SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 25, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23027
Compass Plastics & Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4611994
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
15730 South Figueroa Street
Gardena, CA 90248
(Address of principal executive offices)
(Zip Code)
(213) 770-8771
(Registrant's telephone number, including area code)
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
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
At March 5, 1998, the Registrant has 4,883,750 shares of
common stock, par value $.0001 per share, outstanding.
COMPASS PLASTICS & TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
January 25,1998 and October 26,1997
Condensed Consolidated Statements of Income for
the Thirteen Weeks ended January 25, 1998 and
January 26, 1997
Condensed Consolidated Statements of Cash
Flows for the Thirteen Weeks Ended
January 25, 1998 and January 26, 1997
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Legal Proceedings
Changes in Securities
Defaults upon Senior Securities
Submissions of matters to a vote of securities holders
Other Information
Exhibits and Reports on Form 8-K
SIGNATURES
Part I - Financial Information
Item 1 - Financial Statements
Compass Plastics & Technologies, Inc.
Condensed Consolidated Balance Sheets
[CAPTION]
<TABLE>
<S> <C> <C>
(Unaudited)
January 25, 1998 October 26, 1997
Current Assets
Cash and cash equivalents $660,530 $411,930
Accounts receivable, net 11,377,738 5,750,205
Accounts receivable, other 265,703 339,139
Inventories 4,546,892 3,898,600
Prepaid expenses 202,589 227,131
Income tax receivable 275,306 0
Other current assets, net 516,518 528,442
Total Current Assets 17,845,276 11,155,447
Property, Plant & Equipment,
net 19,768,590 18,111,455
Other Assets
Goodwill, net 1,781,359 1,807,409
Deposits 246,313 123,748
Other assets, net 244,082 192,830
Total Other Assets 2,271,754 2,123,987
Total Assets $39,885,620 $31,390,889
Current Liabilities
Accounts payable and
accrued expenses $10,260,449 $ 7,802,412
Accrued wages and related
expenses 642,189 924,535
Current portion of
capitalized lease
obligations 122,846 122,846
Income taxes payable 0 54,597
Current portion of
long-term debt 906,624 400,303
Total Current Liabilities 11,932,108 9,304,693
Other Liabilities
Capitalized lease
obligations, net of
current portion 565,643 573,089
Long-term debt, net of
current portion 11,634,415 6,026,435
Deferred income taxes
payable 1,862,159 1,838,648
Total Other Liabilities 14,062,217 8,438,172
Total Liabilities 25,994,325 17,742,865
Stockholders' Equity
Preferred stock, par
value $.0001; 5,000,000
shares authorized, none
outstanding 0 0
Common stock, par value $.0001;
20,000,000 shares authorized,
4,883,750 issued and outstanding
respectively 488 488
Additional paid-in capital 12,083,397 12,083,397
Notes receivable from sale
of stock (706,448) (733,224)
Retained earnings 2,513,858 2,297,363
Total Stockholders' Equity 13,891,295 13,648,024
Total Liabilities and Stock-
holders' Equity $39,885,620 $31,390,889
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these consolidated balance
sheets.
Compass Plastics & Technologies, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
13 Weeks Ended 13 Weeks Ended
January 25,1998 January 26,1997
Sales $10,787,724 $10,390,996
Cost of Goods Sold 9,434,454 8,381,586
Gross Profit 1,353,270 2,009,410
Selling Expenses 170,087 113,695
General Administrative 618,029 482,044
Total Selling, General and
Administrative 788,116 595,739
Operating Income 565,154 1,413,671
Interest Expense 219,921 272,032
Other Income (16,423) (3,542)
Income before Income Taxes 361,656 1,145,181
Income Taxes 145,161 447,000
Net Income $216,495 $698,181
Basic Earnings Per Share $0.04 $0.35
Diluted Earnings Per Share $0.04 $0.19
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these consolidated statements.
Compass Plastics & Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
13 weeks ended 13 weeks ended
January 25, 1998 January 26, 1997
(Consolidated) (Consolidated)
Cash Flows from Operating
Activities
Net Income $216,495 $698,181
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 353,846 288,837
Deferred income taxes 23,511 0
Changes in assets - (increase)
decrease:
Accounts receivable, net (5,627,534) 2,616,933
Accounts receivable, other 73,436 (34,281)
Inventories (648,292) (224,240)
Prepaid expenses 24,542 68,756
Income tax refund receivable (15,715) 0
Deposits (122,566) 0
Other assets (51,828) 30,950
Changes in liabilities -
increase (decrease):
Accounts payable and accrued
expenses 2,458,037 (447,049)
Accrued wages and payroll
taxes payable (282,346) 268,493
Income taxes payable (314,187) 347,000
Total Adjustments (4,129,096) 2,915,399
Net Cash Provided by
Operating Activities ($3,912,601) $3,613,580
Cash Flows from Investing
Activities
Purchase of equipment and
improvements ($1,972,544) ($163,702)
Collection on note
receivable, other 26,776 0
Net Cash Used in Investing
Activities ($1,945,768) ($163,702)
Cash Flows from Financing
Activities
Proceeds from long-term debt $3,834,293 $0
Proceeds from line of credit 6,550,000 250,000
Repayment of long-term debt (119,878) 0
Repayment of capitalized
lease obligations (7,446) (72,018)
Repayment of line of
credit (4,150,000) (4,000,000)
Net Cash (Used) Provided by
Financing Activities $6,106,969 ($3,822,018)
Net Increase (Decrease) in
Cash and Cash Equivalents 248,600 (372,140)
Cash and Cash Equivalents -
Beginning 411,930 729,729
Cash and Cash Equivalents -
Ending $660,530 $357,589
</TABLE>
Compass Plastics & Technologies, Inc.
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
Compass Plastics & Technologies, Inc., together with its wholly
owned subsidiaries, AB Plastics Corporation, based in Gardena,
California, and AB Plastics de Mexico, S.A . de C.V., based in
Tijuana, Mexico, is referred to as "Compass" or the "Company."
The accompanying consolidated financial statements are unaudited,
except for the October 26,1997 balance sheet, and have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote
disclosures normally required in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate for
a fair presentation.
These condensed consolidated financial statements reflect all
adjustments which, in the opinion of management, are necessary to
fairly present the results of operations for the interim periods.
All of the adjustments which have been made are of a normal and
recurring nature. The results of interim reporting are not
necessarily an indication of the results to be expected for the
full year.
For information concerning the Company's significant accounting
policies, reference is made to the Company's filing with the
Securities and Exchange Commission on Form 10-K.
2. INVENTORIES
[CAPTION]
<TABLE>
<S> <C> <C>
January 25,1998 October 26,1997
Raw Materials $2,476,490 $2,127,034
Finished Goods and
WIP 2,070,402 1,771,566
Total $4,546,892 $3,898,600
</TABLE>
3. NET EARNINGS PER SHARE
During the 13 weeks ended January 25, 1998, the Company adopted the
provision of statement of accounting standards No. 128 earnings per
share ("SFAS 128"). SFAS 128 eliminates the presentation of primary
and fully diluted earnings per share ("EPS") and requires
presentation of basic and diluted EPS. All prior period EPS data
has been restated to conform to the new pronouncement. The impact
of adopting SFAS 128 was not material. The following table sets
forth the computation of basic and diluted earnings per share.
[CAPTION]
<TABLE>
<S> <C> <C>
13 weeks ended 13 weeks ended
January 25, 1998 January 26, 1997
(Consolidated) (Consolidated)
Numerator
Net Earnings for Basic
EPS $216,495 $698,181
Net Earnings for Diluted
EPS $216,495 $698,181
Denominator
Shares for Basic EPS -
Avg. Shares Out-
standing 4,883,750 2,000,000
Stock Options 382,857 1,600,000
Shares for Diluted EPS 5,266,607 3,600,000
Basic EPS $0.04 $0.35
Diluted EPS $0.04 $0.19
</TABLE>
4. ACQUISITION OF M.O.S. PLASTICS, INC.
On February 27, 1998, Compass Plastics & Technologies, Inc. (the
"Company") completed the acquisition from Werner H. Schulz and
Carolyn Schulz, co-trustees of the Schulz Family Living Trust, of
all of the outstanding shares of capital stock of M.O.S. Plastics,
Inc. ("M.O.S."), a San Jose, California-based injection-molding
company that specializes in producing turn-key plastics parts and
subassemblies. The purchase price of the acquisition was
approximately $17.4 million in cash, subject to adjustment based on
a percentage of any step-up in basis of any of the tangible assets
of M.O.S. The Company also issued to Werner H. Schulz and Carolyn
Schulz, co-trustees of the Schulz Family Living Trust, five-year
warrants to purchase 50,000 shares of the Company's common stock at
an exercise price of $10.80 per share, and entered into a one-year
employment agreement with Mr. Schulz, followed by a one-year
consulting agreement, for him to continue in the areas of sales,
engineering and tooling for M.O.S. Mr. Schulz will join the Board
of Directors of the Company. The information set forth above is
qualified in its entirety by reference to the Stock Purchase
Agreement, dated as of January 28, 1998, between the Company and
Werner H. Schulz and Carolyn Schulz, co-trustees of the Schulz
Family Living Trust, a copy of which was filed with the Company's
Current Report on Form 8-K dated February 27, 1998.
In connection with the acquisition, the Company, its wholly-
owned subsidiary AB Plastics Corporation ("AB"), and M.O.S. entered
into a Commercial Loan Agreement with The Sumitomo Bank of
California ("Sumitomo") and Manufacturers Bank, pursuant to which
the Company and such subsidiaries (collectively, the "Borrowers")
obtained a $6,000,000 revolving credit commitment (with borrowings
thereunder limited to specified percentages of the Borrowers'
eligible accounts receivable and eligible inventory) maturing on
January 2, 2003, and an amortizing $14,000,000 term loan with final
maturity on January 2, 2003. Interest payable in respect of such
loans will vary depending on the Company's relative degree of
leverage from time to time, and such loans are secured by
substantially all of the non-real estate assets of the Borrowers.
In addition to scheduled amortization payments, the term loan is
subject to mandatory prepayment under certain circumstances,
including out of any new net debt proceeds, and specified portions
of future net equity proceeds and/or excess cash flow until such
time as the principal balance of the term loan is reduced to
$7,000,000. The proceeds of the term loan and initial revolving
credit borrowings were utilized to retire the outstanding revolving
credit borrowings under the Company's and AB's previous loan
facility with Sumitomo, to pay a portion of the purchase price for
the shares of capital stock of M.O.S., to retire certain secured
indebtedness of M.O.S., and to pay transaction expenses relating to
the acquisition.
Also in connection with the acquisition, the Company and AB
issued a $7,000,000 debenture to Sirrom Capital Corporation d/b/a
Tandem Capital ("Sirrom") and a $2,000,000 debenture to Pinecreek
Capital Partners, L.P. ("Pinecreek"), each of which debentures
bears interest at 12.25% per annum payable quarterly in arrears,
and matures as to all principal on February 27, 2003. The
Company's and AB's obligations under such debentures are secured by
second liens on substantially all of the Company's and AB's non-
real estate assets, and such obligations and liens are subordinated
to the liens securing the obligations under the Commercial Loan
Agreement described above. The net proceeds of such debentures
were used to pay a portion of the purchase price for the shares of
capital stock of M.O.S.
In conjunction with the issuance of such debentures, the
Company issued to Sirrom and Pinecreek five-year warrants to
purchase 420,000 shares and 120,000 shares of common stock of the
Company, respectively, at an exercise price of $6.75 per share. In
addition, in the event that any portion of their respective
debentures remain outstanding on February 27, 2000 and/or each
anniversary thereof, the Company has agreed to issue, on each such
date, to Sirrom an additional warrant for 140,000 shares of common
stock of the Company, and/or to Pinecreek an additional warrant for
40,000 shares of common stock of the Company, in each case at an
exercise price equal to the greater of $7.00 per share or 75% of
the average closing bid price of the Company's common stock for the
20 trading days preceding the required date of issuance of such
additional warrant. The Company has granted to Sirrom and
Pinecreek demand and piggyback registration rights in respect of
the shares underlying such warrants, and has granted, so long as
the debentures remain outstanding, observer rights for a
representative of each of Sirrom and Pinecreek to attend all
meetings of the Company's Board of Directors.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading manufacturer and assembler of custom
injection molded plastic components for computer and consumer
electronics OEM's located in Southern California and Mexico. The
Company manufactures complex components based on customer
specifications and orders. The Company's primary customers are the
television and computer display divisions of Sony, Matsushita's
Panasonic and Quasar television units, Samsung's computer monitor
unit, Casio's electronic keyboard unit, Hitachi and Sanyo
television units. The Company supplies its customer requirements
from its manufacturing facilities in Gardena, California, and
Tijuana, Mexico.
RESULTS OF OPERATIONS
13 WEEKS ENDED JANUARY 25, 1998 COMPARED TO 13 WEEKS ENDED JANUARY
26,1997
The following table sets forth, for the periods indicated,
certain information relating to the Company's operations expressed
as a percentage of the Company's net sales.
[CAPTION]
<TABLE>
<S> <C> <C>
13 Weeks Ended 13 Weeks Ended
January 25,1998 January 26,1997
Sales 100.0% 100.0%
Cost of Goods Sold 87.5% 80.7%
Gross Profit 12.5% 19.3%
Selling Expenses 1.6% 1.1%
General Administrative 5.7% 4.6%
Total 7.3% 5.7%
Operating Income 5.2% 13.6%
Interest Expense 2.0% 2.6%
Other Expense / (Income) (0.1%) 0.0%
Income before Income Taxes 3.4% 11.0%
Income Taxes 1.3% 4.3%
Net Income 2.0% 6.7%
</TABLE>
The Company's sales for the 13 weeks ended January 25, 1998
increased $397,000 or 3.8% over the comparable 1997 period. The
Company shipped $3.0 million of product to several customers from
its new Tijuana plant. Sales to Sony in the 1998 period were $7.1
million, a decrease of 7.8% over the comparable 1997 period, and
65.8% of total sales in the 1998 period. The decline in sales to
Sony was offset by sales to the Company's newest clients, Samsung
and Sanyo.
The Company's gross profit was $1.4 million, a decrease of 32.7%
over the comparable 1997 period. The decrease was attributable to
the start up of the Tijuana plant, which added significant overhead
expenses, the start up of new molds from Samsung, and the longer
holiday shutdown period experienced by our customers. The
Company's reduced gross profits as a percentage of sales will
continue until such time as revenue increases to offset the
additional overhead expenses of two plants and the Company realizes
savings from the elimination of off-site warehousing costs,
expected to be by May 1998 due to the completion of the Company's
new warehouse adjacent to its Gardena manufacturing facility.
The Company's selling, general and administrative expenses
increased 32.2% over the comparable 1997 period. The increase is
related to personnel added during the 1997 fiscal year in sales,
finance and administration and incremental costs associated with
being a publicly-held company.
The Company's interest expense decreased 19.2% over the comparable
1997 period. This decrease was due to the reduction in long-term
debt from proceeds of the Company's IPO offset by new debt for the
purchase and expansion of the Gardena facility and the purchase of
capital equipment for the Tijuana plant.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated sufficient cash flows from
operations to fund its general working capital needs. As of January
25, 1998, the Company had working capital of $5.9 million compared
to $1.9 million at October 26,1997. The increase was attributable
to an increase in inventory of $648,000, and an increase of
Accounts Receivable offset by an increase of Accounts Payable. The
increase in Accounts Receivable and Accounts Payable were caused by
the Company's unique arrangement with Sony. The Company purchases
through Sony all resin and assembly parts used for Sony production.
Sony offsets these purchases from sales of finished product when it
pays its invoices. At January 25, Sony's Accounts Receivable
balance was $9,275,523 and the Company's Accounts Payable balance
owed to Sony was $6,512,655.
Net cash used by operations for the 13 weeks ended January 25,1998
was $3.9 million compared to $3.6 million provided for the
comparable 1997 period. The difference between the Company's net
income of $216,000 and operating cash flow of ($3.9) million was
approximately $354,000 in depreciation and amortization and an
increase in accrued payables and compensation of $2.5 million
offset by a net increase in receivables of $5.6 million and an
increase in inventory of $648,000.
Net cash used for investing activities for the 13 weeks ended
January 25,1998 was $1.9 million compared to $164,000 for the
comparable 1997 period. The 1998 amount reflects the Company's
expenditures related to the expansion of the Gardena property and
the final construction and installation of equipment at its Tijuana
plant.
Net cash provided by financing activities for the 13 weeks ended
January 25,1998 was $6.1 million compared to $3.8 million used for
the comparable 1997 period. The Company borrowed $3.0 million from
General Electric Capital Corporation to pay for equipment at its
Tijuana plant. The loan is secured by those certain assets located
in Mexico. The Company also borrowed an additional $834,000 under
its construction loan, and net borrowings of $2.4 million under its
revolving line of credit.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control.
Actual results could differ materially from these forward-looking
statements as a result of, among other factors, risks related to
the Company's dependence on the computer and consumer electronics
industries, its concentration of customers, fluctuations in
operating results, potential significant indebtedness and leverage,
competition, variability of customer requirements and nature of
customer commitments on orders, the integration of the Company's
new Mexican manufacturing facility and other risks described in the
Company's Registration Statement on Form S-1, effective September
3, 1997. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this
report will in fact occur.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other
than routine litigation incidental to its business, none of which
is material.
ITEM 2. CHANGE IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.17 - First Amendment to the Construction Loan
Agreement, dated January 30, 1998, between AB
Plastics Corporation and Sumitomo Bank of
California.
10.18 - Fourth Amendment to the Commercial Loan
Agreement, dated January 26, 1998, between AB
Plastics Corporation and Sumitomo Bank of
California.
27.1 - Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMPASS PLASTICS & TECHNOLOGIES,
INC.
Date: March 10, 1998 By: /s/ Michael A. Gibbs
Michael A. Gibbs, President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 10, 1998 By: /s/ Paul J. Iacono
Paul J. Iacono, Vice President -
Finance and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 10.17
FIRST AMENDMENT TO THE
CONSTRUCTION LOAN AGREEMENT
This First Amendment to the Construction Loan Agreement
("Amendment") is entered into this 30th day of January, 1998, by
and between AB Plastics Corporation, a California corporation
("Borrower") and Sumitomo Bank of California ("Bank"), with
reference to the following:
R E C I T A L S
A. Borrower and Bank have entered into a Construction Loan
Agreement, dated August 1, 1997 (the "Agreement") pursuant to
which Bank agreed, subject to the terms and conditions of the
Agreement, extended a real estate/construction loan in the
principal amount of Three Million Five Hundred Thousand and No/100
Dollars ($3,500,000.00) for the purpose of financing Borrower's
purchase of its principal place of business, located in Gardena,
California, and to finance the construction of an approximately
75,000 square foot warehouse facility at such location.
Capitalized terms used herein without definition shall have the
meanings given them in the Agreement.
B. The Construction Loan is evidenced by that certain
Promissory Note dated August 1, 1997 in the maximum principal
amount of Three Million Five Hundred Thousand and No/100 Dollars
($3,500,000).
C. In connection with the Agreement, Borrower executed that
certain Security Agreement and Continuing Guaranty dated as of
August 1, 1997 in favor of Bank (the "Security Agreement" and
"Continuing Guaranty.")
D. Borrower and Bank now desire to amend the Agreement and
the Loan Documents as described below:
A M E N D M E N T
NOW THEREFORE in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Borrower and Bank hereby agree as
follows:
1. AMENDMENT TO THE AGREEMENT. The Agreement is hereby
amended, effective as of the date hereof, as follows:
a. Section 6.1 is hereby restated in entirety as follows:
"COMPLETION OF PROJECT. Borrower shall promptly commence and
diligently proceed with the Project. In any event, Borrower
shall complete the Project by May 1, 1998. The Project shall
be considered complete for purposes of this Agreement only
when (i) all work described in the Plans (other than minor
"punch list" corrective items, to be completed within thirty
(30) days) has been completed and fully paid for (except for
the mechanics' lien claims being contested in accordance with
Section 6.8, below), (ii) all work requiring inspection or
certification by any Governmental Agency has been completed
and all requisite certificates, approvals and other necessary
authorizations (including any required certificates of
occupancy) have been obtained, and (iii) sufficient Loan
proceeds remain to pay any and all budgeted amounts for post-
completion basis."
2. AMENDMENT TO THE PROMISSORY NOTE. The Promissory Note is
hereby amended, effective as of the date hereof, as follows:
a. Section 3.2 of the Promissory Note is hereby restated in
entirety as follows:
"PRINCIPAL AMORTIZATION PAYMENTS. Commencing on the first day
of the month following the completion of construction, but in
no event later than May 1, 1998 until the Loan is paid in
full, Borrower shall make equal monthly principal amortization
payments to Lender of $14,583.33."
3. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES.
Borrower reaffirms all of the representations and warranties
contained in the Agreement.
4. REAFFIRMATION OF GUARANTY. Guarantor reaffirms its
obligations under the Guaranty originally executed by AB Plastics
Holding Corporation and subsequently renamed as Compass Plastics &
Technologies, Inc.
5. ONGOING EFFECT. Except as set forth herein, all of the
terms and conditions of the Loan Documents remain unmodified and in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment, or caused their duly authorized representatives to
execute this Amendment, as of the day and year first above written.
BORROWER: AB PLASTICS CORPORATION,
a California corporation
By: /s/ Paul J. Iacono
Title: Vice President, CFO
GUARANTOR: COMPASS PLASTICS & TECHNOLOGIES,
INC., a Delaware corporation,
formerly known as AB Plastics
Holding Corporation
By: /s/ Paul J. Iacono
Title: Vice President, CFO
BANK: SUMITOMO BANK OF CALIFORNIA,
a California corporation
By: /s/ Sajeda Simjee
Title: Vice President
EXHIBIT 10.18
FOURTH AMENDMENT TO THE
COMMERCIAL LOAN AGREEMENT
This Fourth Amendment to the Commercial Loan Agreement
("Fourth Amendment") is entered into this 26th day of January,
1998, by and between AB Plastics Corporation, a California
corporation ("Borrower") and Sumitomo Bank of California ("Bank"),
with reference to the following:
R E C I T A L S
A. Borrower and Bank have entered into a Commercial Loan
Agreement, dated September 27, 1996, as amended June 5, 1997,
August 1, 1997 and October 31, 1997 (the "Agreement"), pursuant to
which Bank agreed, subject to the terms and conditions of the
Agreement, to (i) on a revolving basis, make advances to Borrower,
which may not at any time exceed, in the aggregate outstanding, a
principal amount equal to the lesser of Ten Million Dollars
($10,000,000) or the Borrowing Base (the "Revolving Line of
Credit"); and (ii) make equipment loans under an Equipment Line in
the aggregate principal amount not to exceed Two Million Dollars
($2,000,000). Capitalized terms used herein without definition
shall have the meanings given them in the Agreement.
B. The Revolving Line of Credit is evidenced by that certain
Revolving Line Note dated September 27, 1996 in the maximum
principal amount of Ten Million and No/100 Dollars ($10,000,000).
The Equipment Line is evidenced by that certain Equipment Line Note
dated September 27, 1996, and any amendments thereof, in the
maximum principal amount of Two Million Dollars ($2,000,000).
C. In connection with the Agreement, Compass Plastics &
Technologies, Inc. guaranteed Borrower's obligations under the Loan
Documents and executed certain documents, including the Guaranty
and the Stock Pledge Agreement.
D. Borrower and Bank now desire to amend the Agreement as
described below:
A M E N D M E N T
NOW THEREFORE in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Borrower and Bank hereby agree as
follows:
1. AMENDMENT TO THE AGREEMENT. This Agreement is hereby
amended, effective as of September 22, 1997, as follows:
Section 7.24(i) is hereby restated in entirety as follows:
"(i) Holdings shall not incur any debt, direct or contingent,
except for the $500,000 payable in respect of Jan Adams, or
provide any guarantee of any person's or entity's (other than
Borrower's) debt without the prior written consent of Bank."
2. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Borrower
reaffirms all of the representations and warranties contained in
the Agreement.
3. REAFFIRMATION OF GUARANTY. Guarantor reaffirms its
obligations under the Guaranty originally executed by AB Plastics
Holding Corporation and subsequently renamed as Compass Plastics &
Technologies, Inc.
4. ONGOING EFFECT. Except as set forth herein, all of the
terms and conditions of the Loan Documents remain unmodified and in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have, or have caused
their duly authorized representatives to have, executed this
Amendment, as of the day and year first above written.
BORROWER: AB PLASTICS CORPORATION,
a California corporation
By: /s/ Paul J. Iacono
Title: Vice President, Finance
GUARANTOR: COMPASS PLASTICS & TECHNOLOGIES,
INC., a Delaware corporation,
formerly known as AB Plastics
Holding Corporation
By: /s/ Paul J. Iacono
Title: Vice President, Finance
BANK: SUMITOMO BANK OF CALIFORNIA,
a California corporation
By: /s/ David W. Shaw
Title: Vice President
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