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 __ June 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 August 15, 1997.
<PAGE
INDEX
Jotan, Inc.
Part I--Financial Information
Item I - Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the
Three Months and Six Months ended June 30, 1997 and 1996 2
Condensed Consolidated Balance Sheet at June 30, 1997
and June 30, 1996 3 & 4
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 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 - Exhibits and Reports on Form 8-K 17
Signatures 20
<PAGE
Jotan, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
_____________________________ _____________________________
1997 1996 1997 1996
_____________ _____________ _____________ _____________
<S> <C> <C>
Sales $ 18,973,980 $ 2,766,368 $ 25,763,187 $ 5,484,071
Cost of sales 13,621,011 2,072,562 18,369,154 4,158,714
_____________ _____________ _____________ _____________
Gross profit 5,352,969 693,806 7,394,033 1,325,357
_____________ _____________ _____________ _____________
Operating expenses 4,590,539 609,725 6,531,864 1,177,034
Amortization of goodwill
and non-compete 793,490 - 1,065,998 -
_____________ _____________ _____________ _____________
Operating income (loss) ( 31,060) 84,081 ( 203,829) 148,323
Other income 215 22,389 10,125 39,491
Interest expense ( 980,869) ( 81,411) ( 1,301,467) ( 141,736)
_____________ _____________ _____________ _____________
Income (loss) before taxes (1,011,714) 25,059 ( 1,495,171) 46,078
Income tax expense - - - -
_____________ _____________ _____________ _____________
Net income (loss) (1,011,714) 25,059 ( 1,495,171) 46,078
Amounts attributable to
preferred stock 220,625 - 320,834 -
_____________ _____________ _____________ _____________
Net income (loss)
attributable to
common shareholders $(1,232,339) $ 25,059 $( 1,816,005) $ 46,078
============= ============= ============== =============
Net income (loss) per share $ (.22) $ .00 $ (.32) $ .01
============= ============= ============== =============
Weighted average number
of common and common
equivalent shares
outstanding 5,696,611 6,319,278 5,687,964 5,993,537
============= ============= ============== =============
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
Jotan, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June 30
1997 1996
_____________ _____________
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 536,288 $ 1,582,933
Trade receivables (net) 10,372,866 1,267,097
Inventory 7,786,435 1,318,421
Other current assets 1,056,353 299,274
_____________ _____________
Total current assets 19,751,942 4,467,725
_____________ _____________
Property and equipment, net 5,072,792 877,559
Goodwill, net Southland 25,024,121 -
Goodwill, net Cove 2,019,800 -
Non-compete, net 6,162,000 -
Other assets 879,113 120,247
_____________ _____________
Total assets $ 58,909,768 $ 5,465,531
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
Jotan, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30
1997 1996
_____________ ____________
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Trade payables $ 5,779,624 $ 1,426,163
Accrued expenses 4,631,418 81,613
Notes payable (12%) 95,000 95,000
Current portion of long-term debt,
and capital leases 3,862,000 139,945
Other 329,564 -
_____________ ____________
Total current liabilities 14,697,606 1,742,721
_____________ ____________
Capitalized lease obligations 3,907,801 -
Deferred revenue 121,561 -
Long-term debt, less current maturities 29,634,040 582,881
Line of credit - 1,277,102
_____________ ____________
33,663,402 1,805,983
_____________ ____________
Redeemable preferred stock 9,340,000 -
Stockholders' equity
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 3,980,259
Retained earnings (deficit) ( 3,500,475) (2,132,884)
_____________ ____________
Total stockholders' equity 1,208,760 1,916,827
_____________ ____________
Total liabilities and stockholders' equity $ 58,909,768 $ 5,465,531
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
_________________________________
1997 1996
_____________ _____________
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $( 1,495,171) $ 46,078
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 1,266,192 77,548
Stock compensation expense 25,800 7,550
Changes in operating assets and liabilities:
Trade receivables ( 2,852,061) ( 310,671)
Inventory ( 334,912) ( 56,484)
Other current assets ( 214,515) ( 88,984)
Trade payables 974,991 217,143
Accrued expenses 920,439 22,751
Deferred revenue and expenses ( 592,557) -
_____________ _____________
Net cash provided by (used in) operating activities ( 2,301,794) ( 85,069)
============= ==============
Cash flows from investing activities
Proceeds from sale of property and equipment 1,000,000 -
Decrease (increase) in other assets 484,249 ( 65,980)
Purchase of property and equipment ( 137,235) ( 17,191)
Purchase of business Cove, net of cash acquired ( 2,625,000) -
Purchase of business, net of cash acquired (37,721,235) -
_____________ _____________
Net cash flows from (used in) investing activities (38,999,221) ( 83,171)
============= =============
Cash flows from financing activities
Proceeds from (payments) on line of credit borrowings ( 1,594,076) 169,724
Repayments of amounts advanced from Total Supply
Systems, Inc. - ( 249,194)
Payments on long-term debt ( 1,500,219) ( 35,030)
Proceeds from senior revolver 6,080,884 -
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 9,340,000 1,843,902
Proceeds from issuance of warrants 650,000 -
_____________ _____________
Net cash provided by (used in) financing activities 40,434,089 1,729,402
============= =============
</TABLE>
-5-
<PAGE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
_________________________________
1997 1996
_____________ _____________
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents ( 866,926) 1,561,162
Cash and cash equivalents at beginning of period 1,403,214 21,771
_____________ _____________
Cash and cash equivalents at end of period $ 536,288 $ 1,582,933
============= =============
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 (25,500,563) -
Notes payable and capitalized leases 3,732,823 -
_____________ _____________
$(37,721,235) $ -
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<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 seven distribution centers located throughout the United States.
The Company sells primarily to manufacturers and provides Just On Time As
Needed delivery service for its products. 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 to 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 noncompete 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 June 30, 1997 and June 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.
-7-
<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
2. Long Term Debt
Senior Secured Acquisition Line of Credit $2,625,000
with interest at LIBOR plus 2.75% payable
quarterly ( 9.75 % at June 30, 1997), with
principal due September 23, 1997
Senior Secured Term Loan A with interest 8,285,240
at LIBOR plus 2.75% payable quarterly
( 9.75 % at June 30, 1997), with principal
payments due quarterly beginning in June,
1997 and ending March, 2002.
Senior Secured Term Loan B with interest 7,562,260
at LIBOR plus 3,25% payable quarterly
( 10.25 % at June 30, 1997), with principal
payments due quarterly beginning in June,
1997 and ending March 2004.
Senior Secured Revolving Line of Credit with 6,080,884
interest at LIBOR plus2.75% payable quarterly
( 9.75 % at June 30, 1997), with principal
due March 2002.
Subordinated Debt with interest of 12.5% 8,710,000
payable quarterly, with principal due in equal
quarterly installments during 2002 and 2005.
Other 135,656
------------
33,399,040
Less Current Maturities 3,765,000
------------
Long Term Debt $29,634,040
============
-8-
<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
2. Long Term Debt (continued)
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. 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 $ 3,200,000
1998 1,500,000
1999 1,812,500
2000 2,062,500
2001 2,687,500
Thereafter 22,136,540
------------
Total Long Term Debt $33,399,040
============
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<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
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:
June 30, 1997
Land $ 701,597
Buildings 3,949,274
------------
4,650,871
Less accumulated amortization (1,182,714)
------------
$3,468,157
============
Future minimum lease payments for assets under capital leases at June 30, 1997
are as follows:
1997 $ 366,250
1998 732,500
1999 732,500
2000 732,500
2001 732,500
2002 732,500
Thereafter 3,803,540
------------
Total minimum lease payments 7,832,290
Less amount representing interest (3,827,489)
------------
Present value of minimum lease payments 4,004,801
Less current maturities (97,000)
------------
Long Term Obligations $ 3,907,801
============
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<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
cont.
4. Preferred Stock
Convertible Preferred Stock
On May 16, 1996, Jotan, Inc. (the Company) signed an agreement to sell up to
$6,000,000 in Series A Convertible Preferred Stock to an affiliate of Fairview
Capital L.L.C., a Raleigh, N.C. based private investment company. The initial
funding closed May 16, 1996, and provided the Company $1,820,076, net of
expenses, through the sale of 1,265,823 shares of Series A Convertible
Preferred Stock to F-Jotan, L.L.C., the Fairview affiliate. Under the terms
of the Series A Convertible Preferred Stock Purchase Agreement, the Company
may sell an additional $4,000,000 of Series A Convertible Preferred Stock to
the investors subject to certain conditions set forth in the Series A
Convertible Preferred Stock Purchase Agreement. The Series A Convertible
Preferred Stock has voting rights equivalent to the common stock and carries
an 8% annual dividend, which is payable beginning January 1, 1997 in
additional shares of 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.
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.
-11-
<PAGE>
Jotan Inc.
4. Preferred Stock (continued)
On June 23, 1997 the Company entered into a commitment agreement with Rice and
Fairview which will result in their purchasing an additional $2,625,000 of
Series B Preferred Stock on or before September 23, 1997. These additional
funds will be used to provide the long term financing of the Cove acquisition.
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, thus allowing the Company to borrow $2,625,000 under the
acquisition credit facility. The funds borrowed under the acquisition facility
will be repaid to the lenders upon the purchase of the additional Series B
Preferred Stock by Rice and Fairview.
II Management's Discussion and Analysis of Financial Condition and Results of
Operations
Net sales increased to $25,763,187 for the six months ended June 30, 1997 from
$5,484,071 for the six months ended June 30, 1996 or an increase of 369.89%.
Net sales for the second quarter of 1997 increased to $18,973,980 from
$2,766,368 for the three months ended June 30, 1996, or an increase of
585.88%. The increase in revenue for the six months and three months ended
June 30, 1997 was primarily related to $19.2 million of post acquisition
revenue generated by Southland. Revenues 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.
Cost of goods sold increased to $18,369,154 or 71.3% of sales for the six
months ended June 30, 1997 from $4,158,714 or 75.8% for the six months ending
June 30, 1996. Cost of goods sold for the second quarter of 1997 increased to
$13,621,011 or 71.8% of sales from $2,072,562 or 74.9% of sales for the three
months ended June 30, 1996. The improvement in gross profit margin reflects
several factors including the impact of the inclusion of Southland's
historically higher profit margin product lines, the Company's improved
ability to purchase product at a lower cost as a result of its greater
purchasing power resulting from the acquisitions of Southland and Cove, and
the impact of declines in corrugated prices that have occurred since 1996.
Operating expenses increased to $6,531,864 for the first six months of 1997
from $1,177,934 for the same period in 1996, a 454.9% increase. Operating
expenses for the three months ended June 30, 1997 increased to $4,590,539 from
$609,725 for the three months ended June 30, 1996, a 652.9% increase. The
major factor contributing to there 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.
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<PAGE>
Jotan Inc.
Expenses related to amortization of goodwill and non-compete agreements were
$1,065,998 and $793,480 for the six months and three months ended June 30,
1997, respectively. There was no amortization expense in the same period of
1996. This increase relates to the amortization of goodwill and noncompete
agreements resulting from the Southland and Cove acquisitions.
As a result, the Company had an operating loss of $203,829 for the six months
ended June 30, 1997 compared to income from operations of $148,323 for the six
months ended June 30, 1996. For the three months ended June 30, 1997, the
Company had an operating loss of $31,060 compared to income from operations of
$84,081 for the three months ended June 30, 1996.
Other income declined to $10,125 for the six months ended June 30, 1997, from
$39,491 for the six months ended June 30, 1996. Other income declined to $215
for the three months ended June 30, 1997, from $22,389 for the three months
ended June 30, 1996. Interest expense increased to $1,301,467 for the six
months ended June 30, 1997 from $141,736 for the six months ended June 30,
1996. Interest expense for the three months ended June 30, 1997 increased to
$980,869 from $81,411 for the three months ended June 30, 1996. This increase
reflected the impact of increased borrowings related to the Southland and Cove
acquisitions.
As a result of the foregoing factors, the Company had a net loss of $1,495,171
for the six months ended June 30, 1997, compared to net income of $46,078 for
the six months ended June 30, 1996. For the three months ended June 30, 1997
the Company had a net loss of $1,011,714 compared to net income of $25,059 for
the three months ended June 30, 1996.
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.
-13-
<PAGE>
Jotan Inc.
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 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
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<PAGE>
Jotan Inc.
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
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.
-15-
<PAGE>
Jotan Inc.
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 will result in their purchasing an additional $2,625,000 of
Series B Preferred Stock on or before September 23, 1997. These additional
funds will be 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 will be repaid to the lenders upon the purchase of the
additional Series B Preferred Stock by Rice and Fairview.
On August 19, 1997, the Company amended the Credit Agreement with Banque
Paribas, eliminating the $10 million acquisition facility and reducing the
senior revolving credit facility from $12 million to $9 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.
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
six months ended June 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
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary:
Average shares
outstanding 5,696,611 5,679,411 5,687,964 5,673,603
Net effect of stock
options-based on the
treasury stock method
using average market price * -0- * -0-
------------ ----------- ----------- -----------
Totals 5,696,611 5,679,411 5,687,964 5,673,603
============ =========== =========== ===========
Net Income (loss) $(1,011,714) $ 25,059 $(1,495,171) $ 46,078
Amount attributable
to preferred stock 220,625 -0- 320,834 -0-
------------ ----------- ----------- -----------
Net income (loss)
attributable to common
shareholders $(1,232,339) $ 25,059 $(1,816,005) $ 46,078
============ =========== =========== ===========
Per Share Amount $ (.22) $ .00 $ (.32) $ .01
============ =========== =========== ===========
Fully diluted:
Average shares
outstanding 5,696,611 5,679,411 5,687,964 5,673,603
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. * 639,867 * 319,933
------------ ----------- ----------- -----------
Totals 5,696,611 6,319,278 5,687,964 5,993,537
============ =========== =========== ===========
-18-
<PAGE>
Jotan Inc.
Exhibit 11 Statement Re: Computation of Per Share Earnings
(cont.)
Three months ended June 30 Six months ended June 30
1997 1996 1997 1996
---------- ---------- ---------- ----------
Totals from previous page 5,696,611 6,319,278 5,687,964 5,993,537
============ =========== =========== ===========
Net Income (loss) $(1,011,714) $ 25,059 $(1,495,171) $ 46,078
Amount attributable to
preferred stock 220,625 -0- 320,824 -0-
------------ ----------- ----------- -----------
Net Income (loss)
attributable to common
shareholders $(1,232,339) $ 25,059 $(1,816,005) $ 46,078
============ =========== =========== ===========
Per Share Amount $ (.22) $ .00 $ (.32) $ .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.
</TABLE>
-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: ____________________________
David Freedman, Vice President
and Chief Financial Officer
August 19, 1997
-20-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 536,288
<SECURITIES> 0
<RECEIVABLES> 10,372,866
<ALLOWANCES> 0
<INVENTORY> 7,786,435
<CURRENT-ASSETS> 19,751,942
<PP&E> 5,072,792
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,909,768
<CURRENT-LIABILITIES> 14,697,606
<BONDS> 0
9,340,000
12,658
<COMMON> 56,966
<OTHER-SE> 1,139,136
<TOTAL-LIABILITY-AND-EQUITY> 58,909,768
<SALES> 25,763,187
<TOTAL-REVENUES> 25,763,187
<CGS> 18,369,154
<TOTAL-COSTS> 18,369,154
<OTHER-EXPENSES> 6,531,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,301,467
<INCOME-PRETAX> (1,495,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,495,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,495,171)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
