-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SmkNP+TQY1DRRwOq2bN0uG34Qupeaz1jKf9SAdy1DaOg48K4wdzlOngD5RrYUHoL 1SNreG8W37iTTK1Iyn5/0g== 0000950150-96-001012.txt : 19960919 0000950150-96-001012.hdr.sgml : 19960919 ACCESSION NUMBER: 0000950150-96-001012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960918 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROTONICS MANUFACTURING INC/DE CENTRAL INDEX KEY: 0000801873 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 362467474 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09429 FILM NUMBER: 96631926 BUSINESS ADDRESS: STREET 1: 17022 S FIGUEROA ST CITY: GARDENA STATE: CA ZIP: 90248 BUSINESS PHONE: 3105384932 MAIL ADDRESS: STREET 1: 17022 S FIGUEROA ST CITY: GARDENA STATE: CA ZIP: 90248 FORMER COMPANY: FORMER CONFORMED NAME: KOALA TECHNOLOGIES CORP /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PENTRON CORP DATE OF NAME CHANGE: 19890515 10-K 1 FORM 10-K DATED JUNE 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 1996 Commission file number 1-9429 ROTONICS MANUFACTURING INC. (Exact name of registrant as specified in its charter) Delaware 36-2467474 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17022 South Figueroa Street Gardena, California 90248 (Address of principal offices) (Zip Code) Registrant's telephone number, including area code: (310) 538-4932 Securities registered pursuant to Section 12(b) of the Act: Common Stock ($.01 stated value) American Stock Exchange Titles of each class Name of each Exchange on which registered Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) for the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, as of September 11, 1996, was $11,282,700 (1). The number of shares of common stock outstanding at September 11, 1996 was 14,166,018. (1) Excludes 6,317,157 shares held by directors, officers and stockholders whose ownership exceeded 5% of the outstanding shares at September 11, 1996. Exclusion of such shares should not be construed to indicate that the holders thereof possess the power, direct or indirect, to direct the management or policies of registrant, or that such persons are controlled by or under common control with the registrant. 2 DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K - -------- --------- Part ---- Definitive Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on December 10, 1996 III
2 3 TABLE OF CONTENTS
PART I Page - ------ ---- Item 1 Business 4 Item 2 Properties 6 Item 3 Legal Proceedings 6 Item 4 Submission of Matters to a Vote of Security Holders 7 PART II - ------- Item 5 Market for Registrant's Common Stock and Related Stockholder Matters 8 Item 6 Selected Financial Data 9 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 8 Financial Statements and Supplementary Data 14 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 PART III - -------- Item 10 Directors and Executive Officers of the Registrant 15 Item 11 Executive Compensation 15 Item 12 Security Ownership of Certain Beneficial Owners and Management 15 Item 13 Certain Relationships and Related Transactions 15 PART IV - ------- Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16 SIGNATURES 17
3 4 PART I Item 1. Business Introduction Rotonics Manufacturing Inc. (the "Company") was founded as an Illinois Corporation, and was reincorporated in Delaware in December 1986. Effective July 1, 1991, the Company merged with Rotonics Molding, Inc.-Chicago ("Rotonics"), with the Company being the surviving entity. In accordance with the 1991 merger agreement, the Company issued 2,666,666 (after giving effect to a 1-for-3 reverse stock split) shares of its common stock and 4,999,997 shares of a newly issued non-voting preferred stock in exchange for all the outstanding voting stock of Rotonics. The preferred stock, which has subsequently been redeemed, was entitled to cumulative dividends of $.09 per share per annum and had a liquidation value of $1.00 per share, plus accrued unpaid dividends in preference to any payment on the common stock. Rotonics had operations in Itasca, Illinois; Deerfield, Wisconsin; Denver, Colorado; and Bartow, Florida. These operations currently conduct business as divisions of the Company using the trade names RMI-C, RMI-W, RMI-D and RMI-F, respectively. Rotonics was a privately held California Corporation which was 52% owned by Mr. Sherman McKinniss. Mr. McKinniss became president and chief executive officer of the Company on August 12, 1991. In September 1991 the Company's wholly owned subsidiary, Rotational Molding, Inc. ("RMI"), was merged into the Company and now operates as two divisions using the trade names RMI-G and RMI-I with manufacturing operations in Gardena, California and Caldwell, Idaho, respectively. Effective January 1, 1992 the Company acquired Plastech Holdings, Inc. ("Plastech"), and its wholly owned subsidiary, Plastech International, Inc., for $1,777,070 in cash. Plastech was headquartered in Warminster, Pennsylvania with an additional operation in Gainesville, Texas. In July 1992, Plastech was merged with the Company and now operates as two divisions of the Company using the trade names RMI-P/Plastech and RMI- T/Plastech. Effective April 1, 1995 the Company purchased certain assets and assumed certain liabilities of Custom Rotational Molding, Inc. ("CRM") for 300,000 shares of the Company's common stock. The Company assumed CRM's operations in Arleta, California and currently operates this business as a division of the Company at this location using the trade name RMI-A. In September 1994, the Company purchased a larger manufacturing facility in Bensenville, Illinois and subsequently relocated its Itasca, Illinois operations into this new facility. In December 1995 the Company discontinued its operations at its Deerfield, Wisconsin location and combined these operations into its newly purchased Bensenville, Illinois operation. Because of the close proximity of these two locations the Company will realize improved efficiencies and productivity from the combination of resources into a single operation. As part of the Wisconsin plant closure, the Company plans to sell the Wisconsin real property. A portion of the Wisconsin facility is currently being leased on a short term basis at $2,100 per month. The Corporate office of the Company is located at the same site as the RMI-G (Gardena, California) facility. Description of Business The Company currently has eight manufacturing locations and was again listed by a plastics industry periodical as one of the top ten Rotational Molders in North America. These operating divisions manufacture a variety of plastic containers for commercial, agricultural, pharmaceutical, point of purchase display, medical waste, refuse, marine, health care and residential use, as well as a vast number of custom plastic products for a variety of industries, utilizing the roto-molding process and, on a smaller scale, the dip molding process. Roto-molding is a process for molding plastic resin by rotating a mold in a heated environment while the plastic resin powder placed inside the mold melts and evenly coats the inner wall of the mold. The roto-molding process has been used for many years and continues to be recognized as a growth industry in recent years as a result of numerous ongoing business consolidations and the development of new resins. These new resins allow roto-molded items to compete with more 4 5 traditional materials such as carbon and stainless steel, especially in the fabrication of large, lightweight, one-piece molded items such as storage tanks. Roto-molding is a particularly advantageous process for users of molded plastic products who may want to test different prototypes, or who do not require sufficient numbers of such products to justify a more expensive manufacturing process. The Company's products include various types of storage tanks, bin lids, refuse containers for automated removal, medical waste containers, point-of-purchase displays, agricultural / livestock products and containers and other molded items. The Company purchases resin from seven major suppliers in the U.S. and Canada. There are seven additional suppliers of minor significance. As the resin used in the manufacturing process is a polyethylene derived from natural gas, resin price is not directly related to the price for petrochemicals and until recent years has not been generally subject to volatile fluctuations which are often experienced by the petroleum industry. The Company also incorporates the use of post-consumer plastic products blended with virgin materials in the manufacturing of products that call for its use. The Company holds several patents on storage containers used for pharmaceutical and commercial applications. The patents expire through the year 2010. Although the Company has been able to capture its share of this niche market and expects to see continued growth, no one patent or groups of patents is considered material to the business as a whole. Competition for the Company's products is governed by geography and region since large capacity tanks are expensive to ship long distances and, as such, any prospective competitor is constrained by shipping costs. There are numerous single-location as well as a growing trend to structure multi-location roto-molding businesses throughout the United States. However, each of these businesses still competes in a geographic region as determined by customer demand within that region, a constraint inherent to the industry. Due to its nationwide presence, the Company has substantially alleviated such constraint as the Company's operations are located within approximately 500 miles of all potential customers in the continental United States. The Company's sales are usually not subject to large seasonal fluctuations as the business typically operates on significant backlogs with a diverse product mix. Peak season is usually experienced in the period from April through June. Historically the quarter from January through March is the slowest production period of the year. The Company's backlog was $4,936,400 and $3,990,900 as of June 30, 1996 and 1995, respectively. All of the backlog orders of June 30, 1996 are expected to be filled during fiscal 1997. The products are marketed through the Company's in-house sales and engineering staff, various distributors and outside commission-based sales representatives. The Company continues to build a strong, broad customer base which covers a multitude of industries. As such, since fiscal 1991, no sales to any one single customer represented a material part of the Company's business. Research and development expenditures for the Company were insignificant for the last three fiscal years. Regulation The Company believes that it is in compliance with all applicable federal, state and local laws relating to the protection of the environment and does not anticipate that any such laws will have any material effect on its financial position, capital expenditures, or competitive position. Employees As of June 30, 1996, the Company employed a total of 458 individuals. The Company maintains, for its respective employees who are eligible, a medical insurance plan (some of which is contributory), a group life insurance plan and an annual bonus plan. 5 6 Item 2. Properties The Company's corporate office occupies a separate building comprising approximately 2,500 square feet of the facilities of RMI-G in Gardena, California. The operating divisions lease warehouse, production and office space as follows:
Total Building Facility Annual Property Square Square Base Expiration Location Footage Footage Rent Date (2) -------- ------- ------- ---- ------------ Gardena, California 42,800 183,300 $ 259,300 October 2001 Arleta, California 29,000 59,000 $ 183,200 October 1997 Caldwell, Idaho 24,000 71,200 $ 73,900 September 2000 Denver, Colorado (1) (3) 20,200 46,300 $ 91,900 May 1997 Itasca, Illinois (4) 25,200 57,000 $ 120,000 February 1997 Warminster, Pennsylvania (1) 39,100 217,800 $ 111,400 May 1997 Bartow, Florida 35,100 150,600 $ 103,800 September 1999 Gainesville, Texas (5) -- 108,900 $ 1,000 April 2001
(1) The Company has an option to purchase these facilities. (2) Does not give effect to any renewal options. (3) Includes $5,500 in base rent for an offsite warehouse; lease expires May 1997. (4) The property is currently being subleased at an annual base rent of $146,400 through February 1997. (5) Represents a 2.5 acre ground lease adjacent to Texas facility. The Company owns approximately 1.59 unencumbered acres (including 35,100 square feet of warehouse, production and office space) in Deerfield, Wisconsin which was vacated in December 1995 by the Company and is currently leased to an unrelated lessee for $2,100 per month. The Company also owns 2.1 unencumbered acres (including 24,000 square feet of warehouse, production and office space) in Gainesville, Texas. This facility is currently under construction to add an additional 13,800 square feet of warehouse and production space. In September, 1994 the Company purchased 3.1 acres (including 63,300 square feet of warehouse, production and office space) encumbered by a $1.2 million mortgage in Bensenville, Illinois for the the Company's Illinois manufacturing operations. In December 1995 the Wisconsin facility was closed and its operations were combined into the Illinois facility. The company currently leases 11,375 square feet of the Illinois facility to an unrelated lessee for an annual base rent of $62,400. Item 3. Legal Proceedings In the normal course of business, the Company encounters certain litigation matters, which in the opinion of management, will not have a significant adverse effect on the financial position or the results of operations of the Company. 6 7 On April 16, 1996, the Company was named as defendant in a complaint filed by Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges claims for breach of contract and promissory estoppel relating to an Agreement in Principle entered into in connection with a proposed acquisition of the Company by Bonar U.S., Inc. On April 3, 1996 the Company announced that it had terminated the Agreement in Principal pursuant to its terms. The complaint requests damages of $7,011,484. The Company believes the allegations in the complaint are without merit and intends to vigorously defend its position. On May 17, 1996, the Company filed a counterclaim against Bonar U.S., Inc. and Bonar Plastics, Inc. seeking damages totaling $25,237,725 for breach of the Confidentiality Agreement with the Company, misappropriation of trade secrets, intentional interference with a prospective economic advantage which the Company obtained as a result of an indication of interest from a third party and breach of a Royalty Agreement between Bonar Plastics, Inc. and one of the Company's operating divisions (formally known as Custom Rotational Molding, Inc.). Item 4. Submission of Matters to a Vote of Security Holders None. 7 8 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters The Company's Common Stock ($.01 stated value) is traded on the American Stock Exchange ("AMEX") under the symbol "RMI". The number of stockholders of record of the Company's Common Stock was approximately 6,900 at September 11, 1996. Price Range of Common Stock The following table sets forth the quarterly price ranges of the Company's Common Stock in Fiscal 1996 and 1995, as reported on the composite transactions reporting system for AMEX listed stocks.
High Low -------- ------- Fiscal 1995 First Quarter Ended September 30, 1994 $ 1-13/16 $ 3/4 Second Quarter Ended December 31, 1994 1-3/4 1-5/16 Third Quarter Ended March 31, 1995 2-1/8 1-1/8 Fourth Quarter Ended June 30, 1995 1-13/16 1-1/4 Fiscal 1996 First Quarter Ended September 30, 1995 $ 3 $ 1-15/16 Second Quarter Ended December 31, 1995 2-7/16 1-3/8 Third Quarter Ended March 31, 1996 2-13/16 1-1/2 Fourth Quarter Ended June 30, 1996 2-1/4 1-5/16
In fiscal 1996 the Company paid a regular cash dividend of $.04 per share on its Common Stock. Any future cash dividends or other distributions of stock will be determined solely by the Board of Directors and will be based on the Company's future financial ability to declare and pay such dividends. Additionally, certain lending agreements restrict the Company from declaring or paying dividends on its Common Stock. (See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations: Liquidity and Capital Resources.") According to the lending agreement with its bank, the Company may not declare or pay any dividend or distribution on any stock or redeem, retire, repurchase or otherwise acquire any of such shares unless the Company can obtain prior bank authorization and appropriate waivers. 8 9 Item 6. Selected Financial Data
Year ended June 30, --------------------------------------------------------------------------------- 1996 1995(B) 1994 1993 1992(C) --------------------------------------------------------------------------------- Income Statement Data - --------------------- Net sales $35,703,600 $35,887,600 $31,346,300 $27,983,800 $22,919,600 Cost of goods sold 26,443,700 26,298,900 23,312,300 20,817,400 16,884,400 Gross margin 9,259,900 9,588,700 8,034,000 7,166,400 6,035,200 Selling, general and administrative expenses 6,313,100 5,767,900 5,636,800 5,905,700 4,783,400 Interest expense 696,500 766,500 592,500 577,700 538,500 Income from continuing operations before change in accounting principle for income taxes (D) 1,472,700 3,287,600 1,873,000 203,000 1,273,700 Loss on disposal of discontinued operations - - - (167,800) (54,300) Cumulative effect of change in account- ing principle for income taxes (E) - - 4,013,000 - - Net income $ 1,472,700 $ 3,287,600 $ 5,886,000 $ 35,200 $ 1,219,400 Income/(loss) from continuing operations per common share $.10 $.24 $.13 $(.03) $.09 Average common shares outstanding (A) 13,858,300 12,607,900 11,959,600 9,942,700 9,493,700 Other Financial Data - -------------------- Income from continuing operations as a percent of sales 4.1% 9.2% 6.0% 0.7% 5.6%
(A) Computed on the basis of the weighted average number of common shares outstanding during each year, including dilutive common stock equivalents and adjusted to reflect a 1-for-3 reverse stock split effective December 17, 1992. (B) Includes the results of operations of CRM since the effective date of acquisition. (C) Includes the results of operations of Rotonics and Plastech since the effective dates of acquisition. (D) Fiscal year 1993 includes $469,000 in costs relating to a lawsuit settlement. Fiscal year 1992 includes $500,000 in life insurance proceeds from a policy covering a former officer of the Company. (E) Represents the recognition of a net deferred tax asset in conjunction with the adoption of FAS 109, "Accounting for Income Taxes" (see Note 13 of Notes to Financial Statements). 9 10
At June 30, ---------------------------------------------------------------------------------------------- 1996 1995(B) 1994 1993 1992(C) ---------------------------------------------------------------------------------------------- Balance Sheet Data - ------------------ Current assets $13,023,000 $11,903,200 $ 9,244,500 $ 6,811,000 $ 6,852,000 Current liabilities 4,864,500 4,766,000 7,256,300 7,734,300 7,738,000 Working capital surplus/(deficit) 8,158,500 7,137,200 1,988,200 (923,300) (886,000) Total assets 29,055,700 30,359,400 24,939,000 19,418,100 18,935,500 Long-term debt 5,864,100 7,707,700 2,834,400 1,982,500 1,816,800 Total liabilities 10,732,600 12,477,700 10,095,700 9,790,500 9,640,800 Preferred stock -- 3,000,000 3,875,000 4,250,000 5,000,000 Current ratio 2.7 to 1 2.5 to 1 1.3 to 1 .9 to 1 .9 to 1 Net book value per common share (A) $ 1.29 $ 1.15 $ .92 $ .46 $ .46
(A) Computed on the basis of the actual number of common shares outstanding at the end of the fiscal year, adjusted to reflect a 1-for-3 reverse stock split effective December 17, 1992. (B) Includes the effect of the acquisition of CRM. (C) Includes the effect of the acquisitions of Rotonics and Plastech. 10 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction To the extent that this 10-K Annual Report discusses matters which are not historical, including statements regarding future financial results, information or expectation about products or markets, or otherwise makes statements about future events, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These include, among others, fluctuations in costs of raw materials and other expenses, costs associated with plant closures, downturns in the markets served by the Company, the costs associated with new product introductions, as well as other factors described under the heading "Item 3 - Legal Proceedings", under this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Footnote 1 to Financial Statements. Operations Net sales were relatively consistent with prior year results reporting net sales of $35,703,600 for fiscal 1996 compared to $35,887,600 for fiscal 1995. Fiscal 1996 was a challenging year for the Company as well as the Rotomolding Industry in general due to tremendous fluctuations in raw material which in turn caused confusion and anxiety in the marketplace. Management was pleased that in spite of these adverse conditions it was still able to maintain its overall market share. Fiscal 1996 also continued to be a year of transition for the Company. In the second quarter of fiscal 1996, the Company closed its Wisconsin facility and combined the operations into its Illinois facility. During this transition the Company did realize an overall reduction in sales volumes. However, since completion of the relocation process during the fourth quarter of fiscal 1996, the restructured Illinois facility is primed to handle increased sales volumes. Management anticipates realizing increased volumes in this region as it capitalizes on Illinois facilities resources, increased capacity and growth potential. Again, due to a lackluster marketplace in fiscal 1996, several of the Company's proprietary product lines fell below fiscal 1995 sales volume levels but, the Company also reported notable increases in marine, custom, customer tooling and medical waste sales which aided to minimize any shortfalls realized. The Company continues to see future growth potential in these aforementioned product lines as well as continued focus to increase market share for its material handling and agricultural product lines. Sales of refuse containers also continues to be a strong market for the Company and management anticipates this trend will continue during fiscal 1997. In addition, the Company is currently expanding the building and manufacturing capacity at its Texas facility. Once completed the Company plans to expand the manufacturing and distribution of its tank product line into this region. Net sales increased $4,541,300 or 14.5% in fiscal 1995 compared to fiscal 1994. The Company has experienced considerable growth in its refuse container, marine and custom product lines during fiscal 1995. While a portion of the increase in custom sales is attributed to the acquisition of Custom Rotational Molding, Inc. ("CRM") which was effective on April 1, 1995, continued growth in the Company's proprietary products, especially refuse containers and marine industry products, contributed to a 10% increase in net sales. Sales also increased due to several general price increases instituted to offset the unprecedented increase in plastic resin costs, interest rates and the normal inflation increases reflected in the Company's expenses. During fiscal 1995, the Company also continued its focus on expanding its existing operations. This included the relocation of its Illinois division to a 3.1-acre site purchased by the Company as well as various machinery and facility expansions to keep pace with current and future manufacturing requirements. Cost of goods sold was $26,443,700 or 74.1% of net sales in fiscal 1996 compared to $26,298,900 or 73.3% and $23,312,300 or 74.4% of net sales in fiscal 1995 and 1994, respectively. Both fiscal 1996 and 1995 experienced extreme volatility in plastic resin prices which resulted in unprecedented increases in plastic resin prices (approximately 55%). The price increases were enacted by the various resin suppliers in response to foreign market demands as well as the various natural and internal disasters experienced by the resin suppliers. The cost of plastic resin represents a significant portion of the Company's manufacturing costs and as such places an undue hardship on the Company to effectively mitigate these increases. During fiscal 1995, the Company did effectively mitigate the resin price increases by initiating customer price increases, raw material purchasing strategies and maximizing its volume rebate programs. However, because the Company could not initially completely pass these costs on to its customers, during the first 6 months of fiscal 1996 the Company experienced increased costs as it depleted lower priced resin reserves and replaced them with resin purchased at higher current market prices. Again these costs were partially mitigated during the remainder of fiscal 1996 using the above mentioned strategies coupled with 11 12 temporary reductions in resin prices and improved customer buying trends. As the Company moves forward into fiscal 1997 management will continue to take defensive tactics in response to current rising resin prices. As before, if resin prices do not stabilize and the marketplace reacts adversely to future pricing structures these factors could have an effect on the Company's gross profit margin in fiscal 1997. Selling, general and administrative expenses were $6,313,100 or 17.7% of net sales in fiscal 1996 compared to $5,767,900 or 16.1% in fiscal 1995. The increase is substantially attributed to approximately $435,000 in additional expenses incurred associated with the Arleta, California facility which was acquired during the fourth quarter of fiscal 1995. The remaining increase is attributed to increased professional fees of approximately $110,000 associated with the proposed acquisition of the Company by Bonar U.S., Inc. and approximately $50,000 in excess administrative expenses incurred during the Wisconsin facility consolidation. The latter costs have been partially mitigated due to improved operating efficiencies realized subsequent to the consolidation of the two plants. Selling, general and administrative expenses were $5,767,900 or 16.1% of net sales in fiscal 1995 compared to $5,636,800 or 18% in fiscal year 1994. The increase in the fiscal 1995 amount is primarily related to $154,000 in expenses relating to the Arleta, California operations (formally CRM) since the effective date of acquisition. However, overall costs have remained consistent with prior year reflecting a decrease when compared as a percentage of net sales due to increase volumes during fiscal 1995. Interest expense decreased $70,000 to $696,500 in fiscal 1996 compared to $766,500 in fiscal 1995. The decrease is attributed to a overall reduction in the Company's debt structure of approximately $1.8 million as of June 30, 1996 coupled with last years renegotiated interest rates and reductions in the bank's prime lending interest rate which lowered interest rates by 1.75% - 2%. If the Company's bank borrowings remain consistent during fiscal 1997 and interest rates remain stable the Company will continue to report lower interest costs. Interest expense increased $174,000 to $766,500 in fiscal 1995 compared to $592,500 in fiscal 1994. The increase is related both to an increase in the Company's debt structure and a substantial increase in the bank's interest rate (up 25% over fiscal 1994). During fiscal 1995 the primary increase in the Company's debt when compared to fiscal 1994 (approximately $1.9 million) is attributed to the purchase of the Bensenville, Illinois property and the repayment of CRM's bank debt of approximately $700,000 assumed in the acquisition. As mentioned, the Company also experienced an increase in the prime lending rate charged by the bank in response to increases in the discount rate imposed by the Federal Reserve Bank. Due to these factors, the Company renegotiated its entire loan facility with the bank in May 1995. Under the new loan facility the Company realized a 20% savings (approximately a 1.5% reduction in interest rates in absolute terms) in relation to the prior loan facility. Income before income taxes and cumulative effect of change in accounting principle for income taxes decreased $784,800 to $2,407,200 or $.17 per common share in fiscal 1996 compared to $3,192,000 or $.23 per common share in fiscal 1995. The decrease is due to slightly lower sales volumes during the current fiscal year coupled with the resin cost increase and increases in selling, general and administrative expenses outlined above. Although operating results were below prior years' levels, management feels the current year's results were satisfactory when one considers the challenging events which plagued fiscal 1996. Management realizes fiscal 1997, as well as future periods, will also present their own challenges. Therefore, management's goal will be to continue to strive to increase sales volumes and profitability, in light of industry conditions, with an unwavering commitment. Income before income taxes and cumulative effect of change in accounting principle for income taxes reflected a notable increase of $1,432,300 to $3,192,000 or $.23 per common share in fiscal 1995 from $1,759,700 or $.12 per common share in fiscal 1994. The increase is due to increases in sales volumes in conjunction with the relatively consistent levels of costs associated with manufacturing, selling and administrative functions in fiscal 1995. Income tax expense was $934,500 or $.07 per common share for fiscal 1996 compared to income tax benefits of $95,600 and $113,300 for fiscal 1995 and 1994, respectively. The increase is due to the recognition of deferred income taxes during fiscal 1996 which in prior years were minimized by the reversal of the Company's deferred tax asset valuation allowance. During fiscal 1996, the Company exhausted the remaining $590,300 valuation allowance reserve based on management's continuing assessment and belief that the Company will continue to utilize its NOLs in the foreseeable future. Although the Company must now record a tax provision, the Company will not incur a cash flow requirement for the payment of deferred taxes ($743,100 in fiscal 1996) until such time that the Company fully utilizes its available net operating loss carryforwards. 12 13 Cumulative Effect of Change in Accounting Principle for Income Taxes The Company recorded adjustments to the July 1, 1993 balance sheet to reflect the impact of adopting FAS 109, netting to $4,013,000. This amount was reflected in net income for fiscal 1994 as the cumulative effect of change in accounting principle for income taxes. The adjustments primarily represent the impact of recognizing a deferred tax asset for the benefit of tax operating loss carryforwards that could not be recorded under FAS 96. For further discussion relating to the adoption of FAS 109 by the Company, see Note 13 to the financial statements. Liquidity and Capital Resources Working capital increased $1,021,300 to $8,158,500 at June 30, 1996 compared to $7,137,200 at June 30, 1995. The increase is primarily attributed to a $1,128,700 increase in current deferred tax assets for the utilization of the Company's net operating loss carryforwards which is expected to occur within one year, net of normal fluctuations in accounts receivables, accounts payable, accrued liabilities and inventories consistent with current operations. Cash provided by operations increased $1,342,700 in fiscal 1996. The increase is primarily attributed to reductions in inventory levels consistent with current operations compared to last years significant increases in inventory levels in efforts to mitigate rising raw material costs. These results continue to substantiate the Company's ability to sustain profitable operations at current sales volumes not to mention the cash flow savings obtained from the utilization of the Company's NOLs. In May 1996, the Company borrowed $500,000 against its machinery and equipment term loan commitment. The proceeds were used to pay down the Company's revolving line of credit which had been used to temporarily finance approximately $700,000 in machinery and equipment purchases. The note is due in sixty monthly principal installments of $8,300 plus interest at the bank's prime or optional LIBOR interest rates. In addition, the Company received another $500,000 machinery and equipment term loan commitment for financing future capital expenditures. Borrowings under the Company's secured line of credit decreased $1,076,800 to $1,983,500 between June 30, 1995 and June 30, 1996. Cash flows from operations not only funded payments for term debt, capital expenditures, employee bonuses, and our first common stock dividend payment, but also reduced our line of credit debt down to its current level. At June 30, 1996, the Company has approximately $3,000,000 available for future borrowings under its revolving line of credit. The Company expended a total of $981,100 for property, plant and equipment during fiscal 1996 compared to $3,023,100 for fiscal 1995. The decrease is attributed to the purchase of the Bensenville, Illinois property ($1,700,000) and various building improvements and machinery and equipment projects at the Bensenville, Illinois property completed in fiscal 1995. The Company currently expects to spend between $1,200,000 and $1,500,000 in capital expenditures in fiscal year 1997. The Company anticipates that the capital expenditures will be financed from cash flows generated from operations and the existing bank machinery & equipment term loan commitment. In September 1995, the Company redeemed 250,232 shares of its 9% preferred stock at the stated redemption value of $1 per share. On September 25, 1995, pursuant to unanimous Board of Directors approval, the Company proceeded to convert remaining outstanding preferred shares to the Company common stock. The conversion was based on the issuance of one share of the Company's common stock for every two shares of preferred stock outstanding. The conversion resulted in the issuance of 1,374,884 shares of common stock. The complete conversion of the remaining outstanding preferred stock will save the Company approximately $250,000 in annual cash flow due to the elimination of future preferred dividend payments and eliminate the need to incur additional debt and interest costs to redeem the preferred stock. The Company does not plan to issue any preferred shares in the future. On December 8, 1995, the Board of Directors declared at its Annual Meeting of Stockholders its first dividend on the Company's common stock since the July 1991 merger. A dividend of $.04 per common share was paid on January 29, 1996 to stockholders of record on January 10, 1996. With the recent redemption of all preferred stock, eliminating the obligation to pay future preferred stock dividends, and with the full support of the Company's bankers, the Board of Directors felt it was an appropriate time to recognize and reward its loyal stockholders with the declaration and payment of this dividend. 13 14 On April 16, 1996, the Company was named as defendant in a compliant filed by Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges claims for breach of contract and promissory estoppel relating to an Agreement in Principle entered into in connection with a proposed acquisition of the Company by Bonar U.S. Inc. On April 3, 1996, the Company announced that it had terminated the Agreement in Principal pursuant to its terms. The complaint requests damages of $7,011,484. The Company believes the allegations in the complaint are without merit and intends to vigorously defend its position. On May 17, 1996, the Company filed a counterclaim against Bonar U.S., Inc. and Bonar Plastics, Inc. seeking damages totaling $25,237,725 for breach of the Confidentiality Agreement with the Company, misappropriation of trade secrets, intentional interference with a prospective economic advantage which the Company obtained as a result of an indication of interest from a third party and breach of a Royalty Agreement between Bonar Plastics, Inc. and one of the Company's operating divisions (formally known as Custom Rotational Molding, Inc.) Cash flows from operations in conjunction with the Company's revolving line of credit and machinery and equipment loan commitment are expected to meet the Company's needs for working capital, capital expenditures and repayment of long-term debt for the foreseeable future. Item 8. Financial Statements and Supplementary Data See Financial Statements and Financial Statement Schedules listed in Item 14(a)(1) and (2). Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure In September 1995, the Registrant replaced Price Waterhouse LLP with Arthur Andersen LLP as the Registrant's Independent Certified Public Accountants, as more fully described in the Company's 8-K filing dated September 20, 1995 incorporated herein by reference. 14 15 PART III Item 10. Directors and Executive Officers of the Registrant Directors The Company incorporates by reference the information set forth under the caption "Election of Directors" in the Company's Proxy Statement to be filed with the Securities and Exchange Commission, and mailed to stockholders in connection with the Company's Annual Meeting of the Stockholders to be held on December 10, 1996 ("the Proxy Statement") Executive Officers As of September 11, 1996, the executive officers of the Company were as follows:
Name Age Position - ---- --- -------- Sherman McKinniss 60 President, Chief Executive Officer, Chairman of the Board E. Paul Tonkovich 58 Secretary, Director Douglas W. Russell 35 Chief Financial Officer, Assistant Secretary/Treasurer
Sherman McKinniss. Mr. McKinniss has served as President, Chief Executive Officer and a Director of the Company since August 1991 and was appointed as Chairman of the Board in December 1994. He was President and a Director of Rotonics from 1987-1991. Previously, he owned and operated RMI, which he sold to the Company in 1986 and was a partial owner of Rotational Molding, Inc.-Florida which was merged into Rotonics in 1988. E. Paul Tonkovich. Mr. Tonkovich has served as Secretary and a Director of the Company since August 1991. He has been a practicing attorney since January 1966. He was legal counsel to Rotonics and to Mr. McKinniss and is now legal counsel for the Company. Douglas W. Russell. Mr. Russell has served as Chief Financial Officer and Assistant Secretary/Treasurer of the Company since 1991. Prior to that he was a Senior Auditor for the accounting firm Hallstein & Warner from 1988 until 1991, and was Assistant Controller of RMI from September 1985 to September 1987. Item 11. Executive Compensation The Company incorporates by reference the information set forth under the captions "Compensation of Executives", the "Summary Compensation Table" and related disclosure information, "Certain Transactions", "Compensation of Directors", and "Compensation Pursuant to Plans" in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The Company incorporates by reference the information set forth under the caption "Security Ownership by Certain Beneficial Holders" in the Proxy Statement. Item 13. Certain Relationships and Related Transactions The Company incorporates by reference the information set forth under the headings "Information Concerning the Board of Directors" under the caption "Election of Directors", "Executive Officers", and "Certain Transactions" in the Proxy Statement. 15 16 PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report:
Page ---- (1) Financial Statements: Report of Independent Accountants' F-1 - F2 Balance Sheet, June 30, 1996 and 1995 F-3 Statement of Income, Years Ended June 30, 1996, 1995 and 1994 F-4 Statement of Changes in Stockholders' Equity, Years Ended June 30, 1996, 1995, and 1994 F-5 Statement of Cash Flows, Years Ended June 30, 1996, 1995, and 1994 F-6 Notes to Financial Statements F-7 (2) Financial Statement Schedules: VIII Valuation and Qualifying Accounts, Years Ended June 30, 1996, 1995, and 1994 F-17
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Reports on Form 8-K: No reports were filed on Form 8-K during the last quarter of fiscal year ended June 30, 1996. (c) The following exhibits are filed as part of this report:
Exhibit Number Exhibit Title - --------- ------------- 10.1 Credit Agreement and related Promissory notes between registrant and Wells Fargo Bank dated May 16, 1996 23(a) Consent of Independent Accountants - Arthur Andersen, LLP 23(b) Consent of Independent Accountants - Price Waterhouse, LLP
16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROTONICS MANUFACTURING INC. By /s/ SHERMAN MCKINNISS --------------------------------- Sherman McKinniss President, Chief Executive Officer Date 09/16/1996 By /s/ DOUGLAS W. RUSSELL --------------------------------- Douglas W. Russell Chief Financial Officer Assistant Secretary/Treasurer Date 09/16/1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ L. JOHN POLITE, JR. - ------------------------ Director 09/16/1996 L. John Polite, Jr. /s/ E. PAUL TONKOVICH - ------------------------ Secretary, Director 09/16/1996 E. Paul Tonkovich /s/ DAVID C. POLITE - ------------------------ Director 09/16/1996 David C. Polite /s/ LARRY DEDONATO - ------------------------ Director 09/16/1996 Larry DeDonato /s/ JAMES E. EVANS - ------------------------ Director 09/16/1996 James E. Evans
17 18 ROTONICS MANUFACTURING INC. FINANCIAL STATEMENTS * * * * * JUNE 30, 1996 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Rotonics Manufacturing Inc.: We have audited the accompanying balance sheet of ROTONICS MANUFACTURING INC. (a Delaware corporation) as of June 30, 1996, and the related statements of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rotonics Manufacturing Inc. as of June 30, 1996 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index on page F-17 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Orange County, California August 22, 1996 F-1 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Rotonics Manufacturing Inc. In our opinion, the financial statements listed in the index appearing under Item 14(a)(1) and (2) present fairly, in all material respects, the financial position of Rotonics Manufacturing Inc. at June 30, 1995, and the results of is operations and its cash flows for the years ended June 30, 1995, and 1994 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the financial statements, the Company changed its method of accounting for income taxes effective July 1, 1993. Price Waterhouse LLP Los Angeles, California September 11, 1995 F-2 21 ROTONICS MANUFACTURING INC. BALANCE SHEET
JUNE 30, --------------------------------------- 1996 1995 ------ ------ ASSETS ------ Current assets: Cash $ 11,600 $ 96,700 Accounts receivable, net of allowance for doubtful accounts of $90,000 and $110,300, respectively (Notes 7 and 8) 5,790,700 5,341,500 Current portion of notes receivable (Note 3) 46,900 110,900 Inventories (Notes 4 , 7 and 8) 4,939,400 5,352,100 Deferred income taxes, net (Note 13) 2,015,900 887,200 Prepaid expenses and other current assets 218,500 114,800 ----------- ----------- Total current assets 13,023,000 11,903,200 Notes receivable, less current portion (Note 3) 455,000 396,800 Deferred income taxes, net (Note 13) 1,786,300 3,658,100 Property, plant and equipment, net (Notes 5, 7 and 8) 8,316,900 8,605,900 Intangible assets, net (Note 6) 5,382,100 5,692,700 Other assets 92,400 102,700 ----------- ----------- $29,055,700 $30,359,400 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt (Note 8) $ 1,176,700 $ 1,034,500 Current portion of long-term debt due related parties (Note 9) - 140,000 Accounts payable 2,686,100 2,357,100 Accrued liabilities (Note 10) 1,001,700 1,211,000 Income taxes payable (Note 13) - 23,400 ----------- ----------- Total current liabilities 4,864,500 4,766,000 Bank line of credit (Note 7) 1,983,500 3,060,300 Long-term debt, less current portion (Note 8) 3,880,600 4,624,900 Long-term debt due related parties, less current portion (Note 9) - 22,500 Deferred pension liabilities 4,000 4,000 ----------- ----------- Total liabilities 10,732,600 12,477,700 ------------ ----------- Commitments and contingencies (Note 14) Stockholders' equity: Preferred stock, stated value $.01, redemption value $1: authorized 4,250,000 shares; issued and outstanding zero and 3,000,000 shares, respectively (Notes 9 and 12) - 3,000,000 Common stock, stated value $.01: authorized 20,000,000 shares; issued and outstanding 14,158,517 and 12,903,752 shares, respectively, net of treasury shares (Notes 9 and 12) 24,577,400 21,980,500 Accumulated deficit (6,254,300) (7,098,800) ----------- ----------- Total stockholders' equity 18,323,100 17,881,700 ----------- ----------- $ 29,055,700 $30,359,400 ============ ===========
The accompanying notes are an integral part of these financial statements. F-3 22 ROTONICS MANUFACTURING INC. STATEMENT OF INCOME
For the year ended June 30, ----------------------------------------------------- 1996 1995 1994 ------ ------ ------ Net sales $35,703,600 $35,887,600 $31,346,300 ----------- ----------- ----------- Costs and expenses: Cost of goods sold 26,443,700 26,298,900 23,312,300 Selling, general and administrative expenses 6,313,100 5,767,900 5,636,800 ----------- ----------- ----------- Total costs and expenses 32,756,800 32,066,800 28,949,100 ----------- ----------- ----------- Income from operations 2,946,800 3,820,800 2,397,200 ----------- ----------- ----------- Other (expense)/income: Interest expense (696,500) (766,500) (592,500) Lawsuit settlements - - (73,900) Other income, net 156,900 137,700 28,900 ----------- ----------- ----------- Total other expense (539,600) (628,800) (637,500) ----------- ----------- ----------- Income before income taxes and cumulative effect of change in accounting principle for income taxes 2,407,200 3,192,000 1,759,700 Income tax (provision)/benefit (Note 13) (934,500) 95,600 113,300 ----------- ----------- ----------- Income before cumulative effect of change in accounting principle for income taxes 1,472,700 3,287,600 1,873,000 Cumulative effect of change in accounting principle for income taxes (Note 13) - - 4,013,000 ----------- ----------- ----------- Net income 1,472,700 3,287,600 5,886,000 Preferred stock dividends (62,000) (301,600) (374,300) ----------- ----------- ----------- Net income applicable to common and equivalent shares $ 1,410,700 $ 2,986,000 $ 5,511,700 =========== =========== =========== Net income per common and equivalent shares (Note 1): Income from operations $ .10 $ .24 $ .13 Cumulative effect of change in accounting principle for income taxes - - .33 ------ ------ ------ Net income per common and equivalent shares $ .10 $ .24 $ .46 ====== ====== ======
The accompanying notes are an integral part of these financial statements. F-4 23 ROTONICS MANUFACTURING INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Common Stock ------------------------ ------------------------ Accumulated Shares Amount Shares (1) Amount Deficit Total ---------- ---------- ---------- ----------- ------------ ----------- Balances, June 30, 1993 4,250,000 $ 4,250,000 11,745,962 $20,974,100 $(15,596,500) $ 9,627,600 Stock issued in connection with exercise of outstanding options and warrants - - 222,783 79,000 - 79,000 Repurchase of preferred stock (375,000) (375,000) - - - (375,000) Preferred stock dividends - - - - (374,300) (374,300) Net income - - - - 5,886,000 5,886,000 ---------- ---------- ---------- ----------- ------------ ----------- Balances, June 30, 1994 3,875,000 3,875,000 11,968,745 21,053,100 (10,084,800) 14,843,300 Stock issued in connection with Custom Rotational Molding, Inc. purchase - - 300,000 412,500 - 412,500 Redemptions of preferred stock (500,000) (500,000) 615,384 500,000 - - Stock issued in connection with exercise of outstanding options - - 19,623 14,900 - 14,900 Repurchase of preferred shares (375,000) (375,000) - - - (375,000) Preferred stock dividends - - - - (301,600) (301,600) Net income - - - - 3,287,600 3,287,600 ---------- ---------- ---------- ----------- ------------ ----------- Balances, June 30, 1995 3,000,000 3,000,000 12,903,752 21,980,500 (7,098,800) 17,881,700 Redemptions of preferred stock (2,749,800) (2,749,800) 1,374,884 2,749,800 - - Stock issued in connection with exercise of outstanding options - - 5,333 4,200 - 4,200 Repurchase of preferred shares (250,200) (250,200) - - - (250,200) Retirement of treasury shares - - (125,452) (157,100) - (157,100) Preferred stock dividends - - - - (62,000) (62,000) Common stock dividends - - - - (566,200) (566,200) Net income - - - - 1,472,700 1,472,700 ---------- ---------- ---------- ----------- ------------ ----------- Balance, June 30, 1996 - $ - 14,158,517 $24,577,400 $ (6,254,300) $18,323,100 ========== ========== ========== =========== ============ ===========
(1) Reflects 1-for-3 reverse stock split which was effective December 17, 1992. The accompanying notes are an integral part of these financial statements. F-5 24 ROTONICS MANUFACTURING INC. STATEMENT OF CASH FLOWS
For the year ended June 30, -------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 1,472,700 $ 3,287,600 $ 5,886,000 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle for income taxes - - (4,013,000) Depreciation and amortization 1,588,100 1,484,100 1,426,600 Deferred income tax expense/(benefit) 743,100 (304,000) (228,300) Provision for doubtful accounts 58,800 24,200 26,200 Changes in assets and liabilities, net of effect from purchase of business: Increase in accounts receivable (508,000) (182,600) (1,437,900) Decrease/(increase) in inventories 412,700 (1,725,600) (266,700) (Increase)/decrease in prepaid expenses and other current assets (103,700) 127,100 (121,700) Increase in intangible assets - - (1,500) Decrease/(increase) in other assets 2,900 (17,100) 500 Increase/(decrease) in accounts payable 329,000 (318,500) 430,700 (Decrease)/increase in accrued liabilities (198,100) 50,900 (24,900) (Decrease)/increase in income taxes payable (23,400) 6,300 (18,200) Decrease in deferred pension liabilities - (1,000) (68,700) ----------- ----------- ----------- Net cash provided by operating activities 3,774,100 2,431,400 1,589,100 ----------- ----------- ----------- Cash flows from investing activities: Cash obtained from purchase of Custom Rotational Molding, Inc. - 106,200 - Repayments on notes receivable 5,800 93,700 49,600 Capital expenditures (981,100) (3,023,100) (1,024,800) ----------- ----------- ----------- Net cash used in investing activities (975,300) (2,823,200) (975,200) ----------- ----------- ----------- Cash flows from financing activities: Net (repayments)/borrowings under line of credit (1,076,800) 92,800 (957,500) Proceeds from issuance of long-term debt 500,000 6,080,000 3,750,000 Repayment of long-term debt (1,264,600) (5,019,100) (2,835,700) Redemption of preferred stock (250,200) (375,000) (375,000) Payment of preferred stock dividends (85,400) (307,700) (344,800) Payment of common stock dividends (554,000) - - Proceeds from exercise of stock options and warrants 4,200 14,900 79,000 Repurchases of common stock (157,100) - - ----------- ----------- ----------- Net cash (used in)/provided by financing activities (2,883,900) 485,900 (684,000) ----------- ----------- ----------- Net (decrease)/increase in cash (85,100) 94,100 (70,100) Cash at beginning of year 96,700 2,600 72,700 ----------- ----------- ----------- Cash at end of year $ 11,600 $ 96,700 $ 2,600 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 25 ROTONICS MANUFACTURING INC. NOTES TO FINANCIAL STATEMENTS NOTE 1- ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: Organization and operations Rotonics Manufacturing Inc. (the "Company"), a Delaware corporation manufactures and markets plastic containers and vessels for commercial, agricultural, refuse, pharmaceutical, marine, health care and residential use, as well as an array of custom molded plastic products to customers in a variety of industries located in diverse geographic markets. No single customer accounted for more than 10% of the Company's net sales in fiscal 1996, 1995, or 1994. In fiscal 1996 the Company purchased in aggregate approximately 75% of its plastic resin from three vendors. Plastic resin represents a significant portion of the Company's manufacturing costs. As such, economic factors which affect the Company's plastic resin vendors will have a potential impact on the Company's future operations. The Company's significant accounting policies are as follows: Revenue recognition Revenues are recognized upon shipment to the customer or when title passes to the customer based on the terms of the sales, and are recorded net of sales discounts, returns and allowances. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Property, plant and equipment Depreciation is computed using the straight-line method and the estimated useful lives of the assets range from five to thirty-nine years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in income for the period. The cost of maintenance and repairs is charged to income as incurred; costs relating to significant renewals and betterments are capitalized. Intangible assets The excess of the aggregate purchase price over the fair value of the net assets of businesses acquired is amortized on the straight-line basis over periods ranging from twenty to forty years. Patents are amortized on the straight-line basis over their useful lives of seventeen years, or at their remaining useful life from date of acquisition. Income taxes Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (FAS 109"), "Accounting for Income Taxes." FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, FAS 109 generally considers all expected future events other than enactments of changes in tax laws or rates. Previously, the Company used the FAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. F-7 26 Earnings per share Earnings per share are calculated based on the weighted average outstanding number of common and dilutive common equivalent shares. Common equivalent shares include outstanding stock options and warrants. The weighted average number of shares used in determining income/(loss) per common share was 13,858,300, 12,607,900 and 11,959,600 in fiscal 1996, 1995, 1994, respectively. NOTE 2 - ACQUISITIONS: On May 31, 1995 the Company purchased certain assets and assumed certain liabilities, including $700,000 of debt, of Custom Rotational Molding, Inc. ("CRM") for 300,000 shares of the Company's common stock with a fair value of $412,500. The acquisition was accounted for as a purchase and in accordance with the Agreement and Plan of Reorganization was effective April 1, 1995. The Company's results of operations include those of CRM since the effective date of the acquisition. The purchase price allocation, resulted in no recognition of goodwill. The Company's results of operations in fiscal 1995 and 1994 would not have been materially different had the acquisition of CRM been effective as of the beginning of the respective periods. CRM currently conducts business as a division of the Company using the trade name RMI-A and primarily manufactures custom molded products for a variety of industries. NOTE 3 - NOTES RECEIVABLE: On March 31, 1995, the Company and a customer entered into an agreement under which the Company acquired from this customer certain assets, including molds and trade accounts receivable, at their total estimated fair value of $357,800, which was applied against the principal of a 1993 Promissory Note owed by this customer to the Company. The remaining unpaid principal, together with accrued interest and open trade receivable from this customer as of March 31, 1995, were exchanged for a new note with a principal balance of $455,000, bearing interest at 8% per annum and maturing on March 31, 2005. Effective March 31, 1995, the Company sold products manufactured using these molds directly to end users. The Company shall pay to this former customer royalties at the initial rate of 10% of the Company's net sales of these products. Half of the royalty payments shall be applied to reduce principal and interest until the former customer has received a total of $300,000 in royalty payments or March 31, 1998, whichever is earlier. Subsequently, all royalty payments shall be applied to principal and interest until such principal and interest are paid in full, at which time the royalty rate will be reduced to 5% through March 31, 2005. As of June 30, 1996, the total balance of this note amounted to $487,100 including accrued interest of $32,100. The Company intends to hold this note until maturity. In June 1986, the Company acquired Pan Am, which manufactured Brighteyes Headlights, for $3,310,000. On June 30, 1989, the Company sold substantially all of the assets pertaining to the Brighteyes Headlights product line to Ratliff Industries, Inc. (RII), of San Jose California. The selling price aggregated $275,000 and consisted of $75,000 in cash, a short-term note of $50,000 and a promissory note of $150,000 which bears interest at five percent per annum, and is payable in quarterly principal installments, calculated as an amount equal to $.60 times the number of products sold by RII during the preceding quarter. Effective October 1, 1991, the rate used to calculate the principal installments was reduced from $.60 to $.30. The balance outstanding on the promissory note was $14,600 and $36,800 at June 30, 1996 and 1995, respectively. NOTE 4 - INVENTORIES: Inventories consist of:
June 30, --------------------------- 1996 1995 ---------- ---------- Raw materials $2,691,300 $3,059,000 Finished goods 2,248,100 2,293,100 ---------- ---------- $4,939,400 $5,352,100 ========== ==========
F-8 27 NOTE 5 - PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consist of:
June 30, ---------------------------- 1996 1995 ------------ ----------- Land $ 574,200 $ 574,200 Buildings and building improvements 2,701,500 2,486,800 Machinery, equipment, furniture and fixtures 11,376,200 10,635,100 Construction in progress 93,800 120,200 ------------ ----------- 14,745,700 13,816,300 Less - accumulated depreciation (6,428,800) (5,210,400) ----------- ----------- $ 8,316,900 $ 8,605,900 =========== ===========
NOTE 6 - INTANGIBLE ASSETS: Intangible assets consist of:
June 30, -------------------------- 1996 1995 ---------- ---------- Patents, net of accumulated amortization of $79,600 and $73,700 $ 50,800 $ 59,600 Goodwill, net of accumulated amortization of $1,768,900 and $1,467,900 5,331,300 5,633,100 ---------- ---------- $5,382,100 $5,692,700 ========== ==========
NOTE 7 - BANK LINE OF CREDIT: The Company has a $5,000,000 revolving line of credit with Wells Fargo Bank, which matures on May 16, 1998. The line is secured by the Company's machinery and equipment, accounts receivable and inventories. Interest is payable monthly at the bank's prime rate. The bank's prime rate at June 30, 1996 was 8.25% per annum. In addition, the loan agreement allows the Company to convert the outstanding principal balance in increments of $250,000 to a LIBOR-based loan for up to 90-day periods. At June 30, 1996 total borrowings under the Company's line of credit was $1,983,500 of which $1,750,000 was borrowed under the LIBOR option at 7.9375% per annum maturing on July 2, 1996. Proceeds from the loan were used for working capital purposes. At June 30, 1996 the Company had approximately $3,000,000 available for future borrowings under the revolving line of credit. The loan agreement contains various covenants pertaining to tangible net worth, net income and liquidity ratios, capital expenditures, payments of dividends, payment of subordinated debt as well as various other restrictions. The Company was in compliance with these covenants at June 30, 1996. NOTE 8 - LONG-TERM DEBT: Long-term debt consists of:
June 30, -------------------------- 1996 1995 ---------- ---------- Unsecured note payable (A) $ - $ 93,800 Note payable - Bank (B) 3,133,300 3,933,300 Note payable - Bank (C) 197,500 217,400 Note payable - Bank (D) 491,700 - Note payable - Bank (E) 1,213,600 1,280,100 Other 21,200 134,800 ----------- ----------- 5,057,300 5,659,400 Less-current portion (1,176,700) (1,034,500) ----------- ----------- $ 3,880,600 $ 4,624,900 =========== ===========
F-9 28 (A) This note was issued in connection with the settlement of the Garney Companies, Inc. ("Garney") lawsuit on December 11, 1992. The settlement requires payments to Garney amounting to $400,000, of which $150,000 was paid in December 1992. The remaining $250,000 is due in quarterly principal installments of $15,600 plus interest at 6% per annum beginning April 1, 1993. The note matures on January 1, 1997. In August 1995 the note was repaid in full net of an $8,000 discount for early extinguishment. (B) In May 1995 the Company restructured its credit agreement with Wells Fargo Bank. The loan consists of a $4,000,000 sixty-month term loan. The note is due in monthly principal installments of $66,700 plus interest at the bank's prime rate (8.25% at June 30, 1996). In addition, the loan agreement allows the Company to convert all or a portion of the outstanding principal in increments of $250,000 to a LIBOR-based loan for periods up to 180 days. At June 30, 1996 the Company had $3,000,000 of the outstanding principal balance under the LIBOR option at 7.98047% per annum maturing on July 9, 1996. The note is secured by the Company's machinery and equipment, accounts receivable and inventories and matures on May 16, 2000. (C) This note was issued to the First State Bank of Gainesville in the original amount of $250,000. The loan is due in monthly installments of $3,000 including interest at 8% per annum beginning September 1993 and continuing for 36 months at which time the entire balance of unpaid principal plus accrued interest is due and payable. The note is secured by a deed of trust on the Company's real property in Gainesville, Texas. Proceeds from the loan were used for working capital purposes and to finance the majority of a fixed asset expansion project at the Company's Idaho facility. In August 1996 the note was repaid in full and the lien on the Texas property was removed. (D) In fiscal 1996 the Company was advanced $500,000 on its machinery and equipment term-loan commitment with Wells Fargo Bank. The proceeds were used to repay amounts originally borrowed under the Company's revolving line of credit to finance approximately $700,000 in machinery and equipment purchases. The note is due in monthly principal installments of approximately $8,300 plus interest at the bank's prime rate (8.25% at June 30, 1996) or LIBOR interest rate option for periods up to six months. At June 30, 1996 the total outstanding principal was under the LIBOR option at 7.9375% per annum maturing July 2, 1996. The note is secured by the Company's machinery and equipment and matures on May 15, 2001. At June 30, 1996 the Company had available a term-loan commitment in the amount of $500,000 for future machinery and equipment purchases. Advances under the line will be subject to monthly interest only payments at the bank's prime or LIBOR interest rate options until May 15, 1997, at which time amounts borrowed will convert to a 60-month fully amortizable loan. (E) This note was issued to Wells Fargo Bank on September 15, 1994 in connection with the purchase of real property in Bensenville, Illinois. The note is due in monthly principal installments of approximately $5,500 plus interest at the bank's prime rate (8.25% per annum at June 30, 1996) on a twenty-year amortization with the outstanding principal due in five years. The note is secured by a first trust deed on the real property and matures on September 15, 1999. Aggregate annual maturities of long-term debt are summarized as follows:
Year Ending June 30, ---------- 1997 $1,176,700 1998 975,000 1999 966,500 2000 1,847,400 2001 91,700 ---------- $5,057,300 ==========
F-10 29 NOTE 9 - RELATED PARTY DEBT/TRANSACTIONS: Related party debt consists of:
June 30, --------------------- 1996 1995 -------- --------- Unsecured subordinated note payable (A) $ - $ 50,000 Unsecured subordinated note payable (B) - 112,500 ------- -------- - 162,500 Less-current portion - (140,000) ------- --------- $ - $ 22,500 ======= =========
(A) This unsecured note was issued to an officer/director of the Company for short-term working capital requirements. The principal balance plus interest at the rate of 10% per annum is due and payable in full on or before January 1, 1996. The note is subordinate to all Wells Fargo Bank indebtedness. In July 1995 this note was paid in full. (B) This unsecured note was issued to an officer/director of the Company in connection with the Plastech acquisition in January 1992. During fiscal 1993, $105,600 of this loan was repaid and the balance was refinanced with a $360,000 four-year term loan. The term loan is payable in quarterly principal payments of $22,500 plus interest at 10% per annum beginning January 1, 1993. The note matures on October 1, 1996 and is subordinate to all Wells Fargo Bank indebtedness. The note was paid in full in fiscal 1996. In March 1993 the Board of Directors authorized the holders of preferred shares the opportunity to convert some of their outstanding Series A Preferred Stock ($1 per share redemption value) to common shares based on the fair market value of the Company's common stock at the date of conversion. Through June 1994 two officers/directors of the Company converted an aggregate of 1,400,139 shares of their preferred stock for 2,039,564 shares of the Company's common stock. The conversion factor used a common stock value of $0.6875 per share (fair market value at the date of conversion). In June 1994 the Board of Directors approved the additional conversion of 500,000 shares of preferred stock held by an officer/director of the Company. On August 13, 1994 these shares were converted to 615,384 shares of the Company's common stock based on the fair market value of the Company's common stock ($.8125 per share) at the date of conversion. In September 1995, in accordance with unanimous approval of the Board of Directors, an officer/director of the Company converted his remaining 2,158,950 outstanding shares of Series A of Preferred Stock to 1,079,475 shares of the Company's common stock. The shares were converted on the basis of one share of common stock issued for every two shares of preferred outstanding. The Company sells plastic resin to a company in which an officer/director of the Company has a minority interest. Sales to the Company amounted to $319,900 and $152,500 in fiscal years 1996 and 1995, respectively. There were no sales to this company in fiscal 1994. Amounts due on the sales of plastic resin to this company were $128,800 and $47,700 at June 30, 1996 and 1995, respectively, and is included in accounts receivable in the accompanying balance sheet. In fiscal years 1996, 1995 and 1994, the Company incurred legal fees and costs amounting to $83,000, $48,500 and $32,900, respectively, for services by E. Paul Tonkovich Professional Corporation, of which an officer/director of the Company is an employee. NOTE 10 - ACCRUED LIABILITIES: Accrued liabilities consist of:
June 30, ---------------------- 1996 1995 -------- --------- Salaries, wages, commissions and related payables $ 806,200 $ 980,400 Other 195,500 230,600 ---------- ---------- $1,001,700 $1,211,000 ========== ==========
F-11 30 NOTE 11 - STOCK OPTION PLAN: In September 1985, the Company adopted a stock option plan for the granting of options to directors and employees to purchase the Company's common stock. The option price is determined by a committee of the Board of Directors, but cannot be less than 85% of the fair market value of the Company's common stock at the date of grant. Pursuant to the approval of the Company's shareholders at the Company's 1992 Annual Meeting, the Company effected a one-for-three reverse stock split on December 17, 1992. As such, the Company's authorized shares of common stock for the stock option plan was reduced from 2,500,000 shares to 833,300 shares. In March 1993 the Board of Directors approved a resolution to accelerate the vesting of all outstanding options under the plan to 100% so that the employees could fully exercise their respective grants. The following table has been modified to reflect the reduction in the number of shares issuable upon exercise and the respective increases to the exercise price per share. In August 1994, the Company issued to certain key employees options to purchase 40,000 shares of common stock under the Company's pre-existing stock option plan.. The options are exercisable at $.8125 per share (fair market value at date of grant) of which 50% are currently exercisable and the balance exercisable after one year. The options expired August 12, 1996. The Company's pre-existing stock option plan, and all ungranted options thereof, expired November 11, 1994. In December 1994, at the Annual Meeting of Stockholders of the Company, the stockholders voted by majority decision to ratify and approve a new stock option plan as adopted by the Board of Directors in June 1994. The plan allows, at the discretion of the Board of Directors, for the granting of options to key employees, officers, directors, and consultants of the Company to purchase 1,000,000 shares of the Company's common stock. Under the terms and conditions set forth in the plan, the exercise price of the stock options will be a least 85% of the fair market value of the Company's common stock on the grant date. The plan expires June 12, 2004. Stock Option Activity
Outstanding Exercisable Price Shares Shares Per Share ----------- ----------- --------------- Balance outstanding at June 30, 1993 32,200 32,200 $0.375 - $0.9375 ====== Exercised (22,900) $0.375 - $0.9375 ------- Balance outstanding at June 30, 1994 9,300 9,300 $0.375 - $0.9375 ====== Granted 40,000 $0.8125 Exercised (19,700) $0.375 - $0.8125 Canceled (11,800) $0.8125 - $0.9375 ------- Balance outstanding at June 30, 1995 17,800 17,800 $0.375 - $0.8125 ------- ====== Exercised (5,300) $0.375 - $0.8125 ------- Balance outstanding at June 30, 1996 12,500 12,500 $0.8125 ======= ======
In August 1996 options were exercised for the issuance of an additional 7,500 shares of common stock and the remaining outstanding options to purchase 5,000 shares of common stock expired on August 12, 1996. At June 30, 1996, 1995 and 1994, 1,000,000, 1,000,000 and 465,700 shares were available for future grants, respectively. F-12 31 NOTE 12 - PREFERRED STOCK and COMMON STOCK: In September 1995, the Company redeemed 250,232 shares of its preferred stock at the stated redeemed value of one dollar. Subsequent to the redemptions, in accordance with unanimous approval of the Board of Directors, the Company converted the remaining 2,749,768 shares of the outstanding Series A Preferred Stock to 1,374,884 shares of the Company's common stock. The shares were converted on the basis of one share of common stock for every two shares of preferred stock outstanding. On December 8, 1995, at the Company's Annual Meeting of Stockholders, the Board of Directors declared a common stock dividend of $.04 per common share payable on January 29, 1996 to stockholders of record on January 10, 1996. NOTE 13 - INCOME TAXES: The components of the income tax (benefit)/provision were:
For the years ended June 30, -------------------------------------- 1996 1995 1996 -------- --------- --------- Current: Federal $ 62,000 $ 67,200 $ 28,000 State 129,400 141,200 87,000 -------- --------- --------- 191,400 208,400 115,000 -------- --------- --------- Deferred: Federal 642,000 (387,800) (362,100) State 101,100 83,800 133,800 -------- --------- --------- 743,100 (304,000) (228,300) -------- --------- --------- $934,500 $ (95,600) $(113,300) ======== ========= =========
At June 30, 1996, the Company has net operating loss (NOL) carryforwards of approximately $12,500,000 and $1,200,000, respectively, for federal and state income tax purposes expiring in varying amounts through 2009. The NOL carryforwards, which are available to offset future profits of the Company and are subject to limitations should a "change in ownership" as defined in the Internal Revenue code occur, will begin to expire in 1998 and 1996 for federal and state purposes, respectively, if not utilized. Effective July 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes". FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Previously, the Company used the FAS 96 approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. Under FAS 109 the Company recognizes to a greater degree the future tax benefits of expenses which have been recognized in the financial statements. The adjustments to the July 1, 1993 balance sheet to adopt FAS 109 amounted to $4,013,000. This amount was reflected in net income in fiscal 1994 as a cumulative effect of a change in accounting principle. It primarily represents the impact of recognizing a deferred tax asset for the benefit of tax NOL carryforwards that could not be recorded under FAS 96. FAS 109 requires that the tax benefit of NOLs be recorded, using current tax rates, as an asset to the extent management assesses the utilization of such NOLs to be more likely than not. At July 1, 1993 management determined that future taxable income of the Company will more likely than not be sufficient to realize an initial deferred tax asset of $4,013,000, net of a valuation allowance of $2,662,000. Realization of the future tax benefits of the NOL carryforwards is dependent on the Company's ability to generate taxable income at the current level within the carryforward period. In assessing the likelihood F-13 32 of utilization of existing NOL carryforwards, management considered the historical results of operations over the last three years and the current economic environment in which the Company operates. Management did not consider any non-routine transactions in assessing the likelihood of realization of the recorded deferred tax asset. Based on the operating results since the adoption of FAS 109 and management's continuing assessment, management believes that the Company will continue to utilize its NOLs on a go-forward basis. As such, during the last three fiscal years management has reduced the entire $2,662,000 initial valuation allowance to zero. At June 30, 1996 the Company recorded a state valuation allowance of $54,500 representing the potential amount of the Company's state NOL which will not be utilized prior to its expiration. The adjustments to the valuation allowance has been reflected as a component of the current year's tax provision. The following reconciles the federal statutory income tax rate to the effective rate of the (benefit)/provision for income taxes:
For the year ended June 30, --------------------------------------- 1996 1995 1994 ------ ------ ------ Federal statutory rate 34.0% 34.0% 34.0% State income taxes (net of federal benefit) 3.6 2.9 3.3 Goodwill amortization 4.3 3.2 - Benefit of current year net operating loss carryforwards - (36.1) (32.8) Effect of decrease in valuation allowance (7.7) (9.5) (13.0) Other items, net 4.6 2.5 2.1 ------ ------ ------ Effective Income Tax Rate 38.8% (3.0)% (6.4)% ====== ====== ======
Deferred tax assets and liabilities are summarized as follows:
June 30, --------------------------- 1996 1995 ---------- ---------- Deferred tax assets: Federal NOL $4,262,500 $5,659,000 State NOL (net of federal benefit) 86,600 172,800 Minimum tax credit 45,900 - Employment-related reserves 143,900 138,200 Allowance for doubtful accounts 33,200 40,400 ---------- ---------- 4,572,100 6,010,400 Deferred tax liabilities: Depreciation and amortization (715,400) (874,800) ---------- ---------- Net deferred tax assets before valuation allowance 3,856,700 5,135,600 Deferred tax assets valuation allowance (54,500) (590,300) ----------- ---------- Net deferred tax assets $3,802,200 $4,545,300 ========== ==========
NOTE 14 - COMMITMENTS AND CONTINGENCIES: Commitments The Company leases various office and warehouse facilities, and equipment under long-term operating leases expiring through October 2001. Certain of the leases provide for five-year renewal options and rental increases based on the Consumer Price Index. Operating lease expense for fiscal 1996, 1995, and 1994 amounted to $834,400, $771,400 and $732,800, respectively. F-14 33 At June 30, 1996, the future minimum lease commitments, excluding insurance and taxes, are as follows:
Year Ending June 30, ----------- 1997 $ 821,600 1998 531,900 1999 470,400 2000 378,000 2001 284,900 Thereafter 64,800 ---------- $2,551,600 ==========
Contingencies In the normal course of business, the Company encounters certain litigation matters, which in the opinion of management, will not have a significant adverse effect on the financial position or the results of operations of the Company. On April 16, 1996, the Company was named as a defendant in a compliant filed by Bonar U.S., Inc. in Delaware Superior Court. The complaint alleges claims for breach of contract and promissory estoppel relating to an Agreement in Principle entered into in connection with a proposed acquisition of the Company by Bonar U.S., Inc. On April 3, 1996, the Company announced that it had terminated the Agreement of Principal pursuant to its terms. The complaint requests damages of $7,011,484. The company believes the allegations in the complaint are without merit and intends to vigorously defend its position. On May 17, 1996, the Company filed a counterclaim against Bonar U.S., Inc. and Bonar Plastic, Inc. seeking damages totaling $25, 237,725 for breach of the Confidentiality Agreement with the Company, misappropriation of trade secrets, intentional interference with a prospective economic advantage which the Company obtained as a result of an indication of interest from a third party and breach of a Royalty Agreement between Bonar Plastics, Inc. and one of the Company's operating divisions (formally known as Custom Rotational Molding, Inc.). The outcome of this matter is uncertain. NOTE 15 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Supplemental disclosures of cash flows information are as follows:
For the year ended June 30, -------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Cash paid during the year for: Interest $ 711,600 $ 767,500 $ 582,000 ========== ========== ========== Income taxes $ 245,900 $ 241,600 $ 124,400 ========== ========== ========== Purchase of Custom Rotational Molding, Inc. by issuance of common stock $ - $ 306,300 $ - ========== ========== ========== Conversion of customer note and accounts receivable to new note and other assets $ - $ 812,300 $ - ========== ========== ========== Non-cash financing activity: Redemption of preferred stock to common stock $2,749,800 $ 500,000 $ - ========== ========== ========== Preferred dividends declared but not paid $ - $ 23,400 $ 29,500 ========== ========== ========== Common dividends declared but not paid $ 12,200 $ - $ - ========== ========== ==========
F-15 34 NOTE 16 - UNAUDITED QUARTERLY RESULTS:
Quarter Ended ------------------------------------------------------------ September December March June ---------- ---------- ---------- ---------- Fiscal Year 1996: Net sales $8,981,900 $8,904,100 $8,178,900 $9,638,700 Gross Profit 2,183,900 2,184,700 2,054,400 2,836,900 Net income 367,400 189,900 129,500 785,900 Per share: Net income $ .02 $ .01 $ .01 $ .06 ============================================================ Fiscal Year 1995: Net sales $9,079,200 $8,010,100 $8,436,600 $10,361,700 Gross profit 2,484,000 2,399,000 2,140,400 2,565,300 Net income 845,400 779,400 434,500 1,228,300 Per share: Net income $ .06 $ .06 $ .03 $ .09 ============================================================
F-16 35 ROTONICS MANUFACTURING INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS Years Ended June 30, 1996, 1995 and 1994
Column A Column B Column C Column D Column E - --------------------------------- ----------- ------------------------------ ----------- ----------- Additions Balance at ------------------------------ Balance at beginning Charged to end of Description of period Costs & Expenses Other Deductions period - --------------------------------- ----------- ---------------- ----------- ----------- ----------- June 30, 1996: Allowance for doubtful accounts $ 110,300 $ 58,800 $ - $ (79,100)(1) $ 90,000 =========== =========== =========== =========== =========== Deferred tax asset valuation allowance $ 590,300 $ - $ 54,500 (4) $ (590,300)(3) $ 54,500 =========== =========== =========== =========== =========== June 30, 1995: Allowance for doubtful accounts $ 118,100 $ 24,200 $ 5,000 $ 37,000 (1) $ 110,300 =========== =========== =========== =========== =========== Deferred tax asset valuation allowance $ 1,984,700 $ - $ - $ 1,394,400 (3) $ 590,300 =========== =========== =========== =========== =========== June 30, 1994: Allowance for doubtful accounts $ 91,900 $ 69,700 $ 11,000 $ 54,500 (1) $ 118,100 =========== =========== =========== =========== =========== Deferred tax asset valuation allowance $ - $ - $ 2,662,000 (2) $ 677,300 (3) $ 1,984,700 =========== =========== =========== =========== ===========
(1) Doubtful accounts written off during the year. (2) Initial deferred tax asset valuation for net operating loss carryforwards at date of adoption of FAS 109 - "Accounting for Income Taxes". (3) Decrease in valuation allowance based on current years' additional utilization of net operating loss carryforwards. (4) Represents valuation allowance for potential state NOL's which will expire prior to utilization. F-17 EX-10.1 2 CREDIT AGREE./RELATED PROMISSARY NOTES 1 EXHIBIT 10.1 CREDIT AGREEMENT THIS AGREEMENT is entered into as of May 16, 1996, by and between ROTONICS MANUFACTURING INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL Borrower has requested from Bank the credit accommodations described below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed to provide the Credits to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I THE CREDITS SECTION 1.1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to new loan make advances to Borrower from time to time up to and including May 15, 1998, not to exceed at any time the aggregate principal amount of Five Million Dollars ($5,000,000.00) ("Line of Credit"), the proceeds of which shall be used for working capital requirements. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. 2 (b) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 1.2. TERM LOAN A. (a) Term Loan A. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make a loan to Borrower in the principal amount of Five Hundred Thousand Dollars ($500,000.00) ("Term Loan A"), the proceeds of which shall be used to finance equipment purchases and facility improvements during fiscal year 1996. Borrower's obligation to repay Term Loan A shall be evidenced by a promissory note substantially in the form of Exhibit B attached hereto ("Term Note A"), all terms of which are incorporated herein by this reference. Bank's commitment to grant Term Loan A shall terminate on June 16, 1996. (b) Repayment. The principal amount of Term Loan A shall be repaid in accordance with the provisions of Term Note A. (c) Prepayment. Borrower may prepay principal on Term Loan A solely in accordance with the provisions of Term Note A. All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid. --2-- 3 SECTION 1.3. TERM LOAN B. (a) Term Loan B. Bank has made a loan to Borrower in the original principal amount of Four Million Dollars ($4,000,000.00) ("Term Loan B"), on which the outstanding principal balance as of the date hereof is $3,199,996.00. Borrower's obligation to repay Term Loan B is evidenced by a promissory note substantially in the form of Exhibit C attached hereto ("Term Note B"), all terms of which are incorporated herein by this reference. Subject to the terms and conditions of this Agreement, Bank hereby confirms that Term Loan B remains in full force and effect. Any reference in Term Note B to any prior loan agreement between Bank and Borrower shall be deemed a reference to this Agreement. (b) Repayment. The principal amount of Term Loan B shall be repaid in accordance with the provisions of Term Note B. (c) Prepayment. Borrower may prepay principal on Term Loan B solely in accordance with the provisions of Term Note B. All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid. SECTION 1.4. TERM LOAN C. (a) Term Loan C. Bank has made a loan to Borrower in the original principal amount of One Million Three Hundred Thirty Thousand Dollars ($1,330,000.00) ("Term Loan C"), on which the outstanding principal balance as of the date hereof is $1,219,166.60. Borrower's obligation to repay Term Loan C is evidenced by a promissory note substantially in the form of Exhibit D attached hereto ("Term Note C"), all terms of which are incorporated herein by this reference. Subject to the terms --3-- 4 and conditions of this Agreement, Bank hereby confirms that Term Loan C remains in full force and effect. Any reference in Term Note C to any prior loan agreement between Bank and Borrower shall be deemed a reference to this Agreement. (b) Repayment. The principal amount of Term Loan C shall be repaid in accordance with the provisions of Term Note C. (c) Prepayment. Borrower may prepay principal on Term Loan C solely in accordance with the provisions of Term Note C. All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid. SECTION 1.5. TERM COMMITMENT. (a) Term Commitment. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including May 15, 1997, not to exceed the aggregate principal amount of Five Hundred Thousand Dollars ($500,000.00) ("Term Commitment"), the proceeds of which shall be used to finance equipment purchases during fiscal year 1997, and which shall be converted on May 16, 1997, to a term loan, as described more fully below. Borrower's obligation to repay advances under the Term Commitment shall be evidenced by a promissory note substantially in the form of Exhibit E attached hereto ("Term Commitment Note"), all terms of which are incorporated herein by this reference. (b) Limitation on Borrowings. Notwithstanding any other provision of this Agreement, the aggregate amount of all outstanding borrowings under the Term Commitment shall not at any time exceed a maximum of eighty percent (80%) of the cost of each --4-- 5 item of equipment purchased with the proceeds thereof, as evidenced by the seller's invoice. (c) Borrowing and Repayment. Borrower may from time to time during the period in which Bank will make advances under the Term Commitment borrow and partially or wholly repay its outstanding borrowings, provided that amounts repaid may not be reborrowed, subject to all the limitations, terms and conditions contained herein; provided however, that the total outstanding borrowings under the Term Commitment shall not exceed the maximum principal amount available thereunder, as set forth above. (d) Prepayment. Borrower may prepay principal on the Term Commitment at any time, in any amount and without penalty. SECTION 1.6. INTEREST/FEES. (a) Interest. The outstanding principal balance of the Line of Credit, Term Loan A, Term Loan B, Term Loan C, Term Loan D and the Term Commitment shall bear interest at the rate of interest set forth in the Line of Credit Note, Term Note A, Term Note B, Term Note C, Term Note D and the Term Commitment Note. (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note, Term Note A, Term Note B, Term Note C, Term Note D and the Term Commitment Note (collectively, the "Notes"). (c) Commitment Fee. Borrower shall pay to Bank a non-refundable commitment fee for the Line of Credit equal to Six Thousand Two Hundred Fifty Dollars ($6,250.00), which fee shall --5-- 6 be due and payable in full upon Borrower's execution of the Loan Documents. SECTION 1.7. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees due under each Credit by charging Borrower's demand deposit account number 4624-074191 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. SECTION 1.8. COLLATERAL. As security for all indebtedness of Borrower to Bank, Borrower hereby grants to Bank security interests of first priority in all Borrower's accounts receivable and other rights to payment, general intangibles, inventory and equipment. As additional security for Term Loan C, Borrower hereby grants to Bank a lien of first priority on that certain real property located at 736-738 and 740-746 Birginal Drive, Bensenville, Illinois 60106. All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, deeds of trust and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and --6-- 7 recording fees and costs of appraisals, audits and title insurance. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Delaware, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. --7-- 8 SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated March 31, 1996, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, --8-- 9 pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill --9-- 10 its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable Federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any Federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. --10-- 11 SECTION 2.12. REAL PROPERTY COLLATERAL. Except as disclosed by Borrower to Bank in writing prior to the date hereof, with respect to any real property collateral required hereby: (a) All taxes, governmental assessments, insurance premiums, and water, sewer and municipal charges, and rents (if any) which previously became due and owing in respect thereof have been paid as of the date hereof. (b) There are no mechanics' or similar liens or claims which have been filed for work, labor or material (and no rights are outstanding that under law could give rise to any such lien) which affect all or any interest in any such real property and which are or may be prior to or equal to the lien thereon in favor of Bank. (c) None of the improvements which were included for purpose of determining the appraised value of any such real property lies outside of the boundaries and/or building restriction lines thereof, and no improvements on adjoining properties materially encroach upon any such real property. (d) There is no pending, or to the best of Borrower's knowledge threatened, proceeding for the total or partial condemnation of all or any portion of any such real property, and all such real property is in good repair and free and clear of any damage that would materially and adversely affect the value thereof as security and/or the intended use thereof. --11-- 12 ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to grant any of the Credits is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the granting of each of the Credits shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Notes. (ii) Corporate Borrowing Resolution. (iii) Certificate of Incumbency. (iv) Security Agreement: Equipment. (v) Continuing Security Agreement: Rights to Payment and Inventory. (vi) UCC-1 Financing Statements. (vii) Mortgage and Assignment of Rents and Leases. (viii) Such other documents as Bank may require under any other Section of this Agreement. (c) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. (d) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank, including without --12-- 13 limitation, policies of fire and extended coverage insurance covering all real property collateral required hereby, with replacement cost and mortgagee loss payable endorsements, and such policies of insurance against specific hazards affecting any such real property as may be required by governmental regulation or Bank. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit. (c) Appraisals. Bank shall have obtained, at Borrower's cost, an appraisal of all real property collateral required hereby, and all improvements thereon, issued by an appraiser --13-- 14 acceptable to Bank and in form, substance and reflecting values satisfactory to Bank, in its discretion. (d) Title Insurance. Bank shall have received an ALTA Policy of Title Insurance, with such endorsements as Bank may require, including without limitation, CLTA endorsements, issued by a company and in form and substance satisfactory to Bank, insuring Bank's lien on the real property collateral required hereby to be of first priority, subject only to such exceptions as Bank shall approve in its discretion, with all costs thereof to be paid by Borrower. (e) Tax Service Contract. Borrower shall have procured and delivered to Bank, at Borrower's cost, such tax service contract as Bank shall require for any real property collateral required hereby, to remain in effect as long as such real property secures any obligations of Borrower to Bank as required hereby. ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of --14-- 15 the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of any of the Credits at any time exceeds any limitation on borrowings applicable thereto. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 120 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by a certified public accountant acceptable to Bank, to include all schedules, notes and narratives reasonably included in Borrower's 10K; (b) not later than 45 days after and as of the end of each fiscal quarter, a financial statement of Borrower, prepared by a certified public accountant acceptable to Bank, to include all schedules, notes and narratives reasonably included in Borrower's 10Q; (c) from time to time such other information as Bank may reasonably request SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and --15-- 16 franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation Federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's --16-- 17 satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower with a claim in excess of $100,000.00. SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein): (a) Current Ratio not at any time less than 1.25 to 1.0, with "Current Ratio" defined as total current assets divided by total current liabilities. (b) Tangible Net Worth not at any time less than $11,500,000.00, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Total Liabilities divided by Tangible Net Worth not at any time greater than 1.25 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" as defined above. (d) Pre-tax profit not less than $1.00 on a quarterly basis, determined as of each fiscal quarter end. (e) EBITDA Coverage Ratio not less than 2.00 to 1.0 as of fiscal year end (June 30, 1996) and not less than 2.25:1.0 at all times thereafter, with "EBITDA" defined as net profit before tax --17-- 18 plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of $50,000.00. ARTICLE V NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents --18-- 19 remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits except for the purposes stated in Article I hereof. SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any fiscal year in excess of an aggregate of $2,000,000.00. SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense in any fiscal year in excess of an aggregate of $200,000.00. SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. --19-- 20 SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity. SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity. SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding. SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made --20-- 21 by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity, including Bank. (e) The filing of a notice of judgment lien against Borrower; or the recording of any abstract of judgment against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; or the entry of a judgment against Borrower. (f) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other --21-- 22 arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or Federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors. (g) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (h) The dissolution or liquidation of Borrower; or Borrower, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. (i) Any change in ownership during the term of this Agreement of an aggregate of twenty-five percent (25%) or more of the common stock of Borrower. --22-- 23 SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any of the Credits and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, --23-- 24 permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: ROTONICS MANUFACTURING INC. 17022 South Figueroa Street Gardena, California 90248 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION Regional Commercial Banking Office 111 West Ocean Boulevard, Suite 300 Long Beach, California 90802 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), incurred by Bank in connection with (a) the negotiation and --24-- 25 preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to Borrower. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any of the Credits, Borrower or its business, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to the Credits and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This --25-- 26 Agreement may be amended or modified only by a written instrument executed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, except to the extent Bank has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Bank of any such rights and remedies as may be available under Federal law. --26-- 27 SECTION 7.10. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, ROTONICS MANUFACTURING INC. NATIONAL ASSOCIATION By: __________________________ By:_______________________ Title: _______________________ By: __________________________ Title: _______________________ --27-- EX-23.(A) 3 CONSENT OF INDEP. ACCOUNTANTS - ARTHUR ANDERSON 1 EXHIBIT 23A CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report, dated August 22, 1996 on page F-1 of this form 10-K which is incorporated by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (Nos. 33-62721 and 33-70526) and in the Registration Statement on Form S-8 (No. 33-88410). ARTHUR ANDERSEN LLP Orange County, California September 16, 1996 EX-23.(B) 4 CONSENT OF INDEP. ACCOUNTANTS - PRICE WATERSHOUSE 1 EXHIBIT 23B CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (Nos. 33-62721 and 33-70526) and in the Registration Statement on Form S-8 (No. 33-88410) of Rotonics Manufacturing Inc. of our report dated September 11, 1995 appearing on page F-2 of this Form 10-K. Price Waterhouse LLP Los Angeles, California September 16, 1996 EX-27 5 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 11,600 0 5,880,700 90,000 4,939,400 13,023,000 14,745,700 6,428,800 29,055,700 4,864,500 0 0 0 24,577,400 (6,254,300) 29,055,700 35,703,600 35,703,600 26,443,700 32,756,800 (156,900) 54,000 696,500 2,407,200 934,500 1,472,700 0 0 0 1,472,700 .10 .10
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