------------------- Part III. -------------------------------------------------------------------------------- ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information, relating to the directors of the Registrant, as well as information relating to compliance with section 16(a) of the Securities Exchange Act of 1934 is contained in a definitive Proxy statement primarily involving election of directors and appointment of independent accountants. The Registrant is simultaneously filing this document with the Securities and Exchange Commission pursuant to Regulation 14a, and such information is incorporated by reference. Certain other information relating to the Executive Officers of the Registrant appears on page 7 of this Form 10-K Annual Report. ITEM 11: EXECUTIVE COMPENSATION Information relating to executive compensation is also contained in the Proxy statement referred to above in Item 10: Directors and Executive Officers of the Registrant and such information is incorporated by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to security ownership of certain beneficial owners and management is also contained in the Proxy statement referred to above in Item 10: Directors and Executive Officers of the Registrant and such information is incorporated by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to certain relationships and related transactions can be found on page 13, management section, of the Company's 1998 annual report to stockholders and incorporated herein by reference. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 10 -------------------------------------------------------------------------------- Part IV. -------------------------------------------------------------------------------- ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as part of this report:

*The consolidated financial statement schedules should be read in conjunction with the Consolidated Financial Statements incorporated by reference in Item 8 of the Form 10-K Annual Report. Schedules other than those listed above have been omitted because of the absence of the conditions under which they are required or because information required is shown in the consolidated financial statements or the notes thereto. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEERLESS TUBE COMPANY Registrant By: ___________________________________ Frederic Remington, Jr. Chairman of the Board and Chief Executive Officer By: ___________________________________ Richard W. Potts President and Director PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 12 -------------------------------------------------------------------------------- OUR VISION We will be one of the leaders in the packaging industry, successful in everything we do. -------------------------------------------------------------------------------- OUR We will achieve our Vision by being a Total COMMITMENT Quality Company, continuously improving our processes to satisfy our internal and external customers. -------------------------------------------------------------------------------- OUR VALUES CUSTOMERS - Our first priority is to satisfy our customers. PEOPLE - We help our employees improve their skills, encourage them to take risks, treat them fairly, and recognize their accomplishments, asking them to approach their jobs with passion and commitment. TEAMWORK - We build trust and teamwork with open, candid communications. We work together and share technologies and best practices with our suppliers and customers. INNOVATION - We accept change as the rule, not the exception, and drive it by encouraging creativity. PERFORMANCE - We encourage the highest expectations, set ambitious goals, and quite simply strive to be the best. -------------------------------------------------------------------------------- PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 13 -------------------------------------------------------------------------------- SALES AND RESULTS OF OPERATIONS 2000 COMPARED TO 1999 -------------------------------------------------------------------------------- SALES Net sales for the year ended December 31, 2000 decreased $1,658,000 or 13% on sales of $12,723,000 when compared to 1999 net sales of $14,381,000. Aerosol sales volume for 2000 was $10,639,000 as compared with sales for 1999 of $12,280,000 or a decrease of 15%. Aluminum tube sales for 2000 were $1,429,000 as compared with 1999 tube sales of $1,279,000 or an increase of 11%. Miscellaneous sales for 2000 totaled $655,000 as compared to $822,000 in 1999. The decrease in sales was a result of increasing price pressure brought on by a strong U.S. Dollar. In 2000, the Company's sales to three customers accounted for 43% (17%, 16% and 10%) of the Company's total sales. In 1999, two customers accounted for 45% (32% and 13%) of the Company's sales. GROSS MARGIN TRENDS AND DISCUSSION The gross profit for the years ended December 31, 2000 and December 31, 1999 was $654,000 or 5.1% of sales and $1,242,000 or 8.6% of sales respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the year ended December 31, 2000 were $1,709,000 or 13% of sales as compared to $1,578,000 or 11% for the year ended December 1999. INTEREST EXPENSE, AND OTHER INCOME, NET Interest expense for the year ended December 31, 2000 was $443,000 as compared to $335,000 in 1999. Other income for the year ended December 31, 2000 was $221,000 as compared to $336,000 for the year ended December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company had a negative working capital of $1,585,000 at December 31, 2000. This was a $1,164,000 decrease from the negative working capital of $421,000 at December 31, 1999. Cash at December 31, 2000 was $18,000 or a decrease of $32,000 when compared to the same date in 1999. The Company has a working capital loan secured by the Company's accounts receivables and inventories and a term loan secured by property, plant and equipment. Management must monitor its cash resources very closely. Operational improvements, aggressive marketing, and favorable aluminum pricing will be required in order to improve cash availability. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 14 -------------------------------------------------------------------------------- SALES AND RESULTS OF OPERATIONS 1999 COMPARED TO 1998 -------------------------------------------------------------------------------- SALES Net sales for the year ended December 31, 1999 decreased $1,176,000 or 8% on sales of $14,381,000 when compared to 1998 net sales of $15,557,000. Aerosol volume for 1999 was $12,280,000 as compared with sales for 1998 of $14,300,000 or a decrease of 14%. Aluminum tube sales for 1999 were $1,279,000 as compared with 1998 tube sales of $782,000 or an increase of 63%. Miscellaneous sales for 1999 totaled $822,000 as compared to $475,000 in 1998. The decrease in sales was a result of a slight decrease in sales to a major customer. In 1999, the Company's sales to two customers accounted for 45% (32% and 13%) of the Company's total sales. In 1998, two customers accounted for 60% (48% and 12%) of the Company's sales. GROSS MARGIN TRENDS AND DISCUSSION The gross profit for the years ended December 31, 1999 and December 31, 1998 was $1,242,000 or 8.6% of sales and $303,000 or 2.0% of sales respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the year ended December 31, 1999 were $1,578,000 or 11% of sales as compared to $1,878,000 or 12% for the year ended December 1998. INTEREST EXPENSE, AND OTHER INCOME, NET Interest expense for the year ended December 31, 1999 was $335,000 as compared to $270,000 in 1998. Other income for the year ended December 31, 1999 was $221,000 as compared to $1,000 for the year ended December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company had a negative working capital of $421,000 at December 31, 1999. This was a $1,314,000 increase from the negative working capital of $1,735,000 at December 31, 1998. Cash at December 31, 1999 was $50,000 or an increase of $35,000 when compared to the same date in 1998. In order to meet cash requirements during 1999 and fund certain obligations, the Company refinanced its secured credit facility with a major lender. The Company was able to increase its line of credit and minimize the drain in working capital. The Company has a working capital loan secured by the Company's accounts receivables and inventories and a term loan secured by property, plant and equipment. Management must monitor its cash resources very closely. Operational improvements, aggressive marketing, and favorable aluminum pricing will be required in order to improve cash availability. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 15 -------------------------------------------------------------------------------- SALES AND RESULTS OF OPERATIONS 1998 COMPARED TO 1997 -------------------------------------------------------------------------------- SALES Net sales for the year ended December 31, 1998 decreased $731,000 or 4% on sales of $15,557,000 when compared to 1997 net sales of $16,288,000. Aerosol volume for 1998 was $14,300,000 as compared with sales for 1997 of $15,152,000 or a decrease of 6%. Aluminum tube sales for 1998 were $782,000 as compared with 1997 tube sales of $844,000 or a decrease of 7%. Miscellaneous sales for 1998 totaled $475,000 as compared to $292,000 in 1997. The decrease in sales was a result of a slight decrease in sales to a major customer. In 1998, the Company's sales to two customers accounted for 60% (48% and 12%) of the Company's total sales. In 1997, two customers accounted for 61% (34% and 27%) of the Company's sales. GROSS MARGIN TRENDS AND DISCUSSION The gross profit for the years ended December 31, 1998 and December 31, 1997 was $303,000 or 2.0% of sales and $228,000 or 1.0% of sales respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the year ended December 31, 1998 were $1,878,000 or 12% of sales as compared to $2,778,000 or 17% for the year ended December 1997. INTEREST EXPENSE, AND OTHER INCOME, NET Interest expense for the year ended December 31, 1998 was $270,000 as compared to $278,000 in 1997. Other income for the year ended December 31, 1998 was $1,000,000 as compared to $89,000 for the year ended December 31, 1997. Most of the other income in 1997 related to the surrender of life insurance policies. LIQUIDITY AND CAPITAL RESOURCES The Company had a negative working capital of ($1,735,000) at December 31, 1998. This was a $1,582,000 decrease from the working capital of ($153,000) at December 31, 1997. Cash at December 31, 1998 was $15,000 or a decrease of $153,000 when compared to the same date in 1997. In order to meet cash requirements during 1998, the Company was required to increase its line of credit in order to minimize the drain in working capital and help in the net repayment of debt. The increase to the line of credit was $271,000. The Company has a working capital loan secured by the Company's accounts receivables and inventories. Management must monitor its cash resources very closely. Operational improvements, aggressive marketing, and favorable aluminum pricing will be required in order to improve cash availability. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 16 -------------------------------------------------------------------------------- SALES AND RESULTS OF OPERATIONS 1997 COMPARED TO 1996 -------------------------------------------------------------------------------- SALES Net sales for the year ended December 31, 1997 decreased $7,328,000 or 31% on sales of $16,288,000 when compared to 1996 net sales of $23,616,000. Aerosol volume for 1997 was $15,152,000 as compared with sales for 1996 of $17,921,000 or a decrease of 15%. Aluminum tube sales for 1997 was $844,000 as compared with 1996 Tube sales of $5,175,000 or a decrease of 84%. Miscellaneous sales for 1997 totaled $292,000 as compared to $520,000. The decrease in 1997 vs. 1996 in the aerosol and tube lines was a result of excess capacity in the aerosol markets and the closing of the Puerto Rico facility. In 1997, the Company's sales to two customers accounted for 61% (27% and 34%) of the Company's total sales. In 1996 three customers accounted for 55% (22%. 21% and 12%) of the Company's sales. The Company's sales of aluminum aerosols are approximately 93% of the 1997 sales as compared to 76% in 1996. The mix change is a result of the closing of the Puerto Rico facility in 1996. The Puerto Rico facility produced solely aluminum tube product. GROSS MARGIN TRENDS AND DISCUSSION The gross profit for the year ended December 31, 1997 and December 31, 1996 was $228,000 or 1.0% of sales and $2,115,000 or 9.0% of sales respectively. The decrease in gross margin is primarily due to current excess capacity which the Company has available. A large part of the Company's costs are "fixed" rather than variable and the decreased demand for product in 1997 had a sufficient impact on the Company's ability to absorb the high amount of fixed costs. While the Company has been successful in reducing costs, it must increase its machine hour leverage and "value added" hours, in order to be profitable. The Company must increase its sales level in order to accomplish the above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the year ended December 31, 1997 were $2,778,000 or 17% of sales as compared to $2,528,000 or 11% for the year ended December 1996. The increase in SG&A is due to non-recurring legal expenses. INTEREST EXPENSE, AND OTHER INCOME, NET Interest expense for the year ended December 31, 1997 was $278,000 as compared to $607,000 in 1996. The decrease of $329,000 was a result of the termination of the sales/leaseback agreement with the Block Drug Company. Other income for the year ended December 31, 1997 was $89,000 as compared to $1,786,000 for the year ended December 31, 1996. The decrease is largely attributed to the Sale/Leaseback of Puerto Rico being terminated in November 1996. (See note 10, of notes to the Financial Statements). LIQUIDITY AND CAPITAL RESOURCES The Company had a negative working capital of ($153,000) at December 31, 1997. This was approximately a $72,000 increase from the negative working capital of ($225,000) at December 31, 1996. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 17 Net cash at December 31, 1997 was $190,000 or a decrease of $37,000 when compared to the same period in 1996. In order to meet cash requirements during 1997, the Company was required to increase its equipment loan in order to minimize the drain in working capital and help in the net repayment of debt. The increase to the equipment loan was $552,000. The debt-equity-ratio at December 31, 1997 was 4:1 as compared to 1.5:1 at December 31, 1996. The Company has a working capital loan secured by the Company's accounts receivables and inventories. Management must monitor its cash resources very closely. Operational improvements, aggressive marketing, and favorable aluminum pricing will be required in order to improve cash availability and management. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 18 -------------------------------------------------------------------------------- SALES AND RESULTS OF OPERATIONS 1996 COMPARED TO 1995 -------------------------------------------------------------------------------- SALES Net sales for the year ended December 31, 1996 decreased $6,177,000 or 21% on sales of $ 23,616,000 when compared to 1995 net sales of 29,793,000. Aerosol volume for 1996 was $17,921,000 as compared with sales for 1995 of $19,627,000 or a decrease of 9%. Aluminum Tube sales for 1996 was $5,175,000 as compared with 1995 tube sales of $9,739,000 or a decrease of 47%. Miscellaneous sales for 1996 totaled $520,000 as compared to 1995 of $427,000. The decrease in 1996 vs. 1995 for both aerosols and tube sales was due almost entirely to the loss of a major account in March 1996 and the closing of the tube facility in Puerto Rico. In 1996, the Company's sales to 3 customers accounted for 55% (22%, 21%, and 12%) of the Company's total sales. In 1995, four customers accounted for 68% (24%, 16%, 15% and 13%) of the Company's sales. (See note 14, of notes to the Financial Statements). The overall aerosol market continues to make packaging decisions for new product introduction between those that favor aluminum containers as to compatibility with environmentally acceptable formulations, and alternatives that are less expensive. Aggressive marketing of the products that are "alcohol free" also helps counter some consumer perception that aerosols are harmful to the ozone layer. The Company hopes to attract new sales as it works with industry and public relation groups to dispel this perception. While the industry forecasts growth, excess industry capacity may slow this growth, and will be slow in coming. The Company's sales of aluminum aerosols are approximately 76% of the 1996 sales as compared to 69% in 1995. This mix change is a result of the loss of a major customer in 1996, the closing of the Puerto Rico facility in 1996 and most importantly the increased consumer demand for plastic tubes opposed to aluminum tubes. GROSS MARGIN TRENDS AND DISCUSSION The gross profit for the year ended December 31, 1996 and December 31, 1995 was $2,115,000 or 9% of sales and $1,462,000 or 5% of sales respectively. The increase in gross margin is primarily do to the decrease in aluminum prices during 1996. In general, a large part of the Company's costs are "fixed" rather than variable. While the Company has been successful in reducing costs, with the forecasted reduction in sales in 1997, it must continue to successfully leverage its machine hours in order to be profitable. However, an increase level of sales is also required. Management believes it can continue to improve its gross margins in 1997 beyond what was achieved in 1996. However, the overall improvement in gross margin and operating results is expected to be gradual. The Company's management continues to make gains operationally because of the favorable price of aluminum, labor reductions and operational improvements. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the year ended December 31, 1996 were $2,528,000 or 11% of sales as compared to December 1995 SG&A of $2,825,000 or 9.5%. Selling, general and administrative expense increased in 1996 in relation to sales because of the loss of a major account in 1996 and the closing of the Puerto Rico facility November 1996. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 19 INTEREST EXPENSE, AND OTHER INCOME, NET Interest expense for the year ended December 31, 1996 was approximately $607,000 as compared to $816,000 in 1995. In 1996 interest decreased approximately $209,000, as compared to 1995, because of the decrease in the prime rate and lower average borrowing. Other income for the year ended December 31, 1996 was $1,786,000 as compared to $754,000 for the year ended December 31, 1995. The increase was attributable to the gain on the termination of the Sale Lease Back agreement of $1,555,000.(see note 10, of notes to the Financial Statements). Other income for 1996 and 1995 was also realized from the sale of substantially depreciated production lines not needed for current operations. At present, the Company's results have been favorably impacted by the market price of aluminum. Also, as discussed earlier, the Company has covered its aluminum requirements at a price that will protect sales at the gross margin level. Other operating cost have not been significantly impacted by inflation, however, very competitive pricing in the industry will continue to be a problem. LIQUIDITY AND CAPITAL RESOURCE The Company had a negative working capital of ($225,000) at December 31, 1996. This was approximately a $256,000 decrease from the working capital of $31,000 at December 31, 1995. While many factors effect the components of working capital, the primary reason for the decrease in working capital relates to the Company's continuing losses. Net cash at December 31, 1996 was $227,000 or a decrease of $433,000 when compared to the same time period in 1995. The decrease in cash in 1996 was primarily related to Company losses. However , the Company was provided with cash of $70,000 from the sale of certain obsolete production equipment an additional proceeds of $329,000 was realized form the termination of the sale/leaseback. The debt -equity- ratio at December 31, 1996 was 1.5:1 compared to 3.7:1 at December 31, 1994. The change in this financial ration was adversely impacted by the Company's operating loss in 1996. The Company has a working capital loan of up $4,000,000 secured by the Company's account receivable and inventories. As of December 31, 1996 the Company had cash and cash equivalents of approximately $227,000 and an availability under the line of credit of approximately another $600,000. Management must continue to monitor its cash resources very closely. Operational improvements, favorable aluminum pricing in the market, and an aggressive marketing approach will be required in 1997 in-order to improve cash management. PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 20

PEERLESS TUBE COMPANY 2000 ANNUAL REPORT FORM 10-K 21 PEERLESS TUBE COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEET ================================================================================ DECEMBER 31, 2000 1999 -------------------------------------------------------------------------------- (rounded to nearest thousand) ASSETS Current: Cash $ 18,000 $ 50,000 Accounts receivable, net of allowance for doubtful accounts of $100,000 1,323,000 1,373,000 Inventories 808,000 919,000 Prepaid expenses and other current assets 123,000 63,000 -------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 2,272,000 2,405,000 Property, Plant and Equipment, net 1,028,000 1,418,000 Deferred Financing Costs 135,000 165,000 Deferred Tax Assets, net of valuation allowance of $6,204,000 and $5,701,000, respectively -------------------------------------------------------------------------------- TOTAL ASSETS $ 3,435,000 $ 3,988,000 ================================================================================ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable $ 1,509,000 $ 740,000 Accrued liabilities 715,000 595,000 Revolving credit line 1,515,000 1,184,000 Current portion of long-term debt 307,000 307,000 -------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 4,047,000 2,826,000 Long-term Debt 1,408,000 1,715,000 Other Liabilities 273,000 273,000 -------------------------------------------------------------------------------- TOTAL LIABILITIES 5,728,000 4,814,000 -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES Stockholders' Deficiency: Common stock - $1.333 par value; authorized 5,000,000 shares, issued 2,536,935 shares 3,382,000 3,382,000 Additional paid-in capital 14,439,000 14,439,000 Accumulated deficit (19,770,000) (18,303,000) Less 73.962 shares of treasury stock, at cost (344,000) (344,000) -------------------------------------------------------------------------------- STOCKHOLDERS' DEFICIENCY (2,293,000) (826,000) -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,435,000 $ 3,988,000 ================================================================================ The accompanying notes and independent auditor's report should be read in conjunction with the consolidated financial statements. 23 PEERLESS TUBE COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) ================================================================================ YEARS ENDED DECEMBER 31, 1998, 1999 and 2000

24 PEERLESS TUBE COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS ================================================================================ YEAR ENDED DECEMBER 31, 2000 1999 1998 -------------------------------------------------------------------------------- (rounded to nearest thousand, except per share amounts) Net sales $12,723,000 $14,381,000 $15,557,000 Cost of sales 12,069,000 13,139,000 15,254,000 -------------------------------------------------------------------------------- Gross profit 654,000 1,242,000 303,000 Selling, general and administrative expenses 1,709,000 1,518,000 1,874,000 -------------------------------------------------------------------------------- Loss from operations (1,055,000) (276,000) (1,571,000) -------------------------------------------------------------------------------- Other income (expense) Interest expense (443,000) (335,000) (270,000) Other income, net 31,000 336,000 1,000 -------------------------------------------------------------------------------- (412,000) 1,000 (269,000) -------------------------------------------------------------------------------- Net loss $(1,467,000) $ (275,000) $(1,840,000) ================================================================================ Basic and diluted loss per share $ (.60) $ (.11) $ (75) ================================================================================ Weighted-average shares outstanding 2,462,973 $ 2,462,973 2,462,973 ================================================================================ The accompanying notes and independent auditor's report should be read in conjunction with the consolidated financing statements. 25 PEERLESS TUBE COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS ================================================================================ YEAR ENDED DECEMBER 31, 2000 1999 1998 -------------------------------------------------------------------------------- (rounded to nearest thousand) Cash flows from operating activities: Net loss $(1,467,000) $ (275,000) $(1,840,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 420,000 735,000 848,000 Provision for bad debts (110,000) (Increase) decrease in operating assets: Accounts receivable 50,000 (189,000) (91,000) Inventories 111,000 314,000 981,000 Prepaid expenses and other current assets (60,000) 23,000 (40,000) Other assets 10,000 Increase (decrease) in operating liabilities: Accounts payable 769,000 (1,264,000) 14,000 Accrued liabilities 121,000 (550,000) 378,000 Other liabilities (30,000) (360,000) -------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (56,000) (1,236,000) (210,000) -------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings under credit line 331,000 316,000 271,000 Net (reduction of) proceeds from long-term debt and current maturities (307,000) 1,135,000 (236,000) Payment of deferred financing costs (180,000) -------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 24,000 1,271,000 35,000 -------------------------------------------------------------------------------- Net increase (decrease) in cash (32,000) 35,000 (175,000) Cash at beginning of year 50,000 15,000 190,000 -------------------------------------------------------------------------------- Cash at end of year $ 18,000 $ 50,000 $ 15,000 ================================================================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 443,000 $ 335,000 $ 270,000 ================================================================================ The accompanying notes and independent auditors's report should be read in conjunction with the consolidated financing statements 26 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 ================================================================================ 1. BUSINESS Peerless Tube Company and Subsidiary (the "Company") ORGANIZATION supplies collapsible metal tubes and seamless aluminum AND SIGNIFICANT aerosol containers to national marketers primarily in the ACCOUNTING pharmaceutical, cosmetic and toiletry industries. POLICIES: Manufacturing facilities are located in Bloomfield, NJ. The consolidated financial statements of the Company include the accounts of Peerless and its wholly owned inactive subsidiary. Peerless Tube Company and Subsidiary of Puerto Rico, Inc. All significant intercompany accounts and transactions have been eliminated. Inventories are stated at the lower of cost (first-in, first-out method) or market. Depreciation of property, plant and equipment is provided for by the straight-line and the declining-balance methods over the estimated useful lives of the related assets. Property, plant and equipment is stated at the lower of cost, less accumulate depreciation, or net realizable value. Revenue from sales of products is recognized at the date of shipment to customers. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses on these accounts. Basic earnings per share ("EPS") is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation including stock options, restricted stock awards and warrants. Potential common stock has not been included in the computation of diluted EPS since the effect would be antidilutive. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The Company reviews long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstance indicate that the carrying value of an asset may not be fully recoverable. The Company performs nondiscounted cash flow analyses to determine if an impairment exists. Impairment losses on assets are determined based on the present value of cash flows using discount rates which reflect the inherent risk of the underlying business. Impairment losses on assets to be disposed of are based on the estimated proceeds to be received less costs of disposal. Statement of Financial Accounting Standards ("SFAS") No. 107. Disclosures About Fair Value of Financial Instruments, requires management to disclose the estimated fair value of certain assets and liabilities defined by SFAS No. 107 as financial instruments. Financial instruments are generally defined by SFAS No. 107 27 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 ================================================================================ as cash, evidence of ownership interest in equity, or a contracutal obligation that both conveys to one entity a right to receive cash or other financial instruments from another entity and imposes on the other entity the obligation to deliver cash or other financial instruments to the first entity. At December 31, 2000 and 1999, management believes that the carrying amount of the revolving credit line approximates fair value because of the short maturity of this financial instrument. The carrying value of the Company's long-term debt is considered to approximate fair value based upon current borrowing rates offered to the Company. Costs incurred in 1999 in the amount of approximately $180,000 in connection with obtaining the borrowings described in Note 8 have been deferred and are being amortized over the terms of the borrowing by the straight-line method. Accumulated amortization at December 31, 2000 is approximately $45,000. Advertising costs are expensed as incurred. For the years ended December 31, 2000 and 1999, advertising expense was $39,000 and $29,000, respectively. The Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company's consolidated financial position, results of operations or cash flows. 2. BUSINESS AND The accompanying consolidated financial statements have been DEBT prepared in conformity with generally accepted accounting RESTRUCTURING principles, which contemplate continuation of the Company as a going concern. Since 1988, however, the Company has suffered recurring losses from operations and negative cash flows and currently has a stockholders' deficiency. These conditions raise substantial doubt about its ability to continue as a going concern. The Company's management has continually evaluated and reshape its business to improve the operational results of the Company and respond to the changes in the economic and competitive market in which the Company operates. Major cost and head count reduction programs previously implemented focused on reduction of pension and employee benefits, particularly changes to healthcare benefits. Except for periodic additions to meet peaks in sales demand, the Company has reduced its workforce, both salaried and hourly. Management introduced and implemented new programs to improve its production, inventory management and management cost accounting systems. With the anticipated cooperation of its secured lender and the additional consolidation of plant assets, management believes that actions presently being taken to improve the Company's operating performance including reductions of staffing levels and stabilization of raw material prices will provide adequate working capital, help minimize the financial losses and create the opportunity for the Company to continue as a going concern. 28 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCING STATEMENTS DECEMBER 31, 2000 ================================================================================ 3. INVENTORIES: Inventories are comprises of the following: December 31, 2000 1999 ------------------- -------------------------------------- Raw materials $570,000 $510,000 Finished goods 238,000 409,000 ------------------- --------------------------------------- $808,000 $919,000 ============================================================ 4. PROPERTY, Property, plant and equipment is comprised of the following: PLANT AND EQUIPMENT: Estimated December 31, 2000 1999 Useful Life ----------------------------------------------------------- Land $ 462,000 $ 462,000 Buildings and improvements 4,348,000 4,348,000 10 to 45 years Machinery and equipment 13,276,000 13,276,000 7 to 13 years Furniture, fixtures and office equipment 1,614,000 1,614,000 5 to 10 years ----------------------------------------------------------- 19,700,000 19,700,000 Less accumulated depreciation and amortization (18,672,000) (18,282,000) ----------------------------------------------------------- $ 1,028,000 $ 1,418,000 =========================================================== Substantially all of the Company's equipment serves as collateral for short- and long-term borrowings (see Notes 7 and 8). 5. ACCRUED Accrued liabilities are comprised of the following: LIABILITIES: December 31, 2000 1999 ------------------------------------------------------------ Payroll, payroll taxes and payroll- related costs $181,000 $168,000 Professional fees 163,000 145,000 Deferred revenue 38,000 105,000 Environmental 290,000 100,000 All other 44,000 77,000 ------------------------------------------------------------ $716,000 $595,000 ============================================================ 29 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 ================================================================================ 6. INCOME TAXES: The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows: December 31, 2000 1999 ----------------------------------------------------------------------- Deferred tax assets: Postretirement benefits other than pensions $ 12,000 Accrual differences $ 123,000 123,000 Accounts receivable and inventory valuation allowances 123,000 123,000 Net operating loss carryforward 5,612,000 5,097,000 Investment tax credit carryforward 346,000 346,000 ----------------------------------------------------------------------- 6,204,000 5,701,000 Valuation allowance (6,204,000) (5,701,000) ----------------------------------------------------------------------- $ -0- $ -0- =======================================================================

The provision (benefit) for income taxes differs from the amount computed using the federal statutory rate of 34% as a result of the following: Year ended December 31, 2000 1999 1998 ----------------------------------------------------------------------- Federal statutory rate (34)% (34)% (34)% Increase in valuation allowance 34 34 34 ----------------------------------------------------------------------- -0-% -0-% -0-% =======================================================================

At December 31, 2000, the Company had cumulative net operating loss carryforwards of approximately $16,000,000 available to offset future taxable income. These carryforwards will expire in various years through 2020. At December 31, 2000 and 1999, the Company had investment tax credit carryforwards of approximately $346,000 available to be carried forward to offset future taxes payable. A substantial portion of these carryforwards will expire in the year 2001. 7. REVOLVING During 1999, the Company terminated its revolving credit CREDIT facility with an asset-based working capital lender and FACILITY: entered into a refinancing agreement with a major national asset-based lender covering both a new revolving credit facility and a new term loan. This credit facility expires in July 2006. Borrowings are based on specified levels of accounts receivable and inventories of the Company and bear interest at the prime rate (9.5% at December 31, 2000) plus 3% on the outstanding balance. The maximum amount available under the line of credit is 30 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 ================================================================================ $5,000,000 less the principal balance of the equipment term loan ($1,715,000 at December 31, 2000) (see Note 8). Certain of the terms of the revolving credit agreement, as amended, require the pledge of substantially all the Company's assets as collateral. Proceeds from these borrowings were used to 1) repay the existing asset-based lender in full, 2) pay the $600,000 ($640,000 less $40,000 settlement) remaining due from the lawsuit verdict in favor of a former employee (pursuant to the terms of the settlement agreement, the Company paid $700,000, including interest, to this former employee over a two-year period. The settlement award was charged to operations in 1998); and 3) to pay all real estate and other taxes as well as other past due accounts payable. 8. LONG-TERM Long-term debt is comprised of the following: DEBT: December 31, 2000 1999 ------------------------------------------------------------------------------- Equipment term loan payable in monthly installments of $25,600 plus interest through July 1, 2006. The loan bears interest at the prime rate (9.5% at December 31, 2000) plus 3% $1,715,000 $2,022,000 Less current portion (307,000) (307,000) ------------------------------------------------------------------------------- LONG-TERM DEBT 1,408,000 $1,715,000 ===============================================================================

Maturities of long-term debt are as follows: Year ended December 31, 2001 $ 307,000 2002 307,000 2003 307,000 2004 307,000 2005 307,000 Thereafter 180,000 ------------------------------------------------------------------------------- $1,715,000 ===============================================================================

9. RETIREMENT The Company maintained a noncontributory defined benefit PLANS: plan covering most of its domestic employees. The plan was formally terminated effective August 1, 1997. On or about October 15, 1998, lump-sum payments were made to the remaining participants in complete settlement of all benefit obligations under the plan. There were residual assets remaining in the plan subsequent to these lump-sum payments. The overfunded amount, less termination charges, taxes and other required costs, was not expected to be material and was to revert to the Company. Therefore, the prepaid cost of $625,000 at the termination date was charged to operations in 1998. During February 1999, the Company received a 31 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 ================================================================================ final payment of $306,000 for the overfunded amount which has been reflected in other income at December 31, 1999. Commencing in 1995, the Company offered a 401(k) retirement savings plan to all nonunion full-time employees who have completed one year of employment. Employees may contribute a percentage of their gross salaries as defined in the plan, subject to limits prescribed by the Internal Revenue Service. The Company's contributions are at the discretion of the board of directors. Participants are fully vested upon entering the plan. Officers of the Company serve as trustees of the plan. Company contributions were approximately $14,000 in 2000 and approximately $13,000 or 1998. There were no Company contributions for 1999. 10. STOCK OPTION In 1992, the Company adopted a stock option plan under which PLANS: incentive stock options may be granted to officers and key employees to purchase up to a maximum of 250,000 shares of common stock. The options granted to employees under the plan are to vest and become exercisable at the rate of 25% per year following the grant of such options provided that certain conditions are satisfied. The stock options are exercisable at a price of not less than 100%, or 110% in the case of a 10% or greater stockholder, of the market value at date of grant. The exercise price of options issued is $.52 per share. All options are exercisable over a 10-year period, except for 10% or greater stockholders, in which case the period is 5 years. Activity in stock options during the years was as follows: Weighted- Average Exercise Price Year ended December 31, 2000 1999 1998 2000 1999 1998 ----------------------------------------------------------------------------------------------- Outstanding at beginning of year 150,000 109,800 $.52 $2.08 Granted during the year 150,000 $.52 Expired during the year (109,800) 2.50 ----------------------------------------------------------------------------------------------- OUTSTANDING AT END OF YEAR 150,000 150,000 -0- $.52 $.52 =============================================================================================== Options exercisable at year-end 75,000 37,500 ===============================================================================================

SFAS No. 123, Accounting for Stock-based Compensation, encourages but does not require companies to record compensation cost for employee stock option grants. The Company has chosen to continue to account for employee option grants using Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been recognized for employee stock option grants and the Company has elected to adopt the disclosure provisions only of SFAS No. 123. 32 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 ================================================================================ If the Company had elected to recognize compensation cost based on the fair value of the options granted at the grant date as prescribed by SFAS No. 123, the Company's net loss for the years ended December 31, 2000 and 1999 would approximate the pro forma amounts indicated below: Year ended December 31, 2000 1999 ----------------------------------------------------------- Net loss - as reported $(1,467,000) $(275,000) Net loss - pro forma $(1,486,000) $(295,000) Basic loss per share - as reported $ (.60) $ (.11) Basic loss per share - pro forma $ (.60) $ (.12) ----------------------------------------------------------- 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 the year ended December 31, 1999; expected volatility of 184%, risk-free interest rate of 4.8%, no dividend yield and all options have expected lives of 10 years. No stock options were granted by the Company during the years ended December 31, 2000 and 1998. Accordingly, no pro forma disclosures are presented. 11. OTHER POST- The Company provides healthcare and life insurance benefits RETIREMENT to certain active and retired employees. The Company adopted BENEFITS: SFAS No. 106, Employer's Accounting for Post-retirement Benefits Other Than Pensions. SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments during an employee's active service life. The retiree medical and life insurance programs are not funded. Claims and expenses are paid from the general assets of the Company. The balance of this accrual is adjusted based on actuarial adjustments and employment activity during the periods involved. The activity of this liability is as follows: Year ended December 31, 2000 1999 1998 ------------------------------------------------------------ Beginning of year $36,000 $23,000 $23,000 Adjustment to recognize the cost of benefits, net 6,000 13,000 ------------------------------------------------------------ END OF YEAR $42,000 $36,000 $23,000 ============================================================ 12. MAJOR CUS- In 2000, three customers accounted for 43% (17%, 16% and TOMERS AND 10%) of the Company's sales. In 1999, two customers CONCENTRA- accounted for 45% (32% and 13%) of the Company's sales. In TION OF CREDIT 1998, sales to two customers accounted for 60% (48% and RISK: 12%) of the Company's sales. 33 PEERLESS TUBE COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 ================================================================================ Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. At December 31, 2000, in management's opinion, there is no significant risk of loss on these instruments and management believes its allowance for losses is adequate. Three customers accounted for approximately 49% of net accounts receivable at December 31, 2000. 13. COMMITMENTS AND CONTINGENCIES: In the ordinary course of business, the Company is a party to various lawsuits, the outcomes of which, in the opinion of management, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. The Company is subject to federal, state and local requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is the Company's policy to comply with these requirements, and the Company believes that as a general matter its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with its business. Some risk of environmental damage is, however, inherent in particular operations and products of the Company, as is the case with other companies engaged in similar businesses. The Company is and has been engaged in the handling, manufacture, use or disposal of several substances which are classified as hazardous or toxic by one or more regulatory agencies. The Company believes that its handling, manufacture, use and disposal of such substances have generally been in accord with environmental laws and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect such substances in the environment increasingly strict environmental laws and standards and enforcement policies thereunder, could bring into question the Company's handling, manufacture, use or disposal of such substances. The Company has and will continue to incur operating costs for environmental compliance. In connection with the removal of several underground storage tanks, the Company is monitoring several wells to ensure appropriate action is taken with respect to any ground water contamination. Future modifications and capital additions to existing equipment may also be required as regulations are enacted. At the present time, management is unable to fully estimate the amount of potential expenditures in these areas for future years, but believes the Company has acted prudently in its environmental practices and responsibilities. 14. SUBSEQUENT EVENT: On July 24, 2001, the Company received notice from the State of New Jersey Department of Environmental Protection that the Company was not in compliance with certain regulations, and penalties are being imposed. The Company has an accrual on its books which it believes will cover costs related to this matter. The Company counsel intends to fight this matter vigorously. 34

PEERLESS TUBE CO 10-K