<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: SEPTEMBER 30, 1999
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 Number)
17022 SOUTH FIGUEROA STREET, GARDENA, CALIFORNIA 90248
(Address of principal executive offices) (Zip Code)
(310) 538-4932
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1999
Common Shares 14,976,915 Shares
($.01 stated value)
Total Pages 15
<PAGE>
ROTONICS MANUFACTURING INC.
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 1999 (Unaudited)
and June 30, 1999 (Audited) 3
Consolidated Statements of Income and
Accumulated Deficit -
Three Months Ended September 30, 1999
and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1999
and 1998 (Unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROTONICS MANUFACTURING INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,200 $ 3,300
Accounts receivable, net of allowance for doubtful accounts
of $352,900 and $321,400, respectively (Notes 5 and 6) 6,355,400 6,570,200
Notes receivable 42,200 51,700
Inventories (Notes 2, 5 and 6) 7,435,700 6,973,700
Deferred income taxes, net (Note 11) 1,684,500 1,885,900
Prepaid expenses and other current assets 409,100 216,700
----------- ------------
Total current assets 15,930,100 15,701,500
Notes receivable, less current portion 498,900 502,800
Investment in partnership 122,700 124,200
Property, plant and equipment, net (Notes 3, 5 and 6) 17,876,300 18,093,800
Intangible assets, net (Note 4) 4,718,200 4,800,800
Other assets 65,600 77,200
----------- ------------
$39,211,800 $39,300,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 6) $ 1,864,000 $ 2,067,000
Accounts payable 3,099,700 2,818,800
Accrued liabilities (Note 8) 1,102,100 1,037,100
Income taxes payable (Note 11) 8,300 43,000
------------ ------------
Total current liabilities 6,074,100 5,965,900
Bank line of credit (Note 5) 3,571,100 2,287,400
Long-term debt, less current portion (Note 6) 4,850,800 5,183,200
Long-term debt due related parties (Note 7) - 2,000,000
Deferred income taxes, net (Note 11) 2,684,200 2,429,500
----------- ------------
Total liabilities 17,180,200 17,866,000
------------ ------------
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 14,975,933 and 15,072,300 shares, respectively,
net of treasury shares (Note 10) 26,129,800 26,232,500
Accumulated deficit (4,098,200) (4,798,200)
----------- -----------
Total stockholders' equity 22,031,600 21,434,300
------------ ------------
$39,211,800 $39,300,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net sales $ 12,070,900 $11,873,800
------------- -------------
Costs and expenses:
Cost of goods sold 8,454,300 8,662,400
Selling, general and administrative expenses 2,176,000 2,252,500
------------- -------------
Total costs and expenses 10,630,300 10,914,900
------------- -------------
Income from operations 1,440,600 958,900
------------- -------------
Other (expense)/income:
Interest expense (237,100) (260,600)
Other income, net 66,900 29,500
------------- -------------
Total other expense (170,200) (231,100)
------------- -------------
Income before income taxes 1,270,400 727,800
Income tax provision (Note 11) (570,400) (365,700)
-------------- -------------
Net income 700,000 362,100
Accumulated deficit, beginning of period (4,798,200) (5,513,500)
-------------- -------------
Accumulated deficit, end of period $ (4,098,200) $ (5,151,400)
============== =============
Income per common share (Note 12):
Net income:
Basic $ .05 $ .02
======= ========
Diluted $ .05 $ .02
======= ========
Weighted average number of common and common equivalent shares outstanding:
Basic 15,000,489 15,648,464
============ ============
Diluted 15,026,923 15,649,184
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
ROTONICS MANUFACTURING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 700,000 $ 362,100
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 669,300 665,700
Gain on sales of equipment (26,300) -
Deferred income tax provision 456,100 301,600
Provision for doubtful accounts 31,400 33,100
Changes in assets and liabilities:
Decrease in accounts receivable 183,400 67,800
(Increase)/decrease in inventories (462,000) 92,300
(Increase)/decrease in prepaid expenses and other current assets (192,400) 30,000
Decrease in other assets 11,600 4,900
Increase/(decrease) in accounts payable 280,900 (63,800)
Increase in accrued liabilities 65,000 107,900
Decrease in income taxes payable (34,700) -
------------ -------------
Net cash provided by operating activities 1,682,300 1,601,600
------------- -------------
Cash flows from investing activities:
Repayments on notes receivable 13,400 16,300
Capital expenditures (369,200) (668,500)
Distribution from investment in partnership 1,500 -
Proceeds from sales of equipment 26,300 -
------------- -------------
Net cash used in investing activities (328,000) (652,200)
------------- -------------
Cash flows from financing activities:
Borrowings under line of credit 3,666,500 2,890,100
Repayments under line of credit (2,382,800) (5,060,700)
Proceeds from issuance of long-term debt - 3,004,500
Repayment of long-term debt (2,535,400) (1,500,500)
Payment of common stock dividends - (4,700)
Repurchases of common stock (102,700) (252,800)
------------- -------------
Net cash used in financing activities (1,354,400) (924,100)
------------- -------------
Net (decrease)/increase in cash (100) 25,300
Cash at beginning of period 3,300 30,700
------------- -------------
Cash at end of period $ 3,200 $ 56,000
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 254,400 $ 242,200
============= =============
Income taxes $ 149,600 $ 33,500
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
ROTONICS MANUFACTURING INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
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 interim financial information
should be read in conjunction with the Rotonics Manufacturing Inc. ("the
Company") Annual Report as filed on Form 10-K for the fiscal year ended June 30,
1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Rotocast Plastic Products of Tennessee, Inc. All
intercompany accounts and transactions have been eliminated in consolidation.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Effective for fiscal year 1999, the Company adopted SFAS No. 131 "Disclosures
About Segments of an Enterprise and Related Information". SFAS No. 131
introduces management's approach to defining operating segments. This approach
corresponds to the way management organizes units and internally evaluates
performance of its operations based on products, services, geography, legal or
management structure. Once operating segments are identified, they are then
grouped based on similar characteristics to determine reportable segments. Under
the provisions of SFAS No. 131 the Company's operations are conducted under one
operating segment.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. The adoption of this pronouncement is not expected to have a
significant impact on the Company's financial statements.
<TABLE>
<CAPTION>
NOTE 2 - INVENTORIES:
<S>
Inventories consist of:
September 30, June 30,
1999 1999
------------- -------------
<C> <C>
Raw materials $ 2,733,900 $ 2,728,000
Finished goods 4,701,800 4,245,700
------------- -------------
$ 7,435,700 $ 6,973,700
============= ============
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of:
September 30, June 30,
1999 1999
------------- -------------
Land $ 1,039,500 $ 1,039,500
Buildings and building improvements 4,414,500 4,291,300
Machinery, equipment, furniture and fixtures 23,877,100 23,603,300
Construction in progress 582,800 610,600
------------- -------------
29,913,900 29,544,700
Less - accumulated depreciation (12,037,600) (11,450,900)
------------- -------------
$ 17,876,300 $ 18,093,800
============= =============
5
<PAGE>
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consist of: September 30, June 30,
1999 1999
------------- -------------
Patents, net of accumulated amortization of $108,400 and $107,000 $ 43,800 $ 45,200
Goodwill, net of accumulated amortization
of $2,783,000 and $2,701,800 4,674,400 4,755,600
------------- -------------
$ 4,718,200 $ 4,800,800
============= =============
</TABLE>
NOTE 5 - BANK LINE OF CREDIT:
The Company has a $7,000,000 revolving line of credit with Wells Fargo Bank.
The line matures October 1, 2001 and 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 September 30, 1999
was 8.25% per annum. The loan agreement allows the Company to convert the
outstanding principal balance in increments of $250,000 to a LIBOR-based loan
for periods up to 90 days. At September 30, 1999, total borrowings under the
Company's line of credit was $3,571,100 of which $1,750,000 was borrowed
under the LIBOR option bearing a LIBOR interest rate of 7.38125% per annum
and maturing October 15, 1999. Proceeds from the loan were used for working
capital purposes. At September 30, 1999 the Company had approximately $3.4
million available for future borrowings under the revolving line of credit.
On September 25, 1999 the Company paid the $2,000,000 note due to GSC, Inc.
The note payment was funded by an advance on the Company's line of credit
which was reserved for such purpose. The letter of credit issued to secure
the GSC note has subsequently expired.
<TABLE>
<CAPTION>
NOTE 6 - LONG-TERM DEBT:
<S>
Long-term debt consists of:
September 30, June 30,
1999 1999
------------- -------------
<C> <C>
Note payable - Bank (A) $ 533,300 $ 733,300
Note payable - Bank (B) 166,700 191,700
Note payable - Bank (C) 262,700 288,100
Note payable - Bank (D) 550,000 600,000
Note payable - Bank (E) 980,000 1,040,000
Note payable - Bank (F) 2,300,000 2,450,000
Note payable - Bank (G) 1,906,700 1,926,700
Other 15,400 20,400
------------- -------------
6,714,800 7,250,200
Less current portion (1,864,000) (2,067,000)
------------- -------------
$ 4,850,800 $ 5,183,200
============= =============
</TABLE>
(A) 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% per annum at September 30, 1999). In addition, the
loan agreement allows the Company to convert all or a portion of the
outstanding principal to a LIBOR-based loan for periods up to 180 days. At
September 30, 1999, the total outstanding principal balance was under the
LIBOR option at 7.38125% per annum maturing on October 15, 1999. The note
is secured by the Company's machinery and equipment, accounts receivable
and inventories and matures on May 16, 2000.
(B) 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% per
annum at September 30, 1999), or LIBOR interest rate option for periods up
to six
6
<PAGE>
months. At September 30, 1999, the total outstanding principal was
under the LIBOR option at 7.38125% per annum maturing October 15, 1999. The
note is secured by the Company's machinery and equipment and matures on May
15, 2001.
(C) In March 1997, the Company was advanced $500,000 on its second 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 $625,000 in machinery and equipment
purchases. The note is due in monthly principal installments of
approximately $8,500 plus interest at the bank's prime rate, (8.25% per
annum at September 30, 1999), or LIBOR interest rate option for periods up
to six months. At September 30, 1999, the total outstanding principal was
under the LIBOR option at 7.38125% per annum maturing October 15, 1999. The
note is secured by the Company's machinery and equipment and matures on May
15, 2002.
(D) In June 1997, the Company was advanced $1,000,000 on its third 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 $1,250,000 in machinery and
equipment purchases. The note is due in monthly principal installments of
approximately $16,700 plus interest at the bank's prime rate, (8.25% per
annum at September 30, 1999), or LIBOR interest rate option for periods up
to three months. At September 30, 1999, the total outstanding principal was
under the LIBOR option at 7.38125% per annum maturing October 15, 1999. The
note is secured by the Company's machinery and equipment and matures on
June 27, 2002.
(E) In 1998, the Company was advanced $1,200,000 on its fourth 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 $1,500,000 in machinery and
equipment purchases. The note was due in monthly interest only payments at
the bank's prime rate or LIBOR interest rate options until November 15,
1998. At this time the note converted to a sixty month fully amortizable
loan due in monthly principal installments of $20,000 plus interest at the
bank's prime rate, (8.25% per annum at September 30, 1999), or LIBOR
interest rate option for periods up to three months. At September 30, 1999,
the total outstanding principal was under the LIBOR option at 7.38125% per
annum maturing October 15, 1999. The note is secured by the Company's
machinery and equipment and matures on July 15, 2003.
At September 30, 1999, the Company had available a term-loan commitment in
the amount of $1,200,000 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 July 1, 2000 at
which time amounts borrowed will convert to a sixty month fully amortizable
loan.
(F) In connection with the Rotocast acquisition, the Company retired Rotocast's
existing line of credit and long-term debt with a 90 day note issued by
Wells Fargo Bank in the amount of $1,750,000. In April 1998, pursuant to an
appraisal of Rotocast's machinery and equipment, this note was replaced
with a $2,000,000 sixty month fully amortizable note. In July 1998, the
note again was replaced with a $3,000,000 sixty month fully amortizable
loan. The note was due in monthly interest only payments at the bank's
prime rate or LIBOR interest rate option for periods up to three months
until August 15, 1998. At this time the note converted to a sixty month
fully amortizable loan due in monthly principal installments of $50,000
plus interest at the bank's prime rate, (8.25% per annum at September 30,
1999), or LIBOR interest rate option. At September 30, 1999, the total
outstanding principal was under the LIBOR option at 7.38125% per annum
maturing October 15, 1999. The note is secured by the Company's machinery
and equipment and matures July 1, 2003.
(G) In July 1998, a $2,000,000 real estate loan secured by the Company's
Bensenville, Illinois and Gainesville, Texas properties was issued to Wells
Fargo Bank. This note replaced the 1994 real estate loan issued in
connection with the purchase of the Bensenville, Illinois property. The
note is due in monthly principal installments of approximately $6,700 plus
interest at the bank's prime rate, (8.25% per annum at September 30, 1999),
or LIBOR interest rate option on a twenty-five year amortization with the
outstanding principal due on July 1, 2008. At September 30, 1999, the total
outstanding principal was under the LIBOR option at 7.38125% per annum
maturing October 15, 1999.
Effective July 15, 1998, the Company initiated an interest rate swap
agreement with the bank. The agreement will allow the Company to fix a
portion of its outstanding term and line of credit debt ($7.5 million as of
September 30, 1999) from a variable floating rate to a fixed interest rate
in efforts to protect against future increases in the bank's prime rate.
The agreement matures July 15, 2003.
7
<PAGE>
<TABLE>
<CAPTION>
NOTE 7 - RELATED PARTY DEBTS:
<S>
Related party debt consists of:
September 30, June 30,
1999 1999
------------- -------------
<C> <C>
Note payable - (A) $ - $ 2,000,000
Less current portion - -
------------- -------------
$ - $ 2,000,000
============= =============
</TABLE>
(A) This note was issued to GSC Industries, Inc., which a director of the
Company has a 54% interest, in connection with the acquisition of Rotocast.
The note bears interest at 5.26% per annum . The note was repaid at its
maturity, September 25, 1999, and the payment was funded by an advance on
the Company's line of credit which was reserved for such purpose. The note
was also secured by a $2,000,000 irrevocable standby letter of credit,
which has subsequently expired.
<TABLE>
<CAPTION>
NOTE 8 - ACCRUED LIABILITIES:
<S>
Accrued liabilities consist of:
September 30, June 30,
1999 1999
------------- -------------
<C> <C>
Salaries, wages, commissions and related payables $ 873,900 $ 712,800
Other 228,200 324,300
------------- -------------
$ 1,102,100 $ 1,037,100
============= =============
</TABLE>
NOTE 9 - STOCK OPTION PLAN:
The Company has a stock option plan which 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 maximum term for options granted
under the plan is five years. The plan expires June 12, 2004.
In the first quarter of fiscal 2000, the Company issued to a certain key
employee, pursuant to his employment agreement, options to purchase 40,000
shares of the Company's common stock. The options outstanding as of September
30, 1999 are exercisable at prices ranging from $0.8125 - $0.9375 (fair market
value at the date of grant). The outstanding options are exercisable as follows:
147,500 shares 100% exercisable, and 7,500 shares exercisable September 2000. At
September 30, 1999, the Company had 845,000 shares available for future grants.
<TABLE>
<CAPTION>
<S>
STOCK OPTION ACTIVITY:
Outstanding Weighted Average
Shares price per share
----------- ----------------
<C> <C>
Balance outstanding at June 30, 1999 115,000 $ 0.8668
Granted 40,000 $ 0.9375
-----------
Balance outstanding at September 30, 1999 155,000 $ 0.8851
===========
</TABLE>
8
<PAGE>
NOTE 10 - COMMON STOCK:
Treasury stock is recorded at cost. At September 30, 1999, treasury stock
consisted of 1,058 shares of common stock at a cost of $900 and at June 30,
1999, treasury stock consisted of 13,491 shares of common stock at a cost of
$13,800.
The Company is still actively purchasing additional common shares under its
buyback program. During the first quarter of fiscal 2000, the Company had
purchased 96,400 shares of common stock at a total cost of $102,700.
<TABLE>
<CAPTION>
NOTE 11 - INCOME TAXES:
<S>
The components of the income tax provision were:
For the three months ended
September 30,
--------------------------
1999 1998
---------- ----------
<C> <C>
Current:
Federal $ 29,500 $ 21,000
State 84,800 43,100
---------- ----------
114,300 64,100
---------- ----------
Deferred:
Federal 463,900 293,700
State (7,800) 7,900
---------- ----------
456,100 301,600
---------- ----------
$ 570,400 $ 365,700
========== ==========
</TABLE>
At September 30, 1999, the Company had net operating loss (NOL) carryforwards of
approximately $4,900,000 and $7,346,000 for federal and state income tax
purposes, respectively. The NOL carryforwards, which are available to offset
taxable income 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 2003 and 2000 for federal and state purposes, respectively, if not utilized.
The federal and state NOL carryforwards expire as follows:
<TABLE>
<CAPTION>
AMOUNT OF UNUSED OPERATING LOSS CARRYFORWARDS EXPIRATION DURING YEAR
FEDERAL STATE ENDED JUNE 30,
----------- ------------ ----------------------
<S> <C> <C>
$ - $ 371,000 2000
- 405,000 2001
- 207,000 2002
200,000 451,000 2003
3,400,000 273,000 2004
600,000 444,000 2005
500,000 155,000 2006
- 708,000 2007
- 603,000 2008
200,000 1,054,000 2009
- 395,000 2010
- 555,000 2011
- 477,000 2012
- 406,000 2013
- 842,000 2014
----------- ------------
$ 4,900,000 $ 7,346,000
=========== ============
</TABLE>
At September 30, 1999, the Company had a federal alternative minimum tax credit
of approximately $263,400 which is available to offset future federal income
taxes once the Company is no longer subject to an alternative minimum tax for
federal income tax purposes.
9
<PAGE>
NOTE 12 - COMPUTATION OF EARNINGS PER SHARE:
Basic and diluted earnings per share have been computed in accordance with SFAS
No. 128 "Earnings per Share", using the treasury stock method for applicable
common stock options when computing diluted earnings per share.
The tables below details the components of the basic and diluted earning per
share ("EPS") calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------------------- --------------------------------------
EPS EPS
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income $ 700,000 15,000,489 $ .05 $ 362,100 15,648,464 $ .02
Effect of dilutive stock options - 26,434 - - 720 -
---------- ---------- ----------- ---------- ---------- ----------
Diluted EPS $ 700,000 15,026,923 $ .05 $ 362,100 15,649,184 $ .02
---------- ---------- ----------- ---------- ---------- ----------
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net sales for the three months ended September 30, 1999 increased 1.7% to
$12,070,900 compared to $11,873,800 for the same period last year. Although
sales volumes only reflected a modest increase over prior year's results,
management considers this as a positive reflection of its ability to sustain
growth following prior years restructuring and consolidation efforts. As the
operating divisions continue to settle into their revamped structures,
management is optimistic that its sales and marketing efforts will continue to
support future growth for its various product lines.
Cost of goods sold decreased 3% to 70% of net sales for the three months ended
September 30, 1999 compared to 73% for the same period last year. The decrease
is directly related to prior years restructuring and plant consolidation
efforts. These efforts have provided a notable decrease in overall manufacturing
overhead and have promoted improved utilization and operating efficiencies at
its current manufacturing facilities. Management plans to continue to scrutinize
its remaining operations in efforts to further maximize its operating
efficiencies. The Company has experienced some increases in raw material costs
in recent periods, but plans to closely monitor the effect of these increases to
minimize any potential dilution to its gross margins.
Selling, general, and administrative expenses were $2,176,000, or 18% of net
sales, for the three months ended September 30, 1999 compared with $2,252,500,
or 19% of net sales, for the same period last year. Management again attributes
the decrease to prior years restructuring and consolidation efforts. These
efforts have allowed the Company to reduce excess costs incurred subsequent to
the Rotocast merger and thus bring selling, general, and administrative into
correlation with future sales volume projections.
Total interest expense decreased $23,500 to $237,100 for the three months ended
September 30, 1999 compared to $260,600 for the same period last year. Since
September 30, 1998 the Company has decreased its total debt structure by
approximately $1,250,000. Management anticipates that its total debt structure
will continue to decrease during fiscal 2000. As such, if interest rates remain
stable during fiscal 2000, these factors should continue to have a positive
influence on the Company's total interest costs.
Net income increased 93% to $700,000, or $.05 per common share, for the current
period compared to $362,100, or $.02 per common share, for the same period last
year. Management is very pleased with the first quarter results and believes
this to be the Company's strongest first quarter operating results in its recent
history. The improved financial results are directly related to the benefits
obtained from prior years restructuring and plant consolidations efforts.
Management believes these efforts have provided a stronger operating base for
the Company and will continue to have a positive influence on future operating
results.
FINANCIAL CONDITION
Working capital increased slightly to $9,856,000 at September 30, 1999 compared
to $9,735,600 at June 30, 1999. In addition, cash flows from operations also
reflected an increase to $1.7 million for the three months ended September 30,
1999 compared to $1.6 million for the same period last year. The increase in
cash flows is attributed to the 93% increase in net income for the current
period net of increases in prepaid expenses and inventories consistent with
current operations. As such, cash flows are strong and continue to be supported
by improvements in operating results and the continued utilization of our NOL
carryforwards.
The Company expended $369,200 for property, plant, and equipment ("PP&E") during
the three months ended September 30, 1999. This was approximately 45% less than
what was expended during the same period last year. Over the last several years,
management has allocated significant resources to PP&E acquisitions and
betterments. Therefore, as we start into fiscal 2000, management believes that
these past efforts have laid the foundation for productive and efficient
operations at its manufacturing facilities. Bearing this in mind, management
anticipates overall PP&E spending for fiscal 2000 to be below prior year levels.
Net borrowings under the line of credit increased approximately $1.3 million to
$3.6 million between June 30, 1999 and September 30, 1999. The increase is
attributed to the payment of the $2 million GSC note payable in September 1999.
At September 30, 1999, the Company had approximately $3.4 million available for
future borrowings under the line of credit. Since June 30, 1999, the Company has
reduced its overall debt structure by $1.25 million. Management anticipates this
trend to continue during fiscal 2000 as long as cash flows remain strong.
11
<PAGE>
The Company is still actively purchasing common stock under its buy back
program. During the first quarter of fiscal 2000, the company had purchased an
additional 96,400 shares of common stock at a total cost of $102,700.
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, common stock
repurchases and repayment of long-term debt for the foreseeable future.
YEAR 2000
Management has been fully apprised of the issues surrounding the year 2000
dilemma. In assessing the potential impact this issue has on the Company,
management reviewed both its manufacturing and accounting systems to ascertain
critical applications which would be affected. Due to the nature of the
Company's manufacturing process and the equipment utilized, it was determined
that even equipment which was operated by or which incorporated computerized
controls or programs were not dependent on calendar functions to operate and
thus would not be impacted by the year 2000 problem.
As part of the year 2000 issue the Company also assessed compliance of its
network computing systems. To date the Company believes that all of its
operating divisions, including its corporate headquarters, were fully Y2K
compliant as of June 30, 1999. The Company does not believe it will encounter
any problems associated with the year 2000 issue between now and the millennium.
The costs associated with becoming compliant did not have a material effect on
the Company's financial position.
To complete the Company's assessment of the year 2000 problem, the Company has
contacted its major suppliers in an effort to ascertain their readiness and
ability to function beyond this critical date and what impact, if any, it will
have on the Company's ability to continue normal operations. Based on their
responses, we feel confident that most of them are in compliance or will be
prior to December 31, 1999, and as such, should not impact our ability to
manufacture and supply products to our customers.
ITEM 2A. DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Information regarding the Company's market risk relating to interest rate
volatility was disclosed in the Company's Form 10-K for the fiscal year ended
June 30, 1999 and should be read in conjunction with this interim financial
information. Since June 30, 1999, there has been no change in the Company's
exposure to market risks.
12
<PAGE>
ROTONICS MANUFACTURING INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on behalf by the undersigned
thereunto duly authorized.
Rotonics Manufacturing Inc.
Registrant
Date: October 28, 1999 /S/ SHERMAN MCKINNISS
----------------------------------
Sherman McKinniss
President and
Chief Executive Officer
14
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<PAGE>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,200
<SECURITIES> 0
<RECEIVABLES> 6,750,500
<ALLOWANCES> 352,900
<INVENTORY> 7,435,700
<CURRENT-ASSETS> 15,930,100
<PP&E> 29,913,900
<DEPRECIATION> 12,037,600
<TOTAL-ASSETS> 39,211,800
<CURRENT-LIABILITIES> 6,074,100
<BONDS> 0
0
0
<COMMON> 26,129,800
<OTHER-SE> (4,098,200)
<TOTAL-LIABILITY-AND-EQUITY> 39,211,800
<SALES> 12,070,900
<TOTAL-REVENUES> 12,070,900
<CGS> 8,454,300
<TOTAL-COSTS> 10,630,300
<OTHER-EXPENSES> (66,900)
<LOSS-PROVISION> 31,100
<INTEREST-EXPENSE> 237,100
<INCOME-PRETAX> 1,270,400
<INCOME-TAX> 570,400
<INCOME-CONTINUING> 700,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700,000
<EPS-BASIC> .05
<EPS-DILUTED> .05
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