** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

**FORM 10-K**

**Annual ReportPursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**For the fiscal year ended June 30, 2006**

**Commission file number 1-9429**

**ROTONICS MANUFACTURING INC.**

(Exact name of registrant as specified in its charter)

| **Delaware**                     | ** ** | **36-2467474**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |
|                             |       |                 |
| **17022  South Figueroa Street** |       | **90248**            |
| **Gardena,  California**         |       | (Zip Code)           |
| (Address of  principal offices)  |       |                 |

Registrant’s telephone number, including area code: **(310) 538-4932**

Securitiesregistered pursuant to Section 12(b) of the Act:

| **Common Stock ($.01 stated par value)** | ** ** | **American  Stock Exchange**                |
|------------------------------------------|------------|---------------------------------------------|
| Titles of each  class                    |       | Name of each  Exchange  on which registered |

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes    o     No   x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of theExchange Act.   Yes    o     No   x

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) for theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.  Yes    x     No  o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer, asdefined in Rule 12b-2 of the Exchange Act.
| Large accelerated filer |   | o |   | Accelerated filer |   | o |   | Non-accelerated filer |   | x |
|-------------------------|--------|---|--------|-------------------|--------|---|--------|-----------------------|--------|---|

IIndicateby check mark whether the registrant is as shell company (as defined in Rule12b-2 of the Act).

Yes    o     No   x

The aggregate marketvalue of the voting stock held by non-affiliates of the registrant, as ofDecember 31, 2005, was $12,816,400 (1).

The number of shares ofcommon stock outstanding at September 15, 2006 was 11,752,265.

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(1)          Excludes6,995,408 shares held by directors, officers, and stockholders, whose ownershipexceeded 5% of the outstanding shares at December 31, 2005.  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 suchpersons are controlled by or under common control with the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

None

 

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TABLE OF CONTENTS
| PART I     |                                                                                                          |   |   |   |
|------------|---------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|       |                                                                                                          |   |   |   |
| Item 1     | Business                                                                                                      |   |   |   |
| Item 1A    | Risk Factors                                                                                                  |   |   |   |
| Item 1B    | Unresolved  Staff Comments                                                                                    |   |   |   |
| 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, Related Stockholder Matters and Issuer Purchases  of Common Stock |   |   |   |
| Item 6     | Selected Financial  Data                                                                                      |   |   |   |
| Item 7     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                   |   |   |   |
| Item 7A    | Quantitative  and Qualitative Disclosures About Market Risks                                                  |   |   |   |
| Item 8     | Financial  Statements and Supplementary Data                                                                  |   |   |   |
| Item 9     | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                         |   |   |   |
| Item 9A    | Controls and  Procedures                                                                                      |   |   |   |
| Item 9B    | Other Information                                                                                             |   |   |   |
|       |                                                                                                          |   |   |   |
| 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 and Related Stockholder  Matters              |   |   |   |
| Item 13    | Certain  Relationships and Related Transactions                                                               |   |   |   |
| Item 14    | Principal  Accounting Fees and Services                                                                       |   |   |   |
|       |                                                                                                          |   |   |   |
| PART IV    |                                                                                                          |   |   |   |
|       |                                                                                                          |   |   |   |
| Item 15    | Exhibits and  Financial Statement Schedules                                                                   |   |   |   |
|       |                                                                                                          |   |   |   |
| SIGNATURES |                                                                                                          |   |
|            |                                                                                                               |        |        |        |  |  |

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PART I

Forward-LookingStatements

To the extent thatthis 10-K Annual Report discusses matters which are not historical, includingstatements regarding future financial results, information, or expectationabout products or markets, or otherwise makes statements about future events,such statements are forward-looking and are subject to a number of risks anduncertainties that could cause actual results to differ materially from thestatements made.  These include, amongothers, fluctuations in costs of raw materials and other expenses, costsassociated with plant closures, downturns in the markets served by the Company,the costs associated with new product introductions, as well as other factorsdescribed under the heading: Item 1, “Business”, Item 3, “Legal Proceedings”,under Item 7, “Management’s Discussion and Analysis of Financial Condition andResults of Operations”, and Footnote 1 to Financial Statements.  When used in this report, the words “expects,”  “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions are generally intendedto identify forward-looking statements. You should not place undue reliance on these forward-looking statements,which reflect our opinion only as of the date of the Annual Report. We do notintend to publicly release any revisions to the forward-looking statementsafter the date of this document.  Youshould carefully review the risk factors described in other documents we filefrom time to time with the Securities and Exchange Commission, including theQuarterly Reports on Form 10-Q to be filed by us in fiscal year 2007.

Item1.   Business

Introduction

Rotonics ManufacturingInc. (the “Company”) was founded as an Illinois Corporation, and wasreincorporated in Delaware in December 1986. Effective July 1, 1991, the Company merged with Rotonics Molding,Inc.-Chicago  (“Rotonics”), with theCompany being the surviving entity. Rotonics had operations in Itasca, Illinois; Deerfield, Wisconsin;Denver, Colorado; and Bartow, Florida. Three of these operations currentlyconduct business as divisions of the Company using the trade names RMI-C,RMI-D, and RMI-F, respectively.  Rotonicswas a privately held California Corporation, which was 52% owned by Mr. ShermanMcKinniss.  Mr. McKinniss becamepresident and chief executive officer of the Company on August 12, 1991, andcurrently presides as the Company’s president, CEO and chairman of the board.

In September 1991,the Company’s wholly owned subsidiary, Rotational Molding, Inc. (“RMI”), wasmerged into the Company and now operates as two divisions using the trade namesRMI-G and RMI-I with manufacturing operations in Gardena, California andCaldwell, Idaho, respectively.

Effective January1, 1992, the Company acquired Plastech Holdings, Inc. (“Plastech”), and itswholly owned subsidiary, Plastech International, Inc., for $1,777,070 incash.  Plastech was headquartered inWarminster, Pennsylvania, with an additional operation in Gainesville,Texas.  In July 1992, Plastech was mergedwith the Company and now operates as a division of the Company using the tradename RMI-T.

Effective April 1,1995, the Company purchased certain assets and assumed certain liabilities ofCustom Rotational Molding, Inc. (“CRM”) for 300,000 shares of the Company’scommon stock.  The Company assumed CRM’soperations in Arleta, California.

In September 1994,the Company purchased a larger manufacturing facility in Bensenville, Illinoisand subsequently relocated its Itasca, Illinois operations into this newfacility.  In December 1995, the Companydiscontinued its operations at its Deerfield, Wisconsin location and combinedthese operations into its newly purchased Bensenville, Illinois operation.

In February 1997,the Company purchased a 9.73-acre facility consisting of 63,000 square feet ofmanufacturing and office building space in Commerce City, Colorado.  The Company has since expended significantresources to refurbish the facility to house its Colorado operations.  The facility is also located within anenterprise zone, which continues to provide additional benefits.

Effective April 1,1998, the Company merged with Rotocast International, Inc. and its wholly ownedsubsidiaries (“Rotocast”), with the Company being the surviving entity.  In accordance with the Merger Agreement, theCompany issued 2,072,539 shares of its common stock and a $2,000,000 notepayable secured by a stand-by letter of credit, in exchange for all theoutstanding voting stock of Rotocast.  InJanuary 2000, the Company repurchased these shares for $2.8 million.  Upon consummation of the repurchase, theshares were retired.

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Rotocast hadoperations in Miami, Florida; Knoxville, Tennessee; Brownwood, Texas; LasVegas, Nevada; and Bossier City, Louisiana. These operations currently conduct business as divisions of the Companyusing the trade names Nutron, Rotocast of Tennessee, RMI-B and RMI-Nevada.  Prior to the merger, the operations inBossier City, Louisiana were substantially discontinued.  Rotocast was a privately held Floridacorporation, owned by GSC Industries, Inc. (“GSC”).  The Company leases the remaining Rotocastfacilities from GSC, and other affiliated parties, under long-term leasearrangements.

In conjunctionwith the Rotocast merger, the Company initiated the consolidation of itsWarminster, Pennsylvania and Arleta, California facilities into its remainingoperations.  The consolidation of thesefacilities was completed in fiscal 1999 and enhanced the operations of theCompany’s remaining facilities, reduced its overall manufacturing overheadcosts, and allowed the Company to take greater advantage of its marketing anddistribution channels.  In fiscal 1999,the Company consolidated its Miami operations into the remaining operatingfacilities and in fiscal 2006; the Company consolidated its Nutron (Miami,Florida) injection molding operations into its Bartow, Florida operations.  The two Miami facility buildings are currentlybeing sub-leased on a long-term basis at $4,800 per month and a portion of theNutron office building at $2,800 per month. The Company is will also be pursuing a third tenant to sub-lease theremaining 23,000 square feet that the Company was utilizing for its injectionmolding operations.

On August 29, 2006, theCompany entered into an Agreement and Plan of Merger (“the Merger”) with asubsidiary of Spell Capital Partners, LLC (“Buyer”).  As part of the Merger, Mr. Sherman McKinniss,President and CEO of the Company, and the Buyer entered into a Share Exchangeand Voting Agreement that requires Mr. McKinniss to contribute 25% of theoutstanding capital shares of the Company in exchange for 25% of theoutstanding capital stock of the Buyer’s subsidiary.  The Buyer will then acquire the remaining75%, including public shares, of the currently outstanding capital stock of theCompany for $3.00 per share cash.  ASpecial Meeting of the Shareholders will be held to consider and vote upon theproposed merger.

The Corporateoffice of the Company is located at the same site as the RMI-G (Gardena,California) facility and our telephonenumber is (310) 538-4932.  We maintain awebsite at www.rotonics.com that contains additional information about RotonicsManufacturing Inc.  Our Form 10K, Form10Q, Forms 8K and other filings with the Securities and Exchange Commission areon our corporate website www.rotonics.com as soon as reasonably possible afterwe file them with or furnish them to the SEC. The reference to our Internet website does not constitute incorporationby reference of the information contained on or hyperlinked from our Internetwebsite.  They are also available onlineat the Securities and Exchange Commission (SEC) website on the Internet.  The address of that site is www.sec.gov.

Description ofBusiness

TheCompany currently has nine manufacturing locations and was again listed by aplastics industry periodical as one of the top ten rotational molders in NorthAmerica.  These operating divisionsmanufacture 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 vast number ofcustom plastic products for a variety of industries, utilizing the rotonicallymolding process and, on a smaller scale; injection molding and dip moldingprocesses. In April 1998, the injection molding process was added to theCompany’s manufacturing operations as part of the Rotocast merger.  Utilizing this process, the Company markets avariety of parts for commercial, promotional, and residential uses, under thetrade name Nutron.  Rotonically moldingis 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 been usedfor many years and continues to be recognized as a growth industry in recentyears, as a result of numerous ongoing business consolidations and thedevelopment of new resins.  These new resinsallow rotonically molded items to compete with more traditional materials suchas carbon, fiberglass, and stainless steel, especially in the fabrication oflarge, lightweight, one-piece molded items, such as storage tanks and polysteellight poles.  Rotonically molding is aparticularly advantageous process for users of molded plastic products who maywant to test different prototypes, or who do not require sufficient numbers ofsuch products to justify a more expensive manufacturing process.  The Company’s products include various typesof storage tanks, bin lids, refuse containers for automated removal, medicalwaste containers, agricultural/livestock products, kayaks, outdoor polysteellamp posts, furniture, planters, and other rotonically molded items.

TheCompany purchases resin from nine major suppliers in the U.S. and Canada.  There are fourteen additional suppliers oflesser significance.  Since the majorityof the resin used in the manufacturing process is a polyethylene derived fromnatural gas, resin price is not directly related to the price forpetrochemicals, and until recent years, has not generally been subject tovolatile fluctuations that are often experienced by the petroleumindustry.  The Company also incorporatesthe use of recycled plastic materials, blended with virgin materials in themanufacturing of products, whenever appropriate.

TheCompany holds several patents on storage containers used for pharmaceutical,commercial and residential applications that expire through the year 2010.  Although the Company has been able to captureits share of these niche markets, no one patent or groups of patents isconsidered material to the business as a whole.

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Competitionfor the Company’s products is governed by geography and region, since largecapacity tanks and bulky hollow products are expensive to ship long distancesand, as such, any prospective competitor is constrained by shipping costs.  There are numerous single-location, as wellas a growing trend to structure multi-location, rotonically molding businessesthroughout the United States.  However,each of these businesses still competes in a geographic region, which isdetermined by customer demand within that region, a constraint inherent to theindustry.  Due to its nationwidepresence, the Company has substantially alleviated this constraint.  The Company’s sales are usually not subjectto large seasonal fluctuations as the business typically operates onsignificant backlogs with a diverse product mix.  Peak season is usually experienced in theperiod from April through June. Historically, the quarter from January through March is the slowestproduction period of the year.  TheCompany’s backlog was $4,368,900 and $4,421,100 as of June 30, 2006 and 2005,respectively.  All of the backlog ordersas of June 30, 2006 are expected to be filled during fiscal 2007.

TheCompany’s products are marketed through the in-house sales and engineeringstaff, various distributors and outside commission-based salesrepresentatives.  The Company has adiverse customer base, which covers a multitude of industries.  Since fiscal 1991, no sales to any one singlecustomer represented a material part of the Company’s business.

Researchand development expenditures for the Company were insignificant for the lastthree fiscal years.

Regulation

TheCompany believes it is in compliance with all applicable federal, state andlocal laws relating to the protection of the environment, and does notanticipate any such laws will have material effect on its financial position,capital expenditures, or competitive position.

Employees

Asof June 30, 2006, the Company employed a total of 429 individuals.  The Company maintains, for its respectiveemployees who are eligible, a medical insurance plan (some of which iscontributory), a group life insurance plan, an annual bonus plan and asemi-annual attendance bonus plan.  Weconsider our relationship with our employees to be good.  No employees are represented by a labor unionor covered by a collective bargaining agreement.

Item 1A. RiskFactors

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

We operate in arapidly changing economic environment that presents numerous risks.  Many of these risks are beyond our controland are driven by factors that we cannot predict.  The following discussion highlights some ofthese risks.

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

Our revenue growthand profitability depends on the overall demand for plastic products forcommercial, recreational and residential uses. Because our sales are primarily to corporate and government customers,our business depends on general economic and business conditions.  In the past, the general weakening of theglobal economy, the weakening of business conditions in the manufacturingindustry, and governmental budgetary constraints have resulted in a decreaseddemand for our products.  If demand forour products weakens again, our revenue growth rates will be adverselyaffected.  In addition, our country’songoing war on terrorism as well as federal and state budgetary concerns, havecontributed to economic, political and other uncertainties that could adverselyaffect our revenue growth and results of operations.  If economic and market conditions do notremain healthy, our business will be adversely affected.

Management has nocomparative advantage in forecasting macroeconomic trends and developmentsrelating to general business conditions. Our management is, however, required to make such forecasts in order todevelop budgets, plan research and development strategies and perform a widevariety of general management functions. To the extent that our forecasts are in error, because we are eitheroverly optimistic or overly pessimistic about the performance of an economy orof a sector, our performance can suffer because of a failure properly to matchcorporate strategy with economic conditions.

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If we do notsuccessfully manage our operating margins, our business can be negativelyimpacted.

Our futureoperating results will depend on our ability to forecast revenues accuratelyand control expenses.  While we cancontrol certain internal factors, our future operating results can be adverselyimpacted by external factors, such as a slowing in demand for certain of ourproducts.  If there is an unexpecteddecline in revenues, which is not offset by a decrease in expenses, ourbusiness and operating results will be adversely affected.

We may be requiredto change our business practices if there are changes in accounting regulationsand related interpretations and policies.

Policies,guidelines and interpretations related to revenue recognition, income taxes,facilities consolidation, accounting for acquisitions, allowances for doubtfulaccounts and other financial reporting matters require difficult judgments asto complex matters that are often subject to multiple sources of authoritativeguidance.  Some of these matters are alsoamong topics currently under re-examination by accounting standards groups andregulators.  These standard groups andregulators could promulgate interpretations and guidance that could result inmaterial and potentially adverse, changes to our accounting policies.

Businessdisruptions could affect our future operating results.

Our operatingresults and financial condition could be materially and adversely affected inthe event of a major earthquake, fire or other catastrophic event, such asterrorist attacks upon the United States. Our corporate headquarters, a significant portion of our research anddevelopment activities and certain other critical business operations arelocated in California, near major earthquake faults.  A catastrophic event that results in thedestruction of any of our critical business or information technology systemscould severely affect our ability to conduct normal business operations and asa result our future operating results could be adversely affected.  Such disruptions, particularly at the end ofa quarter, could also adversely affect quarterly revenues and net income.

*Ourstock price could remain volatile and your investment could lose value.*

Our stock pricehas fluctuated widely in the past and could continue to do so in the future.Your investment in our stock could lose value. Some of the factors that couldsignificantly affect the market price of our stock include:

·                  quarterlyvariations in our results of operations or those of our competitors;

·                  changes in ouror our competitors’ prices;

·                  changes in ourrevenue and revenue growth rates as a whole or for specific geographic areas,business units, products or product categories;

·                  announcements ofnew products or product enhancements by us or our competitors;

·                  changes inmanagement;

·                  changes in ouraccounting policies;

·                  changes inrecommendations or earnings estimates by financial analysts;

·                  speculation inthe press or analyst community;

·                  changes ineconomic and market conditions either generally or specifically to particularindustries;

·                  changes inplastic resin and natural gas costs;

·                  changes ininterest rates; and

·                  changesin investors beliefs as to the appropriate price-earnings ratios for us and ourcompetitors.

A significant dropin our stock price could expose us to the risk of securities class actionlawsuits.  Defending against suchlawsuits could result in substantial costs and divert management’s attentionand resources.  Furthermore, anysettlement or adverse determination of these lawsuits could adversely affectus.

Risksrelated to the proposed merger.

There are severalrisks associated with the potential merger of the Company further described inItem 9B below, including without limitation:

·                  the per sharecash consideration of $3.00 will not change even if the market price of theCompany’s stock changes before the merger is completed;

·                  if the merger iscompleted, public stockholders of the Company will not participate in anyfuture earnings, losses, growth or decline of the Company;

·                  therisk that the Merger Agreement could be terminated under circumstances thatwould require the Company to pay a fee of $1.5 million or reimburse the buyer’sexpenses up to a maximum of $500,000;

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·                  the Company’scosts and expenses related to the merger, which are substantial, must be paideven if the merger is not completed;

·                  if the merger isnot completed, our stock price could fluctuate dramatically;

·                  ifthe merger is not completed, the Company will be required to comply withSection 404 of the Sarbanes-Oxley Act of 2002 that will result in significantadditional expense.

Item 1B.Unresolved Staff Comments

None.

Item 2. Properties

TheCompany’s corporate office occupies a separate building that uses approximately5,800 square feet of the facilities of RMI-G in Gardena, California.

Theoperating divisions lease warehouse, production and office space as follows:

|                         | ** ** | **Building** | ** ** | **Total Facility** | ** ** | **Annual** | ** ** | ** **     | ** **     |
|-------------------------|------------|--------------|------------|-------------------------|------------|------------|------------|----------------|----------------|
| **Property**            | ** ** | **Square**   | ** ** | **Square**              | ** ** | **Base**   | ** ** | **Expiration** | ** **     |
| **Location**            | ** ** | **Footage**  | ** ** | **Footage**             | ** ** | **Rent**   | ** ** | **Date(2)**    | ** **     |
|                    |       |         |       |                    |       |       |       |           |           |
| Gardena, California (1) |       | 43,000       |       | 183,300                 |       | $          | 341,400    |           | October 2011   |   |
|                    |       |         |       |                    |       |       |       |           |           |
| Caldwell, Idaho         |       | 21,250       |       | 71,200                  |       | $          | 105,600    |           | Month-to-Month |   |
|                    |       |         |       |                    |       |       |       |           |           |
| Bartow, Florida         |       | 46,200       |       | 174,600                 |       | $          | 136,000    |           | September 2009 |   |
|                    |       |         |       |                    |       |       |       |           |           |
| Miami, Florida (3)      |       | 50,000       |       | 86,000                  |       | $          | 188,300    |           | March 2013     |   |
|                    |       |         |       |                    |       |       |       |           |           |
| Gainesville, Texas (4)  |       | —       |       | 108,900                 |       | $          | 1,000      |           | April 2011     |   |
|                    |       |         |       |                    |       |       |       |           |           |
| Brownwood, Texas        |       | 42,800       |       | 136,120                 |       | $          | 81,700     |           | March 2013     |   |
|                    |       |         |       |                    |       |       |       |           |           |
| Las Vegas, Nevada       |       | 30,000       |       | 90,000                  |       | $          | 150,600    |           | March 2013     |   |
|                    |       |         |       |                    |       |       |       |           |           |
| Knoxville, Tennessee    |       | 44,000       |       | 174,240                 |       | $          | 164,600    |           | March 2013     |   |

 

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(1)          TheCompany has a first right to purchase option on this facility.

(2)          Doesnot give effect to any renewal options.

(3)          TheCompany is currently sub-leasing one of the Miami buildings (18,000 sq. ft.)for $4,800 per month,  is sub-leasing7,000 sq. ft. of the other building’s office space for $2,800 per month and willbe pursuing a third tenant for the remaining 23,000 sq. ft. of this building. 

(4)          Represents a 2.5 acreground lease adjacent to owned, Gainsville, Texas facility.

TheCompany owns 2.1 acres (including 38,000 square feet of warehouse, productionand office space) in Gainesville, Texas. In September 1994, the Company purchased 3.1 acres (including 63,300square feet of warehouse, production and office space) in Bensenville,Illinois, for the Company’s Illinois manufacturing operations.  In February 1997, the Company purchased forcash 9.73 acres (including 63,000 square feet of warehouse, production andoffice space) in Commerce City, Colorado, for the Company’s Coloradomanufacturing operations. All Company owned real property was stillunencumbered as of June 30, 2006.  TheCompany also owned approximately 1.59 unencumbered acres (including 35,100square feet of warehouse, production, and office space) in Deerfield,Wisconsin, which was vacated in December 1995 by the Company, and itsoperations were incorporated into the Illinois facility.  The Wisconsin facility was sold in November2004 for $425,000.

Webelieve that our existing facilities are adequate for our current needs andthat suitable additional or alternative space will be available at such time asit becomes needed on commercially reasonable terms.

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Item3. Legal Proceedings

In the normalcourse of business, the Company encounters certain litigation matters, which inthe opinion of management will not have a significant adverse effect on thefinancial position or the results of operations of the Company.

On September 13,2006, following the announcement of the Merger Agreement on August 30, 2006, aperson alleging that he is a stockholder of RMI filed a putative class action lawsuitchallenging aspects of the proposed Merger. The lawsuit, filed in the Superior Court of California, County of LosAngeles, names RMI and eight officers and directors of the Company, togetherwith Rotonics Holding Corporation and Spell Capital Partners Fund III LP, asdefendants.  The complaint was served onthe Company on September 19, 2006.  Plaintiffasserts a single cause of action for breach of fiduciary duty and self-dealing.In the complaint, plaintiff alleges generally that the proposed Merger resultedfrom unfair dealing and the merger consideration of $3.00 was an inadequatepurchase price.

Thecomplaint seeks certification as a class action and various forms ofdeclaratory, injunctive and monetary relief, including an injunction against consummationof the merger or, in the alternative, rescission of the transaction andimposition of a constructive trust.

Thedefendants deny any wrongdoing, believe that the action is without merit andintend to defend the claims vigorously.

Item 4.  Submissionof Matters to a Vote of Security Holders

None.

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PART II

Item 5.  Marketfor Registrant’s Common Stock and Related Stockholder Matters

TheCompany’s Common Stock  ($.01 statedvalue) is traded on the American Stock Exchange (“AMEX”) under the symbol “RMI”. The number of stockholders of record of the Company’s Common Stock wasapproximately 4**,**200 at September14, 2006.

Price Range of Common Stock

Thefollowing table sets forth the quarterly price ranges of the Company’s CommonStock in Fiscal 2006 and 2005, as reported on the composite transactions reportingsystem for AMEX listed stocks.
| Fiscal Period                     | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------------------------------|------------|----------|------------|---------|------------|
| Fiscal 2005:                           |       |     |       |    |       |
| First Quarter Ended September 30, 2004 |       | $        | 2.62       |    | $          | 1.60 |   |
| Second Quarter Ended December 31, 2004 |       | 3.50     |       | 1.85    |       |
| Third Quarter Ended March 31, 2005     |       | 5.49     |       | 2.99    |       |
| Fourth Quarter Ended June 30, 2005     |       | 5.30     |       | 2.41    |       |
| Fiscal 2006:                           |       |     |       |    |       |
| First Quarter Ended September 30, 2005 |       | $        | 3.67       |    | $          | 2.30 |   |
| Second Quarter Ended December 31, 2005 |       | 2.94     |       | 2.40    |       |
| Third Quarter Ended March 31, 2006     |       | 3.26     |       | 2.69    |       |
| Fourth Quarter  Ended June 30, 2006    |       | 3.50     |       | 2.34    |       |

Since fiscal 1996 theCompany has paid nine regular cash dividends on its Common Stock.  However, in June 2006, the Board of Directorsdetermined not to declare a regular cash dividend based on a number of eventsthat transpired during fiscal 2006, including but not limited to the relocationof its injection molding operations and that the Company’s overall debtstructure had not declined since the beginning of fiscal 2006.  Any future cash dividends or otherdistributions of stock will be determined solely by the Board of Directors (“theBoard”) and will be based on the Company’s future financial ability to declareand pay such dividends.  Certain lendingagreements also restrict the Company from declaring or paying dividends beyondset limits on its Common Stock (see Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations: Liquidity andCapital Resources”).  According to thelending agreement with its bank, the Company may declare or pay any dividend ordistribution in a maximum aggregate of $700,000 and may redeem, retire,repurchase or otherwise acquire shares of any class of the Company’s stock in amaximum aggregate or $1,000,000 in any fiscal year.  Transactions that would exceed these limitswould require prior bank authorization and the appropriate waivers.  In addition, in compliance with a mergeragreement entered into on August 29, 2006 (see Item 9B), the Company iscurrently prohibited from declaring any future dividends.

Thetable below discloses the following information with respect to the Company’sequity compensation plans that have been approved by stockholders and plansthat have not been approved by stockholders as of June 30, 2006.

Equity Compensation Plan Information
| **Plan category**                                  | ** ** | **(a) Number of securities to  be issued upon exercise of   outstanding options,  warrants and rights** | ** ** | **(b) Weighted-average exercise  price of outstanding options,  warrants and rights** | ** ** | **(c) Number of securities remaining  available for future issuance under  equity compensation plans  (excluding securities reflected in  column (a))** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation  plans approved by stockholders     |       | —                                                                                                                                                              |       | $                                                                                                                        | —     |                                                                                                                                                                                                                          | 850,000    |   |
| Equity compensation  plans not approved by stockholders |       | —                                                                                                                                                              |       | $                                                                                                                        | —     |                                                                                                                                                                                                                          | —     |   |
| Total                                                   |       | —                                                                                                                                                              |       | $                                                                                                                        | —     |                                                                                                                                                                                                                          | 850,000    |   |

The table below disclosesthe following information with respect to purchases of the Company’s commonstock during the fourth quarter of fiscal 2006.

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Issuer Purchasesof Common Stock
| **Period**                               | ** ** | **(a) Total  number of  shares (or  units)  purchased** | ** ** | **(b) Average  price paid per  share (or unit)** | ** ** | **(c) Total number of shares (or  units) purchased as part of  publicly announced plans or  programs** | ** ** | **(d) Maximum number (or  approximate dollar value) of  shares (or units) that may yet  be purchased under the plans  or programs (1)** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Month #1  April 1, 2006 - April 30, 2006 |       | 2,500                                                                  |       | $                                                                         | 3.05       |                                                                                                                                                               | 2,500      |                                                                                                                                                                                                                         | $          | 587,800 |   |
| Month #2  May 1, 2006 - May 31, 2006     |       | 15,500                                                                 |       | $                                                                         | 2.89       |                                                                                                                                                               | 15,500     |                                                                                                                                                                                                                         | $          | 542,900 |   |
| Month #3  June 1, 2006 - June 30, 2006   |       | 18,600                                                                 |       | $                                                                         | 2.96       |                                                                                                                                                               | 15,500     |                                                                                                                                                                                                                         | $          | 487,900 |   |
| Total                                    |       | 36,600                                                                 |       | $                                                                         | 2.94       |                                                                                                                                                               | 33,500     |                                                                                                                                                                                                                         | $          | 487,900 |   |

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(1)                            InJune 2005, the Board of Directors approved a common stock buyback program topurchase up to $1,000,000 of the Company’s common stock.  At June 30, 2006, the Company had $487,900available for additional purchases under the program.  The buyback program does not have anexpiration date.  However, in compliancewith a merger agreement entered into on August 29, 2006 (see Item 9B), theCompany is currently prohibited from repurchasing any additional shares underthis program.

Item 6. SelectedFinancial Data
| ** **                                              | ** ** | **Year ended June 30,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                              | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Income Statement Data                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Net sales                                               |       | $                                      | 48,051,200 |   | $ | 45,131,600 |   | $ | 40,332,900 |   | $ | 35,972,100 |   | $ | 37,973,300 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Cost of goods sold                                      |       | 37,730,700                             |       | 35,190,100 |   | 31,140,600 |   | 26,927,300 |   | 27,765,900 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Gross margin                                            |       | 10,320,500                             |       | 9,941,500 |   | 9,192,300 |   | 9,044,800 |   | 10,207,400 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Selling, general, and  administrative expenses (B) |       | 7,171,900                              |       | 7,088,500 |   | 6,888,600 |   | 7,068,700 |   | 7,540,900 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Interest expense                                        |       | 138,400                                |       | 196,900 |   | 211,800 |   | 266,000 |   | 464,100 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Net income from  operations                             |       | $                                      | 2,079,000  |   | $ | 1,769,900 |   | $ | 1,304,200 |   | $ | 1,156,600 |   | $ | 1,408,700 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Basic/diluted income  per common share from operations  |       | $                                      | 0.18       |   | $ | 0.15 |   | $ | 0.11 |   | $ | 0.09 |   | $ | 0.11 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Avg. common shares outstanding  (A)                     |       | 11,831,900                             |       | 11,965,200 |   | 12,155,500 |   | 12,486,000 |   | 12,758,800 |   |
|                                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Other Financial Data                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Net income from operations as a percent of sales        |       | 4.3                                    | %          | 3.9 | % | 3.2 | % | 3.2 | % | 3.7 | % |

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(A)  Computed on the basis of the weighted averagenumber of common shares outstanding during each year.

(B)   Includes plant consolidation costs of$505,100 in fiscal 2006.

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| ** **                           | ** ** | **At June 30,** | ** ** |
|--------------------------------------|------------|---------------------------|------------|
| ** **                           | ** ** | **2006**                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Balance Sheet Data                   |       |                      |       |   |   |   |   |   |   |   |   |
| Current assets                       |       | $                         | 14,020,800 |   | $ | 13,157,900 |   | $ | 12,980,600 |   | $ | 11,440,200 |   | $ | 12,043,100 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Current liabilities                  |       | 3,231,600                 |       | 4,584,900 |   | 5,224,300 |   | 4,710,700 |   | 4,559,400 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Working capital surplus              |       | 10,789,200                |       | 8,573,000 |   | 7,756,300 |   | 6,729,500 |   | 7,483,700 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Total assets                         |       | 27,206,500                |       | 26,590,200 |   | 27,351,800 |   | 26,450,200 |   | 27,841,800 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Long-term debt                       |       | 2,000,000                 |       | 1,281,800 |   | 2,474,000 |   | 2,362,100 |   | 3,937,200 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Total liabilities                    |       | 7,323,100                 |       | 8,289,900 |   | 10,174,600 |   | 9,500,200 |   | 11,061,700 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Current ratio                        |       | 4.3 to 1                  |       | 2.9 to 1 |   | 2.5 to 1 |   | 2.4 to 1 |   | 2.6 to 1 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Net book value per common  share (A) |       | $                         | 1.69       |   | $ | 1.53 |   | $ | 1.43 |   | $ | 1.37 |   | $ | 1.33 |   |
|                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Dividends (B)                        |       | $                         | —     |   | $ | 0.05 |   | $ | 0.05 |   | $ | 0.05 |   | $ | 0.05 |   |

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(A)         Computedon the basis of the actual number of common shares outstanding at the end ofthe fiscal year.Fiscal 2002 net book value includes the write-down of goodwill amounting to$4.1 million in connection with the adoption of SFAS No. 142.

(B)           Based on cash dividendsdeclared per common share during the respective periods.

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

**Introduction**

To the extent thatthis 10-K Annual Report discusses matters which are not historical, includingstatements regarding future financial results, information, or expectationabout products or markets, or otherwise makes statements about future events,such statements are forward-looking and are subject to a number of risks anduncertainties that could cause actual results to differ materially from thestatements made.  These include, amongothers, fluctuations in costs of raw materials and other expenses, costsassociated with plant closures, downturns in the markets served by the Company,the costs associated with new product introductions, as well as other factorsdescribed under the heading: Item 1, “Business”, Item 3, “Legal Proceedings”,under this Item 7, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations”, and Footnote 1 to Financial Statements.  When used in this report, the words “expects,”  “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions are generally intendedto identify forward-looking statements. You should not place undue reliance on these forward-looking statements,which reflect our opinion only as of the date of the Annual Report. Weundertake no obligation to publicly release any revisions to theforward-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 2007.

**Operations**

Net sales improvedby 6.5% to $48,051,200 in fiscal 2006 compared to $45,131,600 in fiscal2005.  In fiscal 2006, our net salestopped $48 million based on increased revenues from all of our proprietaryproduct groups.  This revenue growth wascritical to our challenge to offset increased raw material and natural gascosts as well as the turmoil that resulted from our country’s 2005 naturaldisasters.  Our ongoing efforts toenhance our proprietary product lines and streamline our operations haveallowed us to be more competitive within our regional markets.  These efforts have resulted in increasedrevenues for our refuse container, tank, material handling, agriculture andriver & waterway products amounting to approximately $4.4 million.  The increase in these product groups alsohelped mitigate lower contract manufacturing revenues that were more sensitiveto fiscal 2006’s economic challenges as well as normal product turnover.

Net sales improvedby 11.5% to $45,131,600 in fiscal 2005 compared to $40,332,900 in fiscal2004.  In fiscal 2005, all of our majorproduct groups contributed to the $4.8 million increase in our net sales.  This growth was attributed to our efforts tobring new product offerings to the marketplace as well as modify existingproduct line offerings to better serve our customers.  As a result, our industrial product group,led by tank, material handling and linen & laundry products increased by16.4%; marine, which includes our rivers & waterways line, increased by15.2%; and refuse, led by medical waste products, increased by 7.6%.  Our net sales also benefited from an 11.3%increase in contract manufacturing sales.

Cost of goods soldwas $37,730,700, or 78.5% of net sales, in fiscal 2006 compared to $35,190,100and $31,140,600, or 78% and 77.2% of net sales, in fiscal 2005 and 2004,respectively.  The increase in our netsales along with systematic price increases and our manufacturing efficiencieshave been instrumental in mitigating the overall increase in our cost of goodssold.  Fiscal 2006 was hampered byexcessive increases in raw material and natural gas costs.  At June 30, 2006, raw material costs wereapproximately 30% higher than they were a year ago and natural gas costsincreased approximately $300,000 in fiscal 2006 in comparison to fiscal2005.  Fiscal 2005 cost of goods sold wasalso impacted by similar increases in raw material and natural gas costs.  Since the material we use in ourmanufacturing process is derived from natural gas, the correlation between thetwo will continue to impact our operations. As we move into fiscal 2007, raw material costs have increased another7%, however, current trends seem to point to a possible softening in the rawmaterial market.

Selling, generaland administrative (“SG&A”) expenses were $6,666,800, or 13.9% of netsales, in fiscal 2006 compared to $7,088,500 and $6,888,600, or 15.7% and 17.1%of net sales, in fiscal 2005 and 2004, respectively.  Overall SG&A costs have decreased by$421,700 in fiscal 2006.  Of this amount,$183,400 pertains to a reduction in our bad debt expense and $33,700 toreductions in our advertising and tradeshow expenses.  Added to this was savings obtained from lowerSG&A wage costs of approximately $100,200 and the remaining balancepartially attributed to the absence of certain SG&A costs in the fourthquarter subsequent to the relocation of our injection molding operations.  In fiscal 2005, our overall SG&A costsincreased by $199,900.  These costs wereprimarily linked to increased wage costs associated with our sales/marketingand cost efficiency efforts.  As noted infiscal 2006, these wage costs will continue to fluctuate as we strive to alignstaffing requirements with future revenue goals.

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The Company incurred $505,100 in non-recurring and plant relocationcosts in fiscal 2006 related to the relocation of its Miami, Florida injectionmolding operations to the Company’s Bartow, Florida facility.  As of June 30, 2006, the relocation processwas completed and as a result future operations will begin to benefit from thecost savings obtained from improved efficiencies and reduced overheadcosts.  As part of the process we alsocapitalized approximately $669,900 to refurbish existing injection moldingequipment and install a new 350-ton injection molding machine as well as thenecessary ancillary equipment.

Income fromoperations was $3,148,600, or 6.6% of net sales, in fiscal year 2006 comparedto $2,853,000 and $2,303,700, or 6.3% and 5.7% of net sales, in fiscal 2005 and2004, respectively.  Again, the increasein our net sales proved to be sufficient to offset the increased raw materialand utility costs as previously mentioned as well as the additional costsincurred to relocate our injection molding operations in our efforts to sustaincomparable operating results.  As we moveforward, we will continue to monitor raw material and natural gas costs in ourefforts to mitigate their effect on future operations.

Total interestexpense decreased $58,500 to $138,400 in fiscal 2006, compared to $196,900 and$211,800 in fiscal 2005 and 2004, respectively. The cost savings we obtained in fiscal 2006 are attributed to the $1million reduction in the notional amount of our interest rate swap agreement incomparison to fiscal 2005.  This hasallowed our debt borrowings in excess of the $2 million notional amount to bearmore favorable LIBOR interest rates in relation to our interest rate swapagreement’s fixed rate.  The converse wastrue in fiscal 2005, as the bulk of our borrowings during the year were coveredunder the swap agreement’s fixed rate. In august 2006, our swap agreement with the bank matured and was notrenewed or replaced.  As such, futureinterest costs will primarily bear LIBOR interest rates, which have currentlybenefited from the Federal Reserve’s stance on interest rates.  Based on our current level of debtborrowings, we do not foresee any significant increases in future interestcosts even if the Federal Reserve administration reverses its current stanceand institutes future interest rate hikes.

Income taxes were$1,184,800, $1,119,300 and $898,500 in fiscal 2006, 2005 and 2004,respectively.  The majority of our incometax provision relates to current taxes due which are consistent with therespective level of taxable income between the periods.

Net income increased$309,100 to $2,079,000, or $.18 per common share, for fiscal 2006 compared to$1,769,900, or $.15 per common share, in fiscal 2005.  The 6.5% increase in our net sales in fiscal2006, coupled with SG&A cost savings and the reduction of our bad debt expensewere instrumental in offsetting the effects of higher raw material, natural gasand plant relocation costs we incurred during fiscal 2006.  Although our country’s current economicclimate is still uncertain, we hope to take advantage of the groundwork we laidin fiscal 2006.

Net incomeincreased $465,700 to $1,769,900, or $.15 per common share, for fiscal 2005compared to $1,304,200, or $.11 per common share, in fiscal 2004.  The 11.9% increase in our net sales in fiscal2005 continued to play a pivotal role in boosting our net income by 35.7%.  The increased revenues provided a strongerbase to cover our fixed operating and SG&A costs and helped mitigate theongoing volatility we have experienced in raw material and utility costs.  Secondarily, we continued to benefit from ourexisting installations of energy efficient equipment that helped improve ouroperating efficiencies.

**Liquidityand Capital Resources**

Working capitalincreased $2,216,200 to $10,789,200 at June 30, 2006, compared to $8,573,000 atJune 30, 2005.  Working capital benefitedfrom the $309,100 increase in our net income as well as borrowings under ourline of credit that was used to increase our raw material inventory levels,repayment of our current long-term debt obligations and fund our $.05 commonstock dividend declared in fiscal 2005. Cash flows from operations decreased $439,100 to $2,887,600 in fiscal2006 compared to $3,326,600 for the same period last year.  The resulting net decrease is primarilyrelated to an increase in inventories that is consistent with currentproduction requirements and to take advantage of preferred resin pricing and anincrease in accounts receivable consistent with the increase in our fourthquarter’s net sales less the $309,100 increase in our net income and anincrease in our accounts payable balance that relates to resin purchases.

We expended $1,923,200for property, plant and equipment (“PP&E”) in fiscal 2006, compared to$1,801,100 in fiscal 2005.  Asillustrated through our capital expenditure activity, we are committed toimprove our operations through various capital expenditure projects.  In fiscal 2006, we have installed onerotomolding machine at a cost of $202,700, a new pulverizer at a cost of $94,600and expended $669,900 on capital expenditure projects in connection with ourMiami, Florida plant consolidation.  Ofthis amount, $242,700 has been spent to refurbish existing injection moldingand ancillary equipment and $427,200 was for the installation of a new 350-toninjection-

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molding machine includingthe necessary ancillary equipment.  As anadded plus, the new molding machines are both energy efficient and will fostermanufacturing efficiencies not previously obtainable.  The balance of our fiscal 2006 expenditureshas gone to new tooling, existing machinery enhancements and construction inprocess costs relating to roof repairs to one of our Miami, Floridabuildings.  We anticipate expending $1.5million on capital expenditures in fiscal 2007, which will include a new energyefficient rotomolding machine that will be installed in our Colorado facilityat an estimated cost of $500,000

Net borrowingsunder the line of credit increased $970,600 to $2,000,000 between June 30, 2005and June 30, 2006.  The increase isrelated to additional raw material purchases to take advantage of preferredpricing, fourth quarter income tax installments of approximately $359,900 andthe pay-off of our term debt of $252,400 in June 2006 to take advantage oflower interest rates associated with our line of credit borrowings.  Our overall debt borrowings remained fairlyconsistent with balances outstanding as of June 30, 2005.  This along with other factors that transpiredin fiscal 2006, weighed in on the board of director’s decision not to declare acommon stock dividend in fiscal 2006.  Assuch, we anticipate our line of credit borrowings to begin to decrease infiscal 2007.  At June 30, 2006 we had$3,000,000 available for future borrowings under the line of credit.

Effective October1, 2005, the bank extended the maturity date on the line of credit to October1, 2007.  In addition, the maturity datefor the letter of credit subfeature of our credit facility was extended toFebruary 1, 2008.  All other terms andconditions surrounding our credit facility with the bank remained the same.

The following is asummary of the Company’s contractual commitments associated with its debt andlease obligations as of June 30, 2006:
| ** **        | ** ** | **For the year ended June 30,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------|------------|----------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **        | ** ** | **2007**                                                 | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Line of credit    |       | $                                                        | —     |       | $          | 2,000,000  |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 2,000,000 |   |
| Operating leases  |       | 1,091,400                                                |       | 1,086,200  |       | 1,081,800  |       | 978,900 |   | 944,200 |   | 1,126,700 |   | 6,309,200 |   |
| Total commitments |       | $                                                        | 1,091,400  |       | $          | 3,086,200  |       | $ | 1,081,800 |   | $ | 978,900 |   | $ | 944,200 |   | $ | 1,126,700 |   | $ | 8,309,200 |   |

In fiscal 2006 weacquired 188,333 shares of common stock at a total cost of $512,500 under ourJune 2005 Board of Director (“the Board”) buyback program.  However, in compliance with a mergeragreement entered into on August 29, 2006 (see Item 9B), the Company iscurrently prohibited from repurchasing any additional shares under thisprogram.  At June 30, 2006, we had11,752,265 shares of common stock outstanding.

OnJune 27, 2006, the Board announced its decision not to declare a common stock cashdividend for fiscal 2006 based on a number of events that transpired in fiscal2006 including but not limited to the relocation of its injection moldingoperations and that the Company’s overall debt structure had not declined sincethe beginning of fiscal 2006.  Inaddition, in compliance with a merger agreement entered into on August 29, 2006(see Item 9B), the Company is currently prohibited from declaring any futuredividends.

Cash flows fromoperations in conjunction with our revolving line of credit are expected tomeet our needs for working capital, capital expenditures, common stockrepurchases and repayment of long term debt for the foreseeable future.

**RecentAccounting Pronouncements**

In February 2006, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 155, “Accounting for Certain Hybrid FinancialInstruments,” an amendment of SFAS No. 133 and SFAS No. 140.  SFAS No. 155 simplifies accounting forcertain hybrid instruments under SFAS No. 133 permitting fair valueremeasurement for financial instruments that otherwise would requirebifurcation and eliminating SFAS No. 133 Implementation Issue No. D1, “Applicationof Statement 133 to Beneficial Interests in Securitized Financial Assets,” whichproves that beneficial interests are not subject to the provisions of SFAS No.133.  SFAS No. 155 also eliminates theprevious restrictions under SFAS No. 140 on passive derivative instruments thata qualifying special-purpose entity may hold. SFAS NO. 155 is effective for all financial instruments acquired,issued, or subject to a remeasurement event occurring after the beginning of anentity’s fiscal year that begins after September 15, 2006.  The Company will adopt this statement asrequired, and adoption is not expected to have an impact on the Company’sresults of operations, financial condition or liquidity.

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In March 2006, the FASBissued SFAS No. 156, “Accounting for Servicing of Financial Assets,” anamendment of FASB Statement No. 140. SFAS No. 156 permits entities to choose to either subsequently measureservicing rights at fair value and report changes in fair value in earnings oramortize servicing rights in proportion to and over the estimated net servicingincome or loss and assess to rights for impairment or the need for an increasedobligation.  SFAS No. 156 also clarifieswhen a servicer should separately recognize servicing assets and liabilities,requires all separately recognized assets and liabilities to be initiallymeasured at fair value, if practicable, permits a one-time reclassification ofavailable-for-sale securities to trading securities by an entity withrecognized servicing rights and requires additional disclosure for allseparately recognized servicing assets and liabilities.  SFAS No. 156 is effective as of the beginningof an entity’s fiscal year that begins after September 15, 2006.  The Company will adopt this statement asrequired, and adoption is not expected to have an effect on the Company’sresults of operations, financial condition or liquidity.

In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(FIN 48).  FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in financial statementsin accordance with Statement of Financial Accounting Standard (SFAS) No. 109, “Accountingfor Income Taxes.”  This Interpretationprescribes a recognition threshold and measurement attribute of tax positionstaken or expected to be taken on a tax return. This Interpretation is effective for the first fiscal year beginningafter December 15, 2006.  Management iscurrently evaluating the impact FIN 48 will have on our financial position andresults of operations.

**Off-BalanceSheet Arrangements and Contractual Obligations**

The Company has nooff-balance sheet arrangements or significant guarantees to third parties notfully recorded in our balance sheets or fully disclosed in our notes toconsolidated financial statements.  TheCompany’s significant contractual obligations include our debt agreements andlease commitments.  Certain financial andoperating restrictions under these agreements are fully disclosed in notes 5and 6 of the consolidated financial statements.

**CriticalAccounting Policies**

Our consolidatedfinancial statements are prepared in accordance with accounting principlesgenerally accepted in the United States (“GAAP”).  These accounting principles require us tomake certain estimates, judgments and assumptions.  We believe that the estimates, judgments andassumptions upon which we rely are reasonable based upon information availableto us at the time that these estimates, judgments and assumptions aremade.  These estimates, judgments andassumptions can affect the reported amounts of assets and liabilities as of thedate of the financial statements, as well as the reported amounts of revenuesand expenses during the periods presented. To the extent there are materialdifferences between these estimates, judgments or assumptions and actualresults, our financial statements will be affected.  In many cases, the accounting treatment of aparticular transaction is specifically dictated by GAAP and does not requiremanagement’s judgment in its application. There are also areas in which management’s judgment in selecting amongavailable alternatives would not produce a materially different result.  Our senior management has reviewed thesecritical accounting policies and related disclosures with our Audit Committee.

The significantaccounting policies that we believe are the most critical to aid in fullyunderstanding and evaluating our reported financial results include thefollowing:

Accounts receivable

We make judgments as toour ability to collect outstanding receivables and provide allowances for theportion of receivables when collection becomes doubtful.  Provisions are based on a percentage of netsales and a specific review of all significant outstanding receivablebalances.  Percentages applied may varybased on analysis of historical collection experience or current economictrends.  If the data we use to calculatethe allowance for doubtful accounts does not reflect the future ability tocollect outstanding receivables, additional provisions for doubtful accountsmay be needed and the results of operations could be affected.

Inventory valuation

Finished goods inventoryis valued at cost for which management uses historical gross margin trends andother estimates to continually update labor and overhead allocations.  The gross margin percentage reflects our estimateof the cost of, among other things, material, labor and overhead expendituresduring the production process.  Suchcosts are capitalized to inventory as products are manufactured.  Although it is believed that the estimatesare reasonable, it is possible that the actual labor and overhead costs willdiffer over time from the estimated amounts. Due to the high volume of transactions and the way raw materials areused in product manufacturing, inventory

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quantities can changerapidly and are impacted by a variety of factors including, productionefficiency, obsolescence, scrap, design changes, customer preferences,etc.  As such, the Company must regularlycount inventories to ensure they are up to date.  The Company takes a physical count monthly andreconciles the count to the inventory. However, given the number of transactions, the number of locations andthe large number of inventory items, adjustments to the counts do occur on aregular basis.  Although we believe thatour inventory counts and values are reasonable the inventory does have someinherit estimates that could impact our balance sheet and results ofoperations.

Impairments of Long-LivedAssets

In accordance with themethodology described in FASB Statement No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets,” we review long-lived assets for impairmentwhenever events or changes in circumstances indicate the carrying amount ofsuch assets may not be recoverable. Impairment losses are recorded on long-lived assets used in operationswhen indicators of impairment are present and the undiscounted cash flowsestimated to be generated by those assets are less than the assets’ carryingamounts.  The impairment loss is measuredby comparing the fair value of the asset to its carrying amount.  No impairments were recorded in the financialstatements included in this Form 10-K.

Revenue Recognition

Revenues are recognized from the sale of our productsupon shipment, provided that persuasive evidence of a sales arrangement exists,the price is fixed or determinable, title has transferred, and collectibilityof the resulting receivable is reasonably assured.  Title and risk of loss transfer to thecustomer when the product leaves the Company’s facility.

Income taxes

Under SFAS No. 109, “Accountingfor Income Taxes,” income taxes are recorded based on the current amountspayable or refundable, as well as the consequences of events that give rise todeferred tax assets and liabilities based on differences in how those eventsare treated for tax purposes.  We baseour estimates of deferred tax assets and liabilities on current tax laws andrates and in certain cases expectations about future outcomes.  Our accounting for deferred tax consequencesrepresents management’s best estimate of future events that can beappropriately reflected in accounting estimates.  Our net operating loss carryforwards, whichare available to offset taxable income, are also subject to limitations shoulda “change in ownership” as defined in the Internal Revenue Code occur.  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 ourhistorical income tax provisions and accruals. Such differences could have a material impact on our results ofoperations and financial position.

In particular, werecorded a valuation allowance to reduce its deferred tax assets to the amountof future tax benefit that is more likely than not to be realized.  While management has considered futuretaxable income and ongoing prudent and feasible tax planning strategies inassessing the need for the valuation allowance, there is no assurance that thevaluation allowance would not need to be increased to cover additional deferredtax assets that may not be realized.  Anyincrease in the valuation allowance could have a material adverse impact on ourincome tax provision and net income for the period in which such determinationis made.

Item7A. Quantitative and Qualitative Disclosures About Market Risk

**Interest Rate Risk**

We are exposed to certainmarket risks relating to interest rate volatility on its existing and futureissuances of variable rate debt with the bank. Primary exposures include movements in U.S. Treasury rates and LIBORrates, which in turn affect the bank’s prime and LIBOR option rates.

We had $2 millionof variable rate debt as of June 30, 2006. In efforts to reduce interest rate volatility and mitigate exposure onvariable rate debt, we entered into an interest rate swap effective July 15,1998, as amended on August 15, 2002.  Theswap has a notional amount of $2 million as of June 30, 2006 and will remain atthis amount until its expiration on August 15, 2006.  The swap fixes the bank’s LIBOR option rateat 4.83% over the term of the contract. The fair value of the swap, net of tax, amounted to $800 as of June 30,2006.  This swap agreement was notrenewed or replaced upon its maturity. Since June 2006, the Federal Reserve administration has not continuedwith its rate hike trend that we have realized over the last two years, whichpossibly points to a slowing in future rate hikes.  However, it is our belief that even ifinterest rates increased by 1% during fiscal 2007 as compared to fiscal

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2006, andadditional borrowings are not incurred, we would not expect a significantincrease in projected fiscal 2007 interest expense.

Item8.  Financial Statements andSupplementary Data

See FinancialStatements and Financial Statement Schedules listed in Item 14(a)(1) and (2).

Item 9.  Changes in and Disagreements with Accountantson Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

We maintaindisclosure controls and procedures designed to ensure that information requiredto be disclosed in reports filed under the Securities and Exchange Act of 1934,as amended (the “Exchange Act”), is recorded, summarized and processed withintime periods specified in the SEC’s rules and forms.  As of the end of the period covered by thisreport (the “Evaluation Date”), we carried out an evaluation, under thesupervision and with the participation of our management, including ourpresident and chief executive officer and our chief financial officer, of theeffectiveness of the design and operation of our disclosure controls procedurespursuant to Rule 13a-14 under the Exchange Act. Based upon this evaluation, our president and chief executive officerand our chief financial officer concluded that, as of the Evaluation Date, ourdisclosure controls and procedures were effective under Rules 13a-14.

There has been nochange in our internal controls over financial reporting during our most recentfiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal controls over financial reporting.

Item 9B. Other Information

On August 29,2006, the Company entered into an Agreement and Plan of Merger (“the Merger”)with a subsidiary of Spell Capital Partners, LLC (“Buyer”).  As part of the Merger, Mr. Sherman McKinniss,President and CEO of the Company, and the Buyer entered into a Share Exchangeand Voting Agreement that requires Mr. McKinniss to contribute 25% of theoutstanding capital shares of the Company in exchange for 25% of theoutstanding capital stock of the Buyer’s subsidiary.  The Buyer will then acquire the remaining75%, including public shares, of the currently outstanding capital stock of theCompany for $3.00 per share cash.  A SpecialMeeting of the Shareholders will be held to consider and vote upon the proposedmerger.

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PART III

Item 10. Directors and Executive Officers of the Registrant

Information Concerning theBoard of Directors

Informationregarding each of the eight (8) directors is set forth below.  The descriptions of the business experienceof these individuals include all principal positions held by them from at least2001 to the date of this Proxy Statement.

**ShermanMcKinniss** (age 70) has served as a director of theCompany since 1991 and as Chairman of the Board since December 1994.  Additionally, he served as President andChief Executive Officer of the Company from August 1991 to December 2001 andagain resumed the role in July 2003. Prior to that, Mr. McKinniss had been President, a director and one ofthe owners of Rotonics Molding Inc. - Chicago. Previously, Mr. McKinniss owned and operated Rotational Molding, Inc. (“RMI”)which he sold to the Company in 1986. Since 1993, Mr. McKinniss has served on the Board of Directors ofAtlantic Mecco Inc., a marina dock building company, of which he owns a 7.5%equity interest, and is also a former director, President and charter member ofthe Association of Rotational Molders.

**MarcL. Berman** (age 61) has been a principal in BermanCapital, LLC, an investment banking firm specializing in mergers &acquisitions, since 1993.  Mr. Berman isalso a member of the Association of Corporate Growth.

**LarryM. DeDonato** (age 52) has owned and operated an optometrypractice in central California since before 1982.  In addition, Mr. DeDonato was an assistantprofessor at the Southern California College of Optometry from 1979 until1986.  Mr. DeDonato is the son-in-lawof Mr. McKinniss.

**LarryL. Snyder** (age 68) was the Owner and President of SnyderIndustries Inc., a fiberglass and rotational molding company, from 1962 until1991.  He is a past President and chartermember of the Association of Rotational Molders.  Mr. Snyder previously served as a Board ofTrustee for Nebraska Wesleyan University (“NWU”) and was a member of theFinancial Advisory Committee to the Board of Governors of NWU.  Mr. Snyder operates a substantial centralNebraska farming and cattle operation utilizing precision farming technologyand also owns commercial properties.

**E.Paul Tonkovich** (age 68) has served as Secretary and legalcounsel for the Company since August 1991. He has been a practicing attorney in California since January 1966.  In 1974 he started his own firm, E. PaulTonkovich-Professional Corporation, which specializes in business litigationand corporate law.

**JulesSandford** (age 78) has been a practicing attorney inCalifornia since 1961 with the firm Patten, Faith & Sandford.  As an attorney, Mr. Sandford representsfinancial institutions, real estate companies, automobile dealerships and otherbusinesses providing legal services for business formation, purchase, sale andleases, and litigation.  Mr. Sandford hasalso served as the Chairman of the Board of Orioxi International Corporation,an import/export business with factories in China and El Salvador.

**BrentA. Brown** (age 50) has over two decades of equity tradingand portfolio management experience including 11 years with Jefferies andCompany as a Stock Specialist on the Pacific Stock Exchange.  Since June 2002 he has been Director ofResearch and a portfolio manager with Chelsea Management Company, a Los Angelesmoney-management firm.  Prior to this,Mr. Brown was a securities broker for Patrick Pascal Trading Company from 1999to 2002.

**BillAllen** (age 42) co-founded Intermodal Distribution FreightInc., a provider of rail and truckload transportation services in thecontinental U.S., and has served as its Chief Operating Officer since1986.  Mr. Allen also co-founded WesternRegional Drayage Inc., a provider of container drayage for import/export customers,and has served as its Chief Operating Officer since 1996.

BoardMeetings and Committees

TheBoard held four meetings in 2006.  Eachdirector attended at least 75% of the meetings of the Board of Directors andeach committee on which he served except, Mr. Allen who only attended 50% ofsuch meetings due to personal reasons.

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TheBoard has Nominating Committee, comprised in fiscal 2006 of Mr. McKinniss andMr. Berman.  The nominating committeedoes not have a written charter.  NeitherMr. McKinniss nor Mr. Berman is independent as defined by the requirements ofthe AMEX.  The function of the NominatingCommittee is to nominate candidates for election to the Board of Directors ofthe Company at its annual meeting of stockholders.  During fiscal year 2006, the NominatingCommittee held one meeting.

The Board has anAudit Committee that operates under a written charter adopted by theBoard.  The members of the AuditCommittee are Messrs. Allen, Snyder, Brown and Sandford.  Each member of the Audit Committee isindependent as defined by the requirements of the American Stock Exchange (“AMEX”).  The functions of the Audit Committee are toapprove of the engagement of the Company’s independent registered publicaccounting firm and to review with them the plan and scope of their audit foreach year, the results of such audit when completed, and their fees forservices performed.  During fiscal year2006, the Audit Committee held four meetings. The Board has determined that Mr. Snyder is an independent director andthat he meets the qualifications of an audit committee financial expert definedby the Securities and Exchange Commission (“SEC”).

TheBoard does not have a compensation committee. The executive compensation is explained below under the heading “Reportof the Board/Executive Compensation”.

Compensation of Directors

During the fiscalyear ended June 30, 2006, directors (other than those who were employees of theCompany) were paid $1,000 for each meeting of the Board they attended.  All members of committees of the Boardreceived $250 for each meeting which they attended, plus reimbursement forreasonable expenses incurred, unless such meetings occurred on the day ofmeetings of the full Board, in which case such committee members received noadditional compensation.  The Companyincurred directors’ fees totaling $26,000 in fiscal year 2006.  Directors who are employees of the Companyhave not been separately compensated for their services as directors.

Code of Ethics

For a number of years, the Company has had, in one form or another, aCode of Ethics for its employees.  Duringfiscal 2004, the Company adopted a revised version of its Code of Ethics tocomply with SEC regulations and AMEX listing standards.  This Code of Ethics is available underInvestor Relations on the Company’s website at www.rotonics.com.  The Code of Ethics applies to all of theCompany’s employees, officers and directors.

Compliance with Section16(a) of the Securities Exchange Act of 1934

Section 16(a) ofthe Securities Exchange Act of 1934 requires the Company’s directors andexecutive officers, and persons who own more than ten percent (10%) of theoutstanding shares of the Company’s Common Stock, to file with the Securitiesand Exchange Commission and the American Stock Exchange initial reports ofownership (Form 3) and changes in ownership of such stock (Forms 4 and 5).

To the Company’sknowledge, based solely upon review of the copies of such reports furnished toit, during fiscal year ended June 30, 2006, all Section 16(a) filingrequirements applicable to its executive officers and directors were compliedwith.

ExecutiveOfficers

As ofSeptember 20, 2006, the executive officers of the Company were as follows:
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                | ** ** |
|---------------------|------------|---------|------------|-------------------------------------------------------------|------------|
| Sherman  McKinniss  |       | 70      |       | Chairman  of the Board, President, Chief Executive

Officer |       |
| E. Paul  Tonkovich  |       | 68      |       | Secretary,  Director                                        |       |
| Douglas W.  Russell |       | 45      |       | Chief  Financial Officer, Assistant

Secretary/Treasurer    |       |

Sherman McKinniss.  Mr. McKinniss served as President and ChiefExecutive Officer from August 1991 to December 2001 and again was appointedPresident and Chief Executive Officer in June 2003.  Mr. McKinniss has also served as Director ofthe Company since 1991, and was appointed as Chairman of the Board in December1994.  He was President and a Director ofRotonics from 1987-1991.  Previously, heowned and operated RMI, which he sold to the Company in 1986.  Mr. McKinniss is also a 7.5% owner ofAtlantic Meeco, Inc., a marina dock building company, and has served as a boardmember of that company since 1993.

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E. Paul Tonkovich.  Mr. Tonkovich has served as Secretary and aDirector of the Company since August 1991. He has been a practicing attorney since January 1966.  He was legal counsel to Mr. McKinniss andpredecessors of the Company and is now legal counsel for the Company.

DouglasW. Russell.  Mr.Russell has served as Chief Financial Officer and Assistant Secretary/Treasurerof the Company since 1991.  Prior tothat, he was a Senior Auditor for the accounting firm Hallstein & Warnerfrom 1988 until 1991, and was Assistant Controller of RMI from September 1985to September 1987.  Mr. Russell is theson-in-law of Mr. McKinniss.

Exceptas described above under “Information Concerning the Board of Directors” and “ExecutiveOfficers” there are no other relationships between the directors and officersand the Company.

Item 11.  Executive Compensation

Compensation of ExecutiveOfficers

The followingtable discloses compensation received in the three fiscal years endedJune 30, 2006, by the Company’s Chief Executive Officer, and the othermost highly compensated executive officer of the Company receiving more than$100,000 in annual salary and bonus.

**SUMMARYCOMPENSATION TABLE**
|                                                | ** ** | ** ** | ** ** | **ANNUAL COMPENSATION** | ** ** | **LONG TERM  COMPENSATION  AWARDS OPTIONS** | ** ** |
|------------------------------------------------|------------|------------|------------|------------------------------|------------|-------------------------------------------------------|------------|
| **NAME AND PRINCIPAL POSITION** | ** ** | **YEAR**   | ** ** | **Salary**                   | ** ** | **Bonus (1)**                                    | ** ** | **Other Annual  Compensation(2)** | ** ** | **Options** | ** ** |
| Sherman McKinniss                              |       | 2006       |       | $                            | 444,124    |                                                  | $          | 37,398 |   | $ | 15,833 |   | — |   |
| President, CEO and                             |       | 2005       |       | $                            | 418,271    |                                                  | $          | 30,108 |   | $ | 15,833 |   | — |   |
| Chairman of the Board                          |       | 2004       |       | $                            | 398,282    |                                                  | $          | 14,785 |   | $ | 15,833 |   | — |   |
|                                           |       |       |       |                         |       |                                                  |       |   |   |   |   |
| Douglas W. Russell                             |       | 2006       |       | $                            | 162,633    |                                                  | $          | 16,699 |   | $ | 1,163 |   | — |   |
| Treasurer, CFO and                             |       | 2005       |       | $                            | 153,173    |                                                  | $          | 16,054 |   | $ | 1,163 |   | — |   |
| Assistant Secretary                            |       | 2004       |       | $                            | 146,721    |                                                  | $          | 11,321 |   | $ | 1,163 |   | — |   |

 

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(1)           Bonusamounts paid each year are based on preceding fiscal year’s results.

(2)           Consists of the annual premium on a termlife insurance policy covering the named executives, as to which they are thenamed insured and beneficiary.  TheCompany is obligated to pay these premiums pursuant to the executives’respective employment agreement.

Options/Executive Officers

There were nooptions granted to officers listed in the summary compensation table during fiscal2006.

Aggregated Options Exercisesand Option Values Table

There were noexercised or outstanding options for the officers listed in the summarycompensation table in fiscal 2006.

Report of theBoard/Executive Compensation

Executive Officers.The annual compensation of the Company’s executive officers, other than Mr.McKinniss, is recommended by the President and reviewed and approved by theBoard of Directors.  The salaryrecommendations are based on the Chairman’s perspective of the value of thatposition at the Company, the executive’s individual performance, the Companyperformance and compensation for similar positions at other companies withinthe industry.  The Company believes thatcompensation of the Company’s executive officers should be sufficient toattract and retain highly qualified personnel and should also providemeaningful incentives for superior performance. The Company seeks to reward achievement of long and short-termperformance goals measured by successful development of new products, increasesin sales volumes, meeting or exceeding financial targets established by theBoard of Directors, and other factors. The Company’s executive compensation generally consists of a base salaryand a cash bonus.  Executive compensationpaid to Mr. Russell, consisting of a base salary and a cash bonus, isdetermined under the guidelines of his employment agreement (see “EmploymentAgreements”).  The employment agreementestablishes a base salary and a minimum annual increase tied to the cost of living.  The Board of Directors may approve anincrease in base salary in excess of that required by the contractual cost ofliving adjustment based on the Board’s determination of Mr. Russell’srespective performance and contribution using the

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same process andphilosophy as indicated above.  The cashbonus paid to Mr. Russell during fiscal 2006 was approved by the Board ofDirectors in accordance with the terms outlined in his employment agreement.

The Board ofDirectors may also issue stock options pursuant to the Company’s Stock OptionPlan as additional long-term incentive compensation to its key executives.

Chief ExecutiveOfficer.  The Company’sBoard of Directors meets once each year, separately from Sherman McKinniss, todiscuss compensation arrangements for Mr. McKinniss, President, CEO andChairman, and the employment contract with him (see “Employment Agreements”).  The base salary and bonus paid to Mr.McKinniss is determined within the guidelines of his employment agreement,which establishes a base salary and a minimum annual increase tied to the costof living.  The Board of Directors mayapprove of an increase in base salary in excess of that required by thecontractual cost of living adjustment based on the Board’s determination of Mr.McKinniss’ performance and contribution using a similar process and philosophyas that employed for other executive officers. The Board of Directors assess Mr. McKinniss’ leadership, performance andcontributions towards achieving the Company’s long-term strategic and financialobjectives.  There is no specific formulaemployed between the Company’s stated goals and performance and the Board’sdetermination; instead the Board’s judgment and discretion is used indetermining the base salary.  The cashbonus paid to Mr. McKinniss during fiscal 2006 was approved by the Board ofDirectors in accordance with the terms outlined in his employment agreement.

Compensation Committee -Interlocks and Insider Participation

As describedabove, the Company’s compensation decisions are made by the Board of Directorsas a whole, based on recommendations made to the Board by Mr. McKinniss, theCompany’s Chief Executive Officer, for other executive officers.  Mr. McKinniss does not participate indiscussions regarding his own compensation. No officers of the Company sit on the compensation committee of anyother company’s board of directors.

Employment Agreements

The Company hasentered into an employment contract with Mr. McKinniss which expires June 30,2007.  This agreement is subject to anautomatic annual extension for one additional year unless 90 days prior to itsanniversary a written notice is served by either party to terminate theagreement.  The agreement provides for aminimum annual base salary of $402,771 and is increased on each anniversary ofthe agreement (July 1) by an amount at least equal to the annual percentageincrease in the Consumer Price Index for the Los Angeles-Long Beach area.  The Board of Directors may, in its discretion,increase the base salary by a greater amount. Effective July 2, 2006, the annual salary for Mr. McKinniss was adjustedto $459,701 pursuant to the terms of his employment agreement.  See “Report of the Board/ExecutiveCompensation”.  In addition to Mr.McKinniss’ base salary, under the agreement he is to be paid an annual bonusequal to one percent (1%) of the total operating income of the Company (beforetaxes and extraordinary items) earned by the Company for the preceding fiscalyear ending June 30th.  The agreementcontains certain noncompetition and nondisclosure covenants.  The agreement also allows for termination ofemployment by either party voluntarily or for cause as outline in theagreement.  If the Company terminates theemployment of Mr. McKinniss for reasons other than cause, disability or death,Mr. McKinniss will be entitled to receive termination payments equal to thecontinuance of his current base salary for a period of twelve (12) months fromtermination.

The Company hasentered into an employment agreement with Mr. Russell that expires September30, 2007.  This agreement is subject toan automatic annual extension for one additional year unless 90 days prior toits anniversary a written notice is served by either party to terminate theagreement.  The agreement provides for aminimum annual base salary of $147,493 and is increased on each July 1st during the agreement term by an amount atleast equal to the annual percentage in the Consumer Price Index for the LosAngeles-Long Beach area.  The Board ofDirectors may, in its discretion, increase the base salary by a greateramount.  Effective July 2, 2006, theannual salary to Mr. Russell was increased to $168,334.  See “Report of the Board/ExecutiveCompensation”.  In addition to Mr.Russell’s base salary, under the agreement he is to be paid an annual bonusequal to one-half of one percent (.5%) of the total operating income of theCompany (before taxes and extraordinary items) earned by the Company for thepreceding fiscal year ending June 30th. The agreement contains certain noncompetition and nondisclosurecovenants.  The agreement also allows fortermination of employment by either party voluntarily or for cause, disabilityor death, Mr. Russell will be entitled to receive as a termination payment, hiscurrent salary for a period of twelve (12) months from termination.

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PERFORMANCE GRAPH

The followinggraph shows a comparison of five-year cumulative total stockholder return amongthe Company, the Standard & Poor 500 Index and the Standard & PoorSpecialty Chemical Index, assuming $100 invested on July 1, 2001 in each. (1)

**PERFORMANCEGRAPH**

**FORROTONICS MANUFACTURING INC.**

**Comparison of Five Year Cumulative Total Return**

 
|                                   | ** ** | **June Index Returns** | ** ** |
|-----------------------------------|------------|------------------------|------------|
| **Company/Index**                 | ** ** | **2001**               | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| Rotonics  Manufacturing Inc (RMI) |       | $                      | 100.00     |   | $ | 133.40 |   | $ | 193.04 |   | $ | 213.97 |   | $ | 435.77 |   | $ | 330.62 |   |
| S&P 500  Index                |       | $                      | 100.00     |   | $ | 82.01 |   | $ | 82.22 |   | $ | 97.93 |   | $ | 104.12 |   | $ | 113.11 |   |
| S&P 500 Specialty  Chemicals  |       | $                      | 100.00     |   | $ | 123.05 |   | $ | 116.89 |   | $ | 147.54 |   | $ | 155.97 |   | $ | 183.22 |   |

 

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(1) Total returnassumes reinvestment of dividends.

Item 12.   Security Ownership of Certain BeneficialOwners and Management

The followingtable and the footnotes thereto set forth, as of September 20, 2006, certaininformation regarding Common Stock of the Company beneficially owned by eachperson who is known to the Company to be the beneficial owner of more than 5%of the Common Stock of the Company, by each director and by each executiveofficer named in the Summary Compensation Table, and by all directors andexecutive officers of the Company as a group. In addition, shares are deemed to be beneficially owned by a person ifthe person has the right to acquire shares (for example, upon exercise of anoption or warrant) within 60 days of the date as of which the information isprovided.  In computing the percentageownership of any person, the amount of shares is deemed to include the amountof shares beneficially owned by such person (and only such person) by reason ofsuch acquisition rights.  As a result,the percentage of outstanding shares of any person as shown in the followingtable does not necessarily reflect the person’s actual voting power at anyparticular date.
| Name of Beneficial Owner                                             | ** ** | **Amount and Nature of  Beneficial Ownership **(1) | ** **               | **Percent  of Class** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|--------------------------|----------------------------|------------|
| 5% Shareholders:                                                                    |       |                                                                        |                     |                       |       |
| Linn Derickson                                                                      |       | 1,020,437                                                                   | (10)                     | 8.7                        | %          |
| Officers and Directors:                                                             |       |                                                                        |                     |                       |       |
| Sherman  McKinniss**                                                                |       | 5,368,721                                                                   | (2)                      | 45.7                       | %          |
| Marc L. Berman**                                                                    |       | 125,599                                                                     | (3)                      | 1.1                        |       |
| Larry DeDonato**                                                                    |       | 143,332                                                                     | (4)                      | 1.2                        |       |
| Larry L.  Snyder**                                                                  |       | 115,000                                                                     | (5)                      | 1.0                        |       |
| E. Paul  Tonkovich**                                                                |       | 71,655                                                                      | (6)                      | *                          |       |
| Jules Sandford**                                                                    |       | 24,000                                                                      | (7)                      | *                          |       |
| Brent A. Brown**                                                                    |       | —                                                                      |                     | *                          |       |
| Bill Allen**                                                                        |       | 30,000                                                                      | (8)                      | *                          |       |
| Douglas W.  Russell**                                                               |       | 90,664                                                                      | (9)                      | *                          |       |
| All directors and all  executive officers of the Company as a group (9 individuals) |       | 5,968,971                                                                   | (2)(3)(4)(5)(6)(7)(8)(9) | 50.8                       |       |

 

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*            Less than 1%.

**         The address for all the officers anddirectors is 17022 S. Figueroa Street, Gardena, CA 90248.

(1)           Unless otherwise indicated, shares areheld with sole voting and investment power.

(2)           Consisting of:  (i) 5,368,721 shares of Common Stock held byMr. McKinniss jointly with his spouse.

(3)           Consisting of:  (i) 89,266 shares of Common Stock held by Mr.Berman jointly with his spouse; and (ii) 36,333 shares of Common Stock held bya pension plan for the benefit of Mr. Berman.

(4)           Consisting of: (i) 133,333 shares of Common Stock held by Mr. DeDonato jointly with hisspouse; (ii) 3,333 shares of Common Stock held by a pension plan for thebenefit of Mr. DeDonato; and (iii) 6,666 shares of Common Stock held by theadult child of Mr. DeDonato.

(5)           Consisting of: (i) 115,000 shares of Common Stock held by Mr. Snyder jointly with hisspouse.

(6)           Consisting of: (i) 56,655 shares of Common Stock held by Mr. Tonkovich as trustee of aprofit sharing trust of which Mr. Tonkovich is a beneficiary; and (ii) 15,000shares of Common Stock held by Mr. Tonkovich jointly with his spouse.

(7)           Consisting of:  (i) 24,000 shares of Common Stock held by Mr.Sandford jointly with his spouse.

(8)           Consisting of:  (i) 30,000 shares of Common Stock held by Mr.Allen jointly with his spouse.

(9)           Consisting of:  (i) 50,664 shares of Common Stock held by Mr.Russell jointly with his spouse; and (ii) 40,000 shares of Common Stock held bythe dependent children of Mr. Russell.

(10)         Consisting of:  (i) 1,020,437 shares of Common Stock held byMr. Derickson jointly with his spouse. Mr. Derickson’s address is 1950 East McKinley, Mishawaka, Indiana  46545.

Item 13.  Certain Relationships and Related Transactions

Forinformation required under this section, reference is also made to item 10under the headings “Information Concerning the Board of Directors”, and “ExecutiveOfficers.”

Aspart of the proposed merger between the Company and Spell Capital Partners,LLC, the Company has signed a Letter of Agreement with Berman Capital, LLC, afinancial advisor to the Company of which Mr. Marc Berman, a director of theCompany, is a principal of Berman Capital, LLC. The agreement provides for compensation of up to $352,480 upon thesuccessful completion of the proposed merger.

Item 14.  Principal Accounting Fees and Services

Audit Committee Report(1)

The AuditCommittee reviews the Company’s financial reporting process on behalf of theBoard.  Management has the primaryresponsibility for the financial statements and the reporting process,including the system of internal controls. The Board adopted a written Audit Committee Charter on June 9, 2000 thatwas amended on September 26, 2003.

In this context,the Audit Committee has met and held discussions with management and Windes& McClaughry Accountancy Corporation (“Windes”) the Company’s independentregistered public accounting firm during fiscal 2006.  Management represented to the Audit Committeethat the Company’s consolidated financial statements were prepared inaccordance with generally accepted accounting principles, and the AuditCommittee has reviewed and discussed the consolidated financial statements withmanagement and the independent registered public accounting firm.  The Audit Committee has discussed with Windesthe matters required to be discussed by Statement on Auditing Standards No. 61(Communication With Audit Committees).

In addition, theAudit Committee has discussed with Windes the public accounting firm’sindependence from the Company and its management, including the matters in thewritten disclosures required by the Independence Standards Board Standard No. 1(Independence Discussions With Audit Committees).  The Audit Committee has received the letterfrom the independent registered public accounting firm required therein.  The Audit Committee has also consideredwhether the independent registered public accounting firm’s provision of othernon-audit services to the Company is compatible with the registered publicaccounting firm’s independence.

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(1) This reportshall not be deemed to be “soliciting material” or to be filed with theSecurities and Exchange Commission, nor shall any information in this report beincorporated by reference into any past or future filing under the SecuritiesAct or the Exchange Act, except to the extent the Company specificallyincorporates it by reference into such filing.

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The AuditCommittee discussed with the Company’s independent registered public accountingfirm the overall scope and plans for their respective audits.  The Audit Committee meets with theindependent registered public accounting firm, with and without managementpresent, to discuss the results of their examinations, the evaluations of theCompany’s internal controls, and the overall quality of the Company’s financialreporting.

In reliance on thereviews and discussions referred to above, the Audit Committee recommended tothe Board, and the Board has approved, that the audited financial statements beincluded in the Company’s Annual Report on Form 10-K for the year ended June30, 2006, for filing with the Securities and Exchange Commission.  The Audit Committee and the Board also haveapproved the selection of the Company’s independent registered publicaccounting firm.  The Audit Committee hasalso pre-approved any permitted non-audit services provided by the Company’sindependent registered public accounting firm.

Fees Paid to the Independent Registered PublicAccounting Firm

The Audit Committee,with the ratification of the stockholders, engaged Windes & McClaughryAccountancy Corporation (“Windes”) to perform an annual audit of the Company’sfinancial statements for the fiscal year ended June 30, 2006.

**Fees Paid to Windes**
|                     | ** ** | **FY 04-05** | ** ** | **FY 05-06** | ** ** |
|---------------------|------------|-------------------|------------|-------------------|------------|
| Audit Fees          |       | $                 | 81,300     |              | $          | 86,000 |   |
| Audit-Related  Fees |       | —            |       | —            |       |
| Tax Fees            |       | —            |       | —            |       |
| Subtotal            |       | 81,300            |       | 86,000            |       |
| All Other Fees      |       | —            |       | —            |       |
| Total Fees          |       | $                 | 81,300     |              | $          | 86,000 |   |

Services Providedby Windes

All services rendered by Windes are permissible underapplicable laws and regulations, and are approved by the Audit Committee.  Pursuant to the SEC, the fees paid to Windesfor services are disclosed in the table above and under the categories listedbelow.

1)              AuditFees — These are fees for professional services performed by Windes for theaudit of the Company’s annual financial statements and review of financialstatements included in the Company’s 10-Q filings, and services that arenormally provided in connection with statutory and regulatory filings orengagements.

2)              TaxFees — These are fees for professional services performed by Windes withrespect to tax audit assistance relating to state franchise tax returns.

Policy on AuditCommittee Pre-Approval of Audit and Non-Audit Services of Independent Auditor

The AuditCommittee’s policy is to pre-approve all audit and non-audit services providedby the independent auditor. These services may include audit services,audit-related services, tax services and other services. Pre-approval isgenerally provided for up to one year and any pre-approval is detailed as tothe particular service of category of services and is generally subject to aspecific budget. The Audit Committee has delegated pre-approval authority toits Chairman when expedition of services is necessary. The independent auditorand management are required to periodically report to the full Audit Committeeregarding the extent of services provided by the independent auditor inaccordance with this pre-approval, and the fees for the services performed todate. None of the fees paid to the independent auditor under the categoriesAudit-Related Fees, Tax Fees and All Other Fees described above were approvedby the Audit Committee after services were rendered pursuant to the de minimusexception established by the SEC.

24

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PART IV

Item 15.  Exhibits and Financial Statement Schedules.
|  |   | (a) | The following documents are filed as part of this  report: |   |   |
|--|--------|-----|------------------------------------------------------------|--------|--------|

 

|        | ** ** | ** ** | ** ** | ** **                                                                                                                                            | ** ** |
|--------|------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|   |       |       | (1)        | Financial Statements:                                                                                                                                 |       |   |
|   |       |       |       | Report of Independent Registered Public Accounting  Firm                                                                                              |       |   |
|   |       |       |       | Consolidated  Balance Sheets, June 30, 2006 and 2005                                                                                                  |       |   |
|   |       |       |       | Consolidated Statements of Operations and  Comprehensive Income,                                                                                      |       |   |
|   |       |       |       | Years Ended June 30, 2006, 2005, and 2004                                                                                                             |       |   |
|   |       |       |       | Consolidated Statements of Changes in Stockholders’  Equity,                                                                                     |       |   |
|   |       |       |       | Years Ended June 30, 2006, 2005, and 2004                                                                                                             |       |   |
|   |       |       |       | Consolidated Statements of Cash Flows,                                                                                                                |       |   |
|   |       |       |       | Years Ended June 30, 2006, 2005, and 2004                                                                                                             |       |   |
|   |       |       |       | Notes to Consolidated Financial Statements                                                                                                            |       |   |
|   |       |       |       |                                                                                                                                                  |       |   |
|   |       |       | (2)        | Financial Statement Schedules:                                                                                                                        |       |   |
|   |       |       |       |                                                                                                                                                  |       |   |
|   |       |       | II         | Valuation and Qualifying Accounts,                                                                                                                    |       |   |
|   |       |       |       | Years Ended June 30, 2006, 2005, and 2004                                                                                                             |       |   |
|   |       |       |       |                                                                                                                                                  |       |   |
|   |       |       |       | All other schedules are omitted because they are not  applicable, or the required information is shown in the financial statements  or notes thereto. |       |   |
|   |       |       |       |                                                                                                                                                  |       |   |
|   |       |       | (3)        | The following exhibits are filed or furnished as  part of this report:                                                                                |       |   |

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                       |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number      | ** ** | **Exhibit Title**                                                                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                                             |
| 2.1         |       | Agreement and Plan of Merger, dated August 29, 2006,  by and among Rotonics Holding Corporation, RMI Minnesota Corporation and  Rotonics Manufacturing Inc. — Incorporated by Reference to Form 8-K filed  with the SEC on August 30, 2006. |
|        |       |                                                                                                                                                                                                                                             |
| 2.2         |       | Share Exchange and Voting Agreement dated August 29,  2006 — Incorporated by Reference to Form 8-K filed with the SEC on August 30,  2006.                                                                                                  |
|        |       |                                                                                                                                                                                                                                             |
| 2.3         |       | Agreement for Investment Banking Services Between  Berman Capital, LLC and Rotonics Manufacturing Inc. dated August 28, 2006.                                                                                                                    |
|        |       |                                                                                                                                                                                                                                             |
| 23.1        |       | Consent of Independent Registered Public Accounting  Firm — Windes & McClaughry Accountancy Corporation                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                             |
| 31.1        |       | Certification Pursuant to Rule 13a-14 Under the  Securities Exchange Act of 1934                                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                             |
| 31.2        |       | Certification Pursuant to Rule 13a-14 Under the  Securities Exchange Act of 1934                                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                             |
| 32.1        |       | Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act                                                                                                                                                                                 |

 

25

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SIGNATURES

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|        | ROTONICS MANUFACTURING INC.         |
|--------|-------------------------------------|
|   |                                |   |   |
|        | By                                  |   | /s/ | SHERMAN McKINNISS |
|   |                                |   | Sherman McKinniss |
|   | President, Chief  Executive Officer |
|   |                                |   | Chairman of the Board |
|   |                                |   | Date 09/25/2006 |
|   |                                |   |   |
|   | By                                  |   | /s/ | DOUGLAS W. RUSSELL |
|   |                                |   | Douglas W. Russell |
|   |                                |   | Chief Financial Officer |
|   |                                |   | Assistant  Secretary/Treasurer |
|   |                                |   | Date 09/25/2006 |
|        |                                     |  |  |  |  |

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESE PRESENTS, that each personwhose signature appears below constitutes and appoints Sherman McKinniss andDouglas W. Russell, jointly and severally, his or her attorneys-in-fact, eachwith the power of substitution, for him or her in any and all capacities, tosign any amendments to this Report on Form 10-K, and to file the same,with exhibits thereto and other documents in connection therewith with theSecurities and Exchange Commission, hereby ratifying and confirming all thateach of said attorneys-in-fact, or his or her substitute or substitutes may door cause to be done by virtue hereof.

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the

following personson behalf of the Registrant and in the capacities and on the dates indicated.
| Signature             | ** ** | **Title** | ** **          | **Date** |
|-----------------------|------------|-----------|---------------------|----------|
|                  |       |      |                |     |   |
| /s/ E. PAUL TONKOVICH |       |      | Secretary, Director |     | 09/25/2006 |
| E. Paul Tonkovich     |       |      |                |     |
|                  |       |      |                |     |
| /s/ BRENT A. BROWN    |       |      | Director            |     | 09/25/2006 |
| Brent A. Brown        |       |      |                |     |
|                  |       |      |                |     |
| /s/ LARRY M. DEDONATO |       |      | Director            |     | 09/25/2006 |
| Larry M. DeDonato     |       |      |                |     |
|                  |       |      |                |     |
| /s/ LARRY L. SNYDER   |       |      | Director            |     | 09/25/2006 |
| Larry L. Snyder       |       |      |                |     |
|                  |       |      |                |     |
| /s/ MARC L. BERMAN    |       |      | Director            |     | 09/25/2006 |
| Marc L. Berman        |       |      |                |     |
|                  |       |      |                |     |
| /s/ JULES SANDFORD    |       |      | Director            |     | 09/25/2006 |
| Jules Sandford        |       |      |                |     |
|                  |       |      |                |     |
| /s/ BILL ALLEN        |       |      | Director            |     | 09/25/2006 |
| Bill Allen            |       |      |                |     |
|                       |            |           |                     |          |  |  |

 

26

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REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

and Stockholders ofRotonics Manufacturing Inc.:

We have audited theaccompanying consolidated balance sheets of ROTONICS MANUFACTURING INC. (aDelaware corporation) as of June 30, 2006 and 2005 and the related consolidatedstatements of operations and comprehensive income, changes in stockholders’equity and cash flows for each of the three years in the period ended June 30,2006.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of RotonicsManufacturing Inc. as of June 30, 2006 and 2005, and the results of itsoperations and its cash flows for each of the three years in the period endedJune 30, 2006 in conformity with accounting principles generally accepted inthe United States.

Our audits were made for the purpose of forming an opinionon the basic financial statements taken as a whole.  The schedule listed in the index appearingunder Item 15(a)(2) is presented for purposes of complying with the Securitiesand Exchange Commission’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.
| /s/ WINDES & McCLAUGHRY ACCOUNTANCY  CORPORATION              |   |
|-------------------------------------------------------------------|--------|
|                                                              |
|                                                              |
| Long Beach, California                                            |
| August 11, 2006                                                   |
| (except for Note 16, as to which the date is  September 19, 2006) |

F-1

----

ROTONICS MANUFACTURINGINC.

CONSOLIDATED BALANCE SHEETS
| ** **                                                                                                                                 | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                                                 | ** ** | **2006**          | ** ** | **2005** | ** ** |
| ASSETS                                                                                                                                     |       |              |       |   |   |
| Current assets:                                                                                                                            |       |              |       |   |   |
| Cash                                                                                                                                       |       | $                 | 81,500     |   | $ | 310,500 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $231,700 and $291,500,  respectively                                       |       | 5,688,600         |       | 5,430,800 |   |
| Inventories                                                                                                                                |       | 7,875,800         |       | 6,974,000 |   |
| Deferred income  taxes, net                                                                                                                |       | 174,500           |       | 226,900 |   |
| Prepaid expenses  and other current assets                                                                                                 |       | 200,400           |       | 215,700 |   |
|                                                                                                                                       |       |              |       |   |   |
| Total current  assets                                                                                                                      |       | 14,020,800        |       | 13,157,900 |   |
|                                                                                                                                       |       |              |       |   |   |
| Property, plant and  equipment, net                                                                                                        |       | 12,992,300        |       | 13,196,700 |   |
| Intangible assets, net                                                                                                                     |       | 125,500           |       | 171,100 |   |
| Other assets                                                                                                                               |       | 67,900            |       | 64,500 |   |
|                                                                                                                                       |       |              |       |   |   |
|                                                                                                                                       |       | $                 | 27,206,500 |   | $ | 26,590,200 |   |
|                                                                                                                                       |       |              |       |   |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                 |       |              |       |   |   |
|                                                                                                                                       |       |              |       |   |   |
| Current liabilities:                                                                                                                       |       |              |       |   |   |
| Current portion  of long-term debt                                                                                                         |       | $                 | —     |   | $ | 864,300 |   |
| Accounts payable                                                                                                                           |       | 2,433,000         |       | 2,819,300 |   |
| Accrued  liabilities                                                                                                                       |       | 798,600           |       | 901,300 |   |
|                                                                                                                                       |       |              |       |   |   |
| Total current  liabilities                                                                                                                 |       | 3,231,600         |       | 4,584,900 |   |
|                                                                                                                                       |       |              |       |   |   |
| Bank line of credit                                                                                                                        |       | 2,000,000         |       | 1,029,400 |   |
| Long-term debt, less  current portion                                                                                                      |       | —            |       | 252,400 |   |
| Deferred income taxes,  net                                                                                                                |       | 2,008,500         |       | 2,304,200 |   |
| Other liabilites                                                                                                                           |       | 83,000            |       | 119,000 |   |
|                                                                                                                                       |       |              |       |   |   |
| Total  liabilities                                                                                                                         |       | 7,323,100         |       | 8,289,900 |   |
|                                                                                                                                       |       |              |       |   |   |
| Commitments and  contingencies (Note 12)                                                                                                   |       |              |       |   |   |
|                                                                                                                                       |       |              |       |   |   |
| Stockholders’ equity:                                                                                                                 |       |              |       |   |   |
| Common stock, stated  par value $.01: authorized 20,000,000 shares; issued and outstanding  11,752,265 and 11,940,598 shares, respectively |       | 21,517,000        |       | 22,029,500 |   |
| Accumulated other  comprehensive income/(loss)                                                                                             |       | 800               |       | (15,800 | ) |
| Accumulated deficit                                                                                                                        |       | (1,634,400        | )          | (3,713,400 | ) |
|                                                                                                                                       |       |              |       |   |   |
| Total  stockholders’ equity                                                                                                           |       | 19,883,400        |       | 18,300,300 |   |
|                                                                                                                                       |       |              |       |   |   |
|                                                                                                                                       |       | $                 | 27,206,500 |   | $ | 26,590,200 |   |

The accompanying notesare an integral part of these financial statements.

F-2

----

ROTONICS MANUFACTURINGINC.

CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME
| ** **                                                            | ** ** | **For the year ended June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2006**                                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                  |       |                                                     |       |   |   |   |   |
| Net sales                                                             |       | $                                                        | 48,051,200 |   | $ | 45,131,600 |   | $ | 40,332,900 |   |
| Costs and expenses:                                                   |       |                                                     |       |   |   |   |   |
| Cost of goods  sold                                                   |       | 37,730,700                                               |       | 35,190,100 |   | 31,140,600 |   |
| Gross profit                                                          |       | 10,320,500                                               |       | 9,941,500 |   | 9,192,300 |   |
| Selling,  general, and administrative expenses                        |       | 6,666,800                                                |       | 7,088,500 |   | 6,888,600 |   |
| Plant  consolidation expenses (see Note 13)                           |       | 505,100                                                  |       | — |   | — |   |
| Income from operations                                                |       | 3,148,600                                                |       | 2,853,000 |   | 2,303,700 |   |
|                                                                  |       |                                                     |       |   |   |   |   |
| Other income/(expense):                                               |       |                                                     |       |   |   |   |   |
| Interest expense                                                      |       | (138,400                                                 | )          | (196,900 | ) | (211,800 | ) |
| Other income,  net                                                    |       | 253,600                                                  |       | 233,100 |   | 110,800 |   |
| Total other  income/(expense), net                                    |       | 115,200                                                  |       | 36,200 |   | (101,000 | ) |
|                                                                  |       |                                                     |       |   |   |   |   |
| Income before income  taxes                                           |       | 3,263,800                                                |       | 2,889,200 |   | 2,202,700 |   |
| Income tax provision                                                  |       | (1,184,800                                               | )          | (1,119,300 | ) | (898,500 | ) |
|                                                                  |       |                                                     |       |   |   |   |   |
| Net income                                                            |       | 2,079,000                                                |       | 1,769,900 |   | 1,304,200 |   |
|                                                                  |       |                                                     |       |   |   |   |   |
| Other comprehensive  income, before tax:                              |       |                                                     |       |   |   |   |   |
| Unrealized  holding gain arising during the period                    |       | 12,200                                                   |       | 1,100 |   | 36,800 |   |
| Less:  Reclassification adjustments for losses included in net income |       | 15,500                                                   |       | 79,900 |   | 119,400 |   |
| Total other  comprehensive income before tax                          |       | 27,700                                                   |       | 81,000 |   | 156,200 |   |
| Income tax  provision related to items of other comprehensive income  |       | (11,100                                                  | )          | (32,400 | ) | (62,400 | ) |
| Total other  comprehensive income                                     |       | 16,600                                                   |       | 48,600 |   | 93,800 |   |
| Comprehensive income                                                  |       | $                                                        | 2,095,600  |   | $ | 1,818,500 |   | $ | 1,398,000 |   |
|                                                                  |       |                                                     |       |   |   |   |   |
| Net income per common  share:                                         |       |                                                     |       |   |   |   |   |
| Basic and  diluted                                                    |       |                                                     |       |   |   |   |   |
| Net income                                                            |       | $                                                        | 0.18       |   | $ | 0.15 |   | $ | 0.11 |   |

The accompanying notesare an integral part of these financial statements.

F-3

----

ROTONICS MANUFACTURINGINC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY
| ** **                  | ** ** | ** ** | ** ** | **Accumulated  Other  Comprehensive  Income/(Loss)** | ** ** | **Accumulated  Deficit** | ** ** | **Total**  | ** ** |
|-----------------------------|------------|------------|------------|------------------------------------------------------|------------|--------------------------|------------|------------|------------|
| **Common Stock**       |
| **Shares**                  | ** ** | **Amount** |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Balances, June 30, 2003     |       | 12,344,791 |       | $                                                    | 22,699,600 |                     | $          | (158,200   | )          | $ | (5,591,400 | ) | $ | 16,950,000 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Exercise of stock  options  |       | 96,000     |       | 108,000                                              |       | —                   |       | —     |       | 108,000 |   |
| Repurchase of common  stock |       | (459,633   | )          | (679,700                                             | )          | —                   |       | —     |       | (679,700 | ) |
| Common stock dividends      |       | —     |       | —                                               |       | —                   |       | (599,100   | )          | (599,100 | ) |
| Other comprehensive  income |       | —     |       | —                                               |       | 93,800                   |       | —     |       | 93,800 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Net income                  |       | —     |       | —                                               |       | —                   |       | 1,304,200  |       | 1,304,200 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Balances, June 30, 2004     |       | 11,981,158 |       | 22,127,900                                           |       | (64,400                  | )          | (4,886,300 | )          | 17,177,200 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Repurchase of common  stock |       | (40,560    | )          | (98,400                                              | )          | —                   |       | —     |       | (98,400 | ) |
| Common stock dividends      |       | —     |       | —                                               |       | —                   |       | (597,000   | )          | (597,000 | ) |
| Other comprehensive  income |       | —     |       | —                                               |       | 48,600                   |       | —     |       | 48,600 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Net income                  |       | —     |       | —                                               |       | —                   |       | 1,769,900  |       | 1,769,900 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Balances, June 30, 2005     |       | 11,940,598 |       | 22,029,500                                           |       | (15,800                  | )          | (3,713,400 | )          | 18,300,300 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Repurchase of common  stock |       | (188,333   | )          | (512,500                                             | )          | —                   |       | —     |       | (512,500 | ) |
| Other comprehensive  income |       | —     |       | —                                               |       | 16,600                   |       | —     |       | 16,600 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Net income                  |       | —     |       | —                                               |       | —                   |       | 2,079,000  |       | 2,079,000 |   |
|                        |       |       |       |                                                 |       |                     |       |       |       |   |   |
| Balances, June 30, 2006     |       | 11,752,265 |       | $                                                    | 21,517,000 |                     | $          | 800        |       | $ | (1,634,400 | ) | $ | 19,883,400 |   |

The accompanying notesare an integral part of these financial statements.

F-4

----

ROTONICS MANUFACTURINGINC.

CONSOLIDATED STATEMENT OF CASH FLOWS
| ** **                                                                         | ** ** | **For the year ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                              |       |                            |       |   |   |   |   |
| Net income                                                                         |       | $                               | 2,079,000  |   | $ | 1,769,900 |   | $ | 1,304,200 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                            |       |   |   |   |   |
| Depreciation and  amortization                                                     |       | 2,155,600                       |       | 2,177,000 |   | 2,182,700 |   |
| Gain on sales of plant  and equipment                                              |       | (44,600                         | )          | (109,600 | ) | (1,000 | ) |
| Deferred income tax  benefit                                                       |       | (254,400                        | )          | (104,800 | ) | (83,300 | ) |
| Provision for doubtful  accounts                                                   |       | (36,800                         | )          | 146,100 |   | 100,400 |   |
| Changes in assets and  liabilities:                                                |       |                            |       |   |   |   |   |
| (Increase)/decrease in  accounts receivable                                        |       | (221,000                        | )          | 261,600 |   | (1,465,600 | ) |
| Increase in inventories                                                            |       | (901,800                        | )          | (345,000 | ) | (258,600 | ) |
| Decrease/(increase) in  prepaid expenses and other current assets                  |       | 15,300                          |       | 50,800 |   | (10,100 | ) |
| (Increase)/decrease in  other assets                                               |       | (2,000                          | )          | 800 |   | (22,800 | ) |
| Increase/(decrease) in  accounts payable                                           |       | 210,700                         |       | (629,500 | ) | 676,200 |   |
| (Decrease)/increase in  accrued liabilities                                        |       | (76,400                         | )          | 73,300 |   | 10,500 |   |
| (Decrease)/increase in  other liabilities                                          |       | (36,000                         | )          | 36,000 |   | 83,000 |   |
| Net cash provided by operating activities                                          |       | 2,887,600                       |       | 3,326,600 |   | 2,515,600 |   |
|                                                                               |       |                            |       |   |   |   |   |
| Cash flows from investing activities:                                              |       |                            |       |   |   |   |   |
| Collections on notes  receivable                                                   |       | —                          |       | 85,000 |   | 92,100 |   |
| Capital expenditures                                                               |       | (1,923,200                      | )          | (1,801,100 | ) | (1,525,000 | ) |
| Proceeds from sales of  plant and equipment                                        |       | 62,200                          |       | 432,300 |   | 1,500 |   |
| Distribution from  investment in partnership                                       |       | —                          |       | 100,900 |   | 3,400 |   |
| Net cash used in investing activities                                              |       | (1,861,000                      | )          | (1,182,900 | ) | (1,428,000 | ) |
|                                                                               |       |                            |       |   |   |   |   |
| Cash flows from financing activities:                                              |       |                            |       |   |   |   |   |
| Borrowings under line  of credit                                                   |       | 10,555,200                      |       | 11,847,300 |   | 10,502,100 |   |
| Repayments under line  of credit                                                   |       | (9,584,600                      | )          | (12,175,200 | ) | (9,526,000 | ) |
| Repayments of long-term  debt                                                      |       | (1,116,700                      | )          | (864,300 | ) | (864,200 | ) |
| Payment of common stock  dividends                                                 |       | (597,000                        | )          | (599,100 | ) | (616,000 | ) |
| Proceeds from exercise  of stock options                                           |       | —                          |       | — |   | 108,000 |   |
| Repurchases of common  stock                                                       |       | (512,500                        | )          | (98,400 | ) | (679,700 | ) |
| Net cash used in financing activities                                              |       | (1,255,600                      | )          | (1,889,700 | ) | (1,075,800 | ) |
|                                                                               |       |                            |       |   |   |   |   |
| Net change in cash                                                                 |       | (229,000                        | )          | 254,000 |   | 11,800 |   |
| Cash at beginning of year                                                          |       | 310,500                         |       | 56,500 |   | 44,700 |   |
|                                                                               |       |                            |       |   |   |   |   |
| Cash at end of year                                                                |       | $                               | 81,500     |   | $ | 310,500 |   | $ | 56,500 |   |

The accompanying notes are an integral part of these financialstatements

F-5

----

ROTONICS MANUFACTURINGINC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1-ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:

Organization andoperations

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 2006, 2005, or 2004.  In fiscal 2006, the Company purchased inaggregate approximately 98% of its plastic resin from nine 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’ssignificant accounting policies are as follows:

Principles ofconsolidation

The consolidatedfinancial statements include the accounts of the Company and its wholly ownedsubsidiary, Rotocast Plastic Products of Tennessee, Inc.  All intercompany accounts and transactionshave been eliminated in consolidation.

Revenuerecognition

Revenues are recognized from the sale of our productsupon shipment, provided that persuasive evidence of a sales arrangement exists,the price is fixed or determinable, title has transferred, and collectibilityof the resulting receivable is reasonably assured.  Title and risk of loss transfer to thecustomer when the product leaves the Company’s facility.

Use of estimates

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

Fair value of financialinstruments

The carrying valueof accounts receivable and trade payables approximates the fair value due totheir short-term maturities. The carrying value of the Company’s line of creditand notes payable is considered to approximate fair market value, because theinterest rates of these instruments are based predominately on variablereference rates.

Account receivable andallowance for doubtful accounts

The Company records accounts receivable net of areserve for doubtful accounts. The Company estimates its allowance for doubtfulaccounts based on an assessment of the collectibility of specific accounts andthe overall aging of the accounts receivable. When evaluating the adequacy ofthe allowance for doubtful accounts, the Company analyzes specific trade andother receivables, historical bad debts, customer credits, customerconcentrations, customer credit-worthiness, current economic trends and changesin customers’ payment terms and/or patterns. The Company reviews the allowancefor doubtful accounts on a quarterly basis and records adjustments asconsidered necessary. Customer accounts are written-off against the allowancefor doubtful accounts when an account is considered uncollectible.

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Inventories

Inventories arestated at the lower of cost or market. Cost is determined on the first-in, first-out method.

Property, plantand equipment

Depreciation iscomputed using the straight-line method and the estimated useful lives of theassets range from three to thirty-nine years. When assets are retired or otherwise disposed of, the cost and relatedaccumulated depreciation are removed from the accounts, and any resulting gainor loss is included in income for the period. The cost of maintenance and repairs is charged to income as incurred;costs relating to significant renewals and betterments are capitalized.

Intangible assets

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 are capitalizedas additional costs of the patent, when successful defense is probable.

### Impairment oflong-lived assets

The Companyevaluates the recoverability of long-lived assets and the related estimatedremaining lives at each balance sheet date. Should events or changes in circumstances indicate that the carryingamount may not be recoverable or the useful life has changed, the Companyrecords an impairment charge or changes the useful life.

#### Stock-basedcompensation

Effective at the beginning of fiscal year 2006, theCompany adopted the provisions of Statement of Financial Accounting StandardsNo. 123 “Share-Based Payment” (“SFAS No. 123(R)”) to account forstock-based compensation. Under SFAS No. 123(R), the Company isrequired to estimate the cost of employee services received in exchange for anaward of equity instruments based on the grant-date fair value of theaward.  The fair value for awards thatare expected to vest is the amortized on a straight-line basis over therequisite service period of the award, which is generally the vestingterm.  Prior to fiscal 2006, the companyaccounted for stock-based compensation plans using the intrinsic value methodprescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees.”  Nostock-based compensation was provided during the year ended June 30, 2006.

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.  In estimatingfuture tax consequences, expected future events other than enactments ofchanges in tax laws or rates, are considered.

### Derivative instruments

The Company accounts forits derivative instruments and hedging activities, consisting of a cash flowhedge in the form of an interest rate swap, in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities*,*” as amended by SFAS No. 149, “Amendment of Statement 133on Derivative Instrument and Hedging Activities,” which established methods ofaccounting and reporting for derivative instruments and hedging activitiesrelated to those instruments as well as other hedging activities and as furtheramended by SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments,”which simplifies accounting for certain hybrid instruments under SFAS No. 133 permittingfair value remeasurement for financial instruments that otherwise would requirebifurcation and eliminating SFAS No. 133 Implementation Issue No. D1, “Applicationof Statement 133 to Beneficial Interests in Securitized Financial Assets,”which proves that beneficial interests are not subject to the provisions ofSFAS No. 133.

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Earnings per share

Basic earnings pershare (“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 thecomponents of the basic and diluted EPS calculations:
| ** **                        | ** ** | **Net Income** | ** ** | **Weighted  Average Shares  Outstanding** | ** ** | **EPS** | ** ** |
|-----------------------------------|------------|---------------------|------------|------------------------------------------------|------------|---------|------------|
| June 30, 2006                     |       |                |       |                                           |       |    |       |
| Basic EPS                         |       |                |       |                                           |       |    |       |
| Net income                        |       | $                   | 2,079,000  |                                           | 11,831,914 |    | $          | 0.18 |   |
| Effect of  dilutive stock options |       | —              |       | —                                         |       | —  |       |
| Diluted EPS                       |       | $                   | 2,079,000  |                                           | 11,831,914 |    | $          | 0.18 |   |
|                              |       |                |       |                                           |       |    |       |
| June 30, 2005                     |       |                |       |                                           |       |    |       |
| Basic EPS                         |       |                |       |                                           |       |    |       |
| Net income                        |       | $                   | 1,769,900  |                                           | 11,965,167 |    | $          | 0.15 |   |
| Effect of  dilutive stock options |       | —              |       | —                                         |       | —  |       |
| Diluted EPS                       |       | $                   | 1,769,900  |                                           | 11,965,167 |    | $          | 0.15 |   |
|                              |       |                |       |                                           |       |    |       |
| June 30, 2004                     |       |                |       |                                           |       |    |       |
| Basic EPS                         |       |                |       |                                           |       |    |       |
| Net income                        |       | $                   | 1,304,200  |                                           | 12,155,548 |    | $          | 0.11 |   |
| Effect of  dilutive stock options |       | —              |       | 1,115                                          |       | —  |       |
| Diluted EPS                       |       | $                   | 1,304,200  |                                           | 12,156,663 |    | $          | 0.11 |   |

Geographic and Product Information

All of the Company’smanufacturing operations are located within the United States.  The Company’s revenues were almost exclusivelygenerated in North America for the years ended June 30, 2006, 2005, and2004.  The Company categorizes itsproducts into five main groups.  Netsales for these products are summarized as follows:
| ** **             | ** ** | **For Year Ended June 30,** | ** ** |
|------------------------|------------|-------------------------------------------------|------------|
| ** **             | ** ** | **2006**                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Product Group:    |       |                                            |       |   |   |   |   |
| Contract Manufacturing |       | $                                               | 17,259,700 |   | $ | 19,343,800 |   | $ | 17,379,600 |   |
| Industrial             |       | 16,809,500                                      |       | 13,991,800 |   | 12,017,600 |   |
| Marine                 |       | 3,637,600                                       |       | 3,428,600 |   | 2,975,600 |   |
| Refuse                 |       | 6,869,100                                       |       | 5,226,400 |   | 4,858,400 |   |
| Consumer               |       | 3,475,300                                       |       | 3,141,000 |   | 3,101,700 |   |
| Total net sales        |       | $                                               | 48,051,200 |   | $ | 45,131,600 |   | $ | 40,332,900 |   |

Impact of Recent Accounting Pronouncements

In February 2006, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 155, “Accounting for Certain Hybrid FinancialInstruments,” an amendment of SFAS No. 133 and SFAS No. 140.  SFAS No. 155 simplifies accounting forcertain hybrid instruments under SFAS No. 133 permitting fair valueremeasurement for financial instruments that otherwise would requirebifurcation and eliminating SFAS No. 133 Implementation Issue No. D1, “Applicationof Statement 133 to Beneficial Interests in Securitized Financial Assets,”which proves that beneficial interests are not subject to the provisions ofSFAS No. 133.  SFAS No. 155 alsoeliminates the previous restrictions under SFAS No. 140 on passive derivativeinstruments that a qualifying special-purpose entity may hold.  SFAS NO. 155 is effective for all financialinstruments acquired, issued, or subject to a remeasurement event occurringafter the beginning of an entity’s fiscal year that begins after

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September 15, 2006.  The Company will adopt this statement asrequired, and adoption is not expected to have an impact on the Company’sresults of operations, financial condition or liquidity.

InMarch 2006, the FASB issued SFAS No. 156, “Accounting for Servicing ofFinancial Assets,” an amendment of FASB Statement No. 140.  SFAS No. 156 permits entities to choose toeither subsequently measure servicing rights at fair value and report changesin fair value in earnings or amortize servicing rights in proportion to andover the estimated net servicing income or loss and assess to rights forimpairment or the need for an increased obligation.  SFAS No. 156 also clarifies when a servicershould separately recognize servicing assets and liabilities, requires allseparately recognized assets and liabilities to be initially measured at fairvalue, if practicable, permits a one-time reclassification of available-for-salesecurities to trading securities by an entity with recognized servicing rightsand requires additional disclosure for all separately recognized servicingassets and liabilities.  SFAS No. 156 iseffective as of the beginning of an entity’s fiscal year that begins afterSeptember 15, 2006.  The Company willadopt this statement as required, and adoption is not expected to have aneffect on the Company’s results of operations, financial condition orliquidity.

In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(FIN 48).  FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in financial statementsin accordance with Statement of Financial Accounting Standard (SFAS) No. 109, “Accountingfor Income Taxes.”  This Interpretationprescribes a recognition threshold and measurement attribute of tax positionstaken or expected to be taken on a tax return. This Interpretation is effective for the first fiscal year beginningafter December 15, 2006.  Management iscurrently evaluating the impact FIN 48 will have on our financial position andresults of operations.

NOTE 2 -INVENTORIES:
| ** **                        | ** ** | **June 30,** | ** ** |
|-----------------------------------|------------|-------------------|------------|
| ** **                        | ** ** | **2006**          | ** ** | **2005** | ** ** |
| Inventories consist of: |       |              |       |   |   |
| Raw materials                     |       | $                 | 3,196,300  |   | $ | 2,470,700 |   |
| Finished goods                    |       | 4,679,500         |       | 4,503,300 |   |
|                              |       | $                 | 7,875,800  |   | $ | 6,974,000 |   |

NOTE 3 - PROPERTY, PLANTAND EQUIPMENT:
| ** **                                                         | ** ** | **For Year Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Property, plant and equipment consist of: |       |                                            |       |   |   |
| Land                                                               |       | $                                               | 1,027,300  |   | $ | 1,027,300 |   |
| Buildings and  building improvements                               |       | 5,047,800                                       |       | 4,941,500 |   |
| Machinery,  equipment, furniture and fixtures                      |       | 31,167,400                                      |       | 29,877,100 |   |
| Construction in  progress                                          |       | 183,800                                         |       | 28,500 |   |
|                                                               |       | 37,426,300                                      |       | 35,874,400 |   |
| Less -  accumulated depreciation and amortization                  |       | (24,434,000                                     | )          | (22,677,700 | ) |
|                                                               |       | $                                               | 12,992,300 |   | $ | 13,196,700 |   |

NOTE 4 - INTANGIBLEASSETS:
| ** **                                   | ** ** | **For Year Ended June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Intangible assets consist of: |       |                                            |       |   |   |
| Patents                                      |       | $                                               | 475,700    |   | $ | 475,700 |   |
| Less accumulated  amortization               |       | (350,200                                        | )          | (304,600 | ) |
| Net patents                                  |       | $                                               | 125,500    |   | $ | 171,100 |   |

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Aggregate amortization expense for eachof the fiscal years ended June 30, 2006, 2005, and 2004 was $45,600, $45,600and $45,900, respectively.  Futureestimated amortization expense will be approximately $45,200 for each of thenext two years and $34,000 in fiscal 2009.

NOTE 5- BANK LINEOF CREDIT:

The Company has a$5,000,000 revolving line of credit with Wells Fargo Bank.  The line matures on October 1, 2008 and issecured by the Company’s machinery and equipment, accounts receivable andinventories.  Interest is payable monthlyat the respective bank’s prime rate minus .25% (8.0% per annum at June 30,2006).  In addition, the loan agreementallows the Company to convert the outstanding principal balance in amounts noless than $250,000 to a LIBOR-based loan for up to 90-day periods.  At June 30, 2006, total borrowings under theCompany’s line of credit were $2,000,000 of which $2,000,000 was borrowed underthe LIBOR option bearing a LIBOR interest of 6.25188% per annum and maturingJuly 17, 2006. Proceeds from the loan were used for working capitalpurposes.  At June 30, 2006, the Companyhad $3,000,000 available for future borrowings under the revolving line ofcredit.  The loan agreement containsvarious covenants pertaining to tangible net worth, net income and liquidityratios, capital expenditures, payments of dividends, payment of subordinateddebt as well as various other restrictions. The Company was in compliance with these covenants during fiscal 2006.

NOTE 6 - LONG-TERMDEBT:
| ** **                                 | ** ** | **For Year Ended June 30,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Long-term debt consists of: |       |                                            |       |   |   |
| Note payable -  Bank (A)                   |       | $                                               | —     |   | $ | 1,116,700 |   |
| Less current  portion                      |       | —                                          |       | (864,300 | ) |
|                                       |       | $                                               | —     |   | $ | 252,400 |   |

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(A)      On October 1, 2000, the bankissued a $6,050,000 seven year note due in monthly principal installments of$72,000 plus interest at the bank’s prime rate minus .25%.  This note was to mature on October 15, 2007,but was paid in full on June 15, 2006.

The Company has aninterest rate swap agreement with the bank. The agreement allows the Company to fix a portion of its outstandingterm and line of credit debt ($2 million as of June 30, 2006) from a variablefloating LIBOR rate to a fixed LIBOR rate in efforts to protect against futureincreases in the banks LIBOR rate.  Thenotional amount of the swap agreement will remain at $2 million until maturityon August 15, 2006.  Upon its maturity onAugust 15, 2006, the swap agreement was not renewed.

NOTE 7 – RELATEDPARTY TRANSACTIONS:

The Company soldmolded plastic products and molds under arms–length terms to Atlantic Meeco,Inc. (“AMI”) a company in which the President/CEO/Chairman of the Board of theCompany has a 7.5% equity interest. Sales to AMI amounted to $60,800, $113,400 and $75,000 in fiscal years2006, 2005 and 2004, respectively. Amounts due on sales to AMI were $19,100 and $23,600 at June 30, 2006and 2005, respectively, and are included in accounts receivable in theaccompanying consolidated balance sheet. In fiscal 2006, the Company also purchased $5,000 of resin fromAMI.  No amounts were due AMI as of June30, 2006.

The Companypurchased injection molded products under arms-length terms from CustomPlastics (“Custom”) a company in which the owner has a 8.7% equity interest inthe Company.  Purchases from Customamounted to $244,700, $168,100 and $172,000 in fiscal 2006, 2005 and 2004respectively.  Amounts due on purchasesfrom Custom were $5,900 and $2,000 at June 30, 2006 and 2005, respectively, andare included in accounts payable in the accompanying consolidated balancesheets.

In fiscal years2006, 2005 and 2004, the Company incurred legal fees and costs amounting to$25,200, $22,000 and $60,100, respectively, for services by E. Paul TonkovichProfessional Corporation, of which an officer/director of the Company is anemployee.

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NOTE 8 - ACCRUEDLIABILITIES:
| ** **                                         | ** ** | **June 30,** | ** ** |
|----------------------------------------------------|------------|-------------------|------------|
| ** **                                         | ** ** | **2006**          | ** ** | **2005** | ** ** |
| Accrued liabilities consist of:     |       |              |       |   |   |
| Salaries, wages,  commissions and related payables |       | $                 | 543,700    |   | $ | 604,900 |   |
| Other                                              |       | 254,900           |       | 296,400 |   |
|                                               |       | $                 | 798,600    |   | $ | 901,300 |   |

NOTE 9 - STOCK OPTIONPLAN:

The Company has a stockoption plan that was adopted by the Board of Directors on October 7, 2003 andapproved by shareholder vote on December 8, 2003.  This plan allows at the discretion of theBoard of Directors, to grant stock options to key employees, officers, directorsand consultants of the Company to purchase 850,000 shares of the Company’scommon stock.  Under the terms andconditions set forth in the plan, the purchase price of the stock options willbe at least 85% of the fair market value of the Company’s common stock on grantdate.  The maximum term for optionsgranted under the plan is ten years and the plan expires on October 6, 2013.

Stock Option Activity
| ** **                                 | ** ** | **Outstanding  Shares** | ** ** | **Exercisable  Shares** | ** ** | **Weighted  Average Price  Per Share** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|-------------------------|------------|--------------------------------------------------|------------|
| Balance  outstanding at June 30, 2003      |       | 105,000                 |       | 105,000                 |       | $                                                | 1.1250     |   |
| Exercised-prior  plan                      |       | (96,000                 | )          |                    |       | $                                                | 1.1250     |   |
| Cancelled-prior  plan                      |       | (9,000                  | )          |                    |       | $                                                | 1.1250     |   |
| Balance outstanding at  June 30, 2004-2006 |       | —                  |       | —                  |       |                                             |       |

The Company did not grant any options in fiscal years2004-2006.  At June 30, 2006, the Companyhad 850,000 shares available for future grants.

NOTE 10 - COMMONSTOCK:

Infiscal 2006 and 2005, the Company acquired 188,333 and 40,560 shares of itscommon stock at a total cost of $512,500 and $98,400, respectively.  All shares acquired were subsequentlycancelled.  At June 30, 2006 and 2005,there was no outstanding treasury stock. On June 28, 2005 the Board declared a dividend of $.05 per share ofcommon stock that was paid on July 29, 2005 to stockholders of record on July18, 2005.  In addition, in compliancewith a merger agreement entered into on August 29, 2006 (see Note 16), theCompany is currently prohibited from declaring any future dividends orrepurchasing additional shares under its buyback program.

NOTE 11- INCOME TAXES:

The components of theincome tax provision were:
| ** ** | ** ** | **For Year Ended June 30,** | ** ** |
|------------|------------|-------------------------------------------------|------------|
| ** ** | ** ** | **2006**                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current:   |       |                                            |       |   |   |   |   |
| Federal    |       | $                                               | (1,237,500 | ) | $ | (1,031,800 | ) | $ | (811,500 | ) |
| State      |       | (201,700                                        | )          | (192,300 | ) | (170,300 | ) |
|       |       | (1,439,200                                      | )          | (1,224,100 | ) | (981,800 | ) |
| Deferred:  |       |                                            |       |   |   |   |   |
| Federal    |       | 210,200                                         |       | 77,800 |   | 74,700 |   |
| State      |       | 44,200                                          |       | 27,000 |   | 8,600 |   |
|       |       | 254,400                                         |       | 104,800 |   | 83,300 |   |
|       |       | $                                               | (1,184,800 | ) | $ | (1,119,300 | ) | $ | (898,500 | ) |

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At June 30, 2006, theCompany has net operating loss (NOL) carry-forwards of approximately $7,191,100for state income tax purposes.  The NOLcarry-forwards, which are available to offset future taxable income of theCompany and are subject to limitations should a “change in ownership” asdefined in the Internal Revenue Code occur, will begin to expire in 2007 if notutilized.  The state NOL carry-forwardsexpire as follows:
| ** ** | ** ** | **Amount of  Unused State  Operating Loss  Carryforwards** | ** ** | **Expiration  During Year  Ended June 30,** | ** ** |
|------------|------------|---------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
|       |       | $                                                                         | 89,000     |                                                       | 2007       |   |
|       |       | 582,600                                                                   |       | 2008                                                       |       |
|       |       | 603,100                                                                   |       | 2009                                                       |       |
|       |       | 840,200                                                                   |       | 2010                                                       |       |
|       |       | 242,300                                                                   |       | 2011                                                       |       |
|       |       | 311,600                                                                   |       | 2012                                                       |       |
|       |       | 774,800                                                                   |       | 2013                                                       |       |
|       |       | 850,400                                                                   |       | 2014                                                       |       |
|       |       | 262,500                                                                   |       | 2015                                                       |       |
|       |       | 482,800                                                                   |       | 2016                                                       |       |
|       |       | 179,800                                                                   |       | 2017                                                       |       |
|       |       | 235,200                                                                   |       | 2018                                                       |       |
|       |       | 716,700                                                                   |       | 2019                                                       |       |
|       |       | 628,600                                                                   |       | 2020                                                       |       |
|       |       | 391,500                                                                   |       | 2021                                                       |       |
|       |       | $                                                                         | 7,191,100  |                                                       |       |   |

In connection with theRotocast merger, the Company recorded a deferred tax asset of $394,400, net ofa valuation allowance of $192,400 as of June 30, 1998, for the future benefitrelated to state NOL carry-forwards.  Thecurrent state valuation allowance, amounting to $376,700, represents theestimated amount of state NOL’s that will expire prior to theirutilization.  The valuation allowancedecreased by $4,600 in fiscal 2006 as a result of additional state NOL’sincurred that are estimated to be utilized prior to their expiration.  Realization of the future tax benefits of theNOL carry-forwards is dependent on the Company’s ability to generate taxableincome within the carry-forward period. Management will continue to assess the likelihood of utilizing its stateNOL’s by taking into consideration historical results and current economicconditions in which the Company operates. Management does not consider any non-routine transactions in assessingthe likelihood of realization of the recorded deferred tax asset.  Any future adjustments to the valuationallowance will be reflected as a component of the current years tax provision.

### The followingreconciles the federal statutory income tax rate to the effective rate of theprovision for income taxes:

| ** **                                   | ** ** | **For Year Ended June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Federal statutory  rate                      |       | 34.0                                            | %          | 34.0 | % | 34.0 | % |
| State income  taxes (net of federal benefit) |       | 4.0                                             |       | 4.0 |   | 4.0 |   |
| AJCA-Manufacturer’s  deduction          |       | (1.2                                            | )          | — |   | — |   |
| Other items, net                             |       | (0.5                                            | )          | 0.7 |   | 2.8 |   |
| Effective income  tax rate                   |       | 36.3                                            | %          | 38.7 | % | 40.8 | % |

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Deferred tax assets andliabilities are summarized as follows:
| ** **                                             | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------|------------|-------------------|------------|
| ** **                                             | ** ** | **2006**          | ** ** | **2005** | ** ** |
| Deferred tax  assets:                                  |       |              |       |   |   |
| State NOL (net of federal benefit)                     |       | $                 | 385,500    |   | $ | 406,800 |   |
| Employment-related reserves                            |       | 81,100            |       | 93,200 |   |
| Allowance for doubtful accounts                        |       | 91,500            |       | 116,600 |   |
| Interest rate swap derivative                          |       | —            |       | 10,500 |   |
| Other liabilities, net                                 |       | 30,300            |       | 44,600 |   |
|                                                   |       | 588,400           |       | 671,700 |   |
| Deferred tax  liabilities:                             |       |              |       |   |   |
| Depreciation and amortization                          |       | (2,045,700        | )          | (2,367,700 | ) |
| Net deferred tax liability before valuation  allowance |       | (1,457,300        | )          | (1,696,000 | ) |
| Deferred tax assets valuation allowance                |       | (376,700          | )          | (381,300 | ) |
| Net deferred tax  liability                            |       | $                 | (1,834,000 | ) | $ | (2,077,300 | ) |

NOTE 12 - COMMITMENTS ANDCONTINGENCIES:

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 2006, 2005, and 2004 amounted to$1,176,900, $1,143,400 and $1,119,800, respectively.

At June 30, 2006,the future minimum lease commitments, excluding insurance and taxes, are asfollows:
| Year Ending June 30, | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------|------------|
| 2007                                |       | $          | 1,091,400  |   |
| 2008                                |       | 1,086,200  |       |
| 2009                                |       | 1,081,800  |       |
| 2010                                |       | 978,900    |       |
| 2011                                |       | 944,200    |       |
| Thereafter                          |       | 1,126,700  |       |
|                                |       | $          | 6,309,200  |   |

Contingencies

In the normalcourse of business, the Company encounters certain litigation matters, which inthe opinion of management will not have a significant adverse effect on the financialposition or the results of operations of the Company.

NOTE 13 – EXIT ORDISPOSAL ACTIVITIES:

In January 2006, theCompany initiated the consolidation of its Miami, Florida injection moldingoperations into its Bartow, Florida facility in its efforts to improveoperating efficiencies and lower overhead costs.  As of June 30, 2006, the relocation processhas been completed.  As part of theprocess the Company incurred other qualified non-recurring plant consolidationcosts of $505,100.  These costs areidentified by the line item “Plant consolidation expenses” on the Company’sconsolidated statement of operations.  Asof June 30, 2006 the Company has also capitalized approximately $669,900 oncapital expenditure projects in connection with this plant consolidation.

F-13

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NOTE 14 -SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Supplemental disclosuresof cash flow information are as follows:
| ** **                                  | ** ** | **For the Year Ended June 30,** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash paid during the  year for:             |       |                                                     |       |   |   |   |   |
| Interest                                    |       | $                                                        | 132,800    |   | $ | 199,300 |   | $ | 213,300 |   |
| Income taxes                                |       | $                                                        | 1,399,400  |   | $ | 1,218,900 |   | $ | 943,500 |   |
| Non-cash financing  activities:             |       |                                                     |       |   |   |   |   |
| Common dividends  declared but not paid     |       | $                                                        | —     |   | $ | 597,000 |   | $ | 599,100 |   |
| Change in fair value of  interest rate swap |       | $                                                        | (16,600    | ) | $ | (48,600 | ) | $ | (93,800 | ) |

 

NOTE 15 - UNAUDITEDQUARTERLY RESULTS:
| ** **                    | ** ** | **Quarter Ended** | ** ** |
|-------------------------------|------------|------------------------|------------|
| ** **                    | ** ** | **September**          | ** ** | **December** | ** ** | **March** | ** ** | **June** | ** ** |
| Fiscal Year 2006:             |       |                   |       |   |   |   |   |   |   |
| Net sales                     |       | $                      | 12,500,100 |   | $ | 11,596,100 |   | $ | 11,034,600 |   | $ | 12,920,400 |   |
| Gross profit                  |       | 2,949,700              |       | 2,501,700 |   | 1,963,600 |   | 2,905,500 |   |
| Net income                    |       | 742,800                |       | 469,800 |   | 161,000 |   | 705,400 |   |
| Per share:                    |       |                   |       |   |   |   |   |   |   |
| Net income-basic  and diluted |       | $                      | .06        |   | $ | .04 |   | $ | .02 |   | $ | .06 |   |
|                          |       |                   |       |   |   |   |   |   |   |
| Fiscal Year 2005:             |       |                   |       |   |   |   |   |   |   |
| Net sales                     |       | $                      | 11,969,500 |   | $ | 9,935,400 |   | $ | 10,873,200 |   | $ | 12,353,500 |   |
| Gross profit                  |       | 3,024,000              |       | 1,986,800 |   | 2,422,600 |   | 2,508,100 |   |
| Net income                    |       | 657,800                |       | 181,400 |   | 339,800 |   | 590,900 |   |
| Per share:                    |       |                   |       |   |   |   |   |   |   |
| Net income-basic and  diluted |       | $                      | .05        |   | $ | .02 |   | $ | .03 |   | $ | .05 |   |

 

NOTE 16 – SUBSEQUENT EVENTS:

On August 29,2006, the Company entered into an Agreement and Plan of Merger (“the Merger”)with a subsidiary of Spell Capital Partners, LLC (“Buyer”).  As part of the Merger, Mr. Sherman McKinniss,President and CEO of the Company, and the Buyer entered into a Share Exchangeand Voting Agreement that requires Mr. McKinniss to contribute 25% of theoutstanding capital shares of the Company in exchange for 25% of theoutstanding capital stock of the Buyer’s subsidiary.  The Buyer will then acquire the remaining75%, including public shares, of the currently outstanding capital stock of theCompany for $3.00 per share cash.  ASpecial Meeting of the Shareholders will be held to consider and vote upon theproposed merger.  In addition, theproposed merger will also impact the Company’s future financial results.  The Company’s costs and expenses related tothe merger, which are substantial, must be paid even if the merger is notcompleted and under certain circumstances the Merger Agreement could beterminated and in turn require the Company to pay a fee of $1.5 million orreimburse the buyer’s expenses up to a maximum of $500,000.

On September 13,2006, following the announcement of the Merger Agreement on August 30, 2006, aperson alleging that he is a stockholder of RMI filed a putative class actionlawsuit challenging aspects of the proposed Merger.  The lawsuit, filed in the Superior Court ofCalifornia, County of Los Angeles, names RMI and eight officers and directorsof the Company, together with Rotonics Holding Corporation and Spell CapitalPartners Fund III LP, as defendants.  Plaintiff asserts a single cause of action forbreach of fiduciary duty and self-dealing. In the complaint, plaintiff allegesgenerally that the proposed Merger resulted from unfair dealing and the mergerconsideration of $3.00 was an inadequate purchase price.

Thecomplaint seeks certification as a class action and various forms ofdeclaratory, injunctive and monetary relief, including an injunction againstconsummation of the merger or, in the alternative, rescission of thetransaction and imposition of a constructive trust.

Thedefendants deny any wrongdoing, believe that the action is without merit andintend to defend the claims vigorously.

F - 14

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ROTONICSMANUFACTURING INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Years Ended June 30, 2006,2005 and 2004
| **Column A**                       | ** ** | **Column B**                              | ** ** | **Column C**                                 | ** ** | **Column D** | ** ** | **Column E** | ** ** |
|-----------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                              | ** ** | ** **                                     | ** ** | **Additions**                                     | ** ** | ** **        | ** ** | ** **        | ** ** |
| **Description**                         | ** ** | **Balance at  Beginning of  Period** | ** ** | **Charged to Costs  and Expenses** | ** ** | **Other**         | ** ** | **Deductions**    | ** ** | **Balance at End  of Period** | ** ** |
| June 30, 2006:                          |       |                                           |       |                                              |       |              |       |              |       |   |   |
| Allowance for doubtful accounts         |       | $                                              | 291,500    |                                              | $          | (37,300           | )          | $                 | —     |   | $ | (22,500 | ) (1) | $ | 231,700 |   |
|                                    |       |                                           |       |                                              |       |              |       |              |       |   |   |
| Deferred tax asset valuation allowance  |       | $                                              | 381,300    |                                              | $          | —            |       | $                 | —     |   | $ | (4,600 | ) (2) | $ | 376,700 |   |
|                                    |       |                                           |       |                                              |       |              |       |              |       |   |   |
| June 30, 2005:                          |       |                                           |       |                                              |       |              |       |              |       |   |   |
| Allowance for doubtful accounts         |       | $                                              | 256,100    |                                              | $          | 146,100           |       | $                 | —     |   | $ | (110,700 | ) (1) | $ | 291,500 |   |
|                                    |       |                                           |       |                                              |       |              |       |              |       |   |   |
| Deferred tax asset valuation allowance  |       | $                                              | 358,400    |                                              | $          | —            |       | $                 | 22,900     | (2) | $ | — |   | $ | 381,300 |   |
|                                    |       |                                           |       |                                              |       |              |       |              |       |   |   |
| June 30, 2004:                          |       |                                           |       |                                              |       |              |       |              |       |   |   |
| Allowance for doubtful accounts         |       | $                                              | 231,100    |                                              | $          | 98,700            |       | $                 | —     |   | $ | (73,700 | ) (1) | $ | 256,100 |   |
|                                    |       |                                           |       |                                              |       |              |       |              |       |   |   |
| Deferred tax  asset valuation allowance |       | $                                              | 307,200    |                                              | $          | —            |       | $                 | 51,200     | (2) | $ | — |   | $ | 358,400 |   |

 

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

(2) Representsvaluation allowance adjustments for potential state NOL’s, which may or may notexpire prior to utilization.

F - 15

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