**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 thefiscal year ended June 30, 2002**

 

**Commissionfile number 1-9429**

 

**ROTONICS MANUFACTURING INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                                      |   | **36-2467474**                        |
|-------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of

incorporation or  organization) |   | (I.R.S. Employer

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 par value)** |   | **American  Stock Exchange** |
|-------------------------------------------|--------|------------------------------|
| Titles of each class

on which registered |   | Name of each Exchange        |

 

Securities registered pursuant to Section 12(g) of the Act:          None

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) for the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and has been subject to suchfiling requirements for the past 90 days. Yes ý  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 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 informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ý

 

The aggregate market value of the voting stock held by non-affiliatesof the registrant, as of September 6, 2002, was $5,514,500 (1).

 

The number of shares of common stock outstanding at September 6, 2002was 12,614,942.

 

(1)   Excludes7,100,430 shares held by directors, officers, and stockholders, whose ownershipexceeded 5% of the outstanding shares at September 6, 2002.  Exclusion of such shares should not beconstrued to indicate that the holders thereof possess the power, direct orindirect, to direct the management or policies of registrant, or that thosepersons are controlled by or under common control with the registrant.

 

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DOCUMENTS INCORPORATED BYREFERENCE

 
| Document                                                                                                                      |   | Form 10-K

Part |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|
| Definitive Proxy  Statement to be used in connection with

the Annual  Meeting of Stockholders to be held on December 9, 2002 |   | III             |

 

2

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TABLE OF CONTENTS

 
| PART I         |                                                                                        | Page   |
|----------------|---------------------------------------------------------------------------------------------|--------|
|           |                                                                                        |   |
| Item 1         | Business                                                                                    |   |   |
| Item 2         | Properties                                                                                  |   |   |
| Item 3         | Legal  Proceedings                                                                          |   |   |
| Item  4        | Submission  of Matters to a Vote of Security Holders                                        |   |   |
|           |                                                                                        |   |
| PART  II       |                                                                                        |   |
|           |                                                                                        |   |
| Item  5        | Market  for Registrant’s Common Stock and Related Stockholder Matters                  |   |   |
| Item 6         | Selected Financial  Data                                                                    |   |   |
| Item  7        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |   |
| Item 7a        | Disclosures  About Market Risks                                                             |   |   |
| Item  8        | Financial  Statements and Supplementary Data                                                |   |   |
| Item  9        | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure       |   |   |
|           |                                                                                        |   |
| PART  III      |                                                                                        |   |
|           |                                                                                        |   |
| Item  10       | Directors  and Executive Officers of the Registrant                                         |   |   |
| Item 11        | Executive  Compensation                                                                     |   |   |
| Item  12       | Security  Ownership of Certain Beneficial Owners and Management                             |   |   |
| Item  13       | Certain  Relationships and Related Transactions                                             |   |   |
|           |                                                                                        |   |
| PART  IV       |                                                                                        |   |
|           |                                                                                        |   |
| Item  14       | Exhibits,  Financial Statement Schedules, and Reports on Form 8-K                           |   |   |
|           |                                                                                        |   |
| SIGNATURES     |                                                                                        |   |
|           |                                                                                        |   |
| CERTIFICATIONS |                                                                                        |   |

 

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PART I

 

 

Forward-Looking Statements

 

To the extent that this 10-K Annual Report discusses matters which arenot historical, including statements regarding future financial results,information, or expectation about products or markets, or otherwise makesstatements about future events, such statements are forward-looking and aresubject to a number of risks and uncertainties that could cause actual resultsto differ materially from the statements made. These include, among others, fluctuations in costs of raw materials andother expenses, costs associated with plant closures, downturns in the marketsserved by the Company, the costs associated with new product introductions, aswell as other factors described under the heading: Item 1, “Business”, Item 3,“Legal Proceedings”, under Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”, and Footnote 1 to FinancialStatements.  When used in this report,the words “expects,”  “anticipates,”“intends,” “plans,” “ believes,” “seeks,” “estimates” and similar expressionsare generally intended to identify forward-looking statements.  You should not place undue reliance on theseforward-looking statements, which reflect our opinion only as of the date ofthe Annual Report. We undertake no obligation to publicly release any revisionsto the forward-looking statements after the date of this document.  You should carefully review the risk factorsdescribed in other documents we file from time to time with the Securities andExchange Commission, including the Quarterly Reports on Form 10-Q to be filedby us in fiscal year 2003.

 

Item 1.   Business

 

 

Introduction

 

Rotonics Manufacturing Inc. (the “Company”) was founded as an IllinoisCorporation, and was reincorporated in Delaware in December 1986.  Effective July 1, 1991, the Company mergedwith Rotonics Molding, Inc.-Chicago (“Rotonics”), with the Company being the surviving entity.  In accordance with the 1991 mergeragreement, the Company issued 2,666,666 (after giving effect to a 1-for-3reverse stock split) shares of its common stock and 4,999,997 shares of a newlyissued non-voting preferred stock in exchange for all the outstanding votingstock of Rotonics.  The preferred stockwas completely redeemed prior to the end of fiscal 1996, and the Company’sArticles of Incorporation were subsequently amended to eliminate theauthorization of Series A preferred stock.

 

Rotonics had operationsin Itasca, Illinois; Deerfield, Wisconsin; Denver, Colorado; and Bartow,Florida. Three of these operations currently conduct business as divisions ofthe Company using the trade names RMI-C, RMI-D, and RMI-F, respectively.  Rotonics was a privately held CaliforniaCorporation, which was 52% owned by Mr. Sherman McKinniss.  Mr. McKinniss became president and chiefexecutive officer of the Company on August 12, 1991, and currently presides asthe Company’s chairman of the board.

 

In September 1991, the Company’s wholly owned subsidiary, RotationalMolding, Inc. (“RMI”), was merged into the Company and now operates as twodivisions using the trade names RMI-G and RMI-I with manufacturing operationsin 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 washeadquartered in Warminster, Pennsylvania, with an additional operation inGainesville, Texas.  In July 1992,Plastech was merged with the Company and now operates as a division of theCompany using the trade name RMI-T.

 

Effective April 1, 1995, the Company purchased certain assets andassumed certain liabilities of Custom Rotational Molding, Inc. (“CRM”) for300,000 shares of the Company’s common stock. The Company assumed CRM’s operations in Arleta, California.

 

In September 1994, the Company purchased a larger manufacturing facilityin Bensenville, Illinois and subsequently relocated its Itasca, Illinoisoperations into this new facility.  InDecember 1995, the Company discontinued its operations at its Deerfield,Wisconsin location and combined these operations into its newly purchasedBensenville, Illinois operation. The Wisconsin facility is currently beingleased to two tenants on a month-to-month term basis at $2,900 per month.

 

4

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In February 1997, the Company purchased a 9.73-acre facility consistingof 63,000 square feet of manufacturing and office building space in CommerceCity, Colorado.  The Company has sinceexpended significant resources to refurbish the facility to house its Coloradooperations.  The facility is also locatedwithin an enterprise zone, which continues to provide additional benefits.  The Company leases a portion of thisfacility’s excess office and yard space on a long-term basis at $4,000 permonth.

 

Effective April 1, 1998, the Company merged with RotocastInternational, Inc. and its wholly owned subsidiaries (“Rotocast”), with theCompany being the surviving entity.  Inaccordance with the Merger Agreement, the Company issued 2,072,539 shares ofits common stock and a $2,000,000 note payable secured by a stand-by letter ofcredit, in exchange for all the outstanding voting stock of Rotocast.  In January 2000, the Company repurchasedthese shares for $2.8 million.  Uponconsummation of the repurchase, the shares were retired.

 

Rotocast had operations in Miami, Florida; Knoxville, Tennessee;Brownwood, Texas; Las Vegas, Nevada; and Bossier City, Louisiana.  These operations currently conduct businessas divisions of the Company using the trade names Nutron, Rotocast ofTennessee, RMI-B and RMI-Nevada.  Prior tothe merger, the operations in Bossier City, Louisiana were substantiallydiscontinued.  Rotocast was a privatelyheld Florida corporation, owned by GSC Industries, Inc. (“GSC”).  The Company leases the remaining Rotocastfacilities from GSC, and other affiliated parties, under long-term leasearrangements.  A portion of the Nutronoffice building is being sub-leased on a long-term basis at $2,100 permonth.  Effective April 1998, andpursuant to the Merger Agreement, Mr. Robert Grossman, a shareholder of GSC andformer President of Rotocast, was named to the Company’s Board ofDirectors.  Following the January 2000repurchase of the shares issued to GSC, Mr. Grossman resigned from the Board ofDirectors.

 

In conjunction with the Rotocast merger, the Company initiated theconsolidation of its Warminster, Pennsylvania and Arleta, California facilitiesinto its remaining operations.  Theconsolidation of these facilities has enhanced the operations of the Company’sremaining facilities, reduced its overall manufacturing overhead costs, and hasallowed the Company to take greater advantage of its marketing and distributionchannels, since the completion of the Rotocast merger.  The consolidation of the facilities was completedin fiscal 1999. Also, in fiscal 1999, the Company consolidated its Miamioperations into the remaining operating facilities.

 

The Corporate office of the Company is located at the same site as theRMI-G (Gardena, California) facility.

 

 

Description of Business

 

The Company currently has ten manufacturing locations and was againlisted by a plastics industry periodical as one of the top ten RotationalMolders in North America.  Theseoperating divisions manufacture a variety of plastic products for commercial,agricultural, pharmaceutical, governmental, building, medical waste, refuse,retail, recreation, marine, healthcare and residential use, as well as a vastnumber of custom plastic products for a variety of industries, utilizing therotonically molding process and, on a smaller scale; injection molding and dipmolding processes. In April 1998, the injection molding process was added tothe Company’s manufacturing operations as part of the Rotocast merger.  Utilizing this process, the Company marketsa variety of parts for commercial, promotional, and residential uses, under thetrade names Nutron and AMP.  Rotonicallymolding is a process for molding plastic resin by rotating a mold in a heatedenvironment, while the plastic resin powder placed inside the mold melts andevenly coats the inner wall of the mold. The injection molding process varies in that the plastic resin is firstheated to a molten state and then injected under pressure into a mold.  The rotonically molding process has beenused for many years and continues to be recognized as a growth industry inrecent years, as a result of numerous ongoing business consolidations and thedevelopment of new resins.  These newresins allow rotonically molded items to compete with more traditional materialssuch as carbon, fiberglass, and stainless steel, especially in the fabricationof large, lightweight, one-piece molded items, such as storage tanks andpolysteel light poles.  Rotonicallymolding is a particularly advantageous process for users of molded plasticproducts who may want to test different prototypes, or who do not requiresufficient numbers of such products to justify a more expensive manufacturingprocess.  The Company’s products includevarious types of storage tanks, bin lids, refuse containers for automatedremoval, medical waste containers, agricultural/livestock products, kayaks,outdoor polysteel lamp posts, furniture, planters, and other rotonically moldeditems.

 

The Company purchases resin from five major suppliers in the U.S. andCanada.  There are nine additional suppliersof minor significance.  Since themajority of the resin used in the manufacturing process is a

 

5

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polyethylene derived from natural gas, resin price is not directlyrelated to the price for petrochemicals, and until recent years, has notgenerally been subject to volatile fluctuations, which are often experienced bythe petroleum industry.  The Companyalso incorporates the use of recycled plastic materials, blended with virginmaterials in the manufacturing of products, whenever appropriate.

 

The Company holds several patents on storage containers used forpharmaceutical, commercial and residential applications.  The patents expire through the year2010.  Although the Company has beenable to capture its share of these niche markets and expects to see continuedgrowth, no one patent or groups of patents is considered material to thebusiness as a whole.

 

Competition for the Company’s products is governed by geography andregion, since large capacity tanks and bulky hollow products are expensive toship long distances and, as such, any prospective competitor is constrained byshipping costs.  There are numeroussingle-location, as well as a growing trend to structure multi-locationrotonically molding businesses throughout the United States.  However, each of these businesses stillcompetes in a geographic region, which is determined by customer demand withinthat region, a constraint inherent to the industry.  Due to its nationwide presence, the Company has substantiallyalleviated this constraint.  TheCompany’s sales are usually not subject to large seasonal fluctuations as thebusiness typically operates on significant backlogs with a diverse product mix.  Peak season is usually experienced in the periodfrom April through June.  Historically,the quarter from January through March is the slowest production period of theyear.  The Company’s backlog was$2,511,100 and $3,987,300 as of June 30, 2002 and 2001, respectively.  All of the backlog orders as of June 30,2002 are expected to be filled during fiscal 2003.

 

The Company’s products are marketed through the in-house sales andengineering staff, various distributors and outside commission-based salesrepresentatives.  The Company continuesto build a strong, broad and diverse customer base, which covers a multitude ofindustries.  Since fiscal 1991, no salesto any one single customer represented a material part of the Company’sbusiness.

 

Research and development expenditures for the Company were insignificantfor the last three fiscal years.

 

 

Regulation

 

The Company believes it is in compliance with all applicable federal,state and local laws relating to the protection of the environment, and doesnot anticipate any such laws will have material effect on its financialposition, capital expenditures, or competitive position.

 

 

Employees

 

As of June 30, 2002, the Company employed a total of 405individuals.  The Company maintains, forits respective employees who are eligible, a medical insurance plan (some ofwhich is contributory), a group life insurance plan, an annual bonus plan and asemi-annual attendance bonus plan.

 

 

Item 2. Properties

 

The Company’s corporate office occupies a separate building that usesapproximately 3,600 square feet of the facilities of RMI-G in Gardena,California.

 

6

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The operating divisions lease warehouse, production and office space asfollows:

 
| **Property**

**Location** |   | **Building**

**Square**

**Footage** |   | **Total  Facility**

**Square**

**Footage** |   | **Annual**

**Base**

**Rent** |    | **Expiration**

**Date(2)** |           |
|----------------------------|--------|---------------------------------------|--------|----------------------------------------------|--------|--------------------------------|---------|-----------------------------|----------------|
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Gardena,  California (1)   |   | 42,800                                |   | 183,300                                      |   | $                              | 300,000 |                        | October 2011   |   |
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Caldwell, Idaho            |   | 21,250                                |   | 71,200                                       |   | $                              | 105,600 |                        | September 2005 |   |
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Bartow, Florida            |   | 46,200                                |   | 174,600                                      |   | $                              | 129,400 |                        | September 2004 |   |
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Miami, Florida  (3)        |   | 50,000                                |   | 86,000                                       |   | $                              | 163,100 |                        | March 2013     |   |
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Gainesville,  Texas (4)    |   | —                                |   | 108,900                                      |   | $                              | 1,000   |                        | April 2006     |   |
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Brownwood, Texas           |   | 42,800                                |   | 136,120                                      |   | $                              | 72,800  |                        | March 2013     |   |
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Las Vegas,  Nevada         |   | 30,000                                |   | 90,000                                       |   | $                              | 136,100 |                        | March 2013     |   |
|                       |   |                                  |   |                                         |   |                           |    |                        |           |
| Knoxville,  Tennessee      |   | 44,000                                |   | 174,240                                      |   | $                              | 146,900 |                        | March 2013     |   |

 

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(1)   The Companyhas a first right to purchase option to purchase on this facility.

(2)   Does notgive effect to any renewal options.

(3)   The Companyis currently listing the Rotocast-Miami building (20,000 sq ft) for lease.

The Company is currentlysub-leasing a portion of Nutron’s office space for $2,100 per month.

(4)   Representsa 2.5 acre ground lease adjacent to owned, Gainsville, Texas facility.

 

 

 

The Company owns 2.1 acres (including 38,000 square feet of warehouse,production and office space) in Gainesville, Texas.  In September 1994, the Company purchased 3.1 acres (including63,300 square feet of warehouse, production and office space) in Bensenville,Illinois, for the Company’s Illinois manufacturing operations.  The Texas and Illinois facilities wereencumbered by a combined $1.77 million mortgage, which was paid in full onAugust 15, 2002.  In February 1997, theCompany purchased for cash 9.73 acres (including 63,000 square feet ofwarehouse, production and office space) in Commerce City, Colorado, for theCompany’s Colorado manufacturing operations. The Company currently leases aportion of this facility for $4,000 per month. The Company also ownsapproximately 1.59 unencumbered acres (including 35,100 square feet ofwarehouse, production, and office space) in Deerfield, Wisconsin, which wasvacated in December 1995 by the Company, and its operations were incorporatedinto the Illinois facility.  TheWisconsin facility is currently leased to two unrelated lessees for $2,900 permonth, and is currently listed for sale. In January 2000, the Company leased merchandise space in a showroomlocated in Atlanta, Georgia, at a monthly lease rate of $2,605, which runsthrough November of 2002.

 

 

Item 3. LegalProceedings

 

In the normal course of business, the Company encounters certainlitigation matters, which in the opinion of management will not have asignificant adverse effect on the financial position or the results ofoperations of the Company.

 

 

Item 4. Submission of Matters to a Vote of Security Holders

 

None.

 

7

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PART II

 

 

Item 5.  Marketfor 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 theCompany’s Common Stock was approximately 4,200 at September 6, 2002.

 

Price Range of CommonStock

 

The following table sets forth the quarterly price ranges of theCompany’s Common Stock in Fiscal 2002 and 2001, as reported on the compositetransactions reporting system for AMEX listed stocks.

 
| **Fiscal  Period**                      |   | **High** |   | **Low** |   |
|-----------------------------------------|--------|----------|--------|---------|--------|
|                                    |   |     |   |    |   |
| Fiscal 2001.                            |   |     |   |    |   |
| First Quarter  Ended September 30, 2000 |   | $        | 1.5625 |    | $      | 1.0000 |   |
| Second Quarter  Ended December 31, 2000 |   | 1.1250   |   | 0.6250  |   |
| Third Quarter  Ended March 31, 2001     |   | 1.1250   |   | 0.6500  |   |
| Fourth Quarter  Ended June 30, 2001     |   | 1.1500   |   | 0.6500  |   |
|                                    |   |     |   |    |   |
| Fiscal 2002.                            |   |     |   |    |   |
| First Quarter  Ended September 30, 2001 |   | $        | 1.1200 |    | $      | 0.5700 |   |
| Second Quarter  Ended December 31, 2001 |   | 0.8200   |   | 0.5700  |   |
| Third Quarter  Ended March 31, 2002     |   | 1.0000   |   | 0.6600  |   |
| Fourth Quarter  Ended June 30, 2002     |   | 1.1900   |   | 0.8100  |   |

 

 

 

In fiscal years 1996-1999 and 2001, the Company paid a regular cashdividend of $.04 per share on its Common Stock and in fiscal 2002, the Companydeclared a regular cash dividend of $.05 per common share on its Common Stockwhich was paid in July 2002.  Any futurecash dividends or other distributions of stock will be determined solely by theBoard of Directors and will be based on the Company’s future financial abilityto declare and pay such dividends. Additionally, certain lending agreements restrict the Company fromdeclaring or paying dividends beyond set limits on its Common Stock (see Item7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations: Liquidity and Capital Resources”). According to the lending agreement with its bank, the Company maydeclare or pay any dividend or distribution in a maximum aggregate of $700,000and may redeem, retire, repurchase or otherwise acquire shares of any class ofthe Company’s stock in a maximum aggregate or $1,000,000 in any fiscalyear.  Transactions that would exceedthese limits would require prior bank authorization and the appropriatewaivers.

 

 

8

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Item 6.  Selected Financial Data

 
|                                                   |   | **Year ended  June 30,** |       |
|--------------------------------------------------------|--------|--------------------------|------------|
|                                                   |   | **2002**                 |       | **2001** |   | **2000** |   | **1999** |   | **1998(B)** |   |
| Income Statement  Data                                 |   |                     |       |   |   |   |   |   |   |   |   |
| Net sales                                              |   | $                        | 37,973,300 |   | $ | 40,520,100 |   | $ | 46,647,700 |   | $ | 46,730,900 |   | $ | 38,774,900 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Cost of goods  sold                                    |   | 27,765,900               |       | 31,158,700 |   | 34,645,000 |   | 34,566,500 |   | 29,984,400 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Gross margin                                           |   | 10,207,400               |       | 9,361,400 |   | 12,002,700 |   | 12,164,400 |   | 8,790,500 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Selling,  general, and administrative expenses (C)     |   | 7,540,900                |       | 7,635,400 |   | 7,888,900 |   | 8,841,600 |   | 7,327,300 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Interest expense                                       |   | 464,100                  |       | 743,100 |   | 955,000 |   | 987,700 |   | 793,700 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Net Income from  operations                            |   | $                        | 1,408,700  |   | $ | 473,700 |   | $ | 2,030,500 |   | $ | 1,326,000 |   | $ | 417,200 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Basic/diluted income  per common share from operations |   | $                        | 0.11       |   | $ | 0.04 |   | $ | 0.14 |   | $ | 0.09 |   | $ | 0.03 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Average common  shares outstanding (A)                 |   | 12,758,800               |       | 12,835,200 |   | 13,981,800 |   | 15,379,400 |   | 14,445,200 |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Other Financial  Data                                  |   |                     |       |   |   |   |   |   |   |   |   |
|                                                   |   |                     |       |   |   |   |   |   |   |   |   |
| Net income from  operations as a percent of sales      |   | 3.7                      | %          | 1.2 | % | 4.4 | % | 2.9 | % | 1.1 | % |

 

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(A)  Computed onthe basis of the weighted average number of common shares outstanding duringeach year.

 

(B)   Includesthe results of operations of Rotocast, since the effective date of merger.

 

(C)   In fiscal1999 and 1998, includes $394,400 and $280,300 respectively, in plantconsolidation expenses.

 

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|                                 |   | **At June  30,** |       |
|--------------------------------------|--------|------------------|------------|
|                                 |   | **2002**         |       | **2001** |   | **2000** |   | **1999** |   | **1998(B)** |   |
| Balance Sheet  Data                  |   |             |       |   |   |   |   |   |   |   |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Current assets                       |   | $                | 12,043,100 |   | $ | 13,379,700 |   | $ | 14,866,100 |   | $ | 15,701,500 |   | $ | 16,463,600 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Current  liabilities                 |   | 4,559,400        |       | 4,185,600 |   | 5,408,300 |   | 5,965,900 |   | 6,452,800 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Working capital  surplus             |   | 7,483,700        |       | 9,194,100 |   | 9,457,800 |   | 9,735,600 |   | 10,010,800 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Total assets                         |   | 27,841,800       |       | 34,500,800 |   | 37,193,200 |   | 39,300,300 |   | 40,563,800 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Long-term debt                       |   | 3,937,200        |       | 7,396,200 |   | 8,569,800 |   | 9,470,600 |   | 10,976,500 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Total  liabilities                   |   | 11,061,700       |       | 14,193,700 |   | 16,629,400 |   | 17,866,000 |   | 19,155,900 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Current ratio                        |   | 2.6 to 1         |       | 3.2 to 1 |   | 2.7 to 1 |   | 2.6 to 1 |   | 2.6 to 1 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Net book value  per common share (A) |   | $                | 1.33       |   | $ | 1.59 |   | $ | 1.59 |   | $ | 1.42 |   | $ | 1.35 |   |
|                                 |   |             |       |   |   |   |   |   |   |   |   |
| Dividends (C)                        |   | $                | 0.05       |   | $ | 0.04 |   | $ | — |   | $ | 0.04 |   | $ | 0.04 |   |

 

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(A)  Computed onthe basis of the actual number of common shares outstanding at the end of thefiscal year.

Fiscal 2002 net bookvalue includes the write-down of goodwill amounting to $4.1 million inconnection with the adoption of SFAS No. 142.

 

(B)   Includesthe effect of the Rotocast merger.

 

(C)   Based oncash dividends declared per common share during the respective periods.

 

10

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Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

 

**Introduction**

 

To the extent that this 10-K Annual Report discusses matters which arenot historical, including statements regarding future financial results,information, or expectation about products or markets, or otherwise makesstatements about future events, such statements are forward-looking and aresubject to a number of risks and uncertainties that could cause actual resultsto differ materially from the statements made. These include, among others, fluctuations in costs of raw materials andother expenses, costs associated with plant closures, downturns in the marketsserved by the Company, the costs associated with new product introductions, aswell as other factors described under the heading: Item 1, “Business”, Item 3,“Legal Proceedings”, under this Item 7, “Management’s Discussion and Analysisof Financial Condition and Results of Operations”, and Footnote 1 to FinancialStatements.  When used in this report,the words “expects,”  “anticipates,”“intends,” “plans,” “ believes,” “seeks,” “estimates” and similar expressionsare generally intended to identify forward-looking statements.  You should not place undue reliance on theseforward-looking statements, which reflect our opinion only as of the date ofthe Annual Report. We undertake no obligation to publicly release any revisionsto the forward-looking statements after the date of this document.  You should carefully review the risk factorsdescribed in other documents we file from time to time with the Securities andExchange Commission, including the Quarterly Reports on Form 10-Q to be filedby us in fiscal 2003.

 

**Operations**

 

Net sales dropped 6.3% to $37,973,300 in fiscal 2002 compared to$40,520,100 in fiscal 2001.  Even thoughthe Company’s diverse product offerings helped minimized sales volumedeterioration, the country’s general economic conditions continued to weigh heavilyon the manufacturing sector.  TheCompany’s river & waterways and specialty product groups reported thelargest downturn, reflecting a 21.3% and 14.6%, respectively; reductioncompared to last year sales volumes. Despite the overall drop in sales, material handling products posted arespectable 5.3% increase over the prior year’s sales volumes.  Material handling continues to be a growthsector for the Company as management continues to broaden its product offeringsand target these specific niche markets. Management does not foresee future market conditions improving rapidly,but instead anticipates a slow, steady growth that will drive the economyduring the next year.  This potentialgrowth, along with projected business, including its marketing alliance withHadco, should help improve sales volumes in fiscal 2003.

 

Net sales dropped 13.1% to $40,520,100 in fiscal 2001, compared to$46,647,700 in fiscal 2000.  The $6.1million reduction in sales volumes in fiscal 2001 was attributed to the economicdownturn in our country’s manufacturing sector that has affected all of theCompany’s product lines.  The Companyalso realized heightened competition in reaction to these economic pressures,which further diminished sales volumes within the Company’s tank, bin lid andcustom product lines.  In line withthis, the Company also lost market share, due to an unsuccessful refusecontainer bid, accounting for approximately $1 million in sales reductionduring the comparative period.

 

Cost of goods was $27,765,900, or 73.1% of net sales, in fiscal 2002compared to $31,158,700 or 76.9% and $34,645,000 or 74.3% of net sales infiscal 2001 and 2000, respectively.  Asa result of  the lackluster economy,management has been very proactive in its efforts to improve and sustainacceptable gross margins.  Managementwas able to achieve this goal through improved efficiencies, streamlinedoperations and a 15% reduction in its workforce during the year.  In addition, the Company benefited fromfavorable resin prices and a reduction in natural gas costs of approximately$600,000, which had previously spiked dramatically in fiscal 2001.  In contrast, fiscal 2001 margins werehampered by escalating raw material production costs, the spike in natural gascosts, as well as labor related insurance and fringe costs.  Over the last several years, theroto-molding industry continues to experience extreme volatility in plasticresin costs that can fluctuate 20-30% within a short period of time.  The cost of plastic resin, utility costs andlabor related costs, represent the major portion of the Company’s manufacturingcosts, and have continually challenged the company to effectively manage itsrising costs.  Rising insurance costsalso continue to be a concern, especially workers compensation, which increasedby 36% in fiscal 2002, and will increase by approximately 40% in fiscal2003.  During the years presented, theCompany has been relatively successful in mitigating these rising costs with ongoingsales price increases, improving manufacturing efficiencies and general costcontainment efforts.  However, anyfurther deterioration in market conditions, coupled with future increases inresin, utility and labor related costs, could hamper the Company’s goal tomaintain consistent future operating results.

 

Selling, general and administrative (“SG&A”) expenses were$7,540,900, or 19.9% of net sales, in fiscal 2002, compared to $7,635,400, or18.8% of net sales, in fiscal 2001.  Thecomparative percentage increase is attributed to the lower sales volumes.  However, overall SG&A costs decreased by$94,500, which is primarily related to the elimination of goodwill amortizationin the amount of $324,900, net of planned increases in marketing, wage and wagerelated costs of approximately $121,900 and an increase in bad debt expense of$140,800.

 

SG&A expenses were $7,635,400, or 18.8% of net sales, in fiscal2001 compared to $7,888,900, or 16.9% of net sales, in fiscal 2000.  Again, the comparative percentage increaseis attributed to lower sales volumes. However, overall SG&A costs

 

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decreased by $253,500.  Thereduction is related to a significant reduction in selling costs, as a resultof lower commissions and improved management of  advertising, and tradeshow costs.  Management continues to assess its marketing strategies to focusits resources and efforts in a manner that will optimize exposure for itsvarious product groups.

 

Income from operations was $2,666,500, or 7% of net sales, in fiscal2002 compared to $1,726,000 or 4.3% and $4,113,800 or 8.8% of net sales infiscal 2001 and 2000, respectively.  The54.5% increase in operating income in fiscal 2002 is primarily attributed tothe improved gross margins as outlined above and the elimination of goodwillamortization due to the adoption of Statement of Financial Accounting Standards(“SFAS”) No. 142, “Goodwill and Other Intangible Assets.”  The 58% decrease in operating income infiscal 2001 was attributed to the 13.1% reduction in sales volumes consistentwith the economic downturn, coupled with increased raw material, natural gasand labor related costs that dramatically increased during the period.

 

Total interest expense decreased $279,000 to $464,100 in fiscal 2002,compared to $743,100 in fiscal 2001. The decrease is due to a significant reduction in the Company’s debtstructure since June 30, 2001, which amounted to $3,045,700, coupled with thelow interest rate environment throughout fiscal 2002. Management anticipatesthese factors; along with a renegotiated interest rate swap agreement that tookeffect on August 15, 2002, will continue to have a positive effect on reducingfuture interest costs.

 

Total interest expense decreased $211,900 to $743,100 in fiscal 2001compared to $955,000 in fiscal 2000. Although operating results were lackluster, the Company generatedsufficient cash flows to decrease the Company’s total debt structure byapproximately $2.2 million in comparison to amounts outstanding as of June 30,2000.  This factor, along withnegotiated rate reductions related to the Company’s bank debt and the 2.75%drop in the federal discount rate in fiscal 2001, was instrumental in reducingthe Company’s interest costs.

 

Income taxes were $947,200, $614,800 and $1,269,700 in fiscal 2002,2001 and 2000, respectively.  Asignificant portion of the Company’s tax provision is the deferred taxcomponent which amounted to $307,100, $511,500 and $1,015,500 in fiscal 2002,2001, and 2000, respectively.  Duringthe last three years, these amounts primarily relate to the utilization of theCompany’s federal and state net operating loss (“NOL”) carryforwards andfederal alternative tax (“AMT”) credit carryforwards, and thus do not diminishcurrent cash flow.  In fiscal 2001, theCompany fully utilized its remaining Federal NOL carryforward, and in fiscal2002 the Company fully utilized its $412,600 federal AMT creditcaryforward.  After the utilization ofthe Company’s remaining AMT credit carryforward in fiscal 2002, the Companyincurred an increase in its current federal taxes.  Current federal taxes amounted to $476,300 in fiscal 2002compared to $26,000 and $75,000 in fiscal 2001 and 2000, respectively.  As such, the Company’s cash flowrequirements will increase for the payment of current federal taxes in futureperiods.

 

Net income before cumulative effect of change in accounting principlefor goodwill increased $935,000 to $1,408,700, or $0.11 per common share, forfiscal 2002 compared to net income of $473,700, or $0.04 per common share, infiscal 2001.  Even though marketconditions remained challenging in fiscal 2002, management was pleased that itwas able to minimize the deterioration of sales volumes in comparison to theprior year results.  These efforts,coupled with improved efficiencies, cost containment efforts, workforcereductions and the reductions relating to interest expense and goodwillpreviously mentioned, helped to successfully minimize the impact of theseadverse market conditions, and ultimately resulted in the 197% improvement innet income before the effect of the accounting change.

 

Net income decreased $1,556,800 to $473,700, or $.04 per common share,for fiscal 2001, compared to net income of $2,030,500, or $.14 per commonshare, in fiscal 2000.  The decrease isrelated to the 13.1% reduction in sales volumes due to the tightening in themanufacturing sector coupled with the 2.6% increase in cost of sales, as apercentage of net sales, related to the escalating raw material, utility andlabor related costs incurred during the period.

 

**Cumulative Effect of Change inAccounting Principle for Goodwill**

 

The Company recorded an adjustment effective July 1, 2001 to reflectthe impact of adopting SFAS No.142, amounting to a reduction of intangibleassets of $4,105,900.  This amount isreflected in net loss for the fiscal year ended June 30, 2002 as a cumulativeeffect of change in accounting principle for goodwill.  The adjustment represents a write down ofthe Company’s net goodwill based on a review of the Company’s goodwill forimpairment.  Under the assessmentguidelines of SFAS No. 142 and the SECs guidance that the Company’s quotedmarket price is the most efficient mechanism for estimating fair value, it wasdetermined the fair value of the Company’s reporting unit was less than itscarrying value.  Although theassumptions used to estimate fair value may not be indicative of futureresults, the Company’s goodwill has been reduced to zero and will not requirefuture impairment analysis.

 

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**Liquidity and Capital Resources**

 

Working capital decreased by $1,710,400 to $7,483,700 at June 30, 2002,compared to $9,194,100 at June 30, 2001. The reduction is related to decreases in accounts receivable,inventories and accounts payable consistent with current operations andmanagement goals, an overall reduction in current deferred income taxes due tothe utilization of federal tax credits, plus an increase of $128,800 forcurrent income taxes payable and a $413,300 increase in current portion of debtrelating to the real estate loan which was repaid in August 2002.  Cash flows from operations increased by$1,053,000 to $4,600,200 for fiscal 2002, compared to $3,547,200 for the sameperiod last year.  The increase isrelated to the $935,000 improvement in net income before accounting changebetween the two periods, as well as, the cash flows generated from netreductions in inventories.

 

Earnings before interest, taxes, depreciation and amortization(“EBITDA”) were $5,014,000 in fiscal 2002 compared to $4,503,900 in fiscal2001.  Although EBIDTA is not asubstitute for measures of performance prepared in accordance with accountingprinciples generally accepted in the United States, it is a relevant internalmeasurement of the Company’s operations and cash flows.  As such, in spite of the on going challengesfaced in fiscal 2002, the Company continues to generate sufficient cash flowsfrom operations enabling the Company to meet its working capital needs, serviceand reduce its debt ($3,045,700 in fiscal 2002), pay the $ .05 per share commonstock dividend declared in June 2002 and continue the common stock buybackprogram.

 

The Company expended a total of $1,028,800 for property, plant andequipment during fiscal 2002, compared to $1,348,100 for fiscal 2001.  The primary emphasis in fiscal 2002 was newtooling and tooling modifications, plus the addition of a new injection moldingmachine and mold shop equipment to increase productivity.  The Company currently anticipates total capitalexpenditures to be approximately $1.75 — $2 million in fiscal 2003.

 

Net borrowings under the line of credit decreased $908,000 to $192,000between June 30, 2001 and June 30, 2002. The decrease is attributed to the excess cash flows from operations andthe reduction in interest costs attributed to lower debt borrowings andfavorable interest rates.

 

Effective October 1,2001, the bank extended the maturity date on the line of credit to October 1,2003, and reduced the total borrowings available under the line of credit from$7,000,000 to $5,000,000.  Managementagreed to the bank’s request to reduce the line of credit borrowing limit afterreviewing current cash flow projections, which do not currently forecast requirementsto exceed the revised $5,000,000 limit. Management and the bank agreed verbally that the borrowing limit wouldrevert back to its original amount ($7,000,000) if circumstances arose thatwould warrant the need for additional borrowings.  Management also decided not to advance on the $1,200,000 termloan commitment, and instead requested the bank to issue a new term loancommitment in the amount of $2,000,000, which will expire on October 1, 2002.

 

The following is a summary of the Company’s contractual commitmentsassociated with its debt and lease obligations as of June 30, 2002:

 
|                          |   |                             |      |
|-------------------------------|--------|----------------------------------|-----------|
|                          |   | **For the  year ended June 30,** |      |   |   |   |   |
|                          |   | **2003**                         |      | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **Thereafter** |   | **Total** |   |
| Principle  payments-term debt |   | $                                | 1,357,600 |   | $ | 864,300 |   | $ | 864,300 |   | $ | 864,300 |   | $ | 864,300 |   | $ | 288,000 |   | $ | 5,102,800 |   |
|                          |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating leases              |   | 1,104,300                        |      | 1,085,900 |   | 982,100 |   | 859,800 |   | 820,300 |   | 4,258,600 |   | 9,111,000 |   |
|                          |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  commitments            |   | $                                | 2,461,900 |   | $ | 1,950,200 |   | $ | 1,876,400 |   | $ | 1,724,100 |   | $ | 1,684,600 |   | $ | 4,546,600 |   | $ | 14,213,800 |   |

 

During fiscal 2001, the Company reinstated its common stock buybackprogram.  In fiscal 2002, the Companyacquired 203,956 shares of common stock at a total cost of $212,800.  The Company plans to continue to activelyacquire its common shares as long as the market value per share continues to beunder recognized by the stock market. As of June 30, 2002, the Company had approximately 12,614,900 shares ofcommon stock outstanding.

 

On June 25, 2002, the Board of Directors declared a common stockdividend of $.05 (a 25% increase over the prior year) per common share, whichwas paid on July 26, 2002, to stockholders of record on July 8, 2002.  This marks the sixth payment of dividendssince 1996 on the Company’s stock.  TheBoard of Directors is committed to annually review a dividend program for theCompany’s common stock.

 

Cash flows from operations in conjunction with the Company’s revolvingline of credit and machinery and equipment loan commitment are expected to meetthe Company’s needs for working capital, capital expenditures, common stockrepurchases and repayment of long term debt for the foreseeable future.

 

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In June 2001, the Financial Accounting Standards Board (“FASB”)approved two new pronouncements: SFAS No. 141, “Business Combinations,” andSFAS No. 142.  SFAS No. 141 applies toall business combinations with a closing date after June 30, 2001.  This Statement eliminates thepooling-of-interests method of accounting and further clarifies the criteriafor recognition of intangible assets separately from goodwill.

 

SFAS No. 142 eliminates the amortization of goodwill andindefinite-lived intangible assets and initiates an annual review forimpairment.  Identifiable intangibleassets with a determinable useful life will continue to be amortized.  The Company adopted SFAS No. 142 effectiveJuly 1, 2001, which required the Company to cease amortization of its remainingnet goodwill balance and to perform a transitional goodwill impairment test asof July 1, 2001 and thereafter an impairment test at least annually and recordan adjustment when the fair value of our reporting unit, including goodwill, isless than its carrying value.  TheCompany was permitted six months from the adoption date to complete a review ofgoodwill for impairment and record necessary adjustments prior to the end offiscal 2002.  The Company engaged anational valuation specialist to assist with the determination of the estimatedfair value of our reporting unit.  Todetermine fair value, valuation models, including guideline public companies,acquisition analysis and discounted cash flows were relied upon.  As such, under the assessment guidelines ofSFAS No. 142 and the SEC’s guidance that the Company’s quoted market price isthe most efficient mechanism for estimating fair value, their findingsindicated the estimated fair value of our reporting unit was less than itscarrying value.  The Company completedthe transitional goodwill impairment test in accordance with SFAS No. 142, andwrote-off its remaining net goodwill of $4,105,900 as a non-cash cumulativeeffect of change in accounting principle effective July 1, 2001.  Goodwill amortization expense was $324,900for fiscal years 2001 and 2000.

 

In September 2001, the FASB approved SFAS No. 144 “Accounting for theImpairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121 “Accounting for Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed of”, as well asAccounting Principle Board Opinion No. 30 “Reporting the Results of Operations— Reporting the Effects of Disposal of a Segment of Business, andExtraordinary, Unusual, and Infrequently Occurring Events andTransactions.”  SFAS No. 144 not onlyretains the requirements of SFAS No. 121 to recognize an impairment loss if thecarrying amount of a long-lived asset is not recoverable from its undiscountedcash flows, but also establishes a single accounting method for assets to bedisposed of and broadens the presentation of discounted operations to includemore disposal transactions.  SFAS No.144 is effective for fiscal years beginning after December 15, 2001.  The adoption of this pronouncement is notexpected to have a significant impact on the Company’s financial portion orresults of operations.

 

In June 2002, the FASBissued SFAS No. 146, “Accounting for Costs Associated with Exit or DisposalActivities.”  This pronouncement iseffective for exit or disposal activities initiated after December 31, 2002,and requires these costs to be recognized when the liability is incurred andnot at project initiation.  The Companydoes not expect this statement to have a material impact on the Company’sfinancial statements.

 

**Critical Accounting Policies**

 

The Company makes variousestimates when applying accounting policies in accordance with accountingprinciples generally accepted in the United States  (“GAAP”) that affect its consolidated financial statements.  Due to the nature of the Company’s business,these estimates generally are not considered highly uncertain at the time ofestimation and therefore are not expected to result in a period-to-periodchange that would materially affect the Company’s results of operations orfinancial condition.

 

The Company does applykey accounting principles as required by GAAP. These key accounting policiesgovern allowance for doubtful accounts, inventory valuation and income taxes.

 

Allowance for doubtfulaccounts

 

The Company makesjudgments as to its ability to collect outstanding receivables and provideallowances for the portion of receivables when collection becomesdoubtful.  Provisions are based on apercentage of net sales and a specific review of all significant outstandingreceivable balances.  Percentagesapplied may vary based on analysis of historical collection experience orcurrent economic trends.  If the datathe Company uses to calculate the allowance for doubtful accounts does notreflect the future ability to collect outstanding receivables, additionalprovisions for doubtful accounts may be needed and the results of operationscould be affected.

 

Inventory valuation

 

Finished goods inventoryis valued at cost and management uses historical gross margin trends and otherestimates to continually update labor and overhead allocations.  The gross margin percentage reflects ourestimate of the cost of, among other things, material, labor and overheadexpenditures during the production process. Such cost are capitalized to inventory as products aremanufactured.  Although it is believedthat the estimates are reasonable, it is possible that the actual labor and

 

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overhead costs willdiffer over time from the estimated amounts. Such differences could have a material impact on the Company’s resultsof operations and financial position.

 

Income taxes

 

Under SFAS No. 109,“Accounting for Income Taxes,” income taxes are recorded based on the currentamounts payable or refundable, as well as the consequences of events that giverise to deferred tax assets and liabilities based on differences in how thoseevents are treated for tax purposes (see Note 14).  The Company bases its estimate of deferred tax assets andliabilities on current tax laws and rates and in certain cases expectations aboutfuture outcomes.  The Company’saccounting for deferred tax consequences represents managements best estimateof future events that can be appropriately reflected in accounting estimates.  Although management believes that itsestimates are reasonable, no assurance can be given that the final tax outcomeof these matters will not be different than that which is reflected in theCompany’s historical income tax provisions and accruals.  Such differences could have a materialimpact on the Company’s results of operations and financial position.

 

In particular, theCompany recorded a valuation allowance to reduce its deferred tax assets to theamount of future tax benefit that is more likely than not to be realized.  While management has considered future taxableincome and ongoing prudent and feasible tax planning strategies in assessingthe need for the valuation allowance, there is no assurance that the valuationallowance would not need to be increased to cover additional deferred taxassets that may not be realized.  Anyincrease in the valuation allowance could have a material adverse impact on theCompany’s income tax provision and net income for the period in which suchdetermination is made.

 

 

# **Factors That May Affect Our FutureResults or the Market Price of Our Stock**

 

We operate in a rapidly changing economic environmentthat presents numerous risks.  Many ofthese risks are beyond our control and are driven by factors that we cannotpredict.  The following discussionhighlights some of these risks.

 

Economic, political and market conditions canadversely affect our revenue growth**.**

 

Our revenue growth and profitability depends on the overall demand forplastic products for commercial, recreational and residential uses.  Because our sales are primarily to corporateand government customers, our business depends on general economic and businessconditions.  The general weakening ofthe global economy and the weakening of business conditions in themanufacturing industry, as well as governmental budgetary constraints, hasresulted in a decreased demand for our products.  If demand for our products continues to be weak, our revenuegrowth rates will be adversely affected. In addition, terrorist attacks upon the United States have contributedto economic, political and other uncertainties that could adversely affect ourrevenue growth and results.  If economicand market conditions do not improve, our business will continue to beadversely affected.

 

Management has no comparative advantage in forecastingmacroeconomic trends and developments relating to general businessconditions.  Our management is, however,required to make such forecasts in order to develop budgets, plan research anddevelopment strategies and perform a wide variety of general managementfunctions.  To the extent that ourforecasts are in error, because we are either overly optimistic or overlypessimistic about the performance of an economy or of a sector, our performancecan suffer because of a failure properly to match corporate strategy witheconomic conditions.

 

If we do not successfully manage our operatingmargins, our business can be negatively impacted.

 

Our future operating results will depend on our ability to forecastrevenues accurately and control expenses. While we can control certain internal factors, our future operatingresults can be adversely impacted by external factors, such as a slowing indemand for certain of our products. If there is an unexpected decline inrevenues, which is not offset by a decrease in expenses, our business andoperating results will be adversely affected.

 

We may be required to change our business practices ifthere are changes in accounting regulations and related interpretations andpolicies.

 

Policies, guidelines and interpretations related to revenuerecognition, income taxes, facilities consolidation, accounting foracquisitions, allowances for doubtful accounts and other financial reportingmatters require difficult judgments as to complex matters that are oftensubject to multiple sources of authoritative guidance.  Some of these matters are also among topicscurrently under re-examination by accounting standards groups andregulators.  These standard groups andregulators could promulgate interpretations and guidance that could result in materialand potentially adverse, changes to our accounting policies.

 

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Business disruptions could affect our future operatingresults.

 

Our operating results and financial condition could be materially andadversely affected in the event of a major earthquake, fire or othercatastrophic event, such as the recent terrorist attacks upon the UnitedStates.  Our corporate headquarters, asignificant portion of our research and development activities and certainother critical business operations are located in California, near majorearthquake faults. A catastrophic event that results in the destruction of anyof our critical business or information technology systems could severelyaffect our ability to conduct normal business operations and as a result ourfuture operating results could be adversely affected.  In 2001, California experienced ongoing power shortages, whichresulted in “rolling blackouts.” These blackouts, blackouts in other regions orprocedures implemented to avert blackouts could cause disruptions to ouroperations and the operations of our customers.  Although the likelihood of such disruptions has diminished, suchdisruptions, particularly at the end of a quarter, could adversely affect quarterlyrevenues and net income.

 

*Our stock price could remain volatile and your investmentcould lose value.*

 

Our stock price has fluctuated widely in the past and could continue todo so in the future. Your investment in our stock could lose value. Some of thefactors that could significantly affect the market price of our stock include:

 

•      quarterly variations in our results ofoperations or those of our competitors;

•      changes in our or our competitors’ prices;

•                  changes in our revenue and revenue growth rates as a whole or forspecific geographic areas, business units, products or product categories;

•      announcements of new products or productenhancements by us or our competitors;

•      changes in management;

•      changes in recommendations or earningsestimates by financial analysts;

•      speculation in the press or analystcommunity;

•      changes in economic and market conditionseither generally or specifically to particular industries;

•      changes in interest rates; and

•      changes in investors beliefs as to theappropriate price-earnings ratios for us and our competitors.

 

A significant drop in our stock price could expose us to the risk ofsecurities class action lawsuits. Defending against such lawsuits could resultin substantial costs and divert management’s attention and resources.Furthermore, any settlement or adverse determination of these lawsuits couldadversely affect us.

 

Item 7a. Disclosures About Market Risk

 

**InterestRate Risk**

 

The Company is exposed tocertain market risks relating to interest rate volatility on its existing andfuture issuances of variable rate debt with the bank.  Primary exposures include movements in U.S. Treasury rates andLIBOR rates, which in turn affect the bank’s prime and LIBOR option rates.

 

The Company had approximately $5.3 million of variable rate debt as ofJune 30, 2002.  In efforts to reduceinterest rate volatility and mitigate exposure on variable rate debt, theCompany entered into an interest rate swap effective July 15, 1998.  The swap had a notional amount of $5 millionas of July 15, 2000, and was to remain at this amount until its expiration onJuly 15, 2003.  The swap fixes thebank’s LIBOR option rate at 6.2% over the term of the contract.  The fair value of the swap, net of tax,amounted to ($128,000) as of June 30, 2002. If average interest rates increased by 1% during fiscal 2003 as comparedto fiscal 2002, and additional borrowings are not incurred, the Company willnot expect a significant increase in projected fiscal 2003 interestexpense.  Effective August 15, 2002, theCompany restructured its interest rate swap agreement with the bank.  Under the new terms, the notional amountwill initially be $4 million, the LIBOR option rate will be reduced to 4.83%,and the termination date for the agreement will be extended to August 15, 2006.

 

 

Item 8. Financial Statements and Supplementary Data

 

See Financial Statements and Financial Statement Schedules listed inItem 14(a)(1) and (2).

 

Item 9. Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure

 

None.

 

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PART III

 

Item 10. Directors and Executive Officers of the Registrant

 

Directors

 

The Company incorporates by reference the information set forth underthe caption “Election of Directors” in the Company’s Proxy Statement to befiled with the Securities and Exchange Commission, and mailed to stockholdersin connection with the Company’s Annual Meeting of the Stockholders to be heldon December 9, 2002 (“the Proxy Statement”)

 

Executive Officers

 

As of September 6, 2002, the executive officers of the Company were asfollows:

 
| **Name**            |   | **Age** |   | **Position**                                            |   |
|---------------------|--------|---------|--------|---------------------------------------------------------|--------|
| Sherman  McKinniss  |   | 66      |   | Chairman of the Board                                   |   |
|                |   |    |   |                                                    |   |
| Robert E. Gawlik    |   | 54      |   | President, Chief Executive Officer                      |   |
|                |   |    |   |                                                    |   |
| E. Paul Tonkovich   |   | 64      |   | Secretary, Director                                     |   |
|                |   |    |   |                                                    |   |
| Douglas W.  Russell |   | 41      |   | Chief Financial Officer, Assistant  Secretary/Treasurer |   |

 

 

Sherman McKinniss.  Mr.McKinniss served as President and Chief Executive Officer from August 1991 toDecember 2001.  Mr. McKinniss has alsoserved as Director of the Company since 1991, and was appointed as Chairman ofthe Board in December 1994.  He wasPresident and a Director of Rotonics from 1987-1991.  Previously, he owned and operated RMI, which he sold to theCompany in 1986, and was a partial owner of Rotational Molding, Inc.-Florida,which was merged into Rotonics in 1988.

 

Robert E. Gawlik.  Mr. Gawlikwas appointed as President and Chief Executive Officer in December of 2001, andpreviously presided as Chief Operating Officer of the Company since August1998.  Prior to this, he served asGeneral Manager for Bonar Plastic’s Oregon facility from 1991-1998, asExecutive Vice-President of Encore Industries from 1986-1989, and later asPresident of Encore Group from 1989-1991.

 

E. Paul Tonkovich.  Mr.Tonkovich has served as Secretary and a Director of the Company since August1991.  He has been a practicing attorneysince January 1966.  He was legalcounsel to Rotonics and to Mr. McKinniss, and is now legal counsel for the Company.

 

Douglas W. Russell.  Mr. Russellhas served as Chief Financial Officer and Assistant Secretary/Treasurer of theCompany since 1991.  Prior to that, hewas a Senior Auditor for the accounting firm Hallstein & Warner from 1988until 1991, and was Assistant Controller of RMI from September 1985 toSeptember 1987.

 

Item 11.  Executive Compensation

 

The Company incorporates by reference the information set forth underthe captions “Compensation of Executive Officers”, the “Summary CompensationTable” and related disclosure information, “Certain Transactions”, and“Compensation of Directors” in the Proxy Statement.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management

 

The Company incorporates by reference the information set forth underthe caption “Security Ownership by Certain Beneficial Holders” in the ProxyStatement.

 

Item 13.  Certain Relationships and Related Transactions

 

The Company incorporates by reference the information set forth underthe headings “Information Concerning the Board of Directors” under the caption“Election of Directors”, “Executive Officers”, and “Certain Transactions” inthe Proxy Statement.

 

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PART IV

 

Item 14.  Exhibits, Financial Statements Schedules, and Reports on form 8-K

 

(a)           Thefollowing documents are filed as part of this report:

 
|   |   |                                                                                                               |                                                                          |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|--------|
|   | (1)    | Financial Statements:                                                                                              |                                                                          |   |
|   |   |                                                                                                               |                                                                          |   |
|   |   | Report of  Independent Public Accountants                                                                          |                                                                          |   |
|   |   | Consolidated Balance  Sheets, June 30, 2002 and 2001                                                               |                                                                          |   |
|   |   | Consolidated  Statements of Operations and Comprehensive (Loss)/Income, Years Ended June  30, 2002, 2001, and 2000 |                                                                          |   |
|   |   | Consolidated  Statements of Changes in Stockholders’ Equity, Years Ended June 30, 2002,  2001, and 2000       |                                                                          |   |
|   |   | Consolidated  Statements of Cash Flows, Years Ended June 30, 2002, 2001, and 2000                                  |                                                                          |   |
|   |   | Notes to  Consolidated Financial Statements                                                                        |                                                                          |   |
|   |   |                                                                                                               |                                                                          |   |
|   | (2)    | Financial Statement  Schedules:                                                                                    |                                                                          |   |
|   |   |                                                                                                               |                                                                          |   |
|   |   | II                                                                                                                 | Valuation and Qualifying Accounts, Years  Ended June 30, 2002, 2001, and 2000 |   |   |
|        |        |                                                                                                                    |                                                                               |        |  |

 

All other schedules are omitted because they are notapplicable, or the required information is shown in the financial statements ornotes thereto.

 

(b)           Reportson Form 8-K

 

On May 24, 2002, we filed a current report of Form 8-Kreporting under Item 4, Changes in Registrant’s Certifying Accountants, that wedismissed our independent auditors, Arthur Andersen LLP, and engaged theservices of Windes & McClaughry Accountancy Corporation as our newindependent auditors for our fiscal year ending June 30, 2002.  Our Board of Directors authorized thedismissal of Arthur Andersen and the engagement of Windes & McClaughry.

 

(c)           Thefollowing exhibits are filed as part of this report:

 

 

 
| **Exhibit  Number** |   | **Exhibit  Title**                                                                                |
|---------------------|--------|---------------------------------------------------------------------------------------------------|
|                |   |                                                                                              |
| 23.1                |   | Consent of Independent Public Accountants — Windes  & McClaughry Accountancy Corporation |
|                |   |                                                                                              |
| 23.2                |   | Statement Regarding Consent of Arthur Andersen LLP                                                |
|                |   |                                                                                              |
| 99.1                |   | Certification as Adopted Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002               |
|                |   |                                                                                              |
| 99.2                |   | Certification as Adopted Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002               |
|                |   |                                                                                              |
| 99.3                |   | Certification as Adopted Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002               |

 

18

----

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|   | ROTONICS MANUFACTURING INC.                             |
|--------|---------------------------------------------------------|
|   |                                                    |
|   |                                                    |
|   |                                                    | By | /s/  ROBERT  E. GAWLIK |
|   |                                                    |
|   | Robert E. Gawlik                                        |
|   | President, Chief  Executive Officer                     |
|   |                                                    |
|   | Date 09/24/2002                                         |
|   |                                                    |
|   |                                                    | By | /s/  DOUGLAS  W. RUSSELL |
|   |                                                    |
|   | Douglas W. Russell                                      |
|   | Chief Financial Officer

Assistant  Secretary/Treasurer |
|   |                                                    |
|   | Date 09/24/2002                                         |

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.

 
| **Signature**               |   | **Title** |                  | **Date** |       |
|-----------------------------|--------|-----------|-----------------------|----------|------------|
|                        |   |      |                  |     |       |
| /s/  SHERMAN McKINNISS |   |      | Chairman of the Board |     | 09/24/2002 |   |
| Sherman  McKinniss          |   |      |                  |     |       |   |
|                        |   |      |                  |     |       |   |
| /s/  E. PAUL TONKOVICH |   |      | Secretary, Director   |     | 09/24/2002 |   |
| E. Paul  Tonkovich          |   |      |                  |     |       |   |
|                        |   |      |                  |     |       |   |
| /s/  DAVID C. POLITE   |   |      | Director              |     | 09/24/2002 |   |
| David C. Polite             |   |      |                  |     |       |   |
|                        |   |      |                  |     |       |   |
| /s/  LARRY M. DEDONATO |   |      | Director              |     | 09/24/2002 |   |
| Larry M.  DeDonato          |   |      |                  |     |       |   |
|                        |   |      |                  |     |       |   |
| /s/  LARRY L. SNYDER   |   |      | Director              |     | 09/24/2002 |   |
| Larry L. Snyder             |   |      |                  |     |       |   |
|                        |   |      |                  |     |       |   |
| /s/  MARC L. BERMAN    |   |      | Director              |     | 09/24/2002 |   |
| Marc L. Berman              |   |      |                  |     |       |   |
|                        |   |      |                  |     |       |   |
| /s/  JULES SANFORD     |   |      | Director              |     | 09/24/2002 |   |
| Jules Sanford               |   |      |                  |     |       |   |

 

19

----

 

CERTIFICATION

 

 

 

I, Robert E. Gawlik, certify that:

 

1. I have reviewed this annual report on Form 10-K of RotonicsManufacturing Inc.

 

2. Based on my knowledge, this annual report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisannual report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report.

 

 

 

 
| Date:  | September 24, 2002 |   |                              |
|--------|--------------------|--------|-----------------------------------|
|   |               |   |                              |
|   |               |   | /s/ ROBERT E. GAWLIK              |
|   |               |   | Robert E. Gawlik                  |
|   |               |   | President/Chief Executive Officer |

 

20

----

 

CERTIFICATION

 

 

 

I, Douglas W. Russell, certify that:

 

1. I have reviewed this annual report on Form 10-K of RotonicsManufacturing Inc.

 

2. Based on my knowledge, this annual report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisannual report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report.

 

 

 

 
| Date:  | September 24, 2002 |   |                                                    |
|--------|--------------------|--------|---------------------------------------------------------|
|   |               |   |                                                    |
|   |               |   | /s/ DOUGLAS W. RUSSELL                                  |
|   |               |   | Douglas W. Russell                                      |
|   |               |   | Chief Financial Officer,

Assistant Secretary/Treasurer |

 

21

----

 

CERTIFICATION

 

 

 

I, Sherman McKinniss, certify that:

 

1. I have reviewed this annual report on Form 10-K of RotonicsManufacturing Inc.

 

2. Based on my knowledge, this annual report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisannual report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report.

 

 

 

 
| Date:  | September 24, 2002 |   |                  |
|--------|--------------------|--------|-----------------------|
|   |               |   |                  |
|   |               |   | /s/ SHERMAN McKINNISS |
|   |               |   | Sherman McKinniss     |
|   |               |   | Chairman of the Board |

 

22

----

 

REPORT OF INDEPENDENTPUBLIC ACCOUNTANTS

 

 

 

 

To the Board of Directors

and Stockholders of Rotonics Manufacturing Inc.:

 

We have audited the accompanying consolidated balance sheet of ROTONICSMANUFACTURING INC. (a Delaware corporation) as of June 30, 2002, and therelated consolidated statements of operations and comprehensive loss, changesin stockholders’ equity and cash flows for the year then ended.  These consolidated financial statements arethe responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audit.

 

We conducted our audit in accordance with auditing standards generallyaccepted in the United States.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial positionof Rotonics Manufacturing Inc. as of June 30, 2002, and the results of itsoperations and its cash flows for the year then ended in conformity withaccounting principles generally accepted in the United States.

 

Our audit was made for the purpose of forming an opinion on the basicfinancial statements taken as a whole. The schedule listed in the index appearing under Item 14(a)(2) ispresented for purposes of complying with the Securities and ExchangeCommission’s rules and is not a required part of the basic financialstatements.  This schedule has been subjectedto the auditing procedures applied in our audit of the basic financialstatements and, in our opinion, is fairly stated in all material respects inrelation to the basic financial statements taken as a whole.

 

As discussed in Notes 1 and 7 to the consolidated financial statements,effective July 1, 2001, the Company changed its method of accounting forgoodwill and other intangible assets to conform with the provisions ofStatement of Financial Accounting Standards No. 142, “Goodwill and other IntangibleAssets.”

 

 

 

 
| /s/ WINDES & McCLAUGHRY ACCOUNTANCY CORPORATION |   |
|-----------------------------------------------------|--------|
|                                                |   |
|                                                |   |
| Long Beach, California                              |   |
| August 19, 2002                                     |   |

 

F-1

----

 

**This is a copy of the audit reportpreviously issued by Arthur Andersen LLP in connection with RotonicsManufacturing Inc.’s filing on Form 10-K for the year ended June 30, 2001.  Arthur Andersen LLP has not reissued thisaudit report in connection with this filing on Form 10-K.  See exhibit 23.2 for furtherdiscussion.  The consolidated balancesheet as of June 30, 2000, the consolidated statements of operations,stockholders’ equity and cash flows for the year ended June 30, 1999 and theinformation in the schedule for 1999 referred to in this report have not beenincluded in the accompanying financial statements or schedules.**

 

 

 

REPORTOF INDEPENDENT PUBLIC ACCOUNTANTS

 

 

 

 

To the Board of Directors

and Stockholders of Rotonics Manufacturing Inc.:

 

We have audited the accompanying consolidated balance sheets ofROTONICS MANUFACTURING INC. (a Delaware corporation) as of June 30, 2001 and2000, and the related consolidated statements of income and comprehensiveincome, changes in stockholders’ equity and cash flows for each of the threeyears in the period ended June 30, 2001. These consolidated financial statements are the responsibility of theCompany’s management.  Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of RotonicsManufacturing Inc. as of June 30, 2001 and 2000, and the results of theiroperations and their cash flows for each of the three years in the period endedJune 30, 2001 in conformity with accounting principles generally accepted inthe United States.

 

Our audits were made for the purpose of forming an opinion on the basicfinancial statements taken as a whole. The schedule listed in the index appearing under Item 14(a)(2) ispresented for purposes of complying with the Securities and ExchangeCommission’s rules and is not a required part of the basic financialstatements.  This schedule has beensubjected to the auditing procedures applied in our audits of the basicfinancial statements and, in our opinion, is fairly stated in all materialrespects in relation to the basic financial statements taken as a whole.

 

As explained in Note 1 to the Financial Statements, effective July 1,2000, the Company changed its method of accounting for derivatives.

 

 

 
| /s/ ARTHUR ANDERSEN LLP   |   |
|---------------------------|--------|
|                      |   |
|                      |   |
| Orange County, California |   |
| August 22, 2001           |   |

 

F-2

----

 

ROTONICS MANUFACTURINGINC.

CONSOLIDATED BALANCE SHEETS

 
|                                                                                                                                                                           |   | **June 30,** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|
|                                                                                                                                                                           |   | **2002**     |       | **2001** |   |
| ASSETS                                                                                                                                                                         |   |         |       |   |   |
| Current assets:                                                                                                                                                                |   |         |       |   |   |
| Cash                                                                                                                                                                           |   | $            | 66,900     |   | $ | 28,000 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $175,000 and $99,200,  respectively (Notes 8 and 9)                                                            |   | 5,122,000    |       | 5,260,700 |   |
| Current portion  of notes receivable (Note 3)                                                                                                                                  |   | 10,300       |       | 62,300 |   |
| Inventories  (Notes 4, 8 and 9)                                                                                                                                                |   | 6,308,500    |       | 7,138,300 |   |
| Deferred income  taxes, net (Note 14)                                                                                                                                          |   | 272,800      |       | 541,300 |   |
| Prepaid expenses  and other current assets                                                                                                                                     |   | 262,600      |       | 349,100 |   |
|                                                                                                                                                                           |   |         |       |   |   |
| Total current  assets                                                                                                                                                          |   | 12,043,100   |       | 13,379,700 |   |
|                                                                                                                                                                           |   |         |       |   |   |
| Notes  receivable, less current portion (Note 3)                                                                                                                               |   | 336,800      |       | 311,800 |   |
| Investment in  partnership (Note 5)                                                                                                                                            |   | 108,700      |       | 113,800 |   |
| Property, plant  and equipment, net (Notes 6, 8 and 9)                                                                                                                         |   | 15,004,000   |       | 16,129,600 |   |
| Intangible  assets, net (Notes 1 and 7)                                                                                                                                        |   | 308,700      |       | 4,460,600 |   |
| Other assets                                                                                                                                                                   |   | 40,500       |       | 105,300 |   |
|                                                                                                                                                                           |   | $            | 27,841,800 |   | $ | 34,500,800 |   |
|                                                                                                                                                                           |   |         |       |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                      |   |         |       |   |   |
|                                                                                                                                                                           |   |         |       |   |   |
| Current  liabilities:                                                                                                                                                          |   |         |       |   |   |
| Current portion  of long-term debt (Note 9)                                                                                                                                    |   | $            | 1,357,600  |   | $ | 944,300 |   |
| Accounts payable                                                                                                                                                               |   | 2,090,700    |       | 2,429,900 |   |
| Accrued  liabilities (Note 11)                                                                                                                                                 |   | 982,300      |       | 811,400 |   |
| Income taxes  payable (Note 14)                                                                                                                                                |   | 128,800      |       | — |   |
| Total current  liabilities                                                                                                                                                     |   | 4,559,400    |       | 4,185,600 |   |
|                                                                                                                                                                           |   |         |       |   |   |
| Bank line of  credit (Note 8)                                                                                                                                                  |   | 192,000      |       | 1,100,000 |   |
| Long-term debt,  less current portion (Note 9)                                                                                                                                 |   | 3,745,200    |       | 6,296,200 |   |
| Deferred income  taxes, net (Note 14)                                                                                                                                          |   | 2,565,100    |       | 2,611,900 |   |
|                                                                                                                                                                           |   |         |       |   |   |
| Total  liabilities                                                                                                                                                             |   | 11,061,700   |       | 14,193,700 |   |
|                                                                                                                                                                           |   |         |       |   |   |
| Commitments and  contingencies (Note 15)                                                                                                                                       |   |         |       |   |   |
|                                                                                                                                                                           |   |         |       |   |   |
| Stockholders’  equity:                                                                                                                                                    |   |         |       |   |   |
| Common stock,  stated par value $.01: authorized 20,000,000 shares; issued and outstanding  12,614,942 and 12,761,398 shares, respectively,

net of treasury  shares (Note 13) |   | 23,040,100   |       | 23,203,100 |   |
| Accumulated  other comprehensive loss                                                                                                                                          |   | (128,000     | )          | (91,400 | ) |
| Accumulated  deficit                                                                                                                                                           |   | (6,132,000   | )          | (2,804,600 | ) |
|                                                                                                                                                                           |   |         |       |   |   |
| Total  stockholders’ equity                                                                                                                                               |   | 16,780,100   |       | 20,307,100 |   |
|                                                                                                                                                                           |   | $            | 27,841,800 |   | $ | 34,500,800 |   |

 

 

The accompanying notesare an integral part of these financial statements.

 

F-3

----

 

ROTONICS MANUFACTURING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE (LOSS)/INCOME

 
|                                                                                              |   | **For the  year ended June 30,** |       |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                                              |   | **2002**                         |       | **2001** |   | **2000** |   |
|                                                                                              |   |                             |       |   |   |   |   |
| Net sales                                                                                         |   | $                                | 37,973,300 |   | $ | 40,520,100 |   | $ | 46,647,700 |   |
| Costs and  expenses:                                                                              |   |                             |       |   |   |   |   |
| Cost of goods  sold                                                                               |   | 27,765,900                       |       | 31,158,700 |   | 34,645,000 |   |
| Gross profit                                                                                      |   | 10,207,400                       |       | 9,361,400 |   | 12,002,700 |   |
| Selling,  general, and administrative expenses                                                    |   | 7,540,900                        |       | 7,635,400 |   | 7,888,900 |   |
| Income from  operations                                                                           |   | 2,666,500                        |       | 1,726,000 |   | 4,113,800 |   |
|                                                                                              |   |                             |       |   |   |   |   |
| Other  (expense)/income:                                                                          |   |                             |       |   |   |   |   |
| Interest expense                                                                                  |   | (464,100                         | )          | (743,100 | ) | (955,000 | ) |
| Other income,  net                                                                                |   | 153,500                          |       | 105,600 |   | 141,400 |   |
| Total other  expense, net                                                                         |   | (310,600                         | )          | (637,500 | ) | (813,600 | ) |
| Income before  income taxes and cumulative effect of change in accounting principle for  goodwill |   | 2,355,900                        |       | 1,088,500 |   | 3,300,200 |   |
| Income tax provision  (Note 14)                                                                   |   | (947,200                         | )          | (614,800 | ) | (1,269,700 | ) |
| Income before  cumulative effect of change in accounting principle for goodwill                   |   | 1,408,700                        |       | 473,700 |   | 2,030,500 |   |
| Cumulative  effect of change in accounting principle for goodwill (Notes 1 and 7)                 |   | (4,105,900                       | )          | — |   | — |   |
| Net  (loss)/income                                                                                |   | (2,697,200                       | )          | 473,700 |   | 2,030,500 |   |
|                                                                                              |   |                             |       |   |   |   |   |
| Other  comprehensive loss, before tax:                                                            |   |                             |       |   |   |   |   |
| Cumulative  effect of adoption of SFAS 133                                                        |   | —                           |       | 109,400 |   | — |   |
| Unrealized  holding loss arising during the period                                                |   | (247,500                         | )          | (270,000 | ) | — |   |
| Less:  Reclassification adjustments for losses included in net income                             |   | 186,400                          |       | 8,300 |   | — |   |
| Total other  comprehensive loss before tax                                                        |   | (61,100                          | )          | (152,300 | ) | — |   |
| Income tax  benefit related to items of other comprehensive loss                                  |   | 24,500                           |       | 60,900 |   | — |   |
| Total other  comprehensive loss, net of tax                                                       |   | (36,600                          | )          | (91,400 | ) | — |   |
| Comprehensive  (loss)/income                                                                      |   | $                                | (2,733,800 | ) | $ | 382,300 |   | $ | 2,030,500 |   |
|                                                                                              |   |                             |       |   |   |   |   |
| Net  (loss)/income per common share (Note 1):                                                     |   |                             |       |   |   |   |   |
| Basic and  diluted                                                                                |   |                             |       |   |   |   |   |
| Income before  accounting change                                                                  |   | $                                | 0.11       |   | $ | 0.04 |   | $ | 0.14 |   |
| Cumulative  effect of change in accounting principle for goodwill                                 |   | (0.32                            | )          | — |   | — |   |
| Net  (loss)/income                                                                                |   | $                                | (0.21      | ) | $ | 0.04 |   | $ | 0.14 |   |

 

 

The accompanying notesare an integral part of these financial statements.

 

F-4

----

 

ROTONICS MANUFACTURING INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY

 
|                                  |   |              |   |                     |       | **Accumulated** |   |        |   |       |       |
|---------------------------------------|--------|-------------------|--------|--------------------------|------------|-----------------|--------|-------------|--------|------------|------------|
|                                  |   | **Common  Stock** |   | **Other  Comprehensive** |       | **Accumulated** |   |        |   |
|                                  |   | **Shares**        |   | **Amount**               |       | **Loss**        |   | **Deficit** |   | **Total**  |       |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Balances, June  30, 1999              |   | 15,072,320        |   | $                        | 26,232,500 |            | $      | —      |   | $          | (4,798,200 | ) | $ | 21,434,300 |   |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Exercise of  stock options            |   | 2,500             |   | 2,000                    |       | —          |   | —      |   | 2,000      |       |
| Repurchase of  common stock           |   | (2,169,099        | )      | (2,903,000               | )          | —          |   | —      |   | (2,903,000 | )          |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Net income                            |   | —            |   | —                   |       | —          |   | 2,030,500   |   | 2,030,500  |       |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Balances, June  30, 2000              |   | 12,905,721        |   | 23,331,500               |       | —          |   | (2,767,700  | )      | 20,563,800 |       |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Exercise of  stock options            |   | 2,500             |   | 2,000                    |       | —          |   | —      |   | 2,000      |       |
| Repurchase of  common stock           |   | (146,823          | )      | (130,400                 | )          | —          |   | —      |   | (130,400   | )          |
| Common stock  dividends               |   | —            |   | —                   |       | —          |   | (510,600    | )      | (510,600   | )          |
| Other  comprehensive loss, net of tax |   | —            |   | —                   |       | (91,400         | )      | —      |   | (91,400    | )          |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Net income                            |   | —            |   | —                   |       | —          |   | 473,700     |   | 473,700    |       |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Balances, June  30, 2001              |   | 12,761,398        |   | 23,203,100               |       | (91,400         | )      | (2,804,600  | )      | 20,307,100 |       |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Exercise of  stock options            |   | 57,500            |   | 49,800                   |       | —          |   | —      |   | 49,800     |       |
| Repurchase of  common stock           |   | (203,956          | )      | (212,800                 | )          | —          |   | —      |   | (212,800   | )          |
| Common stock  dividends               |   | —            |   | —                   |       | —          |   | (630,200    | )      | (630,200   | )          |
| Other  comprehensive loss, net of tax |   | —            |   | —                   |       | (36,600         | )      | —      |   | (36,600    | )          |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Net loss                              |   | —            |   | —                   |       | —          |   | (2,697,200  | )      | (2,697,200 | )          |
|                                  |   |              |   |                     |       |            |   |        |   |       |       |
| Balances, June  30, 2002              |   | 12,614,942        |   | $                        | 23,040,100 |            | $      | (128,000    | )      | $          | (6,132,000 | ) | $ | 16,780,100 |   |

 

 

The accompanying notesare an integral part of these financial statements.

 

F-5

----

 

ROTONICS MANUFACTURING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
|                                                                                      |   | **For the  year ended June 30,** |
|-------------------------------------------------------------------------------------------|--------|----------------------------------|
|                                                                                      |   | **2002**                         |   | **2001** |   | **2000** |   |
| Cash flows from  operating activities:                                                    |   |                             |   |   |   |   |   |
| Net  (loss)/income                                                                        |   | $                                | (2,697,200 | ) | $ | 473,700 |   | $ | 2,030,500 |   |
| Adjustments to  reconcile net (loss)/income to net cash provided by operating activities: |   |                             |   |   |   |   |   |
| Cumulative  effect of change in accounting principal for goodwill                         |   | 4,105,900                        |   | — |   | — |   |
| Depreciation and  amortization                                                            |   | 2,194,000                        |   | 2,672,300 |   | 2,704,600 |   |
| Gain on sales of  equipment                                                               |   | (8,600                           | ) | (48,000 | ) | (24,000 | ) |
| Deferred income  tax expense                                                              |   | 307,100                          |   | 511,500 |   | 1,015,500 |   |
| Provision for  doubtful accounts                                                          |   | 170,700                          |   | 31,000 |   | 22,800 |   |
| Changes in  assets and liabilities:                                                       |   |                             |   |   |   |   |   |
| (Increase)/decrease  in accounts receivable                                               |   | (182,000                         | ) | 859,800 |   | 395,900 |   |
| Decrease/(increase)  in inventories                                                       |   | 829,800                          |   | 223,300 |   | (387,900 | ) |
| Decrease/(increase)  in prepaid expenses and other current assets                         |   | 86,500                           |   | (126,800 | ) | (5,600 | ) |
| Decrease/(increase)  in other assets                                                      |   | 64,800                           |   | (242,500 | ) | (109,100 | ) |
| Decrease in  accounts payable                                                             |   | (448,500                         | ) | (578,100 | ) | (318,400 | ) |
| Increase/(decrease)  in accrued liabilities                                               |   | 48,900                           |   | (229,000 | ) | (88,100 | ) |
| Increase/(decrease)  in income taxes payable                                              |   | 128,800                          |   | — |   | (43,000 | ) |
| Net cash  provided by operating activities                                                |   | 4,600,200                        |   | 3,547,200 |   | 5,193,200 |   |
|                                                                                      |   |                             |   |   |   |   |   |
| Cash flows from  investing activities:                                                    |   |                             |   |   |   |   |   |
| Repayments on  notes receivable                                                           |   | 177,000                          |   | 61,600 |   | 118,800 |   |
| Capital  expenditures                                                                     |   | (1,028,800                       | ) | (1,348,100 | ) | (1,415,100 | ) |
| Proceeds from  sales of equipment                                                         |   | 15,000                           |   | 59,600 |   | 26,600 |   |
| Distribution  from investment in partnership                                              |   | 5,100                            |   | 6,500 |   | 3,900 |   |
| Net cash used in  investing activities                                                    |   | (831,700                         | ) | (1,220,400 | ) | (1,265,800 | ) |
|                                                                                      |   |                             |   |   |   |   |   |
| Cash flows from  financing activities:                                                    |   |                             |   |   |   |   |   |
| Borrowings under  line of credit                                                          |   | 5,579,800                        |   | 9,336,300 |   | 14,055,200 |   |
| Repayments under  line of credit                                                          |   | (6,487,800                       | ) | (10,551,400 | ) | (14,027,500 | ) |
| Proceeds from  issuance of long-term debt                                                 |   | —                           |   | 6,050,000 |   | 3,200,000 |   |
| Repayments of  long-term debt                                                             |   | (2,137,700                       | ) | (7,025,900 | ) | (4,233,800 | ) |
| Payment of  common stock dividends                                                        |   | (520,900                         | ) | (200 | ) | (2,800 | ) |
| Proceeds from  exercise of stock options                                                  |   | 49,800                           |   | 2,000 |   | 2,000 |   |
| Repurchases of  common stock                                                              |   | (212,800                         | ) | (130,400 | ) | (2,903,000 | ) |
| Net cash used in  financing activities                                                    |   | (3,729,600                       | ) | (2,319,600 | ) | (3,909,900 | ) |
|                                                                                      |   |                             |   |   |   |   |   |
| Net increase in  cash                                                                     |   | 38,900                           |   | 7,200 |   | 17,500 |   |
| Cash at  beginning of year                                                                |   | 28,000                           |   | 20,800 |   | 3,300 |   |
|                                                                                      |   |                             |   |   |   |   |   |
| Cash at end of  year                                                                      |   | $                                | 66,900 |   | $ | 28,000 |   | $ | 20,800 |   |

 

 

The accompanying notesare an integral part of these financial statements

 

F-6

----

 

ROTONICS MANUFACTURINGINC.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

 

 

NOTE 1- ORGANIZATION, OPERATIONS AND SIGNIFICANTACCOUNTING POLICIES:

 

Organization and operations

 

Rotonics ManufacturingInc.  (the “Company”), a Delawarecorporation, manufactures and markets plastic products for commercial,agricultural, refuse, pharmaceutical, marine, recreation, medical waste,healthcare, retail, recreation and residential use, as well as an array ofcustom molded plastic products to customers in a variety of industries, locatedin diverse geographic markets.  TheCompany’s operations are conducted under one operating segment.  No single customer accounted for more than10% of the Company’s net sales in fiscal 2002, 2001, or 2000.  In fiscal 2002, the Company purchased inaggregate approximately 96% of its plastic resin from five vendors.  Plastic resin represents a significantportion of the Company’s manufacturing costs. As such, economic factors that affect the Company’s plastic resinvendors will have a potential impact on the Company’s future operations.

 

The Company’s significant accounting policies are as follows:

 

Principles ofconsolidation

 

The consolidated financial statements include the accounts of theCompany and its wholly owned subsidiary, Rotocast Plastic Products ofTennessee, Inc.  All intercompanyaccounts and transactions have been eliminated in consolidation.

 

Revenue recognition

 

Revenues are recognized upon shipment to the customer or when titlepasses to the customer based on the terms of the sales, and are recorded net ofsales discounts, returns and allowances.

 

Use of estimates

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

Fair Value of Financial Instruments

 

The carrying value of accounts receivable and trade payablesapproximates the fair value due to their short-term maturities. The carryingvalue of the Company’s line of credit and notes payable is considered toapproximate fair market value, because the interest rates of these instrumentsare based predominately on variable reference rates.

 

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 theestimated useful lives of the assets range from three to thirty-nineyears.  When assets are retired orotherwise disposed of, the cost and related accumulated depreciation areremoved from the accounts, and any resulting gain or loss is included in incomefor the period.  The cost of maintenanceand repairs is charged to income as incurred; costs relating to significantrenewals and betterments are capitalized.

 

### Impairment of long-lived assets

 

The Company evaluates the recoverability of long-lived assets and therelated estimated remaining lives at each balance sheet date.  Should events or changes in circumstancesindicate that the carrying amount may not be recoverable or the useful life haschanged, the Company records an impairment charge or change in the useful lifein accordance with Statement of Financial Accounting Standards (SFAS) No. 121,“Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed.”

 

F-7

----

 

Intangible assets

 

Patents are amortized onthe straight-line basis over their useful lives of seventeen years, or at theirremaining useful life from date of acquisition.  Legal costs associated with defending existing patents arecapitalized as additional costs of the patent, when successful defense isprobable.

 

#### Stock-based compensation

 

Stock-based compensationis accounted for using the intrinsic value method under which no compensationexpense is recognized when the exercise price of the employee’s stock optionequals or exceeds the market price of the underlying stock on the date ofgrant.  Required pro forma informationhas been presented under the fair value method using a Black-Scholesoption-pricing model.

 

Income taxes

The Company accounts forincome taxes pursuant to an asset and liability approach that requires therecognition of deferred tax assets and liabilities for the expected future taxconsequences of events that have been recognized in the Company’s financialstatements or tax returns.  Inestimating future tax consequences, expected future events other thanenactments of changes in tax laws or rates, are considered.

 

### Derivative instruments

 

The Company accounts forits derivative instruments and hedging activities in accordance with SFAS No.133, “Accounting for DerivativeInstruments and Hedging Activities*,*” which established methods of accountingand reporting for derivative instruments and hedging activities related tothose instruments as well as other hedging activities.

 

Earnings per share

 

Basic EPS is computed by dividing reported earnings by weighted averageshares outstanding.  Diluted EPS includethe effect of the potential shares outstanding, including dilutive securitiesusing the treasury stock method. Potential dilutive securities for the Company include outstanding stockoptions.

 

The table below details the components of the basic and dilutedearnings per share (“EPS”) calculations:

 

 
|                                                              |   | **Net  (Loss)/Income** |       | **Weighted  Average**

**Shares  Outstanding** |       | **EPS** |   |
|-------------------------------------------------------------------|--------|------------------------|------------|------------------------------------------------|------------|---------|--------|
| June 30, 2002                                                     |   |                   |       |                                           |       |    |   |
| Basic EPS                                                         |   |                   |       |                                           |       |    |   |
| Net income  before accounting change                              |   | $                      | 1,408,700  |                                           | 12,758,828 |    | $      | 0.11 |   |
| Cumulative  effect of change in accounting principle for goodwill |   | (4,105,900             | )          | —                                         |       | (0.32   | )      |
| Net loss                                                          |   | (2,697,200             | )          | 12,758,828                                     |       | (0.21   | )      |
| Effect of  dilutive stock options                                 |   | —                 |       | —                                         |       | —  | (1)    |
| Diluted EPS                                                       |   | $                      | (2,697,200 | )                                              | 12,758,828 |    | $      | (0.21 | ) |
| June 30, 2001                                                     |   |                   |       |                                           |       |    |   |
| Basic EPS                                                         |   |                   |       |                                           |       |    |   |
| Net income                                                        |   | $                      | 473,700    |                                           | 12,835,200 |    | $      | 0.04 |   |
| Effect of  dilutive stock options                                 |   | —                 |       | 10,800                                         |       | —  |   |
| Diluted EPS                                                       |   | $                      | 473,700    |                                           | 12,846,000 |    | $      | 0.04 |   |
| June 30, 2002                                                     |   |                   |       |                                           |       |    |   |
| Basic EPS                                                         |   |                   |       |                                           |       |    |   |
| Net income                                                        |   | $                      | 2,030,500  |                                           | 13,981,800 |    | $      | 0.14 |   |
| Effect of  dilutive stock options                                 |   | —                 |       | 58,000                                         |       | —  |   |
| Diluted EPS                                                       |   | $                      | 2,030,500  |                                           | 14,039,800 |    | $      | 0.14 |   |

 

(1)   Commonstock equivalents are omitted in the earnings per share calculations due totheir anti-dilutive effect.

 

F-8

----

 

Geographic and ProductInformation

 

All of the Company’s manufacturing operations arelocated within the United States.  TheCompany’s revenues were almost exclusively generated in North America for theyears ended June 30, 2002, 2001 and 2000. The Company categorizes its products into five main groups.  Net sales for these products are summarizedas follows:

 
|                      |   | **For Year  Ended June 30,** |       |
|---------------------------|--------|------------------------------|------------|
| Product Group:            |   | **2002**                     |       | **2001** |   | **2000** |   |
| Custom                    |   | $                            | 17,689,500 |   | $ | 19,577,600 |   | $ | 21,389,600 |   |
| Material  handling        |   | 10,391,400                   |       | 9,865,200 |   | 10,679,100 |   |
| Rivers &  waterways   |   | 1,106,900                    |       | 1,406,200 |   | 1,639,200 |   |
| Refuse                    |   | 4,876,700                    |       | 5,091,400 |   | 6,818,100 |   |
| Specialty  products/other |   | 3,908,800                    |       | 4,579,700 |   | 6,121,700 |   |
| Total net sales           |   | $                            | 37,973,300 |   | $ | 40,520,100 |   | $ | 46,647,700 |   |

 

Impact of RecentAccounting Pronouncements

In June 2001, the FASB approved two new pronouncements: Statement ofFinancial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” andSFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 applies to all business combinations with a closingdate after June 30, 2001.  ThisStatement eliminates the pooling-of-interests method of accounting and furtherclarifies the criteria for recognition of intangible assets, separately fromgoodwill.

 

SFAS No. 142 eliminatesthe amortization of goodwill and indefinite-lived intangible assets andinitiates an annual review for impairment. Identifiable intangible assets with a determinable useful life willcontinue to be amortized.  The Companyadopted SFAS No. 142 effective July 1, 2001, which required the Company tocease amortization of its remaining net goodwill balance and to perform atransitional goodwill impairment test as of July 1, 2001, and thereafter animpairment test at least annually, and record an adjustment when the fair valueof our reporting unit, including goodwill, is less than its carryingvalue.  The Company was permitted sixmonths from the adoption date to complete a review of goodwill for impairment andrecord necessary adjustments prior to the end of fiscal 2002.  We engaged a national valuation specialistto assist with the determination of the estimated fair value of our reportingunit as of July 1, 2001.  To determinefair value, valuation models involving guideline public companies, acquisitionanalysis and discounted cash flows were relied upon.  As such, under the assessment guidelines of SFAS No. 142 and theSEC’s guidance that the Company’s quoted market price is the most efficientmechanism for estimating fair value, their findings indicated that theestimated fair value of our reporting unit was less than its carryingvalue.  As such, the Company completedthe transitional goodwill impairment test in accordance with SFAS No. 142 andwrote-off effective July 1, 2001 its remaining net goodwill of $4,105,900 as anon-cash cumulative effect of change in accounting principle.  Goodwill amortization expense was $324,900for the years ended June 30, 2001 and 2000.

 

For illustrative purposes the following unaudited proforma informationgives the effect of the adoption of SFAS No. 142 on prior periods.

 
|                                                              |   | **For the  Year Ended June 30,** |       |
|-------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                              |   | **2002**                         |       | **2001** |   | **2000** |   |
| Reported net  income before accounting change                     |   | $                                | 1,408,700  |   | $ | 473,700 |   | $ | 2,030,500 |   |
| Cumulative  effect of change in accounting principle for goodwill |   | (4,105,900                       | )          | — |   | — |   |
| Net  (loss)/income                                                |   | (2,697,200                       | )          | 473,700 |   | 2,030,500 |   |
| Add back  goodwill amortization                                   |   | —                           |       | 324,900 |   | 324,900 |   |
| Proforma net  (loss/income)                                       |   | $                                | (2,697,200 | ) | $ | 798,600 |   | $ | 2,355,400 |   |
|                                                              |   |                             |       |   |   |   |   |
| Basic and  diluted earning per share:                             |   |                             |       |   |   |   |   |
| Reported net  income before accounting change                     |   | $                                | .11        |   | $ | .04 |   | $ | .14 |   |
| Cumulative  effect of change in accounting principle for goodwill |   | $                                | (.32       | ) | — |   | — |   |
| Net  (loss)/income                                                |   | $                                | (.21       | ) | $ | .04 |   | $ | .14 |   |
| Goodwill  amortization                                            |   | —                           |       | $ | .02 |   | $ | .02 |   |
| Proforma net  (loss)/income                                       |   | $                                | (.21       | ) | $ | .06 |   | $ | .16 |   |

 

F-9

----

 

In September 2001, the FASB approved pronouncement SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets.”  SFAS No. 144 supersedes SFAS No. 121“Accounting for Impairment of Long-Lived assets and for Long Lived Assets to beDisposed of” as well as Accounting principle Board Opinion No. 30 “Reportingthe Results of Operations — Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual, and Infrequently Occurring Events andTransactions.”  SFAS No. 144 not onlyretains the requirements of SFAS No. 121 to recognize an impairment loss if thecarrying amount of a long-lived asset is not recoverable from its undiscountedcash flows, but also establishes a single accounting method for assets to bedisposed of and broadens the presentation of discounted operations to includemore disposal transactions.  SFAS No.144 is effective for fiscal years beginning after December 15, 2001.  The adoption of this pronouncement is notexpected to have a significant impact on the Company’s financial position orresults of operations.

 

In June 2002, the FASBissued SFAS No. 146, “Accounting for Costs Associated with Exit or DisposalActivities.”  This pronouncement iseffective for exit or disposal activities initiated after December 31, 2002,and requires these costs to be recognized when the liability is incurred andnot at project initiation.  The Companydoes not expect this statement to have a material impact on the Company’sfinancial statements.

 

 

NOTE 2 - ACQUISITIONS:

 

Pursuant to an Agreement and Plan of Merger and Reorganization datedMarch 24, 1998, between the Company and GSC Industries, Inc. (“GSC”), theCompany acquired all of GSC’s outstanding common stock holdings in RotocastInternational, Inc. (“Rotocast”) and Rotocast’s wholly owned subsidiaries.  In accordance with the merger andreorganization, Rotocast was merged into the Company and the Company issued toGSC 2,072,539 shares of its own common stock and a $2,000,000 eighteen-monthpromissory note bearing interest at 5.26% per annum.  The note was paid in full in September 1999.  In January 2000, the Company repurchased andretired the 2,072,539 common shares issued to GSC for $2.8 million.

 

 

NOTE 3 - NOTES RECEIVABLE:

 

On March 31, 1995, the Company and a customer entered into an agreementunder which the Company acquired from this customer certain assets, includingmolds and trade accounts receivable, at their total estimated fair value of$357,800, which was applied against the principal of a 1993 Promissory Noteowed by this customer to the Company. The remaining unpaid principal, together with accrued interest and opentrade receivable from this customer as of March 31, 1995, was exchanged for anew note with a principal balance of $455,000, bearing interest at 8% per annumand maturing on March 31, 2005.

 

Effective March 31, 1995, the Company sold products manufactured usingthese molds directly to end-users.  TheCompany pays this former customer royalty at the initial rate of 10%  (increased to 20% beginning fiscal 2000) ofthe Company’s net sales of these products. Half of the royalty payments are being applied to reduce principal andinterest, until the former customer has received a total of $300,000 in royaltypayments or March 31, 1998, whichever is earlier.  Subsequently, all royalty payments shall be applied to principaland interest until such principal and interest are paid in full, at which timethe royalty rate will be reduced to 5% through March 31, 2005.  As of June 30, 2002 and 2001, the totalbalance of this note amounted to $186,100 and $292,100.  The Company intends to hold this note untilmaturity.

 

In July 2001, the Company and a customer agreed to convert an opentrade receivable balance due from the customer in the amount of $150,000 to anote receivable bearing interest at 8% per annum and maturing on June 15,2004.  As of June 30, 2002, the totalbalance of this note amounted to $142,300.

 

In Fiscal 2001, the Company was owed $82,000 on two notes receivablefor the sale of various molds.  One ofthese notes was paid in full in fiscal 2002.

 

NOTE 4 - INVENTORIES:

 
| Inventories consist of: |   | **June 30,** |      |
|-------------------------|--------|--------------|-----------|
|                    |   | **2002**     |      | **2001** |   |
|                    |   |         |      |   |   |
| Raw materials           |   | $            | 2,006,900 |   | $ | 2,353,300 |   |
| Finished goods          |   | 4,301,600    |      | 4,785,000 |   |
|                    |   | $            | 6,308,500 |   | $ | 7,138,300 |   |

 

 

F-10

----

 

NOTE 5 - INVESTMENT IN PARTNERSHIP:

 

The Company owns a 33-1/3% interest in a real estate venture that wasacquired in 1998 and is being accounted for using the equity method.  The investment consists principally of anote receivable which is payable in monthly installments, including interest at7%, to 2008, with annual principal reductions as provided.

 

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:

 
| Property, plant and equipment consist of:         |   | **For Year  Ended June 30,** |       |
|---------------------------------------------------|--------|------------------------------|------------|
|                                              |   | **2002**                     |       | **2001** |   |
|                                              |   |                         |       |   |   |
| Land                                              |   | $                            | 1,039,500  |   | $ | 1,039,500 |   |
| Buildings and  building improvements              |   | 5,047,100                    |       | 5,009,900 |   |
| Machinery, equipment,  furniture and fixtures     |   | 26,797,100                   |       | 25,911,000 |   |
| Construction in  progress                         |   | 17,900                       |       | 4,900 |   |
|                                              |   |                         |       |   |   |
|                                              |   | 32,901,600                   |       | 31,965,300 |   |
|                                              |   |                         |       |   |   |
| Less -  accumulated depreciation and amortization |   | (17,897,600                  | )          | (15,835,700 | ) |
|                                              |   |                         |       |   |   |
|                                              |   | $                            | 15,004,000 |   | $ | 16,129,600 |   |

 

NOTE 7 - INTANGIBLE ASSETS:

 
| Intangible assets consist of:                                     |   | **For Year  Ended June 30,** |      |
|-------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                              |   | **2002**                     |      | **2001** |   |
|                                                              |   |                         |      |   |   |
| Patents                                                           |   | $                            | 475,700   |   | $ | 475,700 |   |
| Less accumulated  amortization, patents                           |   | (167,000                     | )         | (121,000 | ) |
| Net patents                                                       |   | 308,700                      |      | 354,700 |   |
|                                                              |   |                         |      |   |   |
| Goodwill                                                          |   | —                       |      | 7,457,500 |   |
| Less accumulated  amortization, goodwill                          |   | —                       |      | (3,351,600 | ) |
| Net goodwill                                                      |   | —                       |      | 4,105,900 |   |
|                                                              |   |                         |      |   |   |
| Total  intangibles, net                                           |   | $                            | 308,700   |   | $ | 4,460,600 |   |
|                                                              |   |                         |      |   |   |
| The changes in  the carrying amount of goodwill is as follows:    |   |                         |      |   |   |
|                                                              |   |                         |      |   |   |
| Balance at  beginning of year                                     |   | $                            | 4,105,900 |   | $ | 4,430,800 |   |
| Amortization                                                      |   | —                       |      | (324,900 | ) |
| Cumulative  effect of change in accounting principal for goodwill |   | (4,105,900                   | )         | — |   |
| Balance at end  of each year                                      |   | $                            | —    |   | $ | 4,105,900 |   |

 

Aggregate amortization expense for the fiscal years ended June 30,2002, 2001, and 2000 was $46,000, $333,300 and $330,500, respectively.

 

The Company’s reporting unit was reviewed for goodwill impairment inconjunction with the adoption of SFAS No. 142. Due to the disparity between the Company’s estimated fair value and itscarrying value, a goodwill impairment loss of $4,105,900 was recognized as acumulative effect of change in accounting principle as of July 1, 2001.  The fair value of the reporting unit wasestimated using conservative valuation models involving guideline publiccompanies, acquisition analysis and discounted cash flows as well as theCompany’s market capitalization.

 

F-11

----

 

The Company assesses the recoverability of its long-lived assets on anannual basis or whenever adverse events or changes in circumstances or businessclimate indicate that expected undiscounted future cash flows related to suchlong-lived assets may not be sufficient to support the net book value of suchassets.  If undiscounted cash flows arenot sufficient to support the recorded assets, impairment is recognized toreduce the carrying value of the long-lived assets to the estimated fair value.  Cash flow projections, although subject to adegree of uncertainty, are based on trends of historical performance andmanagement’s estimate of future performance, giving consideration to existingand anticipated competitive and economic conditions.  Additionally, in conjunction with the review for impairment, theremaining estimated lives of certain of the Company’s long-lived assets areassessed.

 

 

NOTE 8 - BANK LINE OF CREDIT:

 

The Company has a $5,000,000 revolving line of credit with Wells FargoBank, which matures on October 1, 2003. The line is secured by the Company’s machinery and equipment, accountsreceivable and inventories.  Interest ispayable monthly at the respective bank’s prime rate minus .25%.  The respective bank’s prime rate at June 30,2002 was 4.5% per annum.  In addition,the loan agreement allows the Company to convert the outstanding principalbalance in amounts no less than $250,000 to a LIBOR-based loan for up to 90-dayperiods.  At June 30, 2002, totalborrowings under the Company’s line of credit were $192,000 of which none wasborrowed under the LIBOR option. Proceeds from the loan were used for workingcapital purposes.  At June 30, 2002, theCompany had approximately $4,808,000 available for future borrowings under therevolving line of credit.  The loanagreement contains various covenants pertaining to tangible net worth, netincome and liquidity ratios, capital expenditures, payments of dividends,payment of subordinated debt as well as various other restrictions.  The Company was in compliance with thesecovenants during fiscal 2002.

#  

NOTE 9 - LONG-TERM DEBT:

 
| Long-term debt consists of: |   | **For Year  Ended June 30,** |      |
|-----------------------------|--------|------------------------------|-----------|
|                        |   | **2002**                     |      | **2001** |   |
|                        |   |                         |      |   |   |
| Note payable -  Bank (A)    |   | $                            | 4,609,500 |   | $ | 5,473,800 |   |
| Note payable -  Bank (B)    |   | 493,300                      |      | 1,766,700 |   |
|                        |   | 5,102,800                    |      | 7,240,500 |   |
|                        |   |                         |      |   |   |
| Less current  portion       |   | (1,357,600                   | )         | (944,300 | ) |
|                        |   |                         |      |   |   |
|                        |   | $                            | 3,745,200 |   | $ | 6,296,200 |   |

 

 

(A)      On October 1, 2000, the bank issued a $6,050,000 sevenyear note due in monthly principal installments of $72,000 plus interest at thebank’s prime rate minus .25% (4.5% per annum at June 30, 2002). In addition,the loan agreement allows the Company to convert all or a portion of theoutstanding principal to a LIBOR-based loan for periods up to one year.  At June 30, 2002, the total outstandingprincipal balance was under the LIBOR option at 3.09% per annum maturing July15, 2002.  The note is secured by theCompany’s machinery and equipment, accounts receivable and inventories andmatures October 15, 2007.

 

At June 30, 2002 the Company had available a term-loancommitment in the amount of $2,000,000 for future machinery and equipmentpurchases.  Advances under the line willbe subject to monthly interest only payments at the bank’s prime or LIBORinterest rate options until October 1, 2002 at which time amounts borrowed willconvert to a sixty-month fully amortizable loan.

 

(B)        In July 1998, a $2,000,000 real estate loan secured bythe Company’s Bensenville, Illinois and Gainesville, Texas properties wasissued to Wells Fargo bank.  This notereplaced a 1994 real estate loan issued in connection with the purchase of theBensenville, Illinois property.  Thenote is due in monthly principal installments of approximately $6,700 plusinterest at the bank’s prime rate minus .25% (4.5% per annum at June 30, 2002), or Libor interest rate option on atwenty-five year amortization with the outstanding principal due on July 1,2008.  At June 30, 2002, the totaloutstanding principal was under the LIBOR option at 3.09% per annum maturingJuly 15, 2002.  This note was repaid infull on August 15, 2002.

 

Effective July 15, 1998, the Company initiated aninterest rate swap agreement with the bank. The agreement allows the Company to fix a portion of its outstandingterm and line of credit debt ($5 million as of June 30, 2002) from a variablefloating LIBOR rate to a fixed LIBOR rate in efforts to protect against futureincreases in the bank’s LIBOR rate.  Theagreement matures July 15, 2003. Effective August 15, 2002, the Company amended its interest rate swapagreement with the bank by reducing the notional amount to $4 million, reducingthe fixed LIBOR rate and extending the maturing date to August 15, 2006.

 

F-12

----

 

Aggregate annual maturities of long-term debt are summarized as follows:

 
| **Year Ending June 30,** |   |    |      |
|--------------------------|--------|---------|-----------|
|                     |   |    |      |
| 2003                     |   | $       | 1,357,600 |   |
| 2004                     |   | 864,300 |      |
| 2005                     |   | 864,300 |      |
| 2006                     |   | 864,300 |      |
| 2007                     |   | 864,300 |      |
| Thereafter               |   | 288,000 |      |
|                     |   | $       | 5,102,800 |   |

 

 

NOTE 10 - RELATED PARTY TRANSACTIONS:

 

The Company sold plastic resin and molded plastic products underarms—length terms to a company in which a director of the Company has an equityinterest.  Sales to this companyamounted to $59,100, $59,500 and $157,000 in fiscal years 2002, 2001 and 2000,respectively.  Amounts due on sales tothis company were $2,100 and $1,600 at June 30, 2002 and 2001, respectively,and are included in accounts receivable in the accompanying balance sheet.

 

In fiscal years 2002, 2001 and 2000, the Company incurred legal feesand costs amounting to $23,900, $42,500 and $138,600, respectively, forservices by E. Paul Tonkovich Professional Corporation, of which anofficer/director of the Company is an employee.

 

 

NOTE 11 - ACCRUED LIABILITIES:

 
| Accrued liabilities consist of:                    |   | **June 30,** |    |
|----------------------------------------------------|--------|--------------|---------|
|                                               |   | **2002**     |    | **2001** |   |
| Salaries, wages,  commissions and related payables |   | $            | 554,200 |   | $ | 463,000 |   |
| Other                                              |   | 428,100      |    | 348,400 |   |
|                                               |   |         |    |   |   |
|                                               |   | $            | 982,300 |   | $ | 811,400 |   |

 

 

NOTE 12 - STOCK OPTION PLAN:

 

In December 1994, at the Annual Meeting of Stockholders of the Company,the stockholders voted by majority decision to ratify and approve a new stockoption plan as adopted by the Board of Directors in June 1994.  The plan allows, at the discretion of theBoard of Directors, for the granting of options to key employees, officers,directors, and consultants of the Company to purchase 1,000,000 shares of theCompany’s common stock.  Under the termsand conditions set forth in the plan, the exercise price of the stock optionswill be a least 85% of the fair market value of the Company’s common stock onthe grant date.  The plan expires June12, 2004.

#  

Stock Option Activity
|                                  |   | **Outstanding  Shares** |   | **Exercisable  Shares** |   | **Weighted  Average  Price Per Share** |   |
|---------------------------------------|--------|-------------------------|--------|-------------------------|--------|----------------------------------------|--------|
| Balance  outstanding at June 30, 1999 |   | 115,000                 |   | 100,000                 |   | $                                      | 0.8750 |   |
| Granted                               |   | 40,000                  |   |                    |   |                                   | $      | 0.9375 |   |
| Exercised                             |   | (2,500                  | )      |                    |   |                                   | $      | 0.8125 |   |
| Cancelled                             |   | (2,500                  | )      |                    |   |                                   | $      | 0.8125 |   |
| Balance  outstanding at June 30, 2000 |   | 150,000                 |   | 145,000                 |   | $                                      | 0.8901 |   |
| Granted                               |   | 193,000                 |   |                    |   |                                   | $      | 1.1146 |   |
| Exercised                             |   | (2,500                  | )      |                    |   |                                   | $      | 0.8125 |   |
| Cancelled                             |   | (33,000                 | )      |                    |   |                                   | $      | 0.9886 |   |
| Balance outstanding  at June 30, 2001 |   | 307,500                 |   | 277,500                 |   | $                                      | 1.0084 |   |
| Exercised                             |   | (57,500                 | )      |                    |   |                                   | $      | 0.8668 |   |
| Cancelled                             |   | (50,000                 | )      |                    |   |                                   | $      | 0.8750 |   |
| Balance  outstanding at June 30, 2002 |   | 200,000                 |   | 185,000                 |   | $                                      | 1.1000 |   |

 

F-13

----

 

The Company did not grant any options in fiscal 2002.  At June 30, 2002, the Company had 737,500shares available for future grants.  TheCompany accounts for stock options under the intrinsic value method pursuant toAccounting Principles Board Opinion 25 (“APB25”), “Accounting for Stock Issuedto Employees”, which is permitted under SFAS No. 123 “Accounting for StockBased Compensation.”  Had compensationcost for the plan been determined in accordance with the fair value method asset out in SFAS No. 123, the Company’s net income and income per common sharedata would not be significantly different.

 

NOTE 13 - COMMON STOCK:

 

Treasury stock is recorded at cost. At June 30, 2002 and 2001, treasury stock consisted of 316 and 864shares of common stock at a cost of $900 and $700, respectively.  In fiscal 2002 and 2001, the Companyacquired 203,956 and 146,823 shares of its common stock at a total cost of$212,800 and $130,400, respectively.

 

On June 25, 2002, the Board of Directors declared a common stock dividendof $.05 per common share payable on July 26, 2002 to stockholders of record onJuly 8, 2002.

 

NOTE 14 - INCOME TAXES:

 

The components of the income tax provision were:

 
|      |   | **For Year  Ended June 30,** |     |
|-----------|--------|------------------------------|----------|
|      |   | **2002**                     |     | **2001** |   | **2000** |   |
| Current:  |   |                         |     |   |   |   |   |
| Federal   |   | $                            | (476,300 | ) | $ | (26,000 | ) | $ | (75,000 | ) |
| State     |   | (163,800                     | )        | (77,300 | ) | (179,200 | ) |
|      |   | (640,100                     | )        | (103,300 | ) | (254,200 | ) |
| Deferred: |   |                         |     |   |   |   |   |
| Federal   |   | (302,800                     | )        | (473,700 | ) | (961,000 | ) |
| State     |   | (4,300                       | )        | (37,800 | ) | (54,500 | ) |
|      |   | (307,100                     | )        | (511,500 | ) | (1,015,500 | ) |
|      |   | $                            | (947,200 | ) | $ | (614,800 | ) | $ | (1,269,700 | ) |

 

At June 30, 2002, theCompany has net operating loss (NOL) carry-forwards of approximately $6,899,100for state income tax purposes.  The NOLcarry-forwards, which are available to offset future taxable income of the Companyand are subject to limitations should a “change in ownership” as defined in theInternal Revenue code occur, will begin to expire in 2003 if not utilized.  The state NOL carry-forwards expire asfollows:

 

| **Amount of  unused state  operating loss  carry-forwards** |      | **Expiration  during year**

**ended June  30,** |   |
|-------------------------------------------------------------|-----------|--------------------------------------------------|--------|
|                                                        |      |                                             |   |
| $                                                           | 451,500   |                                             | 2003   |   |
| 272,800                                                     |      | 2004                                             |   |
| 444,400                                                     |      | 2005                                             |   |
| 89,000                                                      |      | 2006                                             |   |
| 582,600                                                     |      | 2007                                             |   |
| 603,100                                                     |      | 2008                                             |   |
| 859,600                                                     |      | 2009                                             |   |
| 395,400                                                     |      | 2010                                             |   |
| 555,300                                                     |      | 2011                                             |   |
| 476,700                                                     |      | 2012                                             |   |
| 395,300                                                     |      | 2013                                             |   |
| 850,400                                                     |      | 2014                                             |   |
| 262,500                                                     |      | 2015                                             |   |
| 482,800                                                     |      | 2016                                             |   |
| 177,700                                                     |      | 2017                                             |   |
| $                                                           | 6,899,100 |                                             |   |   |

 

F-14

----

 

In fiscal 2001, theCompany utilized the remaining balance of its federal NOL carry-forwards, andthen in fiscal 2002, the Company utilized its remaining alternative minimum taxcredit, which reduced its current federal tax liability by $412,600 in fiscal2002.  In connection with the Rotocastmerger, the Company recorded a deferred tax asset of $394,400, net of avaluation allowance of $192,400 as of June 30, 1998, for the future benefitrelated to state NOL carry-forwards. The current state valuation allowance, amounting to $307,200, representsthe estimated amount of state NOL’s that will expire prior to theirutilization.  Again, realization of thefuture tax benefits of the NOL carry-forwards is dependent on the Company’sability to generate taxable income within the carry-forward period.  Management will continue to assess thelikelihood of utilizing its state NOL’s by taking into consideration historicalresults and current economic conditions in which the Company operates.  Management does not consider any non-routinetransactions in assessing the likelihood of realization of the recordeddeferred tax asset.  Any future adjustmentsto the valuation allowance will be reflected as a component of the currentyears tax provision.

###  

 

 

The following reconciles the federal statutory income tax rate to theeffective rate of the provision for income taxes:

 
|                                         |   | **For Year  Ended June 30,** |   |
|----------------------------------------------|--------|------------------------------|--------|
|                                         |   | **2002**                     |   | **2001** |   | **2000** |   |
|                                         |   |                         |   |   |   |   |   |
| Federal  statutory rate                      |   | 34.0                         | %      | 34.0 | % | 34.0 | % |
| State income  taxes (net of federal benefit) |   | 3.8                          |   | 3.6 |   | 3.6 |   |
| Goodwill  amortization                       |   | —                       |   | 10.2 |   | 3.4 |   |
| Other items, net                             |   | 2.4                          |   | 8.7 |   | (2.5 | ) |
|                                         |   |                         |   |   |   |   |   |
| Effective income  tax rate                   |   | 40.2                         | %      | 56.5 | % | 38.5 | % |

 

 

 

Deferred tax assets andliabilities are summarized as follows:

 
|                                                   |   | **June 30,** |       |
|--------------------------------------------------------|--------|--------------|------------|
|                                                   |   | **2002**     |       | **2001** |   |
| Deferred tax  assets:                                  |   |         |       |   |   |
| State NOL (net  of federal benefit)                    |   | $            | 392,100    |   | $ | 399,100 |   |
| Tax credit  carry-forwards                             |   | —       |       | 425,400 |   |
| Employment-related  reserves                           |   | 103,300      |       | 70,800 |   |
| Allowance for  doubtful accounts                       |   | 69,600       |       | 39,200 |   |
| Interest rate  swap derivative                         |   | 85,400       |       | — |   |
|                                                   |   | 650,400      |       | 934,500 |   |
| Deferred tax  liabilities:                             |   |         |       |   |   |
| Depreciation and  amortization                         |   | (2,635,500   | )          | (2,697,900 | ) |
| Net deferred tax  liability before valuation allowance |   | (1,985,100   | )          | (1,763,400 | ) |
| Deferred tax  assets valuation allowance               |   | (307,200     | )          | (307,200 | ) |
| Net deferred tax  liability                            |   | $            | (2,292,300 | ) | $ | (2,070,600 | ) |

 

 

NOTE 15 - COMMITMENTS AND CONTINGENCIES:

 

Commitments

 

The Company leasesvarious office and warehouse facilities, and equipment under long-termoperating leases expiring through March 2013. Certain of the leases provide for five-year renewal options and rentalincreases based on the Consumer Price Index. Operating lease expense for fiscal 2002, 2001, and 2000 amounted to$1,114,200, $1,055,100 and $1,006,700, respectively.

 

F-15

----

 

At June 30, 2002, the future minimum lease commitments, excludinginsurance and taxes, are as follows:

 
| **Year  Ending June 30,** |   |       |   |
|---------------------------|--------|------------|--------|
| 2003                      |   | $1,104,300 |   |
| 2004                      |   | 1,085,900  |   |
| 2005                      |   | 982,100    |   |
| 2006                      |   | 859,800    |   |
| 2007                      |   | 820,300    |   |
| Thereafter                |   | 4,258,600  |   |
|                      |   | $9,111,000 |   |

 

 

Contingencies

 

In the normal course of business, the Company encounters certainlitigation matters, which in the opinion of management will not have asignificant adverse effect on the financial position or the results ofoperations of the Company.

 

NOTE 16 - SUPPLEMENTAL DISCLOSURES OF CASH FLOWINFORMATION:

 

Supplemental disclosures of cash flows information are as follows:

 
|                                                   |   | **For the  years ended June 30,** |    |
|--------------------------------------------------------|--------|-----------------------------------|---------|
|                                                   |   | **2002**                          |    | **2001** |   | **2000** |   |
| Cash paid during  the year for:                        |   |                              |    |   |   |   |   |
| Interest                                               |   | $                                 | 477,300 |   | $ | 770,100 |   | $ | 952,500 |   |
| Income taxes                                           |   | $                                 | 424,600 |   | $ | 180,200 |   | $ | 391,600 |   |
| Non-cash  investing activities:                        |   |                              |    |   |   |   |   |
| Conversion of  accounts receivable to notes receivable |   | $                                 | 150,000 |   | $ | — |   | $ | — |   |
| Non-cash  financing activities:                        |   |                              |    |   |   |   |   |
| Common dividends  declared but not paid                |   | $                                 | 630,200 |   | $ | 510,600 |   | $ | — |   |
| Change in fair  value of interest rate swap            |   | $                                 | 36,600  |   | $ | 91,400 |   | $ | — |   |

 

NOTE 17 - UNAUDITED QUARTERLY RESULTS:

 
|                                                                                |   | **Quarter  Ended** |       |
|-------------------------------------------------------------------------------------|--------|--------------------|------------|
|                                                                                |   | **September**      |       | **December** |   | **March** |   | **June** |   |
| Fiscal Year  2002:                                                                  |   |               |       |   |   |   |   |   |   |
| Net sales                                                                           |   | $                  | 9,588,300  |   | $ | 7,927,600 |   | $ | 9,368,100 |   | $ | 11,089,300 |   |
| Gross profit                                                                        |   | 2,275,500          |       | 1,928,500 |   | 2,645,600 |   | 3,357,800 |   |
| Net income  before cumulative effect of change in accounting principle of goodwill  |   | 157,700            |       | 40,200 |   | 394,100 |   | 816,700 |   |
|                                                                                |   |               |       |   |   |   |   |   |   |
| Net  (loss)/income)                                                                 |   | (3,948,200         | )          | 40,200 |   | 394,100 |   | 816,700 |   |
|                                                                                |   |               |       |   |   |   |   |   |   |
| Per share:                                                                          |   |               |       |   |   |   |   |   |   |
| Net income  before cumulative effect of change in accounting principle for goodwill |   | .01                |       | — |   | .03 |   | .07 |   |
|                                                                                |   |               |       |   |   |   |   |   |   |
| Net  (loss)/income                                                                  |   | $                  | (.31       | ) | $ | — |   | $ | .03 |   | $ | .07 |   |
|                                                                                |   |               |       |   |   |   |   |   |   |
| Fiscal Year  2001:                                                                  |   |               |       |   |   |   |   |   |   |
| Net sales                                                                           |   | $                  | 10,374,700 |   | $ | 9,371,500 |   | $ | 9,904,500 |   | $ | 10,869,400 |   |
| Gross profit                                                                        |   | 2,370,000          |       | 1,947,600 |   | 2,472,000 |   | 2,571,800 |   |
| Net  income/(loss)                                                                  |   | 110,100            |       | (105,000 | ) | 260,800 |   | 207,800 |   |
|                                                                                |   |               |       |   |   |   |   |   |   |
| Per share:                                                                          |   |               |       |   |   |   |   |   |   |
| Net  income/(loss) — basic and diluted                                         |   | $                  | .01        |   | $ | (.01 | ) | $ | .02 |   | $ | .02 |   |

 

 

F-16

----

 

ROTONICS MANUFACTURING INC.

SCHEDULE II

VALUATION AND QUALIFYINGACCOUNTS

Years Ended June 30, 2002,2001 and 2000

 
| **Column A**                            |   | **Column B**        |    | **Column C**              |   | **Column D** |   | **Column E**   |   |
|-----------------------------------------|--------|---------------------|---------|---------------------------|--------|--------------|--------|----------------|--------|
|                                    |   | **Balance at**      |    | **Additions**             |   |         |   | **Balance at** |   |
|                                    |   | **beginning**       |    | **Charged to**            |   |         |   |           |   | **end of** |   |
| **Description**                         |   | **of  period** |    | **Costs  & Expenses** |   | **Other**    |   | **Deductions** |   | **period** |   |
| June 30, 2002:                          |   |                |    |                      |   |         |   |           |   |   |   |
| Allowance for  doubtful accounts        |   | $                   | 99,200  |                      | $      | 170,400      |   | $              | — |   | $ | (94,600 | )(1) | $ | 175,000 |   |
|                                    |   |                |    |                      |   |         |   |           |   |   |   |
| Deferred tax  asset valuation allowance |   | $                   | 307,200 |                      | $      | —       |   | $              | — |   | $ | — |   | $ | 307,200 |   |
|                                    |   |                |    |                      |   |         |   |           |   |   |   |
| June 30, 2001:                          |   |                |    |                      |   |         |   |           |   |   |   |
| Allowance for  doubtful accounts        |   | $                   | 142,000 |                      | $      | 29,600       |   | $              | — |   | $ | (72,400 | )(1) | $ | 99,200 |   |
|                                    |   |                |    |                      |   |         |   |           |   |   |   |
| Deferred tax  asset valuation allowance |   | $                   | 301,700 |                      | $      | —       |   | $              | 5,500  | (2) | $ | — |   | $ | 307,200 |   |
|                                    |   |                |    |                      |   |         |   |           |   |   |   |
| June 30, 2000:                          |   |                |    |                      |   |         |   |           |   |   |   |
| Allowance for  doubtful accounts        |   | $                   | 321,400 |                      | $      | 1,500        |   | $              | — |   | $ | (180,900 | )(1) | $ | 142,000 |   |
|                                    |   |                |    |                      |   |         |   |           |   |   |   |
| Deferred tax  asset valuation allowance |   | $                   | 243,300 |                      | $      | —       |   | $              | 58,400 | (2) | $ | — |   | $ | 301,700 |   |
|                                         |        |                     |         |                           |        |              |        |                |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)   Doubtfulaccounts written off during the year, net of recoveries.

(2)    Representsvaluation allowance for potential state NOL’s, which will expire prior toutilization.

 

F-17

----