AMERICAN BANKNOTE CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 1-3410

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AMERICAN BANKNOTE CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware 13-0460520

(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)

560 Sylvan Avenue, Englewood Cliffs, New Jersey 07632
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (201) 568-4400

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class: Name of exchange on which registered
Common Stock, par value $.01 per share OTC-BB
Series 1 Warrants OTC-BB
Series 2 Warrants OTC-BB

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

At April 01, 2005, the aggregate market value of the voting stock held
by non-affiliates was $6,591,656.

Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No[ ]

As of April 11, 2005, 11,770,815 shares of the registrant's common
stock were outstanding. Documents Incorporated by Reference:

None.

AMERICAN BANKNOTE CORPORATION

TABLE OF CONTENTS

PART I
Item 1. Business.
3
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 20
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 48
Item 8. Financial Statements and Supplementary Data 49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 50
Item 9a. Controls and Procedures 50
PART III
Item 10. Directors and Executive Officers of the Registrant 50
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 52
Matters
Item 13. Certain Relationships and Related 52
Transactions
Item 14. Principal Accountant Fees and Services 52
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 53

2

PART I

ITEM 1. BUSINESS.

INTRODUCTION

American Banknote Corporation is a holding Company. All references to
the "Parent" are meant to identify the legal entity American Banknote
Corporation on a stand-alone basis. All references to the "Company" are to the
Parent and all of its subsidiaries, as a group.

In October 2002, the Parent amended and re-issued $91.6 million
aggregate principal amount of its 10 3/8% Senior Notes ("Senior Notes"). The
maturity date for the Senior Notes was extended to January 31, 2005, at which
time the aggregate principal amount thereof, of approximately $107.6 million
(including Paid-In-Kind or "PIK" interest) were to have become due and payable
in full. However, prior to the January 31, 2005 maturity date, the Parent
determined that it would be unable to repay its Senior Notes on such maturity
date. As a result, the Parent negotiated a restructuring plan with holders of a
majority of its Senior Notes and of its common stock ("Common Stock"). On
January 19, 2005, the Parent (but none of its subsidiaries) filed a
pre-arranged, consensual restructuring plan reflecting the results of such
negotiation, through a Chapter 11 Proceeding (the "Plan"). On April 8, 2005, a
final hearing was held and the Bankruptcy Court confirmed the Company's Plan of
Reorganization. Consummation is expected to occur shortly thereafter. During
this restructuring, the Parent's subsidiaries were self-funded, stand-alone
entities which remained unaffected by the Parent's Plan and continued to operate
their businesses in the normal course, on a stand-alone basis.

Business--Structural Overview

Through its subsidiaries in the United States, Brazil, France, and
Argentina, the Company is a trusted provider of secure printed documents,
printed and personalized secure and non-secure transaction and identification
cards and systems, and a wide array of document management and transaction
services and solutions. The Company provides its customers in the private and
public sectors with products and services that incorporate anti-fraud and
counterfeit resistant facilities, processes and technologies. The Company
operates and manages its business based on geographic location in a single
industry along three principal product lines: Transaction Cards and Systems;
Printing Services and Document Management; and Security Printing Solutions. The
Company is endeavoring to expand along these and complementary product and
service lines, with particular emphasis on fields that are relevant to its
existing customer base, such as electronic commerce and secure distribution and
fulfillment.

The Parent's principal subsidiaries are:

American Bank Note Company ("ABN"), a New York Corporation,

American Bank Note Ltda. ("ABNB"), a 77.5% owned Brazilian Company,

CPS Technologies, S.A. ("CPS"), a French Company, and

Transtex S.A. ("Transtex"), an Argentine Company.

On April 6, 2004, the Parent exited as the 90% shareholder of its
former Australian subsidiary, ABN Australasia Limited (trading as the Leigh
Mardon Group ("LM")), by entering into a series of agreements with LM and the
members of LM's senior lending syndicate, (the "Banking Syndicate"). Although
the Parent continues to own a minority interest in LM, the disposal of this
segment has been recorded as a discontinued operation of the Company's business
and all prior financial statements and financial data have been restated to
exclude LM for comparability. See Note V to Notes to Consolidated Financial
Statements for further information.

The Parent was incorporated in Delaware in 1993 as United States
Banknote Corporation and changed its name on July 1, 1995 to American Banknote
Corporation. The Company's principal executive offices are located at 560 Sylvan
Avenue, Englewood Cliffs, New Jersey 07632, and its telephone number is (201)
568-4400.

3

CHAPTER 11 REORGANIZATION PLAN

EVENTS LEADING TO JANUARY 2005 CHAPTER 11 PROCEEDING:

Since the 2002 re-issuance of the Senior Notes, the Parent's ability to
repay the Senior Notes when due has been adversely affected by a combination of:
(i) the high degree of dependence on its Brazilian subsidiary, (ii) declining
markets and competitive pricing in the United States and France, and (iii) the
political and economic instability that has occurred in Argentina. More
specifically: (i) the Parent's Brazilian subsidiary operates in a highly
volatile economic environment, with significant foreign currency exchange rate
variations, each of which has both directly impacted the dividends available to
be repatriated to the Parent, and limited the Parent's ability to raise
additional capital or debt financing to repay the Senior Notes; (ii) declining
cash flows from the Parent's American and French subsidiaries have been
insufficient to allow the parent to repay the Senior Notes; and (iii)
Argentina's economic instability has both directly impacted the Company's
Argentine operations and limited the Parent's ability to raise additional
capital or debt financing to repay the Senior Notes. All of these factors
contributed to the Parent's determination that it would be unable to repay the
Senior Notes when due, and to initiate negotiations with holders of a majority
of the Senior Notes and a majority of the Common Stock.

As a result of those negotiations, on January 19, 2005, the Parent (but
none of its subsidiaries), with the consent of the holders of a majority of the
Senior Notes and a majority of the Common Stock, filed a voluntary petition (the
"Chapter 11 Case") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") seeking relief under the provisions of Chapter
11 of Title 11 of the United States Code (the "Bankruptcy Code") and a
reorganization of the Parent (the "Reorganized Parent"). At that time, the
Parent filed the proposed Plan, which reflected the results of its negotiations
with the Senior Note holders and Common Stock holders. The Plan is a
"pre-arranged" and consensually agreed upon plan of reorganization, under which,
among other things, (i) holders of the Company's Senior Notes will receive
either new common stock, ("New Common Stock"), cash, or new unsecured notes (the
"New Notes") (depending on which class the holder falls into under the Plan and
which treatment the holder elects), (ii) holders of the Company's current Common
Stock will receive either cash or a combination of cash and New Common Stock
depending on which class they fall into under the Plan, (iii) all priority and
miscellaneous secured creditors will be reinstated, and (iv) all general
unsecured creditors will be unimpaired and will be paid in full. Upon
consummation of the Plan, the Company anticipates issuing 1,871,714 shares of
its New Common Stock or approximately 17.5% of the ownership of the reorganized
Company on a fully diluted basis as more fully discussed herein, for an
aggregate of $16.0 million in proceeds pursuant to an exit financing agreement
(the "Exit Financing Agreement") entered into by several large investors as more
fully described herein. The proceeds of such shares of New Common Stock will be
used to make cash distributions under the Plan and for general working capital
needs of the Company. Consummation of the Plan is subject to, among other
things, consummating such sales of New Common Stock. The Company continues to
operate its business as debtor in possession under the jurisdiction of the
Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy
Code and the orders of the Bankruptcy Court.

On February 24, 2005, the Bankruptcy Court approved the Company's
disclosure statement (the "Disclosure Statement"). The final deadline for
voting classes to accept or reject the Plan was March 24, 2005 and the final
date to object to confirmation of the Plan was March 31, 2005. No objections
were raised to the Plan. On April 8, 2005, a final hearing was held and the
Bankruptcy Court confirmed the Company's Plan of reorganization. Consummation is
expected to occur shortly thereafter.

It is anticipated that confirmation of the Plan will eliminate the
Parent's Senior Notes and leave only a relatively nominal amount of New Notes in
place, which the Reorganized Parent will be able to service from operational
cash flow. By offering the large holders of the Senior Notes a substantial
portion of the New Common Stock of the Company on a post-restructuring basis,
these holders will participate in the long term growth and appreciation of the
Company's business, which is expected to be enhanced by the significant
reduction of its debt service obligations supported by the Company's results of
operations and cash flows. Since several of the large senior Noteholders (as
more fully discussed herein) who own approximately 71% of the total Senior Note
issuance also hold approximately 88% of the current Common Stock, the consensual
agreement of these parties under the Plan to exchange their debt for equity will
not result in a change in ownership control of the Company, and as such Fresh
Start Accounting ("Fresh Start") under Statement of Position ("SOP 90-7") will
not be required. None of the Parent's subsidiaries is or has ever been a party
to the Chapter 11 Proceeding or any other insolvency or similar proceeding. As a
result, during the Parent's reorganization, each one of the Parent's
subsidiaries will continue to operate its respective business in the normal
course, on a stand-alone basis.

PRIMARY PURPOSES OF THE PLAN OF REORGANIZATION

The primary purposes of the Plan are to reduce the Parent's debt
service requirements and overall level of indebtedness, to realign its capital
structure, and to provide it with the flexibility to service a nominal amount of
New Note indebtedness while continuing to provide the necessary capital to
reinvest and grow its business. If consummated, the Plan would exchange the vast
majority of principal amount of the Parent's Senior Notes for New Common Stock.
In addition, the Parent would exchange a small minority of the Senior Notes for
New Notes which are unsecured and will be issued up to a maximum principal
amount of $11 million as more fully described herein. An ancillary purpose of

4

the Plan is to reduce the number of holders of New Common Stock below 300 so
that the Reorganized Parent can elect to become a private Company (See
"Securities to be issued in connection with the Plan for further information").
The Reorganized Parent will benefit from being a private Company as its costs
will be significantly reduced. In particular, the Reorganized Parent anticipates
that it will be able to reduce the costs associated with financial reporting,
audits, directors' and officers' insurance, compliance with federal securities
laws, etc.

As stated above, the Parent did not have access to sufficient cash to
repay the Senior Notes on the January 31, 2005 maturity date and has filed its
Plan before defaulting on such notes. The current Plan addresses this problem,
and, provides for adequate debt servicing of the New Notes. The Parent believes
that the Plan confirmation and consummation will allow it to have adequate
future liquidity and the long term relief it requires to reinvest back into its
business.

THE PLAN SHOULD MATERIALLY IMPROVE THE PARENT'S INDEBTEDNESS, CAPITAL
STRUCTURE AND LIQUIDITY. HOWEVER, MANY OF THE SAME RISKS THAT RESULTED IN THE
PARENT'S INABILITY TO GENERATE SUFFICIENT CASH FLOWS TO MEET ITS INTEREST
PAYMENTS PRIOR TO FILING CHAPTER 11 REMAIN TODAY, INCLUDING FOREIGN CURRENCY
RISK, ECONOMIC RECESSION AND POLITICAL INSTABILITY IN CERTAIN REGIONS SERVED BY
THE PARENT'S SUBSIDIARIES, AND AN ACCELERATED DECREASE IN SALES OF HIGH MARGIN
PRODUCTS RESULTING IN SIGNIFICANTLY LOWER OPERATING INCOME LEVELS. THE PARENT
BELIEVES THAT REDUCING ITS OVERALL LEVEL OF SENIOR INDEBTEDNESS WILL ALLOW THE
COMPANY TO OPERATE AS A GOING CONCERN AND GENERATE SUFFICIENT CASH FLOW FROM
OPERATIONS TO MEET ITS OBLIGATIONS ON A TIMELY BASIS.

RISK FACTORS

THE FOLLOWING SECTION HIGHLIGHTS SOME, BUT NOT ALL OF THE RISKS
RELATING TO THE COMPANY, ITS BUSINESS AND THE COMMON STOCK. THIS INFORMATION
SHOULD BE CAREFULLY CONSIDERED AND EVALUATED BY ALL CURRENT AND PROSPECTIVE
HOLDERS OF THE PARENT'S SECURITIES IN CONJUNCTION WITH RISKS DESCRIBED UNDER
ITEM 7A, "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK" AND THE
OTHER INFORMATION CONTAINED IN THIS FORM 10-K.

The price of the Company's Common Stock may experience volatility.

The trading price of the Company's Common Stock could be subject to
wide fluctuations in response to variations in the Company's quarterly operating
results, the current proposed treatment under the Plan, changes in earnings
estimates by analysts, the failure of the Company to meet analysts' quarterly
earnings estimates, conditions in the industry, conditions in foreign markets in
which subsidiaries operate and the outlook for the industry as a whole or
general market or economic conditions. In addition, in recent years, the stock
market has experienced extreme price and volume fluctuations. These fluctuations
have had a substantial effect on the market prices for many companies, often
unrelated to the operating performance of the specific companies. Such market
fluctuations could have a material adverse effect on the market price for the
Company's securities.

The Company has significant indebtedness.

At present, prior to the confirmation and consummation of the Plan,
the Parent has significant Senior Note indebtedness, which continued to accrue
interest on a pay in kind basis through its January 31, 2005 maturity date. As a
result, the Company was unable to repay its Senior Notes upon the January 31,
2005 maturity date and has therefore filed its Plan to restructure these notes.
As a result of the Plan confirmation, the Company should be able to continue to
operate in the normal course of business without entering into a partial or
total liquidation of the Company.

The Company's industry is highly competitive.

Competition in the Company's markets is based upon price, service,
quality, reliability and the ability to offer a broad range of secure
transaction products and services. Certain of the Company's product lines have
high costs of entry into these markets. Conversely, the cost to enter certain
markets is much lower and in such markets, the Company faces many more diverse
competitors who possess equal or greater technology infrastructures. In
addition, certain of the Company's global competitors have greater financial
resources than does the Company.

Each of the Company's domestic and foreign operations conducts its
business in highly-competitive markets. With respect to certain of its products,
the Company competes with other non-secure commercial printers. Strong
competitive pricing pressures exist, particularly with respect to products where
customers seek to obtain volume discounts and economies of scale. The
consolidation of certain financial and banking customers within certain of the
Company's markets, particularly in Brazil and France, has created greater
competitive pricing pressures and opportunities for increased volume
solicitation. In addition, there are several smaller local competitors in Brazil

5

who have manufacturing and service capabilities in certain transaction cards and
systems (including driver's license programs) and have therefore created
additional competitive pricing pressures. Also, many of the Company's larger
competitors, particularly in Europe, have significant excess capacity and have
therefore created an environment of significant competitive pricing pressures.
Alternative goods or services, such as those involving electronic commerce,
could replace printed documents and thereby also affect demand for the Company's
products.

The Company needs to keep pace with rapid industry and technological change.

The Company's future financial performance will depend, in part, upon
the ability to anticipate and adapt to rapid regulatory and technological
changes occurring in the industry and upon the ability to offer, on a timely
basis, services that meet evolving industry standards. The Company cannot assure
investors that it will be able to adapt to such technological changes or offer
these services on a timely basis or establish or maintain a competitive
position. The industry is changing rapidly due to, among other things,
technological improvements and the globalization of the world's economies and
free trade. In addition, the industry is in a period of rapid technological
evolution. The Company is unable to predict which of the many possible future
product and service offerings will be important to establish and maintain
competitive position or what expenditures will be required to develop and
provide these products and services. The Company cannot assure investors that
one or more of these factors will not vary unpredictably, which could have a
material adverse effect on the Company. In addition, the Company cannot assure
investors, even if these factors turn out as it anticipates, that the Company
will be able to implement its strategy or that the strategy will be successful
in this rapidly evolving market.

Departure of key personnel could harm the Company's business.

The Company is and will continue after the Plan to be managed by a
small number of key executive officers and operating personnel. The loss of key
personnel could have a material adverse effect on the Company's business.
Further, the Company believes that its future success will depend in large part
on its continued ability to attract and retain skilled and qualified personnel
with experience in its industry. These employees are in great demand and are
often subject to competing offers of employment.

Because segments of the Company's operations are based in countries outside the
United States, its business is subject to risks relating to economic and
political uncertainty, including inflation and foreign taxes.

The Company is subject to economic, political or social instability or
other developments not typical of investments made in the United States. These
events could adversely affect the Company's financial condition and results of
operations. During the past several years, countries in South America in which
the Company operates have been characterized by varying degrees of inflation,
uneven growth rates and political uncertainty. The Company currently does not
have political risk insurance in the countries in which it conducts business.
While the Company carefully considers these risks when evaluating investment
opportunities and seeks to mitigate these and other risks by diversifying its
operations, the Company may be materially adversely affected as a result of
these risks.

The Company's operations depend upon the economies of the markets in
which it operates. These markets include countries with economies in various
stages of development or structural reform, some of which are subject to rapid
fluctuations in terms of consumer prices, employment levels, gross domestic
product and interest and foreign exchange rates. The Company is subject to
fluctuations in the local economies in which it operates. To the extent such
fluctuations occur, the growth of the Company's services in these markets could
be impacted negatively.

Certain of the Company's markets are in countries in which the rate of
inflation is significantly higher than that of the United States. The Company
cannot make assurances that any significant increase in the rate of inflation in
these countries could be offset, in whole or in part, by corresponding price
increases by the Company, even over the long-term. Distributions of earnings and
other payments, including interest, received from the Company's subsidiaries may
be subject to withholding taxes imposed by the jurisdictions in which such
entities are formed or operating, which will reduce the amount of after-tax cash
the Parent can receive from these entities. In general, a United States
corporation may claim a foreign tax credit against its federal income tax
expense for such foreign withholding taxes and for foreign income taxes paid
directly by foreign corporate entities in which it owns 10% or more of the
voting stock. The Company may also be required to include in its income for
United States federal income tax purposes its proportionate share of certain
earnings of those foreign corporate subsidiaries that are classified as
"controlled foreign corporations" without regard to whether distributions have
been actually received from the Company's subsidiaries.

Strong labor unions in foreign markets may increase the Company's expenses.

In certain countries in which the Company operates, labor unions are
considered to be strong and influential. Accordingly, the Company may encounter
strikes or other types of conflicts with labor unions or personnel in its
markets, which could adversely affect the Company.

6

Company Overview

In each of the markets that it serves, the Company is a leading
regional provider of secure transaction solutions, documents and systems for
financial institutions, governments and corporations. The Company's regional
operations are based in the United States, Brazil, France and Argentina. The
Company's Brazilian and Argentine subsidiaries hold a significant market
position in virtually every material product line offered in their respective
home markets.

Through its subsidiaries, the Company designs solutions and
manufactures products that incorporate anti-fraud and counterfeit resistant
facilities, processes and technologies, including stored-value (imbedded
circuit) and prepaid telephone, magnetic-stripe, memory and microprocessor-based
transaction cards ("smart cards"), licenses, identification and issuance
systems, bank and other checks, stock and bond certificates and a wide variety
of electronically or digitally produced personalized documents. Through
strategic alliances and joint ventures funded through operating cash flow, as
well as a program to realign and refine its manufacturing operations, the
Company continues to look for ways to improve its financial performance and
expand its technological base and product lines. There can be no assurance that
the Company can continue to pursue these activities, particularly in light of
the continued volatility of foreign currency (most notably the Brazilian Real),
the significant contraction of business activities at ABN, (which have resulted
in operating losses and restructuring charges generated by that subsidiary in
2003), competitive card pricing pressures, (which in many instances have created
a low price commodity environment) and, to a lesser extent, the Argentine
exchange rate and political environment (as more fully discussed herein).

During the past several years, the Company has undergone several major
restructurings of its operations and has made strategic decisions to: (i)
restructure, consolidate and reduce its manufacturing costs, (ii) diversify and
expand its products and services in the major geographic regions where it
conducts business, (iii) package complete "end-to-end" transaction, printing
fulfillment, electronic printing and distribution solutions, products and
services to retain and grow market share and (iv) create strategic joint
ventures and alliances with partners who provide strong technology and/or value
added products that are complementary to its business. These restructurings and
strategic decisions were directed at reducing the Company's reliance on maturing
product lines that have been declining, in favor of new products and services
with growth potential, albeit at significantly lower gross margins.

The Company operates and manages its business based on geographic
location. Each of its operating subsidiaries has a local management team that
manages and makes daily business decisions in relation to their respective
operations. The Company's corporate management provides general oversight of
local management, supplies strategic focus and direction, establishes and
oversees global and regional business strategies and corporate policies, and
works with local management on potential acquisitions, divestitures, joint
ventures, capital planning and financing opportunities. The Company's corporate
and local management work closely together to refine the Company's operations,
while at the same time pursuing new products and growth opportunities.

The Company has significant operations in Brazil, Argentina and France.
On a consolidated basis, these operations have historically experienced
significant foreign exchange rate fluctuations against the US Dollar.
Significant foreign exchange rate fluctuations occurred in 2004, 2003 and 2002.

Over the past twelve months, the Real and the Argentine Peso have each
improved overall in relation to the US Dollar as the Real experienced an average
appreciation of approximately 5% against the US Dollar and the Argentine Peso
exchange rate remained essentially unchanged when compared to the prior year.
The Euro currency experienced an average appreciation of approximately 10%
during this same period resulting from an overall weakening of the US Dollar
compared to such currencies.

Historically, up until this year, the Brazilian Real has experienced
tremendous volatility against the US Dollar. The average exchange rate for the
twelve months ended December 31, 2004 was R$2.93 to the US Dollar. Despite its
improvement in 2004, the Real over the past two years experienced exchange rate
volatility, as the average exchange rate devaluation for the twelve months ended
December 31, 2003 was 5%, against the US Dollar when compared to 2002. In 2002,
the Real devalued at one point to its lowest level by over 41% against the US
Dollar as of October 22, 2002 (R$3.96), when compared to the beginning of 2002
(R$2.35). Given its historic volatility there is no guarantee that the Real will
either continue to improve or stabilize at any certain level against the US
Dollar. As of March 31, 2005, the Real is trading at approximately R$2.68 to the
US Dollar.

ABNB is the Company's largest subsidiary, contributing in 2004
approximately 70% of the revenues and approximately 80% of the operating profit
of the consolidated group (excluding goodwill and asset impairment and Parent
Company expense). This share has grown as a percentage of the Company's total
revenues and operating profit in 2004 with the deconsolidation of LM. The Real's
approximately two-thirds overall devaluation since it was permitted to trade
freely in 1999 (prior to which the Real had a fixed relationship to the US
dollar and traded at approximately R$1 to the Dollar) has severely impacted
ABNB's cash flow in US Dollar terms, and has therefore threatened its ability to
pay dividends to the Parent at the same levels as in the past. Based on current
estimates, it is anticipated that dividends from ABNB (along with those of other
subsidiaries) will be sufficient to fund the Parent's operating expenses in the
foreseeable future. There can be no assurance, however, that further devaluation
of the Real or other business developments will not lead to a contrary result.

7

In Argentina, despite the poor economic environment and the Peso's
devaluation since it was permitted to trade freely in 2002 (prior to which the
Peso had a fixed relationship to the US Dollar and traded at approximately AR$1
to the Dollar), Transtex has generated positive operating income and cash flow
in 2004 and 2003. While throughout 2002, the Argentine government imposed a
moratorium on dividend repatriations outside the country, the government, in
2003, lifted this ban, and as a result, the Parent was able to receive $0.3
million and $0.5 million in dividends from Transtex in 2004 and 2003,
respectively. However, there can be no assurance that the ability to repatriate
dividends freely out of Argentina will continue nor that further devaluation of
the Peso or other business developments will not limit or terminate the ability
of Transtex to pay dividends in the future.

Despite the Real's and the Peso's recent strengthening, the long-term
threat of currency devaluation in Brazil and Argentina continues to exist. This
factor combined with the weakness of certain product lines at ABN, severely
impacted the Company's ability to repay its Senior Notes due January 31, 2005.
See "Liquidity and Capital Resources" for further information.

In addition to the above and the risks described under Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk," the Company is
subject to numerous risks in connection with doing business in its foreign
countries. These risks include, but are not limited to, the risk that the
Company will be subject to future government imposed restrictions in these
countries such as new laws or prohibitions on the repatriation of dividends and
government action or intervention resulting in the nationalization or
expropriation of the Company's assets.

FINANCIAL INFORMATION ABOUT SEGMENTS

The Company has four reportable segments: (1) United States, (2)
Brazil, (3) France and (4) Argentina. The Argentine segment has operations in
Chile and a representative office in Peru and also services several other South
American markets. The French Company has a controlling interest in a small start
up joint venture in Morocco. The Company evaluates performance and allocates
resources based on operating results of the reportable segments. There are no
material intersegment sales or transfers between reportable segments. Each of
these segments supplies products to their customers within one or more of the
following three main product lines: (1) Transaction Cards and Systems, (2)
Printing Services and Document Management and (3) Security Printing Solutions.
For further information on the Company's reportable segments, as well as the
accounting policies for these segments, see Note Q of Notes to Consolidated
Financial Statements included herein.

United States

A provider of secure documents and transaction services of value, ABN
operates principally within the Company's Security Printing Solutions product
line. ABN offers a full range of security printing solutions to a wide array of
government, corporate and commercial accounts. In addition, to secure base
printing, ABN offers its customers a wide variety of core competencies,
including, but not limited to, secure storage, direct fulfillment, distribution,
personalization, accountability, and inventory and database management. ABN and
its predecessors have printed security documents for over 200 years.

ABN principally sells its products in the US markets, but from time to
time sells into foreign markets, particularly in parts of Latin America, Eastern
Europe and certain developing countries. US export sales in 2004, 2003 and 2002
were approximately $1.5 million, $0.8 million and $0.7 million, respectively, or
approximately 6%, 3% and 2%, respectively, of ABN's total sales.

Over the past several years, ABN has restructured and streamlined its
operations in an attempt to exit negative margin product lines and to reduce its
cost structure to a level more appropriate to its remaining business. However,
over the past three years, ABN experienced a significant decline in demand for
its mature high margin product lines (particularly food coupons and stock and
bond certificates) and has been unable, thus far, to find a sufficient number of
opportunities in lower margin product lines to fully offset the significant
decline. While sales of stock and bond certificates were approximately the same
in 2004 and 2003, they were 33% lower in 2003 versus 2002 ($7.0 million compared
with $10.5 million) and 20% lower in 2002 versus 2001 ($10.5 million compared
with $12.5 million) with a reduction in gross margins in 2003 versus 2002 of
approximately 35% (approximately $5.2 million versus $8.0 million) and in 2002
versus 2001 of 16% (approximately $8 million versus $9.5 million). While sales
and gross margins in 2004 versus 2003 were stable, the Company believes the
decline in this product line may continue in 2005 due to market and other
external factors as more fully discussed in "Security Printing Solutions."

One of the Company's other significant concerns has been the
elimination in food coupon revenue at ABN, resulting from the replacement by the
USDA of printed food coupons with electronic card-based food coupon benefits. In
the third quarter of 2002, ABN was verbally notified by the USDA that it did not
anticipate the need to place any further purchase orders for the production of
food coupons for the remainder of the term of its requirements contract with
ABN. As a result of the USDA's notification, in the third quarter of 2002. ABN
took a restructuring charge of $0.2 million, which represented the write-down of
the carrying value of certain equipment specifically dedicated to this contract.

8

In the third quarter of 2003, the USDA gave ABN final notification and
delivery instructions for the remaining food coupons held in secure storage by
ABN pursuant to its distribution contract with the USDA which expired on
September 30, 2003. ABN fully performed and completed the remaining two months
of service pursuant to the terms of this contract, and in the normal course
billed the USDA approximately $1.5 million in accordance with terms that the
Company believed were pursuant to the contract. ABN formally requested in
writing that it be paid in full pursuant to the terms of the contract and the
USDA formally denied approximately $1.4 million of ABN's claim. At a status
conference on April 13, 2004, before the USDA Board of Contract Appeals, the
government acknowledged that approximately $0.2 million of the claim was
approved for payment internally and should therefore be released to ABN. Payment
was received by ABN in the second quarter of 2004 and was appropriately
recognized as revenue in that period. On February 1, 2005, the case on the
balance of the claim (with accrued interest thereon) was found in favor of the
USDA before the USDA Board of Contract Appeals. ABN is reviewing a possible
appeal of the case based upon the merits. Under accounting rules, pursuant to
Staff Accounting Bulletin 104 ("SAB 104") regarding revenue recognition, the
Company only recorded the $0.2 million of sales which the USDA acknowledged and
subsequently paid.

As a result of the above, the failure by ABN to fully recover its final
invoicings from the USDA under its distribution contract has had a direct and
significant effect on the cash flow of ABN as well as the level of dividends
available to the Parent.

While there were no food coupon sales in 2004, food coupon sales in
2003 to the USDA, which only reflected distribution revenue, were approximately
$0.8 million. Sales and gross margins (both print and distribution) for 2002
were $7.1 million and $4.0 million, respectively, which represented a
significant part of ABN's gross margins (approximately 22%) for the twelve
months ended December 31, 2002 (Predecessor and Successor Company combined). The
reduction in operating margins from food coupon sales has had a direct and
significant effect on the cash flow of ABN and the level of dividends that were
available to the Parent. Although, based on current estimates, it is anticipated
that dividends from ABN (along with those of ABNB) will be sufficient to fund
the Parent's operating expense in the foreseeable future, no assurance can be
made that further loss of business at ABN, devaluation of the Real or other
business developments will not lead to a contrary result. Furthermore, these
issues have been some of the primary reasons that the Company was unable to
repay the Senior Notes which were due January 31, 2005. Please refer to Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Liquidity and Capital Resources" for further information.

In the first quarter of 2003, in light of the significant contraction
in stock and bond and food coupon volume reductions, ABN consolidated its
Philadelphia operations into its Tennessee operation, thereby placing all of
ABN's manufacturing operations within a single location, resulting in the
termination of approximately 50 employees. Accordingly, ABN recorded a one-time
restructuring charge of $0.9 million related primarily to employee terminations.
In addition, one-time costs related to plant wind down and equipment relocation
were approximately $1.0 million and $0.1 million, respectively, and were funded
through internal cash flow and expensed as incurred and have been included in
cost of goods sold in accordance with SFAS 146. The total costs resulting from
this restructuring were recovered within one year from its execution.
Additionally, in the third quarter of 2003, ABN consolidated its two secure
satellite storage and distribution facilities into a single facility.

In January 2004, ABN sold its Philadelphia plant for approximately $0.8
million and recorded a gain of approximately $0.4 million and in the second
quarter of 2004, sold currency equipment that was impaired in prior years for
approximately $0.5 million, with a corresponding gain in the same amount. In
August 2004, ABN sold, in a one-time private sale, certain archival materials
outside the ordinary course of business for $3.0 million, net of expenses,
resulting in a gain in the same amount.

Based upon a comparison of the results of operations, operating income
at ABN (as adjusted for goodwill, fresh start and other asset impairments) for
the twelve months of 2004 versus 2003 improved by approximately $2 million after
declines in operating income in 2003 versus 2002 and 2002 versus 2001 of
approximately $6.5 million and $2.3 million, respectively. As a result of the
above-mentioned 2003 restructuring, ABN was able to return to profitability,
however it continues to have difficulties in finding new sales albeit at lower
margin to replace its mature business. As a result, the lower levels of
operating income have and will continue to have a negative effect on ABN's
ability to upstream dividends to the Parent.

In October 2003, ABN entered into a settlement agreement on its lease
with the landlord of its idle Chicago facility. Pursuant to the terms of the
settlement, ABN and the landlord agreed to terminate the lease scheduled to
expire in December 2009 in exchange for the following consideration from ABN:
(i) ABN agreed to pay rent through December 31, 2003, (ii) ABN relinquished its
security deposit in the amount of $0.2 million, (iii) ABN assigned to the
landlord an early termination payment of $0.4 million owed by a sublessee of the
facility, and (iv) ABN agreed to use reasonable commercial efforts to assure
that the sublessee complies with its existing legal obligations. As a result of
the settlement, ABN remeasured its obligation under the lease and in the third
quarter of 2003 recorded a recovery of a previous impairment provision of
approximately $1.1 million that was established in the fourth quarter of 2002
based upon the difference between the present value of annual lease payments to
the landlord net of the estimated sublease income. This recovery is reflected as
part of the net overall annual impairment charge of the Company's Goodwill on
the income statement line "Goodwill and Asset Impairment."

9

Brazil

In 1993, the Company acquired ABNB, currently the largest
private-sector security printer and manufacturer of transaction cards in Brazil.
ABNB is also one of the main providers of stored-value telephone cards to
telephone companies in Brazil. ABNB provides a wide variety of document
management systems and solutions, and related services, to many of the largest
corporate, financial and government institutions in Brazil. Over 95% of ABNB's
sales are in Brazil. The Company owns 77.5% of ABNB, with the balance owned by a
subsidiary of the Bradesco Group, Brazil's largest privately owned commercial
bank.

ABNB is the Company's largest subsidiary, contributing in 2004
approximately 70% of the revenues and approximately 80% of the operating profit
of the consolidated group (excluding goodwill and asset impairment and Parent
Company expense). This share has grown as a percentage of the Company's total
revenues and operating profit in 2004 with the deconsolidation of LM. The Real's
approximately two-thirds overall devaluation since it was permitted to trade
freely in 1999 (prior to which the Real had a fixed relationship to the US
Dollar and traded at approximately R$1 to the Dollar) has severely impacted
ABNB's cash flow in US Dollar terms, and has therefore threatened its ability to
pay dividends to the Parent at the same levels as in the past. Based on current
estimates, it is anticipated that dividends from ABNB (along with those of other
subsidiaries) will be sufficient to fund the Parent's operating expenses in the
foreseeable future. There can be no assurance, however, that further devaluation
of the Real or other business developments will not lead to a contrary result.

In December 2001, ABNB agreed to an incentive bonus arrangement with
Sidney Levy, President of ABNB, which would entitle Mr. Levy to a cash bonus
based upon a success formula in the event that the Parent sells ABNB while Mr.
Levy is employed by ABNB.

In July 2002, ABNB filed a tax claim with the Brazil federal government
to utilize approximately $3.5 million in certain value added tax credits not
previously claimed. ABNB was permitted to carry forward these credits and fully
utilize them in 2002 against Brazilian federal taxes. In the third quarter of
2002 and fourth quarter of 2002, ABNB utilized approximately $2.0 million and
$1.5 million, respectively, of these credits. These credits were reflected as a
recovery against cost of goods sold and resulted in an increase of $3.5 million
to pre-tax operating income and cash flow in 2002.

In January 2004, the Brazilian government enacted a new sales tax
structure called the COFINS which resulted in increased taxation. ABNB was able
to take all steps necessary in order to mitigate the impact of this tax on the
2004 operating income.

On September 22, 2004, the Brazilian Telecommunications Commission
("Anatel"), levied a $0.8 million fine against ABNB, citing ABNB's failure to
comply with new product material specifications in connection with inductive
phone cards that are sold to the local telephone Company. ABNB has reviewed the
claim with legal counsel and believes that it has meritorious defenses against
the assessment.

France

In March 1998, the Company acquired CPS, a secure card personalization
facility. CPS operates within the Company's Transaction Cards and Systems
product line. All sales are generated locally in France. CPS is one of the
largest personalizers of bank, financial and loyalty type cards.

Through 2003, CPS had supplied prepaid phone cards under a supply
agreement with a local telephone Company which was completed in 2003. In 2003,
the local telephone Company requested a tender for a global supply agreement
from qualified bidders. CPS was not one of the awarded bidders in this tender.
Simultaneous with the phone company's decision, CPS determined to suspend its
activities in prepaid phone cards, due to exceptionally low margins in that
product line. While sales and gross margins on these phone cards were not
material on a consolidated basis, they represented a significant component of
the operating income of CPS. Sales and gross margins from prepaid phone cards
were $4.0 million and $0.4 million in 2003, $2.6 million and $0.6 million in
2002 and $2.4 million and $0.6 million in 2001.

In April 2003, CPS entered into a joint venture with a local partner in
Morocco to establish a small card personalization bureau. CPS has a fifty
percent controlling interest in the joint venture and is providing technical
expertise with a small capital contribution. There were no significant operating
activities from the joint venture in 2004 and 2003.

In February 2005, CPS was notified by one of its banking customers that
it allegedly received cards personalized by CPS that created a processing error
and as a result was filing a claim against CPS for approximately $0.9 million.
CPS believes that no losses were sustained by the customer and therefore the
claim has no merit. Nevertheless, CPS has notified its insurance carrier of the
claim.

10

Argentina

In April 1999, the Company acquired Transtex, Argentina's leading
manufacturer of transaction cards including debit, credit, telephone and smart
cards for a total cash purchase price of approximately $15.5 million. Transtex
maintains a sales office in Chile, where the Company is also the leading
supplier of secure transaction cards. It also maintains a representative office
in Peru. Transtex operates within the Company's Transaction Card and Systems
product line. Transtex principally sells its products within the three countries
mentioned above but also services several other countries in South America.

LM Restructuring

On April 6, 2004, the Parent entered into a series of agreements with
LM, the subsidiary's Banking Syndicate and with a newly-formed Company owned by
the members of the Banking Syndicate, for the purpose of restructuring LM and to
enable the Company to exit as the major shareholder of LM.

Under the terms of the Agreement, LM's capital structure was
reorganized such that the Banking Syndicate forgave approximately $47.4 million
of LM's $64.7 million of total senior non-recourse bank debt (inclusive of LM's
working capital facility). In exchange, the Parent relinquished its 90%
controlling equity stake in LM for approximately (i) 11% of approximately $20
million face amount of newly-issued preference stock and (ii) "deferred common
equity" of up to 40% of LM, which will be issued in stages if and when the
restructured senior bank debt and the preference stock of reorganized LM are
fully repaid or redeemed. The Company has not ascribed a value to the common
equity because events that define its issuance are uncertain and may not occur.

This exchange resulted in a non-cash gain from discontinued operations
of $56.0 million to the Company as a result of the Company relinquishing its
controlling equity interest in exchange for (i) the net discharge of the
Company's carrying value of LM's equity deficit, which was approximately $53.9
million at June 30, 2004 (which included a $1.0 million loss from operations for
the first quarter of 2004) plus (ii) the value of the newly-issued preference
shares received by the Company, which is estimated to be approximately $2.1
million.

As a result of this transaction, effective January 1, 2004, the Company
recorded the gain on the disposition of LM as a discontinued operation and
reflected LM's loss from operations for the six months of 2004 of $1.0 million
as a component of discontinued operations. The Company did not break out LM's
results of operations for the six days in April from the gain on the sale in the
second quarter, as these results would not be meaningful. The Company recorded
its remaining preference stock investment in LM valued at approximately $2.1
million under the cost method, as it will have a non-controlling interest in LM
and reflected this amount as a component of investment in non-consolidated
subsidiaries on the Company's consolidated balance sheet at December 31, 2004.
For comparative purposes, the Company deconsolidated LM from the Company's
consolidated balance sheet at December 31, 2003, which resulted in a negative
investment of $53.8 million and is reflected as a component of investment in
non-consolidated subsidiaries. Furthermore, the disposal of this segment of the
business has resulted in all prior financial statements and data provided herein
to be restated to exclude LM for comparability and to record LM's operations as
a discontinued operation.

PRODUCT LINES

Through its subsidiaries, the Company serves its customers in the
regions where it does business through three principal product lines:
Transaction Cards and Systems, Printing Services and Document Management, and
Security Printing Solutions. The Company manages and oversees these product
lines on a country-by-country basis.

The following table presents the principal product line components of
these sales (excluding the operations of LM) for the twelve months ended
December 31, 2004 (Successor Company), December 31, 2003 (Successor Company) and
December 31, 2002 (Successor and Predecessor Companies combined). The table also
reflects the three months ended December 31, 2002 with respect to the Successor
Company, and, with respect to the Predecessor Company, the nine months ended
September 30, 2002. (Dollars in thousands):

DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002
2004 2003 SUCCESSOR/PREDECESSOR
SUCCESSOR COMPANY SUCCESSOR COMPANY COMPANIES COMBINED
SALES PERCENTAGE SALES % SALES PERCENTAGE
------------ ------------ ------------ ------------ ------------ ------------

Transaction Cards and Systems $ 62,225 38.3% $ 50,022 35.1% $ 42,771 29.6%
Printing Services and Document Mgmt 28,826 17.8% 26,007 18.2% 21,338 14.8%
Security Printing Solutions 71,208 43.9% 66,522 46.7% 80,518 55.6%
------------ ------------ ------------ ------------ ------------ ------------
$ 162,259 100.0% $ 142,551 100.0% $ 144,627 100.0%
============ ============ ============ ============ ============ ============

11

THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 2002 SEPTEMBER 30, 2002
SUCCESSOR COMPANY PREDECESSOR COMPANY
SALES % SALES %
------------ ------------ ------------ ------------

Transaction Cards and Systems $ 8,977 28.2% $ 33,794 30.0%
Printing Services and Document Mgmt 3,937 12.4% 17,401 15.4%
Security Printing Solutions 18,954 59.4% 61,564 54.6%
------------ ------------ ------------ ------------
$ 31,868 100.0% $ 112,759 100.0%
============ ============ ============ ============

Transaction Cards and Systems

The Company is a leading supplier of a wide range of transaction cards,
products and systems in the Brazilian and Argentine markets. In France, CPS is
one of the largest personalizers of bank, financial and loyalty cards. The
Company continues to expand and improve its production and service capabilities
to capitalize on the trend toward cashless financial transactions. These
products primarily include: (i) stored-value and prepaid cards, (ii) transaction
cards and personalization services, (iii) licenses and issuance systems and (iv)
micro-chip imbedded "smart-card" applications.

Stored-Value and Prepaid Cards. The Company is one of the main
suppliers of stored-value and prepaid telephone cards in South America. In
Brazil, ABNB is a main supplier of stored-value telephone cards to one of the
largest phone card companies in Brazil as well as prepaid phone cards to many
mobile telecom operators. In Argentina, the Company is a major supplier of
prepaid phone cards to its respective local telephone carriers as well as other
South American telephone carriers. In France, the Company supplied prepaid phone
cards under a supply agreement with a local telephone Company which was
completed in 2003. In 2003, the local telephone Company requested a tender for a
global supply agreement from qualified bidders. CPS was not one of the awarded
bidders in this tender. The Company also provides stored-value cards as well as
contact and contactless cards to various firms in the financial and
transportation industries.

Transaction Cards and Personalization Services. The Company is a
leading producer and personalizer of magnetic-stripe transaction cards,
including credit, debit, ATM, transportation, access and identification cards,
supplying primarily customers in South America. The Company supplies cards to
financial institutions, including those issued for Visa(TM), MasterCard(TM) and
American Express(TM), as well as cards for major corporations and other
institutions. In France, CPS is a leading personalizer of debit cards for many
of the major French banks.

In Latin America, the Company is a leader in the manufacture and
personalization of other magnetic stripe transaction cards, including loyalty
(frequent buyer) and health insurance program cards.

License and issuance systems. The Company handles large scale license
contracts in a number of Brazilian states, including the production and
personalization of driver licenses as well as various corporate identification
programs. In Brazil, ABNB is a leading provider of issuance systems including
management of motor vehicle documentation for a number of states in Brazil.

Smart card applications. The Company's subsidiary in Brazil has a joint
venture Company with Gemplus S.A., the world's leading systems designer and
manufacturer of smart cards. A smart card is a transaction card with an imbedded
micro-chip which allows for the storage of materially more data than the
traditional magnetic stripe card in a highly secure manner. Under the terms of
the joint venture, ABNB manufactures, markets and sells smart card systems and
products in the Brazilian market. The Company has a 50% ownership interest in
this joint venture. In France, CPS is a third-party personalizer of smart GSM
phone cards, and in Argentina, Transtex has started to supply a small volume of
smart cards.

Printing Services and Document Management

The Company's Printing Services and Document Management business allows
public and private sector institutions to outsource their printing,
personalization and document processing operations. Utilizing advanced inventory
control systems, e-commerce and web based solutions and "just-in-time"
distribution capabilities, the Company helps businesses and governmental
institutions effectively lower costs by supplying all of their printing,
storage, processing, system and distribution needs.

Electronic Printing Applications. The Company is a full service
provider of electronic printing applications to a number of its corporate and
government customers. Electronic printing applications encompass the secure data
handling, electronic printing, personalization and mailing of documents for
large-scale essential mail document cycles. This process involves the
computerized printing of an array of variable data onto pre-printed base stock.
Some of the primary applications are billing and fund collection systems, check
and credit card statements, letter checks and invoices.

12

In Brazil, the Company provides electronic printing application
services for institutions in the banking, insurance, utilities and
telecommunication industries, as well as for a number of state and federal
government agencies.

In December 2004, ABNB became a member of a consortium (which includes
eight other companies) which was contracted by Empresa Brasilera de Correios e
Telegrafos (the "Brazilian Post Office") initially to develop, and later to
provide products and service, related to an integrated solution for the
decentralized production, processing and delivery of documents. This project,
commonly known as the Hybrid Mail, is intended to change the way time-sensitive
documents (such as invoices and statements) are printed and distributed
throughout Brazil. Through the creation of a network of multiple printing sites
across the country, the Hybrid Mail is meant to permit banks, utilities, and
credit card companies to print documents close to their final destination in
order to reduce delivery times and postal fees.

Printing, Storage & Distribution. The Company prints products such as
business forms and checks and provides storage and distribution services to the
end user on behalf of its customers. For example, in Brazil, ABNB performs print
and document management and distribution services for leading financial
institutions.

Security Printing Solutions

The Company supplies counterfeit-resistant documents of value in each
of the countries where it offers this product line. Such documents include
checks, money orders, passports, stock and bond certificates and other
commercial documents of value such as gift certificates. The Company utilizes a
variety of anti-counterfeiting features such as special inks and papers,
computer generated bar and micro encoding, elaborate steel-engraved designs and
distinctive lithographic printing techniques, all of which enable the Company to
manufacture products containing various security features. As an additional
security feature, many of the Company's manufacturing, storage and distribution
facilities employ high levels of plant security, including guards, alarms, video
monitoring and extensive accountability controls.

Checks. The Company is the leading private sector supplier of
personalized checks for major banks in Brazil. ABNB supplies banks and other
financial institutions with checks, same-day check personalization, and a wide
array of security printing products such as money orders, vouchers and deposit
books. With the advent of electronic payment systems, demand for bank checks in
Brazil continues to reflect a marked decline, and also represent a small
percentage of ABNB's total revenue of approximately 8% in 2004 and 11% in both
2003 and 2002.

Stock and Bond Certificates. ABN produces stock and bond certificates.
ABN is one of the few remaining producers of engraved printed certificates with
the unique border designs and vignettes that had traditionally been required by
the New York Stock Exchange, Inc. (the "NYSE"). ABN maintains a library of
engraving plates for a large percentage of publicly traded securities.

Stock and Bond certificates represent a declining product and there is
considerable risk of further decline, particularly in light of the continued
trend toward next day settlement of securities. This risk has been further
exacerbated by the Securities and Exchange Commission's order dated July 26,
2001, which granted approval to the NYSE to change its physical format
requirements for stock and bond certificates (the "Rule Change"). The Rule
Change eliminated the NYSE's Listed Company Manual's requirements pertaining to
certificate printing and appearance, and retained only the requirements
specifying content. As a result, those requirements no longer mandate the use of
intaglio printing or the inclusion of a vignette on the face of the certificate.
While sales of stock and bond certificates were approximately the same in 2004
and 2003, they were 33% lower in 2003 versus 2002 ($7.0 million compared to
$10.5 million) and 20% lower in 2002 versus 2001 ($10.5 million compared to
$12.5 million), with a reduction in gross margins in 2003 versus 2002 of
approximately 35% (approximately $5.2 million versus $8.0 million) and 16% in
2002 versus 2001 (approximately $8 million versus $9.5 million), respectively.
While sales and gross margins in 2004 versus 2003 were stable, the Company
believes the decline may possibly continue in 2005 due to the weak stock market
and the other factors discussed above. In addition, the continued movement by
many large companies towards paperless electronic transaction settlement could
have a further impact on volume reduction in stock and bond certificates.

Government Products. Government products include a variety of security
documents printed for federal, state and local governments throughout the world.
The Company manufactures food coupons, passports, visas, tax revenue stamps,
property tax vouchers, postal panels, gas coupons, and similar products for
federal governments. The Company also supplies secure documents such as motor
vehicle registrations, title certificates and licenses, birth certificates,
identity cards, and transportation passes for its government customers. The
Company, through ABN, also acts as the secure distribution and accountability
agent for the United States Postal Service (the "USPS") for its Stamps on
Consignment Program ("SOC") delivering stamps to private retailers throughout
the United States. In 2002, the USPS replaced the USDA as the Company and ABN's
largest single domestic customer, pursuant to a three-year requirements contract
with two additional option years. ABN is presently in the fourth year of the
contract with sales under the SOC program representing in 2004, 2003 and 2002,
approximately 3.9%, 2.7% and 3.7%, respectively, of total consolidated sales of
the Company, and approximately 25% in 2004, 28% in 2003 and 23% in 2002 of total
sales of ABN. In February 2005, the USPS notified ABN that it will exercise the
final option year under the SOC contract. There is no guarantee that ABN will be
successful in winning the next competitive bid for the SOC program. The loss of
the SOC program could have a material effect on ABN's operating income and cash
flows available for dividends to the Parent.

13

Until 2002, the USDA was the Company and ABN's largest single domestic
customer, for which ABN has printed, stored and distributed food coupon
requirements for more than 20 years. Food coupons are engraved printed documents
accepted by grocery stores in lieu of cash. ABN was verbally notified by the
USDA, during the third quarter of 2002, that it did not anticipate the need to
place any further purchase orders for the production of food coupons for the
remainder of the term of its requirements contract with ABN, which expired on
September 30, 2003. In the third quarter of 2003, the USDA gave ABN final
notification and delivery instructions for the remaining food coupons held in
secure storage by ABN pursuant to its distribution contract with the USDA, which
expired on September 30, 2003. Revenue from food coupons as a percentage of
total consolidated sales for 2003, 2002 and 2001 is approximately nil, 3.5% and
3.3%, respectively, but represents approximately 3.5% in 2003, 22% in 2002 and
21% in 2001 of total sales of ABN. In addition, the gross margins were $4
million in both 2002 and 2001. The reduction in operating margins from the loss
of food coupon sales has had a direct and significant effect on the cash flow of
ABN as well as the level of dividends that were available to the Parent. The
on-going dispute with the USDA on the remaining $1.5 million which ABN believes
is due under the distribution contract has further exacerbated cash flows
available to the Parent. See "Special Note Regarding Forward-Looking Statements"
for more information.

FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

The Company's foreign and domestic operations are managed by geographic
region. Therefore, the Company considers each geographic region a reportable
segment. Financial information relating to foreign and domestic operations and
export sales (as restated to exclude the discontinued operations of LM) for the
years ended December 31, 2004 and 2003 (Successor Company), the three months
ended December 31, 2002 (Successor Company), the nine months ended September 30,
2002 and the years ended December 31, 2001 and December 31, 2000 with respect to
the Predecessor Company were as follows ($ in millions):

YEAR YEAR THREE MONTHS NINE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2002 2001 2000
SUCCESSOR CO SUCCESSOR CO SUCCESSOR CO PREDECESSOR CO PREDECESSOR CO PREDECESSOR CO
------------ ------------ ------------ -------------- -------------- --------------

Sales to unaffiliated customers
United States $ 24.9 $ 21.9 $ 7.9 $ 24.5 $ 36.0 $ 37.5
Brazil 112.3 98.3 20.3 78.4 111.3 132.9
France 16.8 17.2 2.9 6.6 8.5 9.9
Argentina 8.2 5.1 0.8 3.3 8.2 9.8
Operating profit or (loss) (1):
United States (2) $ (12.1) $ (13.5) $ (13.8) $ 0.1 $ 0.9 $ 1.6
Brazil (2) 13.1 (21.3) (31.8) 12.1 11.1 14.2
France (2.6) (4.2) 0.6 0.4 0.5 0.2
Argentina 1.7 1.0 0.1 0.8 (2.1) (9.5)

United States: Export Sales $1.5 $ 0.8 $ - $ 0.7 $ 1.1 $ 1.4

(1) Before Fresh-Start adjustments

(2) Includes the goodwill and asset impairment write offs for the year ended
December 31, 2004 (Successor Company) of US $8.2 million and France $2.6
million; for the year ended December 31, 2003 (Successor Company) of US $7.6
million, Brazil $29.6 million and France $4.4 million; for the three months
ended December 31, 2002 (Successor Company) of US $14.2 million and Brazil $33.2
million; for the nine months ended September 30, 2002 (Predecessor Company) of
US $0.2 million; for the year ended December 31, 2001 (Predecessor Company) of
Argentina $1.9 million, and US $0.6 million; and for the year ended December 31,
2000 (Predecessor Company) of Argentina $9.5 million.

For further information on the Company's foreign and domestic
operations and export sales, see Note Q of Notes to Consolidated Financial
Statements and the Independent Auditors' Report included herein.

Sales and Marketing

The Company sells its products and services through a combination of
direct sales personnel, commissioned sales personnel, independent sales
representatives and alliances. Each of the Company's subsidiaries maintains its
own sales and marketing department. Each of the Company's subsidiaries markets
and sells secure products and services to a number of financial institutions,
corporations, governments and government agencies worldwide. Each sales force is
supported by marketing professionals who provide research and product
development assistance. The sales and marketing activity is focused on the three
main product lines within each geographically defined market.

14

Major Customer

The Company derived $19.4 million for 2004, $18.2 million for 2003 and
$17.6 million for 2002 (both Successor and Predecessor Companies combined), or
approximately 12.0%, 12.8% and 12.2%, respectively, of total consolidated
revenue from the Bradesco Group under two supply contracts, one of which expires
in March 2006 and the other in October 2006. Bradesco Vida e Previdencia S.A.
("Bradesco"), a subsidiary of the Bradesco Group, owns a 22.5% minority
shareholder interest in ABNB. The Company has supplied products to Bradesco
under multi-year supply arrangements since 1995. There can be no assurance that
this supply contract will be renewed or if renewed, will be based upon the same
prices and conditions that exist today.

Competition

Competition in the Company's markets is based upon price, service,
quality, reliability and the ability to offer a broad range of secure
transaction products and services. Certain of the Company's product lines have
high costs of entry into these markets. Conversely, the cost to enter certain
markets is much lower and in such markets, the Company faces many more diverse
competitors who possess equal or greater technology infrastructures. In
addition, certain of the Company's global competitors have greater financial
resources than does the Company.

Each of the Company's domestic and foreign operations conducts its
business in highly competitive markets. With respect to certain of its products,
the Company competes with other non-secure commercial printers. Strong
competitive pricing pressures exist, particularly with respect to products where
customers seek to obtain volume discounts and economies of scale. The
consolidation of certain financial and banking customers within certain of the
Company's markets, particularly in Brazil and France, has created greater
competitive pricing pressures and opportunities for increased volume
solicitation. In addition, there are several smaller local competitors in Brazil
who have manufacturing and service capabilities in certain transaction cards and
systems (including driver's license programs) and have therefore created
additional competitive pricing pressures. Also, many of the Company's larger
card competitors, particularly in Europe, have significant excess capacity and
have therefore created an environment of significant competitive pricing
pressures. Alternative goods or services, such as those involving electronic
commerce, could replace printed documents and thereby also affect demand for the
Company's products.

Patents

The Company may presently hold, or be licensed under, United States and
foreign patents, trademarks and copyrights and continues to pursue protection
when available in strategic markets. However, the Company believes that no one
patent, license, trademark or copyright is critical to its business such that if
one expired or became unavailable there would be no material adverse effect to
the Company's financial position, results of operation or cash flow.

Backlog

At December 31, 2004, 2003 and 2002, the Company had an overall backlog
of approximately $19.5 million, $15.4 million and $12.4 million, respectively.
This backlog principally consists of orders related to stored-value telephone
cards, stamps on consignment distribution, traditional and electronic printing
and financial payment cards. Generally, a substantial portion of the Company's
backlog is produced and shipped within twelve months. The Company believes that
its backlog is not a meaningful representation of the Company's expected
revenues. Aside from the expiry of long term customer contracts in the normal
course of business, the Company is not impacted by seasonality.

Raw Materials

Sources of raw materials are generally reliable. However, the Company's
dependency upon any one supplier for raw materials and consumables used in its
businesses is dependent primarily upon the type of product and the region where
the Company conducts business. For instance, with respect to certain product
lines such as transaction cards, certain raw materials, such as specific
chemicals or plastics for card manufacturing and consumables for card
personalization, are available from either one or a limited number of suppliers.
Furthermore, some of these materials may contain certain petroleum or precious
metal based by-products that may cause periods of price volatility. In addition,
the continual threat of volatile foreign currency swings could result in higher
costs for raw materials from foreign suppliers who are based in countries with
stronger denominated currencies. In some instances our subsidiaries have been
able to overcome potential threats by identifying reliable local suppliers.
There can be no assurance that significant price increases in raw materials and
consumables can be passed on either in whole or in part to the Company's
customers. As a result, any significant price increase may have a material
adverse effect on the results of operations, financial position and cash flow of
the Company.

15

Environmental

The Company uses and disposes of substances that may be toxic or
hazardous substances under applicable environmental laws. Management believes
that its compliance with such laws has not had, and will not have, a material
effect on its capital expenditures, earnings, financial, or competitive
position. The Parent and its subsidiaries are involved in several civil and
Environmental Protection Agency claims as one of many co-defendants arising in
the ordinary course of business, and believes that none of the claims in the
individual or in the aggregate would be expected to have a material adverse
effect on the Company's financial condition or results of operations.

Employees

At December 31, 2004, the Company had approximately 2,520 employees
consisting of 2,260 manufacturing employees, 180 plant administration and sales
personnel and 80 executive, corporate and administrative personnel.
Approximately 65% of Transtex's employees and all of ABNB's employees are
represented by labor unions. None of ABN's or CPS' employees are represented by
labor unions. The Company's future profitability will depend, in part, on its
ability to maintain satisfactory relationships with labor unions and employees
and in avoiding strikes and work stoppages. The Company considers its employee
relations to be good.

ITEM 2. PROPERTIES.

OWNED
APPROXIMATE OR
BUSINESS SEGMENT AND LOCATION FOOTAGE LEASED OPERATIONS
- --------------------------------------------- ----------- ------- ---------------------------------------------------------------
United States:
560 Sylvan Avenue,
Englewood Cliffs, New Jersey 3,200 Leased Executive, administration and offices, lease expires 8/06
Trevose, Pennsylvania 11,000 Leased Administration and sales offices; printing, lease expires 12/05
Columbia, Tennessee 50,000 Owned Administration and sales offices; security printing
Mt. Pleasant, Tennessee 15,000 Leased Storage lease month to month
Columbia, Tennessee 15,000 Leased Storage, lease expired 2/05
Mt. Pleasant, Tennessee 49,800 Leased Distribution and storage, lease expires 6/06

Brazil:
Jandira, Sao Paulo 310,000 Leased Printing, storage and distribution, electronic printing and
smart-card manufacturing and personalization, lease month to
Month
Rio de Janeiro, RJ 11,000 Leased Executive, administration and offices
Rio de Janeiro, Rio de Janeiro 140,000 Owned Checks, telephone cards, intaglio documents, printing and card
personalization
Erechim, Rio Grande do Sul 40,000 Owned Production of transaction cards

France: (includes Morocco)
Craponne, Lyon 11,000 Leased CPS head office, sales and card personalization, lease expires
7/07
Casablanca, Morocco 1,200 Leased Sales and card personalization lease month to month

Argentina: (includes Chile)
Buenos Aires, Argentina 32,000 Leased Card manufacturing and personalization, month to month
Santiago, Chile 100 Leased Sales and card personalization, lease month to month

The Company believes that all its material property, plants and
equipment are well maintained, in good operating condition and suitable for its
purposes and needs through calendar year 2006. See Note T Notes to Consolidated
Financial Statements for additional information regarding lease costs. The
Company believes that there will be no difficulty either negotiating renewals of
its real property leases as they expire or in finding other satisfactory space.

16

ITEM 3. LEGAL PROCEEDINGS.

CHAPTER 11 - CURRENT PLAN PROCEEDINGS

Over the past two years since the October 2002 consummation of its
December 1999 Plan of reorganization, the Parent's ability to repay the Senior
Notes when due has been adversely affected by a combination of: (i) the high
degree of dependence on its Brazilian subsidiary, (ii) declining markets and
competitive pricing in the United States and France, and (iii) the political and
economic instability that has occurred in Argentina. More specifically: (i) the
Parent's Brazilian subsidiary operates in a highly volatile economic
environment, with significant foreign currency exchange rate variations, each of
which has both directly impacted the dividends available to be repatriated to
the Parent, and limited the Parent's ability to raise additional capital or debt
financing to repay the Senior Notes; (ii) declining cash flows from the Parent's
American and French subsidiaries have been insufficient to allow the Parent to
repay the Senior Notes; and (iii) Argentina's economic instability has both
directly impacted the Company's Argentine operations and limited the Parent's
ability to raise additional capital or debt financing to repay the Senior Notes.
All of these factors contributed to the Parent's determination that it would be
unable to repay the Senior Notes when due, and to initiate negotiations with
holders of a majority of the Senior Notes and a majority of the Common Stock.

As a result of those negotiations, on January 19, 2005, the Parent (but
none of its subsidiaries), with the consent of the holders of a majority of the
Senior Notes and a majority of the Common Stock, filed a voluntary Chapter 11
petition in the Bankruptcy Court seeking relief under the provisions of chapter
11 of title 11 of the Bankruptcy Code. At that time, the Parent filed the
proposed Plan, which reflected the results of its negotiations with the Senior
Note holders and Common Stock holders. The Plan is a "pre-arranged" and
consensually agreed upon plan of reorganization, under which, among other
things, (i) holders of the Company's Senior Notes will receive either New Common
Stock, cash, or New Notes (depending on which class the holder falls into under
the Plan and which treatment the holder elects), (ii) holders of the Company's
current Common Stock will receive either cash or a combination of cash and New
Common Stock depending on which class they fall into under the Plan, (iii) all
priority and miscellaneous secured creditors will be reinstated, and (iv) all
general unsecured creditors will be unimpaired and will be paid in full. In
connection with the Plan, the Company, upon consummation of the Plan of
reorganization, anticipates issuing 1,871,714 shares of its New Common Stock or
approximately 17.5% of the ownership of the reorganized Company on a fully
diluted basis as more fully discussed herein, for an aggregate of $16.0 million
in proceeds pursuant to the Exit Financing Agreement entered into by several
large investors as more fully described herein. The proceeds of such shares of
New Common Stock will be used to make cash distributions under the Plan and for
general working capital needs of the Company. Consummation of the plan of
reorganization is subject to, among other things, consummating such sales of New
Common Stock. The Company continues to operate its business as a
debtor-in-possession under the jurisdiction of the Bankruptcy Court and in
accordance with applicable provisions of the Bankruptcy Code and the orders of
the Bankruptcy Court.

On February 24, 2005, the Bankruptcy Court approved the Company's
disclosure statement (the "Disclosure Statement"). The final deadline for
voting classes to accept or reject the Plan was March 24, 2005 and the final
date to object to confirmation of the Plan was March 31, 2005. No objections
were raised to the Plan. On April 8, 2005, a final hearing was held and the
Bankruptcy Court confirmed the Company's Plan of reorganization. Consummation is
expected to occur shortly thereafter.

It is anticipated that confirmation of the Plan will eliminate the
Parent's Senior Notes and leave only a relatively nominal amount of New Notes in
place, which the Reorganized Parent will be able to service from operational
cash flow. By offering the large holders of the Senior Notes a substantial
portion of the New Common Stock of the Company on a post-restructuring basis,
these holders will participate in the long term growth and appreciation of the
Company's business, which is expected to be enhanced by the significant
reduction of its debt service obligations supported by the Company's results of
operations and cash flows. Since several of the large Senior Note holders who
own approximately 71% of the total Senior Note issuance also hold approximately
88% of the current Common Stock, the consensual agreement of these parties under
the Plan to exchange their debt for equity will not result in a change in
ownership control of the Company, and, as such, Fresh Start Accounting under the
Statement of Position (SOP 90-7) will not be required. None of the Parent's
subsidiaries is or has ever been a party to the Chapter 11 Proceeding or any
other insolvency or similar proceeding. As a result, during the Parent's
reorganization, each one of the Parent's subsidiaries will continue to operate
its respective business in the normal course, on a stand-alone basis.

CHAPTER 11 1999 FILING - CONFIRMATION AND CONSUMMATION OF THE PLAN

On December 8, 1999 (the "Petition Date"), the Parent (but none of its
subsidiaries) filed a petition for reorganization relief under Chapter 11 of the
United States Bankruptcy Code. On that date, the Parent also filed its December
1999 Plan of reorganization, which set forth the manner in which claims against
and interests in the Parent would be treated following its emergence from
Chapter 11. Only the Parent filed a petition for reorganization relief under
Chapter 11. None of the Parent's subsidiaries were a party to the Chapter 11
Proceeding or any other insolvency or similar proceeding.

17

The Parent's December 1999 Plan of reorganization was subsequently
amended four times and on May 24, 2002, the Parent submitted its final
disclosure statement with respect to its proposed fourth amended reorganization
plan to the Bankruptcy Court. On August 22, 2002, the Bankruptcy Court confirmed
the December 1999 Plan. On October 1, 2002, the Effective Date, all conditions
required for the consummation of the Plan ("The October 2002 Consummation") were
achieved and the December 1999 Plan became effective.

On January 29, 2003, in accordance with the standard procedures of the
Bankruptcy Court, the Parent filed final omnibus objections to expunge all
claims that it believes have no basis or merit. The Parent's objections included
objections to claims that were duplicative, inconsistent with the Company's
books and records, untimely, already satisfied or resolved under the Plan, or
otherwise without merit.

On January 12, 2005, the Bankruptcy Court entered the final decree and
thereby closed the Chapter 11 case for the December 1999 Plan.

OTHER POTENTIAL CLAIMS AND PROCEEDINGS

USDA CLAIM - In the third quarter of 2003, the USDA gave ABN final
notification and delivery instructions for the remaining food coupons held in
secure storage by ABN pursuant to its distribution contract with the USDA which
expired on September 30, 2003. ABN fully performed and completed the remaining
two months of service pursuant to the terms of this contract, and in the normal
course billed the USDA approximately $1.5 million in accordance with terms the
Company believed were pursuant to the contract. ABN formally requested in
writing that it be paid in full pursuant to the terms of the contract and the
USDA formally denied approximately $1.4 million of ABN's claim. Pursuant to the
revenue recognition rules under Statement of Accounting Bulletin ("SAB") 104,
the Company did not recognize any of the revenue on these services as a result
of the USDA's initial rejection of ABN's claim. At a status conference on April
13, 2004, before the USDA Board of Contract Appeals, the government acknowledged
that approximately $0.2 million of the claim was approved for payment internally
and should therefore be released to ABN. Payment was received by ABN in the
second quarter of 2004 and was appropriately recognized as revenue in that
period. On February 1, 2005, the case on the balance of the claim (with accrued
interest thereon) was found in favor of the USDA before the USDA Board of
Contract Appeals. ABN is reviewing a possible appeal on the case based upon the
merits.

ANATEL FINE - On September 22, 2004, the Brazilian Telecommunications
Commission ("Anatel"), levied a $0.8 million fine against ABNB, citing ABNB's
failure to comply with new product material specifications in connection with
inductive phone cards that are sold to the local telephone Company. ABNB has
reviewed the claim with legal counsel and believes that it has meritorious
defenses against the assessment.

SOCIETE GENERALE CLAIM - In February 2005, CPS was notified by one of
its banking customers that it allegedly received cards personalized by CPS that
created a processing error and as a result was filing a claim against CPS for
approximately $0.9 million. CPS believes that no losses were sustained by the
customer and therefore the claim has no merit. Nevertheless, CPS has notified
its insurance carrier of the claim.

STATE AND LOCAL TAXES - The Parent continues to vigorously contest NYC
Department of Finance formal assessment for additional taxes and interest of
approximately $1.3 million related to tax years up to and including 1992 for
which the Parent is adequately reserved. In December 2004, hearing sessions were
held by the Administrative Law Judge of the New York City Tax Appeals Tribunal.
A schedule for filing hearing memoranda by both parties has yet to be set.
Management believes that it has meritorious defenses with regard to the
assessment for these years.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

18

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company's Common Stock trades on the over-the-counter market and is
quoted on the NASDAQ OTC Bulletin Board under the symbol "ABNT." The Series 1
Warrants and Series 2 Warrants are traded on the same market under the symbols
"ABNW" and "ABNZ", respectively. The Common Stock of the reorganized Company
began trading on October 15, 2002 after the emergence of the Company from
Chapter 11. Accordingly, prices for the common shares of the Predecessor Company
are not shown because they are not comparable.

The following table sets forth the high and low per share bid
quotations for the Common Stock as reported by the OTC Bulletin Board since
October 15, 2002:

HIGH LOW
2004
First Quarter $ 0.48 $ 0.31
Second Quarter 0.32 0.14
Third Quarter 0.16 0.12
Fourth Quarter 0.15 0.12
2003
First Quarter $ 0.24 $ 0.05
Second Quarter 0.33 0.24
Third Quarter 0.90 0.33
Fourth Quarter 0.75 0.41
2002
Fourth Quarter $ 0.54 $ 0.05

During the first quarter of 2005 through March 17, 2005, reported high
and low per share bid quotations for the Common Stock were $0.56.

The OTC market quotations reflect inter-dealer quotations, without
markup, markdown or commission and may not represent actual transactions.
Although shares of the Common Stock are traded on the OTC Bulletin Board,
trading of the shares is sporadic and, an established public trading market for
the Company's securities does not exist.

As of April 8, 2005, the Parent had approximately 3,095 Common
Stockholders of record.

Securities authorized for issuance under Equity Compensation Plans.

The following table represents compensation plans under which equity
securities of the Parent were authorized for issuance as approved by security
holders pursuant to the October 2002 Consummation of the December 1999 Plan.
There were no equity compensation plans not previously approved by security
holders. Pursuant to the Plan, these securities will be cancelled upon
consummation and new equity securities will be issued under a new stock
incentive program, (see "Securities to be Issued in Connection with the Plan"
for further information).

NUMBER OF SECURITIES
NUMBER OF SECURITIES WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
TO BE ISSUED EXERCISE PRICE OF FUTURE ISSUANCE UNDER
UPON EXERCISE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a)
------------- ------------------- ------------------- -----------------------

Equity compensation plans approved by security holders 780,000 $ 2.50 337,700
Equity compensation plans not approved by security holders - - -
-------- ------- --------
Total 780,000 $ 2.50 337,700

Dividend Policy

No cash dividends were paid on the Parent's common equity in 2004,
2003, or in 2002. The Parent is restricted from paying cash dividends on its
Common Stock by the terms of its financing agreements. As a result, the Parent
absent a successful Plan restructuring does not anticipate that any dividends
with respect to the Common Stock will be paid in the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

19

As a holding Company, the Parent is dependent on dividends from its
subsidiaries to service its US publicly held debt and to fund its corporate
office expenses. Currently, ABN, ABNB, CPS and Transtex are permitted to pay
dividends, although presently only ABN and ABNB generate sufficient excess cash
flow to fund any material portion of the Parent's obligations. As a result, the
Parent is unable to repay the principal on the Parent's remaining reorganized
public debt structure and fund the Parent's corporate office expenses. This
factor, combined with the Company's limited access to capital and financial
markets to refinance the Senior Notes, which matured on January 31, 2005, has
required the Parent to enter into the Plan of reorganization prior to the
Company defaulting on such Notes. For a further discussion of these risks,
please see Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," Item 7A, "Quantitative and Qualitative Disclosures
About Market Risk," and the Independent Auditors' Report with respect to the
Company's Consolidated Financial Statements filed herewith.

Trading of the Company's Common Stock

As a result of the October 2002 Consummation of the December 1999 Plan,
the Parent was able to reduce a significant principal amount of its outstanding
indebtedness by converting a substantial portion of that indebtedness into
Common Stock, the majority which is closely held by a small number of holders
who own approximately 88% of the total Common Stock and also own approximately
71% of the total Senior Notes which are anticipated to be restructured as part
of the Plan. Due to the closely held nature of the Common Stock and because of
the continuing risks disclosed herein, management believes that the Common Stock
may be speculative and therefore cannot predict its value, if any.

Post October 2002 Reorganized Equity Structure

Common Stock - Pursuant to the terms of the December 1999 Plan, on the
Effective Date, the Parent authorized 20 million shares of Common Stock, $.01
par value per share. 11,828,571 shares were issued pursuant to the December 1999
Plan, which included 1,428 shares of Common Stock issued pursuant to a Rights
Offering. There were no new shares issued in 2004 or 2003. Each share of Common
Stock represents one voting right and the Common Stock does not have any
pre-emptive rights. Dividends on the Common Stock are payable solely at the
discretion of the Board of Directors and are restricted pursuant to the terms of
the Senior Note indenture. Pursuant to the Plan, holders of Common Stock who
hold 500,000 or more shares will receive a combination of cash and New Common
Stock for their claim and those with less than 500,000 shares will receive cash.
See "Securities to be issued in connection with the Plan" for specifications of
the distributions.

Warrants- Under the December 1999 Plan, on the Effective Date, the
Parent authorized and issued two series of warrants totaling 622,481, each
representing the right to purchase one share of Common Stock. These warrants
vested immediately upon issuance and will expire five years from the Effective
Date. The 311,241 (Series 1 Warrants) will have a strike price of $10.00 and the
311,240 (Series 2 Warrants) will have a strike price of $12.50. Both sets of
warrants have certain anti-dilution rights which upon exercise shall be adjusted
for stock splits, dividends, recapitalization, and similar events. Upon a merger
or consolidation of the Company, holders of warrants shall receive the market
value of the warrants or warrants in the merged or consolidated Company.
Pursuant to the Plan, it is anticipated that these Warrants will be cancelled.
See "Securities to be issued in connection with the Plan" for further
information.

Management Incentive Options- Under the December 1999 Plan, the Parent
was authorized to issue Management Incentive Options to certain employees and
consultants of the Reorganized Parent and its subsidiaries, following the
Effective Date, pursuant to the Parent's 2002 Management Incentive Plan (the
"2002 Incentive Plan"). Such Management Incentive Options permit recipients to
purchase shares of Common Stock at an option strike price of $2.50 per share,
upon the terms and conditions set forth in the Incentive Plan. The Incentive
Plan permits the issuance of Management Incentive Options to purchase up to
1,117,700 shares or approximately 8.1% of the Common Stock on a fully diluted
basis. Unless otherwise determined by the Board of Directors upon issuance, the
options are scheduled to expire on the earlier of (i) 10 years after the initial
grant, (ii) 90 days after termination of employment for any reason other than
death, disability, retirement or cause, (iii) one year after termination of
employment by reason of death, disability or retirement or (iv) termination of
employment for cause. On September 12, 2002, the Board of Directors of the
Parent approved a grant of 780,000 Management Incentive Options to key
employees. No Management Incentive Options were issued to employees in 2004 or
2003. Pursuant to the Plan, it is anticipated that these Management Incentive
Options will be cancelled. See " Securities to be issued in connection with the
Plan" for further information.

Consultant Options. Consultant Options were issued upon the Effective
Date of the December 1999 Plan that entitle the Company's former Chairman and
Chief Executive Officer, Morris Weissman ("Weissman"), to purchase up to 88,531
shares of Common Stock or approximately 0.64% of the New Common Stock on a fully
diluted basis at an exercise price of $2.50 per share. The Consultant Options
shall expire on the tenth anniversary of the Effective Date of the December 1999
Plan in accordance with the terms of a settlement agreement with Weissman.
Pursuant to the Plan, it is anticipated that these Consultant Options will be
cancelled. See "Securities to be issued in connection with the Plan" for further
information.

20

Equity Options. These options were issued upon the Effective Date of
the December 1999 Plan that entitle the holders of Common Stock to purchase (i)
up to 88,531 shares of Common Stock, or approximately 0.64% of the Common Stock
on a fully diluted basis, at an exercise price of $2.50 per share exercisable at
such time as the Common Stock trades at an average price of $5.00 over twenty
(20) consecutive trading days, and (ii) up to 88,531 shares of Common Stock or
approximately 0.64% of the Common Stock on a fully diluted basis, at an exercise
price of $2.50 per share exercisable at such time as the Common Stock trades at
an average price of $7.50 over twenty (20) consecutive trading days. The term of
an Equity Option shall commence on the grant date and terminate upon the
expiration of ten years from the grant date. At the expiration date all rights
under an Equity Option shall cease. To the extent all or any portion of an
Equity Option becomes exercisable as described above, such Equity Option will
remain exercisable until the expiration date even though the Common Stock
subsequently trades at an average price less than the target levels described
above, provided however that no portion of any Equity Options shall be
exercisable after the expiration date. Pursuant to the Plan, it is anticipated
that these Equity Options will be cancelled. See "Securities to be issued in
connection with the Plan" for further information.

Plan Administrative Claims. Administrative Claims under the December
1999 Plan were incurred primarily through December 31, 2003. In 2004, expenses
were incurred primarily for the new Plan which includes primarily legal fees,
investment advisors fees, US Trustee fees and various printing and public
notification costs. Expenses incurred in the year ended December 31, 2004 and
2003 (Successor Company), and the twelve months ended December 31, 2002
(Predecessor and Successor Companies combined) pursuant to these restructurings
are as follows (in thousands):

YEAR YEAR THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
SUCCESSOR CO SUCCESSOR CO SUCCESSOR CO PREDECESSOR CO COMBINED
2004 2003 2002 2002 2002
--------------- --------------- --------------- --------------- ---------------

Legal $ 339 $ 93 $ (30) $ 997 $ 967
Investment Advisors 41 234
Trustees Fees 16 33 -- 35 35
Printing and mailing -- -- -- 62 62
Information agent -- -- -- 66 66
--------------- --------------- --------------- --------------- ---------------
$ 396 $ 360 $ (30) $ 1,160 $ 1,130
=============== =============== =============== =============== ===============

Legal and other professional fees of approximately $0.2 million, $0.4
million and $0.8 million were paid in 2004, 2003, and 2002, respectively in
accordance with retentions approved by the Bankruptcy Court. In addition, the
Parent agreed in the fourth quarter of 2003 to settle with Blackstone, the
Parent's former investment advisor, with respect to Blackstone's $1.6 million
asserted claim. As a result of the settlement, Blackstone received from the
Parent in January 2004 approximately $0.6 million in cash and approximately $1.3
million in Senior Notes which were repurchased by the Company in the open market
during 2003 at a cost of approximately $0.6 million.

The Parent anticipates that additional legal trustee fees, printing and
mailing, and information agent expenses to consummate the Plan will be required.
Based upon an April 2005 consummation date, total remaining costs should be
expended in the normal course of the Chapter 11 proceeding.

January 2005 Chapter 11 Plan of Reorganization

CHAPTER 11 PLAN OF REORGANIZATION

On January 19, 2005, the Parent (but none of is subsidiaries) filed a
petition for reorganization relief under Chapter 11. The Plan, proposed by the
Parent and anticipated to be confirmed by the Bankruptcy Court, will allow the
Parent to reduce the principal amount of its outstanding indebtedness by
converting a substantial portion of that indebtedness into New Common Stock. The
Plan was confirmed by the Bankruptcy Court on April 8, 2005 with consummation
expected shortly thereafter.

Because following consummation of the Plan, a majority of the New
Common Stock will be closely held by less than 300 holders of record, it is
anticipated that the Company will elect to be a private Company. As a result,
the Reorganized Parent will deregister and will no longer be required to file
periodic reports (such as Annual Reports and Form 10K and Quarterly Reports or
Form 10Q) with the SEC. Management cannot predict the final terms upon which the
Plan may be consummated, and because of the continuing risks disclosed herein,
management believes that the New Common Stock may be speculative and therefore
cannot predict its value.

SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN

The following discussion of new securities to be issued in connection
with the Plan is based upon the Disclosure Statement approved by the Bankruptcy
Court on February 24, 2005. It is anticipated that no significant further
amendments to the Plan are contemplated. Any ministerial changes are not
anticipated to impact the relative equity percentages to be received by each
allowed claim holder.

21

NEW COMMON STOCK. The principal terms of the New Common Stock to be
issued by the Reorganized Parent under the Plan are as follows:

Authorization: 35 million shares, $.01 par value per share

Initial Issuance: 10,000,000 shares

Shares Reserved For Issuance:

Stock Incentive Plan: 700,000 shares (estimated maximum)

Total 10,700,000 shares

Par Value: $.01 per share

Voting Rights: One vote per share

Preemptive Rights: None

Dividends: Payable at the discretion of the Board of Directors of the
Reorganized Parent

All references in this Report to "on a fully diluted basis" or "subject
to dilution" shall give effect to the issuance of the number of shares of New
Common Stock reserved for issuance of the Stock Incentive Plan stated above.

STOCK INCENTIVE PLAN. In connection with the Plan, the Reorganized
Company will adopt a stock incentive plan (the "Stock Incentive Plan") that is
intended to provide incentives to attract, retain and motivate highly competent
persons as officers, non-employee directors and key employees of the Reorganized
Company by providing such persons with incentive options to acquire shares of
New Common Stock of the Reorganized Company. Additionally, the Stock Incentive
Plan is intended to assist in further aligning the interests of the Reorganized
Company's directors, officers, key employees, and consultants to those of its
stockholders. Under the Stock Incentive Plan, 700,000 shares of New Common Stock
of the Reorganized Company will be reserved for issuance. Approval of the Plan
will also constitute approval of the Stock Incentive Plan. The Stock Incentive
Plan will be adopted as part of the Plan. Pursuant to the Stock Incentive Plan,
all options issued are required to have an exercise price no less than $85.5
million divided by the total number of New Common Stock as of the Effective Date
of the Plan (the "Bankruptcy Stock Value"). Similarly, any Restricted Shares to
be issued under the Stock Incentive Plan are required to be issued at a price no
less than the Bankruptcy Stock Value.

THE EXIT FINANCING AGREEMENT. On the Effective Date, certain current
controlling interest insiders of the Company, whom also have representatives on
the Board of Directors ("the Exit Financing Parties") and presently own
approximately 88% of the current Common Stock and approximately 71% of the
Senior Note indebtedness, have agreed to an Exit Financing Agreement whereby,
the Exit Financing Parties shall transfer $16,000,000 of proceeds to the
Reorganized Company in return for the New Common Stock in the following amounts:

Exit Financing New Issued
Amount Common Stock
-------------- ------------
Bay Harbour Partners, Ltd $ 2,000,000 233,964
Lloyd I. Miller, III 2,000,000 233,964
Pollux Investments, LLC 2,000,000 233,964
Highland Capital Management, L.P. 10,000,000 1,169,822
-------------- ------------
TOTAL $ 16,000,000 1,871,714
============== ============

The Exit Financing will be used to make certain of the cash
distributions provided for under the Plan, including the payments for certain
administrative claims, priority claims, other priority claims, miscellaneous
secured claims, miscellaneous unsecured claims, Supplemental Executive
Retirement Payments ("SERP") claims, equity interests, and interests of de
minimis equity holders (those holders with 500,000 shares or less in current
Common Stock as more fully discussed below). Additionally, the Exit Financing
will be used to meet the Company's working capital needs, during the months
following the Effective Date of the Plan.

22

The Exit Financing Parties will receive New Common Stock at 75% of the
Company's equity value based upon an independent valuation of the Reorganized
Company. The Company explored the possibility of obtaining Exit Financing in
return for a note or other type of financial instrument, but was concerned about
its ability to service that note or instrument in addition to the New Notes. The
Company turned to certain insiders of the Company to determine if they were
willing to provide the Exit Financing in exchange for New Common Stock. While
the Exit Financing Parties are receiving the New Common Stock at a discount,
such funds are absolutely necessary for the Company's reorganization, and
because of the Company's financial condition, it is unlikely that the Parent
would be able to obtain financing on similar terms to that to be provided by the
Exit Financing Parties. Outside lenders are generally unwilling to take the risk
associated with lending cash in exchange for equity in a Company and an exchange
of equity for the Exit Financing was vital to the Company's ability to emerge
from Chapter 11 with a serviceable debt load. Furthermore, the Exit Financing
Parties are not seeking fees or expense reimbursement.

THE ABOVE EXIT FINANCING PARTIES OR THEIR AFFILIATES ARE INSIDERS OF THE COMPANY
AND PERSONS ASSOCIATED WITH THE EXIT FINANCING PARTIES SERVE ON THE BOARD OF
DIRECTORS OF THE COMPANY. UPON CONSUMMATION OF THE PLAN, IT IS ANTICIPATED THAT
THE EXIT FINANCING PARTIES WILL OWN APPROXIMATELY 79% OF THE REORGANIZED COMPANY
ON A FULLY DILUTED BASIS.

NEW NOTES. The Reorganized Company will have the ability to issue up to
$11 million face amount of New Notes in exchange for those Senior Note Holders
which fall within the Note Convenience Claim (see "Senior Note Claims") and
elect New Notes in lieu of cash as more fully discussed below. The New Notes
will be unsecured and pay interest quarterly at 7% per annum and mature in 2009
commencing on the date of issuance.

VALUATION OF REORGANIZED COMPANY. In the fourth quarter of 2004, the
Company engaged Amper, Politziner & Mattia, P.C. ("Amper") to be the valuation
expert in order to perform an appraisal of the Company's enterprise value for
the purposes of the Plan. For the purpose of distributions under the Plan,
Amper, with management's assistance, ascribed a reorganized enterprise value of
$114 million after receipt of the funds from the Exit Financing and net of the
New Notes of the Reorganized Company.

DISTRIBUTIONS UNDER THE PLAN

The following descriptions are summaries of material terms and
distributions under the Plan. This summary is qualified by the material
agreements and related documents constituting the Plan, copies of which have
been filed as exhibits to this report, and by the provisions of applicable law.

EXISTING CREDITOR CLAIMS. The major classes and the respective
distributions that these classes will receive of the above securities under the
Plan are described below. For more complete information of the claims and
recoveries under the Plan, reference is made to the Plan and the related
Disclosure Statement attached as exhibits to this report.

PRIORITY CLAIMS, UNSECURED AND MISCELLANEOUS SECURED CLAIMS. All
priority, unsecured and miscellaneous secured claims will remain unimpaired and
be settled in cash or continue to be paid their respective obligations in the
ordinary course of business.

SENIOR NOTE CLAIMS

At December 31, 2004, the Parent had total outstanding Senior Note
indebtedness of approximately $106.8 million including accrued pay in kind
interest. The Senior Notes had a maturity date of January 31, 2005, at which
time the total outstanding indebtedness would have been approximately $107.9
million. Based upon the terms of the 2005 Plan these Senior Notes will receive
the following treatment:

(a) SENIOR NOTE HOLDERS WITH A CLAIM WITH AN AGGREGATE PRINCIPAL
AMOUNT (INCLUDING PAY IN KIND INTEREST) GREATER THAN $45,000.
These Senior Note Holders on the Distribution Date will
receive in full satisfaction, settlement, release and
discharge of and in exchange of such claim, their ratable
portion of 7,920,884 shares of New Common Stock or
approximately 74% of the ownership of the Reorganized Company
on a fully diluted basis. Based upon the enterprise value of
approximately $114 million, these holders would receive an
estimated recovery of approximately 95%.

(b) SENIOR NOTE HOLDERS WITH A CLAIM WITH AN AGGREGATE PRINCIPAL
AMOUNT (INCLUDING PAY IN KIND INTEREST) EQUAL TO OR LESS THAN
$45,000. These Senior Note Holders on the Distribution Date
will have the option at their election to receive in full
satisfaction, settlement, release and discharge of and
exchange for such claim either cash equal to 60% of such
holder's allowed claim or New Notes equal to 100% of the
holder's claim. In the absence of the Senior Note Holder not
making this election, such holder will have deemed to accept
the 60% cash distribution for their allowed claim.

23

COMMON STOCK EQUITY INTERESTS

All equity interests represented by approximately 11.8 million shares
of current Common Stock will receive the following distributions in exchange for
these claims pursuant to the Plan as follows:

(a) CURRENT COMMON STOCK HOLDERS WHO OWN IN EXCESS OF 500,000
SHARES. These holders will have their equity interests
cancelled on the Effective Date and on the Distribution Date
will receive in full satisfaction, settlement, release and
discharge of and exchange for these interests their prorata
share of approximately 207,402 shares of New Common Stock or
approximately 1.9% of the ownership of the Reorganized Company
on a fully diluted basis and approximately $4 million in cash.

(b) CURRENT COMMON STOCK HOLDERS WHO OWN BETWEEN 1 AND 500,000
SHARES. These holders will have their equity interests
cancelled on the effective date and on the Distribution Date
will receive in full satisfaction, settlement, release and
discharge of and exchange for these interests their prorata
portion of approximately $1 million in cash.

ALL OTHER EQUITY INTERESTS.

All Warrants, Management Incentive Options, Consultant Options and
Equity Options will be cancelled and receive no distribution under the Plan.

SERP CLAIM

On the Distribution Date, Sheldon Cantor who represents the remaining
unsettled individual under the Company's SERP Plan, will receive in full
satisfaction, settlement, release and discharge of and in exchange for such
claim an amount equal to approximately $25,000 or one year of SERP benefits. All
other SERP participants have settled their respective claims in exchange for
approximately one year of SERP benefits with the exception of Morris Weissman,
who renegotiated his SERP settlement as more fully discussed in Note Q to Notes
to Consolidated Financial Statements. Separate from this claim, the Company and
Mr. Cantor upon Consummation agree to enter into a five year consulting
agreement with Mr. Cantor at $25,000 per annum payable in advance to perform
consulting services for the Company.

CONDITIONS PRECEDENT TO EFFECTIVE DATE.

The Consummation of the Plan is subject to satisfaction of the
following conditions precedent: (i) A confirmation order shall have been entered
by the clerk of the Bankruptcy Court which is in form and substance reasonably
acceptable to the Company and there shall not be a stay or injunction in effect
with respect thereto; (ii) The Exit Financing Parties shall have paid the
Company $16,000,000 in proceeds under the Exit Financing Agreement in accordance
with the terms of the Plan and the Exit Financing Agreement; (iii) The Company
shall have purchased directors and officers liability insurance for the Board of
Directors of the Reorganized Company in form, substance and amount reasonably
acceptable to the Company; and (iv) All other actions and all agreements,
instruments or other documents necessary to implement the terms and provisions
hereof shall have been effected.

ITEM 6. SELECTED FINANCIAL DATA.

The selected financial data presented below is for the twelve months
ended December 31, 2004 (Successor Company), the twelve months ended December
31, 2003 (Successor Company), the three months ended December 31, 2002
(Successor Company), the nine months ended September 30, 2002 (Predecessor
Company), and the twelve months ended December 31, 2001 and 2000 (both
Predecessor Company) and is derived from the consolidated financial statements,
and should be read in conjunction with such consolidated financial statements,
including the notes thereto, appearing elsewhere herein. With respect to the
Company's operating results, the Company has presented the results of the
Predecessor Company and the Successor Company for 2002 on a combined basis, as
these combined results are capable of comparison to the results of the Successor
Company for 2003 and the Predecessor Company for 2001 and 2000, except for
changes in interest and depreciation expenses resulting from the reorganization
of the Parent's debt and fair market value adjustments to the Company's
property, plant and equipment as a consequence of the consummation of the 1999
Plan and related Fresh Start reporting. In addition, the Parent's disposal of LM
in April 2004 resulted in a discontinued operation of this segment of the
business and as such the Company's selected financial data have been restated to
reflect LM as a component of discontinued operations for each of the periods
below for comparative purposes.

24

Year Year Three Months Nine Months Twelve Months Year Year
Ended Ended Ending Ending 2002 Ended Ended
December 31, December 31, December 31, September 30, Combined December 31, December 31,
2004 2003 2002 2002 (Successor & 2001 2000
(Successor (Successor (Successor (Predecessor (Predecessor (Predecessor (Predecessor
Co) Co) Co) Co) Co) Co) Co)
------------- ------------- ------------- ------------- ------------- ------------- -------------
INCOME STATEMENT DATA (Dollars in thousands, except share and per share data)

Continuing Operations
Sales $ 162,259 $ 142,551 $ 31,868 $ 112,759 $ 144,627 $ 163,977 $ 190,125
Cost of good sold 114,821 106,587 22,962 78,779 101,741 120,973 138,090
Selling and administrative 24,863 20,842 4,363 16,010 20,373 23,236 27,724
Restructuring -- 933 -- -- -- -- --
Goodwill and asset
impairments 10,820 41,537 47,435 221 47,656 2,482 9,500
Depreciation and
amortization 11,711 10,561 2,029 4,349 6,378 6,919 8,307
------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating income (loss) 44 (37,909) (44,921) 13,400 (31,521) 10,367 6,504
------------- ------------- ------------- ------------- ------------- ------------- -------------

Curtailment and
other related gains (3,455) (334) (5,001) -- (5,001) -- --
Interest expense 10,470 10,277 2,422 8,404 10,826 9,871 10,602
Gain on senior note
repurchases (1,077) (3,393) -- -- -- -- --
Gain on sale of archives (3,004) -- -- -- -- -- --
Interest and other, net (1,472) (1,038) (258) (197) (455) 284 (564)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before
reorganization items,
taxes on income and
minority interest (1,418) (43,421) (42,084) 5,193 (36,891) 212 (3,534)
Fresh-Start Gain -- -- (223,185) (223,185) -- --
Reorganization costs 396 360 (30) 1,160 1,130 127 2,740
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before
taxes on income
and minority interest (1,814) (43,781) (42,054) 227,218 185,164 85 (6,274)
Taxes on income 6,042 4,249 147 3,493 3,640 2,337 4,779
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before
minority interest (7,856) (48,030) (42,201) 223,725 181,524 (2,252) (11,053)
Minority interest
expense (income) 1,889 (5,474) (7,417) 24,666 17,249 1,395 1,968
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from
continuing operations (9,745) (42,556) (34,784) 199,059 164,275 (3,647) (13,021)
Discontinued
operations (1)
Income (loss) from
discontinued operations 55,952 (4,026) (4,647) (27,652) (32,299) (1,807) (3,845)
Extraordinary items
Forgiveness of debt and
debt reinstatement -- -- -- 89,520 89,520 -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
Net Income (loss) $ 46,207 $ (46,582) $ (39,431) $ 260,927 $ 221,496 $ (5,454) $ (16,866)
============= ============= ============= ============= ============= ============= =============
Income (loss) per
commons share
basic and diluted (2)
Continuing operations $ (0.83) $ (3.62) $ (2.96) NA NA NA N/A
Discontinued operations 4.75 (0.34) (0.39) NA NA NA N/A
Extraordinary items -- -- -- NA NA NA N/A
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income(loss)per common
share basic & diluted $ 3.92 $ (3.96) $ (3.35) NA NA NA N/A
============= ============= ============= ============= ============= ============= =============
Shares used in computing
per share amounts
- basic and diluted:
Continuing operations 11,770,815 11,770,815 11,770,815 NA N/A N/A N/A
Discontinued operations 11,770,815 11,770,815 11,770,815 NA N/A N/A N/A
Extraordinary items 11,770,815 11,770,815 11,770,815 NA N/A N/A N/A

(1) For the year ended December 31, 2004 (Successor Company), discontinued
operations reflect the gain on disposal of the LM segment of $56.9
million and a $0.9 million loss from LM's operations. For the year
ended December 31, 2003 (Successor Company), the three months ended
December 31, 2002 (Successor Company), the nine months ended September
30, 2002 (Predecessor Company), the twelve months ended December 31,
2002 (Successor and Predecessor Company), and the year ended December
31, 2001 and 2000 (Predecessor Company), discontinued operations
reflect the results of operations of LM.

(2) Per share amounts are not shown for the Predecessor Company and the
Combined Successor and Predecessor Companies due to non-comparability.

25

AS OF DECEMBER 31,
2004 2003 2002 2001 2000
(SUCCESSOR CO) (PREDECESSOR CO)
-------------------------------------- -----------------------

BALANCE SHEET DATA:
Cash and cash equivalent 14,009 9,018 10,674 9,549 7,845
Working capital surplus (deficiency) (1) 35,035 22,620 25,408 (225,453) (183,857)
Total assets 184,281 120,791 157,219 110,045 119,975
Long-term debt including current
portion (2) 107,889 100,696 96,127 774 2,811
Stockholders' equity (deficit) 6,254 (47,477) (8,781) (161,533) (148,620)

(1) Includes Parent liabilities subject to compromise totaling $209.4
million and $203.2 million in 2001 and 2000, respectively, which were
exchanged, reinstated and/or modified upon consummation in accordance
with the December 1999 Plan.

(2) Includes Parent Company Senior Notes of $106.8 million, $100 million
and $95.5 million in 2004, 2003 and 2002, respectively, which were
reinstated on consummation in October 2002 pursuant to the December
1999 Plan.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following Management's Discussion and Analysis of Financial
Condition and Results of Operations relates entirely to the comparison of the
twelve months ended December 31, 2004 (Successor Company) to the twelve months
ended December 31, 2003 (Successor Company), the twelve months ended December
31, 2003 (Successor Company) to the twelve months ended December 31, 2002, (both
Predecessor and Successor Companies combined) and the twelve months ended
December 31, 2002 (both Predecessor and Successor Companies combined) to the
twelve months ended December 31, 2001 (Predecessor Company). The Company's
combined results of operations for 2002 (Predecessor and Successor Companies)
are capable of comparison to the results of operations of the Successor Company
for 2003 and the Predecessor Company for 2001, except for changes in interest
and depreciation expenses resulting from the reorganization of the Parent's debt
and fair market value adjustments to the Company's property, plant and equipment
as a consequence of the Consummation of the December 1999 Plan and related Fresh
Start reporting. As a result, unless otherwise indicated, the discussion of
results of operations for the years 2003 versus 2002 and 2002 versus 2001 will
be on a twelve month basis. For all periods discussed, the Company's results of
operations will exclude any discussion or comparison of LM's operations as a
result of the disposal of that segment of the business and the reclassification
of LM's results of operations as a discontinued operation.

The Company operates and manages its businesses based on geographic
location. See Note Q of Notes to Consolidated Financial Statements, which
include geographic information for the Company's businesses.

THE COMPARISONS THAT FOLLOW ISOLATE AND QUANTIFY THE EFFECT THAT
CHANGES IN FOREIGN EXCHANGE RATES HAVE HAD ON THE RESULTS OF OPERATIONS OF THE
COMPANY, THEREBY ENABLING COMPARISON OF OPERATING RESULTS OF THE COMPANY'S
SUBSIDIARIES IN US CONSTANT DOLLAR TERMS ("CONSTANT DOLLARS"). IN PERFORMING
THIS COMPARISON, THE COMPANY UTILIZES A CONSTANT DOLLAR EXCHANGE RATE AS IF THE
EXCHANGE RATE FOR THE MOST RECENT PERIOD REMAINED AT THE SAME LEVELS AS THE
PRIOR PERIOD FOR WHICH THE COMPARISON IS BEING PERFORMED.

The following abbreviations are used to refer to the Company's three
principal product lines: Transaction Cards and Systems - "TCS"; Printing
Services and Document Management - "PSDM"; and Security Printing Solutions -
"SPS".

COMPARISON OF RESULTS OF OPERATIONS - 2004 (SUCCESSOR COMPANY) WITH 2003
(SUCCESSOR COMPANY)

Sales for the years ended 2004 (Successor Company) and 2003 (Successor
Company) were $162.2 million and $142.5 million, respectively. Sales, in
millions, and as a percentage of total sales for each of the Company's
geographic locations is as follows:

26

Years Ended
----------------------------------------------------------
December 31, 2004 December 31, 2003
(Successor Company) (Successor Company)
Sales % Sales %
------------ ------------- ------------ -------------
Brazil $ 112.3 69.2% $ 98.3 69.0%
United States 24.9 15.4% 21.9 15.4%
Argentina 8.2 5.1% 5.1 3.6%
France 16.8 10.3% 17.2 12.0%
------------ ------------- ------------ -------------
$ 162.2 100.0% $ 142.5 100.0%
============ ============= ============ =============

SALES

Although reported sales in 2004 increased by $19.7 million or 13.8%
from 2003, sales increased by $12.7 million in constant US dollars, after
deducting $7.0 million attributable to foreign currency fluctuations. The
adjustments due to exchange rate fluctuations included an appreciation in the
Brazilian Real and Euro (France) currencies that resulted in increased revenues
of $5.5 million and $1.5, respectively. The constant dollar sales increase of
$12.7 million resulted from higher sales in Brazil of $8.5 million, Argentina of
$3.1 million, and the United States of $3.0 million, partly offset by lower
sales in France of $1.9 million. The net increase in sales in constant dollars
is discussed in detail by subsidiary below.

The increase of $3.0 million in sales in the United States was due to
increased SPS sales at ABN in secure commercial and government print of $3.0
million, primarily attributable to higher volumes in foreign passport sales,
vital record sales and gift certificate printing and related reconciliation and
distribution services. In addition, sales of stock and bond certificates
increased by $0.3 million, and sales increased by $0.2 million from higher
volumes under ABN's Stamps on Consignment program with the US Postal Service.
These increases were partly offset by $0.5 million in reduced revenue resulting
from the termination of the USDA food coupon contract. Although stock and bond
certificate sales and sales of secure government and commercial print were
stronger in 2004 when compared to 2003, management believes the continued trend
toward next day settlement, the overall slow growth in the capital markets and
the decreasing overall demand for secure paper-based documents of value that are
used in the public and private sector will continue to have a negative effect on
the mix of sales and gross margins at ABN. ABN continues to transition its
business in favor of new products and services with growth potential, albeit at
significantly lower gross margins, in order to replace maturing product lines.

At Transtex, TCS sales increased by $3.1 million despite the severe and
ongoing economic recession which continues in Argentina. The increase in TCS
sales was primarily due to a higher volume of orders placed in 2004 on prepaid
telephone cards and non-secure commercial loyalty cards, as well as an increase
in card export sales, partly offset by lower overall prices received on cards
due to competitive pressures. Because of the volatility of Argentine credit
markets, however, the overall trend in card usage remains uncertain. As a
result, there can be no assurance that the volume of TCS sales will continue to
grow.

In France, the decrease of $1.9 million in TCS sales at CPS was
principally due to a $3.6 million loss of its phone card business to a global
tender and $0.4 million in lower sales on non-secure commercial loyalty card
personalization. These decreases were partly offset by $2.1 million in higher
bank card sales, primarily due to new customer orders.

Sales at ABNB in Brazil in 2004 were $8.5 million higher than in 2003.
The net increase is attributable to higher TCS sales resulting from higher
volume and price increases on sales of secure credit cards of $4.4 million and
phone cards of $3.2 million, and $1.4 million in higher PSDM orders from an
existing customer. These increases were partly offset by lower SPS sales of $0.5
million primarily attributable to $1.8 million in lower sales due to a reduction
in electronic print volumes resulting from the cancellation of low and negative
margin business, partly offset by a $1.3 million increase in sales resulting
primarily from a higher volume of orders received on secure government and
commercial print.

COST OF GOODS SOLD

Although reported cost of goods sold in 2004 increased $8.2 million or
7.7% as compared to 2003 (with a corresponding increase in gross margins of
$11.5 million), cost of goods sold increased by $3.0 million in constant US
dollars, after deducting $5.2 million attributable to foreign currency
fluctuations. As a result, exchange rate fluctuations account for increased
gross margins of $1.8 million. The effect of exchange rate appreciation by
country on cost of goods sold and gross margin, respectively, was as follows:
France - $1.3 million and $0.2 million and Brazil - $3.9 million and $1.6
million. There was no impact in Argentina resulting from exchange rate
fluctuations.

27

The constant dollar increase in cost of goods sold resulted primarily
from the increase in sales discussed above, and a shift in product mix toward
higher margin products, the elimination of low and negative margin contracts
(most notably in Brazil), and the reduction in fixed expenses at ABN resulting
from plant and labor consolidations. As a result, gross margins in constant
dollars increased by approximately $9.7 million when compared to the prior year.
The net increase in cost of goods sold in constant dollars is discussed in
detail by subsidiary below.

As a percentage of sales, cost of goods sold decreased to 70.8% in 2004
as compared to 74.8% in 2003. A comparison of the percentage of cost of goods
sold by each of the Company's geographic locations to the prior year is as
follows:

TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------
2004 2003
(SUCCESSOR COMPANY) (SUCCESSOR COMPANY)
------------------- -------------------
Brazil 70.7% 74.7%
United States 62.8% 68.8%
Argentina 62.2% 58.1%
France 86.9% 87.5%

Cost of goods sold at ABNB in Brazil increased by $2.1 million from
2003, with a corresponding increase in gross margins of $6.4 million. The
increase in cost of goods sold in constant dollar terms was primarily
attributable to the increase in sales discussed above. In addition, there were
higher fixed costs primarily attributable to increased maintenance, rental, and
communication costs with respect to SPS driver's license, electronic print, and
PSDM products, as well as additional maintenance required on the TCS phone card
chemical lines. Despite these increases, cost of goods sold as a percentage of
sales decreased 4.0% when compared to 2003 attributable to the favorable change
in product mix resulting from increased sales of higher margin TCS secure bank
cards and phone cards and SPS secure government and commercial print products as
well as the elimination of low or negative margin contracts on SPS electronic
print orders.

Cost of goods sold at ABN in the United States increased by $0.5
million with an increase in gross margins of $2.5 million when compared to the
prior year, primarily resulting from the increase in sales and lower fixed
costs. Despite the increase in revenue, cost of goods sold as a percentage of
sales decreased by approximately 6.0% when compared to the prior year, primarily
due to the full year effect of lower fixed costs resulting from the
consolidation of ABN's Philadelphia operation into its Tennessee location. (See
"Financial Information about Segments" and Note F to Notes to Consolidated
Financial Statements provided herein for further information).

In Argentina, cost of goods sold at Transtex was approximately $2.2
million higher than in 2003, with an increase in gross margins of $0.9 million,
primarily as a result of increased sales. Cost of goods sold as a percentage of
sales increased by 4.1% over the prior year. This increase was primarily due to
a higher volume of cards produced at significantly lower competitive prices
along with higher raw material and labor costs.

At CPS in France, cost of goods sold decreased by approximately $1.8
million when compared to 2003 with a decrease in gross margins of $0.1 million,
primarily due to lower sales. As a result, cost of goods sold decreased by
approximately 0.6% as a percentage of sales.

SELLING AND ADMINISTRATIVE EXPENSES

Reported selling and administrative expenses increased by $4.0 million
when compared to 2003. Exchange rate appreciation resulted in a net increase of
$0.6 million in such expenses, attributable to currency appreciation in Brazil
and France of approximately $0.5 million and $0.1 million, respectively. There
was no impact of foreign currency in Argentina. As a result, the net increase in
selling and administrative expense from the prior year in constant dollars was
$3.4 million.

In constant dollars, ABNB's selling and administrative expenses
increased by $1.7 million due to a provision established in the third quarter of
2004 for certain disputed accounts receivable from a government customer. In
addition, administrative expenses were higher due to increases in wages and
social charges, a bonus provision resulting from improved operating results,
higher rent and moving costs for a new office location and a provision
established in 2004 for a series of potential labor disputes. Selling expenses
were higher in 2004 as a result of increased sales, partly offset by penalties
paid to a customer in 2003. Selling and administrative expenses at ABN increased
by $0.2 million due to additional hiring in the marketing area, partly offset by
a reduction in selling personnel related to cost cutting initiatives. Selling
and administrative expenses in Argentina increased $0.3 million due to an
increase in wages and social charges, and a bonus provision resulting from the
improved operating results. Parent expenses were $1.2 million higher primarily
due to an increase in legal fees to defend certain actions, most notably the
Lithuania claim and an increase in the bonus provision resulting from improved
operating results. As a result of the above, for the Company as a whole, selling
and administrative expenses as a percentage of sales were higher at 15.3% in
2004 as compared to 14.6% in 2003.

28

RESTRUCTURING

The restructuring charge of $0.9 million in 2003 represents severance
payments to employees in connection with ABN's decision to close its
Philadelphia plant and consolidate all of its manufacturing operations into its
Tennessee location. (See "Financial Information About Segments" and Note F to
Notes to Consolidated Financial Statements provided herein for further
information).

GOODWILL AND ASSET IMPAIRMENT

The Goodwill and asset impairment charge of $10.8 million in 2004,
represents the remeasurement of the value of the Company's subsidiaries based on
the Parent's review of projected cash flows and valuation multiples based on
prevailing market conditions, and a valuation of the Company performed by an
independent expert which resulted in a $10.8 million impairment charge in
accordance with SFAS No. 142 "Goodwill and Other Intangible Assets".

The Goodwill and asset impairment charge of $41.5 million in 2003,
represents the remeasurement of the value of the Company's subsidiaries based on
the Parent's review of projected cash flows and valuation multiples based on
prevailing market conditions which resulted in a $42.6 million impairment charge
in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets". These
charges were partly offset by a $1.1 million recovery at ABN resulting from a
favorable settlement on its lease with the landlord of its idle Chicago
facility. (See "Financial Information About Segments" and Note G to Notes to
Consolidated Financial Statements provided herein for further information).

DEPRECIATION EXPENSE

Reported depreciation and amortization expense for 2004 was $1.2
million higher when compared to 2003. Exchange rate appreciation accounted for
approximately $0.6 million of this increase, resulting in a net increase of $0.6
million in constant dollars. This increase was primarily related to additional
depreciation expense at ABNB of $0.5 million and CPS of $0.1 million, resulting
from an increase in capital expenditures for assets placed in service in 2004
and the latter part of 2003.

CURTAILMENT AND OTHER RELATED GAINS

In 2004, the Parent recorded a $3.5 million non-cash actuarial gain
with respect to the settlement with the Parent's SERP participants who agreed to
settle their benefits for approximately one year of SERP benefits with the
exception of Morris Weissman who renegotiated his SERP settlement as more fully
discussed in Note P to Notes to Consolidated Financial Statements.

In 2003, ABN recognized a $0.3 million non-cash actuarial gain under
its post retirement health care and life insurance benefits plan, resulting from
the closure of its Philadelphia facility. (See Note P to Notes to Consolidated
Financial Statements provided herein for further information). In 2002, ABN had
made significant changes to its post retirement health care and life insurance
benefits in order to curtail future costs under the plan. ABN increased
participant contributions, fixed the maximum amount it would contribute to each
participant and as a result had certain participants opt out from participating
in the plan. As a result, the combination of these changes resulted in the
recognition of a one time $5 million non-cash actuarial gain resulting from the
plan settlement in 2002.

INTEREST EXPENSE

Interest expense in 2004 was approximately $0.2 million higher when
compared to 2003. This increase resulted primarily from the $0.8 million
increase in accrued pay-in-kind interest on the Parent's Senior Notes, which
mature on January 31, 2005 (see "Liquidity and Capital Resources" and Note L to
the Company's Consolidated Financial Statements provided herein for further
information), partly offset by lower interest expense at ABNB and ABN of $0.5
million and $0.1 million, respectively, resulting from reduced borrowings.

GAIN ON SENIOR NOTE REPURCHASE

In 2004, through privately negotiated transactions, the Parent
purchased $3.7 million face amount of bonds for an aggregate purchase price of
$2.6 million. The Parent recorded a gain in 2004 of approximately $1.1 million
on the repurchase of these bonds reflecting the difference between the face
amount and the purchase price. (See "Liquidity and Capital Resources" for
further information and Note L to Notes to Consolidated Financial Statements
provided herein for further information).

29

In 2003, through privately negotiated transactions, the Parent
purchased $6.3 million face amount of bonds for an aggregate purchase price of
$2.9 million. The Parent recorded a gain in 2003 of approximately $3.4 million
on the repurchase of these bonds reflecting the difference between the face
amount and the purchase price. (See "Liquidity and Capital Resources" and Note L
to Notes to Consolidated Financial Statements provided herein for further
information).

OTHER, NET

Other net income increased by approximately $0.4 million when compared
to 2003, primarily resulting from a $0.4 million gain on the sale of ABN's
Philadelphia plant in January 2004, a $0.6 million sale by ABN of certain idle
currency equipment which was impaired in prior years, and an increase of $0.3
million in foreign currency transaction gains in Argentina. These net increases
were partly offset in Brazil by reduced gains on fixed asset sales in 2004 as
compared to 2003 of $0.2 million, a gain on the settlement of a lease obligation
in 2003 of $0.4 million, and reduced income from equity in the Gemplus joint
venture in 2004 of $0.1 million. In addition, there was a $0.4 million reversal
in 2004 at the Parent of remaining pre-petition liabilities which were no longer
disputed by creditors in the December 1999 Chapter 11 proceedings as compared to
a $0.6 million reversal of such liabilities in 2003, which resulted in an
additional net decrease of $0.2 million.

BANKRUPTCY COSTS

Bankruptcy costs in 2004 amounted to $0.3 million and represented
expenses incurred primarily for the Plan.

Bankruptcy costs in 2003 amounted to $0.3 million and represented
expenses incurred for the December 1999 Plan.

TAXES ON INCOME

Taxes on income are calculated using the effective tax rate for each
tax jurisdiction and various assumptions such as state and local taxes and the
utilization of foreign taxes in the U.S. The effective tax rate is further
adjusted for any permanent differences between the book basis and tax basis of
assets and liabilities. In addition, the Company has provided a valuation
allowance against its U.S. net operating losses and other U.S. deferred tax
assets due to the uncertainty as to the realization of taxable income in both
jurisdictions in the future. Taxes on income are provided only in Brazil, France
and Argentina, which are the jurisdictions that reported taxable income for the
period.

MINORITY INTEREST

Minority interest represents the 22.5% minority interest in ABNB held
by Bradesco Vida e Previdencia S.A., a subsidiary of the Bradesco Group.

30

COMPARISON OF RESULTS OF OPERATIONS - 2003 (SUCCESSOR COMPANY) WITH 2002
(PREDECESSOR AND SUCCESSOR COMPANIES)

Sales for the years ended 2003 (Successor Company) and 2002
(Predecessor and Successor Companies, combined) were $142.5 million and $144.6
million, respectively. Sales, in millions, and as a percentage of total sales
for each of the Company's geographic locations is as follows:

YEARS ENDED
---------------------------------------------------
DECEMBER 31, 2003 DECEMBER 31, 2002
(SUCCESSOR (SUCCESSOR AND PREDECESSOR
COMPANY) COMPANIES COMBINED)
SALES % SALES %
--------- ------- --------- -------
Brazil $ 98.3 69.0% $ 98.7 68.2%
United States 21.9 15.4% 32.4 22.4%
Argentina 5.1 3.6% 4.0 2.8%
France 17.2 12.0% 9.5 6.6%
--------- ------- --------- -------
$ 142.5 100.0% $ 144.6 100.0%
========= ======= ========= =======

Sales

Sales by foreign subsidiaries represented approximately 85% in 2003
(Successor Company), as compared to 78% in 2002 (Successor and Predecessor
Companies Continued) of the Company's consolidated sales.

Although reported sales in 2003 decreased by $2.1 million or 1.5% from
2002, sales increased by $3.4 million in constant US dollars, after deducting
$5.5 million attributable to foreign currency fluctuations. The adjustments due
to exchange rate fluctuations included a decline in sales of $8.3 million
attributable to a devaluation of the Brazilian Real and a $0.1 million decline
attributable to a devaluation of the Argentine Peso, partly offset by an
appreciation in the Euro (France) that resulted in increased revenues of $2.9
million. The constant dollar sales increase of $3.4 million resulted from higher
sales in Brazil of $7.9 million, Argentina of $1.1 million, and France of $4.9
million, partly offset by lower sales in the United States of $10.5 million. The
net increase in sales in constant dollars is discussed in detail by subsidiary
below.

The decrease of $10.5 million in sales in the United States was due to
decreased SPS sales at ABN of food coupons (including distribution sales) of
$6.4 million, stock and bond certificates of $3.6 million, and $1.4 million of
lower revenue generated from ABN's distribution and fulfillment program with the
United States Postal Service (the "USPS"). These decreases were partly offset by
$0.9 million of increases in secure commercial and government print sales at
lower margins. The continued reduction in stock and bond certificate sales is
due to the trend toward book entry securities and next day settlement (reducing
or eliminating the need for physical certificates), as well as a decline in new
issues of securities. The elimination in food coupon sales reflects the
completion of the United States Department of Agriculture's (the "USDA's")
transition to the electronic benefits program with respect to ABN's print
contract with the USDA, and the USDA's written denial of ABN's claim for $1.5
million in final billings owed under ABN's fulfillment of its distribution
contract. The lower revenue on the USPS program was due to the loss of a major
customer in 2002, a union work stoppage at certain customers on the West coast
of the United States which restricted shipments, and lower overall customer
demand resulting from a U.S. postal stamp rate increase. In general, the overall
demand for secure paper-based documents of value that are used in the public and
private sector continues to decline. These trends have and will continue to have
a negative effect on revenues and on the mix of sales and gross margins at ABN.

At Transtex, TCS sales increased by $1.1 million despite the severe and
ongoing economic recession which continues in Argentina. The increase in TCS
sales was primarily due to a higher volume of orders placed in 2003 on prepaid
telephone cards and non-secure commercial loyalty cards, partly offset by lower
overall prices received on cards due to competitive pressures. Because of the
volatility of Argentine credit markets, however, the overall trend in card usage
remains uncertain. As a result, there can be no assurance that the volume of TCS
sales will continue to grow.

In France, the increase of $4.9 million in TCS sales at CPS was
principally due to an increase in sales on bank cards of approximately $4.9
million. This increase was primarily due to the banks' requirement that CPS
purchase and charge them for the cost of non-personalized base stock
transactions cards. CPS also received higher card volumes from existing banking
customers as well as new banking customers it acquired in 2003 and also received
higher pricing for new technological enhancements required by certain banks
relating to electronic purse capabilities on cards. In addition, a higher volume
of phone card orders were placed in 2003 versus 2002, partly offset by lower
prices for such cards, resulting in a net increase in phone card sales of $0.8
million. These increases were partly offset by reduced volumes on loyalty and
other financial card programs of $0.8 million.

Sales at ABNB in Brazil in 2003 were $7.9 million higher than in 2002.
The net increase is attributable to higher PSDM, TCS and SPS sales of $6.9
million, $1.5 million and $0.9 million, respectively. The increase in PSDM sales
was primarily due to increased sales of printing services predominantly due to
two new banking customers and the increase in TCS sales was due to a $1.2

31

million increase in credit card sales due to higher volume and increased prices
and a $0.3 million increase in phone card sales due to higher prices, partly
offset by lower volumes resulting from the telephone companies' decision to
increase the unit value on card denominations. The increase in SPS sales was due
to higher volumes in driver's license issuances. These increases were partly
offset by lower check volume sales of $1.4 million.

Cost of Goods Sold

Although reported cost of goods sold in 2003 increased $4.9 million or
4.8% as compared to 2002 (with a corresponding decrease in gross margins of $6.9
million), cost of goods sold increased by $8.6 million in constant US dollars,
after deducting $3.7 million attributable to foreign currency fluctuations. As a
result, exchange rate fluctuations account for decreased gross margins of $1.8
million. The effect of exchange rate devaluation by country on cost of goods
sold and gross margin, respectively, was as follows: Brazil - $6.2 million and
$2.1 million, partly offset by exchange rate appreciation in France-$2.5 million
and $0.3 million. There was no impact in Argentina resulting from exchange rate
fluctuations.

The constant dollar increase in cost of goods sold resulted primarily
from the increase in sales discussed above, a shift in product mix towards
higher volume, lower margin products, and overall competitive pricing pressures.
As a result, gross margins in constant dollars decreased by approximately $5.2
million when compared to the prior year. The net increase in cost of goods sold
in constant dollars is discussed in detail by subsidiary below.

As a percentage of sales, cost of goods sold increased to 74.8% in 2003
as compared to 70.3% in 2002. A comparison of the percentage of cost of goods
sold by each of the Company's geographic locations to the prior year is as
follows:

TWELVE MONTHS ENDED DECEMBER 31,
-------------------------------------
2002
2003 (SUCCESSOR AND
(SUCCESSOR PREDECESSOR
COMPANY) COMPANY)
-------- --------
Brazil 74.7% 74.6%
United States 68.8% 58.4%
Argentina 58.1% 52.7%
France 87.5% 74.3%

Cost of goods sold at ABNB in Brazil increased by $6.0 million from
2002, with a corresponding increase in gross margins of $1.9 million. Cost of
goods sold as a percentage of sales was approximately the same when compared to
2002. The increase in cost of goods sold in constant dollar terms was primarily
attributable to the increase in sales discussed above. In addition, there were
higher fixed costs primarily attributable to increased maintenance, rental, and
communication costs with respect to SPS driver's license, electronic print, and
PSDM products, and additional maintenance required on the TCS phone card
chemical lines. Also, PSDM costs in 2002 were lower as a result of the one-time
value added tax credits received from the Brazilian federal government of
approximately $3.5 million. These increases were partly offset by a favorable
product mix resulting from higher margin sales of SPS driver's license and
intaglio products and TCS magnetic stripe transaction cards.

Cost of goods sold at ABN in the United States decreased by $3.8
million and gross margins declined $6.7 million when compared to the prior year.
As a percentage of sales, cost of goods sold increased by approximately 10.4%.
This is primarily due to a change in product mix whereby sales of higher margin,
lower cost stock and bond and food coupon products continued to decline and were
partly replaced by sales of lower margin, higher cost direct fulfillment, secure
government and commercial printing products. The reduction in food coupon
products resulted from the termination of both the print and distribution
contracts with the USDA. This trend was partly offset by lower fixed costs as a
result of the consolidation of ABN's Philadelphia operation into its Tennessee
location. (See "Financial Information about Segments" provided herein for
further information).

In Argentina, cost of goods sold at Transtex was approximately $0.9
million higher than in 2002, with an increase in gross margins of $0.2 million,
primarily as a result of increased sales. Cost of goods sold as a percentage of
sales increased by 5.4% over the prior year. This increase was primarily due to
a higher volume of phone and non-secure commercial and loyalty cards produced at
significantly lower competitive prices along with higher imported raw material
costs due to the weak Argentine Peso.

At CPS in France, cost of goods sold increased by approximately $5.5
million when compared to 2002, resulting in a decrease in gross margins of $0.6
million. As a percentage of sales, cost of goods sold increased by approximately
13.2% from 2002, primarily due to higher costs as a result of the requirement
from the banks that CPS purchase the non-personalized base stock transaction
card and pass the cost along to the banks. In addition, there was a change in
product mix resulting from an increase in lower margin phone card orders
beginning in the second quarter of 2003.

32

Selling and Administrative Expenses

Reported selling and administrative expenses increased by $0.5 million
when compared to 2002. Exchange rate devaluation resulted in a net decrease of
$0.2 million in such expenses, attributable to currency devaluation in Brazil of
approximately $0.4 million partly offset by currency appreciation in France of
approximately $0.2 million. There was no impact of foreign currency in
Argentina. As a result, the net increase in selling and administrative expense
from the prior year in constant dollars was $0.7 million.

In constant dollars, ABNB's selling and administrative expense
increased by $1.5 million, principally due to higher commissions and salaries on
increased sales and increased administrative wages pursuant to union increases.
These increases were partly offset by $0.4 million due to lower commissionable
sales at ABN, and lower administrative expenses of $0.4 million at ABN due to
the reduction in personnel expenses related to the closure of its Philadelphia
plant and additional cost cutting initiatives at its Tennessee location.
Administrative expenses in France and Argentina were approximately the same when
compared to 2002. As a result of the above, for the Company as a whole, selling
and administrative expenses as a percentage of sales were higher at 14.6% in
2003 as compared to 14.1% in 2002.

Restructuring

The restructuring charge of $0.9 million in 2003 represents severance
payments to employees in connection with ABN's decision to close its
Philadelphia plant and consolidate all of its manufacturing operations into its
Tennessee location. (See "Financial Information About Segments" and Note F to
Notes to Consolidated Financial Statements provided herein for further
information).

Goodwill and asset impairment

The Goodwill and asset impairment charge of $41.5 million in 2003,
represents the remeasurement of the value of the Company's subsidiaries based on
the Parent's review of projected cash flows and valuation multiples based on
prevailing market conditions, which resulted in a $42.6 million impairment
charge in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets",
partly offset by a $1.1 million recovery at ABN resulting from a favorable
settlement on its lease with the landlord of its idle Chicago facility. (See
"Financial Information About Segments" and Note G to Notes to Consolidated
Financial Statements provided herein for further information).

The Goodwill and asset impairment charge of $47.6 million in 2002,
represents the remeasurement of the value of the Company's subsidiaries based on
the Parent's review of projected cash flows and valuation multiples based on
prevailing market conditions, which resulted in an impairment charge of $47.4
million for the three months ended December 31, 2002 (Successor Company), of
which $33.2 million related to ABNB and $14.2 million related to ABN. In
addition, in the third quarter of 2002 (Predecessor Company), the Parent took a
$0.2 million reserve with respect to the carrying value of certain equipment at
ABN dedicated to the production of food coupons (See Note G to the Company's
Consolidated Financial Statements provided herein for further information).

Depreciation Expense

Reported depreciation and amortization expense for 2003 was $4.2
million higher when compared to 2002. Exchange rate devaluation resulted in a
net decrease of $0.3 million in such expenses, attributable to currency
devaluation in Brazil of approximately $0.4 million partly offset by currency
appreciation in France of approximately $0.1 million. As a result, the net
increase in depreciation expense from the prior year in constant dollars was
$4.5 million. The increase was primarily related to the additional depreciation
expense at ABNB resulting from the fair valuation of fixed assets which resulted
in a step-up in basis in accordance with Fresh Start accounting in the third
quarter of 2002.

Interest Expense

Reported interest expense in 2003 was $0.6 million lower when compared
to 2002. Exchange rates had no impact on interest expense. This decrease
resulted primarily from lower interest at ABNB of $0.7 million, Argentina of
$0.1 million, and ABN of $0.2 million due to lower borrowings partly offset by
an increase of $0.4 million in accrued interest on the Parent's Senior Notes
which continued to accrue interest on a pay-in-kind basis.

Gain on Senior Note Repurchase

In 2003, through privately negotiated transactions, the Parent
purchased $6.3 million face amount of bonds for an aggregate purchase price of
$2.9 million. The Parent recorded a gain in 2003 of approximately $3.4 million
on the repurchase of these bonds reflecting the difference between the face
amount and the purchase price. (See "Liquidity and Capital Resources" for
further information).

33

Curtailment and Other Related Gains

In 2002, ABN made significant changes to its post retirement health
care and life insurance benefits in order to limit future costs under the plan.
ABN increased participant contributions, fixed the maximum amount it would
contribute to each participant and as a result had certain participants opt out
from participating in the plan. As a result, the combination of these changes
resulted in the recognition of a one time $5 million non-cash actuarial gain
resulting from the plan settlement. In 2003, ABN recognized an additional $0.3
million non-cash actuarial gain resulting from the closure of its Philadelphia
facility. (See Note P to Notes to Consolidated Financial Statements provided
herein for further information).

Other, Net

Other, net in 2003 reflects a $0.6 million net favorable gain when
compared to 2002 primarily attributable to the reversal of the remaining
pre-petition liabilities which were determined to no longer be disputed by
creditors in the Chapter 11 proceedings.

Bankruptcy Costs

Bankruptcy costs decreased by $0.8 million from 2002. This decrease
resulted from approximately $0.4 million in administrative wind down costs in
2003, including an accrual for the additional estimated cost of approximately
$0.2 million to settle the Blackstone claim as compared to approximately $1.2
million required in 2002 in connection with the consummation of the Plan.
Remaining costs to be incurred will result from the further administrative wind
down of the Plan, which are reasonable and customary to complete the
reorganization process and are not expected to be significant.

Taxes on Income

Taxes on income are calculated using the effective tax rate for each
tax jurisdiction and various assumptions such as state and local taxes and the
utilization of foreign taxes in the U.S. The effective tax rate is further
adjusted for any permanent differences between the book basis and tax basis of
assets and liabilities. In addition, the Company has provided a valuation
allowance against its U.S. and Australia net operating losses and other U.S. and
Australia deferred tax assets due to the uncertainty as to the realization of
taxable income in both jurisdictions in the future. Taxes on income are provided
only in Brazil, France and Argentina, which are the jurisdictions that reported
taxable income for the period.

Minority Interest

Minority interest represents the 22.5% minority interest in ABNB held
by Bradesco Vida e Previdencia S.A., a subsidiary of the Bradesco Group.

COMPARISON OF RESULTS OF OPERATIONS- 2002 (PREDECESSOR AND SUCCESSOR COMPANIES)
WITH 2001 (PREDECESSOR COMPANY)

Sales for the years ended 2002 (Predecessor and Successor Companies
combined) and 2001 were $144.6 million and $164.0 million respectively. Sales,
in millions, and as a percentage of total sales for each of the Company's
geographic locations were as follows:

Three Months Ended Nine Months Ended
December 31, 2002 September 30, 2002
(Successor Company) (Predecessor Company)
Sales % Sales %
------------ ------------ ------------ ------------
Brazil $ 20.3 63.6% $ 78.4 69.6%
United States 7.9 24.8% 24.5 21.7%
Argentina 0.8 2.5% 3.2 2.8%
France 2.9 9.1% 6.6 5.9%
------------ ------------ ------------ ------------
$ 31.9 100.0% $ 112.7 100.0%
============ ============ ============ ============

34

December 31, 2002
(Successor and Predecessor December 31, 2001
Company Combined) (Predecessor Company)
Sales % Sales %
------------- ------------ ------------ ----------
Brazil $ 98.7 68.2% $ 111.3 67.9%
United States 32.4 22.4% 36.0 21.9%
Argentina 4.0 2.8% 8.2 5.0%
France 9.5 6.6% 8.5 5.2%
------------- ------------ ------------ ----------
$ 144.6 100.0% $ 164.0 100.0%
============= ============ ============ ==========

Sales by foreign subsidiaries represented approximately 78% in both
2002 (Successor and Predecessor Companies Combined) and 2001 (Predecessor
Company), respectively, of the Company's consolidated sales.

Although reported sales in 2002 decreased by $19.4 million, or 11.8%,
from 2001, in constant US dollars, sales increased by $12.0 million after
deducting $31.4 million attributable to foreign currency fluctuations. The
adjustments due to exchange rate fluctuations included a decline in sales of
$24.2 million attributable to a devaluation of the Brazilian Real and a $7.7
million decline attributable to the devaluation of the Argentine Peso. The
devaluation in these countries was partly offset by an appreciation in the Euro
currency (France) that resulted in increased revenues of $0.5 million. The
constant dollar sales increase of $12.0 million resulted from higher sales in
Brazil of $11.6 million, Argentina of $3.5 million and France of $0.5 million,
partly offset by lower sales in the United States of $3.6 million. The net
increase in sales in constant dollars is discussed in detail by subsidiary
below.

The decrease of $3.6 million in sales at ABN was due to $2.3 million in
lower stock and bond sales, $2.4 million in decreased sales of secure government
print and $0.8 million in lower secure commercial sales. These decreases were
partly offset by $1.9 million in higher revenue generated primarily from ABN's
distribution and fulfillment program with the United States Postal Service (the
"USPS"). The continued trend toward next day settlement of securities, the
decreasing overall demand for secure paper-based documents of value that are
used in the public and private sector and the recent verbal notification by the
USDA that it did not anticipate the need to place any future orders for food
coupons during the remaining term of the agreement, are expected to have a
negative effect on the future mix of sales and gross margins at ABN. For further
information regarding USDA food coupon sales, see "Liquidity and Capital
Resources".

At Transtex, TCS sales increased by $3.5 million in constant dollars
despite the severe and ongoing economic recession, which continues to negatively
impact Argentina. The increase was primarily due to an increase in orders placed
on prepaid telephone cards, an increase in card personalization volumes and
higher pricing received on bank debit and credit cards. In addition, the
devaluation of its local currency, the Argentine Peso, has allowed Transtex to
be more competitive with foreign suppliers. Despite this improvement in sales in
2002, there is no guarantee that this trend will continue as both the economy
and credit markets in Argentina continue to remain highly volatile, such that
the overall trend in card usage remains uncertain.

In France, the constant dollar increase of $0.5 million in TCS sales at
CPS was principally due to stronger demand for bank and other financial cards of
$0.9 million, partly offset by lower phone card sales of $0.4 million resulting
from an overall weakness in the telecommunications market in France.

Sales at ABNB in Brazil were $11.6 million higher than in 2001 in
constant dollars. The net increase is attributable to higher TCS and SPS sales
of $2.9 million and $9.7 million, respectively, partly offset by a decrease in
PSDM sales of $1.0 million. The $2.9 million increase in TCS sales is due
entirely to an increase in revenue from phone cards of which the increase is
evenly split between price and volume. The $9.7 million increase in SPS sales
resulted primarily from an increase in driver license revenues of $6.9 million
due to an increase in volume, as well as incremental revenue generated from
adding fingerprint identification on driver licenses. In addition, an increase
in sales of checks and electronic print of $2.8 million resulted from new
business received from telephone and banking customers. The $1.0 million net
reduction in PSDM revenue levels was due to decreased demand, primarily from
ABNB's minority shareholder Bradesco Bank.

Cost of Goods Sold

Although reported cost of goods sold in 2002 decreased $19.3 million or
15.9% as compared to 2001, (with a corresponding decrease in gross margins of
$0.1 million), cost of goods sold increased by 2.5 million in constant US
dollars, after deducting $21.8 million attributable to foreign currency
fluctuations. As a result, exchange rate fluctuations account for decreased
gross margins of $9.6 million. The effect of exchange rate devaluation by
country on cost of goods sold and gross margins, respectively, was as follows:
Brazil - $18.1 million and $6.1 million, and Argentina - $4.1 million and $3.6
million, partly offset by exchange rate appreciation with respect to the Euro in
France- $0.4 million and $0.1 million.

35

The constant dollar increase in cost of goods sold resulted primarily
from the increase in sales discussed above, partly offset by a reduction in
costs and a favorable change in product mix. As a result, gross margins in
constant dollars increased by approximately $9.5 million when compared to the
prior year. The net increase in cost of goods sold in constant dollars is
discussed in detail by subsidiary below.

As a percentage of sales, cost of goods sold decreased to 70.3% in 2002
as compared to 73.8% in 2001. A comparison of the percentage of cost of goods
sold by each of the Company's geographic locations to the prior year is as
follows:

YEAR ENDED DECEMBER 31,
SUCCESSOR AND
PREDECESSOR PREDECESSOR
COMPANY COMPANY
2002 2001
----------- -----------
Brazil 74.6% 78.6%
United States 58.4% 57.9%
Argentina 52.7% 72.1%
France 74.3% 79.1%

Cost of goods sold at ABNB in Brazil increased by $4.2 million from
2001, with a corresponding increase in gross margins of $7.4 million. Cost of
goods sold as a percentage of sales decreased by 4% when compared to 2001. The
increase in cost of goods sold in constant dollar terms resulted from
approximately $9.1 million in higher costs associated with increased sales and
$0.8 million in higher costs due to changes in product mix resulting primarily
from higher cost, lower margin SPS electronic print sales. These increases were
partly offset by a reduction in costs of approximately $2.2 million due to
improved manufacturing processes on phone cards and a one-time value added tax
credit in the third quarter of 2002 received on PSDM and SPS electronic print
material costs totaling approximately $3.5 million.

Cost of goods sold at ABN in the United States decreased by $1.9
million and resulted in a decrease in gross margins of $1.7 million when
compared to the prior year. As a percentage of sales, cost of goods sold
increased by 0.5%. The decrease in costs is principally due to the lower sales
volume discussed above.

In Argentina, cost of goods sold in constant dollar terms at Transtex
was approximately $0.2 million higher than in 2001, which resulted in an
increase in gross margins of $3.3 million. As a result, cost of goods sold as a
percentage of sales decreased by 19.4% from 2001. This improvement was primarily
the result of higher margins generated as a result of higher prices received
from customers on bank and debit cards and reductions in material and personnel
costs on that portion of such costs which are priced in Argentine Pesos. In
light of the severe ongoing economic crisis in Argentina, there is no guarantee
that this improved trend will continue.

At CPS in France, cost of goods sold in constant dollar terms was
approximately the same when compared to 2001, resulting in a $0.5 million
increase in gross margins. As a percentage of sales, cost of goods sold
decreased by approximately 4.8% from 2001, primarily resulting from a change in
product mix with increased sales of higher margin bank cards.

Selling and Administrative Expenses

Reported selling and administrative expenses in 2002 decreased by $2.9
million when compared to 2001. Exchange rate devaluation resulted in a decrease
in such expenses of approximately $3.2 million, with $1.7 million attributable
to devaluation in Brazil and $1.5 million to devaluation in Argentina. There was
no impact of foreign currency in France. As a result, in constant dollars,
selling and administrative expense increased in 2002 from 2001 by $0.3 million.
The net increase primarily resulted from higher administrative expenses at ABNB
of $0.5 million due primarily to a one-time tax credit received in 2001, a $0.5
million increase at Transtex in Argentina primarily related to severance costs
associated with downsizing, and a $0.2 million increase at CPS resulting from
higher personnel costs. These increases were partly offset by a $0.8 million
decrease at the Parent resulting from lower professional fees and a $0.1 million
decrease in selling expense at ABN due to lower commissionable sales. As a
result of the above, selling and administrative expenses as a percentage of
sales was approximately the same (14.1%) for both years.

36

Goodwill and asset impairment

The Goodwill and asset impairment charge of $47.6 million in 2002,
represents the remeasurement of the value of the Company's subsidiaries based on
the Parent's review of projected cash flows and valuation multiples based on
prevailing market conditions which resulted in an impairment charge of $47.4
million for the three months ended December 31, 2002 (Successor Company), of
which $33.2 million related to ABNB and $14.2 million related to ABN. In
addition, in the third quarter of 2002 (Predecessor Company), the Parent took a
$0.2 million reserve with respect to the carrying value of certain equipment at
ABN dedicated to the production of food coupons (See Note G to Notes to
Consolidated Financial Statements provided herein for further information).

Goodwill and asset impairment in 2001 of $2.5 million represents the
remaining write down of $1.9 million in Goodwill on the books of Transtex as a
result of operating losses and the economic uncertainties in Argentina and a
$0.6 million third quarter charge related to the carrying value of certain
equipment and leases no longer used at ABN as a result of its exit from the
currency printing business.

Depreciation Expense

Depreciation and amortization expense for 2002 was $0.5 million lower
when compared to 2001. Exchange rate devaluation accounted for approximately
$1.6 million of this decrease, resulting in a net increase of $1.1 million in
constant dollars. This increase in constant dollars was primarily the result of
an increase in depreciation expense of $1.9 million primarily attributable to
capital expenditures in Brazil, which increased depreciation by approximately
$1.0 million, and $0.9 million of additional depreciation expense related to the
fair valuation of fixed assets in accordance with Fresh Start accounting, partly
offset by the elimination of Goodwill amortization in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets" of approximately $0.8 million.

Interest Expense

Interest expense in 2002 was approximately $0.9 million higher when
compared to 2001. Exchange rate devaluation accounts for approximately $0.4
million of decrease resulting in a net increase of $1.3 million in constant
dollars. This net increase resulted from $0.7 million in additional accrued
interest payable in kind on the Parent's US Dollar denominated public debt,
which was restructured and reinstated on the effective date of the Parent's
Plan, and the 2001 reversal of $0.6 million in accrued interest in connection
with a state and local tax reserve no longer required.

Curtailment and Other Related Gains

In 2002, ABN made significant changes to its post retirement health
care and life insurance benefits in order to limit future costs under the plan.
ABN increased participant contributions, fixed the maximum amount it would
contribute to each participant and, as a result, had certain participants opt
out from participating in the plan. As a result, the combination of these
changes resulted in the recognition of a one time $5.0 million non-cash
actuarial gain resulting from the plan settlement (See Note P to Notes to
Consolidated Financial Statements provided herein for further information).

Other, Net

Other net income in 2002 was approximately $0.7 million higher when
compared to 2001. Exchange rate devaluation resulted in a decrease of $0.8
million. After giving effect to the net devaluation, other net income in
constant dollars increased by $1.5 million. The net change resulted from a gain
at ABN of $0.5 million from the proceeds received from a one time private sale
of certain printed materials in 2002, a $0.5 million higher loss in 2001 from a
joint venture in Brazil, and $0.5 million of higher gain on foreign currency
contracts in Argentina in 2002.

Fresh-Start Adjustments

The Fresh Start adjustments represent a gain of $223.2 million based
upon the Reorganization Value of the Successor Company. See Note A to Notes to
Consolidated Financial Statements.

Reorganization Costs

Reorganization costs related to the bankruptcy increased in 2002 by
$1.0 million when compared to 2001, principally due to additional legal and
administrative costs associated with work done related to amendments to the
Parent's Plan.

37

Taxes on Income

Taxes on income are calculated using the effective tax rate for each
tax jurisdiction and various assumptions, such as state and local taxes and the
utilization of foreign taxes in the US. The effective tax rate is further
adjusted for any permanent differences between the book basis and tax basis of
assets and liabilities. In addition, the Company has provided a valuation
allowance both in Australia and the US against the net operating losses and
other deferred tax assets of each respective jurisdiction due to the uncertainty
as to the realization of taxable income in the future.

Minority Interest

Minority interest represents the 22.5% minority interest in ABNB held
by Banco Bradesco, as adjusted for the fair valuation of Bradesco's equity in
accordance with Fresh Start accounting.

Extraordinary Items

Extraordinary items represent the gain on the forgiveness of the Senior
Subordinated Notes of $91 million and certain creditor discounts of $0.4 million
partly offset by a $1.8 million extraordinary loss resulting from the
reinstatement of the Senior Notes inclusive of all accrued interest and consent
premiums which were paid in kind.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The high level of the Parent's Senior Note indebtedness, ($106.8
million at December 31, 2004), has resulted in the inability to repay this debt
upon the January 31, 2005 maturity date. As a result of the Company's limited
access to capital and financial markets, on January 19, 2005 the Parent (but
none of its subsidiaries) filed its Plan in order to refinance its Senior Notes.
The Plan is intended to eliminate virtually all of the Company's indebtedness by
converting a substantial portion of the Senior Notes into New Common Stock
thereby significantly strengthening the Company's balance sheet. By offering the
large holders of the Senior Notes a substantial portion of the New Common Stock
of the Company on a post-restructuring basis, these holders will participate in
the long term growth and appreciation of the Company's business, which is
expected to be enhanced by the significant reduction of its debt service
obligations supported by the Company's results of operations and cash flows.
During this restructuring, the Parent's subsidiaries were self-funded,
stand-alone entities which remained unaffected by the Parent's Plan and
continued to operate their businesses in the normal course, on a stand-alone
basis. On April 8, 2005, a final hearing was held and the Bankruptcy Court
confirmed the Company's Plan of Reorganization. Consummation is expected to
occur shortly thereafter.

CASH. At December 31, 2004, 2003 and 2002, the Company had
approximately $14.0 million, $9.0 million and $10.7 million in cash and cash
equivalents.

SHORT-TERM BORROWINGS. At December 31, 2004, the Company's subsidiaries
had no outstanding borrowings under their respective short-term credit
facilities. The Company's domestic subsidiary, ABN, has a one year $2 million
asset-based working capital facility with a local bank in Tennessee which was
renewed for a one year additional term to expire on July 23, 2005. Under its
present terms, ABN is allowed to borrow at a rate of 0.75% over the US prime
rate for general working capital and letters of credit purposes. At December 31,
2004, ABN had no outstanding borrowings under the line, leaving the entire $2
million available for borrowing. The Company's French subsidiary, CPS, currently
has a $1.1 million line of credit for general working capital purposes with
several different local banks at an average rate of 3.5% partly collateralized
by certain receivables. At December 31, 2004, CPS had no borrowings under the
line with the entire $1.1 million line of credit available for general working
capital purposes. The Company's Brazilian subsidiary, ABNB, has no short term
borrowings but does have the ability to borrow from several local banks on an
interim basis as needed. However, it does not have a formal line of credit. The
Company's Argentine subsidiary, Transtex had no short-term outstanding
borrowings at December 31, 2004. As a result of overall credit tightening by the
banks in Argentina, a formal line of credit is not available to Transtex and
financing presently is evaluated in that country on a case by case basis.

LONG-TERM DEBT. The Company's long-term debt of $107.9 consists of the
$106.8 million of the Parent's Senior Notes due January 31, 2005, which will be
restructured in accordance with the Plan, approximately $0.6 million of mortgage
indebtedness at ABN and approximately $0.5 million of equipment financing
indebtedness in Argentina.

REPURCHASE OF SENIOR NOTES. Pursuant to the Parent's announcement in
its Form 8-K filed October 16, 2002, the Parent's Board of Directors authorized
the Parent to repurchase up to $15 million face amount of its outstanding Senior
Notes from time to time at a discount to par value following the Effective Date.
The Senior Notes were repurchased at management's discretion, either in the open
market or in privately negotiated block transactions. The decision to buy back
any Senior Notes was dependent upon the availability of cash and other corporate
developments. On June 26, 2003, management made a determination to terminate the
repurchase program as a result of cash flow concerns.

38

On July 15, 2004, the Board of Directors approved a new resolution
authorizing the Parent to repurchase from time to time, at management's
discretion, directly or through one or more of its subsidiaries, up to $5
million face amount of its outstanding Senior Notes at a discount to par value
in either open market or privately negotiated transactions.

Over the past two years, the Parent purchased, in the aggregate,
through privately negotiated transactions, approximately $10.0 million face
amount of Senior Notes for an aggregate purchase price of approximately $5.5
million and recorded a gain of approximately $4.5 million reflecting the
difference between the face amount and the purchase price. In 2004, through
privately negotiated transactions, the Parent purchased $3.7 million face amount
of Senior Notes for an aggregate purchase price of $2.6 million, resulting in a
gain of $1.1 million, reflecting the difference between the face amount and the
purchase price. In 2003, through privately negotiated transactions, the Parent
purchased $6.3 million face amount of Senior Notes for an aggregate purchase
price of $2.9 million, resulting in a gain of approximately $3.4 million
reflecting the difference between the face amount and the purchase price.

Operating Leases - off balance sheet arrangements

The Company has long-term operating leases for offices, manufacturing
facilities and equipment which expire through 2010. The Company has renewal
options on some locations, which provide for renewal rents based upon increases
tied to the consumer price index. At December 31, 2004, future minimum lease
payments under non-cancelable operating leases are as follows: $3.0 million in
2005; $0.3 million in 2006; $0.1 million in 2007; $0.1 million in 2008; nil in
2009 and insignificant thereafter.

Commitments

As of December 31, 2004, the Company had the following outstanding cash
contractual commitments (in thousands):

Less After
Total than 1 Year 1-3 Years 3-5 Years 5 Years
------------ ------------ ------------ ------------ ------------

Long Term Debt $ 107,889 $ 106,957 $ 427 $ 120 $ 385
Capital lease obligations 1,456 572 884 -- --
Operating Leases 3,455 3,012 404 39 --
Post-retirement and other benefit obligations 7,379 871 1,372 1,326 3,810
------------ ------------ ------------ ------------ ------------
Total Contractual Cash Obligations $ 120,179 $ 111,412 $ 3,087 $ 1,485 $ 4,195
============ ============ ============ ============ ============

SUMMARY OF CASH FLOWS. Cash and cash equivalents increased by $5.0
million in the twelve months of 2004 compared to a decrease of $1.7 million in
the comparable period of 2003. This $6.7 million increase in cash flow resulted
principally from the following:

o A $6.8 million net increase in cash flow from operating activities
attributable to a $6.6 million increase in net income after non-cash
adjustments and a $0.2 million favorable working capital variance. The
favorable working capital variance was principally attributable to
higher payables in Brazil and Argentina resulting from higher levels of
business activity, lower inventory at ABN due to a shift in product mix
from printing to secure distribution services, and lower receivables at
CPS in France due to the loss of its phone card business. These
favorable working capital variances were partly offset by the higher
level of receivable balances in Brazil, Argentina, and at ABN due to
increased sales in 2004 as compared to 2003, correspondingly higher
levels of inventory in Brazil and Argentina, and slower collections in
Brazil from a major phone card customer, as well as, the Parent's 2004
payment of its Lithuania settlement obligation, settlements with former
executive officers and participants of its SERP and payments made in
anticipation of filing its Plan. In addition, at ABN, there was a lower
level of payables in 2004 as compared to 2003 due to the effects of its
restructuring that began in 2003.

o A $1.5 million net increase in cash flow from investing activities
principally attributable to $4.3 million of proceeds received at ABN in
2004 from the sale of assets partly offset by $2.8 million net
increased capital expenditures in 2004. The $4.2 million of proceeds
received at ABN included $3.0 million from the one-time private sale of
certain archival materials outside the ordinary course of business,
$0.8 million from the sale of its Philadelphia facility, and $0.5
million from the sale of currency equipment. Of the $2.8 million net
increase in capital expenditures in 2004, $2.5 million and $1.0 million
of the increase were attributable to Brazil and Argentina,
respectively, partly offset by decreases of $0.5 million and $0.2
million at ABN and CPS in France, respectively.

39

o A $2.0 million net decrease in cash from financing activities
attributable to the Company's net repayment of borrowings in 2004.
Under their respective working capital facilities, in 2004, ABN and CPS
in France repaid $0.8 million and $0.6 million, respectively; these
same amounts having been borrowed in 2003, thereby resulting in a
negative $2.8 million variance. In addition, dividends to ABNB's
minority shareholder increased by $0.4 million. These decreases were
partly offset by the $0.4 million repayment in 2003 of short term
equipment financing in Brazil, $0.5 million of borrowing in Argentina
in 2004 for equipment financing and the Company's $0.3 million reduced
buy-back of its Senior Notes in 2004 versus 2003.

o A $0.4 million net increase in cash due to the impact of favorable
exchange rate valuation in 2004 on cash balances on hand.

Economic Conditions And Currency Devaluation

The Company has significant operations in Brazil, Argentina and France.
On a consolidated basis, these operations have historically experienced
significant foreign exchange rate fluctuations against the US Dollar.
Significant foreign exchange rate fluctuations occurred in 2004, 2003 and 2002.

Over the past twelve months, the Real and the Euro have each improved
overall in relation to the US Dollar as the Real experienced an average
appreciation of approximately 5% against the US Dollar. While the Euro currency
experienced an average appreciation of approximately 10% during this same
period, resulting from an overall weakening of the US Dollar compared to such
currencies. The Argentine Peso exchange rate remained essentially unchanged when
compared to the prior year.

Historically, up until this year, the Brazilian Real has experienced
tremendous volatility against the US Dollar. The average exchange rate for the
twelve months ended December 31, 2004 was R$2.93 to the US Dollar. Despite its
improvement in 2004, the Real over the past two years experienced exchange rate
volatility, as the average exchange rate devaluation for the twelve months ended
December 31, 2003 was 5%, against the US Dollar when compared to 2002. In 2002,
the Real devalued at one point to its lowest level by over 41% against the US
Dollar as of October 22, 2002 (R$3.96), when compared to the beginning of 2002
(R$2.35). Given its historic volatility there is no guarantee that the Real will
either continue to improve or stabilize at any certain level against the US
Dollar. As of March 31, 2005, the Real is trading at approximately R$2.68 to the
US Dollar.

ABNB is the Company's largest subsidiary, contributing in 2004
approximately 70% of the revenues and approximately 80% of the operating profit
of the consolidated group (excluding goodwill and asset impairment and Parent
Company expense). This share has grown as a percentage of the Company's total
revenues and operating profit in 2004 with the deconsolidation of LM. The Real's
approximately two-thirds overall devaluation since it was permitted to trade
freely in 1999 (prior to which the Real had a fixed relationship to the US
dollar and traded at approximately R$1 to the Dollar) has severely impacted
ABNB's cash flow in US Dollar terms, and has therefore threatened its ability to
pay dividends to the Parent at the same levels as in the past. Based on current
estimates, it is anticipated that dividends from ABNB (along with those of other
subsidiaries) will be sufficient to fund the Parent's operating expenses in the
foreseeable future. There can be no assurance, however, that further devaluation
of the Real or other business developments will not lead to a contrary result.

Impact of Inflation

The introduction by the Brazilian government of a new currency in 1994
in order to achieve the government's economic stabilization program effectively
eliminated the country's hyper-inflation. As a result of this program, the
inflation rate has decreased substantially to approximately 12% for 2004 as
compared to 941% for 1994. Consequently, the Company is no longer required to
translate ABNB's financial statements as if ABNB were operating in a
hyperinflationary economy whereby gains and losses resulting from translation
and transactions were reflected in earnings. The Company follows the
non-hyperinflationary method for ABNB as well as its other foreign subsidiaries
in accordance with FASB Statement No. 52 "Foreign Currency Translation." As a
result, the Company translates its foreign subsidiaries by reflecting exchange
gains and losses in other comprehensive income as a separate component of
shareholders' equity. As a result of the recent economic improvement in
Argentina in 2004 when compared to 2002, inflation in that country has improved
to approximately 8% in 2004 as compared to approximately 118% in 2002. The
Company's US and French operations were not affected materially by inflation in
2004.

Argentine Economic Recession

The Argentine economy continues to experience high levels of government
debt, interest rates and unemployment. The government has imposed zero deficit
budget spending measures at the federal and local levels in an attempt to
continue to try to stabilize its economy and currency. Despite the economic
environment in Argentina, Transtex has generated positive operating income and

40

cash flow for the years ended December 31, 2004 and 2003. Throughout 2002, the
Argentine government imposed a moratorium on dividend repatriations outside the
country. The government has since lifted this ban and, as a result, the Parent
was able to receive dividends of $0.3 and $0.5 million from Transtex in 2004 and
2003, respectively. Despite the lifting of this ban, there is no guarantee that
Transtex can continue to repatriate dividends freely out of the country or
continue to operate at its current level in the present economic environment,
particularly with credit institutions placing a hold on many lending activities
which directly impacts the issuance of credit cards to consumers. The operations
of Transtex have become more profitable in relation to the consolidated group,
and the Company believes that any negative impact resulting from its Argentine
operations will not have a material adverse effect on the Company.

In Argentina, despite the poor economic environment and the Peso's
devaluation since it was permitted to trade freely in 2002 (prior to which the
Peso had a fixed relationship to the US Dollar and traded at approximate by AR$1
to the Dollar), Transtex has generated positive operating income and cash flow
in 2004 and 2003. While throughout 2002, the Argentine government imposed a
moratorium on dividend repatriations outside the country, the government, in
2003, lifted this ban, and as a result, the Parent was able to receive $0.3
million and $0.5 million in dividends from Transtex in 2004 and 2003,
respectively. However, there can be no assurance that the ability to repatriate
dividends freely out of Argentina will continue nor that further devaluation of
the Peso or other business developments will not limit or terminate the ability
of Transtex to pay dividends in the future.

Despite the Real's recent strengthening, the long-term threat of
currency devaluation in Brazil and Argentina continues to exist. This factor
combined with the weakness of certain product lines at ABN, severely impacted
the Company's ability to repay its Senior Notes due January 31, 2005. See
"Ability to Service Debt" for further information.

Ability to Service Debt

The high level of the Parent's Senior Note indebtedness, ($106.8
million at December 31, 2004), has resulted in the inability to repay this debt
upon the January 31, 2005 maturity date. As a result of the Company's limited
access to capital and financial markets on January 19, 2005, the Parent (but
none of its subsidiaries) filed its Plan in order to refinance its Senior Notes.
The Plan is intended to eliminate virtually all of the Company's indebtedness by
converting a substantial portion of the Senior Notes into New Common Stock
thereby significantly strengthening the Company's balance sheet. By offering the
large holders of the Senior Notes a substantial portion of the New Common Stock
of the Company on a post-restructuring basis, these holders will participate in
the long term growth and appreciation of the Company's business, which is
expected to be enhanced by the significant reduction of its debt service
obligations supported by the Company's results of operations and cash flows.

LM Restructuring

On April 6, 2004, the Parent entered into a series of agreements with
LM, the subsidiary's Banking Syndicate and with a newly-formed Company owned by
the members of the Banking Syndicate, for the purpose of restructuring LM and to
enable the Company to exit as the major shareholder of LM.

Under the terms of the Agreement, LM's capital structure was
reorganized such that the Banking Syndicate forgave approximately $47.4 million
of LM's $64.7 million of total senior non-recourse bank debt (inclusive of LM's
working capital facility). In exchange, the Parent relinquished its 90%
controlling equity stake in LM for approximately (i) 11% of approximately $20
million face amount of newly-issued preference stock and (ii) "deferred common
equity" of up to 40% of LM, which will be issued in stages if and when the
restructured senior bank debt and the preference stock of reorganized LM are
fully repaid or redeemed. The Company has not ascribed a value to the common
equity because events that define its issuance are uncertain and may not occur.

CRITICAL ACCOUNTING POLICIES

Use of Estimates

The preparation of the financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. Estimates
are used for, but not limited to, the useful lives of fixed assets, allowances
for doubtful accounts and product returns, inventory and warranty reserves,
fixed asset and investment impairment charges, facilities lease losses and other
charges, accrued liabilities and other reserves, taxes, and contingencies.
Actual results could differ from these estimates.

41

Intangible Assets

Patents and certain other intangibles are amortized over their useful
lives. Beginning in 2002 and in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"), Goodwill is reviewed for impairment on an annual basis. Goodwill was
amortized over periods ranging from 20 to 30 years using the straight-line
method. As a result of the adoption of SFAS 142 in 2002, the non-amortization of
Goodwill had the effect of increasing the Company's income by approximately $0.8
million. In October 2002, in accordance with SOP 90-7, the Company implemented
Fresh Start reporting and recorded any portion of the fair value of the
Reorganized Company's assets that was not attributed to specific tangible or
identified assets as Goodwill. The balance of Goodwill at December 31, 2004 and
2003, after performing the annual impairment test in accordance with SFAS 142,
was $66.2 million and $72.1 million, respectively.

Fair Value of Financial Instruments

The Company defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. The carrying value of cash and cash equivalents,
accounts receivable and accounts payable approximates the fair value because of
the short maturity of those instruments. The carrying amounts of revolving
credit facilities approximates the fair value since these debt instruments have
variable interest rates similar to those that are currently available to the
Company.

Long-Lived Assets

The Company reviews its long-lived assets for impairment when changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company evaluates the recoverability of its long-lived assets
whenever events or changes in circumstances indicate that a recorded asset might
not be recoverable by taking into consideration such factors as recent operating
results, projected undiscounted cash flows and plans for future operations.
Assets to be disposed of and assets not expected to provide any future service
potential to the Company are recorded at the lower of carrying amount or fair
value less cost to sell.

Revenue Recognition

Revenue is recognized when goods are shipped, or in certain situations
upon customer acceptance, and title has passed. In some instances, at the
customer's request, arrangements are made to provide on-site secure storage at
the Company's premises. The Company treats this service as a component of a
multiple element arrangement and revenue is allocated among the elements based
on their respective fair values. The amount allocated to storage revenue is
recognized over the expected storage period.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-K, under the captions, "The
Company," "Business," and "Management Discussion and Analysis of Financial
Condition and Results of Operations" and in certain documents incorporated by
reference herein constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve unknown and uncertain risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Forward-looking statements are identified by the use
of forward-looking words or phrases such as "anticipates," "intends," "expects,"
"believes," "estimates," or words or phrases of similar import. These
forward-looking statements are subject to numerous assumptions, risks, and
uncertainties, and the statements looking forward beyond 2004 are subject to
greater uncertainty because of the increased likelihood of changes in underlying
factors and assumptions. Actual results could differ materially from those
anticipated by the forward-looking statements.

Factors that could cause actual results to differ materially include,
but are not limited to those described below:

- The Company's existing debt obligations and history of
operating losses;

- The Company's ability to have access to capital markets to
raise capital to restructure, reorganize and/or grow our
business;

- General economic, political, market and business conditions,
which may, among other things, affect demand for the Company's
products;

- Economic conditions, inflation, recession and currency
exchange rates in those foreign countries in which the Company
generates a large portion of its sales (most notably Brazil
which accounted for almost 70% of consolidated sales) and
where the majority of positive foreign operating income is
generated by ABNB ($13.1 million exclusive of goodwill and
asset impairment), which due to that country's history of
volatility has, among other things, affected the Company's
ability to service its debt;

42

- New product development and technological advances which may,
among other things, affect the Company's printing business and
certain government contract performance;

- Commencement of war, armed hostilities, terrorist activities
or other similar international calamity directly or indirectly
involving or affecting the United States or any one of the
Company's foreign subsidiaries or joint venture partners;

- New plant and contract start-up conditions which may, among
other things, affect the profitability of the Company's
operations;

- Seasonality;

- Competition;

- Changes in business strategy or expansion plans;

- Raw material costs, availability and price volatility;

- Customer inventory levels;

- The loss of any of the Company's significant customers;

- The ability to achieve anticipated cost reductions and
synergies;

- The possibility of unsuccessful bids for government contracts;

- Changes in, or the failure of the Company to comply with,
government regulations, bid requirements or product
specifications; and

- Other factors referenced in this Annual Report.

The Company's stock and bond business is also subject to certain risks,
such as the trend towards shorter settlement cycles, book entry ownership and
the overall weakness in the stock market, which may impact future results. The
continued trend towards shorter settlement cycles and electronic book entry
ownership have significantly impacted the volume of stock and bond certificate
sales. This risk has been further exacerbated by the Securities and Exchange
Commission's order dated July 26, 2001, which granted approval to the NYSE to
change its physical format requirements for stock and bond certificates (the
"Rule Change"). The Rule Change eliminated the NYSE's Listed Company Manual's
requirements pertaining to certificate printing and appearance, and retained
only the requirements specifying content. As a result, those requirements no
longer mandate the use of intaglio printing or the inclusion of a vignette on
the face of the certificate. As a result, there is no guarantee that the
complete elimination of or substantial further reduction in the use of intaglio
printing or for that matter the certificate in general could not occur, the
result of which could have a material adverse effect on the sales, earnings and
cash flow of the Company. In addition, the recent movement by many large
companies towards paperless electronic transaction settlement could have a
further impact on volume reduction in stock and bond certificates.

The verbal notification given by the USDA in the third quarter of 2002
that it did not anticipate the need to place any further purchase orders for the
production of food coupons for the remainder of the term of its requirements
contract with ABN, has had a significant impact on the Company's cash flow.
While revenue from food coupons as a percentage of total consolidated sales for
2002 and 2001 is small (approximately 3.5% and 3.3%, respectively), the gross
margins are significant ($4 million in 2002 and 2001). The reduction in
operating margins from food coupon sales will have a direct and significant
effect on the cash flow of ABN as well as the level of dividends that will be
available to the Parent.

In the third quarter of 2003, the USDA gave ABN final notification and
delivery instructions for the remaining food coupons held in secure storage by
ABN pursuant to its distribution contract with the USDA, which expired on
September 30, 2003. ABN fully performed and completed the remaining two months
of service pursuant to the terms of this contract, and in the normal course
billed the USDA approximately $1.5 million in accordance with terms that the
Company believed were pursuant to the contract. ABN formally requested in
writing that it be paid in full pursuant to the terms of the contract and the
USDA formally denied approximately $1.4 million of ABN's claim. At a status
conference on April 13, 2004, before the USDA Board of Contract Appeals, the
government acknowledged that approximately $0.2 million of the claim was
approved for payment internally and should therefore be released to ABN. Payment

43

was received by ABN in the second quarter of 2004 and was appropriately
recognized as revenue in that period. However, pursuant to the revenue
recognition rules under SAB 104, the Company did not recognize any of the
revenue on the balance of these services as a result of the USDA's rejection on
the balance of ABN's claim. On February 1, 2005, the case on the balance of the
claim (with accrued interest thereon) was found in favor of USDA before the USDA
Board of Contract Appeals. ABN is reviewing a possible appeal of the case based
upon the merits.

The failure by ABN to fully recover its final invoicings from the USDA
under its distribution contract has had and will continue to have a direct and
significant effect on the cash flow of ABN as well as the level of dividends
that will be available to the Parent.

Despite the increase in operating efficiencies and reductions in
manufacturing and overhead costs achieved through its restructuring, ABN
continues to be negatively impacted by a decline in demand for its products due
to the growth of electronic commerce. Overall there has been a continued
movement toward the dematerialization of paper-based documents as well as the
complete or partial elimination of intaglio printing as a security feature. For
example, volumes for stock and bond certificates and food coupons have shown
significant declines over the past several years.

Overall, the business that the Company engages in within both its
domestic and foreign operations are in highly competitive markets. With respect
to certain of its products, the Company competes with other non-secure
commercial printers. Strong competitive pricing pressures exist, particularly
with respect to products where customers seek to obtain volume discounts and
economies of scale. The consolidation of certain financial and banking customers
within certain of the Company's markets, particularly in Brazil and France, has
created greater competitive pricing pressures and opportunities for increased
volume solicitation. In addition, there are several smaller local competitors in
Brazil who have manufacturing and service capabilities in certain transaction
cards and systems (including driver's license programs) and have therefore
created additional competitive pricing pressures. With respect to driver's
licenses in Brazil, additional competitors have begun competitively bidding on
several Brazilian states as contracts come up for renewal. Also, many of the
Company's larger card competitors, particularly in Europe, have significant
excess capacity and have therefore created an environment of significant
competitive pricing pressures attempting to penetrate the Brazilian and
Argentine markets through either export or the establishment of small local
manufacturing operations. Alternative goods or services, such as those involving
electronic commerce, could replace printed documents and thereby also affect
demand for the Company's products.

In addition to factors previously disclosed herein, certain other
factors could cause actual results to differ materially from such
forward-looking statements. All written and verbal forward-looking statements
attributable to the Company, or persons acting on behalf of the Company, are
expressly qualified in their entirety by reference to such factors.

The Company's forward-looking statements represent its judgment only on
the dates such statements are made. By making any forward-looking statements,
the Company, and its employees, agents and representatives, assume no duty to
update them to reflect new changed, or unanticipated events or circumstances.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

FOREIGN OPERATIONS AND FOREIGN CURRENCY

The Company's foreign exchange exposure policy generally calls for
selling its domestic manufactured product in US Dollars and, in the case of,
ABNB, Transtex and CPS, selling in their national currencies, in order to
minimize transactions occurring in currencies other than those of the
originating country. Over the past twelve months, the Real and the Euro have
each improved overall in relation to the US Dollar as the Real experienced an
average appreciation of approximately 5% against the US Dollar and the Euro
currency experienced an average appreciation of approximately 10% during this
same period resulting from an overall weakening of the US Dollar compared to
such currencies. The Argentine Peso exchange rate remained essentially unchanged
when compared to the prior year. As ABNB is the Company's largest subsidiary,
historically contributing approximately 70% of the revenues and approximately
80% of operating profit of the consolidated group (excluding goodwill and asset
impairments and parent Company expense), volatility in the Real over the past
several years was one of the major factors that severely impacted the Company's
ability to repay upon maturity its Senior Notes due January 31, 2005. Based upon
using the 2004 operating income level and the year end exchange rate at ABNB as
reference points, for every hypothetical two percent point devaluation in the
Real, the Company would lose approximately $0.1 million in operating income and
cash flow.

The Company has, from time to time, entered into foreign currency
option contracts in order to limit the effect of currency fluctuations on future
expected cash receipts which are used for general Company purposes, including
debt service. The options generally have covered periods from two to four months
from the date of purchase. However, with the significant devaluation and
volatility of the Brazilian currency over the past two years, the market to
purchase foreign currency option contracts is either non-existent or
prohibitively expensive. The Company has been at times successful in purchasing
short term contracts in Argentina when available and where not cost prohibitive.
When practical, the Company has established restricted investment accounts which

44

are controlled by the Parent, and in the case of ABNB, have funds which are from
time to time invested in US Dollar-indexed money market investments. Such
activities may be discontinued at any time depending on, among other things,
management's views concerning future exchange rates, local interest rates and
the cost of such contracts. At present, the current interest rate in Brazil of
approximately 19% for local denominated investments is far greater than the
return that would be earned in a US Dollar-indexed account, thereby rendering
this type of hedging mechanism ineffective in the opinion of management.
Therefore the Company has not engaged in material hedging activities. Currently,
repatriation of earnings from ABNB is permitted, subject to certain approvals.
Dividends or distributions from Brazil could be subject to government
restrictions in the future. In 2004, 2003 and 2002, the Company received
approximately $5.2 million, $3.9 million and $4.6 million, respectively in cash
dividends from ABNB

Earnings on foreign investments, including operations and earnings of
foreign companies in which the Company may invest or rely upon for sales, are
generally subject to a number of risks, including high rates of inflation,
recession, currency exchange rate fluctuations, trade barriers, exchange
controls, government expropriation, energy risks and political instability and
other risks. These factors may affect the results of operations in selected
markets included in the Company's growth strategy, particularly in the Latin
American region. For example, the ongoing economic volatility in Argentina has
affected the sales, operating income and cash flow of that subsidiary and has
also adversely impacted the strength of the Brazilian currency. The Company's
financial performance on a dollar-denominated basis can be significantly
affected by these changes. The Company's cash balances and borrowings in foreign
currency can mitigate the effects of fluctuating currency exchange rates;
however, borrowings and investments in foreign currency and markets may not be
available or practical and may face local interest rate and principal risks. In
addition, adverse changes in foreign interest and exchange rates could adversely
affect the Company's ability to meet its interest and principal obligations on
the Parent's Senior Notes.

See Notes A and Q of Notes to Consolidated Financial Statements for the
disclosure of certain financial information relating to foreign operations.

The Company has from time to time reorganized and restructured, and may
in the future reorganize and restructure, its foreign operations based on
certain assumptions about the various tax laws (including capital gains and
withholding tax), foreign currency exchange and capital repatriation laws and
other relevant laws of a variety of foreign jurisdictions. While management
believes that such assumptions are correct, there can be no assurance that
foreign taxing or other authorities will reach the same conclusion. If such
assumptions are incorrect, or if such foreign jurisdictions were to change or
modify such laws, the Parent may suffer adverse tax and other financial
consequences which could impair the Parent's ability to meet its obligations and
the Company's other subsidiary indebtedness.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements and schedules, together with the
Independent Auditors' Report thereon, are set forth in Item 15 (a) (1) and (2)
of this Form 10-K, and are only presented for the years ended December 31, 2004
and 2003 (Successor Company), the three months ended December 31, 2002
(Successor Company), and the nine months ended September 30, 2002 (Predecessor
Company.)

ITEM 9.

None

ITEM 9A. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures as of the end of
the period covered by this report were designed and functioning effectively to
provide reasonable assurance that the information required to be disclosed by us
in reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. We believe that a controls system, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
Company have been detected.

(b) Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred
during our most recent fiscal year that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

45

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth certain information regarding the
current executive officers and directors of the Parent. All officers serve at
the discretion of the Board of Directors.

NAME AGE OFFICER/DIRECTOR SINCE POSITION
---- --- ---------------------- ----------------------------------------------------
Steven G. Singer 44 November 2000 Chairman of the Board and Chief Executive Officer
C. Gerald Goldsmith (a)(b) 77 December 1990 Chairman Emeritus and Director
Sidney Levy 48 June 1998 Director
Raymond L. Steele (a)(b) 71 March 2001 Director
Lloyd Miller (a) 50 October 2002 Director
James Dondero 42 October 2002 Director
Steven A. Van Dyke (b) 45 July 2001 Director
Patrick J. Gentile 46 June 1995 Executive Vice President and Chief Financial Officer
David M. Kober 41 May 2002 Vice President and General Counsel
Craig D. Weiner 39 April 2002 Acting Treasurer
Elaine Lazaridis 42 October 2001 Corporate Secretary & Chief Administrative Officer

(a) Audit Committee Member

(b) Compensation Committee Member

STEVEN G. SINGER has served as Chairman of the Board and Chief
Executive Officer and as a Director of the Parent since November 2000. From 1995
through 2000, Mr. Singer served as Executive Vice President and Chief Operating
Officer of Romulus Holdings, Inc., a family owned investment fund. Mr. Singer
also serves as Chairman and Chief Executive Officer of Pure 1 Systems, a
manufacturer and distributor of water treatment products. Mr. Singer is a
Director and the Non-Executive Chairman of the Board of Globix Corporation and
of Motient Corporation, both publicly traded companies.

C. GERALD GOLDSMITH has been an independent investor and financial
advisor since 1976. He has served as a director of Palm Beach National Bank and
Trust since 1991, Innkeepers USA Trust since 1996, and Plymouth Rubber Company,
Inc. since 1998.

SIDNEY LEVY has served as Director of the Parent since June 1998 and
has served as President of ABNB since February 1994.

RAYMOND L. STEELE has served as a Director of the Parent since March
2001. Mr. Steele has served as a director of Modernfold, Inc. since 1991, I.C.H.
Corporation since 1998, DualStar Technologies Corporation since 1998 and Globix
Corporation since 2003.

STEVEN A. VAN DYKE has served as a Director of the Parent since July
2001. He has been a managing principal of Bay Harbour Management L.C. since
1987. Bay Harbour is an investment advisor and manages private equity and debt
funds. He is a Chartered Financial Analyst and is a member of both the Financial
Analysts Society of Central Florida and the Association for Investment
Management and Research. Mr. Van Dyke has served on the board of directors of
Barneys New York, Inc. since 1999 and Buckhead America Corporation since 1997.

LLOYD I. MILLER has served as Director of the Parent since October
2002. Mr. Miller is an independent investor and currently serves as a director
of Aldila, Inc., Stamps.com, Celeritek Inc., and Dynabazaar. He is a member of
the Chicago Board of Trade and the Chicago Stock Exchange, and is a Registered
Investment Advisor.

JAMES DONDERO has served as Director of the Parent since October 2002.
Mr. Dondero has served as President of Highland Capital Management, L.P., a
registered investment advisor specializing in credit and special situation
investing, since 1993. Mr. Dondero currently serves as a director of
NeighborCare, Inc., Hedstrom, Audio Visual Corporation and Motient Corporation.

PATRICK J. GENTILE has served as Executive Vice President and Chief
Financial Officer since October 2001, as Senior Vice President Finance and Chief
Accounting Officer from September 1998 to October 2001, as Vice President and
Comptroller from June 1995 to September 1998, and as Comptroller from 1989 to
June 1995. Mr. Gentile also served as Assistant Comptroller of a predecessor of
the Parent from 1986 to 1989.

46

DAVID M. KOBER has served as Vice President and General Counsel since
May 2002. He previously served as Vice President and General Counsel at Art
Kober and Associates, Inc., a direct marketing and venture capital firm from
1988 to May 2002 and, prior to such time, was associated with the law firm of
Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY.

CRAIG D. WEINER has served as Acting Treasurer since September 2002,
and as Director of Financial Reporting since April 2002. Mr. Weiner worked from
1998 to May 2002 as a consultant on various assignments with Resources
Connection LLC and from 1997 to 1998 served as Controller at Gund, Inc., an
international toy manufacturer.

ELAINE LAZARIDIS has served as Corporate Secretary and Chief
Administrative Officer since October 2001. From 1995 to 2001, she served as the
Vice President and Secretary of Romulus Holdings, Inc., a private investment
fund. Previously she has served as the Director of Human Resources for First
Pacific Networks, a telephone apparatus provider, and as Director of
Administration for the Cooper Companies, Inc., a supplier of diversified
healthcare products and services.

Each of the directors will continue in their present capacity until the
Company consummates its Plan, at which time all of the above directors with the
exception of C. Gerald Goldsmith will continue to serve as directors of the
Reorganized Company. These directors with the exception of Mr. Raymond Steele
represent the four largest inside investors who presently own 88% of the current
Common Stock and approximately 71% of the Senior Notes and who on a post
reorganized basis after giving effect to the Exit Financing will hold
approximately 79% of the New Common Stock of the Reorganized Company. The
existing executive officers of the Company are also expected to continue in
their respective positions with the Reorganized Company.

AUDIT COMMITTEE FINANCIAL EXPERT

The members of the Audit Committee are Messrs. Goldsmith, Miller and
Steele, all of whom are independent directors. The Board of Directors has
determined that each of Messrs. Goldsmith, Miller and Steele qualify as an
"audit committee financial expert" as that term is defined in Section 401 of
Regulation S-K.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the
Parent's executive officers and directors, and persons who own more than 10% of
the Parent's Common Stock to file reports of ownership and changes in ownership
with the SEC. Officers, directors and greater than 10% stockholders are required
by SEC regulations to furnish the Parent with copies of all such reports they
file.

Based solely on a review of the copies of such reports received by us
with respect to fiscal 2004, or written representations from certain reporting
persons, to the best of our knowledge, the Parent believes that all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with through December 31, 2004.

CODE OF ETHICS

In 2004, the Parent adopted the American Banknote Corporation Code of
Business Conduct and Ethics (the "Code of Ethics"), a code that applies to the
Board of Directors, Chief Executive Officer, Chief Financial Officer, and other
financial professionals. The Code of Ethics is publicly available on our website
at www.americanbanknote.com. If we make any substantive amendments to the Code
of Ethics or grant any waiver, including any implicit waiver, from a provision
of the Code of Ethics to any person covered by the Code, we will disclose the
nature of such amendment or waiver on our website or in a Current Report on Form
8-K.

ITEM 11. EXECUTIVE COMPENSATION.

See Item 13.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

See Item 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required for Items 11, 12 and 13, is incorporated
herein by reference to the Amendment to this Annual Report on Form 10-K to be
filed no later than April 30, 2005.

47

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

Our auditors billed the Parent an aggregate of $200,000 for
professional services rendered by them for the audit of the Parent's annual
consolidated financial statements for 2004, and reviews of the interim
consolidated financial statements included in the Parent's Form 10-Q's filed
during 2004. Our auditors billed the Parent an aggregate of $275,000 for
professional services rendered by them for the audit of the Parent's annual
consolidated financial statements for 2003, and reviews of the interim
consolidated financial statements included in the Parent's Form 10-Q's filed
during 2003.

AUDIT-RELATED FEES

Our auditors billed the Parent $8,000 and $9,000, respectively, in the
aggregate in each of 2004 and 2003 for assurance-related services rendered by
them in connection with the audit of the Company's pension plan.

No other fees were billed by Ehrenkrantz with respect to 2004 or 2003.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS.

The policy of the Audit Committee of the Parent is to pre-approve all
audit and permissible non-audit services provided by the independent auditors.
These services may include audit services, audit-related services, tax services,
and other services. Pre-approval is generally provided for up to one year, and
any pre-approval is detailed as to the particular service or category of
services and is generally subject to a specific budget. The independent auditors
and management are required to periodically report to the Audit Committee
regarding the extent of services provided by the independent auditors in
accordance with this pre-approval and the fees for the services performed to
date. The Audit Committee may also pre-approve particular services on a
case-by-case basis. The Audit Committee pre-approved all audit and audit-related
fees described above.

48

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) The following documents are filed as a part of this report on Form 10-K:

1. The following consolidated financial statements are included
as follows:

Report of Independent Registered Public Accounting Firm F-1

Consolidated Balance Sheets as of December 31, 2004 and
December 31, 2003 (Successor Company) F-2

Consolidated Statements of Operations for the twelve months
ended December 31, 2004, (Successor Company), the twelve
months ended December 31, 2003 (Successor Company), the three
months ended December 31, 2002 (Successor Company), and the
nine months ended September 30, 2002 (Predecessor Company) F-4

Consolidated Statements of Cash Flows for the twelve months
ended December 31, 2004 (Successor Company), the twelve
months ended December 31, 2003 (Successor Company), the three
months ended December 31, 2002 (Successor Company), and the
nine months ended September 30, 2002 (Predecessor Company) F-5

Consolidated Statements of Stockholders' Equity (Deficit) and
Comprehensive Income (Loss) for the twelve months ended
December 31 2004 (Successor Company), the twelve months ended
December 31, 2003 (Successor Company), the three months ended
December 31, 2002 (Successor Company), and the nine months
ended September 30, 2002 (Predecessor Company) F-6

Notes to Consolidated Financial Statements F-7

2. The following consolidated financial statement schedules are
included as follows:

Schedule I - Condensed Financial Information of Parent S-1

Schedule II - Valuation and Qualifying Accounts S-4

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.

3. Exhibits: See "Exhibit Index"

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
American Banknote Corporation
Englewood Cliffs, New Jersey

We have audited the accompanying consolidated balance sheets of
American Banknote Corporation (a Delaware corporation) and subsidiaries, as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, cash flows, and stockholders' equity (deficit) and comprehensive
income (loss) for the years ended December 31, 2004 and 2003 (Successor
Company), the three months ended December 31, 2002 (Successor Company), and the
nine months ended September 30, 2002 (Predecessor Company). Our audits also
included the financial statement schedules listed in the Index at Item 15(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Banknote Corporation as of December 31, 2004 and 2003, and the results
of its operations and its cash flows for the years ended December 31, 2004 and
2003 (Successor Company), the three months ended December 31, 2002 (Successor
Company), and the nine months ended September 30, 2002 (Predecessor Company), in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

FRIEDMAN LLP

East Hanover, New Jersey
March 24, 2005, except for Note W
as to which the date is April 8, 2005

F-1

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

December 31,
2004 2003
------------ ------------

ASSETS
Current assets
Cash and cash equivalents $ 14,009 $ 9,018
Account receivable, net of allowance for doubtful
accounts of $2,289 in 2004 and $1,096 in 2003 22,981 19,414
Inventories, net of allowances of $146 in 2004
and $159 in 2003 21,229 16,664
Prepaid expenses 4,591 3,427
Deferred tax assets 3,988 2,244
------------ ------------
Total current assets 66,798 50,767
------------ ------------

Property, plant and equipment
Land 2,256 2,179
Buildings and improvements 7,077 7,811
Machinery, equipment and fixtures 96,027 82,632
Contruction in progress 63 34
------------ ------------
105,423 92,656
Accumulated depreciation and amortization (62,492) (48,028)
------------ ------------
42,931 44,628

Other assets 299 1,802
Investment in non-consolidated subsidiaries 8,052 (48,527)
Goodwill 66,201 72,121
------------ ------------
$ 184,281 $ 120,791
============ ============

See Notes to Consolidated Financial Statements

F-2

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

December 31,
2004 2003
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt $ 106,956 $ 29
Revolving credit facilities of subsidiaries -- 1,393
Accounts payable and accrued expenses 31,763 26,754
------------ ------------
Total current liabilities 138,719 28,176
------------ ------------

Long-term debt, less current portion 933 100,667
Other long-term liabilities 9,341 13,012
Deferred tax liability 2,247 2,196
Minority interest 26,787 24,217
------------ ------------
Total liabilities 178,027 168,268
------------ ------------

Commitments and Contingencies

Stockholders' equity (deficit)
Common Stock, par value $.01 per share; authorized
20,000,000 shares, issued 11,828,571 at December 31, 2004 and 2003 118 118
Capital surplus 20,893 20,893
Deficit (39,806) (86,013)
Treasury stock, at cost (57,756 shares at December 31, 2004 and 2003) (103) (103)
Accumulated other comprehensive income 25,152 17,628
------------ ------------
Total stockholders' equity (deficit) 6,254 (47,477)
------------ ------------
$ 184,281 $ 120,791
============ ============

See Notes to Consolidated Financial Statements

F-3

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)

(Successor Co) (Predecessor Co)
---------------------------------------------------- --------------
Year Year Three Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, September 30,
2004 2003 2002 2002
-------------- -------------- -------------- --------------

CONTINUING OPERATIONS
Sales $ 162,259 $ 142,551 $ 31,868 $ 112,759
-------------- -------------- -------------- --------------

Cost and expenses
Cost of goods sold 114,821 106,587 22,962 78,779
Selling and administrative 24,863 20,842 4,363 16,010
Restructuring -- 933 -- --
Goodwill and asset impairment 10,820 41,537 47,435 221
Depreciation and amortization 11,711 10,561 2,029 4,349
-------------- -------------- -------------- --------------
162,215 180,460 76,789 99,359

Operating income (loss) 44 (37,909) (44,921) 13,400

Other expense (income )
Curtailment and other related gains (3,455) (334) (5,001) --
Interest expense 10,470 10,277 2,422 8,404
Gain on senior note repurchases (1,077) (3,393) -- --
Gain on sale of archives (3,004) -- -- --
Other, net (1,472) (1,038) (258) (197)
-------------- -------------- -------------- --------------
1,462 5,512 (2,837) 8,207
Income (Loss) before reorganization items,
taxes on income and minority interest (1,418) (43,421) (42,084) 5,193

Reorganization (income) expense
Fresh-Start adjustments -- -- -- (223,185)
Reorganization costs 396 360 (30) 1,160
-------------- -------------- -------------- --------------
396 360 (30) (222,025)
Income (loss) before taxes on income
and minority interest (1,814) (43,781) (42,054) 227,218
Taxes on income 6,042 4,249 147 3,493
-------------- -------------- -------------- --------------
Income (loss) before minority interest (7,856) (48,030) (42,201) 223,725
Minority interest loss (income) 1,889 (5,474) (7,417) 24,666
-------------- -------------- -------------- --------------
Income (loss) from continuing operations (9,745) (42,556) (34,784) 199,059

DISCONTINUED OPERATIONS
Income (loss) from discontinued operations (961) (4,026) (4,647) (27,652)
Gain on disposal of discontinued operations 56,913 -- -- --
-------------- -------------- -------------- --------------
55,952 (4,026) (4,647) (27,652)
EXTRAORDINARY ITEMS
Gain on forgiveness of debt -- -- -- 91,364
Loss on debt reinstatement -- -- -- (1,844)
-------------- -------------- -------------- --------------
-- -- -- 89,520
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 46,207 $ (46,582) $ (39,431) $ 260,927
============== ============== ============== ==============
Net income (loss) per common share -
Basic and Diluted
Continuing operations $ (0.83) $ (3.62) $ (2.96) N/A
Discontinued operations 4.75 (0.34) (0.39) N/A
Extraordinary items -- -- -- N/A
-------------- -------------- -------------- --------------
Net income (loss) $ 3.92 $ (3.96) $ (3.35) N/A
============== ============== ============== ==============

See Notes to Consolidated Financial Statements

F-4

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands) (Successor Co) (Predecessor Co)
---------------------------------------------------- --------------
Year Year Three Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, September 30,
2004 2003 2002 2002
-------------- -------------- -------------- --------------

Operating Activities
Net income (loss) $ 46,207 $ (46,582) $ (39,431) $ 260,927
Discontinued operations (55,952) 4,026 4,647 27,652
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Gain on repurchase of Senior Notes (1,077) (3,393) -- --
Gain on sale of archives (3,004) -- -- --
Fresh-Start adjustments -- -- -- (223,185)
Extraordinary item - Gain on Forgiveness of Debt -- -- -- (91,364)
Extraordinary item - Loss on debt reinstatement -- -- -- 1,844
Depreciation and amortization 11,711 10,561 2,029 4,349
Goodwill and asset impairments 10,820 41,537 47,435 221
Curtailment and other related gains (3,455) (334) (5,001) --
Accrued pay in kind interest on Senior Notes 10,432 9,563 2,400 6,778
(Gain) loss on sale of assets (970) 142 (12) (550)
Deferred taxes (1,548) (254) (855) (458)
Minority interest 1,889 (5,474) (7,417) 24,666
Bad debt expense (recovery) 1,119 (372) -- --
Other (72) 106 86 278
Changes in operating assets and liabilities
Accounts receivable (2,891) 2,061 (3,696) 7,546
Inventories (3,276) (3,618) (1,040) (949)
Prepaid expenses and other (1,217) 754 389 (687)
Accounts payable and accrued expenses 2,648 (437) (594) (3,167)
Other liabilities 1,597 (2,139) 1,464 (2,471)
-------------- -------------- -------------- --------------
Net cash provided by operating activities 12,961 6,147 404 11,430
-------------- -------------- -------------- --------------
Investing Activities
Capital expenditures (8,020) (5,184) (1,559) (3,641)
Proceeds from sale of assets 1,267 4 12 550
Proceeds from sale of archives 3,029 -- -- --
-------------- -------------- -------------- --------------
Net cash used in investing activities (3,724) (5,180) (1,547) (3,091)
-------------- -------------- -------------- --------------
Financing Activities
Revolving credit facilities, net (1,392) 1,028 (91) (4,055)
(Payments) borrowings of long-term debt, net 450 (42) (16) (36)
Repurchase of Senior Notes (2,610) (2,929) -- --
Dividend to minority shareholder (1,514) (1,139) (355) (979)
-------------- -------------- -------------- --------------
Net cash used in financing activities (5,066) (3,082) (462) (5,070)
-------------- -------------- -------------- --------------
Effect of foreign currency exchange rate changes on
cash and cash equivalents 820 459 209 (748)
Increase (decrease) in cash and cash equivalents 4,991 (1,656) (1,396) 2,521
Cash and cash equivalents - beginning of period 9,018 10,674 12,070 9,549
-------------- -------------- -------------- --------------
Cash and cash equivalents - end of period $ 14,009 $ 9,018 $ 10,674 $ 12,070
============== ============== ============== ==============

Supplemental disclosures of cash flow information
Taxes $ 6,500 $ 4,700 $ 1,300 $ 3,200
Interest 200 200 100 400
Reorganization items 768 446 555 325

See Notes to Consolidated Financial Statements

F-5

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)

Accu-
mulated
Other
Compre- Compre-
Preferred hensive hensive Total
Stock Common Capital Income Retained Treasury Income/ (Deficit)
Series B Stock Surplus (Loss) Deficit Stock (Loss) Equity
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance January 1, 2002
(Predecessor Company) $ 24 $ 278 $ 82,525 $(197,337) $ (1,285) $ (45,738) $(161,533)

Net loss -Nine Months $ (28,585) (28,585) (28,585)

Currency Translation
Adjustment (19,396) (19,396) (19,396)
----------

Total Comprehensive Loss $ (47,981)

Balance September 30, 2002
(Predecessor Company) 24 278 82,525 (225,922) (1,285) (65,134) (209,514)

Recapitalization and Fresh
Start Adjustments:

Cancel Old shares (24) (278) (302)

Issue New Common Shares 118 118

Fresh Start Adjustments (61,643) 225,922 1,182 65,134 230,595
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance
at October 1, 2002
(Successor Co) -- 118 20,882 -- (103) -- 20,897

Net loss - Three Months $ (39,431) (39,431) (39,431)

Currency Translation
Adjustment 9,742 9,742 9,742
----------

Total Comprehensive Loss $ (29,689)
==========

Issuance of shares from
rights offering 11 11
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at
December 31, 2002
(Successor Co) -- 118 20,893 (39,431) (103) 9,742 (8,781)

Net loss - 2003 $ (46,582) (46,582) (46,582)

Currency Translation
Adjustment 7,886 7,886 7,886
----------

Total Comprehensive Loss $ (38,696)
==========
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at
December 31, 2003 -- 118 20,893 (86,013) (103) 17,628 (47,477)

Net Income - 2004 $ 46,207 $ 46,207 $ 46,207

Minimum Pension Liability
Adjustment (589) (589) (589)

Currency Translation
Adjustment 8,113 8,113 8,113
---------- ---------- ----------

Total Comprehensive Income $ 53,731
==========
Balance at
December 31, 2004 $ -- $ 118 $ 20,893 $ (39,806) $ (103) $ 25,152 $ 6,254
========== ========== ========== ========== ========== ========== ==========

See Notes to Consolidated Financial Statements

F-6

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - Basis Of Presentation And Summary Of Significant Accounting Policies

General

American Banknote Corporation is a holding Company. Through its
subsidiaries in the United States, Brazil, France, and Argentina, the Company
operates it business based on geographic location in a single industry along one
or more of three principal product lines: Transaction Cards and Systems;
Printing Services and Document Management; and Security Printing Solutions. All
references to the "Parent" are meant to identify the legal entity American
Banknote Corporation on a stand-alone basis. All references to the "Company" are
to the Parent and all of its subsidiaries, as a group.

The Parent's principal subsidiaries are: American Bank Note Company
("ABN"), its domestic operating subsidiary, American Bank Note Ltda. ("ABNB"), a
77.5% owned Brazilian Company, CPS Technologies, S.A. ("CPS"), a French Company
and Transtex S.A. ("Transtex"), an Argentine Company.

On April 6, 2004, the Parent exited as the 90% shareholder of its
former Australian subsidiary, ABN Australasia Limited (trading as the Leigh
Mardon Group ("LM"), by entering into a series of agreements with LM and the
members of LM's senior lending syndicate, ("the Banking Syndicate"). Although
the Parent continues to own a minority interest in LM, the disposal of this
segment has been recorded as a discontinued operation of the Company's business
and all prior period financial statements have been restated to exclude LM for
comparative purposes. See Note V for further information.

The Parent was incorporated in Delaware in 1993 as United States
Banknote Corporation and changed its name on July 1, 1995 to American Banknote
Corporation.

In December 1999, the Parent (but none of its subsidiaries) filed a
petition for reorganization relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York.. On August 22, 2002, the Bankruptcy Court confirmed the Parent's
Fourth Amended Plan of Reorganization in the Chapter 11 Proceeding. On October
1, 2002, all conditions required for the effectiveness of the Plan were achieved
and the Plan became effective (the "Effective Date"). On the Effective Date, the
Parent cancelled all shares of its old preexisting common stock and preferred
stock, and commenced the issuance of its new common stock, $.01 par value per
share ("Common Stock"), and certain additional rights, warrants and options
entitling the holders thereof to acquire Common Stock, in the amounts and on the
terms set forth in the Plan.

None of the Parent's subsidiaries was or has ever been a party to the
Chapter 11 Proceeding or any other insolvency or similar proceeding. As a
result, during the Parent's reorganization, each one of the subsidiaries
continued to operate its respective business in the normal course, on a
stand-alone basis.

Since the 2002 re-issuance of the Senior Notes, the Parent's ability to
repay the Senior Notes when due has been adversely affected by a combination of:
(i) the high degree of dependence on its Brazilian subsidiary, (ii) declining
markets and competitive pricing in the United States and France, and (iii) the
political and economic instability that has occurred in Argentina. More
specifically: (i) the Parent's Brazilian subsidiary operates in a highly
volatile economic environment, with significant foreign currency exchange rate
variations, each of which has both directly impacted the dividends available to
be repatriated to the Parent, and limited the Parent's ability to raise
additional capital or debt financing to repay the Senior Notes; (ii) declining
cash flows from the Parent's American and French subsidiaries have been
insufficient to allow the parent to repay the Senior Notes; and (iii)
Argentina's economic instability has both directly impacted the Company's
Argentine operations and limited the Parent's ability to raise additional
capital or debt financing to repay the Senior Notes. All of these factors
contributed to the Parent's determination that it would be unable to repay the
Senior Notes when due, and to initiate negotiations with holders of a majority
of the Senior Notes and a majority of the Common Stock.

As a result of those negotiations, on January 19, 2005, the Parent (but
none of its subsidiaries), with the consent of the holders of a majority of the
Senior Notes and a majority of the Common Stock, filed a voluntary petition (the
"Chapter 11 Case") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") seeking relief under the provisions of Chapter
11 of Title 11 of the United States Code (the "Bankruptcy Code"). At that time,
the Parent filed the proposed Plan, which reflected the results of its
negotiations with the Senior Note holders and Common Stock holders. The Plan is
a "pre-arranged" and consensually agreed upon plan of reorganization. See Notes
N and O for the agreed upon terms of settlement under the Plan.

F-7

On February 24, 2005, the Bankruptcy Court approved the Company's
disclosure statement (the "Disclosure Statement").. The final deadline for
voting classes to accept or reject the Plan was March 24, 2005 and the final
date to object to confirmation of the Plan was March 31, 2005. No objections
were raised to the Plan. On April 8, 2005, a final hearing was held and the
Bankruptcy Court confirmed the Company's Plan of reorganization. Consummation is
expected to occur shortly thereafter.

It is anticipated that confirmation of the Plan will eliminate the
Parent's Senior Notes and leave only a relatively nominal amount of New Notes in
place, which the Reorganized Parent will be able to service from operational
cash flow. By offering the large holders of the Senior Notes a substantial
portion of the New Common Stock of the Company on a post-restructuring basis,
these holders will participate in the long term growth and appreciation of the
Company's business, which is expected to be enhanced by the significant
reduction of its debt service obligations supported by the Company's results of
operations and cash flows. Since several of the large Senior Note holders (as
more fully discussed herein) who own approximately 71% of the total Senior Note
issuance also hold approximately 88% of the current Common Stock, the consensual
agreement of these parties under the Plan to exchange their debt for equity will
not result in a change in ownership control of the Company, and as such Fresh
Start Accounting ("Fresh Start") under Statement of Position ("SOP 90-7") will
not be required. None of the Parent's subsidiaries is or has ever been a party
to the Chapter 11 Proceeding or any other insolvency or similar proceeding. As a
result, during the Parent's reorganization, each one of the Parent's
subsidiaries will continue to operate its respective business in the normal
course, on a stand-alone basis.

Fresh-Start Reporting

In accordance with the AICPA Statement of Position ("SOP") 90-7,
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, the
Company adopted fresh start reporting ("Fresh Start") as of September 30, 2002.
The Company recorded the effects of the December 1999 Plan and Fresh Start as of
October 1, 2002 which was the Effective Date of the December 1999 Plan. Under
Fresh Start, a new reporting entity (the "Successor Company" or the "Reorganized
Company") is deemed to be created as a result of a change in control of
ownership. SOP 90-7 requires, among other things, that the Company's recorded
amounts of assets and liabilities be adjusted to reflect their reorganization
value ("Reorganization Value"), which is defined as the fair value at the
Effective Date, in accordance with Statement of Financial Accounting Standards
No. 141 "Business Combinations" and Staff Accounting Bulletin No. 54. The
reorganized values were accordingly recorded on the books and records of the
subsidiary companies. Any portion of the Reorganized Company's assets not
attributed to specific tangible or identified intangible assets of the
Reorganized Company were identified as Reorganization Value in excess of amounts
allocable to identified assets and were classified as goodwill ("Goodwill").
This Goodwill is periodically reviewed and measured for impairment on an annual
basis in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." Goodwill of the Company was
$66.2 million and $72.1 million at December 31, 2004 and December 31, 2003,
respectively. The change in Goodwill between periods was due to a remeasurement
of the value of the Parent's subsidiaries resulting in an impairment of
approximately $10.8 million partly offset by a foreign currency translation gain
of approximately $4.9 million, in accordance with SFAS No. 52.

F-8

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Effective Date was October 1, 2002 and, as a result, Fresh Start
was adopted on September 30, 2002. In addition to restating assets and
liabilities at their Reorganization Value, the Predecessor Company's accumulated
deficit, including accumulated foreign currency translation adjustments totaling
$289.6 million, was eliminated and the capital structure was recast in
conformity with the Plan. The adjustments to eliminate this accumulated deficit
consisted of a $91.4 million extraordinary gain on the forgiveness of debt of
which $91 million was converted into Common Stock and $0.4 million represented
discounts negotiated with various unsecured creditors, and a $223.2 million
Fresh Start gain with a corresponding $23.2 million charge related to ABNB's
minority interest holder's share of the valuation based upon the reorganization
value of the Successor Company. These gains were partly offset by a $1.8 million
extraordinary loss resulting from the reinstatement of the Senior Secured Notes
and the exchange of the 11 5/8% Notes for Senior Secured Notes inclusive of all
accrued interest and consent premiums which were paid or accrued in kind.

As a result of the Company's adoption of Fresh Start, reporting for the
Reorganized Company for the year ended December 31, 2002 reflects the financial
results of operations and cash flows of the Successor Company for the three
month period ended December 31, 2002 and those of the pre-reorganization Company
(the "Predecessor Company") for the nine month period ended September 30, 2002.
As a result of the application of Fresh Start, the complete financial statements
for the periods after reorganization are not comparable to the financial
statements for the periods prior to reorganization.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts
of the Parent and its subsidiaries. All significant intercompany items have been
eliminated. "Investment in non-consolidated subsidiaries" represents ABNB's
fifty percent equity interest in a smart card joint venture in Brazil recorded
under the equity method of accounting and the value of its 11% investment in LM,
its formerly owned Australian subsidiary from which it exited as the majority
shareholder on April 6, 2004. As of December 31, 2004, the Company recorded its
remaining preference stock investment in LM, valued at approximately $2.1
million, under the cost method and now holds a non-controlling interest in LM.
For comparative purposes, the Company deconsolidated LM from its consolidated
balance sheet at December 31, 2003 and reflected its negative investment on that
date of $53.8 million as a component of investment in non-consolidated
subsidiaries.

Use of Estimates

The preparation of the financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. Estimates
are used for, but not limited, to the useful lives of fixed assets, allowances
for doubtful accounts and product returns, inventory and warranty reserves,
fixed asset and investment impairment charges, facilities lease losses and other
charges, accrued liabilities and other reserves, taxes, and contingencies.
Actual results could differ from these estimates.

Comprehensive Income

The Company applies FASB Statement No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
comprehensive income, requiring its components to be reported in a financial
statement that is displayed with the same prominence as other financial
statements.

Foreign Currency Translation

The financial statements of foreign subsidiaries have been translated
into US Dollars in accordance with FASB Statement No. 52, Foreign Currency
Translation. All balance sheet accounts have been translated using the exchange
rates in effect at the balance sheet date. Income statement amounts have been
translated using the average exchange rate for the year. Gains and losses
resulting from changes in exchange rates from year to year have been reported in
other comprehensive income. The effect on the statement of operations of
transaction gains and losses is insignificant in 2004.

F-9

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Business and Credit Risk

The Company extends credit to its customers, principally on a net 30 to
45 day basis depending upon the subsidiaries' policies in effect where the
Company conducts business. In some instances the Company may require collateral
based on evaluations of customers' financial condition and credit history.

The Company derived a significant amount of its revenues, operating
income and cash flows from security printing sales of such products as bank
checks, stock and bond certificates and USDA food coupons. The continued trend
toward electronic commerce, electronic payment systems and benefits may result
in lower sales, operating income and cash flow from these product lines. This
risk has been further exacerbated by the Securities and Exchange Commission's
order dated July 26, 2001, which granted approval to the NYSE to change its
physical format requirements for stock and bond certificates (the "Rule
Change"). The Rule Change eliminated the NYSE's Listed Company Manual's
requirements pertaining to certificate printing and appearance, and retained
only the requirements specifying content. As a result, those requirements no
longer mandate the use of intaglio printing or the inclusion of a vignette on
the face of the certificate. In addition, the recent movement by many large
companies towards paperless electronic transaction settlement could have a
further impact on volume reduction in stock and bond certificates. These mature
products have been partly replaced by secure distribution programs such as the
US Postal Service Stamps on Consignment Program.

One of the Company's other significant concerns has been the
elimination in food coupon revenue at ABN, resulting from the replacement by the
USDA of printed food coupons with electronic card-based food coupon benefits. In
the third quarter of 2002, ABN was verbally notified by the USDA that it did not
anticipate the need to place any further purchase orders for the production of
food coupons for the remainder of the term of its requirements contract with
ABN. As a result of the USDA's notification, in the third quarter of 2002 ABN
took a restructuring charge of $0.2 million, which represents the write-down of
the carrying value of certain equipment specifically dedicated to this contract.

Each of the Company's domestic and foreign operations conducts its
business in highly competitive markets. With respect to certain of its products,
the Company competes with other non-secure commercial printers. Strong
competitive pricing pressures exist, particularly with respect to products where
customers seek to obtain volume discounts and economies of scale. The
consolidation of certain financial and banking customers within certain of the
Company's markets, particularly in Brazil and France, has created greater
competitive pricing pressures and opportunities for increased volume
solicitation. In addition, there are several smaller local competitors in Brazil
who have manufacturing and service capabilities in certain transaction cards and
systems (including driver's license programs) and have therefore created
additional competitive pricing pressures. Also, many of the Company's larger
card competitors, particularly in Europe, have significant excess capacity and
have therefore created an environment of significant competitive pricing
pressures. Alternative goods or services, such as those involving electronic
commerce, could replace printed documents and thereby also affect demand for the
Company's products.

Certain geographic areas in which the Company operates subject it to
fluctuations in operating performance based upon fiscal restraints imposed by
foreign governments and foreign currency fluctuations.

Cash and Cash Equivalents

All highly liquid investments with a maturity date of three months or
less, when purchased, are considered to be cash equivalents.

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance
for doubtful accounts. On a periodic basis, the Company evaluates its accounts
receivable and changes the allowance for doubtful accounts, when deemed
necessary, based on its history of past write-offs and collection, contractual
terms and current credit conditions.

F-10

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories

Inventories are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) method.

Depreciation and Amortization

Property, plant and equipment is recorded at cost prior to the
Effective Date of the October 2002 consummation of the December 1999 Plan
(Predecessor Company), and depreciated by the straight-line method over the
assets estimated useful lives of 3 to 20 years. Amortization of leasehold
improvements is computed by the straight-line method based upon the remaining
term of the applicable lease, or the estimated useful life of the asset,
whichever is shorter. In 2002, in accordance with SOP 90-7, the Company
implemented Fresh Start reporting and reevaluated the fair market value of
certain assets and liabilities as of the Effective Date of the October 1, 2002
Consummation (Successor Company). Based upon this reevaluation, the Company
revalued its property plant and equipment in 2002, increasing it by $14.2
million based upon independent appraisals.

Intangible Assets

Patents and certain other intangibles are amortized over their useful
lives. Beginning in 2002 and in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"), Goodwill is reviewed for impairment on an annual basis. Goodwill was
amortized over periods ranging from 20 to 30 years using the straight-line
method. As a result of the adoption of SFAS 142 in 2002, the non-amortization of
Goodwill had the effect of increasing the Company's income by approximately $2.2
million. In October 2002, in accordance with SOP 90-7, the Company implemented
Fresh Start reporting and recorded any portion of the fair value of the
Reorganized Company's assets that was not attributed to specific tangible or
identified assets as Goodwill. The balance of Goodwill at December 31, 2004 and
2003 after performing the annual impairment test in accordance with SFAS 142 was
$66.2 million and $72.1 million, respectively.

Fair Value of Financial Instruments

The Company defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. The carrying value of cash and cash equivalents,
accounts receivable and accounts payable approximates the fair value because of
the short maturity of those instruments. The carrying amounts of revolving
credit facilities approximates the fair value since these debt instruments have
variable interest rates similar to those that are currently available to the
Company.

Long-Lived Assets

The Company reviews its long-lived assets for impairment when changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company evaluates the recoverability of its long-lived assets
whenever events or changes in circumstances indicate that a recorded asset might
not be recoverable by taking into consideration such factors as recent operating
results, projected undiscounted cash flows and plans for future operations.
Assets to be disposed of and assets not expected to provide any future service
potential to the Company are recorded at the lower of carrying amount or fair
value less cost to sell.

Revenue Recognition

Revenue is recognized when goods are shipped, title has passed,
evidence of an arrangement exists, the fee is fixed or determinable and
collectibility is reasonably assured. In some instances, at the customer's
request, arrangements are made to provide on-site secure storage at the
Company's premises. The Company treats this service as a component of a multiple
element arrangement and revenue is allocated among the elements based on their
respective fair values. The amount allocated to storage revenue is recognized
over the expected storage period.

Shipping Costs

The Company records the cost of shipping in its income statement as a
component of Cost of Goods Sold.

F-11

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

The Parent accounts for income taxes under the liability method, which
requires an asset and liability approach that recognizes deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Parent's financial statements or tax returns. In estimating
future tax consequences, all expected future events are considered other than
changes in the tax law or rates.

Earnings Per Share Computations

Amounts used in the calculation of basic and diluted per share amounts
follow:

YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
------------- ------------
SUCCESSOR CO

Numerator for loss from continuing operations $ (9,745) $ (42,556)
Numerator for income (loss) from discontinued operations 55,952 (4,026)
Denominator for per share computations
Weighted average number of shares outstanding (in thousands):
Common Stock 11,771 11,771

Earnings per share for periods prior to the October 1, 2002 Effective
Date have been omitted as these amounts do not reflect the current capital
structure resulting from the Consummation of the December 1999 Plan and
therefore would not be comparable.

The denominator for computing diluted income per share excludes certain
warrants, equity options and management incentive options issued in accordance
with the Plan, as the exercise prices of such warrants and options were greater
than the market price of the common shares - (See Notes M, N and O).

Stock Based Compensation Plans

As permitted by Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which establishes a fair
value based method of accounting for stock-based compensation plans, the Company
elected to follow Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees ("APB No. 25") for recognizing stock-based
compensation expense for financial statement purposes. Under APB No. 25, the
Company elected the intrinsic value method of accounting and therefore does not
recognize compensation expense for options granted. The options were granted
with an exercise price of $2.50 which is substantially higher than the
negligible trading market price of the New Common Stock. The Company has
determined that this factor combined with the thinly traded public float of the
New Common Stock results in an insignificant value and therefore there is no
proforma compensation to be measured. For quarters ending subsequent to December
15, 2005, the Company will adopt SFAS No. 123 R. Refer to "Recent Accounting
Pronouncements."

In 2002 the Parent granted 780,000 Management Options, 88,531
Consultant Options and 177,061 Equity Options, all of which are totally vested.
All options were granted at an exercise price of $2.50 per share. No options
were granted in 2003. At the date of grant, the expiration date of the options
was 10 years and currently the remaining contractual life of the options is
approximately 7.75 years. Pursuant to the Plan it is anticipated that these
securities will be cancelled.

F-12

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment Information

The Company applies Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information"("SFAS 131"), which requires the
Company to report information about its operating segments according to the
management approach for determining reportable segments. This approach is based
on the way management organizes segments within a Company for making operating
decisions and assessing performance. SFAS 131 also establishes standards for
supplemental disclosure about products and services, geographical areas and
major customers.

Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial condition.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of the provisions of SFAS No.
150 did not have a material effect on our results of operations or financial
condition.

SFAS 132(R) - In December 2003, the FASB issued SFAS 132(R), Employers'
Disclosures about Pensions and Other Postretirement Benefits. The provisions of
this Statement do not change the measurement and recognition provisions of SFAS
87, Employers' Accounting for Pensions, SFAS 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. SFAS 132(R) replaces SFAS 132 and adds disclosures
of plan assets by category, investment policies and strategies for these
categories, estimated future benefit payments and contributions and improves
quarterly disclosures. This statement is effective for financial statements with
fiscal years ending after December 15, 2003, except for the disclosure of
estimated future benefit payments which is effective for fiscal years ending
after June 15, 2004. The interim-period disclosures required by this statement
are effective for interim periods beginning after December 15, 2003. The Company
adopted the provisions of this statement in 2003.

FIN 46 - In January 2003, the FASB issued FASB Interpretation ("FIN")
No. 46, Consolidation of Variable Interest Entities (revised December 2003)
("FIN 46-R"), an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. FIN 46 requires variable interest entities
(VIEs) to be consolidated by the primary beneficiary of the entity. VIEs are
entities that lack sufficient equity to finance its activities without
additional subordinated financial support or whose equity investors do not have
the characteristics of a controlling financial interest. All VIEs, with which
the Company is involved, must be evaluated to determine the primary beneficiary
of the risks and rewards of the VIE. The provisions of FIN 46 must be applied to
all entities subject to this Interpretation in the first quarter of 2004.
However, prior to the required application of this Interpretation, FIN 46 must
be applied to those entities that are considered to be special-purpose entities
no later than as of the end of the first reporting period that ends after
December 15, 2003. The adoption of FIN 46-R does not have a material effect on
the Company's results of operations or financial position.

SAB 104 - In December 2003, the SEC issued Staff Accounting Bulletin
No. 104, "Revenue Recognition" ("SAB 104"), which supersedes SAB 101,"Revenue
Recognition in Financial Statements." The primary purpose of SAB 104 is to
rescind accounting guidance contained in SAB 101 related to multiple element
revenue arrangements, which was superseded as a result of the issuance of EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." While
the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the
revenue recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. The adoption of SAB 104 did not have a material impact on
our financial statements.

SFAS 153 - In December 2004, a FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets -- An Amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions ("SFAS 153"). SFAS 153 eliminates the exception from
fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions,
and replaces it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for the fiscal
periods beginning after June 15, 2005 and is required to be adopted by the
Company in the third quarter of 2005. The Company is currently evaluating the
effect that the adoption of SFAS 153 will have on its consolidated results of
operations and financial condition but does not expect it to have a material
impact.

F-13

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SFAS 123(R) - In December 2004, the FASB issued SFAS No. 123 (Revised
2004) "Share-Based Payment" ("SFAS No. 123R") that addresses the accounting for
share-based payment transactions in which a Company receives employee services
in exchange for (a) equity instruments of the Company or (b) liabilities that
are based on the fair value of the Company's equity instruments or that may be
settled by the issuance of such equity instruments. SFAS No. 123R addresses all
forms of share-based payment awards, including shares issued under employee
stock purchase plans, stock options, restricted stock and stock appreciation
rights. SFAS No. 123R eliminates the ability to account for share-based
compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued
to Employees", that was provided in Statement 123 as originally issued. Under
SFAS No. 123R companies are required to record compensation expense for all
share based payment award transactions measured at fair value. This statement is
effective for quarters ending after December 15, 2005. Therefore, for the years
2004 and 2003 presented, the Company applied APB No. 25 as permitted by SFAS No.
123 resulting in no recognition of compensation expense for options granted. We
have not yet determined the impact of applying the various provisions of SFAS
No. 123R.

DECEMBER 31, DECEMBER 31,
------------- -------------
2004 2003
------------- -------------
(SUCCESSOR CO) (SUCCESSOR CO)

NOTE B - Inventories

Finished goods $ 55 $ 7
Work-in-process 9,223 8,934
Raw material and supplies (net of allowances of $146 and $159) 11,951 7,723
------------- -------------
$ 21,229 $ 16,664
============= =============
NOTE C - Accounts Payable and Accrued Expenses
Accounts payable - trade $ 14,220 $ 9,646
Accrued expenses 5,738 7,009
Salaries and wages 8,808 6,881
Customers' advances 443 856
Lease obligations 204 541
Accrued interest 6 7
Dividend payable to minority interest owner 355 152
Other 1,989 1,662
------------- -------------
$ 31,763 $ 26,754
============= =============
NOTE D - Other Long Term Liabilities
Post-retirement benefit obligations $ 3,715 $ 6,570
Provision for tax assessments 3,632 3,402
Lease obligations 1,456 2,666
Other long-term employee benefits 105 169
Other 433 205
------------- -------------
$ 9,341 $ 13,012
============= =============

F-14

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - Other, Net

Year Ended Year Ended Three Months Nine Months
December 31, December 31, December 31, September 30,
2004 2003 2002 2002
(Successor Co) (Successor Co) (Successor Co) (Predecessor Co)
-------------- -------------- -------------- --------------

(Gain) loss on asset sales $ (970) $ 142 $ (12) $ (550)
(Gain) on settlement of pre-petition liabilities $ (432) $ (600) $ -- $ --
Other (income) expense, net $ (70) $ (580) $ (246) $ 353
-------------- -------------- -------------- --------------
$ (1,472) $ (1,038) $ (258) $ (197)
============== ============== ============== =============

NOTE F - Restructuring

In the first quarter of 2003, in light of the significant contraction
in stock and bond and food coupon volume reductions, ABN consolidated its
Philadelphia operations into its Tennessee operation, thereby placing all of
ABN's manufacturing operations within a single location, resulting in the
termination of approximately 50 employees. Accordingly, ABN recorded a one-time
restructuring charge of $0.9 million related primarily to employee terminations.
In addition, in 2003, one-time costs related to plant wind down and equipment
relocation were approximately $1.0 million and $0.1 million, respectively and
were funded through internal cash flow and expensed as incurred and have been
included in cost of goods sold in accordance with SFAS 146. The total costs
resulting from this restructuring were recovered within one year from its
execution. Additionally, in the third quarter of 2003, ABN consolidated its two
secure satellite storage and distribution facilities into a single facility.

NOTE G - Goodwill and Asset Impairment

The Goodwill and asset impairment charge of $10.8 million in 2004,
represents the annual remeasurement performed in the fourth quarter of 2004 on
the value of the Company's subsidiaries based on the Parent's review of
projected cash flows and valuation multiples based on prevailing market
conditions. In 2004, the Company engaged an independent firm to appraise the
value of the Company. The Company's net worth, inclusive of its intangibles is
supported by the computed enterprise value as of December 31, 2004.

The Goodwill and asset impairment charge of $41.5 million in 2003,
represents the remeasurement of the value of the Company's subsidiaries based on
the Parent's review of projected cash flows and valuation multiples based on
prevailing market conditions which resulted in a $42.6 million impairment charge
in the fourth quarter of 2003 in accordance with SFAS No. 142 "Goodwill and
Other Intangible Assets," partly offset by a $1.1 million recovery at ABN in the
third quarter of 2003 resulting from a favorable settlement on its lease with
the landlord of its idle Chicago facility.

A review by the Parent of valuation multiples based on prevailing
market conditions which existed for the three months ended December 31, 2002
(Successor Company) resulted in an impairment charge of $47.4 million of which
$33.2 million related to ABNB and $14.2 million related to ABN.

With respect to the Predecessor Company, goodwill and other asset
impairments for the nine months ended September 30, 2002, (Predecessor Company)
consisted of a $0.2 million reserve with respect to the carrying value of
certain equipment at ABN associated with the USDA food coupon contract.

F-15

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H - Reorganization Costs

Reorganization costs represent administrative expenses incurred under
the December 1999 Plan through December 31, 2003 and primarily for the Plan
through December 31, 2004 and consists of the following:

YEAR YEAR THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
2004 2003 2002 2002
(SUCCESSOR CO) (SUCCESSOR CO) (SUCCESSOR CO) (PREDECESSOR CO)
-------------- -------------- -------------- --------------

Legal $ 339 $ 93 $ (30) $ 997
Investment advisors 41 234 -- --
Trustee fees 16 33 -- 35
Printing and mailing -- -- -- 62
Information agent -- -- -- 66
-------------- -------------- -------------- --------------
$ 396 $ 360 $ (30) $ 1,160
============== ============== ============== ==============

NOTE I - Comprehensive Income (Loss)

The comprehensive income (loss) for the years ended December 31, 2004
and 2003, (Successor Company), three months ended December 31 2002 (Successor
Company) and the nine months ended September 30, 2002 (Predecessor Company)
consists of:

YEAR YEAR THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
2004 2003 2002 2002
(SUCCESSOR CO) (SUCCESSOR CO) (SUCCESSOR CO) (PREDECESSOR CO)
-------------- -------------- -------------- --------------
Minimum pension liability $ (589) $ -- $ -- $ (1,543)
Cumulative currency translation adjustments 8,113 7,886 9,742 (63,591)
-------------- -------------- -------------- --------------
Total comprehensive income (loss) $ 7,524 $ 7,886 $ 9,742 $ (65,134)
============== ============== ============== ==============

No tax benefits were recorded as realization of future tax benefits are
not assured, due to the Parent's and domestic subsidiaries' earnings history.

NOTE J - Income Taxes

The Parent files a US consolidated federal income tax return, which
includes its domestic subsidiaries.

Deferred income taxes arise from differences between the tax basis of
assets and liabilities, and their amounts in the balance sheet.

Taxes on income for the year ended December 31, 2004 (Successor
Company), the year ended December 31, 2003 (Successor Company) the
three months ended December 31, 2002 (Successor Company) and the nine
months ended September 30, 2002 (Predecessor Company) are as follows:

YEAR ENDED YEAR ENDED THREE MONTHS NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED ENDED
2004 2003 2002 2002
(SUCCESSOR CO) (SUCCESSOR CO) (SUCCESSOR CO) (PREDECESSOR CO)
-------------- -------------- -------------- --------------
Current
Foreign $ 7,542 $ 4,439 $ 589 $ 4,664
State and local 48 50 (49) 107
-------------- -------------- -------------- --------------
7,590 4,489 540 4,771
Deferred
Foreign (1,548) (240) (393) (983)
State and local -- -- -- (295)
-------------- -------------- -------------- --------------
(1,548) (240) (393) (1,278)
-------------- -------------- -------------- --------------
$ 6,042 $ 4,249 $ 147 $ 3,493
============== ============== ============== ==============

A reconciliation of taxes on income (benefit) using the US federal
income tax statutory rate of 35% to the Company's effective tax rate is as
follows:

F-16

YEAR ENDED YEAR ENDED THREE MONTHS NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED ENDED
2004 2003 2002 2002
(SUCCESSOR CO) (SUCCESSOR CO) (SUCCESSOR CO) (PREDECESSOR CO)
-------------- -------------- -------------- --------------

Statutory tax (benefit) at U.S. rate $ (635) $ (15,323) $ (14,719) $ 79,526
Difference between federal and foreign statutory rates (135) 207 319 (1,117)
Non-deductible goodwill, including impairment and Fresh Start 5,596 16,338 15,977 (77,113)
Capital loss on disposal of LM (5,555) -- -- --
Brazil dividend deduction (1,338) (1,240) (538) (1,479)
US tax on foreign deemed dividends 356 127 183 133
US tax on Brazil unrepatriated earnings 3,739 2,824 429 1,180
Foreign withholding taxes, net of federal benefit 290 280 (47) (189)
State and local income taxes, net of federal benefit 31 33 57 75
Other non-deductible expenses 33 45 (157) 688
Change in valuation allowance 3,660 958 (1,357) 1,789
-------------- -------------- -------------- --------------
$ 6,042 $ 4,249 $ 147 $ 3,493
============== ============== ============== ==============

Pursuant to the August 22, 2002 confirmation of the December 1999 Plan,
the valuation of the Company's reorganized equity was $85 million. The total
discharge of indebtedness that was exchanged for this equity was $110.3 million.
The difference between the discharge of creditor claims and the fair value of
equity received of approximately $25.3 million is considered for US federal
income tax purposes to be a cancellation of indebtedness ("COD"). However, the
COD is not included in income when the discharge of indebtedness is accomplished
pursuant to a plan approved by a court in a case under the United States
Bankruptcy Code. Instead, the amount of discharged indebtedness that would
otherwise have been required to be included in taxable income was applied to
reduce certain tax attributes of the Company. The first tax attribute to be
reduced was the Company's NOLs and, since there were sufficient NOLs to offset
this taxable income, the Company did not need to reduce any of its other tax
attributes.

F-17

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - Income Taxes (continued)

In addition to the reduction in the Company's NOLs, since there was a
substantial change in ownership upon consummation of the December 1999 Plan,
there are annual limitations on the amount of Federal NOLs which the Company may
be able to utilize on the Company's income tax returns in future periods. This
annual limitation is an amount equal to the value of the Company's stock
immediately before the ownership change adjusted to reflect the increase in
value resulting from the cancellation of creditor's claims multiplied by a
federally mandated long-term tax exempt rate.

Under the current Plan of reorganization, it is anticipated that upon
consummation there will be no substantial change in ownership as the majority of
the holders of the Senior Notes are presently the holders of the majority of the
Common Stock. The Company is in the process of evaluating what effect, if any,
the anticipated consummation of the Plan will have on its NOLs and any other of
its tax attributes. The Company does not expect that upon consummation there
will be a significant reduction in the Company's NOL's.

After adjusting for COD, the Company's US domestic consolidated NOLs at
December 31, 2004 were approximately $77.2 million, which are scheduled to
expire as follows: $36.7 million, $5.3 million, $6.1 million, $7.6 million,
$10.7 million, and $10.8 million in 2019, 2020, 2021 , 2022, 2023 and 2024,
respectively. In addition, the Company's US domestic consolidated capital loss
carryforwards at December 31, 2004 were approximately $11.9 million and are
scheduled to expire in 2009.

Tax effects of items comprising the Company's deferred income tax
assets and liabilities are as follows:

DECEMBER 31,
2004 2003
(SUCCESSOR CO) (SUCCESSOR CO)
-------------- --------------

Current deferred tax assets
Inventory obsolescence $ 604 $ 558
Uniform capitalization of inventory 187 210
Bad debt provision 683 153
Lease obligations 237 415
Pension and post retirement benefit obligations 208 294
Vacation, severance and deferred pay provisions 252 365
Litigation and other contingent provisions 1,441 1,143
Other 1,068 553
Valuation allowance (692) (1,447)
-------------- --------------
Total current deferred tax assets 3,988 2,244
-------------- --------------

Non-current deferred tax assets
Pension and post retirement benefit obligations 852 1,893
Lease obligations 63 166
Difference between book and tax basis of fixed assets (321) (321)
Brazil subsidiary earnings not permanently reinvested (12,333) (10,688)
Tax benefit of capital loss carryforwards 4,164 --
Tax benefit of operating loss carryforwards 27,021 23,240
Litigation and other contingent provisions 459 803
Other 468 611
Valuation allowance (20,373) (15,704)
-------------- --------------
Total non-current deferred tax assets -- --
-------------- --------------

Non-Current deferred tax liabilities
Difference between book and tax basis of fixed assets (2,258) (2,328)
Lease obligations -- 122
Other 11 10
-------------- --------------
Total non-current deferred tax liabilities (2,247) (2,196)
-------------- --------------
Net deferred tax asset (liability) $ 1,741 $ 48
-------------- --------------

F-18

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - Income Taxes (continued)

At December 31, 2004, the unrepatriated earnings of CPS is
approximately $5.1 million and is considered permanently invested overseas,
therefore no provision for federal and state taxes has been provided on these
earnings. The Parent has recorded a deferred tax liability of approximately
$12.3 million to record the tax effect on ABNB's unrepatriated earnings.

At December 31, 2004, 2003 and 2002, the Company provided a valuation
allowance related to its US federal NOLs and other US deferred tax assets due to
uncertainty as to the realization of taxable income in the future.

Deferred tax assets and liabilities are netted where applicable based
upon the individual tax jurisdiction in which each of the Company's subsidiaries
has operations.

Certain foreign subsidiaries have on-going audits with foreign tax
authorities in connection with income and other tax matters considered in the
ordinary course of business. Whenever amounts could be quantified an anticipated
liability was accrued.

Through December 31, 2004, ABNB had been assessed approximately $23
million in prior years from the Brazilian tax authorities relating to taxes
other than income taxes. The assessments are in various stages of administrative
process or in lower courts of the judicial system and are expected to take years
to resolve. It is the opinion of ABNB's Brazilian counsel that an unfavorable
outcome on these assessments is not probable. To date, the Company has received
favorable court decisions on matters similar to some of the ones included in the
above amount for, approximately, $5.6 million. Thus the Company believes that
the eventual outcomes of these assessments will not have a material impact on
the Company's consolidated financial position or results of operations. As a
result, the Company has not made any significant provision for the assessments.

The statute of limitations relating to the potential assessment of New
York City franchise taxes for tax years ended 1993 through 1997 expired on June
30, 2002. As a result of the expired statute, in the third quarter of 2002 the
Parent reversed estimated provisions of approximately $0.4 million, which
included $0.3 million of principal and $0.1 million of interest, which are no
longer required to be reserved. The Parent continues to vigorously contest the
NYC Department of Finance formal assessment for additional taxes and interest of
approximately $1.3 million related to tax years up to and including 1992 for
which the Parent is adequately reserved. In, 2004, hearing sessions were held by
the Administrative Law Judge of the New York City Tax Appeals Tribunal. A
schedule for filing hearing memoranda by both parties has yet to be sent.
Management believes that it has meritorious defenses with regard to the
assessment for these years.

On October 22, 2004, the President of the United States signed into law
the American Jobs Creation Act of 2004 (the Act). The Act provides for a special
one-time deduction of 85% of certain foreign earnings that are repatriated (as
defined by the Act) in either an enterprise's last tax year that began before
the enactment date, or the first tax year that begins during the one year period
beginning on the enactment date. The Company is in the process of evaluating the
effects of the repatriation provision on its financial statements. The Company
does not expect the provision to have a material impact on its financial
statements.

F-19

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - Revolving Credit Facilities of Subsidiaries

Revolving credit facilities consists of the following (in thousands):

DECEMBER 31,
2004 2003
(SUCCESSOR CO) (PREDECESSOR CO)
-------------- ----------------
ABN (a) $ -- $ 777
CPS (b) $ -- $ 1,393
============= ================

(a) ABN has a one year $2 million asset-based working capital facility with
a local bank in Tennessee which was renewed for a one year additional
term to expire on July 23, 2005. Under its present terms, ABN is
allowed to borrow at a rate of 0.75% over the US prime rate for general
working capital and letters of credit purposes. At December 31, 2004,
ABN had no outstanding borrowings under the line, leaving the entire $2
million available for borrowing.

(b) CPS currently has a $1.1 million line of credit for general working
capital purposes with several different local banks at an average rate
of 3.5% partly collateralized by certain receivables. At December 31,
2004 CPS had no borrowings under the line and had the entire $1.1
million line of credit available for general working capital purposes.

ABNB and Transtex had no short-term outstanding borrowings at December
31, 2004. ABNB has the ability from time to time to borrow from several
local banks on an interim basis as needed but does not have a formal
line of credit. Borrowings at Transtex continued to be limited as a
result of the overall credit tightening by the banks in Argentina and
financing is evaluated in that country on a case by case basis.

NOTE L - Long-Term Debt

Long term debt consists of the following:

DECEMBER 31,
2004 2003
(SUCCESSOR CO) (SUCCESSOR CO)
-------------- --------------

Parent 10 3/8% Senior Secured Notes (a) $ 106,757 $ 100,013
ABN mortgages (b) 654 683
Transtex equipment loan (c) 478 -
-------------- --------------
Total debt 107,889 100,696
Less current portion (106,956) (29)
-------------- --------------
$ 933 $ 100,667
============== ==============

(a) In October 2002, the Parent amended and re-issued $91.6 million
aggregate principal amount of its 10 3/8% Senior Notes ("Senior
Notes"). The maturity date for the Senior Notes was extended to January
31, 2005, at which time the aggregate principal amount thereof, of
approximately $107.6 million (including Paid-In-Kind or "PIK" interest)
was to have become due and payable in full. As a result of the Parent's
inability to pay these notes at maturity, the Parent negotiated the
Plan with holders of a majority of its Senior Notes and of its Common
Stock. Pursuant to the Plan, holders of the Company's Senior Notes will
receive either New Common Stock, cash or new unsecured notes ("The New
Notes") depending upon which class the holder falls into under the Plan
and which treatment the holder elects as more fully discussed in Note
O. Interest payments on the Senior Notes after the Effective Date which
occurred semi-annually on December 1, 2002, June 1, 2003, December 1,
2003, June 1, 2004, December 1, 2004 and January 31, 2005, have been
paid in kind at the Parent's option in accordance with its rights under
the indenture.

Pursuant to the Parent's announcement in its 8-K filed October 16,
2002, the Parent's Board of Directors authorized the Parent to
repurchase up to $15 million face amount of its outstanding Senior
Notes from time to time at a discount to par value following the
Effective Date. The Senior Notes were repurchased at management's
discretion, either in the open market or in privately negotiated block
transactions. The decision to buy back any Senior Notes was dependent
upon the availability of cash and other corporate developments. On June
26, 2003, management made a determination to terminate the repurchase
program as a result of cash flow concerns.

F-20

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE L - Long-Term Debt (continued)

On July 15, 2004, the Board of Directors approved a new resolution
authorizing the Parent to repurchase from time to time, at management's
discretion, directly or through one or more of its subsidiaries up to
$5 million face amount of its outstanding Senior Notes at a discount to
par value in either open market or privately negotiated transactions.

In 2004, through privately negotiated transactions, the Parent
purchased $3.7 million face amount of Senior Notes for an aggregate
purchase price of $2.6 million, resulting in a gain of $1.1 million
reflecting the difference between the face amount and the purchase
price. In 2003, through privately negotiated transactions, the Parent
purchased $6.3 million face amount of Senior Notes for an aggregate
purchase price of $2.9 million, resulting in a gain of approximately
$3.4 million reflecting the difference between the face amount and the
purchase price.

Although the Parent negotiated the above purchases, it is unable to
determine whether these purchases accurately represent the fair market
value of the Senior Notes.

(b) The mortgage is secured by property owned by ABN with a net book
value of approximately $1.9 million and matures in 2018. The weighted
average interest rate is approximately 6.3%. Principal payments of less
than $0.1 million are required over each of the next five years, with
the balance payable thereafter. In November 2003, the mortgage was
refinanced by ABN with the same local bank with a reduction in the
interest rate of approximately 3.4%.

(c) On October 26, 2004, Transtex obtained a 36 month installment loan
with a local Argentine bank for approximately $0.5 million secured by
the purchase of equipment. The loan carries an interest rate of
approximately 8.3% annually. As of December 31, 2004, the balance
payable on the loan was $0.5 million of which $0.2 million was
classified as current.

Principal maturities of long-term debt at December 31, 2004 (Successor
Company) are as follows:

2005 $ 107.0
2006 0.2
2007 0.2
2008 --
2009 --
Thereafter 0.5
----------
$ 107.9

In years 2008 and 2009, principal payments of less than $0.1 million
are required on the ABN mortgage.

NOTE M - Capital Stock

Pursuant to the terms of the December 1999 Plan, on the Effective Date,
the Parent authorized 20 million shares of Common Stock, $.01 par value per
share; 11,828,571 shares were issued pursuant to the Plan, which included 1,428
shares of Common Stock issued pursuant to a Rights Offering. There were no new
shares issued in 2004 or 2003. Each share of Common Stock represents one voting
right and the Common Stock does not have any pre-emptive rights. Dividends on
the Common Stock are payable solely at the discretion of the Board of Directors
and are restricted pursuant to the terms of the Senior Note indenture. Pursuant
to the Plan, holders of Common Stock who held 500,000 or more shares will
receive a combination of cash and New Common Stock for their claim and those
with less than 500,000 shares will receive cash. Refer to discussion below of
"Securities to be issued in connection with the Plan" for further information.

Warrants - Under the December 1999 Plan on the Effective Date, the
Parent authorized and issued two series of warrants totaling 622,481, each
representing the right to purchase one share of Common Stock. These warrants
vested immediately upon issuance and will expire five years from the Effective
Date. The 311,241 (Series 1 Warrants) have a strike price of $10.00 and the
311,240 (Series 2 Warrants) have a strike price of $12.50. Both sets of warrants
have certain anti-dilution rights which upon exercise shall be adjusted for
stock splits, dividends, recapitalization, and similar events. Upon a merger or
consolidation of the Company, holders of warrants would receive the market value
of the warrants or warrants in the merged or consolidated Company. Pursuant to
the Plan, it is anticipated that these warrants will be cancelled. Refer to the
discussion below of "Securities to be issued in connection with the Plan" for
further information.

F-21

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M - Capital Stock (continued)

Management Incentive Options - Under the December 1999 Plan, the Parent
was authorized to issue Management Incentive Options to certain employees and
consultants of the reorganized Parent and its subsidiaries, following the
Effective Date, pursuant to the Parent's 2002 Management Incentive Plan (the
"Incentive Plan"). Such Management Incentive Options permit recipients to
purchase shares of Common Stock at an option strike price of $2.50 per share,
upon the terms and conditions set forth in the Incentive Plan. The Incentive
Plan permits the issuance of Management Incentive Options to purchase up to
1,117,700 shares or approximately 8.1% of the Common Stock on a fully diluted
basis. Unless otherwise determined by the Board of Directors upon issuance, the
options will be scheduled to expire on the earlier of (i) 10 years after the
initial grant, (ii) 90 days after termination of employment for any reason other
than death, disability, retirement or cause, (iii) one year after termination of
employment by reason of death, disability or retirement or (iv) termination of
employment for cause. On September 12, 2002, the Board of Directors of the
Parent approved a grant of 780,000 Management Incentive Options to key
employees. No Management Incentive Options were issued to employees in 2004 or
2003. Pursuant to the Plan, it is anticipated that these management incentive
options will be cancelled. Refer to the discussion below of "Securities to be
issued in connection with the Plan" for further information.

Consultant Options - Consultant Options were issued upon the Effective
Date of the December 1999 Plan that entitle the Company's former Chairman and
Chief Executive Officer, Morris Weissman ("Weissman"), to purchase up to 88,531
shares of Common Stock or approximately 0.64% of the New Common Stock on a fully
diluted basis at an exercise price of $2.50 per share. The Consultant Options
shall expire on the tenth anniversary of the Effective Date of the Plan in
accordance with the terms of a settlement agreement with Weissman. Pursuant to
the Plan, it is anticipated that these consultant options will be cancelled.
Refer to the discussion below of "Securities to be issued in connection with the
Plan" for further information.

Equity Options. These options were issued upon the Effective Date of
the December 1999 Plan that entitle the holders of Common Stock to purchase (i)
up to 88,531 shares of Common Stock, or approximately 0.64% of the Common Stock
on a fully diluted basis, at an exercise price of $2.50 per share exercisable at
such time as the Common Stock trades at an average price of $5.00 over twenty
(20) consecutive trading days, and (ii) up to 88,531 shares of Common Stock or
approximately 0.64% of the Common Stock on a fully diluted basis, at an exercise
price of $2.50 per share exercisable at such time as the Common Stock trades at
an average price of $7.50 over twenty (20) consecutive trading days. The term of
an Equity Option shall commence on the grant date and terminate upon the
expiration of ten years from the grant date. At the expiration date all rights
under an Equity Option shall cease. To the extent all or any portion of an
Equity Option becomes exercisable as described above, such Equity Option will
remain exercisable until the expiration date even though the Common Stock
subsequently trades at an average price less than the target levels described
above, provided however that no portion of any Equity Options shall be
exercisable after the expiration date. Pursuant to the Plan, it is anticipated
that these equity options will be cancelled. Refer to the discussion below of
"Securities to be issued in connection with the Plan" for further information.

F-22

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - Securities to be issued in connection with the Plan

The following discussion of new securities to be issued in connection
with the Plan is based upon the Disclosure Statement approved by the Bankruptcy
Court on February 24, 2005. It is anticipated that no significant further
amendments to the Plan are contemplated. Any ministerial changes are not
anticipated to impact the relative equity percentages to be received by each
allowed claim holder.

NEW COMMON STOCK. The principal terms of the New Common Stock to be
issued by the reorganized Parent under the Plan are as follows:

Authorization: 35 million shares, $.01 par value per share

Initial Issuance: 10,000,000 shares

Shares Reserved For Issuance:

Stock Incentive Plan: 700,000 shares (estimated maximum)

Total 10,700,000 shares

Par Value: $.01 per share

Voting Rights: One vote per share

Preemptive Rights: None

Dividends: Payable at the discretion of the Board of Directors of the
reorganized Parent

All references in this Report to "on a fully diluted basis" or "subject
to dilution" shall give effect to the issuance of the number of shares of New
Common Stock reserved for issuance of the Stock Incentive Plan stated above.

STOCK INCENTIVE PLAN. In connection with the Plan, the Reorganized
Company will adopt a stock incentive plan (the "Stock Incentive Plan") that is
intended to provide incentives to attract, retain and motivate highly competent
persons as officers, non-employee directors and key employees of the Reorganized
Company by providing such persons with incentive options to acquire shares of
New Issued Common Stock of the Reorganized Company. Additionally, the Stock
Incentive Plan is intended to assist in further aligning the interests of the
Reorganized Company's directors, officers, key employees, and consultants to
those of its stockholders. Under the Stock Incentive Plan 700,000 shares of New
Common Stock of the Reorganized Company will, be reserved for issuance. Approval
of the Plan, will also constitute approval of the Stock Incentive Plan. The
Stock Incentive Plan will be adopted as part of the Plan. Pursuant to the Stock
Incentive Plan, all options issued are required to have an exercise price no
less than $85.5 million divided by the total number of New Common Stock as of
the Effective Date of the Plan (the "Bankruptcy Stock Value"). Similarly, any
Restricted Shares to be issued under the Stock Incentive Plan are required to be
issued at a price no less than the Bankruptcy Stock Value.

THE EXIT FINANCING AGREEMENT. On the Effective Date, certain current
controlling interest insiders of the Company whom also have representatives on
the Board of Directors ("the Exit Financing Parties") and presently own
approximately 88% of the current Common Stock and approximately 71% of the
Senior Note indebtedness have agreed to an Exit Financing Agreement whereby, the
Exit Financing Parties shall transfer $16,000,000 of proceeds to the Reorganized
Company in return for the New Common Stock in the following amounts:

F-23

Exit Financing New Issued
Amount Common Stock
---------------- ----------------
Bay Harbour Partners, Ltd $ 2,000,000 233,964
Lloyd I. Miller, III 2,000,000 233,964
Pollux Investments, LLC 2,000,000 233,964
Highland Capital Management, L.P. 10,000,000 1,169,822
---------------- ----------------
TOTAL $ 16,000,000 1,871,714
================ ================

The Exit Financing will be used to make certain of the cash
distributions provided for under the Plan, including the payments for certain
administrative claims, priority claims, other priority claims, miscellaneous
secured claims, miscellaneous unsecured claims, Supplemental Executive
Retirement Payments ("SERP") claims, equity interests, and interests of de
minimis Equity holders (those holders with 500,000 shares or less in current
Common Stock as more fully discussed below). Additionally, the Exit Financing
will be used to meet the Company's working capital needs, during the months
following the Effective Date of the Plan.

The Exit Financing Parties will receive New Common Stock at 75% of the
Company's equity value based upon an independent valuation of the Reorganized
Company. The Company explored the possibility of obtaining Exit Financing in
return for a note or other type of financial instrument, but was concerned about
its ability to service that note or instrument in addition to the New Notes. The
Company turned to certain insiders of the Company to determine if they were
willing to provide the Exit Financing in exchange for New Common Stock. While
the Exit Financing Parties are receiving the New Common Stock at a discount,
such funds are absolutely necessary for the Company's reorganization, and
because of the Company's financial condition, it is unlikely that the Parent
would be able to obtain financing on similar terms to that to be provided by the
Exit Financing Parties. Outside lenders are generally unwilling to take the risk
associated with lending cash in exchange for equity in a Company and an exchange
of equity for the Exit Financing was vital to the Company's ability to emerge
from Chapter 11 with a serviceable debt load. Furthermore, the Exit Financing
Parties are not seeking fees or expense reimbursement.

The above Exit Financing Parties or their affiliates are insiders of
the Company and persons associated with the Exit Financing Parties serve on the
Board of Directors of the Company. Upon consummation of the Plan, it is
anticipated that the Exit Financing Parties will own approximately 79% of the
reorganized Company on a fully diluted basis.

NEW NOTES. The Reorganized Company will have the ability to issue up to
$11 million face amount of New Notes in exchange for those Senior Note Holders
who fall within the Note Convenience Claim (see "Senior Note Claims") and elect
New Notes in lieu of cash as more fully discussed below. The New Notes will be
unsecured and pay interest quarterly at 7% per annum and mature in 2009
commencing on the date of issuance.

VALUATION OF REORGANIZED COMPANY. In the fourth quarter of 2004, the
Company engaged Amper, Politziner & Mattia, P.C. ("Amper") to be the valuation
expert in order to perform an appraisal of the Company's enterprise value for
the purposes of the Plan. For the purpose of distributions under the Plan, Amper
with management's assistance ascribed a reorganized enterprise value of $114
million after receipt of the funds from the Exit Financing and net of the New
Notes of the Reorganized Company.

The Valuations set for the herein represent estimated reorganization
values and do not necessarily reflect values that could be attainable in public
or private markets. The equity value ascribed in the analysis does not purport
to be an estimate of the post-reorganization market value. Such trading value,
if any, may be affected by such things as the closely held nature of the stock.
After the effective date, the lack of immediately available audited financial
statements and the fact that the new issued common stock is not traded on a
major exchange. Due to these reasons and others, the trading value may be
materially different from the reorganization equity value associated with the
valuation analysis.

NOTE O - Distributions Under the Plan

The following descriptions are summaries of material terms and
distributions under the Plan. This summary is qualified by the material
agreements and related documents constituting the Plan, copies of which have
been filed as exhibits to this report, and by the provisions of applicable law.

EXISTING CREDITOR CLAIMS. The major classes and the respective
distributions that these classes will receive of the above securities under the
Plan are described below.

F-24

PRIORITY CLAIMS, UNSECURED AND MISCELLANEOUS SECURED CLAIMS. All
priority, unsecured and miscellaneous secured claims will remain unimpaired and
be settled in cash or continued being paid their respective obligations in the
ordinary course of business.

SENIOR NOTE CLAIMS

At December 31, 2004, the Parent had total outstanding Senior Note
indebtedness of approximately $106.8 million including accrued pay in kind
interest. The Senior Notes had a maturity date of January 31, 2005, at which
time the total outstanding indebtedness would have been approximately $107.9
million. Based upon the terms of the Plan these Senior Notes will receive the
following treatment:

(a) SENIOR NOTE HOLDERS WITH A CLAIM WITH AN AGGREGATE PRINCIPAL
AMOUNT (INCLUDING PAY IN KIND INTEREST) GREATER THAN $45,000.
These Senior Note Holders on the Distribution Date will
receive in full satisfaction, settlement, release and
discharge of and in exchange of such claim, their ratable
portion of 7,920,884 shares of New Common Stock or
approximately 74% of the ownership of the Reorganized Company
on a fully diluted basis. Based upon an enterprise value of
approximately $114 million, these holders would receive an
estimated recovery of approximately 95%.

(b) SENIOR NOTE HOLDERS WITH A CLAIM WITH AN AGGREGATE PRINCIPAL
AMOUNT (INCLUDING PAY IN KIND INTEREST) EQUAL TO OR LESS THAN
$45,000. These Senior Note Holders on the Distribution Date
will have the option at their election to receive in full
satisfaction, settlement, release and discharge of and
exchange for such claim either cash equal to 60% of such
holder's allowed claim or New Notes equal to 100% of the
holder's claim. In the absence of the Senior Note Holder not
making this election, such holder will have deemed to accept
the 60% cash distribution for their allowed claim.

COMMON STOCK EQUITY INTERESTS

All equity interests represented by approximately 11.8 million shares
of current Common Stock will receive the following distributions in exchange for
these claims pursuant to the Plan as follows:

(a) CURRENT COMMON STOCK HOLDERS WHO OWN IN EXCESS OF 500,000
SHARES. These holders will have their equity interests
cancelled on the Effective Date and on the Distribution Date
will receive in full satisfaction, settlement, release and
discharge of and exchange for these interests their prorata
share of approximately 207,402 shares of New Common Stock or
approximately 1.9% of the ownership of the Reorganized Company
on a fully diluted basis and approximately $4 million in cash.

(b) CURRENT COMMON STOCK HOLDERS WHO OWN BETWEEN 1 AND 500,000
SHARES. These holders will have their equity interests
cancelled on the effective date and on the Distribution Date
will receive in full satisfaction, settlement, release and
discharge of and exchange for these interests their prorata
portion of approximately $1 million in cash.

ALL OTHER EQUITY INTERESTS.

All Warrants, Management Incentive Options, Consultant Options and
Equity Options will be cancelled and receive no distribution under the Plan.

SERP CLAIM

On the Distribution Date, Sheldon Cantor who represents the remaining
unsettled individual under the Company's SERP Plan, will receive in full
satisfaction, settlement, release and discharge of an in exchange for such claim
an amount equal to approximately $25,000 or one year of SERP benefits. All other
SERP participants have settled their respective claims in exchange for
approximately one year of SERP benefits with the exception of Morris Weissman,
who renegotiated his SERP settlement as more fully discussed in Note P. Separate
from this claim the Company and Mr. Cantor upon consummation agree to enter into
a five year consulting agreement with Mr. Cantor at $25,000 per annum payable in
advance to perform consulting services for the Company.

NOTE P - Employee Benefits Plans

The Parent has a noncontributory supplemental executive retirement plan
("SERP") for certain senior management employees. Benefits under the
noncontributory plan are based on years of service and average final
compensation, as defined. The plan is unfunded and benefits are paid from the
assets of the Parent.

F-25

In May 2004, the Parent renegotiated the terms of its Serp with Morris
Weissman, the Company's former Chairman and CEO. Under the terms of the
settlement, Mr. Weissman agreed to forego his annual Serp payment of $297,000
per year for the following: (i) a lump sum one-time cash payment of $235,000;
(ii) a reduced annual benefit in the amount of $196,000 per year from January
2005 to June 2011; (iii) a further reduced annual benefit in the amount of
$144,000 per year commencing July 2011 and continuing until Weissman's death
(unless he is survived by his current spouse, in which case the payments will
continue to her until her death); (iv) a twenty five percent partial funding of
Weissman's medical and dental insurance premiums through August 2006 and (v) an
extension on the forgiveness of Weissman's corporate loan through December 31,
2012.

In the fourth quarter of 2004, the company settled all other SERP
participant claims in an amount equal to one year of SERP benefits, with the
exception of Sheldon Cantor who will settle his SERP claim in accordance with
the Plan. See Note O for further information.

As a result of the above settlement, and the change in certain
actuarial assumptions, the Company recognized a $3.5 million non-cash gain which
was recorded as a separate component of other expense (income).

ABN also provides certain postretirement health care and life insurance
benefits for certain eligible retired employees and their eligible dependents.
Both the health-care and life insurance benefits are contributory. ABN's
employees may become eligible for these benefits if they reach normal retirement
age, with certain service requirements. ABN does not currently fund these
benefit arrangements and has the right to amend or terminate these benefits at
any time. In 2002, significant changes were made by ABN to limit its future
costs under benefit arrangements to the post retirement plan. ABN increased
participant contributions, fixed the maximum amount it would contribute to each
participant and as a result had certain participants opt out from participating
in the plan. As a result, the combination of these changes resulted in the
recognition in 2002 of a one time $5 million actuarial non-cash actuarial gain
resulting from the plan settlement. In 2003, ABN recognized an additional $0.3
million actuarial non-cash gain resulting from the closure of its Philadelphia
facility. For each of the next five years, the Company expects total benefits
payable of $0.1 million per year to be adjusted for inflation. And for the next
five years thereafter the Company expects to pay out an aggregate sum of $0.5
million to be adjusted for inflation.

F-26

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain information as of December 31, 2004 (Successor Co) follows (in
thousands):

ABN
POST-
RETIREMENT
SERP BENEFITS
------------ ------------

Change in benefit obligation:
Benefit obligation at December 31, 2003 (Successor Co) $ 5,531 $ 1,375
Cost of benefits earned (service cost) 51 1
Interest cost on benefit obligation 351 104
Plan participants' contributions -- --
Benefits paid (373) (118)
Curtailment (3,259) --
Actuarial (gain) or loss 831 103
------------ ------------
Benefit obligation at December 31, 2004 (Successor Co) $ 3,142 $ 1,465
============ ============
Change in plan assets:
Fair value of plan assets
at December 31, 2003 (Successor Co) $ -- $ --
Actual return on plan assets -- --
Company contribution -- --
Benefits paid -- --
Administrative expenses -- --
Fair value of plan assets -- --
------------ ------------
at December 31, 2004 (Successor Co) $ -- $ --
============ ============
Funded status at December 31, 2004 (Successor Co) $ (3,142) $ (1,465)
Unrecognized prior service cost 662 --
Unrecognized transitional obligation -- 194
Unrecognized net actuarial (gain) loss 1,228 (294)
------------ ------------
Prepaid (accrued) benefit cost at Dec. 31, 2004 (Successor Co) $ (1,252) $ (1,565)
============ ============
Components of expense:
Cost of benefits earned (service cost) $ 61 $ 1
Interest cost on benefit obligation 351 104
Gain from settlement (1,887)
Expected return on plan assets -- --
Amortization of prior service cost 120 --
Recognized actuarial (gain) loss 56 (70)
Amortization of transitional (asset) or obligation -- 21
FAS 88 Accounting charge for settlement -- --
Asset withdrawal -- --
------------ ------------
Net periodic cost (benefit) $ (1,301) $ 56
============ ============

At December 31, 2004, the weighted average discount rate and rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligation under the SERP was 6.5% and 5.0%,
respectively.

The weighted average discount rate used for the ABN postretirement
benefits plan in determining the accumulated postretirement benefit obligation
was 7.5% at December 31, 2004. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation, at January 1, 2004
was 6.0%, decreasing each successive year until it reaches 5.0% in 2005, after
which it remains constant. A one-percentage-point increase in the assumed health
care cost trend rate for each year would increase service cost plus interest on
the accumulated postretirement benefit obligation by approximately 5.5%. A
one-percentage point decrease in the assumed healthcare cost trend rate for each
year would decrease service cost plus interest on the accumulated postretirement
benefit obligation by approximately 4.7%.

Retirement benefits are also provided to eligible union and non-union
employees, through defined contributions to an employees' retirement plan.

F-27

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain information as of December 31, 2003 (Successor Co) follows (in
thousands):

ABN
POST-
RETIREMENT
SERP BENEFITS
------------ ------------

Change in benefit obligation:
Benefit obligation at December 31, 2002 (Successor Co) $ 5,585 $ 1,187
Cost of benefits earned (service cost) 66 7
Interest cost on benefit obligation 419 49
Plan participants' contributions -- --
Benefits paid (507) (104)
Curtailment -- (156)
Actuarial (gain) or loss (32) 392
------------ ------------
Benefit obligation at December 31, 2003 (Successor Co) $ 5,531 $ 1,375
============ ============
Change in plan assets:
Fair value of plan assets
at December 31, 2002 (Successor Co) $ -- $ --
Actual return on plan assets -- --
Company contribution -- --
Benefits paid -- --
Administrative expenses -- --
Fair value of plan assets -- --
------------ ------------
at December 31, 2003 (Successor Co) $ -- $ --
============ ============
Funded status at December 31, 2003 (Successor Co) $ (5,531) $ (1,375)
Unrecognized prior service cost 965 --
Unrecognized transitional obligation -- 215
Unrecognized net actuarial (gain) loss 1,641 (468)
------------ ------------
Prepaid/(accrued) benefit cost at Dec. 31, 2003 (Successor Co) $ (2,925) $ (1,628)
============ ============
Components of expense:
Cost of benefits earned (service cost) $ 66 $ 6
Interest cost on benefit obligation 419 49
Expected return on plan assets -- --
Amortization of prior service cost 130 --
Recognized actuarial (gain) loss 67 (47)
Amortization of transitional (asset) or obligation -- 22
FAS 88 Accounting charge for settlement -- --
Asset withdrawal -- --
------------ ------------
Net periodic cost $ 682 $ 30
============ ============

At December 31, 2003, the weighted average discount rate and rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligation under the SERP was 7.5% and 5.0%,
respectively.

The weighted average discount rate used for the ABN postretirement
benefits plan in determining the accumulated postretirement benefit obligation
was 7.5% at December 31, 2003. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation, at January 1, 2003
was 6.5%, decreasing each successive year until it reaches 5.0% in 2005, after
which it remains constant. A one-percentage-point increase in the assumed health
care cost trend rate for each year would increase service cost plus interest on
the accumulated postretirement benefit obligation by approximately 4.8%. A
one-percentage point decrease in the assumed healthcare cost trend rate for each
year would decrease service cost plus interest on the accumulated postretirement
benefit obligation by approximately 4.1%.

F-28

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain information as of December 31, 2002 (Successor Co) in follows (in
thousands):

ABN POST-
RETIREMENT
SERP BENEFITS
------------ ------------

Change in benefit obligation:
Benefit obligation at December 31, 2001 (Predecessor Co) $ 5,551 $ 3,315
Cost of benefits earned (service cost) 69 28
Interest cost on benefit obligation 402 165
Plan participants' contributions -- --
Benefits paid (471) (222)
Settlements -- (2,085)
Actuarial (gain) or loss 34 (14)
------------ ------------
Benefit obligation at December 31, 2002 (Successor Co) $ 5,585 $ 1,187
============ ===========
Change in plan assets:
Fair value of plan assets at December 31, 2001 (Predecessor Co) $ -- $ --
Actual return on plan assets -- --
Company contribution -- --
Benefits paid -- --
Administrative expenses -- --
------------ ------------
Fair value of plan assets -- --
============ ===========
at December 31, 2002 (Successor Co) $ -- $ --
Funded status at December 31, 2002 (Successor Co) $ (5,585) $ 1,187
Unrecognized prior service cost 1,095 267
Unrecognized net actuarial (gain) loss 1,739 (938)
------------ ------------
Prepaid/(accrued) benefit cost at Dec. 31, 2002 (Successor Co)
(Successor Co) $ (2,751) $ 1,858
============ ===========
Components of expense:
Cost of benefits earned (service cost) $ 69 $ 28
Interest cost on benefit obligation 402 165
Expected return on plan assets -- --
Amortization of prior service cost 130 --
Recognized actuarial (gain) loss 81 (119)
Amortization of transitional (asset) or obligation -- 48
FAS 88 Accounting charge for settlement -- --
------------ ------------
Net periodic cost $ 682 $ 122
============ ===========

At December 31, 2002, the weighted average discount rate and rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligation under the SERP was 7.5% and 5.0%,
respectively.

The weighted average discount rate used for the ABN postretirement
benefits plan in determining the accumulated postretirement benefit obligation
was 7.5% at December 31, 2002. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation, at January 1, 2002
was 7.0%, decreasing each successive year until it reaches 5.0% in 2005, after
which it remains constant. A one-percentage-point increase in the assumed health
care cost trend rate for each year would increase service cost plus interest on
the accumulated postretirement benefit obligation by approximately 7.5%. A
one-percentage point decrease in the assumed healthcare cost trend rate for each
year would decrease service cost plus interest on the accumulated postretirement
benefit obligation by approximately 6.5%.

F-29

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE Q - Condensed Financial Information And Geographic Area Data

The following subsidiaries are domiciled as follows: ABN - US; ABNB -
Brazil; CPS - France; and Transtex - Argentina.

Government sales in each of the geographic locations where the Company
conducts business is principally dependent on successful competitive bids which
are generally awarded on the basis of price but may also include other factors.
Many of the Company's contracts are re-bid annually or on a multiple year basis.
Government sales are generally subject to provisions allowing termination for
the convenience of the government.

Sales to ABNB's 22.5% minority owner in 2004, 2003 and 2002 were 12%,
12.8%, and 12.2%, respectively, of consolidated sales.

US export sales were less than 1% of consolidated sales in 2004, 2003
and 2002, respectively.

The following condensed consolidating financial information (amounts in
millions) illustrates the composition of the subsidiaries and provides
additional information, which is useful in assessing the financial composition
of the subsidiaries. The Company accounts for investments in subsidiaries on the
equity method. Intercompany investments and transactions are eliminated in
consolidation.

CONDENSED BALANCE SHEETS
---------------------------------------------------------------------------
SUCCESSOR COMPANY
---------------------------------------------------------------------------
PARENT ABN ABNB CPS TRANSTEX CONSOL.
--------- ----------- ----------- ----------- ----------- -----------

As of December 31, 2004
Cash and cash equivalents $ 0.2 $ 2.0 $ 10.4 $ 1.0 $ 0.4 $ 14.0
Accounts receivable, net 3.1 15.8 3.0 1.1 23.0
Inventories 1.2 14.9 3.5 1.7 21.2
Prepaid expenses and other 0.3 0.8 2.1 0.6 0.8 4.6
Investments in and receivables from
subsidiaries, net 114.6 1.7
Property, plan and equipment, net 0.0 5.0 34.2 2.2 1.5 42.9
Other assets 1.3 1.6 9.0 0.5 12.4
Goodwill 2.3 1.8 55.1 0.9 6.0 66.2
--------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 118.7 $ 15.5 $ 141.5 $ 13.4 $ 11.5 $ 184.3
========= =========== =========== =========== =========== ===========
Other current liabilities 2.0 3.4 17.3 7.7 2.4 31.8
Long-term debt 106.8 0.7 0.5 107.9
Other liabilities 3.7 1.7 2.7 1.2 9.3
Deferred income taxes 2.2 2.2
Minority interest 26.8 26.8
Equity (deficit) 6.3 9.7 92.4 4.5 8.6 6.3
--------- ----------- ----------- ----------- ----------- -----------
Total liabilities and equity (deficit) $ 118.7 $ 15.5 $ 141.5 $ 13.4 $ 11.5 $ 184.3
========= =========== =========== =========== =========== ===========

CONDENSED BALANCE SHEETS
---------------------------------------------------------------------------
SUCCESSOR COMPANY
---------------------------------------------------------------------------
PARENT ABN ABNB CPS TRANSTEX CONSOL.
--------- ----------- ----------- ----------- ----------- -----------
As of December 31, 2003
Cash and cash equivalents $ 3.2 $ 0.1 $ 5.2 $ 0.2 $ 0.3 $ 9.0
Accounts receivable, net - 2.9 11.6 4.4 0.5 19.4
Inventories - 2.5 11.3 1.9 1.0 16.7
Prepaid expenses and other .2 0.8 1.4 0.6 .5 3.5
Investments in and receivables from
subsidiaries, net 111.9 - - 1.4 - -

Property, plan and equipment, net - 5.5 35.7 2.8 0.6 44.6
Other assets (54.6) 1.9 8.0 0.2 - (44.4)
Goodwill 3.2 9.2 50.6 3.0 6.1 72.1
--------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 63.9 $ 22.9 $ 123.7 $ 14.5 $ 9.0 $ 120.8
========= =========== =========== =========== =========== ===========
Other current liabilities 4.8 5.3 11.1 6.3 1.1 28.2
Long-term debt 100.0 0.7 - - - 100.7
Other liabilities 6.6 2.0 2.7 1.8 - 13.1
Deferred income taxes - - 2.2 - - 2.2
Minority interest - - 24.2 - - 24.2
Equity (deficit) (47.5) 14.9 83.5 6.4 7.9 (47.5)
--------- ----------- ----------- ----------- ----------- -----------
Total liabilities and equity (deficit) $ 63.9 $ 22.9 $ 123.7 $ 14.5 $ 9.0 $ 120.8
========= =========== =========== =========== =========== ===========

F-30

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
-------- --------- --------- -------- -------- -------- ---------

Twelve Months Ended December 31, 2004
Continuing Operations
Sales $ -- $ 24.9 $ 112.3 $ -- $ 16.8 $ 8.2 $ 162.2
-------- --------- --------- -------- -------- -------- ---------
Cost of Goods -- 15.6 79.5 -- 14.6 5.1 114.8
Sellling and administrative 4.7 7.6 10.2 -- 1.2 1.2 24.9
Restructuring -- --
Goodwill and asset impairments 0.9 7.3 -- -- 2.6 -- 10.8
Depreciation and amortization -- 0.8 9.6 -- 1.0 0.3 11.7
-------- --------- --------- -------- -------- -------- ---------
Total costs and expenses 5.6 31.3 99.3 -- 19.4 6.6 162.2
-------- --------- --------- -------- -------- -------- ---------

Curtailment and other related gains (3.4) -- -- -- -- -- (3.4)
Interest expense 10.5 0.1 (0.3) -- 0.1 -- 10.4
Gain on Senior note repurchases (1.1) (1.1)
Gain on sale of archives -- (3.0) (3.0)
Other expenses (income), net (0.5) (1.0) (0.1) -- -- 0.1 (1.5)
Income (loss) before reorganization
-------- --------- --------- -------- -------- -------- ---------
items and taxes (11.1) (2.5) 13.4 -- (2.7) 1.5 (1.4)
Reorganization costs 0.4 -- -- -- -- -- 0.4
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before taxes and
minority interest (11.5) (2.5) 13.4 -- (2.7) 1.5 (1.8)
Taxes 0.2 0.3 5.0 -- -- 0.5 6.0
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before minority interest (11.7) (2.8) 8.4 -- (2.7) 1.0 (7.8)
Minority interest -- -- 1.9 -- -- -- 1.9
-------- --------- --------- -------- -------- -------- ---------
Income (loss) from continuing operations (11.7) (2.8) 6.5 -- (2.7) 1.0 (9.7)
Discontinued Operations 55.9 55.9
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before extraordinary items (11.7) (2.8) 6.5 55.9 (2.7) 1.0 46.2
Extraordinary gain -- -- -- -- -- -- --
-------- --------- --------- -------- -------- -------- ---------
Net income (loss) $ (11.7) $ (2.8) $ 6.5 $ 55.9 $ (2.7) $ 1.0 $ 46.2
======== ========= ========= ======== ======== ======== =========

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
-------- --------- --------- -------- -------- -------- ---------
Year Ended December 31, 2003
Continuing Operations
Sales $ -- $ 21.9 $ 98.3 $ 0.0 $ 17.2 $ 5.1 $ 142.5
-------- --------- --------- -------- -------- -------- ---------
Cost of Goods -- 15.1 73.4 0.0 15.1 3.0 106.6
Selling and administrative 3.6 7.4 8.0 0.0 1.1 0.8 20.9
Restructuring 0.9 0.9
Goodwill and asset impairments 7.4 0.2 29.6 0.0 4.4 -- 41.5
Depreciation and amortization -- 0.8 8.6 0.0 0.8 0.3 10.5
-------- --------- --------- -------- -------- -------- ---------
Total costs and expenses 11.0 24.4 119.6 0.0 21.4 4.1 180.4
-------- --------- --------- -------- -------- -------- ---------
Curtailment and other related gains -- (0.3) -- -- -- -- (0.3)
Interest expense 9.7 0.2 0.2 0.0 0.1 -- 10.2
Gain on Senior Note repurchases (3.4) -- -- -- -- -- (3.4)
Other expenses (income), net (0.7) 0.1 (0.8) 0.0 -- 0.4 (1.0)
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before reorganization
items and taxes (16.6) (2.5) (20.7) 0.0 (4.3) 0.6 (43.4)
Reorganization expense 0.4 -- -- -- -- -- 0.4
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before taxes and
minority interest (17.0) (2.5) (20.7) 0.0 (4.3) 0.6 (43.8)
Taxes 0.1 0.4 3.5 -- -- 0.2 4.2
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before minority interest (17.1) (2.9) (24.2) 0.0 (4.3) 0.4 (48.0)
Minority interest - -- (5.5) -- -- -- (5.5)
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before extraordinary items (17.1) (2.9) (18.7) 0.0 (4.3) 0.4 (42.6)
Extraordinary gain -- -- -- -- -- -- --
-------- --------- --------- -------- -------- -------- ---------
Income (loss) before discontinued operations $ (17.1) $ (2.9) $ (18.7) $ 0.0 $ (4.3) $ 0.4 $ (42.6)
Loss from discontinued operations -- -- -- (4.0) -- -- (4.0)
-------- --------- --------- -------- -------- -------- ---------
Net Income (loss) $ (17.1) $ (2.9) $ (18.7) $ (4.0) $ (4.3) $ 0.4 $ (46.6)
======== ========= ========= ======== ======== ======== =========

F-31

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
--------- -------- --------- -------- ------- -------- ---------

Three Months Ended December 31, 2002
Continuing Operations
Sales $ -- $ 7.9 $ 20.3 $ 0.0 $ 2.9 $ 0.8 $ 31.9
--------- -------- --------- -------- ------- -------- ---------
Cost of Goods -- 4.7 15.9 0.0 1.9 0.5 23.0
Selling and administrative 0.7 1.9 1.3 0.0 0.3 0.1 4.3
Goodwill and asset impairments 14.3 33.2 0.0 -- -- 47.4
Depreciation and amortization -- 0.1 1.7 0.0 0.2 0.1 2.1
--------- -------- --------- -------- ------- -------- ---------
Total costs and expenses 0.7 21.0 52.1 0.0 2.4 0.7 76.8
--------- -------- --------- -------- ------- -------- ---------
Curtailment and other related gains -- (5.0) -- -- -- -- (5.0)
Interest expense 2.3 0.1 -- 0.0 -- -- 2.4
Other expenses (income), net 0.1 -- 0.1 0.0 0.1 (0.5) (0.2
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before reorganization
items and taxes (3.1) (8.2) (31.9) 0.0 0.4 0.6 (42.1)
Reorganization gain -- -- -- -- -- -- --
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before taxes and
minority interest (3.1) (8.2) (31.9) 0.0 0.4 0.6 (42.1)
Taxes 0.1 (0.1) (0.1) 0.0 0.2 -- 0.1
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before minority interest (3.2) (8.1) (31.8) 0.0 0.2 0.6 (42.2)
Minority interest -- -- (7.4) -- -- -- (7.4)
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before extraordinary items (3.2) (8.1) (24.4) 0.0 0.2 0.6 (34.8)
Extraordinary gain -- -- -- -- -- -- --
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before discontinued operations (3.2) (8.1) (24.4) 0.0 0.2 0.6 (34.8)
Loss from discontinued operations -- -- -- (4.6) -- -- (4.6)
--------- -------- --------- -------- ------- -------- ---------
Net Income (loss) $ (3.2) $ (8.1) $ (24.4) $ (4.6) $ 0.2 $ 0.6 $ (39.4)
========= ======== ========= ======== ======= ======== =========

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
--------- -------- --------- -------- ------- -------- ---------
Nine Months Ended September 30, 2002
Continuing Operations
Sales $ 0.1 $ 24.4 $ 78.4 $ 0.0 $ 6.6 $ 3.3 $ 112.8
--------- -------- --------- -------- ------- -------- ---------
Cost of Goods 0.2 14.1 57.7 0.0 5.1 1.7 78.8
Selling and administrative 3.0 6.2 5.5 0.0 0.7 0.6 16.0
Goodwill and asset impairments -- 0.2 -- 0.0 -- -- 0.2
Depreciation and amortization -- 0.7 3.1 0.0 0.4 0.2 4.3
--------- -------- --------- -------- ------- -------- ---------
Total costs and expenses 3.2 21.2 66.3 0.0 6.2 2.5 99.3
--------- -------- --------- -------- ------- -------- ---------
Interest expense 7.0 0.3 0.9 0.0 0.1 0.1 8.4
Other expenses (income), net 0.8 (0.8) (0.3) 0.0 -- 0.1 (0.2)
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before reorganization
items and taxes (10.9) 3.7 11.5 0.0 0.3 0.6 5.3
Reorganization gain (87.8) 24.2 (100.1) -- (4.7) (5.1) (222.0)
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before taxes and minority
interest 76.9 27.9 111.7 0.0 5.0 5.7 227.3
Taxes (1.4) 1.5 3.1 0.0 0.1 0.2 3.5
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before minority interest 78.3 26.4 108.6 0.0 4.9 5.5 223.8
Minority interest -- -- 24.7 -- -- -- 24.7
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before extraordinary items 78.3 26.4 83.9 0.0 4.9 5.5 199.1
Extraordinary gain (89.5) -- -- 0.0 -- -- (89.5)
--------- -------- --------- -------- ------- -------- ---------
Income (loss) before discontinued operations 167.8 26.4 83.9 0.0 4.9 5.5 288.6
Loss from discontinued operations -- -- -- (27.6) -- -- (27.6)
--------- -------- --------- -------- ------- -------- ---------
Net Income (loss) $ 167.8 $ 26.4 $ 83.9 $ (27.6) $ 4.9 $ 5.5 $ 260.9
========= ======== ========= ======== ======= ======== =========

F-32

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
--------- -------- --------- -------- ------- -------- ---------

Twelve Months Ended December 31, 2004 (1)
Net cash - operating activities $ (8.3) $ 1.4 $ 16.9 $ -- $ 1.9 $ 1.0 $ 12.9
--------- -------- --------- -------- ------- -------- ---------
Investing activities
Proceeds from sale of asssets -- 1.3 -- -- -- -- 1.3
Proceeds from sale of archives -- 3.0 -- -- -- -- 3.0
Capital expenditures -- (0.7) (5.8) -- (0.4) (1.2) (8.1)
Other --
--------- -------- --------- -------- ------- -------- ---------
Net cash - investing activities -- 3.6 (5.8) -- (0.4) (1.2) (3.8)
--------- -------- --------- -------- ------- -------- ---------
Financing activities
Proceeds from borrowings -- -- -- -- -- 0.5 0.5
Borrowings (repayments) -- (0.8) -- -- (0.6) -- (1.4)
Dividends to minority shareholder -- -- (1.5) -- -- -- (1.5)
Other (2.6) (2.6)
--------- -------- --------- -------- ------- -------- ---------
Net cash - financing activities (2.6) (0.8) (1.5) -- (0.6) 0.5 (5.0)
------
Effect of foreign currency exchange
rate changes on cash and cash
equivalents -- -- 0.8 -- -- -- 0.8
--------- -------- --------- -------- ------- -------- ---------
Increase (decrease) in cash and
cash equivalents: (10.9) 4.2 10.4 -- 0.9 0.3 4.9
Dividends and advances
from subsidiaries, net 7.9 (2.3) (5.2) -- (0.1) (0.2) 0.1
Beginning of period 3.2 0.1 5.2 -- 0.2 0.3 9.0
--------- -------- --------- -------- ------- -------- ---------
End of period $ 0.2 $ 2.0 $ 10.4 $ 0.0 $ 1.0 $ 0.4 $ 14.0
========= ======== ========= ======== ======= ======== =========

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
--------- -------- --------- -------- ------- -------- ---------
Year Ended December 31, 2003
Net cash - operating activities $ (5.3) $ (0.6) $ 11.9 $ -- $ (0.1) $ 0.2 $ 6.1
--------- -------- --------- -------- ------- -------- ---------
Investing activities
Proceeds from sale of assets -- -- -- -- -- -- --
Capital expenditures -- (1.2) (3.3) 0.0 (0.6) (0.1) (5.2)
Other 0.0 0.0
--------- -------- --------- -------- ------- -------- ---------
Net cash - investing activities -- (1.2) (3.3) 0.0 (0.6) (0.1) (5.2)
--------- -------- --------- -------- ------- -------- ---------
Financing activities
Proceeds from borrowings -- 0.8 -- 0.0 0.6 -- 1.4
Borrowings (repayments) -- -- (0.4) -- -- -- (0.4)
Dividends to minority shareholder -- -- (1.1) -- -- -- (1.1)
Senior Note repurchases (2.9) (2.9)
--------- -------- --------- -------- ------- -------- ---------
Net cash - financing activities (2.9) 0.8 (1.5) 0.0 0.6 -- (3.0)
--------- -------- --------- -------- ------- -------- ---------
Effect of foreign currency exchange
rate changes on cash and cash equivalents -- -- 0.1 -- 0.2 0.1 0.4
--------- -------- --------- -------- ------- -------- ---------
Increase (decrease) in cash and
cash equivalents: (8.2) (1.0) 7.2 0.0 0.1 0.2 (1.7)
Dividends and advances from subsidiaries, net 7.6 (2.5) (3.9) -- (0.7) (0.5) --
Beginning of period 3.8 3.6 1.9 0.0 0.8 0.6 10.7
--------- -------- --------- -------- ------- -------- ---------
End of period $ 3.2 $ 0.1 $ 5.2 $ 0.0 $ 0.2 $ 0.3 $ 9.0
========= ======== ========= ======== ======= ======== =========

F-33

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
--------- -------- --------- -------- ------- -------- ---------

Three Months Ended December 31, 2002
Net cash - operating activities $ (1.9) $ (1.3) $ 3.3 $ 0.0 $ -- $ 0.3 $ 0.4
--------- -------- --------- -------- ------- -------- ---------
Investing activities
Proceeds from sale of assets -- -- -- -- -- -- --
Capital expenditures -- -- (1.5) 0.0 -- -- (1.5)
--------- -------- --------- -------- ------- -------- ---------
Net cash - investing activities -- -- (1.5) 0.0 -- -- (1.5)
--------- -------- --------- -------- ------- -------- ---------
Financing activities
Proceeds from borrowings -- -- -- 0.0 -- -- 0.0
------
Borrowings (repayments) -- -- (0.1) -- -- -- (0.1)
Dividends to minority shareholder -- -- (0.4) -- -- -- (0.4)
--------- -------- --------- -------- ------- -------- ---------
Net cash - financing activities -- (0.5) 0.0 -- -- (0.5)
------
Effect of foreign currency exchange
rate changes on cash and cash equivalents -- -- 0.2 0.0 -- -- 0.2
--------- -------- --------- -------- ------- -------- ---------
Increase (decrease) in cash and
cash equivalents: (1.9) (1.3) 1.5 0.0 -- 0.3 (1.4)
Dividends and advances from subsidiaries, net 1.4 (0.1) (1.2) -- (0.1) -- --
Beginning of period 4.3 5.0 1.5 -- 0.9 0.3 12.1
--------- -------- --------- -------- ------- -------- ---------
End of period $ 3.8 $ 3.6 $ 1.8 $ 0.0 $ 0.8 $ 0.6 $ 10.7
========= ======== ========= ======== ======= ======== =========

Condensed Statements of Operations
------------------------------------------------------------------------------
Successor Company
------------------------------------------------------------------------------
Parent ABN ABNB LM CPS Transtex Consol.
--------- -------- --------- -------- ------- -------- ---------
Nine Months Ended September 30, 2002
Net cash - operating activities $ (5.5) $ 7.5 $ 8.9 $ 0 $ 0.1 $ 0.5 $ 11.4
--------- -------- --------- -------- ------- -------- ---------
Investing activities
Proceeds from sale of assets -- 0.5 -- -- -- -- 0.5
Capital expenditures -- (0.9) (2.4) 0 (0.2) (0.1) (3.6)
--------- -------- --------- -------- ------- -------- ---------
Net cash - investing activities -- (0.4) (2.4) 0 (0.2) (0.1) (3.1)
--------- -------- --------- -------- ------- -------- ---------
Financing activities
Proceeds from borrowings -- -- -- 0 -- -- 0
Borrowings (repayments) -- (2.9) (1.1) -- -- (0.1) (4.1)
Dividends to minority shareholder -- -- (1.0) -- -- -- (1.0)
--------- -------- --------- -------- ------- -------- ---------
Net cash - financing activities -- (2.9) (2.1) 0 -- (0.1) (5.1)
Effect of foreign currency exchange
rate changes on cash and cash equivalents -- -- (0.8) 0 0.1 (0.1) (0.8)
--------- -------- --------- -------- ------- -------- ---------
Increase (decrease) in cash and cash
equivalents (5.5) 4.2 3.6 0 -- 0.2 2.5
Dividends and advances from subsidiaries,
net 8.0 (2.9) (5.1) 0 (0.1) -- --
Beginning of period 1.8 3.7 3.0 0 1.0 0.1 9.6
--------- -------- --------- -------- ------- -------- ---------
End of period $ 4.3 $ 5.0 $ 1.5 $ -- $ 0.9 $ 0.3 $ 12.1
========= ======== ========= ======== ======= ======== =========

F-34

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE R - Legal and Other Proceedings

Over the past two years since the October 2002 consummation of its
December 1999 Plan of reorganization, the Company's financial position continues
to be adversely affected by a combination of: (i) the high degree of dependence
on its Brazilian subsidiary, which operates in a highly volatile economic
environment that has caused significant foreign currency exchange rate
variations which directly impact the dividends available to be repatriated to
the Parent, (ii) declining markets and competitive pricing in the United States
and France, and (iii) the political and economic instability that has occurred
in Argentina, which has directly impacted the Parent's Argentine operations. As
a result, the Parent has been unable to generate sufficient excess cash flow to
satisfy the Notes when they mature on January 31, 2005. These factors combined
with the Parent's inability to access capital and financial markets for the
purpose of obtaining new financing or raising new equity to refinance the Notes
has required the Parent to seek this further restructuring.

As a result, on January 19, 2005, the Parent (but none of its
subsidiaries), with the consent of the holders of a majority of its Senior Notes
and Common Stock filed a voluntary petition (the "Chapter 11 Case") in the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") seeking relief under the provisions of chapter 11 of title 11 of the
United States Code (the "Bankruptcy Code"). Since the filing, the Company
continues to operate its business as a debtor-in-possession under the
jurisdiction of the Bankruptcy Court and in accordance with applicable
provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In
connection with the Chapter 11 Case, the Company also filed with the Bankruptcy
Court on January 19, 2005 its proposed Plan which is a "pre-arranged" and
consensually agreed upon plan of reorganization, See Notes N and O for the
agreed upon terms of settlement under the Plan.

On February 24, 2005, the Bankruptcy Court approved the Company's
disclosure statement (the "Disclosure Statement").. The final deadline for
voting classes to accept or reject the Plan was March 24, 2005 and the final
date to object to confirmation of the Plan was March 31, 2005. No objections
were raised to the Plan. On April 8, 2005, a final hearing was held and the
Bankruptcy Court confirmed the Company's Plan of reorganization. Consummation is
expected to occur shortly thereafter.

On December 8, 1999 (the "Petition Date"), the Parent (but none of its
subsidiaries) filed a petition for reorganization relief under Chapter 11 of the
United States Bankruptcy Code. On that date, the Parent also filed its December
1999 Plan of reorganization which set forth the manner in which claims against
and interests in the Parent would be treated following its emergence from
Chapter 11. Only the Parent filed a petition for reorganization relief under
Chapter 11. None of the Parent's subsidiaries was a party to the Chapter 11
Proceeding or any other insolvency or similar proceeding.

The Parent's December 1999 Plan of reorganization was subsequently
amended four times and on May 24, 2002, the Parent submitted its Final
Disclosure Statement with respect to its proposed Fourth Amended Reorganization
Plan to the Bankruptcy Court. On August 22, 2002, the Bankruptcy Court confirmed
the December 1999 Plan. On October 1, 2002, the Effective Date, all conditions
required for the consummation of the Plan ("The October 2002 Consummation") were
achieved and the December 1999 Plan became effective.

On January 29, 2003, in accordance with the standard procedures of the
Bankruptcy Court, the Parent filed final omnibus objections to expunge all
claims that it believes have no basis or merit. The Parent's objections included
objections to claims that were duplicative, inconsistent with the Company's
books and records, untimely, already satisfied or resolved under the Plan, or
otherwise without merit. On January 12, 2005, the Bankruptcy Court entered the
final decree and thereby closed the Chapter 11 case for the December 1999 Plan.

In the third quarter of 2003, the USDA gave ABN final notification and
delivery instructions for the remaining food coupons held in secure storage by
ABN pursuant to its distribution contract with the USDA which expired on
September 30, 2003. ABN fully performed and completed the remaining two months
of service pursuant to the terms of this contract, and in the normal course
billed the USDA approximately $1.5 million in accordance with the contract. ABN
formally requested in writing that it be paid in full pursuant to the terms of
the contract and the USDA formally denied approximately $1.4 million of ABN's
claim. Pursuant to the revenue recognition rules under Statement of Accounting
Bulletin ("SAB") 104, the Company did not recognize any of the revenue on these
services as a result of the USDA's initial rejection of ABN's claim. At a status
conference on April 13, 2004, before the USDA Board of Contract Appeals, the
government acknowledged that approximately $0.2 million of the claim was
approved for payment internally and should therefore be released to ABN. Payment
was received by ABN in the second quarter of 2004 and was appropriately
recognized as revenue in that period. On February 1, 2005, the case on the
balance of the claim (with accrued interest thereon) was found in favor of the
USDA before the USDA Board of Contract Appeals. ABN is reviewing a possible
appeal on the case based upon the merits.

F-35

On September 22, 2004, the Brazilian Telecommunications Commission
("Anatel"), levied a $0.8 million fine against ABNB, citing ABNB's failure to
comply with new product material specifications in connection with inductive
phone cards that are sold to the local telephone Company. ABNB has reviewed the
claim with legal counsel and believes that it has meritorious defenses against
the assessment.

In February 2005, CPS was notified by one of its banking customers that
it allegedly received cards personalized by CPS that created a processing error
and as a result was filing a claim against CPS for approximately $0.9 million.
CPS believes that no losses were sustained by the customer and therefore the
claim has no merit. Nevertheless, CPS has notified its insurance carrier of the
claim.

The Parent continues to vigorously contest NYC Department of Finance
formal assessment for additional taxes and interest of approximately $1.3
million related to tax years up to and including 1992 for which the Parent is
adequately reserved. In December 2004, hearing sessions were held by the
Administrative Law Judge of the New York City Tax Appeals Tribunal. A schedule
for filing hearing memoranda by both parties has yet to be set. Management
believes that it has meritorious defenses with regard to the assessment for
these years.

F-36

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE S - Unaudited Quarterly Results of Operations - (Unaudited amounts in
thousands, except per share data)

YEAR END DECEMBER 31, 2004
(SUCCESSOR CO)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------

Continuing Operations
Sales $ 38,896 $ 37,036 $ 42,152 $ 44,175
Cost of goods sold 27,712 26,202 29,178 31,729
Loss from continuing operations (a) (881) (974) 2,763 (10,653)
Discontinued Operations (b) 55,952 -- -- --
Net income (loss) 55,071 (974) 2,763 (10,653)
Net income (loss) per share - Basic and Diluted
Continuing operations (0.07) (0.08) 0.23 (0.91)
Discontinued operations (4.75) -- -- --
Net income (loss) per share (4.68) (0.08) 0.23 (0.91)

YEAR END DECEMBER 31, 2003
(SUCCESSOR CO)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Continuing Operations
Sales $ 30,713 $ 36,234 $ 38,310 $ 37,294
Cost of goods sold 23,736 26,813 28,238 27,800
Loss from continuing operations (a) (2,310) (1,044) (713) (38,489)
Discontinued operations (b) (345) (1,284) (677) (1,720)
Net income (loss) (2,655) (2,328) (1,390) (40,209)
Net income (loss) per share - Basic and Diluted
Continuing operations (0.20) (0.09 (0.06) (3.27)
Discontinued operations (0.03) (0.11) (0.06) (0.14)
Net income (loss) per share (0.23) (0.20) (0.12) (3.41)

NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 2002 DECEMBER 31,
(PREDECESSOR CO) 2002
(SUCCESSOR CO)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Continuing Operations
Sales $ 37,940 $ 40,301 $ 34,518 $ 31,868
Cost of goods sold 28,018 27,949 22,812 22,962
Loss from continuing operations (a) (1,758) 519 200,298 (34,784)
Discontinued operations (b) (1,428) (431) (25,793) (4,647)
Extraordinary item (c) -- -- 89,520 --
Net income (loss) (3,186) 88 264,025 (39,431)
Net income (loss) per share - Basic and Diluted (0.39)
Continuing operations N/A N/A N/A (2.96)
Extraordinary item N/A N/A N/A --
Net income (loss) per share N/A N/A N/A (3.35)

F-37

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(a) Includes Goodwill and asset impairment write offs as follows: $0.8
million in the fourth quarter of 2004 (Successor Company), $41.3 million in the
fourth quarter of 2003 (Successor Company), $47.4 million in the three months
ended December 31, 2002 (Successor Company), $0.2 million in the third quarter
of 2002 (Predecessor Company).

(b) Discontinued operations represent those of LM, the Company's
formerly owned Australian subsidiary disposed of in April 2004 and
deconsolidated in prior periods for comparative purposes. In 2004, income from
discontinued operations represents the $57.0 million non-cash gain resulting
from the Company's disposition of the segment together with LM's loss from
operations of $1.0 million for the first quarter ended 2004. In the quarters of
the year ended December 31, 2003, the three months ended December 31, 2002, and
the nine months ended September 30, 2002, discontinued operations represent the
loss from LM's results of operations.

(c) Extraordinary item represents the forgiveness and reinstatement of
certain debt in accordance with the consummation of the Plan.

NOTE T - Commitments and Contingencies

Operating lease commitments

The Company has long-term operating leases for offices, manufacturing
facilities and equipment which expire through 2010. The Company has renewal
options on some locations, which provide for renewal rents based upon increases
tied to the consumer price index. Net rental expense for the year ended December
31, 2004 (Successor Co), the year ended December 31, 2003 (Successor Co), the
three months ended December 31, 2002 (Successor Company), and the nine months
ended September 30, 2002 (Predecessor Company) were $5.0 million, $9.1 million,
$3.3 million, and $9.9 million, respectively. At December 31, 2004, future
minimum lease payments under non-cancelable operating leases are as follows:
$3.0 million in 2005; $0.3 million in 2006; $0.1 million in 2007; $0.1 million
in 2008; nil in 2009 and insignificant thereafter.

NOTE U - Related Party Transactions

On January 1, 2005, ABN executed an agreement with Art Kober &
Associates, Inc., a direct response advertising agency ("AKA"), for the
provision of marketing services. The agreement has a term of four months, during
which AKA will, among other things, (i) advise ABN regarding new business
possibilities; (ii) formulate strategies and copy for direct mail and print
tests; (iii) provide art studio creative services; and (iv) supervise the work
of brochure and website designers.

In exchange for these services, AKA agreed to accept a fee of $25,000
per month, which is 50% of the standard AKA base fee. Art Kober, the President
of AKA, is the father of David Kober, the Vice President and General Counsel of
the Company.

In recognition of services provided during the bankruptcy period, Mr.
Gary A. Singer, a brother of Mr. Steven G. Singer, was awarded a participation
in the Company's restructuring bonus pool at a $325,000 level, which was fully
paid over a 36-month period commencing in January 2001 and ending December 31,
2003. On November 21, 2000, the Board of Directors (excluding Steven Singer, who
abstained from discussion and voting on this subject) authorized, (but the
Company did not execute, pending Compensation Committee ratification), a
three-year consulting agreement with Mr. Gary Singer, to ensure the continuity
of his services. On March 22, 2001, as Mr. Gary Singer had continued to provide
consulting services to the Parent but the authorized agreement remained
unexecuted, the Board of Directors (excluding Steven Singer, who abstained from
discussion and voting on this subject) authorized the payment to Mr. Gary Singer
of $10,000 for consulting services rendered in January 2001. Thereafter, the
Parent entered into a three-year consulting agreement, effective retroactively
as of February 1, 2001, which expired on February 1, 2004, providing for annual
consulting fees of $120,000, payable monthly. The consulting agreement provided
that if the agreement was terminated, other than for cause, as defined therein,
Mr. Gary Singer would receive a lump-sum payment in an amount that would have
otherwise been paid through the term of the agreement. On August 21, 2001, the
Compensation Committee ratified the November 2000 and March 2001 actions of the
Board of Directors with respect to compensation matters. Mr. Singer's consulting
agreement was not renewed upon expiration.

F-38

AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE V - Discontinued Operations

On April 6, 2004, the Parent entered into a series of agreements with
LM, the subsidiary's Banking Syndicate and with a newly-formed Company owned by
the members of the Banking Syndicate, for the purpose of restructuring LM and to
enable the Company to exit as the major shareholder of LM.

Under the terms of the Agreement, LM's capital structure was
reorganized such that the Banking Syndicate forgave approximately $47.4 million
of LM's $64.7 million of total senior non-recourse bank debt (inclusive of LM's
working capital facility). In exchange, the Parent relinquished its 90%
controlling equity stake in LM for approximately (i) 11% of approximately $20
million face amount of newly-issued preference stock and (ii) "deferred common
equity" of up to 40% of LM, which will be issued in stages if and when the
restructured senior bank debt and the preference stock of reorganized LM are
fully repaid or redeemed. The Company has not ascribed a value to the common
equity because events that define its issuance are uncertain and may not occur.

This exchange resulted in a non-cash gain from discontinued operations
of $56.0 million to the Company as a result of the Company relinquishing its
controlling equity interest in exchange for (i) the net discharge of the
Company's carrying value of LM's equity deficit, which was approximately $53.9
million at June 30, 2004 (which included a $1.0 million loss from operations for
the first quarter of 2004) plus (ii) the value of the newly-issued preference
shares received by the Company, which is estimated to be approximately $2.1
million.

As a result of this transaction, effective January 1, 2004, the Company
recorded the gain on the disposition of LM as a discontinued operation and
reflected LM's loss from operations for the six months of 2004 of $1.0 million
as a component of discontinued operations. The Company did not break out LM's
results of operations for the six days in April from the gain on the sale in the
second quarter, as these results would not be meaningful. The Company recorded
its remaining preference stock investment in LM valued at approximately $2.1
million under the cost method, as it will have a non-controlling interest in LM
and reflected this amount as a component of investment in non-consolidated
subsidiaries on the Company's consolidated balance sheet at December 31, 2004.
For comparative purposes, the Company deconsolidated LM from the Company's
consolidated balance sheet at December 31, 2003, which resulted in a negative
investment of $53.8 million and is reflected as a component of investment in
non-consolidated subsidiaries. Furthermore, the disposal of this segment of the
business has resulted in all prior financial statements and data provided herein
to be restated to exclude LM for comparability and to record LM's operations as
a discontinued operation.

NOTE W - Subsequent Event

On April 8, 2005, the Bankruptcy Court confirmed the Company's Plan of
reorganization. Consummation is expected to occur shortly thereafter.

F-39

CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
AMERICAN BANKNOTE CORPORATION
PARENT COMPANY BALANCE SHEET
(Dollars in thousands)

DECEMBER 31,
2004 2003
(SUCCESSOR CO) (SUCCESSOR CO)
-------------- --------------

ASSETS
Current assets
Cash and cash equivalent $ 169 $ 3,195
Prepaid expenses and other receivables 265 187
Current deferred taxes 479 (807)
-------------- --------------
Total current assets (45) 2,575
Receivables from subsidiaries, net (564) (988)
Investments in subsidiaries, at equity 115,158 58,982
-------------- --------------
114,594 57,994
Furniture and equipment, at cost 173 167
Less accumulated depreciation (161) (147)
-------------- --------------
12 20
Other assets and deferred charges
Deferred pension expense 662 1,094
Deferred taxes (1,110) (1,093)
Other 2,240 140
Goodwill 2,336 3,214
-------------- --------------
4,717 3,355
-------------- --------------
$ 118,689 $ 63,944
============== ==============

DECEMBER 31,
2004 2003
(SUCCESSOR CO) (SUCCESSOR CO)
-------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current portion of long-term debt $ 106,757 $ --
Accounts payable and accrued expenses 2,015 4,861
-------------- --------------
Total Current Liabilities 108,772 4,861
Long term debt - Senior Notes -- 100,013
Other long-term liabilities 3,663 6,547
-------------- --------------
112,435 111,421
Commitments and Contingencies - Note T
Stockholders' deficit
Common Stock par value $.01 per share authorized 20,000,000
shares issued 11,828,571 at December 31, 2004
and 2003 118 118
Capital surplus 20,893 20,893
Retained deficit (39,806) (86,013)
Treasury stock, at cost (57,756 shares) (103) (103)
Accumulated other comprehensive income 25,152 17,628
-------------- --------------
Total stockholders' deficit 6,254 (47,477)
-------------- --------------
$ 118,689 $ 63,944
============== ==============

Note references are to the Notes to the Consolidated Financial Statements.

S-1

CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
AMERICAN BANKNOTE CORPORATION
PARENT COMPANY INCOME STATEMENT
(Dollars in thousands)

YEAR THREE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
2004 2003 2002 2002
(SUCCESSOR CO) (SUCCESSOR CO) (SUCCESSOR CO) (PREDECESSOR CO)
-------------- -------------- -------------- --------------

Administrative and other expenses
Corporate office expenses $ 4,747 $ 3,906 $ 687 $ 2,978
Depreciation and amortization 5 13 3 12
Goodwill and asset impairment 878 7,347 -- --
Interest expense 10,509 9,703 2,272 7,008
Gain on Senior Note repurchase (1,077) (3,393) -- --
Settlement of SERP benefits (3,455) -- -- --
Other income, net (497) (711) 103 767
-------------- -------------- -------------- --------------
Loss before reorganization items, taxes and
equity in earnings of subsidiaries (11,110) (16,865) (3,065) (10,765)
Reorganization (income) expense
Fresh-Start adjustments -- -- -- (88,991)
Reorganization costs 396 360 (30) 1,160
-------------- -------------- -------------- --------------
-- 360 (30) (87,831)
(Loss) income before taxes and equity
in earnings of subsidiaries (11,506) (17,225) (3,035) 77,066
Taxes
State and local 23 25 (60) 78
Deferred state and local -- -- (4) (291)
Foreign (foreign withholding taxes on dividends) 446 431 73 290
Deferred federal (eliminated in consolidation
against domestic subsidiary's deferred provision) (311) (340) 65 (1,430)
-------------- -------------- -------------- --------------
158 116 74 (1,353)
(Loss) income before Discontinued operations (11,664) (17,341) (3,109) 78,419
Discontinued operations 55,952 (4,026) (4,647) (27,652)
(Loss) income before Extraordinary items and equity --
in earnings of subsidiaries 44,288 (21,367) (7,756) 50,767
Extraordinary items
Gain or forgiveness of debt -- -- -- 91,364
Loss on debt reinstatement -- -- -- (1,844)
-------------- -------------- -------------- --------------
-- -- -- 89,520
-------------- -------------- -------------- --------------
Income (loss) before equity in earnings of subsidiaries 44,288 (21,367) (7,756) 140,287
Equity in earnings of subsidiaries, net 1,919 (25,215) (31,675) 120,640
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 46,207 $ (46,582) $ (39,431) $ 260,927
============== ============== ============== ==============

Note references are to the Notes to the Consolidated Financial Statements.

S-2

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AMERICAN BANKNOTE CORPORATION
PARENT COMPANY STATEMENT OF CASH FLOW
(Dollars in thousands)

YEAR YEAR THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
2004 2003 2002 2002
(SUCCESSOR CO) (SUCCESSOR CO) (SUCCESSOR CO) (PREDECESSOR CO)
-------------- -------------- -------------- --------------

Cash From Operations:
Net Income $ 46,207 $ (46,582) $ (39,431) $ 260,927
Discontinued operations (55,952) 4,026 4,647 27,652
-------------- -------------- -------------- --------------
Items not affecting cash: (9,745) (42,556) (34,784) 288,579
Fresh Start Adjustments -- -- -- (88,991)
Extraordinary item-(Gain) on forgiveness of debt -- -- -- (91,364)
Extraordinary item-Loss on debt reinstatement -- -- -- 1,844
Extraordinary item-(gain) on repurchase
of 10 3/8% debt (1,077) (3,393) -- --
Accrued PIK Interest-10 3/8% Senior Debt 10,432 9,563 2,400 6,778
Equity in Earnings of subsidiaries (1,919) 25,215 31,675 (120,640)
Deferred taxes (311) (340) 65 (1,430)
Amortization of deferred compensation -- -- -- --
Amortization of deferred debt expense -- -- -- 191
Depreciation and amortization 5 13 3 12
Goodwill and asset impairment 878 7,347 -- --
Gain on SERP settlement (3,455) -- -- --
Gain on Sale of Assets -- -- -- --
Other (95) (4) 33 (67)
Changes in operating assets and liabilities
Prepaid expenses and other receivables 345 379 89 375
Receivables 91 752 165 868
Accounts Payable and Accrued Expenses (2,749) (17) (1,619) 1,167
Other liabilities -- (1,556) (255) (1,219)
Other 423 398 130 855
Pre-petition liabilities subject to compromise -- -- -- --
Post-petition liabilities -- -- -- --
-------------- -------------- -------------- --------------
Net cash (used in) provided by operating activities (7,177) (4,199) (2,098) (3,042)
Investing Activities
Investment in subsidiary -- -- -- --
Capital Expenditures (6) (8) -- --
Proceeds from sale of assets -- -- -- --
-------------- -------------- -------------- --------------
Net cash provided by investing activities (6) (8) -- --
Financing Activities
Dividends from subsidiaries 6,767 6,520 1,668 5,524
Proceeds from stock issuance -- -- 11 --
Repurchase of Debt (10 3/8% Bonds) (2,610) (2,929) (14) --
-------------- -------------- -------------- --------------
Net cash (used in) provided by financing activities 4,157 3,591 1,665 5,524
Increase (Decrease) in Cash: (3,026) (616) (433) 2,482
Cash Balance - Beginning 3,195 3,811 4,244 1,762
-------------- -------------- -------------- --------------
Cash Balance - Ending $ 169 $ 3,195 $ 3,811 $ 4,244
============== ============== ============== ==============
Supplemental cash payments:
Taxes (principally foreign withholding
taxes on dividends) $ 446 $ 408 $ 69 $ 293
Reorganization items 768 446 555 325

Note references are to the Notes to the Consolidated Financial Statements.

S-3

CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE II
AMERICAN BANKNOTE CORPORATION
YEARS ENDED DECEMBER 31, 2004 AND 2003 (SUCCESSOR COMPANY), THREE MONTHS ENDED
DECEMBER 31, 2002 (SUCCESSOR COMPANY), AND NINE MONTHS ENDED SEPTEMBER 30, 2002
(PREDECESSOR COMPANY)

SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Column A Column B Column C Column D Column E
Additions
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses (Deductions) End of Period
- ----------- ------ -------- ------------ -------------
DOUBTFUL ACCOUNTS ALLOWANCE
---------------------------

Nine Months Ended September 30, 2002 $ 1,351 $ 358 -- $ 1,709
(Predecessor)

Three Months Ended December 31, 2002 $ 1,709 -- $ (579) (a) $ 917
(Successor) $ (213) (b)

Year Ended December 31, 2003 $ 917 572 $ (537) (a) $ 1,096
(Successor) $ 144 (b)

Year Ended December 31, 2004 $ 1,096 1,444 $ (338) (a) $ 2,289
(Successor) $ 87 (b)

INVENTORY VALUATION ALLOWANCE
-----------------------------

Nine Months Ended September 30, 2002 $ 290 $ -- $ (130) (c) $ 147
(Predecessor) $ (13) (b)

Three Months Ended December 31, 2002 $ 147 $ 33 $ (10) (c) $ 193
(Successor) 23 (b)

Year Ended December 31, 2003 $ 193 $ 44 $ (85) (c) $ 159
(Successor) $ 7 (b)

Year Ended December 31, 2004 $ 159 $ 33 $ (49) (c) $ 146
(Successor) $ 3 (b)

(a) Uncollectible accounts written off, net of recoveries

(b) Changes in exchange rates

(c) Inventory charged against allowance

S-4

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, on April XX, 2005.

AMERICAN BANKNOTE CORPORATION

By: /s/ Steven G. Singer
---------------------------------
Steven G. Singer
Chief Executive Officer

By: /s/ Patrick J. Gentile
---------------------------------
Patrick J. Gentile
Senior Vice President Finance and
Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- --------------------------- ------------------------------------- --------------
/s/ Steven G. Singer Chief Executive Officer and Chairman April 11, 2005
- ----------------------- (Principal Executive Officer)
Steven G. Singer

/s/ C. Gerald Goldsmith Chairman Emeritus and Director April 11, 2005
- -----------------------
C. Gerald Goldsmith

/s/ James Dondero Director April 11, 2005
- -----------------------
James Dondero

/s/ Sidney Levy Director April 11, 2005
- -----------------------
Sidney Levy

/s/ Lloyd Miller Director April 11, 2005
- -----------------------
Lloyd Miller

/s/ Raymond L. Steele Director April 11, 2005
- -----------------------
Raymond L. Steele

/s/ Steven A. Van Dyke Director April 11, 2005
- -----------------------
Steven Van Dyke

49

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------ -----------

2.1 Fourth Amended Reorganization Plan of the Parent, is
incorporated herein by reference to Exhibit 2.2 to the
Parent's Current Report on Form 8-K/A dated September 4, 2002.

2.2 Disclosure Statement with Respect to Fourth Amended
Reorganization Plan of the Parent, dated May 24, 2002, is
incorporated herein by reference to Exhibit 2.1 to the
Parent's Current Report on Form 8-K dated May 31, 2002.

2.3 Order of the Bankruptcy Court, dated August 21, 2002,
Confirming the Fourth Amended Reorganization Plan of the
Parent is incorporated herein by reference to Exhibit 2.1 to
the Parent's Current Report on Form 8-K dated August 28, 2002.

*2.4 Amended Plan of Reorganization of the Parent under Chapter 11
of the Bankruptcy Code.

*2.5 Amended Disclosure Statement with respect to the Parent's
Amended Plan of Reorganization under Chapter 11 of the
Bankruptcy Code.

2.6 Subscription and Shareholders Agreement, dated April 6, 2004,
by and among American Banknote Australasia Holding Inc., ABN
Australasia Holdings Pty Limited, LM SPV Pty Limited, ABN
Australasia Limited and David Head is incorporated by
reference to Exhibit 2.1 to the Parent's Current Report on
Form 8-K dated April 20, 2004.

2.7 Deed of Assignment, Amendment and Novation dated April 16,
2004 by and among ABN Australasia Limited, ABN Australasia
Holdings Pty Ltd and JP Morgan Australasia Limited is
incorporated by reference to Exhibit 2.2 to the Parent's
Current Report on Form 8-K dated April 20, 2004.

2.8 Supplemental Agreement relating to ABN Australasia Holdings
Pty Ltd dated April 6, 2004 is incorporated by reference to
Exhibit 2.3 to the Parent's Current Report on Form 8-K dated
April 20, 2004.

3.1 Amended and Restated Certificate of Incorporation of the
Parent is incorporated herein by reference to Exhibit 3.1 to
the Parent's Current Report on Form 8-K dated October 16, 2002
(the "October 16, 2002 Form 8-K").

3.2 Restated By-Laws of the Parent is incorporated herein by
reference to Exhibit 3.2 to the October 16, 2002 Form 8-K.

3.3 By-Laws of American Bank Note Company Grafica e Servicos
Ltda., as amended, are incorporated herein by reference as
Exhibit 10.1 to the Parent's Current Report on Form 8-K/A
dated September 21, 1995.

3.4 Certificate of Incorporation and By-Laws of subsidiaries is
incorporated herein by reference to Exhibits 3.1(b) through
(m) and Exhibits 3.2(b) through (m) to the Parent's
Registration Statement on Form S-4 (File No. 333-44069) filed
January 12, 1998 (the "January 12, 1998 Form S-4").

4.1 Indenture dated as of May 15, 1992 between the Parent and
Chemical Bank, as Trustee, relating to the 10-3/8% Senior
Notes due January 31, 2005 is incorporated herein by reference
to Exhibit 4.2 to the Parent's Current Report on Form 8-K
dated May 26, 1992 (the "May 26, 1992 Form 8-K").

4.2 Pledge Agreement, as amended, dated as of May 26, 1992 between
the Parent and Chemical Bank, as Trustee, relating to the
Parent's 10-3/8% Senior Notes due January 31, 2005 is
incorporated herein by reference to Exhibit 4.3 to the May 26,
1992 Form 8-K.

4.3 First Supplemental Indenture to 10-3/8% Senior Notes due
January 31, 2005 between the Parent and Chemical Bank, N.A.,
dated as of May 23, 1994 is incorporated herein by reference
to Exhibit 4.1 to the Parent's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 (the "June 30, 1994
10-Q").

4.4 First Amendment to the Pledge Agreement dated as of May 26,
1992 between the Parent and Chemical Bank, N.A., dated as of
May 23, 1994 is incorporated herein by reference to Exhibit
4.2 to the June 30, 1994 Form 10-Q.

4.5 Pledged Share Amendment dated as of June 23, 1993 between the
Parent and Chemical Bank, N.A., as Trustee, relating to the
10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.5 to the Parent's Annual
Report on Form 10-K for the year ended December 31, 1997 (the
"1997 10-K").

4.6 Pledged Share Amendment dated as of July 19,1993 between the
Parent and Chemical Bank, N.A., as Trustee, relating to the
10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.6 to the 1997 10-K.

4.7 Pledged Share Amendment dated as of August 1, 1994 between the
Parent and Chemical Bank, N.A., as Trustee, relating to the
10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.7 to the 1997 10-K.

4.8 Pledged Share Amendment dated as of July 31, 1995 between the
Parent and Chemical Bank, N.A., as Trustee, relating to the
10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.5 to the Parent's Annual
Report on Form 10-K for the year ended December 31, 1995 (the
"1995 10-K").

4.9 Pledged Share Amendment dated as of August 15, 1997 between
the Parent and Chemical Bank, N.A., as Trustee, relating to
the 10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.9 to the 1997 10-K.

4.10 Pledged Share Amendment dated as of August 27, 1997 between
the Parent and Chemical Bank, N.A., as Trustee, relating to
the 10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.10 to the 1997 10-K.

4.11 Pledged Share Amendment dated as of December 1, 1997 between
the Parent and Chemical Bank, N.A., as Trustee, relating to
the 10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.11 to the 1997 10-K.

4.12 Pledged Share Amendment dated as of December 11, 1997 between
the Parent and Chemical Bank, N.A., as Trustee, relating to
the 10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.12 to the 1997 10-K.

4.13 Pledged Share Amendment dated as of December 23, 1997 between
the Parent and Chemical Bank, N.A., as Trustee, relating to
the 10-3/8% Senior Notes due January 31, 2005 is incorporated
herein by reference to Exhibit 4.13 to the 1997 10-K.

4.14 Second Supplemental Indenture, dated as of October 1, 2002,
between the Parent and HSBC Bank USA, in its capacity as
Successor Trustee, relating to the 10-3/8% Senior Notes due
January 31, 2005, is incorporated herein by reference to
Exhibit 4.1 to the October 16, 2002 Form 8-K.

4.15 Warrant Agreement, dated as of October 1, 2002, between the
Parent and American Stock Transfer & Trust Company, as Warrant
Agent, is incorporated herein by reference to Exhibit 4.2 to
the October 16, 2002 Form 8-K.

4.16 Registration Rights Agreement, dated as of October 1, 2002, by
and among the Parent and the Holders of Registrable Securities
(as named therein) is incorporated herein by reference to
Exhibit 4.3 to the October 16, 2002 Form 8-K.

4.17 Forms of Series 1 Warrant and Series 2 Warrant Certificates
issued pursuant to the Fourth Amended Reorganization Plan of
the Parent is incorporated herein by reference to Exhibit 4.5
to the October 16, 2002 Form 8-K.

4.18 Form of 10 3/8% Senior Notes due January 31, 2005 is
incorporated herein by reference to Exhibit 4.1 to the
Parent's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 (the "September 30, 2002 10-Q").

4.19 Forms of Equity Option Certificates issued pursuant to the
Fourth Amended Reorganization Plan of the Parent is
incorporated herein by reference to Exhibit 4.2 to the
September 30, 2002 10-Q.

10.1 Second Amended and Restated Employment Agreement dated as of
October 1, 1993, between the Parent, American Bank Note
Company and Morris Weissman is incorporated herein by
reference to Exhibit 10.1 to the Parent's Annual Report on
From 10-K (as amended) for the year ended December 31, 1993
(the "1993 10-K").

10.2 Employment Agreement dated July 24, 1990 between the Parent
and John T. Gorman is incorporated herein by reference to
Exhibit (c)(32) to Amendment No. 3 to the Parent's Rule 13E-3
Transaction Statement on Schedule 13E-3 dated July 31, 1990
(the "Schedule 13E-3").

10.3 Employment Agreement Amendment Number 2 dated September 3,
1996 between the Parent and John T. Gorman is incorporated
herein by reference to Exhibit 10.1 to the September 30, 1996
10-Q.

10.4 Settlement Agreement dated as of October 30, 2000 between the
Parent and John T. Gorman is incorporated herein by reference
to Exhibit 10.4 to the Parent's Annual Report on Form 10-K for
the year ended December 31, 2000 (the "2000 10-K").

10.5 Supplemental Executive Retirement Plan of the Parent effective
as of April 1, 1994, is incorporated herein by reference to
Exhibit 10.22 to Amendment No. 2 to the Parent's Registration
Statement on Form S-4 (File No. 33-79726) filed July 18, 1994.

10.6 Amendments to Supplemental Executive Retirement Plan of the
Parent effective April 1, 1994 is incorporated herein by
reference to Exhibit 10.12 to the 1995 10-K.

10.7 Amendment to Supplemental Executive Retirement Plan of the
Parent effective July 1, 1997 is incorporated herein by
reference to Exhibit 10.9 to the 1997 10-K.

10.8 Form of severance agreement for designated officers is
incorporated herein by reference to Exhibit 10.25 to the
Parent's Annual Report on Form 10-K for the year ended
December 31, 1994 (the "1994 10-K").

10.9 Real Estate Rental Agreement, dated February 29, 1996, between
Walter Torre Junior LTDA and American Bank Note Company
Grafica E Servicos Ltda for property located in Barueri, Sao
Paulo, Brazil is incorporated herein by reference to Exhibit
10.18 to the 1995 10-K.

10.10 Amended and Restated Senior Debt Facility Agreement dated June
26, 2001 between American Banknote Corporation, American
Banknote Australasia Holdings, Inc., and Chase Securities
Australasia Limited, as Agent and Security Trustee, is
incorporated herein by reference to Exhibit 10.18 to the 2000
10-K.

10.11 Amending and Restatement Deed (Senior Debt Facility) dated
June 2001 between ABN Australasia Limited, ABN Australasia
Holdings Pty Ltd, American Banknote Pacific Pty Ltd., American
Banknote Australasia PTY Ltd, Leigh-Mardon Payment Systems Pty
Limited and American Banknote New Zealand Limited and Chase
Securities Australasia Limited, as Agent and Security Trustee,
is incorporated herein by reference to Exhibit 10.19 to the
2000 10-K.

10.12 Shareholders Agreement dated June 2001 between American
Banknote Australasia Holdings, Inc., Chase Securities
Australasia Limited, as Security Trustee for the Participants
and ABN Australasia Limited is incorporated herein by
reference to Exhibit 10.20 to the 2000 10-K.

10.13 Banco Bradesco S.A. and American Bank Note Company Grafica e
Servicos Ltda agreements as follows: Supply Agreement For
Continuous And Plain Forms, Promotional Printings, Spools And
Envelopes Agreement No. 001978 dated 04/03/00; Agreement For
The Rendering of Printing Services Agreement No. 001979 dated
03/01/00 (portions omitted pursuant to a request for
confidential treatment); and Contract To Furnish Assets,
Render Services And Other Agreements Agreement No. 001989
dated 04/03/00, are incorporated herein by reference to
Exhibit 10.22 to the 2000 10-K.

10.14 Form of Separation Agreement by and between the Parent and
American Bank Note Holographics, Inc. is incorporated herein
by reference to Exhibit 10.1 to the Parent's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 (the "June
30, 1998 10-Q").

10.15 American Bank Note Holographics, Inc. Form of Underwriting
Agreement dated June 1998 is incorporated herein by reference
to Exhibit 10.2 to the June 30, 1998 10-Q.

10.16 Post-Retirement Welfare Benefit Trust made and entered into as
of December 29, 1989 by International Banknote Company, Inc.
and Mr. Edward H. Weitzen and Mr. Eugene Jonas (Trustees) is
incorporated by reference to Exhibit 10.25 to the 2000 10-K.

10.17 Settlement Agreement dated as of September 22, 2000 by and
between the Parent and Lietuvos Bankas is incorporated by
reference to Exhibit 10.26 to the 2000 10-K.

10.18 Consulting, Non-Competition and Termination Agreement, dated
as of March 13, 2000 by and between the Parent and Morris
Weissman, is incorporated herein by reference to Exhibit B to
the Fourth Amended Reorganization Plan of the Parent, filed as
Exhibit 2.2 to the September 3, 2002 Form 8-K/A.

10.19+ Employment Agreement entered into as of the 1st day of
December, 2000 by and between the Parent and Steven G. Singer
is incorporated herein by reference to Exhibit 10.32 to the
2000 10-K.

10.20 Consulting Agreement entered into as of the 1st day of
February, 2001 by and between the Parent and Gary A. Singer is
incorporated herein by reference to Exhibit 10.33 to the 2000
10-K.

10.21+ Letter Agreement dated January 29, 1999 by and between the
Parent and Patrick Gentile is incorporated herein by reference
to Exhibit to 10.34 to the 2000 10-K.

10.22+ Letter Agreement dated November 13, 2000 by and between the
Parent and Patrick Gentile is incorporated herein by reference
to Exhibit to 10.35 to the 2000 10-K.

10.23+ Employment Agreement dated December 1998 by and between the
American Bank Note Company Grafica e Servicos Ltda and Sidney
Levy is incorporated herein by reference to Exhibit 10.36 to
the 2000 10-K.

10.24+ Consulting Agreement dated December 1998 by and between the
Parent and Sidney Levy is incorporated herein by reference to
Exhibit 10.37 to the 2000 10-K.

10.25+ Stock Purchase and Sale Agreement dated the 9th day of January
2001 by and among the Parent, ABN Equities Inc., American Bank
Note Company Grafica e Servicos Ltda., and Sidney Levy is
incorporated herein by reference to Exhibit 10.38 to the 2000
10-K.

10.26+ Agreement between ABNB and Mr. Sidney Levy, dated December 12,
2001, regarding payment of bonus to Mr. Levy upon sale of ABNB
shares by the Parent is incorporated herein by reference to
Exhibit 10.3 to the Parent's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001.

10.27+ The Parent's 2002 Management Incentive Plan adopted by the
Compensation Committee on March 4, 2002 is incorporated herein
by reference to Exhibit 10.39 to the Parent's Annual Report on
Form 10-K for the year ended December 31, 2001 (the "2001
10-K").

10.28+ The Parent's Equity and Cash Improvement Program adopted by
the Compensation Committee on March 4, 2000 is incorporated
herein by reference to Exhibit 10.40 to the 2001 10-K.

10.29 Global Stipulation and Settlement Agreement Among the Parent,
American Bank Note Holographics, Inc. and Parties to the ABN
and ABNH Securities Actions, is incorporated herein by
reference to Exhibit M to the Fourth Amended Reorganization
Plan of the Parent, filed as Exhibit 2.2 to the September 3,
2002 Form 8-K/A.

10.30 Settlement Agreement, dated as of September 17, 2002, between
the Parent and American Bank Note Holographics, Inc. is
incorporated herein by reference to Exhibit 10.1 to the
October 16, 2002 Form 8-K.

10.31 Consultant Option Agreement, dated as of October 1, 2002,
between the Parent and Morris Weissman is incorporated herein
by reference to Exhibit 10.2 to the October 16, 2002 Form 8-K.

10.32 Form of Exit Financing Agreement, dated January 17, 2005,
between the Parent, Lloyd I. Miller III, Bay Harbour Partners,
Ltd., Pollux Investment, LLC and Highland Capital Management
L.P. is incorporated by reference to Exhibit 10.1 to Parent's
Current Report on Form 8-K dated January 21, 2005.

16.1 Letter of Deloitte & Touche LLP, dated January 18, 2000, is
incorporated herein by reference to Exhibit 16.1 to the
Parent's Current Report on Form 8-K/A dated January 20, 2000.

16.2 Letter of Ernst & Young LLP, dated April 6, 2001, is
incorporated herein by reference to Exhibit 16.1 to the
Parent's Current Report on Form 8-K dated April 6, 2001.

16.3 Letter of agreement from Friedman LLP, dated June 25, 2004, is
incorporated herein by reference to Exhibit 16 to the Parent's
Current Report on Form 8-K dated June 28, 2004.

21.1* Subsidiaries of the Registrant

31.1* CEO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2* CFO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

32.1* CEO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2* CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

99.1 Memorandum of Understanding Between Plaintiffs in the ABN and
ABNH Securities Actions and the Equity Committee, is
incorporated herein by reference to Exhibit N to the Fourth
Amended Reorganization Plan of the Parent, filed as Exhibit
2.2 to the Parent's Current Report on Form 8-K/A dated
September 4, 2002.

99.2 Court order dated July 19, 2001, approving settlement with the
United States Securities and Exchange Commission, Plaintiff
versus American Banknote Corporation, Defendant. Final
Judgment as to Defendant American Banknote Corporation is
incorporated herein by reference to Exhibit 99.3 to the 2000
10-K.

* Filed herewith
+ Management contract or compensatory plan

A signed original of this written statement required by Section 906 has been
provided by the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.