<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended June 30, 1996
Commission file number 1-9429
ROTONICS MANUFACTURING INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2467474
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17022 South Figueroa Street
Gardena, California 90248
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (310) 538-4932
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($.01 stated value) American Stock Exchange
Titles of each class Name of each Exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for 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 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 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of September 11, 1996, was $11,282,700 (1).
The number of shares of common stock outstanding at September 11, 1996 was
14,166,018.
(1) Excludes 6,317,157 shares held by directors, officers and stockholders
whose ownership exceeded 5% of the outstanding shares at September 11, 1996.
Exclusion of such shares should not be construed to indicate that the holders
thereof possess the power, direct or indirect, to direct the management or
policies of registrant, or that such persons are controlled by or under common
control with the registrant.
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DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Form 10-K
- -------- ---------
Part
----
<S> <C>
Definitive Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on December 10, 1996 III
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
- ------ ----
<S> <C>
Item 1 Business 4
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 7
PART II
- -------
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
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Item 10 Directors and Executive Officers of the Registrant 15
Item 11 Executive Compensation 15
Item 12 Security Ownership of Certain Beneficial Owners
and Management 15
Item 13 Certain Relationships and Related Transactions 15
PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 16
SIGNATURES 17
</TABLE>
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PART I
Item 1. Business
Introduction
Rotonics Manufacturing Inc. (the "Company") was founded as an Illinois
Corporation, and was reincorporated in Delaware in December 1986. Effective
July 1, 1991, the Company merged with Rotonics Molding, Inc.-Chicago
("Rotonics"), with the Company being the surviving entity. In accordance with
the 1991 merger agreement, the Company issued 2,666,666 (after giving effect to
a 1-for-3 reverse stock split) shares of its common stock and 4,999,997 shares
of a newly issued non-voting preferred stock in exchange for all the
outstanding voting stock of Rotonics. The preferred stock, which has
subsequently been redeemed, was entitled to cumulative dividends of $.09 per
share per annum and had a liquidation value of $1.00 per share, plus accrued
unpaid dividends in preference to any payment on the common stock.
Rotonics had operations in Itasca, Illinois; Deerfield, Wisconsin; Denver,
Colorado; and Bartow, Florida. These operations currently conduct business as
divisions of the Company using the trade names RMI-C, RMI-W, RMI-D and RMI-F,
respectively. Rotonics was a privately held California Corporation which was
52% owned by Mr. Sherman McKinniss. Mr. McKinniss became president and chief
executive officer of the Company on August 12, 1991.
In September 1991 the Company's wholly owned subsidiary, Rotational Molding,
Inc. ("RMI"), was merged into the Company and now operates as two divisions
using the trade names RMI-G and RMI-I with manufacturing operations in Gardena,
California and Caldwell, Idaho, respectively.
Effective January 1, 1992 the Company acquired Plastech Holdings, Inc.
("Plastech"), and its wholly owned subsidiary, Plastech International, Inc.,
for $1,777,070 in cash. Plastech was headquartered in Warminster, Pennsylvania
with an additional operation in Gainesville, Texas. In July 1992, Plastech was
merged with the Company and now operates as two divisions of the Company using
the trade names RMI-P/Plastech and RMI- T/Plastech.
Effective April 1, 1995 the Company purchased certain assets and assumed
certain liabilities of Custom Rotational Molding, Inc. ("CRM") for 300,000
shares of the Company's common stock. The Company assumed CRM's operations in
Arleta, California and currently operates this business as a division of the
Company at this location using the trade name RMI-A.
In September 1994, the Company purchased a larger manufacturing facility in
Bensenville, Illinois and subsequently relocated its Itasca, Illinois
operations into this new facility. In December 1995 the Company discontinued
its operations at its Deerfield, Wisconsin location and combined these
operations into its newly purchased Bensenville, Illinois operation. Because
of the close proximity of these two locations the Company will realize improved
efficiencies and productivity from the combination of resources into a single
operation. As part of the Wisconsin plant closure, the Company plans to sell
the Wisconsin real property. A portion of the Wisconsin facility is currently
being leased on a short term basis at $2,100 per month.
The Corporate office of the Company is located at the same site as the RMI-G
(Gardena, California) facility.
Description of Business
The Company currently has eight manufacturing locations and was again listed by
a plastics industry periodical as one of the top ten Rotational Molders in
North America. These operating divisions manufacture a variety of plastic
containers for commercial, agricultural, pharmaceutical, point of purchase
display, medical waste, refuse, marine, health care and residential use, as
well as a vast number of custom plastic products for a variety of industries,
utilizing the roto-molding process and, on a smaller scale, the dip molding
process. Roto-molding is a process for molding plastic resin by rotating a mold
in a heated environment while the plastic resin powder placed inside the mold
melts and evenly coats the inner wall of the mold. The roto-molding process
has been used for many years and continues to be recognized as a growth
industry in recent years as a result of numerous ongoing business
consolidations and the development of new resins. These new resins allow
roto-molded items to compete with more
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traditional materials such as carbon and stainless steel, especially in the
fabrication of large, lightweight, one-piece molded items such as storage
tanks. Roto-molding is a particularly advantageous process for users of
molded plastic products who may want to test different prototypes, or who do
not require sufficient numbers of such products to justify a more expensive
manufacturing process. The Company's products include various types of storage
tanks, bin lids, refuse containers for automated removal, medical waste
containers, point-of-purchase displays, agricultural / livestock products and
containers and other molded items.
The Company purchases resin from seven major suppliers in the U.S. and Canada.
There are seven additional suppliers of minor significance. As the resin used
in the manufacturing process is a polyethylene derived from natural gas, resin
price is not directly related to the price for petrochemicals and until recent
years has not been generally subject to volatile fluctuations which are often
experienced by the petroleum industry. The Company also incorporates the use
of post-consumer plastic products blended with virgin materials in the
manufacturing of products that call for its use.
The Company holds several patents on storage containers used for pharmaceutical
and commercial applications. The patents expire through the year 2010.
Although the Company has been able to capture its share of this niche market
and expects to see continued growth, no one patent or groups of patents is
considered material to the business as a whole.
Competition for the Company's products is governed by geography and region
since large capacity tanks are expensive to ship long distances and, as such,
any prospective competitor is constrained by shipping costs. There are
numerous single-location as well as a growing trend to structure multi-location
roto-molding businesses throughout the United States. However, each of these
businesses still competes in a geographic region as determined by customer
demand within that region, a constraint inherent to the industry. Due to its
nationwide presence, the Company has substantially alleviated such constraint
as the Company's operations are located within approximately 500 miles of all
potential customers in the continental United States. The Company's sales are
usually not subject to large seasonal fluctuations as the business typically
operates on significant backlogs with a diverse product mix. Peak season is
usually experienced in the period from April through June. Historically the
quarter from January through March is the slowest production period of the
year. The Company's backlog was $4,936,400 and $3,990,900 as of June 30, 1996
and 1995, respectively. All of the backlog orders of June 30, 1996 are
expected to be filled during fiscal 1997.
The products are marketed through the Company's in-house sales and engineering
staff, various distributors and outside commission-based sales representatives.
The Company continues to build a strong, broad customer base which covers a
multitude of industries. As such, since fiscal 1991, no sales to any one
single customer represented a material part of the Company's business.
Research and development expenditures for the Company were insignificant for
the last three fiscal years.
Regulation
The Company believes that it is in compliance with all applicable federal,
state and local laws relating to the protection of the environment and does not
anticipate that any such laws will have any material effect on its financial
position, capital expenditures, or competitive position.
Employees
As of June 30, 1996, the Company employed a total of 458 individuals. The
Company maintains, for its respective employees who are eligible, a medical
insurance plan (some of which is contributory), a group life insurance plan and
an annual bonus plan.
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Item 2. Properties
The Company's corporate office occupies a separate building comprising
approximately 2,500 square feet of the facilities of RMI-G in Gardena,
California.
The operating divisions lease warehouse, production and office space as
follows:
<TABLE>
<CAPTION>
Total
Building Facility Annual
Property Square Square Base Expiration
Location Footage Footage Rent Date (2)
-------- ------- ------- ---- ------------
<S> <C> <C> <C> <C>
Gardena, California 42,800 183,300 $ 259,300 October 2001
Arleta, California 29,000 59,000 $ 183,200 October 1997
Caldwell, Idaho 24,000 71,200 $ 73,900 September 2000
Denver, Colorado (1) (3) 20,200 46,300 $ 91,900 May 1997
Itasca, Illinois (4) 25,200 57,000 $ 120,000 February 1997
Warminster, Pennsylvania (1) 39,100 217,800 $ 111,400 May 1997
Bartow, Florida 35,100 150,600 $ 103,800 September 1999
Gainesville, Texas (5) -- 108,900 $ 1,000 April 2001
</TABLE>
(1) The Company has an option to purchase these facilities.
(2) Does not give effect to any renewal options.
(3) Includes $5,500 in base rent for an offsite warehouse; lease expires May
1997.
(4) The property is currently being subleased at an annual base rent of
$146,400 through February 1997.
(5) Represents a 2.5 acre ground lease adjacent to Texas facility.
The Company owns approximately 1.59 unencumbered acres (including 35,100 square
feet of warehouse, production and office space) in Deerfield, Wisconsin which
was vacated in December 1995 by the Company and is currently leased to an
unrelated lessee for $2,100 per month. The Company also owns 2.1 unencumbered
acres (including 24,000 square feet of warehouse, production and office space)
in Gainesville, Texas. This facility is currently under construction to add an
additional 13,800 square feet of warehouse and production space. In September,
1994 the Company purchased 3.1 acres (including 63,300 square feet of
warehouse, production and office space) encumbered by a $1.2 million mortgage
in Bensenville, Illinois for the the Company's Illinois manufacturing
operations. In December 1995 the Wisconsin facility was closed and its
operations were combined into the Illinois facility. The company currently
leases 11,375 square feet of the Illinois facility to an unrelated lessee for
an annual base rent of $62,400.
Item 3. Legal Proceedings
In the normal course of business, the Company encounters certain litigation
matters, which in the opinion of management, will not have a significant
adverse effect on the financial position or the results of operations of the
Company.
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On April 16, 1996, the Company was named as defendant in a complaint filed by
Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges claims for
breach of contract and promissory estoppel relating to an Agreement in
Principle entered into in connection with a proposed acquisition of the Company
by Bonar U.S., Inc. On April 3, 1996 the Company announced that it had
terminated the Agreement in Principal pursuant to its terms. The complaint
requests damages of $7,011,484. The Company believes the allegations in the
complaint are without merit and intends to vigorously defend its position. On
May 17, 1996, the Company filed a counterclaim against Bonar U.S., Inc. and
Bonar Plastics, Inc. seeking damages totaling $25,237,725 for breach of the
Confidentiality Agreement with the Company, misappropriation of trade secrets,
intentional interference with a prospective economic advantage which the
Company obtained as a result of an indication of interest from a third party
and breach of a Royalty Agreement between Bonar Plastics, Inc. and one of the
Company's operating divisions (formally known as Custom Rotational Molding,
Inc.).
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock ($.01 stated value) is traded on the American Stock
Exchange ("AMEX") under the symbol "RMI". The number of stockholders of
record of the Company's Common Stock was approximately 6,900 at September 11,
1996.
Price Range of Common Stock
The following table sets forth the quarterly price ranges of the Company's
Common Stock in Fiscal 1996 and 1995, as reported on the composite transactions
reporting system for AMEX listed stocks.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C> <C>
Fiscal 1995
First Quarter Ended September 30, 1994 $ 1-13/16 $ 3/4
Second Quarter Ended December 31, 1994 1-3/4 1-5/16
Third Quarter Ended March 31, 1995 2-1/8 1-1/8
Fourth Quarter Ended June 30, 1995 1-13/16 1-1/4
Fiscal 1996
First Quarter Ended September 30, 1995 $ 3 $ 1-15/16
Second Quarter Ended December 31, 1995 2-7/16 1-3/8
Third Quarter Ended March 31, 1996 2-13/16 1-1/2
Fourth Quarter Ended June 30, 1996 2-1/4 1-5/16
</TABLE>
In fiscal 1996 the Company paid a regular cash dividend of $.04 per share on
its Common Stock. Any future cash dividends or other distributions of stock
will be determined solely by the Board of Directors and will be based on the
Company's future financial ability to declare and pay such dividends.
Additionally, certain lending agreements restrict the Company from declaring or
paying dividends on its Common Stock. (See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations: Liquidity and
Capital Resources.") According to the lending agreement with its bank, the
Company may not declare or pay any dividend or distribution on any stock or
redeem, retire, repurchase or otherwise acquire any of such shares unless the
Company can obtain prior bank authorization and appropriate waivers.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------------------------------------
1996 1995(B) 1994 1993 1992(C)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
- ---------------------
Net sales $35,703,600 $35,887,600 $31,346,300 $27,983,800 $22,919,600
Cost of goods sold 26,443,700 26,298,900 23,312,300 20,817,400 16,884,400
Gross margin 9,259,900 9,588,700 8,034,000 7,166,400 6,035,200
Selling, general and
administrative expenses 6,313,100 5,767,900 5,636,800 5,905,700 4,783,400
Interest expense 696,500 766,500 592,500 577,700 538,500
Income from continuing operations
before change in accounting principle
for income taxes (D) 1,472,700 3,287,600 1,873,000 203,000 1,273,700
Loss on disposal of
discontinued operations - - - (167,800) (54,300)
Cumulative effect of change in account-
ing principle for income taxes (E) - - 4,013,000 - -
Net income $ 1,472,700 $ 3,287,600 $ 5,886,000 $ 35,200 $ 1,219,400
Income/(loss) from
continuing operations
per common share $.10 $.24 $.13 $(.03) $.09
Average common shares
outstanding (A) 13,858,300 12,607,900 11,959,600 9,942,700 9,493,700
Other Financial Data
- --------------------
Income from continuing
operations as a percent of sales 4.1% 9.2% 6.0% 0.7% 5.6%
</TABLE>
(A) Computed on the basis of the weighted average number of common shares
outstanding during each year, including dilutive common stock
equivalents and adjusted to reflect a 1-for-3 reverse stock split
effective December 17, 1992.
(B) Includes the results of operations of CRM since the effective date of
acquisition.
(C) Includes the results of operations of Rotonics and Plastech since the
effective dates of acquisition.
(D) Fiscal year 1993 includes $469,000 in costs relating to a lawsuit
settlement. Fiscal year 1992 includes $500,000 in life insurance
proceeds from a policy covering a former officer of the Company.
(E) Represents the recognition of a net deferred tax asset in conjunction
with the adoption of FAS 109, "Accounting for Income Taxes" (see Note
13 of Notes to Financial Statements).
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<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------------------------
1996 1995(B) 1994 1993 1992(C)
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<S> <C> <C> <C> <C> <C>
Balance Sheet Data
- ------------------
Current assets $13,023,000 $11,903,200 $ 9,244,500 $ 6,811,000 $ 6,852,000
Current liabilities 4,864,500 4,766,000 7,256,300 7,734,300 7,738,000
Working capital surplus/(deficit) 8,158,500 7,137,200 1,988,200 (923,300) (886,000)
Total assets 29,055,700 30,359,400 24,939,000 19,418,100 18,935,500
Long-term debt 5,864,100 7,707,700 2,834,400 1,982,500 1,816,800
Total liabilities 10,732,600 12,477,700 10,095,700 9,790,500 9,640,800
Preferred stock -- 3,000,000 3,875,000 4,250,000 5,000,000
Current ratio 2.7 to 1 2.5 to 1 1.3 to 1 .9 to 1 .9 to 1
Net book value per
common share (A) $ 1.29 $ 1.15 $ .92 $ .46 $ .46
</TABLE>
(A) Computed on the basis of the actual number of common shares
outstanding at the end of the fiscal year, adjusted to reflect a
1-for-3 reverse stock split effective December 17, 1992.
(B) Includes the effect of the acquisition of CRM.
(C) Includes the effect of the acquisitions of Rotonics and Plastech.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
To the extent that this 10-K Annual Report discusses matters which are not
historical, including statements regarding future financial results,
information or expectation about products or markets, or otherwise makes
statements about future events, such statements are forward-looking and are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from the statements made. These include, among others,
fluctuations in costs of raw materials and other expenses, costs associated
with plant closures, downturns in the markets served by the Company, the costs
associated with new product introductions, as well as other factors described
under the heading "Item 3 - Legal Proceedings", under this Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and Footnote 1 to Financial Statements.
Operations
Net sales were relatively consistent with prior year results reporting net
sales of $35,703,600 for fiscal 1996 compared to $35,887,600 for fiscal 1995.
Fiscal 1996 was a challenging year for the Company as well as the Rotomolding
Industry in general due to tremendous fluctuations in raw material which in
turn caused confusion and anxiety in the marketplace. Management was pleased
that in spite of these adverse conditions it was still able to maintain its
overall market share. Fiscal 1996 also continued to be a year of transition
for the Company. In the second quarter of fiscal 1996, the Company closed its
Wisconsin facility and combined the operations into its Illinois facility.
During this transition the Company did realize an overall reduction in sales
volumes. However, since completion of the relocation process during the fourth
quarter of fiscal 1996, the restructured Illinois facility is primed to handle
increased sales volumes. Management anticipates realizing increased volumes in
this region as it capitalizes on Illinois facilities resources, increased
capacity and growth potential. Again, due to a lackluster marketplace in
fiscal 1996, several of the Company's proprietary product lines fell below
fiscal 1995 sales volume levels but, the Company also reported notable
increases in marine, custom, customer tooling and medical waste sales which
aided to minimize any shortfalls realized. The Company continues to see future
growth potential in these aforementioned product lines as well as continued
focus to increase market share for its material handling and agricultural
product lines. Sales of refuse containers also continues to be a strong market
for the Company and management anticipates this trend will continue during
fiscal 1997. In addition, the Company is currently expanding the building and
manufacturing capacity at its Texas facility. Once completed the Company plans
to expand the manufacturing and distribution of its tank product line into this
region.
Net sales increased $4,541,300 or 14.5% in fiscal 1995 compared to fiscal 1994.
The Company has experienced considerable growth in its refuse container, marine
and custom product lines during fiscal 1995. While a portion of the increase
in custom sales is attributed to the acquisition of Custom Rotational Molding,
Inc. ("CRM") which was effective on April 1, 1995, continued growth in the
Company's proprietary products, especially refuse containers and marine
industry products, contributed to a 10% increase in net sales. Sales also
increased due to several general price increases instituted to offset the
unprecedented increase in plastic resin costs, interest rates and the normal
inflation increases reflected in the Company's expenses. During fiscal 1995,
the Company also continued its focus on expanding its existing operations.
This included the relocation of its Illinois division to a 3.1-acre site
purchased by the Company as well as various machinery and facility expansions
to keep pace with current and future manufacturing requirements.
Cost of goods sold was $26,443,700 or 74.1% of net sales in fiscal 1996
compared to $26,298,900 or 73.3% and $23,312,300 or 74.4% of net sales in
fiscal 1995 and 1994, respectively. Both fiscal 1996 and 1995 experienced
extreme volatility in plastic resin prices which resulted in unprecedented
increases in plastic resin prices (approximately 55%). The price increases
were enacted by the various resin suppliers in response to foreign market
demands as well as the various natural and internal disasters experienced by
the resin suppliers. The cost of plastic resin represents a significant
portion of the Company's manufacturing costs and as such places an undue
hardship on the Company to effectively mitigate these increases. During fiscal
1995, the Company did effectively mitigate the resin price increases by
initiating customer price increases, raw material purchasing strategies and
maximizing its volume rebate programs. However, because the Company could not
initially completely pass these costs on to its customers, during the first 6
months of fiscal 1996 the Company experienced increased costs as it depleted
lower priced resin reserves and replaced them with resin purchased at higher
current market prices. Again these costs were partially mitigated during the
remainder of fiscal 1996 using the above mentioned strategies coupled with
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temporary reductions in resin prices and improved customer buying trends. As
the Company moves forward into fiscal 1997 management will continue to take
defensive tactics in response to current rising resin prices. As before, if
resin prices do not stabilize and the marketplace reacts adversely to future
pricing structures these factors could have an effect on the Company's gross
profit margin in fiscal 1997.
Selling, general and administrative expenses were $6,313,100 or 17.7% of net
sales in fiscal 1996 compared to $5,767,900 or 16.1% in fiscal 1995. The
increase is substantially attributed to approximately $435,000 in additional
expenses incurred associated with the Arleta, California facility which was
acquired during the fourth quarter of fiscal 1995. The remaining increase is
attributed to increased professional fees of approximately $110,000 associated
with the proposed acquisition of the Company by Bonar U.S., Inc. and
approximately $50,000 in excess administrative expenses incurred during the
Wisconsin facility consolidation. The latter costs have been partially
mitigated due to improved operating efficiencies realized subsequent to the
consolidation of the two plants.
Selling, general and administrative expenses were $5,767,900 or 16.1% of net
sales in fiscal 1995 compared to $5,636,800 or 18% in fiscal year 1994. The
increase in the fiscal 1995 amount is primarily related to $154,000 in expenses
relating to the Arleta, California operations (formally CRM) since the
effective date of acquisition. However, overall costs have remained consistent
with prior year reflecting a decrease when compared as a percentage of net
sales due to increase volumes during fiscal 1995.
Interest expense decreased $70,000 to $696,500 in fiscal 1996 compared to
$766,500 in fiscal 1995. The decrease is attributed to a overall reduction
in the Company's debt structure of approximately $1.8 million as of June 30,
1996 coupled with last years renegotiated interest rates and reductions in the
bank's prime lending interest rate which lowered interest rates by 1.75% - 2%.
If the Company's bank borrowings remain consistent during fiscal 1997 and
interest rates remain stable the Company will continue to report lower interest
costs.
Interest expense increased $174,000 to $766,500 in fiscal 1995 compared to
$592,500 in fiscal 1994. The increase is related both to an increase in the
Company's debt structure and a substantial increase in the bank's interest rate
(up 25% over fiscal 1994). During fiscal 1995 the primary increase in the
Company's debt when compared to fiscal 1994 (approximately $1.9 million) is
attributed to the purchase of the Bensenville, Illinois property and the
repayment of CRM's bank debt of approximately $700,000 assumed in the
acquisition. As mentioned, the Company also experienced an increase in the
prime lending rate charged by the bank in response to increases in the discount
rate imposed by the Federal Reserve Bank. Due to these factors, the Company
renegotiated its entire loan facility with the bank in May 1995. Under the new
loan facility the Company realized a 20% savings (approximately a 1.5%
reduction in interest rates in absolute terms) in relation to the prior loan
facility.
Income before income taxes and cumulative effect of change in accounting
principle for income taxes decreased $784,800 to $2,407,200 or $.17 per common
share in fiscal 1996 compared to $3,192,000 or $.23 per common share in fiscal
1995. The decrease is due to slightly lower sales volumes during the current
fiscal year coupled with the resin cost increase and increases in selling,
general and administrative expenses outlined above. Although operating results
were below prior years' levels, management feels the current year's results
were satisfactory when one considers the challenging events which plagued
fiscal 1996. Management realizes fiscal 1997, as well as future periods, will
also present their own challenges. Therefore, management's goal will be to
continue to strive to increase sales volumes and profitability, in light of
industry conditions, with an unwavering commitment.
Income before income taxes and cumulative effect of change in accounting
principle for income taxes reflected a notable increase of $1,432,300 to
$3,192,000 or $.23 per common share in fiscal 1995 from $1,759,700 or $.12 per
common share in fiscal 1994. The increase is due to increases in sales volumes
in conjunction with the relatively consistent levels of costs associated with
manufacturing, selling and administrative functions in fiscal 1995.
Income tax expense was $934,500 or $.07 per common share for fiscal 1996
compared to income tax benefits of $95,600 and $113,300 for fiscal 1995 and
1994, respectively. The increase is due to the recognition of deferred income
taxes during fiscal 1996 which in prior years were minimized by the reversal of
the Company's deferred tax asset valuation allowance. During fiscal 1996, the
Company exhausted the remaining $590,300 valuation allowance reserve based on
management's continuing assessment and belief that the Company will continue to
utilize its NOLs in the foreseeable future. Although the Company must now
record a tax provision, the Company will not incur a cash flow requirement for
the payment of deferred taxes ($743,100 in fiscal 1996) until such time that
the Company fully utilizes its available net operating loss carryforwards.
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Cumulative Effect of Change in Accounting Principle for Income Taxes
The Company recorded adjustments to the July 1, 1993 balance sheet to reflect
the impact of adopting FAS 109, netting to $4,013,000. This amount was
reflected in net income for fiscal 1994 as the cumulative effect of change in
accounting principle for income taxes. The adjustments primarily represent the
impact of recognizing a deferred tax asset for the benefit of tax operating
loss carryforwards that could not be recorded under FAS 96. For further
discussion relating to the adoption of FAS 109 by the Company, see Note 13 to
the financial statements.
Liquidity and Capital Resources
Working capital increased $1,021,300 to $8,158,500 at June 30, 1996 compared to
$7,137,200 at June 30, 1995. The increase is primarily attributed to a
$1,128,700 increase in current deferred tax assets for the utilization of the
Company's net operating loss carryforwards which is expected to occur within
one year, net of normal fluctuations in accounts receivables, accounts payable,
accrued liabilities and inventories consistent with current operations. Cash
provided by operations increased $1,342,700 in fiscal 1996. The increase is
primarily attributed to reductions in inventory levels consistent with current
operations compared to last years significant increases in inventory levels in
efforts to mitigate rising raw material costs. These results continue to
substantiate the Company's ability to sustain profitable operations at current
sales volumes not to mention the cash flow savings obtained from the
utilization of the Company's NOLs.
In May 1996, the Company borrowed $500,000 against its machinery and equipment
term loan commitment. The proceeds were used to pay down the Company's
revolving line of credit which had been used to temporarily finance
approximately $700,000 in machinery and equipment purchases. The note is due
in sixty monthly principal installments of $8,300 plus interest at the bank's
prime or optional LIBOR interest rates. In addition, the Company received
another $500,000 machinery and equipment term loan commitment for financing
future capital expenditures.
Borrowings under the Company's secured line of credit decreased $1,076,800 to
$1,983,500 between June 30, 1995 and June 30, 1996. Cash flows from operations
not only funded payments for term debt, capital expenditures, employee bonuses,
and our first common stock dividend payment, but also reduced our line of
credit debt down to its current level. At June 30, 1996, the Company has
approximately $3,000,000 available for future borrowings under its revolving
line of credit.
The Company expended a total of $981,100 for property, plant and equipment
during fiscal 1996 compared to $3,023,100 for fiscal 1995. The decrease is
attributed to the purchase of the Bensenville, Illinois property ($1,700,000)
and various building improvements and machinery and equipment projects at the
Bensenville, Illinois property completed in fiscal 1995. The Company currently
expects to spend between $1,200,000 and $1,500,000 in capital expenditures in
fiscal year 1997. The Company anticipates that the capital expenditures will
be financed from cash flows generated from operations and the existing bank
machinery & equipment term loan commitment.
In September 1995, the Company redeemed 250,232 shares of its 9% preferred
stock at the stated redemption value of $1 per share. On September 25, 1995,
pursuant to unanimous Board of Directors approval, the Company proceeded to
convert remaining outstanding preferred shares to the Company common stock.
The conversion was based on the issuance of one share of the Company's common
stock for every two shares of preferred stock outstanding. The conversion
resulted in the issuance of 1,374,884 shares of common stock. The complete
conversion of the remaining outstanding preferred stock will save the Company
approximately $250,000 in annual cash flow due to the elimination of future
preferred dividend payments and eliminate the need to incur additional debt and
interest costs to redeem the preferred stock. The Company does not plan to
issue any preferred shares in the future.
On December 8, 1995, the Board of Directors declared at its Annual Meeting of
Stockholders its first dividend on the Company's common stock since the July
1991 merger. A dividend of $.04 per common share was paid on January 29, 1996
to stockholders of record on January 10, 1996. With the recent redemption of
all preferred stock, eliminating the obligation to pay future preferred stock
dividends, and with the full support of the Company's bankers, the Board of
Directors felt it was an appropriate time to recognize and reward its loyal
stockholders with the declaration and payment of this dividend.
13
<PAGE> 14
On April 16, 1996, the Company was named as defendant in a compliant filed by
Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges claims for
breach of contract and promissory estoppel relating to an Agreement in
Principle entered into in connection with a proposed acquisition of the Company
by Bonar U.S. Inc. On April 3, 1996, the Company announced that it had
terminated the Agreement in Principal pursuant to its terms. The complaint
requests damages of $7,011,484. The Company believes the allegations in the
complaint are without merit and intends to vigorously defend its position. On
May 17, 1996, the Company filed a counterclaim against Bonar U.S., Inc. and
Bonar Plastics, Inc. seeking damages totaling $25,237,725 for breach of the
Confidentiality Agreement with the Company, misappropriation of trade secrets,
intentional interference with a prospective economic advantage which the
Company obtained as a result of an indication of interest from a third party
and breach of a Royalty Agreement between Bonar Plastics, Inc. and one of the
Company's operating divisions (formally known as Custom Rotational Molding,
Inc.)
Cash flows from operations in conjunction with the Company's revolving line of
credit and machinery and equipment loan commitment are expected to meet the
Company's needs for working capital, capital expenditures and repayment of
long-term debt for the foreseeable future.
Item 8. Financial Statements and Supplementary Data
See Financial Statements and Financial Statement Schedules listed in Item
14(a)(1) and (2).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
In September 1995, the Registrant replaced Price Waterhouse LLP with Arthur
Andersen LLP as the Registrant's Independent Certified Public Accountants, as
more fully described in the Company's 8-K filing dated September 20, 1995
incorporated herein by reference.
14
<PAGE> 15
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The Company incorporates by reference the information set forth under the
caption "Election of Directors" in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission, and mailed to stockholders in
connection with the Company's Annual Meeting of the Stockholders to be held on
December 10, 1996 ("the Proxy Statement")
Executive Officers
As of September 11, 1996, the executive officers of the Company were as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Sherman McKinniss 60 President, Chief Executive Officer,
Chairman of the Board
E. Paul Tonkovich 58 Secretary, Director
Douglas W. Russell 35 Chief Financial Officer,
Assistant Secretary/Treasurer
</TABLE>
Sherman McKinniss. Mr. McKinniss has served as President, Chief Executive
Officer and a Director of the Company since August 1991 and was appointed as
Chairman of the Board in December 1994. He was President and a Director of
Rotonics from 1987-1991. Previously, he owned and operated RMI, which he sold
to the Company in 1986 and was a partial owner of Rotational Molding,
Inc.-Florida which was merged into Rotonics in 1988.
E. Paul Tonkovich. Mr. Tonkovich has served as Secretary and a Director of the
Company since August 1991. He has been a practicing attorney since January
1966. He was legal counsel to Rotonics and to Mr. McKinniss and is now legal
counsel for the Company.
Douglas W. Russell. Mr. Russell has served as Chief Financial Officer and
Assistant Secretary/Treasurer of the Company since 1991. Prior to that he was
a Senior Auditor for the accounting firm Hallstein & Warner from 1988 until
1991, and was Assistant Controller of RMI from September 1985 to September
1987.
Item 11. Executive Compensation
The Company incorporates by reference the information set forth under the
captions "Compensation of Executives", the "Summary Compensation Table" and
related disclosure information, "Certain Transactions", "Compensation of
Directors", and "Compensation Pursuant to Plans" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company incorporates by reference the information set forth under the
caption "Security Ownership by Certain Beneficial Holders" in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The Company incorporates by reference the information set forth under the
headings "Information Concerning the Board of Directors" under the caption
"Election of Directors", "Executive Officers", and "Certain Transactions" in
the Proxy Statement.
15
<PAGE> 16
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(1) Financial Statements:
Report of Independent Accountants' F-1 - F2
Balance Sheet, June 30, 1996 and 1995 F-3
Statement of Income,
Years Ended June 30, 1996, 1995 and 1994 F-4
Statement of Changes in Stockholders' Equity,
Years Ended June 30, 1996, 1995, and 1994 F-5
Statement of Cash Flows,
Years Ended June 30, 1996, 1995, and 1994 F-6
Notes to Financial Statements F-7
(2) Financial Statement Schedules:
VIII Valuation and Qualifying Accounts,
Years Ended June 30, 1996, 1995, and 1994 F-17
</TABLE>
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the last quarter of
fiscal year ended June 30, 1996.
(c) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- --------- -------------
<S> <C>
10.1 Credit Agreement and related Promissory notes between registrant and Wells Fargo Bank dated May 16, 1996
23(a) Consent of Independent Accountants - Arthur Andersen, LLP
23(b) Consent of Independent Accountants - Price Waterhouse, LLP
</TABLE>
16
<PAGE> 17
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.
ROTONICS MANUFACTURING INC.
By /s/ SHERMAN MCKINNISS
---------------------------------
Sherman McKinniss
President, Chief Executive Officer
Date 09/16/1996
By /s/ DOUGLAS W. RUSSELL
---------------------------------
Douglas W. Russell
Chief Financial Officer
Assistant Secretary/Treasurer
Date 09/16/1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ L. JOHN POLITE, JR.
- ------------------------ Director 09/16/1996
L. John Polite, Jr.
/s/ E. PAUL TONKOVICH
- ------------------------ Secretary, Director 09/16/1996
E. Paul Tonkovich
/s/ DAVID C. POLITE
- ------------------------ Director 09/16/1996
David C. Polite
/s/ LARRY DEDONATO
- ------------------------ Director 09/16/1996
Larry DeDonato
/s/ JAMES E. EVANS
- ------------------------ Director 09/16/1996
James E. Evans
</TABLE>
17
<PAGE> 18
ROTONICS MANUFACTURING INC.
FINANCIAL STATEMENTS
* * * * *
JUNE 30, 1996
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Rotonics Manufacturing Inc.:
We have audited the accompanying balance sheet of ROTONICS
MANUFACTURING INC. (a Delaware corporation) as of June 30, 1996, and
the related statements of income, changes in stockholders' equity and
cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rotonics
Manufacturing Inc. as of June 30, 1996 and the results of their
operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the
index on page F-17 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part
of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Orange County, California
August 22, 1996
F-1
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Rotonics Manufacturing Inc.
In our opinion, the financial statements listed in the index appearing
under Item 14(a)(1) and (2) present fairly, in all material respects,
the financial position of Rotonics Manufacturing Inc. at June 30,
1995, and the results of is operations and its cash flows for the
years ended June 30, 1995, and 1994 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company
changed its method of accounting for income taxes effective July 1,
1993.
Price Waterhouse LLP
Los Angeles, California
September 11, 1995
F-2
<PAGE> 21
ROTONICS MANUFACTURING INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1996 1995
------ ------
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 11,600 $ 96,700
Accounts receivable, net of allowance for doubtful accounts
of $90,000 and $110,300, respectively (Notes 7 and 8) 5,790,700 5,341,500
Current portion of notes receivable (Note 3) 46,900 110,900
Inventories (Notes 4 , 7 and 8) 4,939,400 5,352,100
Deferred income taxes, net (Note 13) 2,015,900 887,200
Prepaid expenses and other current assets 218,500 114,800
----------- -----------
Total current assets 13,023,000 11,903,200
Notes receivable, less current portion (Note 3) 455,000 396,800
Deferred income taxes, net (Note 13) 1,786,300 3,658,100
Property, plant and equipment, net (Notes 5, 7 and 8) 8,316,900 8,605,900
Intangible assets, net (Note 6) 5,382,100 5,692,700
Other assets 92,400 102,700
----------- -----------
$29,055,700 $30,359,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt (Note 8) $ 1,176,700 $ 1,034,500
Current portion of long-term debt due related parties (Note 9) - 140,000
Accounts payable 2,686,100 2,357,100
Accrued liabilities (Note 10) 1,001,700 1,211,000
Income taxes payable (Note 13) - 23,400
----------- -----------
Total current liabilities 4,864,500 4,766,000
Bank line of credit (Note 7) 1,983,500 3,060,300
Long-term debt, less current portion (Note 8) 3,880,600 4,624,900
Long-term debt due related parties, less current portion (Note 9) - 22,500
Deferred pension liabilities 4,000 4,000
----------- -----------
Total liabilities 10,732,600 12,477,700
------------ -----------
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, stated value $.01, redemption value $1:
authorized 4,250,000 shares; issued and outstanding zero and
3,000,000 shares, respectively (Notes 9 and 12) - 3,000,000
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 14,158,517 and 12,903,752 shares,
respectively, net of treasury shares (Notes 9 and 12) 24,577,400 21,980,500
Accumulated deficit (6,254,300) (7,098,800)
----------- -----------
Total stockholders' equity 18,323,100 17,881,700
----------- -----------
$ 29,055,700 $30,359,400
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 22
ROTONICS MANUFACTURING INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended June 30,
-----------------------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net sales $35,703,600 $35,887,600 $31,346,300
----------- ----------- -----------
Costs and expenses:
Cost of goods sold 26,443,700 26,298,900 23,312,300
Selling, general and administrative expenses 6,313,100 5,767,900 5,636,800
----------- ----------- -----------
Total costs and expenses 32,756,800 32,066,800 28,949,100
----------- ----------- -----------
Income from operations 2,946,800 3,820,800 2,397,200
----------- ----------- -----------
Other (expense)/income:
Interest expense (696,500) (766,500) (592,500)
Lawsuit settlements - - (73,900)
Other income, net 156,900 137,700 28,900
----------- ----------- -----------
Total other expense (539,600) (628,800) (637,500)
----------- ----------- -----------
Income before income taxes and
cumulative effect of change in accounting
principle for income taxes 2,407,200 3,192,000 1,759,700
Income tax (provision)/benefit (Note 13) (934,500) 95,600 113,300
----------- ----------- -----------
Income before cumulative effect of change in
accounting principle for income taxes 1,472,700 3,287,600 1,873,000
Cumulative effect of change in accounting principle
for income taxes (Note 13) - - 4,013,000
----------- ----------- -----------
Net income 1,472,700 3,287,600 5,886,000
Preferred stock dividends (62,000) (301,600) (374,300)
----------- ----------- -----------
Net income applicable to common and equivalent shares $ 1,410,700 $ 2,986,000 $ 5,511,700
=========== =========== ===========
Net income per common and equivalent shares (Note 1):
Income from operations $ .10 $ .24 $ .13
Cumulative effect of change in accounting principle
for income taxes - - .33
------ ------ ------
Net income per common and equivalent shares $ .10 $ .24 $ .46
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 23
ROTONICS MANUFACTURING INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ ------------------------ Accumulated
Shares Amount Shares (1) Amount Deficit Total
---------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1993 4,250,000 $ 4,250,000 11,745,962 $20,974,100 $(15,596,500) $ 9,627,600
Stock issued in connection with exercise
of outstanding options and warrants - - 222,783 79,000 - 79,000
Repurchase of preferred stock (375,000) (375,000) - - - (375,000)
Preferred stock dividends - - - - (374,300) (374,300)
Net income - - - - 5,886,000 5,886,000
---------- ---------- ---------- ----------- ------------ -----------
Balances, June 30, 1994 3,875,000 3,875,000 11,968,745 21,053,100 (10,084,800) 14,843,300
Stock issued in connection with
Custom Rotational Molding, Inc. purchase - - 300,000 412,500 - 412,500
Redemptions of preferred stock (500,000) (500,000) 615,384 500,000 - -
Stock issued in connection with
exercise of outstanding options - - 19,623 14,900 - 14,900
Repurchase of preferred shares (375,000) (375,000) - - - (375,000)
Preferred stock dividends - - - - (301,600) (301,600)
Net income - - - - 3,287,600 3,287,600
---------- ---------- ---------- ----------- ------------ -----------
Balances, June 30, 1995 3,000,000 3,000,000 12,903,752 21,980,500 (7,098,800) 17,881,700
Redemptions of preferred stock (2,749,800) (2,749,800) 1,374,884 2,749,800 - -
Stock issued in connection with
exercise of outstanding options - - 5,333 4,200 - 4,200
Repurchase of preferred shares (250,200) (250,200) - - - (250,200)
Retirement of treasury shares - - (125,452) (157,100) - (157,100)
Preferred stock dividends - - - - (62,000) (62,000)
Common stock dividends - - - - (566,200) (566,200)
Net income - - - - 1,472,700 1,472,700
---------- ---------- ---------- ----------- ------------ -----------
Balance, June 30, 1996 - $ - 14,158,517 $24,577,400 $ (6,254,300) $18,323,100
========== ========== ========== =========== ============ ===========
</TABLE>
(1) Reflects 1-for-3 reverse stock split which was effective December 17, 1992.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 24
ROTONICS MANUFACTURING INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended June 30,
--------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,472,700 $ 3,287,600 $ 5,886,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Cumulative effect of change in accounting principle
for income taxes - - (4,013,000)
Depreciation and amortization 1,588,100 1,484,100 1,426,600
Deferred income tax expense/(benefit) 743,100 (304,000) (228,300)
Provision for doubtful accounts 58,800 24,200 26,200
Changes in assets and liabilities, net of
effect from purchase of business:
Increase in accounts receivable (508,000) (182,600) (1,437,900)
Decrease/(increase) in inventories 412,700 (1,725,600) (266,700)
(Increase)/decrease in prepaid expenses and other current assets (103,700) 127,100 (121,700)
Increase in intangible assets - - (1,500)
Decrease/(increase) in other assets 2,900 (17,100) 500
Increase/(decrease) in accounts payable 329,000 (318,500) 430,700
(Decrease)/increase in accrued liabilities (198,100) 50,900 (24,900)
(Decrease)/increase in income taxes payable (23,400) 6,300 (18,200)
Decrease in deferred pension liabilities - (1,000) (68,700)
----------- ----------- -----------
Net cash provided by operating activities 3,774,100 2,431,400 1,589,100
----------- ----------- -----------
Cash flows from investing activities:
Cash obtained from purchase of Custom Rotational Molding, Inc. - 106,200 -
Repayments on notes receivable 5,800 93,700 49,600
Capital expenditures (981,100) (3,023,100) (1,024,800)
----------- ----------- -----------
Net cash used in investing activities (975,300) (2,823,200) (975,200)
----------- ----------- -----------
Cash flows from financing activities:
Net (repayments)/borrowings under line of credit (1,076,800) 92,800 (957,500)
Proceeds from issuance of long-term debt 500,000 6,080,000 3,750,000
Repayment of long-term debt (1,264,600) (5,019,100) (2,835,700)
Redemption of preferred stock (250,200) (375,000) (375,000)
Payment of preferred stock dividends (85,400) (307,700) (344,800)
Payment of common stock dividends (554,000) - -
Proceeds from exercise of stock options and warrants 4,200 14,900 79,000
Repurchases of common stock (157,100) - -
----------- ----------- -----------
Net cash (used in)/provided by financing activities (2,883,900) 485,900 (684,000)
----------- ----------- -----------
Net (decrease)/increase in cash (85,100) 94,100 (70,100)
Cash at beginning of year 96,700 2,600 72,700
----------- ----------- -----------
Cash at end of year $ 11,600 $ 96,700 $ 2,600
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 25
ROTONICS MANUFACTURING INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1- ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Organization and operations
Rotonics Manufacturing Inc. (the "Company"), a Delaware corporation
manufactures and markets plastic containers and vessels for commercial,
agricultural, refuse, pharmaceutical, marine, health care and residential use,
as well as an array of custom molded plastic products to customers in a variety
of industries located in diverse geographic markets. No single customer
accounted for more than 10% of the Company's net sales in fiscal 1996, 1995, or
1994. In fiscal 1996 the Company purchased in aggregate approximately 75% of
its plastic resin from three vendors. Plastic resin represents a significant
portion of the Company's manufacturing costs. As such, economic factors which
affect the Company's plastic resin vendors will have a potential impact on the
Company's future operations.
The Company's significant accounting policies are as follows:
Revenue recognition
Revenues are recognized upon shipment to the customer or when title passes to
the customer based on the terms of the sales, and are recorded net of sales
discounts, returns and allowances.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
Property, plant and equipment
Depreciation is computed using the straight-line method and the estimated
useful lives of the assets range from five to thirty-nine years. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in income for the period. The cost of maintenance and repairs is
charged to income as incurred; costs relating to significant renewals and
betterments are capitalized.
Intangible assets
The excess of the aggregate purchase price over the fair value of the net
assets of businesses acquired is amortized on the straight-line basis over
periods ranging from twenty to forty years. Patents are amortized on the
straight-line basis over their useful lives of seventeen years, or at their
remaining useful life from date of acquisition.
Income taxes
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109"), "Accounting for Income Taxes." FAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, FAS 109 generally considers all expected
future events other than enactments of changes in tax laws or rates.
Previously, the Company used the FAS 96 asset and liability approach that gave
no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
F-7
<PAGE> 26
Earnings per share
Earnings per share are calculated based on the weighted average outstanding
number of common and dilutive common equivalent shares. Common equivalent
shares include outstanding stock options and warrants. The weighted average
number of shares used in determining income/(loss) per common share was
13,858,300, 12,607,900 and 11,959,600 in fiscal 1996, 1995, 1994, respectively.
NOTE 2 - ACQUISITIONS:
On May 31, 1995 the Company purchased certain assets and assumed certain
liabilities, including $700,000 of debt, of Custom Rotational Molding, Inc.
("CRM") for 300,000 shares of the Company's common stock with a fair value of
$412,500. The acquisition was accounted for as a purchase and in accordance
with the Agreement and Plan of Reorganization was effective April 1, 1995. The
Company's results of operations include those of CRM since the effective date
of the acquisition. The purchase price allocation, resulted in no recognition
of goodwill. The Company's results of operations in fiscal 1995 and 1994 would
not have been materially different had the acquisition of CRM been effective as
of the beginning of the respective periods. CRM currently conducts business as
a division of the Company using the trade name RMI-A and primarily manufactures
custom molded products for a variety of industries.
NOTE 3 - NOTES RECEIVABLE:
On March 31, 1995, the Company and a customer entered into an agreement under
which the Company acquired from this customer certain assets, including molds
and trade accounts receivable, at their total estimated fair value of $357,800,
which was applied against the principal of a 1993 Promissory Note owed by this
customer to the Company. The remaining unpaid principal, together with accrued
interest and open trade receivable from this customer as of March 31, 1995,
were exchanged for a new note with a principal balance of $455,000, bearing
interest at 8% per annum and maturing on March 31, 2005.
Effective March 31, 1995, the Company sold products manufactured using these
molds directly to end users. The Company shall pay to this former customer
royalties at the initial rate of 10% of the Company's net sales of these
products. Half of the royalty payments shall be applied to reduce principal
and interest until the former customer has received a total of $300,000 in
royalty payments or March 31, 1998, whichever is earlier. Subsequently, all
royalty payments shall be applied to principal and interest until such
principal and interest are paid in full, at which time the royalty rate will be
reduced to 5% through March 31, 2005. As of June 30, 1996, the total balance
of this note amounted to $487,100 including accrued interest of $32,100. The
Company intends to hold this note until maturity.
In June 1986, the Company acquired Pan Am, which manufactured Brighteyes
Headlights, for $3,310,000. On June 30, 1989, the Company sold substantially
all of the assets pertaining to the Brighteyes Headlights product line to
Ratliff Industries, Inc. (RII), of San Jose California. The selling price
aggregated $275,000 and consisted of $75,000 in cash, a short-term note of
$50,000 and a promissory note of $150,000 which bears interest at five percent
per annum, and is payable in quarterly principal installments, calculated as an
amount equal to $.60 times the number of products sold by RII during the
preceding quarter. Effective October 1, 1991, the rate used to calculate the
principal installments was reduced from $.60 to $.30. The balance outstanding
on the promissory note was $14,600 and $36,800 at June 30, 1996 and 1995,
respectively.
NOTE 4 - INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
June 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $2,691,300 $3,059,000
Finished goods 2,248,100 2,293,100
---------- ----------
$4,939,400 $5,352,100
========== ==========
</TABLE>
F-8
<PAGE> 27
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Land $ 574,200 $ 574,200
Buildings and building improvements 2,701,500 2,486,800
Machinery, equipment, furniture and fixtures 11,376,200 10,635,100
Construction in progress 93,800 120,200
------------ -----------
14,745,700 13,816,300
Less - accumulated depreciation (6,428,800) (5,210,400)
----------- -----------
$ 8,316,900 $ 8,605,900
=========== ===========
</TABLE>
NOTE 6 - INTANGIBLE ASSETS:
Intangible assets consist of:
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Patents, net of accumulated amortization
of $79,600 and $73,700 $ 50,800 $ 59,600
Goodwill, net of accumulated amortization
of $1,768,900 and $1,467,900 5,331,300 5,633,100
---------- ----------
$5,382,100 $5,692,700
========== ==========
</TABLE>
NOTE 7 - BANK LINE OF CREDIT:
The Company has a $5,000,000 revolving line of credit with Wells Fargo Bank,
which matures on May 16, 1998. The line is secured by the Company's machinery
and equipment, accounts receivable and inventories. Interest is payable
monthly at the bank's prime rate. The bank's prime rate at June 30, 1996 was
8.25% per annum. In addition, the loan agreement allows the Company to convert
the outstanding principal balance in increments of $250,000 to a LIBOR-based
loan for up to 90-day periods. At June 30, 1996 total borrowings under the
Company's line of credit was $1,983,500 of which $1,750,000 was borrowed under
the LIBOR option at 7.9375% per annum maturing on July 2, 1996. Proceeds from
the loan were used for working capital purposes. At June 30, 1996 the Company
had approximately $3,000,000 available for future borrowings under the
revolving line of credit. The loan agreement contains various covenants
pertaining to tangible net worth, net income and liquidity ratios, capital
expenditures, payments of dividends, payment of subordinated debt as well as
various other restrictions. The Company was in compliance with these covenants
at June 30, 1996.
NOTE 8 - LONG-TERM DEBT:
Long-term debt consists of:
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Unsecured note payable (A) $ - $ 93,800
Note payable - Bank (B) 3,133,300 3,933,300
Note payable - Bank (C) 197,500 217,400
Note payable - Bank (D) 491,700 -
Note payable - Bank (E) 1,213,600 1,280,100
Other 21,200 134,800
----------- -----------
5,057,300 5,659,400
Less-current portion (1,176,700) (1,034,500)
----------- -----------
$ 3,880,600 $ 4,624,900
=========== ===========
</TABLE>
F-9
<PAGE> 28
(A) This note was issued in connection with the settlement of the Garney
Companies, Inc. ("Garney") lawsuit on December 11, 1992. The
settlement requires payments to Garney amounting to $400,000, of which
$150,000 was paid in December 1992. The remaining $250,000 is due in
quarterly principal installments of $15,600 plus interest at 6% per
annum beginning April 1, 1993. The note matures on January 1, 1997.
In August 1995 the note was repaid in full net of an $8,000 discount
for early extinguishment.
(B) In May 1995 the Company restructured its credit agreement with Wells
Fargo Bank. The loan consists of a $4,000,000 sixty-month term loan.
The note is due in monthly principal installments of $66,700 plus
interest at the bank's prime rate (8.25% at June 30, 1996). In
addition, the loan agreement allows the Company to convert all or a
portion of the outstanding principal in increments of $250,000 to a
LIBOR-based loan for periods up to 180 days. At June 30, 1996 the
Company had $3,000,000 of the outstanding principal balance under the
LIBOR option at 7.98047% per annum maturing on July 9, 1996. The note
is secured by the Company's machinery and equipment, accounts
receivable and inventories and matures on May 16, 2000.
(C) This note was issued to the First State Bank of Gainesville in the
original amount of $250,000. The loan is due in monthly installments
of $3,000 including interest at 8% per annum beginning September 1993
and continuing for 36 months at which time the entire balance of
unpaid principal plus accrued interest is due and payable. The note is
secured by a deed of trust on the Company's real property in
Gainesville, Texas. Proceeds from the loan were used for working
capital purposes and to finance the majority of a fixed asset
expansion project at the Company's Idaho facility. In August 1996 the
note was repaid in full and the lien on the Texas property was
removed.
(D) In fiscal 1996 the Company was advanced $500,000 on its machinery and
equipment term-loan commitment with Wells Fargo Bank. The proceeds
were used to repay amounts originally borrowed under the Company's
revolving line of credit to finance approximately $700,000 in
machinery and equipment purchases. The note is due in monthly
principal installments of approximately $8,300 plus interest at the
bank's prime rate (8.25% at June 30, 1996) or LIBOR interest rate
option for periods up to six months. At June 30, 1996 the total
outstanding principal was under the LIBOR option at 7.9375% per annum
maturing July 2, 1996. The note is secured by the Company's machinery
and equipment and matures on May 15, 2001. At June 30, 1996 the
Company had available a term-loan commitment in the amount of $500,000
for future machinery and equipment purchases. Advances under the line
will be subject to monthly interest only payments at the bank's prime
or LIBOR interest rate options until May 15, 1997, at which time
amounts borrowed will convert to a 60-month fully amortizable loan.
(E) This note was issued to Wells Fargo Bank on September 15, 1994 in
connection with the purchase of real property in Bensenville,
Illinois. The note is due in monthly principal installments of
approximately $5,500 plus interest at the bank's prime rate (8.25% per
annum at June 30, 1996) on a twenty-year amortization with the
outstanding principal due in five years. The note is secured by a
first trust deed on the real property and matures on September 15,
1999.
Aggregate annual maturities of long-term debt are summarized as follows:
<TABLE>
<CAPTION>
Year Ending
June 30,
----------
<S> <C>
1997 $1,176,700
1998 975,000
1999 966,500
2000 1,847,400
2001 91,700
----------
$5,057,300
==========
</TABLE>
F-10
<PAGE> 29
NOTE 9 - RELATED PARTY DEBT/TRANSACTIONS:
Related party debt consists of:
<TABLE>
<CAPTION>
June 30,
---------------------
1996 1995
-------- ---------
<S> <C> <C>
Unsecured subordinated note payable (A) $ - $ 50,000
Unsecured subordinated note payable (B) - 112,500
------- --------
- 162,500
Less-current portion - (140,000)
------- ---------
$ - $ 22,500
======= =========
</TABLE>
(A) This unsecured note was issued to an officer/director of the Company
for short-term working capital requirements. The principal balance
plus interest at the rate of 10% per annum is due and payable in full
on or before January 1, 1996. The note is subordinate to all Wells
Fargo Bank indebtedness. In July 1995 this note was paid in full.
(B) This unsecured note was issued to an officer/director of the Company
in connection with the Plastech acquisition in January 1992. During
fiscal 1993, $105,600 of this loan was repaid and the balance was
refinanced with a $360,000 four-year term loan. The term loan is
payable in quarterly principal payments of $22,500 plus interest at
10% per annum beginning January 1, 1993. The note matures on October
1, 1996 and is subordinate to all Wells Fargo Bank indebtedness. The
note was paid in full in fiscal 1996.
In March 1993 the Board of Directors authorized the holders of preferred shares
the opportunity to convert some of their outstanding Series A Preferred Stock
($1 per share redemption value) to common shares based on the fair market value
of the Company's common stock at the date of conversion. Through June 1994 two
officers/directors of the Company converted an aggregate of 1,400,139 shares of
their preferred stock for 2,039,564 shares of the Company's common stock. The
conversion factor used a common stock value of $0.6875 per share (fair market
value at the date of conversion). In June 1994 the Board of Directors approved
the additional conversion of 500,000 shares of preferred stock held by an
officer/director of the Company. On August 13, 1994 these shares were
converted to 615,384 shares of the Company's common stock based on the fair
market value of the Company's common stock ($.8125 per share) at the date of
conversion.
In September 1995, in accordance with unanimous approval of the Board of
Directors, an officer/director of the Company converted his remaining 2,158,950
outstanding shares of Series A of Preferred Stock to 1,079,475 shares of the
Company's common stock. The shares were converted on the basis of one share of
common stock issued for every two shares of preferred outstanding.
The Company sells plastic resin to a company in which an officer/director
of the Company has a minority interest. Sales to the Company amounted to
$319,900 and $152,500 in fiscal years 1996 and 1995, respectively. There were
no sales to this company in fiscal 1994. Amounts due on the sales of
plastic resin to this company were $128,800 and $47,700 at June 30, 1996 and
1995, respectively, and is included in accounts receivable in the accompanying
balance sheet.
In fiscal years 1996, 1995 and 1994, the Company incurred legal fees and costs
amounting to $83,000, $48,500 and $32,900, respectively, for services by E.
Paul Tonkovich Professional Corporation, of which an officer/director of the
Company is an employee.
NOTE 10 - ACCRUED LIABILITIES:
Accrued liabilities consist of:
<TABLE>
<CAPTION>
June 30,
----------------------
1996 1995
-------- ---------
<S> <C> <C>
Salaries, wages, commissions and related payables $ 806,200 $ 980,400
Other 195,500 230,600
---------- ----------
$1,001,700 $1,211,000
========== ==========
</TABLE>
F-11
<PAGE> 30
NOTE 11 - STOCK OPTION PLAN:
In September 1985, the Company adopted a stock option plan for the granting of
options to directors and employees to purchase the Company's common stock. The
option price is determined by a committee of the Board of Directors, but cannot
be less than 85% of the fair market value of the Company's common stock at the
date of grant. Pursuant to the approval of the Company's shareholders at the
Company's 1992 Annual Meeting, the Company effected a one-for-three reverse
stock split on December 17, 1992. As such, the Company's authorized shares of
common stock for the stock option plan was reduced from 2,500,000 shares to
833,300 shares. In March 1993 the Board of Directors approved a resolution to
accelerate the vesting of all outstanding options under the plan to 100% so
that the employees could fully exercise their respective grants. The following
table has been modified to reflect the reduction in the number of shares
issuable upon exercise and the respective increases to the exercise price per
share.
In August 1994, the Company issued to certain key employees options to
purchase 40,000 shares of common stock under the Company's pre-existing stock
option plan.. The options are exercisable at $.8125 per share (fair market
value at date of grant) of which 50% are currently exercisable and the balance
exercisable after one year. The options expired August 12, 1996. The
Company's pre-existing stock option plan, and all ungranted options thereof,
expired November 11, 1994.
In December 1994, at the Annual Meeting of Stockholders of the Company, the
stockholders voted by majority decision to ratify and approve a new stock
option plan as adopted by the Board of Directors in June 1994. The plan
allows, at the discretion of the Board of Directors, for the granting of
options to key employees, officers, directors, and consultants of the Company
to purchase 1,000,000 shares of the Company's common stock. Under the terms
and conditions set forth in the plan, the exercise price of the stock options
will be a least 85% of the fair market value of the Company's common stock on
the grant date. The plan expires June 12, 2004.
Stock Option Activity
<TABLE>
<CAPTION>
Outstanding Exercisable Price
Shares Shares Per Share
----------- ----------- ---------------
<S> <C> <C> <C>
Balance outstanding at June 30, 1993 32,200 32,200 $0.375 - $0.9375
======
Exercised (22,900) $0.375 - $0.9375
-------
Balance outstanding at June 30, 1994 9,300 9,300 $0.375 - $0.9375
======
Granted 40,000 $0.8125
Exercised (19,700) $0.375 - $0.8125
Canceled (11,800) $0.8125 - $0.9375
-------
Balance outstanding at June 30, 1995 17,800 17,800 $0.375 - $0.8125
------- ======
Exercised (5,300) $0.375 - $0.8125
-------
Balance outstanding at June 30, 1996 12,500 12,500 $0.8125
======= ======
</TABLE>
In August 1996 options were exercised for the issuance of an additional 7,500
shares of common stock and the remaining outstanding options to purchase 5,000
shares of common stock expired on August 12, 1996.
At June 30, 1996, 1995 and 1994, 1,000,000, 1,000,000 and 465,700 shares were
available for future grants, respectively.
F-12
<PAGE> 31
NOTE 12 - PREFERRED STOCK and COMMON STOCK:
In September 1995, the Company redeemed 250,232 shares of its preferred stock
at the stated redeemed value of one dollar. Subsequent to the redemptions, in
accordance with unanimous approval of the Board of Directors, the Company
converted the remaining 2,749,768 shares of the outstanding Series A Preferred
Stock to 1,374,884 shares of the Company's common stock. The shares were
converted on the basis of one share of common stock for every two shares of
preferred stock outstanding.
On December 8, 1995, at the Company's Annual Meeting of Stockholders, the Board
of Directors declared a common stock dividend of $.04 per common share payable
on January 29, 1996 to stockholders of record on January 10, 1996.
NOTE 13 - INCOME TAXES:
The components of the income tax (benefit)/provision were:
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------------
1996 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 62,000 $ 67,200 $ 28,000
State 129,400 141,200 87,000
-------- --------- ---------
191,400 208,400 115,000
-------- --------- ---------
Deferred:
Federal 642,000 (387,800) (362,100)
State 101,100 83,800 133,800
-------- --------- ---------
743,100 (304,000) (228,300)
-------- --------- ---------
$934,500 $ (95,600) $(113,300)
======== ========= =========
</TABLE>
At June 30, 1996, the Company has net operating loss (NOL) carryforwards of
approximately $12,500,000 and $1,200,000, respectively, for federal and state
income tax purposes expiring in varying amounts through 2009. The NOL
carryforwards, which are available to offset future profits of the Company and
are subject to limitations should a "change in ownership" as defined in the
Internal Revenue code occur, will begin to expire in 1998 and 1996 for federal
and state purposes, respectively, if not utilized.
Effective July 1, 1993 the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes". FAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Previously, the Company used the FAS 96 approach that gave no recognition to
future events other than the recovery of assets and settlement of liabilities
at their carrying amounts. Under FAS 109 the Company recognizes to a greater
degree the future tax benefits of expenses which have been recognized in the
financial statements. The adjustments to the July 1, 1993 balance sheet to
adopt FAS 109 amounted to $4,013,000. This amount was reflected in net income
in fiscal 1994 as a cumulative effect of a change in accounting principle. It
primarily represents the impact of recognizing a deferred tax asset for the
benefit of tax NOL carryforwards that could not be recorded under FAS 96.
FAS 109 requires that the tax benefit of NOLs be recorded, using current tax
rates, as an asset to the extent management assesses the utilization of such
NOLs to be more likely than not. At July 1, 1993 management determined that
future taxable income of the Company will more likely than not be sufficient to
realize an initial deferred tax asset of $4,013,000, net of a valuation
allowance of $2,662,000. Realization of the future tax benefits of the NOL
carryforwards is dependent on the Company's ability to generate taxable income
at the current level within the carryforward period. In assessing the
likelihood
F-13
<PAGE> 32
of utilization of existing NOL carryforwards, management considered the
historical results of operations over the last three years and the current
economic environment in which the Company operates. Management did not
consider any non-routine transactions in assessing the likelihood of
realization of the recorded deferred tax asset.
Based on the operating results since the adoption of FAS 109 and management's
continuing assessment, management believes that the Company will continue to
utilize its NOLs on a go-forward basis. As such, during the last three fiscal
years management has reduced the entire $2,662,000 initial valuation allowance
to zero. At June 30, 1996 the Company recorded a state valuation allowance of
$54,500 representing the potential amount of the Company's state NOL which will
not be utilized prior to its expiration. The adjustments to the valuation
allowance has been reflected as a component of the current year's tax
provision.
The following reconciles the federal statutory income tax rate to the effective
rate of the (benefit)/provision for income taxes:
<TABLE>
<CAPTION>
For the year ended June 30,
---------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes (net of federal benefit) 3.6 2.9 3.3
Goodwill amortization 4.3 3.2 -
Benefit of current year net operating loss carryforwards - (36.1) (32.8)
Effect of decrease in valuation allowance (7.7) (9.5) (13.0)
Other items, net 4.6 2.5 2.1
------ ------ ------
Effective Income Tax Rate 38.8% (3.0)% (6.4)%
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Federal NOL $4,262,500 $5,659,000
State NOL (net of federal benefit) 86,600 172,800
Minimum tax credit 45,900 -
Employment-related reserves 143,900 138,200
Allowance for doubtful accounts 33,200 40,400
---------- ----------
4,572,100 6,010,400
Deferred tax liabilities:
Depreciation and amortization (715,400) (874,800)
---------- ----------
Net deferred tax assets before valuation allowance 3,856,700 5,135,600
Deferred tax assets valuation allowance (54,500) (590,300)
----------- ----------
Net deferred tax assets $3,802,200 $4,545,300
========== ==========
</TABLE>
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
Commitments
The Company leases various office and warehouse facilities, and equipment under
long-term operating leases expiring through October 2001. Certain of the
leases provide for five-year renewal options and rental increases based on the
Consumer Price Index. Operating lease expense for fiscal 1996, 1995, and 1994
amounted to $834,400, $771,400 and $732,800, respectively.
F-14
<PAGE> 33
At June 30, 1996, the future minimum lease commitments, excluding insurance and
taxes, are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30,
-----------
<S> <C>
1997 $ 821,600
1998 531,900
1999 470,400
2000 378,000
2001 284,900
Thereafter 64,800
----------
$2,551,600
==========
</TABLE>
Contingencies
In the normal course of business, the Company encounters certain litigation
matters, which in the opinion of management, will not have a significant
adverse effect on the financial position or the results of operations of the
Company.
On April 16, 1996, the Company was named as a defendant in a compliant filed by
Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges claims for
breach of contract and promissory estoppel relating to an Agreement in
Principle entered into in connection with a proposed acquisition of the Company
by Bonar U.S., Inc. On April 3, 1996, the Company announced that it had
terminated the Agreement of Principal pursuant to its terms. The complaint
requests damages of $7,011,484. The company believes the allegations in the
complaint are without merit and intends to vigorously defend its position. On
May 17, 1996, the Company filed a counterclaim against Bonar U.S., Inc. and
Bonar Plastic, Inc. seeking damages totaling $25, 237,725 for breach of the
Confidentiality Agreement with the Company, misappropriation of trade secrets,
intentional interference with a prospective economic advantage which the
Company obtained as a result of an indication of interest from a third party
and breach of a Royalty Agreement between Bonar Plastics, Inc. and one of the
Company's operating divisions (formally known as Custom Rotational Molding,
Inc.). The outcome of this matter is uncertain.
NOTE 15 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Supplemental disclosures of cash flows information are as follows:
<TABLE>
<CAPTION>
For the year ended June 30,
--------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 711,600 $ 767,500 $ 582,000
========== ========== ==========
Income taxes $ 245,900 $ 241,600 $ 124,400
========== ========== ==========
Purchase of Custom Rotational Molding, Inc.
by issuance of common stock $ - $ 306,300 $ -
========== ========== ==========
Conversion of customer note and accounts receivable
to new note and other assets $ - $ 812,300 $ -
========== ========== ==========
Non-cash financing activity:
Redemption of preferred stock to common stock $2,749,800 $ 500,000 $ -
========== ========== ==========
Preferred dividends declared but not paid $ - $ 23,400 $ 29,500
========== ========== ==========
Common dividends declared but not paid $ 12,200 $ - $ -
========== ========== ==========
</TABLE>
F-15
<PAGE> 34
NOTE 16 - UNAUDITED QUARTERLY RESULTS:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
September December March June
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal Year 1996:
Net sales $8,981,900 $8,904,100 $8,178,900 $9,638,700
Gross Profit 2,183,900 2,184,700 2,054,400 2,836,900
Net income 367,400 189,900 129,500 785,900
Per share:
Net income $ .02 $ .01 $ .01 $ .06
============================================================
Fiscal Year 1995:
Net sales $9,079,200 $8,010,100 $8,436,600 $10,361,700
Gross profit 2,484,000 2,399,000 2,140,400 2,565,300
Net income 845,400 779,400 434,500 1,228,300
Per share:
Net income $ .06 $ .06 $ .03 $ .09
============================================================
</TABLE>
F-16
<PAGE> 35
ROTONICS MANUFACTURING INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------- ----------- ------------------------------ ----------- -----------
Additions
Balance at ------------------------------ Balance at
beginning Charged to end of
Description of period Costs & Expenses Other Deductions period
- --------------------------------- ----------- ---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
June 30, 1996:
Allowance for
doubtful accounts $ 110,300 $ 58,800 $ - $ (79,100)(1) $ 90,000
=========== =========== =========== =========== ===========
Deferred tax asset valuation allowance $ 590,300 $ - $ 54,500 (4) $ (590,300)(3) $ 54,500
=========== =========== =========== =========== ===========
June 30, 1995:
Allowance for
doubtful accounts $ 118,100 $ 24,200 $ 5,000 $ 37,000 (1) $ 110,300
=========== =========== =========== =========== ===========
Deferred tax asset valuation allowance $ 1,984,700 $ - $ - $ 1,394,400 (3) $ 590,300
=========== =========== =========== =========== ===========
June 30, 1994:
Allowance for
doubtful accounts $ 91,900 $ 69,700 $ 11,000 $ 54,500 (1) $ 118,100
=========== =========== =========== =========== ===========
Deferred tax asset valuation allowance $ - $ - $ 2,662,000 (2) $ 677,300 (3) $ 1,984,700
=========== =========== =========== =========== ===========
</TABLE>
(1) Doubtful accounts written off during the year.
(2) Initial deferred tax asset valuation for net operating loss carryforwards
at date of adoption of FAS 109 - "Accounting for Income Taxes".
(3) Decrease in valuation allowance based on current years' additional
utilization of net operating loss carryforwards.
(4) Represents valuation allowance for potential state NOL's which will expire
prior to utilization.
F-17
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of May 16, 1996, by and between
ROTONICS MANUFACTURING INC., a Delaware corporation ("Borrower"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed
to provide the Credits to Borrower on the terms and conditions contained
herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as
follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to new loan make advances to Borrower from time
to time up to and including May 15, 1998, not to exceed at any time the
aggregate principal amount of Five Million Dollars ($5,000,000.00) ("Line of
Credit"), the proceeds of which shall be used for working capital requirements.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of Exhibit A attached
hereto ("Line of Credit Note"), all terms of which are incorporated herein by
this reference.
<PAGE> 2
(b) Borrowing and Repayment. Borrower may from time to time
during the term of the Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations, terms
and conditions contained herein or in the Line of Credit Note; provided
however, that the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available thereunder, as
set forth above.
SECTION 1.2. TERM LOAN A.
(a) Term Loan A. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make a loan to Borrower in the principal
amount of Five Hundred Thousand Dollars ($500,000.00) ("Term Loan A"), the
proceeds of which shall be used to finance equipment purchases and facility
improvements during fiscal year 1996. Borrower's obligation to repay Term Loan
A shall be evidenced by a promissory note substantially in the form of Exhibit
B attached hereto ("Term Note A"), all terms of which are incorporated herein
by this reference. Bank's commitment to grant Term Loan A shall terminate on
June 16, 1996.
(b) Repayment. The principal amount of Term Loan A shall be
repaid in accordance with the provisions of Term Note A.
(c) Prepayment. Borrower may prepay principal on Term Loan A
solely in accordance with the provisions of Term Note A. All prepayments of
principal shall be applied on the most remote principal installment or
installments then unpaid.
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SECTION 1.3. TERM LOAN B.
(a) Term Loan B. Bank has made a loan to Borrower in the original
principal amount of Four Million Dollars ($4,000,000.00) ("Term Loan B"), on
which the outstanding principal balance as of the date hereof is $3,199,996.00.
Borrower's obligation to repay Term Loan B is evidenced by a promissory note
substantially in the form of Exhibit C attached hereto ("Term Note B"), all
terms of which are incorporated herein by this reference. Subject to the terms
and conditions of this Agreement, Bank hereby confirms that Term Loan B remains
in full force and effect. Any reference in Term Note B to any prior loan
agreement between Bank and Borrower shall be deemed a reference to this
Agreement.
(b) Repayment. The principal amount of Term Loan B shall be
repaid in accordance with the provisions of Term Note B.
(c) Prepayment. Borrower may prepay principal on Term Loan B
solely in accordance with the provisions of Term Note B. All prepayments of
principal shall be applied on the most remote principal installment or
installments then unpaid.
SECTION 1.4. TERM LOAN C.
(a) Term Loan C. Bank has made a loan to Borrower in the original
principal amount of One Million Three Hundred Thirty Thousand Dollars
($1,330,000.00) ("Term Loan C"), on which the outstanding principal balance as
of the date hereof is $1,219,166.60. Borrower's obligation to repay Term Loan
C is evidenced by a promissory note substantially in the form of Exhibit D
attached hereto ("Term Note C"), all terms of which are incorporated herein by
this reference. Subject to the terms
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<PAGE> 4
and conditions of this Agreement, Bank hereby confirms that Term Loan C remains
in full force and effect. Any reference in Term Note C to any prior loan
agreement between Bank and Borrower shall be deemed a reference to this
Agreement.
(b) Repayment. The principal amount of Term Loan C shall be
repaid in accordance with the provisions of Term Note C.
(c) Prepayment. Borrower may prepay principal on Term Loan C
solely in accordance with the provisions of Term Note C. All prepayments of
principal shall be applied on the most remote principal installment or
installments then unpaid.
SECTION 1.5. TERM COMMITMENT.
(a) Term Commitment. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including May 15, 1997, not to exceed the aggregate principal amount of
Five Hundred Thousand Dollars ($500,000.00) ("Term Commitment"), the proceeds
of which shall be used to finance equipment purchases during fiscal year 1997,
and which shall be converted on May 16, 1997, to a term loan, as described more
fully below. Borrower's obligation to repay advances under the Term Commitment
shall be evidenced by a promissory note substantially in the form of Exhibit E
attached hereto ("Term Commitment Note"), all terms of which are incorporated
herein by this reference.
(b) Limitation on Borrowings. Notwithstanding any other provision
of this Agreement, the aggregate amount of all outstanding borrowings under the
Term Commitment shall not at any time exceed a maximum of eighty percent (80%)
of the cost of each
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<PAGE> 5
item of equipment purchased with the proceeds thereof, as evidenced by the
seller's invoice.
(c) Borrowing and Repayment. Borrower may from time to time
during the period in which Bank will make advances under the Term Commitment
borrow and partially or wholly repay its outstanding borrowings, provided that
amounts repaid may not be reborrowed, subject to all the limitations, terms and
conditions contained herein; provided however, that the total outstanding
borrowings under the Term Commitment shall not exceed the maximum principal
amount available thereunder, as set forth above.
(d) Prepayment. Borrower may prepay principal on the Term
Commitment at any time, in any amount and without penalty.
SECTION 1.6. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line
of Credit, Term Loan A, Term Loan B, Term Loan C, Term Loan D and the Term
Commitment shall bear interest at the rate of interest set forth in the Line of
Credit Note, Term Note A, Term Note B, Term Note C, Term Note D and the Term
Commitment Note.
(b) Computation and Payment. Interest shall be computed on the
basis of a 360-day year, actual days elapsed. Interest shall be payable at the
times and place set forth in the Line of Credit Note, Term Note A, Term Note B,
Term Note C, Term Note D and the Term Commitment Note (collectively, the
"Notes").
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to Six Thousand Two Hundred Fifty
Dollars ($6,250.00), which fee shall
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<PAGE> 6
be due and payable in full upon Borrower's execution of the Loan Documents.
SECTION 1.7. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all principal, interest and fees due under each Credit by charging
Borrower's demand deposit account number 4624-074191 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.
SECTION 1.8. COLLATERAL.
As security for all indebtedness of Borrower to Bank, Borrower hereby
grants to Bank security interests of first priority in all Borrower's accounts
receivable and other rights to payment, general intangibles, inventory and
equipment.
As additional security for Term Loan C, Borrower hereby grants to Bank
a lien of first priority on that certain real property located at 736-738 and
740-746 Birginal Drive, Bensenville, Illinois 60106.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand
for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and
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<PAGE> 7
recording fees and costs of appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly
organized and existing and in good standing under the laws of the State of
Delaware, and is qualified or licensed to do business (and is in good standing
as a foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the
Notes, and each other document, contract and instrument required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
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<PAGE> 8
SECTION 2.3. NO VIOLATION. The execution, delivery and
performance by Borrower of each of the Loan Documents do not violate any
provision of any law or regulation, or contravene any provision of the Articles
of Incorporation or By-Laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which Borrower
is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated March 31, 1996, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged,
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<PAGE> 9
pledged, granted a security interest in or otherwise encumbered any of its
assets or properties except in favor of Bank or as otherwise permitted by Bank
in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, franchises and licenses required and rights to
all trademarks, trade names, patents, and fictitious names, if any, necessary
to enable it to conduct the business in which it is now engaged in compliance
with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time ("ERISA");
Borrower has not violated any provision of any defined employee pension benefit
plan (as defined in ERISA) maintained or contributed to by Borrower (each, a
"Plan"); no Reportable Event as defined in ERISA has occurred and is continuing
with respect to any Plan initiated by Borrower; Borrower has met its minimum
funding requirements under ERISA with respect to each Plan; and each Plan will
be able to fulfill
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<PAGE> 10
its benefit obligations as they come due in accordance with the Plan documents
and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by
Borrower to Bank in writing prior to the date hereof, Borrower is in compliance
in all material respects with all applicable Federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Toxic Substances Control Act and the
California Health and Safety Code, as any of the same may be amended, modified
or supplemented from time to time. None of the operations of Borrower is the
subject of any Federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of
any toxic or hazardous waste or substance into the environment. Borrower has
no material contingent liability in connection with any release of any toxic or
hazardous waste or substance into the environment.
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<PAGE> 11
SECTION 2.12. REAL PROPERTY COLLATERAL. Except as disclosed by
Borrower to Bank in writing prior to the date hereof, with respect to any real
property collateral required hereby:
(a) All taxes, governmental assessments, insurance premiums, and
water, sewer and municipal charges, and rents (if any) which previously became
due and owing in respect thereof have been paid as of the date hereof.
(b) There are no mechanics' or similar liens or claims which have
been filed for work, labor or material (and no rights are outstanding that
under law could give rise to any such lien) which affect all or any interest in
any such real property and which are or may be prior to or equal to the lien
thereon in favor of Bank.
(c) None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of the
boundaries and/or building restriction lines thereof, and no improvements on
adjoining properties materially encroach upon any such real property.
(d) There is no pending, or to the best of Borrower's knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good repair
and free and clear of any damage that would materially and adversely affect the
value thereof as security and/or the intended use thereof.
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<PAGE> 12
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to grant any of the Credits is subject to the fulfillment to
Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Security Agreement: Equipment.
(v) Continuing Security Agreement: Rights to Payment and
Inventory.
(vi) UCC-1 Financing Statements.
(vii) Mortgage and Assignment of Rents and Leases.
(viii) Such other documents as Bank may require under any other
Section of this Agreement.
(c) Financial Condition. There shall have been no material
adverse change, as determined by Bank, in the financial condition or business
of Borrower, nor any material decline, as determined by Bank, in the market
value of any collateral required hereunder or a substantial or material portion
of the assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank, including without
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<PAGE> 13
limitation, policies of fire and extended coverage insurance covering all real
property collateral required hereby, with replacement cost and mortgagee loss
payable endorsements, and such policies of insurance against specific hazards
affecting any such real property as may be required by governmental regulation
or Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested by Borrower
hereunder shall be subject to the fulfillment to Bank's satisfaction of each of
the following conditions:
(a) Compliance. The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date, and
on each such date, no Event of Default as defined herein, and no condition,
event or act which with the giving of notice or the passage of time or both
would constitute such an Event of Default, shall have occurred and be
continuing or shall exist.
(b) Documentation. Bank shall have received all additional
documents which may be required in connection with such extension of credit.
(c) Appraisals. Bank shall have obtained, at Borrower's cost, an
appraisal of all real property collateral required hereby, and all improvements
thereon, issued by an appraiser
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<PAGE> 14
acceptable to Bank and in form, substance and reflecting values satisfactory to
Bank, in its discretion.
(d) Title Insurance. Bank shall have received an ALTA Policy of
Title Insurance, with such endorsements as Bank may require, including without
limitation, CLTA endorsements, issued by a company and in form and substance
satisfactory to Bank, insuring Bank's lien on the real property collateral
required hereby to be of first priority, subject only to such exceptions as
Bank shall approve in its discretion, with all costs thereof to be paid by
Borrower.
(e) Tax Service Contract. Borrower shall have procured and
delivered to Bank, at Borrower's cost, such tax service contract as Bank shall
require for any real property collateral required hereby, to remain in effect
as long as such real property secures any obligations of Borrower to Bank as
required hereby.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of
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<PAGE> 15
the Loan Documents at the times and place and in the manner specified therein,
and immediately upon demand by Bank, the amount by which the outstanding
principal balance of any of the Credits at any time exceeds any limitation on
borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and
records in accordance with generally accepted accounting principles
consistently applied, and permit any representative of Bank, at any reasonable
time, to inspect, audit and examine such books and records, to make copies of
the same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, an audited financial statement of Borrower, prepared by a certified
public accountant acceptable to Bank, to include all schedules, notes and
narratives reasonably included in Borrower's 10K;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include all schedules, notes and narratives
reasonably included in Borrower's 10Q;
(c) from time to time such other information as Bank may reasonably
request
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and
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<PAGE> 16
franchises necessary for the conduct of its business; and comply with the
provisions of all documents pursuant to which Borrower is organized and/or
which govern Borrower's continued existence and with the requirements of all
laws, rules, regulations and orders of any governmental authority applicable to
Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of
the types and in amounts customarily carried in lines of business similar to
that of Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary
to Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when
due any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation Federal and state income taxes and state
and local property taxes and assessments, except such (a) as Borrower may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Bank's
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<PAGE> 17
satisfaction, for eventual payment thereof in the event Borrower is obligated
to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank
of any litigation pending or threatened against Borrower with a claim in excess
of $100,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to the
extent modified by the definitions herein):
(a) Current Ratio not at any time less than 1.25 to 1.0, with
"Current Ratio" defined as total current assets divided by total current
liabilities.
(b) Tangible Net Worth not at any time less than $11,500,000.00,
with "Tangible Net Worth" defined as the aggregate of total stockholders'
equity plus subordinated debt less any intangible assets.
(c) Total Liabilities divided by Tangible Net Worth not at any
time greater than 1.25 to 1.0, with "Total Liabilities" defined as the
aggregate of current liabilities and non-current liabilities less subordinated
debt, and with "Tangible Net Worth" as defined above.
(d) Pre-tax profit not less than $1.00 on a quarterly basis,
determined as of each fiscal quarter end.
(e) EBITDA Coverage Ratio not less than 2.00 to 1.0 as of fiscal
year end (June 30, 1996) and not less than 2.25:1.0 at all times thereafter,
with "EBITDA" defined as net profit before tax
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<PAGE> 18
plus interest expense (net of capitalized interest expense), depreciation
expense and amortization expense, and with "EBITDA Coverage Ratio" defined as
EBITDA divided by the aggregate of total interest expense plus the prior period
current maturity of long-term debt and the prior period current maturity of
subordinated debt.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of time or both would constitute an Event of Default; (b) any change in
the name or the organizational structure of Borrower; (c) the occurrence and
nature of any Reportable Event or Prohibited Transaction, each as defined in
ERISA, or any funding deficiency with respect to any Plan; or (d) any
termination or cancellation of any insurance policy which Borrower is required
to maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting Borrower's
property in excess of an aggregate of $50,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents
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<PAGE> 19
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower will not without Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment
in fixed assets in any fiscal year in excess of an aggregate of $2,000,000.00.
SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense in
any fiscal year in excess of an aggregate of $200,000.00.
SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit
to exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof.
SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge
into or consolidate with any other entity; make any substantial change in the
nature of Borrower's business as conducted as of the date hereof; acquire all
or substantially all of the assets of any other entity; nor sell, lease,
transfer or otherwise dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its business.
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<PAGE> 20
SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security
for, any liabilities or obligations of any other person or entity.
SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or
advances to or investments in any person or entity.
SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any
dividend or distribution either in cash, stock or any other property on
Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase
or otherwise acquire any shares of any class of Borrower's stock now or
hereafter outstanding.
SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit
to exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest,
fees or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made
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<PAGE> 21
by Borrower or any other party under this Agreement or any other Loan Document
shall prove to be incorrect, false or misleading in any material respect when
furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation,
or any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower has incurred
any debt or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or
the recording of any abstract of judgment against Borrower in any county in
which Borrower has an interest in real property; or the service of a notice of
levy and/or of a writ of attachment or execution, or other like process,
against the assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to
or apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other
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<PAGE> 22
arrangement with creditors or any other relief under the Bankruptcy Reform Act,
Title 11 of the United States Code, as amended or recodified from time to time
("Bankruptcy Code"), or under any state or Federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
Federal law relating to bankruptcy, reorganization or other relief for debtors
is filed or commenced against Borrower, or Borrower shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order
for relief shall be entered against Borrower by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or Federal
law relating to bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank
in good faith believes impairs, or is substantially likely to impair, the
prospect of payment or performance by Borrower of its obligations under any of
the Loan Documents.
(h) The dissolution or liquidation of Borrower; or Borrower, or
any of its directors, stockholders or members, shall take action seeking to
effect the dissolution or liquidation of Borrower.
(i) Any change in ownership during the term of this Agreement of
an aggregate of twenty-five percent (25%) or more of the common stock of
Borrower.
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<PAGE> 23
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of
Default: (a) all indebtedness of Borrower under each of the Loan Documents,
any term thereof to the contrary notwithstanding, shall at Bank's option and
without notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by
Borrower; (b) the obligation, if any, of Bank to extend any further credit
under any of the Loan Documents shall immediately cease and terminate; and (c)
Bank shall have all rights, powers and remedies available under each of the
Loan Documents, or accorded by law, including without limitation the right to
resort to any or all security for any of the Credits and to exercise any or all
of the rights of a beneficiary or secured party pursuant to applicable law.
All rights, powers and remedies of Bank may be exercised at any time by Bank
and from time to time after the occurrence of an Event of Default, are
cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of
Bank in exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor shall
any single or partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof or the exercise
of any other right, power or remedy. Any waiver,
--23--
<PAGE> 24
permit, consent or approval of any kind by Bank of any breach of or default
under any of the Loan Documents must be in writing and shall be effective only
to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:
BORROWER: ROTONICS MANUFACTURING INC.
17022 South Figueroa Street
Gardena, California 90248
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Regional Commercial Banking Office
111 West Ocean Boulevard, Suite 300
Long Beach, California 90802
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall
pay to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
incurred by Bank in connection with (a) the negotiation and
--24--
<PAGE> 25
preparation of this Agreement and the other Loan Documents, Bank's continued
administration hereof and thereof, and the preparation of any amendments and
waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including without limitation, any action for
declaratory relief, and including any of the foregoing incurred in connection
with any bankruptcy proceeding relating to Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the heirs, executors, administrators,
legal representatives, successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest hereunder without Bank's
prior written consent. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Bank may disclose all documents and information which Bank now has
or may hereafter acquire relating to any of the Credits, Borrower or its
business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
other Loan Documents constitute the entire agreement between Borrower and Bank
with respect to the Credits and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This
--25--
<PAGE> 26
Agreement may be amended or modified only by a written instrument executed by
each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made
and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, except to
the extent Bank has greater rights or remedies under Federal law, whether as a
national bank or otherwise, in which case such choice of California law shall
not be deemed to deprive Bank of any such rights and remedies as may be
available under Federal law.
--26--
<PAGE> 27
SECTION 7.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall constitute
one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
WELLS FARGO BANK,
ROTONICS MANUFACTURING INC. NATIONAL ASSOCIATION
By: __________________________ By:_______________________
Title: _______________________
By: __________________________
Title: _______________________
--27--
<PAGE> 1
EXHIBIT 23A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, dated August 22, 1996 on page F-1 of this form 10-K which is
incorporated by reference in the Prospectus constituting part of the
Registration Statements on Form S-3 (Nos. 33-62721 and 33-70526) and
in the Registration Statement on Form S-8 (No. 33-88410).
ARTHUR ANDERSEN LLP
Orange County, California
September 16, 1996
<PAGE> 1
EXHIBIT 23B
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos.
33-62721 and 33-70526) and in the Registration Statement on Form S-8
(No. 33-88410) of Rotonics Manufacturing Inc. of our report dated
September 11, 1995 appearing on page F-2 of this Form 10-K.
Price Waterhouse LLP
Los Angeles, California
September 16, 1996
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<PERIOD-START> JUL-01-1995
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