Net income (loss). Net income was $4.6 million in fiscal 2002 compared to net income of $1.0 million in fiscal 2001.

Liquidity and Capital Resources

      In recent years, we have relied primarily upon cash from operations, borrowings from financial institutions and proceeds from our issuance of $180.0 million in principal amount of senior notes to finance our operations, repay long-term indebtedness and fund capital expenditures and acquisitions. At February 29, 2004, we had cash and cash equivalents of $14.8 million, an increase of $10.5 million from August 31, 2003. Of the $14.8 million, approximately $1.5 million dollars was allocated for the repurchase of our then unredeemed Class A common stock warrants and approximately $7.8 million was allocated for our repurchase of our common stock in connection with our self tender offer, each as authorized under the terms of the indenture relating to the $180.0 million of senior notes due 2012. Payment for shares of our common stock in the self tender offer has been delayed until at least the fourth quarter of fiscal year 2004. Without taking into account the cash reserved for the repurchase of our Class A common stock warrants and shares of our common stock in the self tender offer, cash and cash equivalents increased $1.2 million to $5.5 million at February 29, 2004 from $4.3 million August 31, 2004.

      Operating activities. Cash provided by operations totaled $0.3 million for the six-month period ended February 29, 2004, which represented a $6.1 million decrease from the $6.4 million provided by operations for the six months ended February 28, 2003. Net cash provided by operations for both quarters was the result of a net loss offset primarily by non-cash charges for depreciation and amortization. Working capital (current assets less current liabilities) increased $22.8 million as of February 29, 2004 to $33.3 million, compared to $10.4 million as of August 31, 2003.

      Investing activities. Cash used in investing activities was $45.3 million for the six months ended February 29, 2004, compared to $4.7 million for the six months ended February 28, 2003. In the first six months of fiscal year 2004, cash used in investing activities consisted primarily of $36.5 million for the acquisition of Tech Industries, $8.1 million for additions to property, plant and equipment and $0.7 million for intangible and other assets. In the first six months of fiscal year 2003, cash used in investing activities consisted primarily of $5.0 million for additions to property plant and equipment.

      We have retained a real estate broker to sell our manufacturing building in San Jose, California, and we have entered into a contract to sell our facility in Chino, California for a purchase price of $3.5 million. The transaction closed in April 2004. We expect to realize a small gain on this sale during the third quarter of fiscal 2004. The proposed sales of real estate are related to the closure of these two manufacturing plants and relocation of their operations from California to Arizona during fiscal 2004. We expect to recover our

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      We expect that our total capital expenditures for fiscal 2004 will be at least $16.0 million. We invested in a new facility in Arizona during our first and second quarters of fiscal 2004, and plan to add equipment in existing facilities to support new products and the transition of existing product manufacturing from other facilities. Our principal sources of cash to fund ongoing operations and capital requirements have been and are expected to continue to be net cash provided by operating activities and borrowings under our credit agreement. We believe that these sources will be sufficient to fund our ongoing operations and our foreseeable capital requirements.

      Financing activities. At February 29, 2004, we had total indebtedness of $192.8 million, $180.0 million of which was attributable to our senior notes due 2012. Of the remaining indebtedness, $11.1 million was attributable to our senior secured credit facility and $0.2 million was principally composed of capital lease obligations. In addition, our total indebtedness at February 29, 2004 included redeemable warrants with a carrying value of $1.5 million.

      On September 19, 2003, we entered into an amendment to our senior secured credit facility, increasing the credit facility to $54.0 million in connection with our purchase of Tech Industries, subject to a borrowing base of eligible receivables and inventory, plus net property and equipment and covenants similar to those in the amended and restated senior secured credit facility existing at February 28, 2003. An unused fee was payable on the facility based on the total commitment amount less the balance outstanding plus the average daily aggregate amount of outstanding credit facility liability, at the rate of 0.50% per annum. Interest payable was based on either the Bank Prime Loan rate plus 1.50% or the LIBOR loan rate plus 2.75%.

      On January 23, 2004, we completed an offering of $180.0 million of senior notes that mature on February 1, 2012 and bear interest at 8.25% per annum. Interest payments of approximately $7.4 million are due semi-annually on February 1 and August 1 of each year. Interest will accrue from January 23, 2004 and the first interest payment date will be August 1, 2004. The senior notes’ indenture contains covenants and provisions that restrict, among other things, the Company’s ability to: (i) incur additional indebtedness or issue preferred stock, (ii) incur liens on its property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, (vi) engage in certain sales of assets and subsidiary stock, (vii) engage in certain transactions with affiliates, (viii) engage in sale/leaseback transactions (ix) engage in any business other than a related business (x) make restricted payments, and (xi) declare or pay dividends.

      Concurrently with the offering of $180.0 million of senior notes, on January 23, 2004, we entered into an amended and restated five-year senior revolving credit facility of up to $50.0 million, maturing on January 23, 2009. The credit facility contains covenants and provisions that restrict, among other things, our ability to: (i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on our property, (iv) make investments, (v) enter into guarantees and other contingent obligations, (vi) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (viii) declare or pay dividends. An unused fee is payable on the facility based on the total commitment amount less the balance outstanding plus the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on either the Bank Prime Loan rate plus 1.25% or the LIBOR loan rate plus 2.75% determined by a pricing tabled based on the outstanding credit facility balance. On May 21, 2004, we entered into an amendment of the senior secured credit facility in order to modify certain of the covenants, including revising the definition of EBITDA to exclude specified charges, which affects the calculation of the fixed charge coverage ratio.

      Our senior secured credit facility and the indenture governing our 8.25% senior notes contain a number of significant restrictions and covenants as discussed above. Adverse changes in our operating results or other adverse factors, including a significant increase in interest rates or in resin prices, a severe shortage of resin supply or a significant decrease in demand for our products, could result in our being unable to comply with the financial covenants in our senior secured credit facility. If we violate these covenants and are unable to

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      Pursuant to an Offer to Purchase dated March 5, 2004, we offered to purchase for cash up to 1,319,663 shares of our common stock at $5.80 per share from our stockholders of record as of March 5, 2004. The offer was to expire on April 9, 2004, at which time we would purchase all shares of our common stock that were properly tendered and not withdrawn. On March 31, 2004, we announced that we extended the tender offer to purchase our common stock to at least June 21, 2004, and on June 18, 2004, we announced that we had further extended the tender offer to at least August 23, 2004. We have the right to further amend the terms of the tender offer. We have $7.9 million being held in a cash investment account for the distribution.

      Cash and cash equivalents. At February 29, 2004, we had $14.8 million in cash and cash equivalents as well as borrowing capacity of approximately $13.9 million under the senior revolving credit facility, less a minimum availability requirement of $3.0 million. In May 2004, the appraisals of our property, plant and equipment assets in the U.S., Canada and the U.K. have been completed and these assets have been included in the borrowing base of our revolving credit line, substantially increasing our borrowing capacity as well as increasing our minimum availability requirement to $5.0 million.

      We believe that our existing financial resources, together with our current and anticipated results of operations, will be adequate for the foreseeable future to make required payments of principal and interest on our debt and fund our working capital and capital expenditure requirements. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowing will be available under the amended and restated senior secured credit facility in an amount sufficient to enable us to service our debt, including the $180.0 million of senior notes due 2012, or to fund our other liquidity needs. Further, any future acquisitions, joint ventures, arrangements or similar transactions will likely require additional capital, and we cannot assure you that this capital will be available to us.

      Operating activities. Net cash provided by operations totaled $14.3 million and $24.4 million in fiscal 2003 and 2002, respectively. Net cash provided by operations for fiscal 2003 was principally the result of non-cash charges for depreciation and amortization offset, in small part, by our net loss. Net cash provided by operations for fiscal 2002 was the result of net income plus non-cash charges for depreciation and amortization, offset by an aggregate of $2.4 million of non-cash items included in other (income) expense. See Notes 2 and 15 of the Notes to consolidated financial statements. Working capital decreased $7.7 million to $10.4 million as of August 31, 2003 from $18.1 million as of August 31, 2002, primarily due to the re-classification of a warrant with a carrying value of $9.0 million as current due to its expiration in June 2004, in addition to increases in accounts payable and a decrease in inventory, offset in part by an increase in accounts receivable.

      Investing activities. Cash used in investing activities was $10.6 million in fiscal 2003 as compared to $11.0 million in fiscal 2002, and consisted primarily of additions to property, plant and equipment of $11.1 million and $10.5 million in fiscal 2003 and 2002, respectively. Cash used in investing activities was reduced by $0.1 million and $0.4 million in fiscal 2003 and 2002, respectively, by proceeds from the sale of property, plant and equipment.

      Financing activities. At August 31, 2003, we had total indebtedness of $127.2 million, $110.0 million of which was attributable to our senior notes. Of the remaining indebtedness, $6.6 million was attributable to our senior credit facility and $0.3 million was principally composed of capital lease obligations. In addition, our

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      Cash and cash equivalents. At August 31, 2003, we had $4.3 million in cash and cash equivalents as well as borrowing capacity of approximately $34.2 million under the $50.0 million revolving credit facility, less a minimum availability requirement of $3.0 million.

      Operating activities. Cash provided by operations totaled $24.4 million and $15.0 million in fiscal 2002 and 2001, respectively. Net cash provided by operations for fiscal 2002 was the result of net income plus non-cash charges for depreciation and amortization, offset by an aggregate of $2.4 million in other income and interest income recognized on the dissolution of a joint venture and settlement on a promissory note. See Notes 2 and 14 of the Notes to consolidated financial statements. Due to the adoption of SFAS No. 142, amortization expense for fiscal 2002 did not include goodwill amortization. Net cash provided by operations for fiscal 2001 was the result of net income plus non-cash charges for depreciation and amortization, reduced by the net gain on the sale of property of $6.8 million, which is reflected in cash flows from investing activities. Working capital decreased $0.9 million as of August 31, 2002 to $18.1 million, as compared to $19.0 million as of August 31, 2001, primarily as a result of a decrease in accounts receivable and inventory, offset by a decrease in accounts payable and accrued liabilities.

      Investing activities. Cash used in investing activities was $11.0 million in fiscal 2002 as compared to $4.1 million in fiscal 2001. This consisted primarily of additions to property, plant and equipment of $10.5 million and $14.1 million, in fiscal 2002 and 2001, respectively. Fiscal 2001 included additions to intangible and other assets relating to the acquisition of Consumer. Cash used in investing activities was reduced by $0.4 million in fiscal 2002 by proceeds from the sale of property, plant and equipment and by $10.1 million in fiscal 2001 by proceeds from the sale of property, plant and equipment, primarily related to the sale of certain real estate located in San Jose, California.

      Financing activities. At August 31, 2002, we had total indebtedness of $131.0 million, $110.0 million of which was attributable to our senior notes. Of the remaining indebtedness, $9.8 million was attributable to our senior credit facility and $0.7 million of the indebtedness was principally composed of capital lease obligations. In addition, our total indebtedness at August 31, 2002 included redeemable warrants with a carrying value of $10.4 million. See Note 10 of the Notes to consolidated financial statements for additional information on the redeemable warrants.

      Cash and cash equivalents. At August 31, 2002, we had $4.6 million in cash and cash equivalents as well as unused borrowing capacity of approximately $33.0 million under the revolving credit facility, less a minimum availability requirement of $3.0 million.

      We currently own a 50% interest in Capsnap Europe Packaging GmbH (“CSE”). CSE currently sells five-gallon closures and bottles that are produced by our United Kingdom subsidiary and our joint venture partner in CSE. CSE has a 50% ownership interest in Watertek, a joint venture in Turkey, which produces and sells five-gallon water bottles and closures for the European and Middle Eastern market places. Watertek is the owner of a 50% interest in a Greek company, Cap Snap Hellas, that will be selling our products in Greece. In addition, in 2003 CSE acquired all of the stock of Semopac, a French producer of five gallon polycarbonate

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      Our contractual cash obligations as of February 29, 2004 are summarized in the following table:

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      We incur certain related party transactions throughout the course of our business. In connection with the financing transactions related to the $180.0 million offering of our senior notes due 2012, we paid fees to

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      Related party sales consisted primarily of closures produced by our U.K. operations that were sold to our joint venture, CSE. The related party transactions are disclosed on the face of the unaudited condensed consolidated financial statements included in this prospectus. There have been no other significant additional related party transactions from those disclosed in “Item 13. — Certain Relationships and Related Transactions” and Note 15 of Notes to Consolidated Financial Statements of our most recent Annual Report on Form 10-K.

      Most of our closures are priced based in part on the cost of the plastic resins from which they are produced. Historically, we have been able to pass on increases in resin prices directly to our customers, although that practice has proven more difficult in the past two years because of increased price competition in the beverage related markets.

      Our sales and earnings reflect a slightly seasonal pattern as a result of greater sales volumes during the summer months. In both fiscal 2003 and 2002, 48% of sales occurred in the first half of the year (September through February) while 52% of sales were generated in the second half (March through August).

      The relationship of income tax expense to income before income taxes is affected primarily by not providing a benefit for losses generated in certain foreign jurisdictions and a portion of our domestic operations and, in fiscal 2001, by non-deductible goodwill arising from our acquisitions. See Note 13 of the Notes to consolidated financial statements.

Recent Accounting Pronouncements

      Effective September 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 establishes accounting standard for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The adoption of SFAS No. 143 had no impact on our financial statements for the three- and six-month periods ended February 29, 2004 and February 28, 2003.

      Effective September 1, 2002, we adopted SFAS No. 146, “Accounting for Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when incurred rather than at the date of a commitment to exit or disposal plan. Examples of costs covered by the standard include (1) costs to terminate contracts that are not capital leases; (2) costs to consolidate facilities or relocate employees; and (3) termination benefits provided to employees who are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. Previous accounting guidance was provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 replaces EITF 94-3 and is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. During the three- and six-month periods ended February 29, 2004, we incurred restructuring charges of $1,523 and $1,866, respectively, which were determined in accordance with the provisions of SFAS No. 146 (Note 7).

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      In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees that are issued or modified after December 31, 2002. The provisions of FIN 45 did not have a material impact on our results of operations or financial condition as there were no new guarantees or significant modifications of existing guarantees during the six-month period ended February 29, 2004.

      In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51” (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective January 31, 2003 for newly created and existing variable interest entities. On October 8, 2003, the FASB issued FASB Staff Position No. 46-e, which allows public entities, who meet certain criteria, to defer the effective date for applying the provisions of FIN 46 to interests held by the public entity in certain variable interest entities or potential variable interest entities until the end of the first interim or annual period ending after December 15, 2003. On December 24, 2003, the FASB extended the effective date to periods ending after March 15, 2004. Management is currently analyzing the impact of FIN 46 on the consolidated financial statements.

      Effective April 1, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends SFAS No. 133 for certain decisions made by the Board as part of the Derivatives Implementation Group (DIG) process and further clarifies the accounting and reporting standards for derivative instruments including derivatives embedded in other contracts and for hedging activities. The provisions of this statement are to be prospectively applied effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have a material impact on our results of operations or financial condition for the three- and six-month periods ended February 29, 2004.

      Effective May 1, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. On November 7, 2003, the FASB issued FASB Staff Position No. 150-3, which allows entities, who meet certain criteria, to defer the effective date for periods beginning after December 15, 2004. The adoption of this statement did not have a material impact on our results of operations or financial condition.

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