<PAGE>
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 24, 1999
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.
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(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)
(323) 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 No X
At March 5, 1999, the Registrant has 4,883,750 shares of common stock, par value
$.0001 per share, outstanding.
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<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
January 24,1999 and October 25,1998..................... 3
Condensed Consolidated Statements of Income for
the Thirteen Weeks ended
January 24,1999 and January 25,1998..................... 4
Condensed Consolidated Statements of Cash
Flows for the Thirteen Weeks Ended
January 24,1999 and January 25,1998..................... 5
Notes to Condensed Consolidated
Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 9
PART II - OTHER INFORMATION...................................
Legal Proceedings........................................ 14
Changes in Securities ................................ 14
Defaults upon Senior Securities.......................... 14
Submissions of matters to a vote of securities holders... 14
Other Information........................................ 14
Exhibits and Reports on Form 8-K......................... 14
SIGNATURES........................................................ 15
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<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
Compass Plastics & Technologies, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
January 24, 1999 October 25, 1998
<S> <C> <C>
Cash and cash equivalents $ 743,575 $ 371,846
Accounts receivable, net 6,545,832 6,472,917
Inventories 6,261,657 6,839,171
Other current assets, net 1,272,200 1,420,623
------------ -------------
Total current assets 14,823,264 15,104,557
Property, plant & equipment, net 17,919,363 18,542,201
Goodwill 18,711,641 18,928,908
Other assets, net 2,165,826 1,760,724
------------ -------------
Total other assets 20,877,467 20,689,632
------------ -------------
Total assets $ 53,620,094 $ 54,336,390
============ =============
Accounts payable and accrued expenses 9,109,932 8,513,866
Accrued payroll and related expenses 1,519,491 1,506,082
Other current liabilities 1,293,365 922,835
Current portion of capitalized lease obligations 442,014 441,948
Current portion of long-term debt 17,410,108 4,325,726
------------ -------------
Total current liabilities 29,774,910 15,710,457
Capitalized lease obligations, net of current portion 687,068 568,935
Long-term debt, net of current portion 12,131,671 25,329,429
Deferred income taxes 375,373 949,085
------------ -------------
Total other liabilities 13,194,112 26,847,449
------------ -------------
Total liabilities 42,969,022 42,557,906
------------ -------------
Common stock, par value $.0001; 20,000,000 shares
authorized, 4,883,750 shares issued and outstanding 488 488
Additional paid-in capital 12,578,134 12,578,134
Notes receivable from issuance of stock (706,448) (706,448)
Retained earnings / (deficit) (1,221,102) (93,690)
------------ -------------
Total stockholder's equity 10,651,072 11,778,484
------------ -------------
Total liabilities and stockholder's equity 53,620,094 54,336,390
============ =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these consolidated balance sheets.
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<PAGE>
Compass Plastics & Technologies, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
January 24,1999 January 25,1998
---------------------- ---------------------
<S> <C> <C>
Sales $ 13,555,891 $ 10,787,724
Cost of goods sold 12,743,887 9,434,454
------------ ------------
Gross profit 812,004 1,353,270
Selling expenses 185,864 170,087
Amortization of goodwill 223,539 26,050
General administrative 1,080,715 591,979
------------ ------------
Total 1,490,118 788,116
Operating income (678,114) 565,154
Interest expense 1,168,118 219,921
Other expense / (income) 32,787 (16,423)
------------ ------------
Income before income taxes (1,879,019) 361,656
Income tax expense / (benefit) (751,607) 145,161
------------ ------------
Net income / (loss) ($ 1,127,412) $ 216,495
============ ============
Net income (loss) per common share:
Basic -$0.23 $0.04
Diluted -$0.23 $0.04
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these consolidated statements.
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<PAGE>
Compass Plastics & Technologies, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
January 24,1999 January 25,1998
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $(1,127,412) $ 216,495
Adjustments to reconcile Income ( Loss) to
cash provided by operating activities:
Depreciation and Amortization 908,995 353,846
Changes in assets and liabilities:
Accounts Receivable (72,915) (5,554,098)
Inventory 577,514 (648,292)
Other (425,289) (456,243)
Accounts Payable and accruals 980,005 2,175,691
----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 840,898 (3,912,601)
INVESTING ACTIVITIES:
Capital Expenditures (11,747) (1,972,544)
Other (462,245) 26,776
----------- -----------
CASH USED IN INVESTING ACTIVITIES (473,992) (1,945,768)
FINANCING ACTIVITIES:
Proceeds from Long Term Debt -- 3,834,293
Changes to Revolving Line of Credit 400,000 2,400,000
Repayments of Long Term Debt (395,177) (127,324)
----------- -----------
CASH USED IN FINANCING ACTIVITIES 4,823 6,106,969
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 371,729 $ 248,600
=========== ===========
</TABLE>
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<PAGE>
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, AB Plastics
de Mexico, S.A . de C.V., based in Tijuana, Mexico, and M.O.S. Plastics, Inc.
located in San Jose, California, is referred to as "Compass" or the "Company".
The accompanying consolidated financial statements are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. The Company's Annual Report on Form 10-K for the fiscal year ended
October 25, 1998 has not been filed within the prescribed time period because
the Company is experiencing delays in the collection and compilation of certain
financial information required to be included in the Form 10-K. The Company's
Annual Report on Form 10-K will be filed as soon as practicable. All financial
data, including the balance sheet data as of October 25, 1998, included in this
quarterly report is unaudited. 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
13 Weeks Ended 13 Weeks Ended
January 24,1999 January 25,1998
Raw Materials $ 3,281,859 $ 2,476,490
Finished Goods & WIP 2,979,798 2,070,402
------------------------------------------
Total $ 6,261,657 $ 4,546,892
------------------------------------------
3. Net Earnings per Share
The Company has 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.
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<PAGE>
<TABLE>
<CAPTION>
13 weeks ended 13 weeks ended
January 24, 1999 January 25, 1998
(Consolidated) (Consolidated)
<S> <C> <C>
Numerator
Net Earnings for Basic EPS ($1,127,412) $216,495
Net Earnings for Diluted EPS ($1,127,412) $216,495
Denominator
Shares for Basic EPS - Avg. Shares Outstanding 4,883,750 4,883,750
Stock Options N/A (1) 382,857
Shares for Diluted EPS 4,883,750 5,266,607
Basic EPS ($0.23) $0.04
Diluted EPS ($0.23) $0.04
</TABLE>
(1) Stock options and warrants to purchase 1,657,222 shares of common stock at
prices ranging from $1.00 to $12.40 per share are excluded from the diluted
earnings per share calculations because they are anti-dilutive. The
dilutive effect, using the treasury stock method, would have been 106,667
shares.
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.
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.
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<PAGE>
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.
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<PAGE>
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 leading computer, medical and consumer electronics
OEM's located in California and Mexico. The Company supplies its customer
requirements from its manufacturing facilities in Gardena and San Jose,
California, and Tijuana, Mexico.
The Company typically charges its customers a fixed price for each
component it manufactures with each component consisting of single or multiple
parts. Prices are quoted based on (i) the type of product, (ii) the type of
services provided, which include design, prototype, molding, painting and
coloring, and other value-added services, (iii) the complexity of manufacturing
processes involved, and (iv) the Company's estimates of part weight, resin
costs, machine requirements and parts produced per hour (cycle time). In many
cases, the Company purchases its raw materials from its customers or directly
from vendors under its customer's supply agreements. In such instances, the
Company's arrangements with its customers provide that price changes in such raw
materials are passed through to the customer by changes in the component prices
charged by the Company. As customers generally seek price reductions during the
product life cycle, the Company's ability to improve operating performance is
generally dependent on increasing manufacturing efficiency through improved
process control, increased automation, engineering changes to molds and reduced
operating and labor expenses.
During the product life cycle, components are ordered by the Company's
customers to meet their just-in-time production requirements. Typical lead times
range from one to thirty days. Traditionally, once a mold is awarded to a
supplier and is in production, it is rarely moved to a competitor due to the
costs associated with the move and the in-depth understanding of the mold and
the manufacturing process gained by the supplier during the design and tooling
phases. As of October 25, 1998, the Company maintained approximately 3,400
active molds for its customers. All molds are owned by the customer, although
the Company is responsible for the general maintenance and safe storage of the
mold during its lifetime, a period ranging from two to twenty years. Costs for
the maintenance of the mold are expensed as incurred. Major tool modifications
and renovations are charged to the customer.
Because sales from the Company's Mexican facilities and all raw
material purchases for use at these facilities will be U.S. dollar-denominated,
the Company does not believe that it will be significantly affected by exchange
rate fluctuations in the Mexican peso relative to the U.S. dollar. Compass
believes that the effects of such fluctuations will be limited to wages for
Mexican laborers and costs for operating supplies, and those fluctuations are
not expected to be material to the Company's results of operations.
Recent Significant Adverse Developments
The Company's business, financial condition and prospects has
materially and adversely suffered as a result of a combination of adverse
factors and events which occurred in fiscal 1998. These included:
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<PAGE>
o In January 1998, Sony cancelled a significant portion of a program
previously granted to the Company to private manufacture a computer line
for a third party, and in April 1998 discontinued another branded Sony
line. These developments, along with Samsung's temporary transfer to Asia
of its monitor molding and assembly business, resulted in the decrease of
approximately $16.0 million of projected 1998 revenue from these customers.
o The adverse impact on the Company's fiscal 1998 financial results from the
costs of operating facilities at less than optimal capacity utilization
rates in both Gardena, California and Tijuana were exacerbated by the loss
of anticipated OEM business from Sony and Samsung.
o The operating results of M.O.S. Plastics during the fiscal year ended
October 25, 1998 were significantly less than those projected by the
Company.
o On September 22, 1998, the Company entered into an agreement to acquire the
assets and business of Gumsung Plastics U.S.A., Inc. ("Gumsung") for a
purchase price of approximately $15.2 million, including refinancing of
existing Gumsung indebtedness. Gumsung, a contract manufacturer and
assembler of custom injection-molded plastic components located in
Mexicali, Mexico, primarily services the same or complimentary Asian based
computer and consumer electronics OEMs that are serviced by the Company.
The Company sought to finance the Gumsung acquisition and refinance its
existing bank debt with the Senior Lenders through an offering of senior
high-yield debt and equity. However, the Company was unable to complete the
financing or the Gumsung acquisition, but incurred approximately $660,000
in costs in connection with its acquisition and financing efforts.
o For its fiscal year ended October 25, 1998, the Company incurred a net loss
of approximately ($2.4 million) on consolidated net sales of $50.1 million,
as compared to net income of $2.1 million on consolidated net sales of
$44.0 million in the fiscal year ended October 26, 1997.
As a result of these adverse developments, the Company defaulted in a
number of its obligations to the Senior Lenders under the February 27, 1998
credit agreement, including (i) defaults in maintenance of certain financial
ratios, including minimum tangible net worth, minimum senior funded debt to
EBITDA and minimum fixed charge coverage ratio, and (ii) failure to make a total
$2.75 million of installment payments due under the term loan in December 1998
and January 1999. Accordingly, on February 2, 1999, the Senior Lenders
accelerated all indebtedness under the credit agreement, aggregating
approximately $16.0 million.
Since February 1999, the Senior Lenders have provisionally agreed to
forebear from foreclosing on the Company's assets and properties, subject to
completion of an agreement between the Company and the Senior Lenders to
restructure the Company in a manner designed to repay the indebtedness to the
Senior Lenders. Pending resolution of such restructuring plan, all payments to
the Subordinated Lenders have been suspended. A key element of the restructuring
plan includes the sale of M.O.S. Plastics by June 30, 1999 and using
substantially all of the net proceeds of such sale to reduce the indebtedness to
the Senior Lenders.
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<PAGE>
On March 5, 1999, the Company reached agreement in principal with CHF
Capital Partners to sell 100% of the stock of M.O.S. Plastics to an affiliate of
CHF for approximately $10.5 million in cash. Consummation of such sale, expected
to occur in April 1999, is subject to execution of a definitive purchase
agreement and completion of the buyer's due diligence investigation.
The Company and the Senior Lenders are currently negotiating an
amendment to the existing credit agreement under which the Senior Lenders will
waive prior defaults, utilize a contemplated tax refund of approximately
$834,000 to reduce the indebtedness, limit advances under the Company's
revolving line of credit to $4.75 million, increase the interest rate to 4.25%
in excess of the Senior Lenders' base rate, and fix the maturity date of the
entire facility to June 30, 1999. In the event the Company consummates the sale
of M.O.S. Plastics it will undertake to renegotiate a revised long-term asset
based credit facility with the Senior Lenders or refinance such facility with a
new lender. However, there can be no assurance that, even if the sale of M.O.S.
Plastics is consummated, that the Company will be able to extend the term of its
senior credit facility beyond June 30, 1999 or refinance such facility with a
new lender on commercial terms which provide the Company with sufficient working
capital and liquidity to continue operations in Gardena and Tijuana.
Even if the Company is successful in selling M.O.S. Plastics and
restructuring its senior banking facility, it will remain in default to the
Subordinated Lenders holding $9.0 million of the Company's Subordinated Debt.
The Company believes that it will be able to negotiate deferrals of its payment
obligations to the Subordinated Lenders or arrangements under which the
Subordinated Lenders convert their Subordinated Debt to convertible preferred
stock or Common Stock of the Company. It may be assumed, however, that the terms
of any such debt conversions will result in the current holders of Subordinated
Debt owning a substantial majority of the Company's fully-diluted Common Stock
and significantly dilute the current equity interests of holders of Company
Common Stock.
Results of Operations
13 Weeks ended January 24, 1999 compared to 13 weeks ended January 25,1998
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.
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<PAGE>
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
January 24,1999 January 25,1998
------------------------- -------------------------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of Goods Sold 94.0% 87.5%
------------------------- -------------------------
Gross Profit 6.0% 12.5%
Selling Expenses 1.4% 1.6%
Amortization of goodwill 1.6% 0.2%
General Administrative 8.0% 5.5%
------------------------- -------------------------
Total 11.0% 7.3%
Operating Income -5.0% 5.2%
Interest Expense 8.6% 2.0%
Other Expense / (Income) 0.2% -0.2%
------------------------- -------------------------
Income before Income Taxes -13.9% 3.4%
Income Taxes -5.5% 1.3%
------------------------- -------------------------
Net Income -8.3% 2.0%
------------------------- -------------------------
</TABLE>
The Company's sales for the 13 weeks ended January 24, 1999 increased $2.8
million or 25.6% over the comparable 1998 period. The increase is due to
approximately $3.3 million of sales from MOS Plastics, acquired February
27,1998. Sales from existing businesses declined approximately 5.3%, or
$570,000, the result of shipments of lower priced products. Computer monitor
component sales were $6.2 million, or 45.6% of sales. Television component sales
were $3.2 million, or 23.6% of sales. Precision plastic components were $2.9
million, or 21.7% of sales. Other plastic sales were $836,000, or 6.2% of sales,
and tooling sales were $390,000, or 2.9% of sales.
The Company's gross profit decreased $541,000 to 812,004, or 6.0% of sales,
compared to $1.4 million, or 12.5% of sales for the 1998 period. The decrease in
gross margin was primarily due to the duplicative costs of operating both the
Gardena and Tijuana facilities at less than optimal capacity utilization, and
lower prices on computer monitor components.
The Company's selling, general and administrative expenses increased $702,000,
or 89.1%, to $1.49 million, or 10.9% of sales, compared to $788,000, or 7.3% of
sales, for the 1998 period. Approximately $610,000 was related to the addition
of MOS Plastics and the new operation in Tijuana. The remainder is attributable
to higher legal and professional services and increased travel expenses.
The Company's interest expense increased $948,000 to $1.2 million, or 8.6% of
sales, compared to $220,000, or 2.0% of sales, for the 1998 period. The increase
is attributable to the approximately $17 million of additional debt related to
the MOS Plastics acquisition. The Company's average interest rate has increased
to approximately 13.5% from 9.5% as a result of the defaults on its loan
agreements.
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<PAGE>
Liquidity and Capital Resources
The Company is currently in default on its loan agreement with California Bank
and Trust and Manufacturers Bank (collectively the "Bank"), and is in default on
its loan agreements with Sirrom Capital and Pinecreek Capital Partners
(collectively the "Subordinated Lenders") due to failure to comply with certain
financial covenants. The Company received notice from the Bank on February 2,
1999 of acceleration and demand for immediate payment in full of all amounts due
under the loan agreement, aggregating approximately $16 million. The Bank has
expressed its willingness to forbear exercising its rights and remedies on a
day-to-day basis subject to continued progress in negotiating a restructuring.
The Bank has reserved the right to exercise all of its rights and remedies at
any time. There can be no assurance that the Company will be successful in
restructuring its loan agreements with the Bank. Reference is made to the
discussion above and to the Current Report filed with Securities and Exchange
Commission on Form 8-K dated February 2, 1999.
The Company has historically generated sufficient cash flows from operations to
fund its general working capital needs. However, as of January 24, 1999, the
Company had a working capital deficit of $14.9 million related to the
reclassification of approximately $13 million of Bank debt previously classified
as long term. In addition, the Company's accounts payable has exceeded normal
and customary payment terms and many vendors are supplying products and services
on a COD basis.
Net cash provided by operations for the 13 weeks ended January 24,1999 was
$840,000 compared to $3.9 million used for the comparable 1998 period. The
difference between the Company's net loss of $1.1 million and operating cash
flow of $840,000 million was approximately $908,000 in depreciation and
amortization, an increase in accrued payables of $980,000, and a reduction in
inventory of $578,000, offset by a $574,000 reduction in deferred income taxes.
Net cash used for investing activities for the 13 weeks ended January 24,1999
was $474,000 compared to $1.9 million for the comparable 1998 period. The 1999
amount reflects the Company's expenditures related to the aborted acquisition of
Gumsung Plastics.
Net cash provided by financing activities for the 13 weeks ended January 24,1999
was $4,823 compared to $6.1 million provided for the comparable 1997 period.
This amount represents payments of approximately $395,000 to various equipment
loans offset by $400,000 of net borrowings under the Company's 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. 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.
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<PAGE>
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
The Company is currently in default on its loan agreement with
California Bank and Trust and Manufacturers Bank (collectively the "Bank"), and
is in default on its loan agreements with Sirrom Capital and Pinecreek Capital
Partners (collectively the "Subordinated Lenders") due to failure to comply with
certain financial covenants.
Item 4. Submission of Matters to a vote of Securities Holders
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
1. Current Report on Form 8-K, dated February 2, 1999, a press
release issued by Compass Plastics & Technologies, Inc.,
dated February 11, 1999 reporting the acceleration of bank
debt.
-14-
<PAGE>
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 16, 1999 By: /s/ Paul J. Iacono
----------------------------------------
Paul J. Iacono, Vice President - Finance
and Chief Financial Officer (as both a duly
authorized officer of the registrant and
the principal financial officer and chief
accounting officer of the registrant)
-15-
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