<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT #1
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: March 25, 1998
(Date of earliest event reported)
ROTONICS MANUFACTURING INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9429 36-2467474
--------------------------------- ------------ --------------------
(State or other jurisdiction of (Commission (I.R.S.Employer
of incorporation or organization) File Number) Identification No.)
17022 South Figueroa Street
Gardena, California 90248
(Address of principal executive offices, including zip code)
310-538-4932
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7: FINANCIAL STATEMENT AND EXHIBITS
(a) FINANCIAL STATEMENT OF BUSINESS ACQUIRED
The financial statements of Rotocast, the company that was acquired by
Rotonics, for the year ended December 31, 1997, and three months ended
March 31, 1998, are attached herein on pages F-1 through F-17.
(b) PRO FORMA FINANCIAL INFORMATION
The pro forma combined balance sheets of Rotonics and Rotocast as of
March 31, 1998, and the pro forma combined statements of operations
for the year ended June 30, 1997, and for the nine months ended
March 31, 1998, are attached herein on pages F-18 through F-21.
1
<PAGE>
(c) EXHIBITS
Exhibit
Number Description
- ------- -----------
23 Consent of Independent Certified Public Accountants - Rachlin Cohen &
Holtz Page F-22
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROTONICS MANUFACTURING INC.
Dated June 12, 1998 By: /s/ Douglas W. Russell
---------------------------
Douglas W. Russell
Chief Financial Officer
3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Rotocast International, Inc. and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheet of Rotocast
International, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations and retained earnings and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rotocast
International, Inc. and Subsidiaries as of December 31, 1997, and the results
of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
February 20, 1998 except for Notes 8 and 14,
as to which the date is March 27, 1998
F-1
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 19,726
Accounts receivable, net of allowance for doubtful accounts of $34,276 1,016,288
Notes receivable 107,317
Other receivables 135,000
Recoverable income taxes 140,700
Inventories 1,234,085
Prepaid expenses and other current assets 117,722
Deferred income taxes 20,100
----------
Total current assets 2,790,938
Machinery and Equipment 544,941
Investment in Partnership 137,306
Note Receivable 50,000
Other Assets 96,575
----------
$3,619,760
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 864,829
Due to parent 451,507
Deferred revenue 4,037
Customer deposits and advances 51,737
Current maturities of:
Long-term debt 288,571
Capital lease obligations 19,801
----------
Total liabilities 1,680,482
----------
----------
Long Term Liabilities:
Long term debt 1,426,120
Capital lease obligations 11,878
Deferred income taxes 20,300
----------
Total liabilities 3,138,780
----------
----------
Commitments, Contingencies and Subsequent Event -
Shareholders' Equity:
Class A common stock, $.10 par value; 10,000 shares authorized,
issued and outstanding 1,000
Class B non-voting common stock, $.10 par value; 1000 shares authorized,
issued and outstanding 1,000
Additional paid-in capital 8,710
Retained earnings 470,270
----------
Total shareholders' equity 480,980
----------
$3,619,760
----------
----------
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net Sales $10,034,088
Cost of Sales 6,486,057
-----------
Gross Profit 3,548,031
Selling, General and Administrative Expenses 3,820,156
-----------
Operating Loss (272,125)
-----------
Other Income/(Expense):
Gain on sale of equipment, molds and trademark 169,572
Other 177,197
Recovery of previously written off accounts 111,065
Undistributed earnings in investment in partnership 8,002
Litigation settlement expense (24,233)
Interest expense (180,392)
-----------
261,211
-----------
Loss before Net Gain on Divested Operations (10,914)
Net Gain on Divested Operations 589,203
-----------
Income before Provision for Income Taxes 578,289
Provision for Income Taxes 189,700
-----------
Net Income 388,589
Retained Earnings, Beginning 81,681
-----------
Retained Earnings, Ending $ 470,270
-----------
-----------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 3,88,589
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 357,176
Provision for doubtful accounts 55,638
Recovery of doubtful accounts (75,862)
Gain on sale of equipment and molds (1,191,350)
Gain on sale of trademark (46,000)
Undistributed earnings in investment in partnership (8,002)
Changes in operating assets and liabilities:
(Increase)/decrease in assets:
Accounts receivable 388,267
Recoverable income taxes (15,751)
Inventories 417,128
Prepaid expenses and other current assets 166,482
Deferred income taxes 158,700
Increase/(decrease) in liabilities:
Accounts payable and accrued liabilities (656,612)
Due to parent 369,546
Deferred revenue (38,545)
Customer deposits and advances (98,249)
Deferred income taxes (41,600)
-----------
Net cash provided by operating activities 129,555
-----------
Cash Flows from Investing Activities:
Purchases of property and equipment (229,617)
Proceeds from sale of equipment 929,636
Proceeds from sale of trademark 46,000
Repayments on notes receivable 12,373
Liquidating distribution from investment in partnership 14,980
-----------
Net cash provided by investing activities 773,372
-----------
Cash Flows from Financing Activities:
Payments on term loan (516,604)
Net payments under line of credit (398,273)
Payment on note payable (50,000)
Payments on capital lease obligations (33,325)
Bank overdraft 87,986
-----------
Net cash used in financing activities (910,216)
-----------
Net Decrease in Cash (7,289)
Cash, Beginning 27,015
-----------
Cash, Ending $ 19,726
-----------
-----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 183,613
-----------
-----------
Income taxes $ 179,553
-----------
-----------
Non-Cash Investing and Financing Activities:
Note and other receivables in connection with the sale of equipment $ 285,000
-----------
-----------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Rotocast International, Inc. and Subsidiaries (the Company) is
primarily engaged in manufacturing various plastic products in
Florida, Nevada, Texas and Tennessee. The Company sells to various
customers throughout the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Rotocast International, Inc. and its wholly-owned subsidiaries.
All material inter-company transactions have been eliminated in
consolidation.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and accounts receivable.
CASH
At various times during the year the Company had deposits in
financial institutions in excess of the federally insured limits.
The Company maintains its cash with high quality financial
institutions which the Company believes limits these risks.
ACCOUNTS RECEIVABLE
The Company does business and extends credit based on an
evaluation of the customers' financial condition generally without
requiring collateral. Exposure to losses on receivables is
expected to vary by customer due to the financial condition of each
customer. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary
under the circumstances.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
basis) or market. The Company utilizes the full absorption method
of valuing inventory. Under this method, certain labor and
overhead costs related to the manufacturing process are allocated
to work-in-process and finished goods inventories.
MACHINERY AND EQUIPMENT
Machinery and equipment are carried at cost. Depreciation is
computed principally using the straight-line method over the
estimated useful lives of the related assets which range from three
to ten years. Gain or loss on disposition of assets is recognized
currently.
F-5
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
INCOME TAXES
The Company accounts for its income taxes using Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR
INCOME TAXES, which requires recognition of deferred tax
liabilities and assets for expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected
to reverse.
USE OF ESTIMATES
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and
operations for the period. Although these estimates are based on
management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
NOTE 2. INVENTORIES
<TABLE>
<S> <C>
Raw material, supplies and parts $ 921,132
Work-in-process 78,076
Finished goods 385,111
----------
1,384,319
Less allowance for obsolescence 150,234
----------
$1,234,085
----------
----------
</TABLE>
NOTE 3. MACHINERY AND EQUIPMENT
<TABLE>
<S> <C>
Machinery and equipment $6,514,227
Office equipment 749,840
Automotive equipment 43,478
Leasehold improvements 444,419
Equipment under capital lease 86,446
----------
7,838,410
Less accumulated depreciation and amortization 7,293,469
----------
$ 544,941
----------
----------
</TABLE>
Depreciation and amortization expense for property and equipment
amounted to approximately $340,000.
F-6
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 4. INVESTMENT IN PARTNERSHIP
The Company owns a 33-1/3% interest in a real estate venture which is
accounted for using the equity method. The partnership's net assets
are as follows:
<TABLE>
<S> <C>
Assets (principally includes note receivable on
the sale of land) $411,916
Liabilities -
--------
$411,916
</TABLE>
The note receivable is payable in monthly installments, including
interest at 7%, to 2004, with annual principal reductions, as
provided.
NOTE 5. OTHER ASSETS
<TABLE>
<S> <C>
Loan origination costs $66,546(a)
Deposits 30,029
-------
$96,575
-------
-------
</TABLE>
(a) Costs incurred in connection with obtaining a revolving line of
credit and term loan from a foreign institution were capitalized.
Such costs are being amortized over a period of 60 months and are
presented net of accumulated amortization of $24,198. (See Note 14)
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<S> <C>
Accounts payable $475,139
Accrued personnel expenses 233,069
Bank overdraft 87,986
Accrued income taxes 27,069
Other accruals 25,104
Accrued interest 16,462
--------
$864,829
--------
--------
</TABLE>
NOTE 7. DUE TO PARENT COMPANY
In accordance with a loan agreement with a foreign institution
described below, the Company cannot make payments for rent to its
parent company until all debt covenants are met. As a result of not
meeting certain covenants, the Company has accrued rent of
approximately $426,000 which is included in the $451,507 due to its
parent company.
F-7
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 8. LONG-TERM DEBT AND CAPITAL LEASES
LONG-TERM DEBT
<TABLE>
<S> <C>
Revolving line of credit $ 842,724
Term loan 771,967
Note payable in connection with a litigation
settlement; due in two installments of $50,000
in 1998 plus interest accruing at 9% per annum. 100,000
----------
1,714,691
Less current portion 288,571
----------
$1,426,120
----------
----------
</TABLE>
On October 2, 1996, the Company entered into a loan agreement with
a foreign institution which provided for a $3,500,000 revolving
line and a $1,320,000 term loan which were to be used to retire all
existing indebtedness and for the ongoing working capital needs of
the Company. Pursuant to terms of the agreement, the Company is
required to maintain a lockbox account with a U.S. bank. Deposits
made into this account are restricted for payment on the line of
credit. The line of credit and term loan, referred to as
"loans", are cross collateralized and cross defaulted such that a
default under the line of credit would constitute a default on the
term loan. The loans are collateralized by substantially all of
the assets of the Company. Additionally, the loan agreement
requires compliance with certain restrictive covenants, including
the maintenance of net worth and net income at specified levels.
REVOLVING LINE OF CREDIT
The Company may borrow up to $3,500,000 on a revolving line of
credit, based on separate borrowing bases of eligible accounts
receivable and inventory. The line bears interest at .25% over
the prime rate (8.75% at December 31, 1997) and/or at 2.25% above
the London Interbank Offered Rates (LIBOR) (7.94% at December 31,
1997). The Company is required to designate on a monthly basis
the amount of draws outstanding which are to bear interest at the
LIBOR rate plus 2.25%. Such draws are fixed for a period of three
months and amounted to $575,000 at year end. The remaining drawn
balance of $267,724 bears interest at the prime rate plus .25%.
Payments of interest only along with fees of [fr 1/4]% on the
unused balance of the line are payable on a monthly basis. The
entire outstanding principal balance and any accrued and unpaid
interest is due on October 2, 2001.
F-8
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 8. LONG-TERM DEBT AND CAPITAL LEASES (Cont.)
TERM LOAN
The term loan bears interest at .5% above the prime rate and/or
at 2.25% above the LIBOR rate. As with the revolving line of
credit, the Company is required to designate the amount of the
loan which is to bear interest at the LIBOR rate which is fixed
for a period of three months. The amount designated at the LIBOR
rate plus 2.25% was $700,000 at year end. The remaining balance
bearing interest at the prime rate plus .5% (9% at December 31,
1997) amounted to $71,967 at year end. The loan is payable in
installments of $15,714 plus accrued interest on a monthly basis
through October 2, 2001. Pursuant to terms of the term loan
agreement, the Company prepaid $150,000 during 1997 to reduce the
loan's principal balance. In addition, the Company has further
reduced the loan with proceeds from the sales of certain
equipment.
Future maturities of the long-term debt are due as follows:
<TABLE>
<S> <C>
1998 $ 289,000
1999 189,000
2000 189,000
2001 1,048,000
----------
$1,715,000
----------
----------
</TABLE>
On March 27, 1998, in connection with the Plan of Merger and
Reorganization, the outstanding balances on the revolving line of
credit and term loan were paid off. (See Note 14)
CAPITAL LEASES
The Company leases various equipment under capital leases. Future
minimum capital lease payments are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998 $21,983
1999 12,336
-------
Total minimum lease payments 34,319
Less amount representing interest 2,640
-------
Present value of minimum payments 31,679
Less current maturities 19,801
-------
Long-term capital lease obligations $11,878
-------
-------
</TABLE>
F-9
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 9. INCOME TAXES
Significant components of the provision for income taxes for the year
attributable to continuing operations are as follows:
<TABLE>
<S> <C>
Current:
Federal $ 59,300
State and local 13,300
--------
72,600
Deferred:
Federal 117,100
--------
$189,700
--------
--------
</TABLE>
The net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes are reflected in deferred
income taxes. Significant components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets, current:
Accounts receivable, principally due to allowance for doubtful accounts $11,650
Inventories, principally due to additional costs inventoried for tax
purposes pursuant to the Tax Reform Act of 1986 19,710
Compensated absences, principally due to accrual for financial reporting
purposes 16,040
Litigation settlement not currently deductible for tax purposes 34,000
-------
81,400
Deferred tax liabilities, current:
Installment sale on assets at Wonder 61,300
-------
Net deferred tax asset, current $20,100
-------
-------
Deferred tax liabilities, non-current:
Property and equipment, principally due to differences in depreciation $ 7,250
Installment sale on assets at Wonder 13,050
-------
Total deferred tax liability, non-current $20,300
-------
-------
</TABLE>
NOTE 10. OTHER INCOME
During 1997, the Company attempted to notify customers of unclaimed
credit balances. Those credits which remained unclaimed despite
efforts by the Company were included in other income in 1997.
F-10
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities and certain computer equipment
under operating leases expiring in various years through 2006.
Certain facilities are leased from the parent company,
shareholders of the Company and from individuals who are related
to these shareholders. Lease payments to these related parties
during the year amounted to approximately $590,000 which includes
approximately $108,000 of rent expense included in divested
operations. Future minimum rental commitments under the
non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1998 $ 586,000
1999 511,000
2000 501,000
2001 493,000
2002 489,000
Thereafter 1,775,000
----------
$4,355,000
----------
----------
</TABLE>
Rent expense charged to operations was approximately $616,000.
LITIGATION
The Company is involved in lawsuits arising in the ordinary course
of business. In the opinion of management, any liabilities
resulting from such litigation would not be material in relation to
the Company's financial position.
NOTE 12. PROFIT-SHARING PLAN
On September 30, 1995, the Company adopted a 401(k) Profit-Sharing
Plan (the "Plan") for all employees with at least one year of
service and 21 years of age. The Plan, which has a fiscal year end
of March 31, provides for employee contributions up to 15% of the
employee's annual salary subject to certain limitations. The
employer's matching contribution is equal to 50% up to 6% of
contributed salary. Employer contributions, which vest ratably over
five years after the employee's second year of service, amounted to
approximately $28,000 for the year.
F-11
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 13. DIVESTURE OF WONDER OPERATIONS
On February 5, 1997, the Company sold certain of the machinery,
equipment and inventories of its Wonder plant operation for
$500,000. Included in the sale are molds, tradenames, trademarks
and other intellectual property. According to the terms of the
agreement, the Company received cash of $350,000 and a note for the
remaining $150,000, payable over two years in three installments of
$50,000 plus interest at 8% per annum ($100,000 in 1998 and $50,000
in 1999) and includes certain non-compete provisions (see below).
The Company has allocated the entire sales price to the sale of the
physical assets and accordingly, the $500,000 has been included in
the determination of the gain on sale of equipment, molds and
certain tradenames and trademarks. In the opinion of management,
based upon the facts and circumstances surrounding this transaction,
the non-compete provisions had no significant economic value and,
accordingly no amount has been allocated to this provision of the
sales transaction.
The terms of the non-compete agreement restrict the Company either
directly or indirectly, through affiliates, a partnership, a joint
venture or otherwise, to enter into, engage in, conduct or carry on
any business which produces or manufactures products now produced or
manufactured by the Company. In addition, as part of the agreement,
the Company, if it violates or successfully contests the non-compete
obligation, will be liable to the buyer for 50% of the aggregate
purchase price paid of $500,000.
The divestiture also included significant sales of machinery and
equipment and molds to other outside parties as well as the transfer
of certain operations to other Company plants. The Company has
other receivables of $135,000 as a result of its sale of equipment
to other parties.
In 1998, the Company's lease with its parent company expires and its
lease with an outside party will be transferred to its parent
company. Additionally, the Company intends to fully divest its
Wonder plant operations during 1998. The significant components of
the net gain on the divestiture are as follows:
<TABLE>
<S> <C>
Sales $ 233,707
Cost of sales 266,034
----------
Gross margin (32,327)
Selling, general and administrative expenses 498,319
----------
Loss from operations of Wonder plant (530,646)
Gain on sale of equipment, molds and certain
tradenames and trademark 1,119,849
----------
Net gain on divestiture $ 589,203
----------
----------
</TABLE>
F-12
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
NOTE 14. PLAN OF MERGER AND REORGANIZATION
On March 25, 1998 (the date of closing), the Company and its parent
company (the "Sellers") entered into a Plan of Merger and
Reorganization Agreement (the "Agreement") which provided for the
sale of all of the Company's assets and properties, and the
assumption of certain of the Company's liabilities and obligations
by causing the Company to be merged into the buyer. In connection
with the assumption of the liabilities, on March 27,1998, the buyer
paid off the outstanding balances on the revolving line of credit
and term loan the Company had with a foreign institution (see Note 8).
Pursuant to the terms of the Agreement, the shareholders of the
Sellers surrendered all of their shares to the buyer in exchange for
certain shares of common stock of the buyer intended to have a value
of $3 million on the closing date and an interest-bearing secured
promissory note in the principal amount of $2 million. All
principal and any accrued interest due is payable within eighteen
months of the closing date; interest on the note shall be payable
one year from the closing date and at maturity. As collateral for
the note, the buyer also delivered to the Sellers a $2 million
irrevocable letter of credit. Additionally, the Sellers deposited
5% of the shares of common stock they received into an escrow
account until December 31,1998; such stock was deposited to provide
recourse to the buyer in the event of any breaches of
representations, warranties or covenants by the Sellers stipulated
in the Agreement. Such covenants include, among other things,
covenants not to compete by three of the parent company shareholders.
F-13
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 9,700
Accounts receivable and notes receivable, net of allowance for
doubtful accounts of $49,800 1,474,100
Inventories (Note 2) 1,212,200
Prepaid expenses and other current assets 163,400
----------
Total current assets 2,859,400
Plant and Equipment, net (Note 3) 507,300
Other Assets 175,500
----------
$3,542,200
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt (Note 4) $1,765,600
Accounts payable 932,700
Accrued liabilities (Note 5) 360,200
----------
Total current liabilities 3,058,500
Long-Term Liabilities:
Long-term debt (Note 4) 10,200
Other long-term liabilities 20,300
----------
Total liabilities 3,089,000
----------
Shareholders' Equity:
Class A common stock, $.10 par value; 10,000 shares authorized,
issued and outstanding 1,000
Class B non-voting common stock, $.10 par value; 10,000 shares authorized,
issued and outstanding 1,000
Additional paid-in capital 8,700
Retained earnings 442,500
----------
Total shareholders' equity 453,200
----------
$3,542,200
----------
----------
</TABLE>
See notes to consolidated financial statements
F-14
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Net Sales: $ 2,620,600
------------
Cost of Goods Sold (1,780,300)
Selling, General and Administrative Expenses (963,800)
Interest Expenses (35,200)
Other Incomes 40,000
------------
(2,739,300)
------------
Loss from Continuing Operations (118,700)
Loss from Discontinued Operations (64,100)
------------
Loss before Income Taxes (182,800)
Benefit For Income Taxes 41,400
------------
Net Loss $ (141,400)
------------
------------
</TABLE>
See notes to consolidated financial statements
F-15
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Loss $ (141,400)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 78,600
Provision for doubtful accounts 15,500
Gain on sale of equipment (24,000)
Changes in operating assets and liabilities:
(Increased)/decrease in assets:
Accounts receivable 77,000
Inventories 21,900
Prepaid expenses and other current assets (25,600)
Other assets 56,600
Increase/(decrease) in liabilities:
Accounts payable and accrued liabilities (79,700)
----------
Net cash used in operating activities (21,100)
----------
Cash Flows from Investing Activities:
Purchases of property and equipment (44,100)
Proceeds from sale of equipment 24,000
Liquidating distribution from investment in partnership 1,800
----------
Net cash used in investing activities (18,300)
----------
Cash Flows from Financing Activities:
Payments on term loan (877,900)
Net payments under line of credit (842,700)
Proceeds from issuance of bank debt 1,750,000
----------
Net cash provided by financing activities 29,400
----------
Net Decrease in Cash (10,000)
Cash, Beginning 19,700
----------
Cash, Ending $ 9,700
----------
----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 51,700
----------
----------
</TABLE>
See notes to consolidated financial statements
F-16
<PAGE>
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1. INTERIM REPORTING:
The interim financial information included herein is unaudited. This
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of operating results for the interim
periods. This financial information should be read in conjunction with
the Rotocast International, Inc. audited financial statements for the
year ended December 31, 1997.
NOTE 2. INVENTORIES
Inventories at March 31, 1998 consist of:
<TABLE>
<S> <C>
Raw material $ 803,500
Work-in-process 78,100
Finished goods 330,600
----------
$1,212,200
----------
----------
</TABLE>
NOTE 3. PLANT AND EQUIPMENT
Plant and equipment at March 31, 1998 consist of:
<TABLE>
<S> <C>
Machinery, equipment, furniture and fixtures $ 7,250,700
Leasehold improvements 431,400
-----------
7,682,100
-----------
Less - Accumulated depreciation (7,174,800)
-----------
$ 507,300
-----------
-----------
</TABLE>
NOTE 4. LONG TERM DEBT
Long term debt at March 31, 1998 consists of the following:
<TABLE>
<S> <C>
Bank note payable due in monthly interest only payments
at the bank's prime rate (8.5% per annum at March 31,
1998) maturing June 26, 1998 $ 1,750,000(A)
Other 25,800
-----------
1,775,800
-----------
Less current portion (1,765,600)
-----------
$ 10,200
-----------
-----------
</TABLE>
(A) This note was refinanced in May 1998 with a $2,000,000 sixty month
fully amortizable loan. The note is payable in monthly principal
payments of $33,300 plus interest.
NOTE 5. ACCRUED LIABILITIES:
Accrued liabilities at March 31, 1998 consists of the following:
<TABLE>
<S> <C>
Salaries, wages, commissions and related payables $261,200
Other 99,000
--------
$360,200
--------
--------
</TABLE>
F-17
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
Pursuant to the Agreement and Plan of Merger and Reorganization between
Rotonics Manufacturing Inc. (RMI) and GSC Industries, Inc. dated March 24,
1998, RMI acquired the outstanding common stock of Rotocast International,
Inc. and its wholly owned subsidiaries (Rotocast) for $3 million in RMI
common stock and a $2 million note payable. The merger was accounted for as
a purchase and pursuant to the agreement was effective March 31, 1998.
The following unaudited pro forma combined financial statements reflect the
combined operations of RMI and Rotocast for the year ended June 30, 1997, and
the nine months ended March 31, 1998. The pro forma combined balance sheet
combined RMI's and Rotocast's respective balance sheets as of March 31, 1998.
The respective statements have been prepared as though the merger had
occurred at the beginning of the periods presented.
The pro forma combined statements of operations are not necessarily
indicative of operating results which would have been achieved had the merger
been consummated as of the beginning of such periods and should not be
construed as representative of future operations.
F-18
<PAGE>
ROTONICS MANUFACTURING INC. AND
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Rotonics at Rotocast at Pro Forma Pro Forma
3/31/98 3/31/98 Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 11,800 $ 9,700 $ 21,500
Accounts receivable and notes receivable, net 5,198,700 1,474,100 6,672,800
Inventories 6,051,100 1,212,200 7,263,300
Deferred income taxes, net 1,574,600 20,100 1,594,700
Prepaid expenses and other assets 230,700 143,300 374,000
----------- ----------- -----------
Total current assets 13,066,900 2,859,400 15,926,300
Deferred income taxes, net 1,398,000 (20,300) 1,377,700
Property, plant and equipment, net 11,169,400 507,300 $ 4,596,400 (A) 16,273,100
Intangible assets, net 4,854,000 - 4,854,000
Other assets 567,900 175,500 (49,600)(A) 693,800
----------- ----------- ----------- -----------
Total assets $31,056,200 $ 3,521,900 $ 4,546,800 $39,124,900
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,413,400 $ 1,765,600 $ 3,179,000
Accounts payable 2,525,800 932,700 3,458,500
Accrued liabilities 653,900 360,200 1,014,100
----------- ----------- -----------
Total current liabilities 4,593,100 3,058,500 7,651,600
Bank line of credit 4,500,000 - 4,500,000
Long term debt 3,718,100 10,200 $ 2,000,000 (A) 5,728,300
----------- ----------- ----------- -----------
Total liabilities 12,811,200 3,068,700 2,000,000 17,879,900
----------- ----------- ----------- -----------
Stockholders' equity:
Common stock, net of treasury-Rotonics 23,921,400 - 3,000,000 (A) 26,921,400
Common stock-Rotocast - 2,000 (2,000)(A) -
Additional paid in capital - 8,700 (8,700)(A) -
Retained earnings (5,676,400) 442,500 (442,500)(A) (5,676,400)
----------- ----------- ----------- -----------
Total stockholders' equity 18,245,000 453,200 2,546,800 21,245,000
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $31,056,200 $ 3,521,900 $ 4,456,800 $39,124,900
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- --------------------
(A) Adjustment to record the statutory merger of Rotonics and Rotocast.
Rotonics issued 2,072,539 shares of common stock and a $2,000,000 note
payable due in 18 months (which is also secured by a standby letter of
credit) in exchange for all the outstanding common stock of Rotocast and
its wholly owned subsidiaries. In connection with the merger,
Rotocast's plant & equipment is recorded at fair marker value.
F-19
<PAGE>
ROTONICS MANUFACTURING INC. AND
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Rotonics Rotocast Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $39,385,100 $ 9,767,000 $49,152,100
----------- ----------- -----------
Costs and Expenses:
Costs of goods sold 29,292,100 6,070,200 $ 459,700 (A) 35,822,000
Selling, general and administrative 6,239,600 4,117,400 10,357,000
----------- ----------- ----------- -----------
Total costs and expenses 35,531,700 10,187,600 459,700 46,179,000
----------- ----------- ----------- -----------
Operating income/(loss) 3,853,400 (420,600) (459,700) 2,973,100
----------- ----------- ----------- -----------
Other income/(expense)
Interest expense (556,500) (157,200) (105,200)(B) (818,900)
Other (912,300) 533,400 (378,900)
----------- ----------- ----------- -----------
Total other income/(expense) (1,468,800) 376,200 (105,200) (1,197,800)
----------- ----------- ----------- -----------
Income/(loss) from continuing operations
before income taxes 2,384,600 (44,400) (564,900) 1,775,300
Provisions/(benefit) for income taxes 942,800 (25,700) (207,000)(C) 710,100
----------- ----------- ----------- -----------
Income/(loss) from continuing operations $ 1,441,800 $ (18,700) $ (357,900) $ 1,065,200
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common share $ 0.10 $ 0.07
----------- -----------
----------- -----------
Average shares outstanding 14,135,200 16,207,739 (D)
----------- -----------
----------- -----------
</TABLE>
- --------------------
(A) Depreciation adjustment on $4,596,500 write-up of Rotocast's plant and
equipment (based on an appraised value of $7.2 million), calculated
using an estimated useful life of ten (10) years.
(B) Interest adjustment for $2,000,000, eighteen (18) month note issued in
connection with merger transaction.
(C) Reduction of income tax provision/(benefit) relating to the foregoing
adjustments.
(D) Average shares outstanding include the 2,072,539 shares of Rotonics
common stock issued in connection with the merger transaction.
F-20
<PAGE>
ROTONICS MANUFACTURING INC. AND
ROTOCAST INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Rotonics Rotocast Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $25,260,500 $ 7,687,900 $32,948,400
----------- ----------- -----------
Costs and Expenses:
Costs of goods sold 19,882,700 5,373,100 $ 344,700 (A) 25,600,500
Selling, general and administrative 4,656,300 2,754,300 7,410,600
----------- ----------- ----------- -----------
Total costs and expenses 24,539,00 8,127,400 344,700 33,011,100
----------- ----------- ----------- -----------
Operating income/(loss) 721,500 (439,500) (344,700) (62,700)
----------- ----------- ----------- -----------
Other income/(expense)
Interest expense (522,100) (116,700) (78,900)(B) (717,700)
Other 101,000 229,400 330,400
----------- ----------- ----------- -----------
Total other income/(expense) (421,100) 112,700) (78,900) (387,300)
----------- ----------- ----------- -----------
Income/(loss) from continuing operations
before income taxes 300,400 (326,800) (423,600) (450,000)
Provisions/(benefit) for income taxes 46,100 (124,800) 78,700 (C) -
----------- ----------- ----------- -----------
Income/(loss) from continuing operations $ 254,300 $ (202,000) $(502,300) $ (450,000)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common share $ 0.02 $ (0.03)
----------- -----------
----------- -----------
Average shares outstanding 13,939,654 16,012,193 (D)
----------- -----------
----------- -----------
</TABLE>
- --------------------
(A) Depreciation adjustment on $4,596,500 write-up of Rotocast's plant and
equipment (based on an appraised value of $7.2 million), calculated
using an estimated useful life of ten (10) years.
(B) Interest adjustment for $2,000,000, eighteen (18) month note issued in
connection with merger transaction.
(C) Reduction of income tax provision/(benefit) relating to the foregoing
adjustments and the Company's available net operating loss carryforwards.
(D) Average shares outstanding include the 2,072,539 shares of Rotonics
common stock issued in connection with the merger transaction.
F-21
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, dated February 20, 1998, except for Notes 8 and 14, as to which
the date is March 27, 1998, on page F-1 of this Form 8-K/A 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).
RACHLIN COHEN & HOLTZ
Miami, Florida
June 11, 1998
F-22
