SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________________
Commission File No. 0-24188
JOTAN, INC.
(Exact name of small business issuer as specified in its charter)
Florida 59-3181162
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
118 W. Adams Street, Suite 900, Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (904) 355-2592
________________________________________________________________
Former name, former address and former fiscal year, if changed
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchanged act of 1934 during the
past 12 months (or for such shorter period that the issuer was required to
file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding
of each of the issuer's classes of common equity, as of the latest practicable
date: 5,696,611 shares of common stock, $.01 par value, as of November 11, 1997.
<PAGE
INDEX
Jotan, Inc.
Part I--Financial Information
Item I - Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months ended September 30, 1997 and 1996 2
Condensed Consolidated Balance Sheet at September 30, 1997
and September 30, 1996 3 & 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1997 and 1996 5 & 6
Notes to Condensed Consolidated Financial Statements 7
Item II -- Management's Discussion and Analysis of
Financial Condition and Result of Operations 12
Part II -- Other Information
Item 6 - Exhibit 11 - Computation of Per Share Earnings 17
Signatures 20
<PAGE
Jotan, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30 Nine months ended September 30
_____________________________ _____________________________
1997 1996 1997 1996
_____________ _____________ _____________ _____________
<S> <C> <C>
Sales $ 20,195,006 $ 2,865,067 $ 45,958,193 $ 8,349,138
Cost of sales 14,452,681 2,078,858 32,821,835 6,237,573
_____________ _____________ _____________ _____________
Gross profit 5,742,325 786,209 13,136,358 2,111,565
_____________ _____________ _____________ _____________
Operating expenses 5,417,881 648,861 11,949,745 1,825,896
Amortization of goodwill
and non-compete 833,160 - 1,899,158 -
_____________ _____________ _____________ _____________
Operating income (loss) ( 508,716) 137,348 ( 712,545) 285,669
Other income 4,000 12,274 14,125 51,766
Interest expense (1,010,483) ( 59,740) ( 2,311,950) ( 201,475)
_____________ _____________ _____________ _____________
Income (loss) before taxes (1,515,199) 89,882 ( 3,010,370) 135,960
Income tax expense - - - -
_____________ _____________ _____________ _____________
Net income (loss) (1,515,199) 89,882 ( 3,010,370) 135,960
Amounts attributable to
preferred stock 231,556 - 552,390 -
_____________ _____________ _____________ _____________
Net income (loss)
attributable to
common shareholders $(1,746,755) $ 89,882 $( 3,562,760) $ 135,960
============= ============= ============== =============
Net income (loss) per share $ (.31) $ .01 $ (.63) $ .02
============= ============= ============== =============
Weighted average number
of common and common
equivalent shares
outstanding 5,696,611 8,211,057 5,690,857 6,520,905
============= ============= ============== =============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE
Jotan, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 30
1997 1996
_____________ _____________
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,727,814 $ 1,379,254
Trade receivables, net 10,554,716 1,242,764
Inventory 9,130,996 1,123,161
Other current assets 940,027 291,964
_____________ _____________
Total current assets 22,353,553 4,037,143
_____________ _____________
Property and equipment, net 5,059,152 860,864
Goodwill, net Southland 24,743,715 -
Goodwill, net Cove 1,986,140 -
Non-compete, net 5,833,500 -
Other assets 593,817 396,215
_____________ _____________
Total assets $ 60,569,877 $ 5,294,222
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
Jotan, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30
1997 1996
_____________ ____________
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Trade payables $ 6,945,837 $ 1,321,941
Accrued expenses 5,012,660 46,849
Notes payable (12%) 95,000 95,000
Current portion of long-term debt,
and capital leases 23,811,784 24,748
Other 270,281 -
_____________ ____________
Total current liabilities 36,135,562 1,488,538
_____________ ____________
Capitalized lease obligations 3,864,501 -
Deferred revenue 120,637 -
Long-term debt, less current maturities 8,790,616 519,291
Line of credit - 1,295,960
_____________ ____________
12,775,754 1,815,251
_____________ ____________
Redeemable preferred stock 11,965,000 -
Stockholders' equity (deficit)
Preferred stock
Authorized shares - 10,000,000
Issued and outstanding shares - 1,265,823
in 1997 and 1996 12,658 12,658
Voting common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 5,696,611
in 1997 and 5,679,411 in 1996 56,966 56,794
Additional paid-in capital 4,639,611 3,963,983
Retained earnings (deficit) ( 5,015,674) (2,043,002)
_____________ ____________
Total stockholders' equity (deficit) ( 306,439) 1,990,433
_____________ ____________
Total liabilities and stockholders' equity $ 60,569,877 $ 5,294,222
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
_________________________________
1997 1996
_____________ _____________
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $( 3,010,370) $ 135,960
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 2,242,631 117,624
Stock compensation expense 25,800 7,550
Changes in operating assets and liabilities:
Trade receivables ( 3,033,911) ( 286,338)
Inventory ( 1,679,473) ( 138,776)
Other current assets ( 104,198) ( 81,674)
Trade payables 2,141,204 112,921
Accrued expenses 1,300,757 ( 12,013)
Other current liabilities ( 651,840) -
_____________ _____________
Net cash (used in) provided by operating activities ( 2,769,400) 132,806
============= ==============
Cash flows from investing activities
Proceeds from sale of property and equipment 1,000,000 -
Decrease (increase) in other assets 706,261 ( 350,961)
Purchase of property and equipment ( 266,875) ( 31,559)
Purchase of business Cove, net of cash acquired ( 2,625,000) -
Purchase of business Southland, net of cash acquired (37,842,535) -
_____________ _____________
Net cash used in investing activities (39,028,149) ( 382,520)
============= =============
Cash flows from financing activities
Proceeds from (payments) on line of credit borrowings ( 1,594,076) 188,582
Repayments of amounts advanced from Total Supply
Systems, Inc. - ( 353,749)
Payments on long-term debt ( 4,437,159) ( 55,262)
Proceeds from senior revolver 8,080,884 -
Proceeds from acquisition revolver 2,625,000 -
Proceeds from senior term debt 16,122,500 -
Proceeds from senior subordinated debt 8,710,000 -
Proceeds from issuance of redeemable preferred stock,
net of issuance costs 11,965,000 1,827,626
Proceeds from issuance of warrants 650,000 -
_____________ _____________
Net cash provided by financing activities 42,122,149 1,607,197
============= =============
</TABLE>
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<PAGE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
_________________________________
1997 1996
_____________ _____________
<S> <C> <C>
Net increase in cash and cash equivalents 324,600 1,357,483
Cash and cash equivalents at beginning of period 1,403,214 21,771
_____________ _____________
Cash and cash equivalents at end of period $ 1,727,814 $ 1,379,254
============= =============
Purchase of business, Cove net of cash acquired
Inventory $( 480,000) $ -
Property and equipment ( 221,850) -
Other assets ( 2,850) -
Goodwill ( 2,019,800) -
Notes payable and capitalized leases 99,500 -
_____________ _____________
$( 2,625,000) $ -
Purchase of business, Southland net of cash acquired
Trade receivables $( 5,967,581) $ -
Inventory ( 5,789,881) -
Other current assets ( 517,889) -
Property and equipment ( 4,069,138) -
Other assets ( 820,802) -
Trade payables 3,278,692 -
Accrued expenses 3,488,497 -
Other current liabilities 922,121 -
Other liabilities 122,486 -
Non - Compete ( 6,600,000) -
Goodwill (25,621,863) -
Notes payable and capitalized leases 3,732,823 -
_____________ _____________
$(37,842,535) $ -
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The Business and Basis of Presentation
Description of Business
Jotan, Inc. (the "Company") is a distributor of packaging and shipping
supplies with twenty distribution centers located throughout the United
States. The Company sells to a broad customer base including manufacturers,
moving and storage, air freight, and perishable food markets. Prior to March
1997, Jotan, Inc. was a regional distributor of packaging materials providing
Just On Time As Needed delivery service for its industrial customers. On March
4, 1997 the Company completed the acquisition of 100% of the stock of
Southland Holding Company ("Southland"). Southland is a distributor of
packaging and shipping supplies with eleven distribution centers throughout
the United States. Southland sells primarily to the moving and storage
industry, but also sells packaging products to the air freight and perishable
food markets. Southland provides services similar to those provided by the
Company to these markets. On June 20, 1997 the Company completed the
acquisition of the assets of Cove Container Corporation ("Cove"). Cove is a
distributor of packaging and shipping supplies with a distribution center
located in Pontiac, Michigan. Cove sells both to manufacturers and to the
moving and storage industry and provides services similar to those provided by
the Company.
Basis of Presentation
The accompanying financial statements are unaudited and, in the opinion of
management reflect all the adjustments that are necessary for a fair
presentation of the financial position and results of operations for the
periods presented. All of such adjustments are of a normal and recurring
nature.
The acquisitions of Southland and Cove have been accounted for under the
purchase method of accounting. The cost in excess of net assets acquired is
currently being evaluated by management to allocate its various components.
The majority of the cost will be allocated to goodwill, which will be
amortized over 15 years. The results from operations include amortization of
goodwill and non-compete agreements based on preliminary purchase price
allocations. The purchase price allocations are currently being evaluated by
management and are subject to revision after more detailed analysis and
evaluations are completed.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the entire year. The financial
statements at September 30, 1997 and September 30, 1996 reflect the combined
accounts of the Company and its subsidiaries. Certain information and footnote
disclosure normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted.
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<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
2. Long Term Debt
Senior Secured Term Loan A with interest $8,035,240
at LIBOR plus 2.75% payable quarterly
( 8.47 % at September 30, 1997), with principal
payments due quarterly beginning in June,
1997 and ending March, 2002.
Senior Secured Term Loan B with interest 7,537,260
at LIBOR plus 3.25% payable quarterly
( 8.97 % at September 30, 1997), with principal
payments due quarterly beginning in June,
1997 and ending March 2004.
Senior Secured Revolving Line of Credit with 8,080,884
interest at LIBOR plus 2.75% payable quarterly
( 9.43 % at September 30, 1997), with principal
due March 2002.
Subordinated Debt with interest of 12.5% 8,710,000
payable quarterly commencing May 30, 1998,
with principal due in equal quarterly installments
during 2002 and 2005.
Other 120,616
------------
32,484,000
Less Current Maturities 23,693,384
------------
Long Term Debt $ 8,790,616
============
The Senior Secured Term Loans and Senior Secured Revolving Line of Credit are
secured by all assets, including inventory, accounts receivable, real estate,
trademarks, and patents of the Company, as well as the common stock and other
equity interests of each subsidiary of the Company. The subordinated debt is
subordinated to all senior debt and is unsecured. All of the debt contains
restrictive covenants including limitations on the Company's amount of debt,
disposition of assets, incurrence of liens or encumbrances, payment of
dividends, investments, and executive compensation.
-8-
<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
2. Long Term Debt (continued)
In addition, certain covenants exist with senior lenders stipulating minimum
interest coverage, fixed charge coverage, and EBITDA. As of August 31, 1997,
the company failed to meet minimum EBITDA requirements. As of September 30,
1997, the company failed to meet the required interest coverage, fixed charge
coverage, and EBITDA requirements. Waivers have been obtained from senior
lenders for defaults occurring during August and September and financial
covenants have been waived for October and November. The Company expects that
the financial covenants will be amended in December, and the Company will be in
compliance with these amended covenants in the future. As a result, the senior
secured term loans have been reclassified as current liabilities at September
30, 1997 with the expectation they will be reclassified to long term at December
31, 1997.
In connection with the subordinated debt, the Company issued warrants to
purchase approximately 13.5% of the Company's issued and outstanding Common
Stock on a fully diluted basis. The warrants are exercisable for ten years and
were attributed a value of $150,000.
Long term debt maturities by year are as follows:
1997 $ 9,960
1998 20,000
1999 20,000
2000 20,000
2001 10,656
Thereafter 8,710,000
---------------
Total Long Term Debt 8,790,616
3. Capitalized Leases
The Company leases certain land and buildings under long term leases which are
accounted for as capital leases. Included in property and equipment are the
following assets held under capital leases:
September 30, 1997
Land $ 701,597
Buildings 3,949,274
------------
4,650,871
Less accumulated amortization (1,244,514)
------------
$3,406,357
============
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<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
3. Capitalized Leases (continued)
Future minimum lease payments for assets under capital leases at September 30,
1997 are as follows:
1997 $ 181,250
1998 732,500
1999 732,500
2000 732,500
2001 732,500
2002 732,500
Thereafter 3,803,540
------------
Total minimum lease payments 7,647,290
Less amount representing interest (3,664,489)
------------
Present value of minimum lease payments 3,982,801
Less current maturities (118,400)
------------
Long Term Obligations $ 3,864,501
============
4. Preferred Stock
Redeemable Preferred Stock
In Connection with the Southland acquisition, the Company issued Series B
Redeemable Preferred Stock of $9,340,000, net of fees and discount of
$600,000. The Series B Preferred Stock accrues dividends at a rate of 8.0%
per annum, payable quarterly, in kind by the issuance of additional shares of
Series B Preferred Stock. Series B Preferred Stock has liquidation preference
over all other shares of Common Stock and preferred stock, including the
Series A Preferred Stock that is currently held by F-Jotan, an affiliate of
Fairview. The Series B Preferred Stock may be redeemed by the Company at any
time, but subject to premiums ranging from 12.5% during the first year to 0%
commencing in the sixth year. Redemption of the Series B Redeemable Preferred
Stock is mandatory on the eighth anniversary of closing. Rice Partners II
L.P. ("Rice") and the Southland Purchasers were paid pro rata portions of a
fee at closing of $250,000 for providing the Series B Redeemable Preferred
Stock financing. The Series B Redeemable Preferred Stock entitles the holders
thereof at all times that it is outstanding to elect the majority of the Board
of Directors.
-10-
<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
4.Preferred Stock (continued)
Also, in connection with the Redeemable Preferred Stock, the Company issued
warrants to purchase approximately 50% of the Company's issued and outstanding
Common Stock on a fully diluted basis. The warrants are exercisable for ten
years and were attributed a value of $500,000.
On June 23, 1997 the Company entered into a commitment agreement with Rice and
Fairview which resulted in their purchasing an additional $2,625,000 of Series
B Preferred Stock on September 11, 1997. These additional funds were used to
provide the long term financing of the Cove acquisition, retiring the
acquisition credit facility of $2,625,000. As a result of this commitment
agreement, the lenders waived the Company's compliance with certain sections of
the Credit Agreement related to the Cove acquisition.
II Management's Discussion and Analysis of Financial Condition and Results of
Operations
On March 4, 1997, the Company completed the acquisition of 100% of the stock
of Southland Holding Company. On June 20, 1997, the Company completed the
acquisition of the assets of Cove Container Corporation. As a result of these
acquisitions, the Company's financial statements after March 4, 1997 are not
comparable to financial statements prior to that date.
To facilitate a meaningful comparison of the Company's operating performance,
the following discussion and analysis is presented on a traditional basis.
Included in the following discussion are comparisons of EBITDA (earnings
before interest, taxes, depreciation, and amortization). The Company believes
EBITDA is helpful in understanding cash flow generated from operations that is
available for taxes, debt service and capital expenditures. In addition,
EBITDA facilitates the monitoring of covenants related to certain long-term
debt. EBITDA should not be considered by investors as an alternative to net
earnings as an indicator of the Company's operating performance or to cash
flows as a measure of its overall liquidity.
Jotan, Inc. and its consolidated subsidiaries reported a net loss of $3.0
million for the nine months ended September 30, 1997 compared to net income of
$.1 million for the same period in 1996. For the quarter ended September 30,
1997, the Company reported a net loss of $1.5 million compared to net income
of $.1 million for the equivalent period of 1996.
EBITDA for the nine months ended September 30, 1997 was $1.5 million compared
to $.4 million for the same period in 1996. For the quarter ended September
30, 1997, the company achieved EBITDA of $.5 million compared to $.2 million for
the equivalent period of 1996.
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<PAGE>
Jotan, Inc.
II Management's Discussion and Analysis (continued)
Net sales increased to $46.0 million for the nine months ended September 30,
1997 from $8.3 million for the nine months ended September 30, 1996. Net
sales for the third quarter of 1997 increased to $20.2 million from $2.9
million for the quarter ended September 30, 1996. The increase in net sales
for the nine months and three months ended September 30, 1997 was primarily
related to $35.1 million and $15.9 million, respectively of post acquisition
revenue generated by Southland and Cove. Net sales also increased from new
business at the Company's four existing distribution centers, and the opening
of three new distribution centers, during the first six months of 1997, in
Dallas, Texas; Findlay, Ohio; and Chicago, Illinois.
Gross profit increased to $13.1 million for the nine months ended September
30, 1997 from $2.1 million for the nine months ended September 30, 1996. For
the third quarter of 1997, gross profit increased to $5.7 million from $.8
million for the quarter ended September 30, 1996. Gross profit margins were
improved as a result of product mix changes associated with the Southland and
Cove acquisitions.
Operating expenses increased to $11.9 million for the first nine months of
1997 from $1.8 million for the same period in 1996. Operating expenses for the
three months ended September 30, 1997 increased to $5.4 million from $.6
million for the three months ended September 30, 1996. The major factor
contributing to these increases was the inclusion of Southland operating
expenses in the post acquisition period. Other contributing factors included
expenses related to integration of Southland's administrative functions, and
professional fees relating to staffing and regulatory filings.
Expenses related to amortization of goodwill and non-compete agreements were
$1.9 million and $.8 million for the nine months and three months ended
September 30, 1997, respectively. There was no amortization expense in the
same period of 1996. This increase relates to the amortization of goodwill and
non-compete agreements resulting from the Southland and Cove acquisitions.
Interest expense for the three months ended September 30, 1997 increased to
$1.0 million from $59 thousand for the equivalent period 1996. For the nine
month period ended September 30, 1997 interest expense totaled $2.3 million
versus $.2 million in 1996. This increase reflected the impact of increased
borrowings related to the Southland acquisition.
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<PAGE>
Jotan, Inc.
III Liquidity and Capital Resources
In order to obtain financing for the Southland transaction and fund future
expansion, the Company signed an agreement on February 28, 1997 with Rice to
purchase $9 million of senior subordinated debt and $10 million of senior
redeemable preferred stock. F-Southland, L.L.C., a North Carolina limited
liability company, and FF-Southland Limited Partnership, a North Carolina
limited partnership (collectively, the "Southland Purchasers"), entities
affiliated with Franklin Street/Fairview Capital, L.L.C. ("Fairview"),
purchased an aggregate amount of $2 million of such senior subordinated debt
and $2 million of such senior redeemable preferred stock in lieu of Rice.
Rice and the Southland Purchasers used working capital derived from partner or
member contributions as the source of the consideration to be paid by them for
the senior subordinated debt and senior redeemable preferred stock.
Subordinated Debt.- The Subordinated Debt bears interest at a rate of 12.5%
per annum, with a default rate of 15.5% per annum. Interest is payable
quarterly for eight years, with principal due in equal quarterly installments
during the seventh and eighth years. Prepayments of the Subordinated Debt are
allowed but are subject to premiums ranging from 12.5% during the first year
to 0% commencing in the sixth year. The Subordinated Debt is subordinated to
the Company's senior debt and is unsecured. Rice and the Southland Purchasers
were paid pro rata portions of a fee of $225,000 for providing the Subordinated
Debt financing. The documentation for the Subordinated Debt includes customary
restrictive covenants and agreements by the Company, including financial
covenants and limitations on the Company's debt, disposition of assets,
incurrence of liens and encumbrances, payment of dividends, investments and
executive compensation.
In addition to the Subordinated Debt, Rice and the Southland Purchasers also
received pro rata portions of warrants to purchase 3,227,471 shares of Common
Stock, representing 13.5% of the outstanding Common Stock on a fully diluted
basis, which will be exercisable for a term of ten years (the "13.5%
Warrants"). The total exercise price of the 13.5% Warrants is a maximum of
$100. The Common Stock issuable upon exercise of the 13.5% Warrants is
subject to registration rights that will allow the holders to require the
registration of such shares on not more than two occasions, and to include
such shares in other registrations by the Company, subject to certain
restrictions.
The 13.5% Warrants include customary antidilution provisions and allow the
holder to sell ("put") the 13.5% Warrants to the Company at a price equal to
the greater of their book value or their fair market value (the "Put Price")
at any time after the earlier to occur of (i) the fifth anniversary of
closing, (ii) prepayment of the Subordinated Debt in full, (iii) a material
change in the ownership of the Company, (iv) a merger or sale of all or a
majority of the Company's assets, or (v) the Company's default in performing
certain covenants contained in the documents governing the Subordinated Debt.
The Company will have the right to purchase ("call") the 13.5% Warrants at any
time after the sixth anniversary of closing for a price equal to the Put
Price. As long as the Subordinated
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<PAGE>
Jotan, Inc.
III Liquidity and Capital Resources (continued)
Debt is outstanding, Rice and Fairview will each have the right to attend and
observe all meetings of the Board of Directors.
Preferred Stock.- The Series B Preferred Stock accrues dividends at a rate of
8.0% per annum, payable quarterly in cash or, at the Company's option, in kind
by the issuance of additional shares of Series B Preferred Stock. Series B
Preferred Stock will have a liquidation preference over all other shares of
Common Stock and preferred stock, including the Series A Preferred Stock that
is currently held by F-Jotan, an affiliate of Fairview. The Series B
Preferred Stock may be redeemed by the Company at any time, but subject to
premiums ranging from 12.5% during the first year to 0% commencing in
the sixth year. Redemption of the Series B Preferred Stock is mandatory on
the eighth anniversary of closing. Rice and the Southland Purchasers were
paid pro rata portions of a fee at closing of $250,000 for providing the
Series B Preferred Stock financing. The Series B Preferred Stock will
entitle the holders thereof at all times that it is outstanding to elect the
majority of the Board of Directors.
In addition to the Series B Preferred Stock, Rice and the Southland Purchasers
also received pro rata portions of warrants to purchase 11,953,596 shares of
Common Stock, representing approximately 50% of the issued and outstanding
Common Stock on a fully diluted basis, which will be exercisable for a term of
ten years (the "50% Warrants"). The total exercise price of the 50% Warrants
is a maximum of $100. The portion of the 13.5% Warrants and the 50% Warrants
being acquired by Rice, in the aggregate, will allow Rice to acquire upon
exercise approximately 50.5% of the outstanding Common Stock on a fully
diluted basis. Through conversion of the Series A Preferred Stock and
exercise of the portion of the 13.5% Warrants and the 50% Warrants being
acquired by the Southland Purchasers, affiliates of Fairview will after the
closing of the Proposed Transactions have the right to acquire approximately
24.12% of the outstanding Common Stock, on a fully diluted basis. The Common
Stock issuable upon exercise of the 50% Warrants is subject to registration
rights that will allow the holders to require the registration of such shares
on not more than two occasions, and to include such shares in other
registrations by the Company, subject to certain restrictions. The put and
call rights associated with the 50% Warrants are identical to the similar
rights of the 13.5% Warrants described above.
The former holders of Common Stock collectively own approximately 25.38% of
the outstanding shares of Common Stock on a fully diluted basis after giving
effect to the Transactions discussed above. Rice is the Company's largest
holder, beneficially owning approximately 50.5% of the outstanding shares of
Common Stock on a fully diluted basis after giving effect to the Transactions.
In addition, the Southland Purchasers beneficially own approximately 13% of
the outstanding shares of Common Stock and F-Jotan will beneficially own
approximately 11.12% of the outstanding shares of Common Stock on a fully
diluted basis after giving effect to the Transactions. Each of Rice and the
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<PAGE>
Jotan, Inc.
III Liquidity and Capital Resources (continued)
Southland Purchasers filed with the Securities and Exchange Commission (the
"Commission") statements reporting their respective beneficial ownership of
Common Stock pursuant to Section 13(d) of the Exchange Act. For purposes of
Section 13(d), each of the Southland Purchasers and F-Jotan were deemed to
beneficially own the full 24.12% of the outstanding Common Stock on a fully
diluted basis as a result of their affiliate status due to their common
manager.
The Company has also signed an agreement ("the Credit Agreement") with Banque
Paribas on February 28, 1997 to obtain up to $12 million in a senior revolving
credit facility and $27 million in senior term/acquisition credit facilities.
As part of the Banque Paribas financing agreement the Company has terminated
its long term financing arrangement with CIT and paid off other long term credit
facilities resulting in $2,098,184 being reclassified to short term debt as of
December 31, 1996. These facilities were terminated on February 28, 1997. On
April 18, 1997 Banque Paribas assigned certain of its rights and interest under
the Credit Agreement to other Banks ("the Lenders").
On June 23, 1997 the Company entered into a commitment agreement with Rice and
Fairview which resulted in their purchasing an additional $2,625,000 of
Series B Preferred Stock on September 11, 1997. These additional funds were
used to provide the long term financing of the Cove acquisition. As a result
of this commitment agreement, the Lenders amended the Credit Agreement
waiving the Company's compliance with certain sections of the Agreement, thus
allowing the Company to temporarily borrow $2,625,000 under the acquisition
credit facility. The funds temporarily borrowed under the acquisition facility
were repaid to the lenders upon the purchase of the additional Series B
Preferred Stock by Rice and Fairview.
On November 14, 1997 the Company amended the Credit Agreement with Banque
Paribas, reducing the senior revolving credit facility from $9 million to $8
million, until April 1, 1998 when the revolving credit facility increases to
$12 million.
On August 19, 1997 the Company also amended the Subordinated Debt Agreement to
change interest payable, under the Subordinated Debt Agreement, on the last
business day of August 1997, November 1997 and February 1998 to an obligation
to issue one or more Senior Subordinated Notes for the same amount of interest
payable on the respective dates, under the same conditions as the original
Subordinated Debt Agreement. These notes will be issued on or before May 30,
1998 and will be subject to the same repayment conditions as the original
Subordinated Debt Agreement.
Certain covenants exist with senior lenders stipulating minimum interest
coverage, fixed charge coverage, and EBITDA. As of August 31, 1997, the company
failed to meet minimum EBITDA requirements. As of September 30, 1997, the
company failed to meet the required interest coverage, fixed charge coverage,
-15-
<PAGE>
Jotan, Inc.
III Liquidity and Capital Resources (continued)
and EBITDA requirements. Waivers have been obtained from senior lenders for
defaults occurring during August and September and financial covenants have been
waived for October and November. The Company expects that the financial
covenants will be amended in December, and the Company will be in compliance
with these amended covenants in the future. As a result, the senior secured
term loans have been reclassified as current liabilities at September 30, 1997
with the expectation they will be reclassified to long term at December 31,
1997.
The Company believes it has adequate capital resources for the foreseeable
future.
Financial Accounting Standards Board Statement No. 128
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of common stock equivalents will be excluded. There is no
expected impact on primary earnings per share for the quarters ended and the
nine months ended September 30, 1997 and 1996. The Company has not yet
determined what the impact of Statement 128 will be on the calculation of
fully diluted earnings per share.
-16-
<PAGE>
Jotan Inc.
Part II--Other Information
Item 6--Exhibits
a) Exhibit 11 - Computation of Per Share Earnings
-17-
<PAGE>
Jotan Inc.
Exhibit 11 Statement Re: Computation of Per Share Earnings
Three months ended Sept 30 Nine months ended Sept 30
1997 1996 1997 1996
---------- ---------- ---------- ----------
Primary:
Average shares
outstanding 5,696,611 5,679,411 5,690,857 5,675,829
Net effect of stock
options-based on the
treasury stock method
using average market price * -0- * -0-
------------ ----------- ----------- -----------
Totals 5,696,611 5,679,411 5,690,857 5,675,829
============ =========== =========== ===========
Net Income (loss) $(1,515,199) $ 89,882 $(3,010,370) $ 135,960
Amount attributable
to preferred stock 231,556 -0- 552,390 -0-
------------ ----------- ----------- -----------
Net income (loss)
attributable to common
shareholders $(1,746,755) $ 89,882 $(3,562,760) $ 135,960
============ =========== =========== ===========
Per Share Amount $ (.31) $ .01 $ (.63) $ .02
============ =========== =========== ===========
Fully diluted:
Average shares
outstanding 5,696,611 5,679,411 5,690,857 5,675,829
Net effect of stock options-
based on the treasury method
using average market price which
is greater than quarter-end
market price * -0- * -0-
Assumed conversion of 8 %
preferred convertable stock
equivalent to 2,531,646
common shares. * 2,531,646 * 845,076
------------ ----------- ----------- -----------
Totals 5,696,611 8,211,057 5,690,857 6,520,905
============ =========== =========== ===========
-18-
<PAGE>
Jotan Inc.
Exhibit 11 Statement Re: Computation of Per Share Earnings
(cont.)
Three months ended Sept 30 Nine months ended Sept 30
1997 1996 1997 1996
---------- ---------- ---------- ----------
Totals from previous page 5,696,611 8,211,057 5,690,857 6,520,905
============ =========== =========== ===========
Net Income (loss) $(1,515,199) $ 89,882 $(3,010,370) $ 135,960
Amount attributable to
preferred stock 231,556 -0- 552,390 -0-
------------ ----------- ----------- -----------
Net Income (loss)
attributable to common
shareholders $(1,746,755) $ 89,882 $(3,562,760) $ 135,960
============ =========== =========== ===========
Per Share Amount $ (.31) $ .00 $ (.63) $ .01
============ =========== =========== ===========
*The effect of the stock options and the preferred stock on weighted average
shares is not assumed in the computation because their effect is anti-
dilutive.
-19-
<PAGE>
JOTAN, INC.
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.
Jotan, Inc.
By: ____________________________
William Ames, President
By: ____________________________
Edward Lipscomb, Vice President
and Chief Financial Officer
November 14, 1997
-20-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,727,814
<SECURITIES> 0
<RECEIVABLES> 10,554,716
<ALLOWANCES> 0
<INVENTORY> 9,130,996
<CURRENT-ASSETS> 22,353,553
<PP&E> 5,059,152
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,569,877
<CURRENT-LIABILITIES> 36,135,562
<BONDS> 0
11,965,000
12,658
<COMMON> 56,966
<OTHER-SE> (376,063)
<TOTAL-LIABILITY-AND-EQUITY> 60,569,877
<SALES> 45,958,193
<TOTAL-REVENUES> 45,958,193
<CGS> 32,821,835
<TOTAL-COSTS> 32,821,835
<OTHER-EXPENSES> 11,949,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,311,950
<INCOME-PRETAX> (3,010,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,010,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,010,370)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
