<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JANUARY 31, 1996
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-4277
------
MAGNETIC TECHNOLOGIES CORPORATION
---------------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 16-0961159
-------- ----------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
770 LINDEN AVENUE
ROCHESTER, NEW YORK 14625
-------------------------
(Address of principal executive offices)
(716) 385-8711
--------------
(Issuer's telephone number)
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ] N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
2,786,636 SHARES OF THE ISSUER'S COMMON STOCK WERE OUTSTANDING AS OF
JANUARY 31, 1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAGNETIC TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AT JANUARY 31, 1996 AND JULY 31, 1995
<TABLE>
<CAPTION>
ASSETS JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
<S> <C> <C>
Current assets:
Cash, including interest-bearing deposits of $171,574 and $490,445 at
January 31, 1996 and July 31, 1995, respectively $ 450,579 $ 746,434
Accounts receivable, less allowance for doubtful accounts of $32,500
and $31,500 at January 31, 1996 and July 31, 1995, respectively 2,525,391 2,265,794
Inventories 4,790,426 4,182,773
Costs and estimated earnings in excess of billings on contracts in process 146,227 291,288
Deferred income taxes 201,300 181,400
Prepaid taxes, expenses and other current assets 285,207 109,613
------------ -------------
Current assets 8,399,130 7,777,302
Property, plant and equipment, net 3,581,035 3,877,951
Excess of cost over net assets acquired, net of accumulated amortization of
$131,857 and $127,154 at January 31, 1996 and July 31, 1995, respectively 51,735 56,438
Deferred income taxes 591,950 611,100
Other assets 546,989 482,517
------------ -------------
$ 13,170,839 $ 12,805,308
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses $ 4,682,723 $ 3,938,329
Note payable 826,108 826,108
Current portion of long-term debt and capital lease obligations 291,783 291,784
Billings in excess of costs and estimated earnings on contracts in process 173,543 171,497
Accrued income taxes 2,455 22,958
------------ -------------
Current liabilities 5,976,612 5,250,676
Long-term debt and capital lease obligations 2,383,252 2,533,666
------------ -------------
Total liabilities 8,359,864 7,784,342
------------ -------------
Stockholders' equity:
Common stock - $ .15 par value;
Authorized - 15,000,000 shares
Issued and outstanding - 2,786,636 and 2,786,675 shares at
January 31, 1996 and July 31, 1995, respectively 417,995 418,001
Stock warrants outstanding for 22,500 shares of common stock, valued
at $82,500, net of unamortized deferred expense of $37,005 and
$47,115 at January 31, 1996 and July 31, 1995, respectively 45,495 35,385
Additional paid-in capital 7,646,182 7,646,302
Cumulative translation adjustment 6,576 479
Accumulated deficit (3,305,273) (3,079,201)
------------ -------------
Total stockholders' equity 4,810,975 5,020,966
------------ -------------
$ 13,170,839 $ 12,805,308
============ =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
2
<PAGE> 3
MAGNETIC TECHNOLOGIES CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS AND SIX MONTHS ENDED JANUARY 31, 1996 AND JANUARY 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1996 JANUARY 31, 1995 JANUARY 31, 1995
------------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net sales $5,775,922 $12,600,934 $5,429,629 $10,868,774
Cost of sales 5,195,890 11,230,121 4,776,419 9,402,506
------------ ------------- ------------ ------------
Gross profit 580,032 1,370,813 653,210 1,466,268
Selling, general and administrative
expenses 761,084 1,460,438 698,459 1,384,705
------------ ------------- ------------ ------------
Operating (loss) earnings (181,052) (89,625) (45,249) 81,563
Interest expense 78,286 142,084 55,402 110,446
Other income and expenses, net (731) (5,887) (5,482) (7,228)
------------ ------------- ------------ ------------
Loss before income taxes (258,607) (225,822) (95,169) (21,655)
(Benefit) provision for income taxes (9,200) 250 (36,775) 250
------------ ------------- ------------ ------------
Net loss (249,407) (226,072) (58,394) (21,905)
Accumulated deficit beginning (3,055,866) (3,079,201) (2,267,847) (2,304,336)
------------ ------------- ------------ ------------
Accumulated deficit ending ($3,305,273) ($ 3,305,273) ($2,326,241) ($ 2,326,241)
============ ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1996 JANUARY 31, 1995 JANUARY 31, 1995
---------------- ---------------- ---------------- ----------------
PRIMARY PRIMARY PRIMARY PRIMARY
------- ------- ------- -------
<S> <C> <C> <C> <C>
(Loss) earnings per share:
Net loss per share ($ .09) ($ .08) ($ .02) ($ .01)
========= ========= ========= =========
Weighted average number
of shares outstanding 2,786,691 2,786,673 2,786,711 2,840,442
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
3
<PAGE> 4
MAGNETIC TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JANUARY 31, 1996 AND JANUARY 31, 1995
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
<S> <C> <C>
Net cash provided by operating activities $ 67,640 $371,721
--------- --------
Cash flows from investing activities:
Capital expenditures (192,669) (470,462)
--------- --------
Net cash used by investing activities (192,669) (470,462)
--------- --------
Cash flows from financing activities:
New borrowings 800,000
Principal payments on long-term borrowings and capital leases (160,460) (559,885)
Proceeds from exercise of stock options 112,500
Purchase and retirement of common stock (126) (121)
--------- --------
Net cash (used) provided by financing activities (160,586) 352,494
--------- --------
Effect of exchange rate changes on cash (10,240)
Net (decrease) increase in cash (295,855) 253,753
Cash and cash equivalents at the beginning of the period 746,434 399,861
--------- --------
Cash and cash equivalents at the end of the period $450,579 $653,614
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
4
<PAGE> 5
MAGNETIC TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1996
INTERIM ACCOUNTING POLICY
- -------------------------
The unaudited consolidated financial statements herein have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to these rules and
regulations.
The financial information included in this quarterly report should be read
in conjunction with the Company's most recent Form 10-KSB and annual report.
In the opinion of Management, the information furnished reflects all
adjustments necessary to present a fair statement of the financial condition,
results of operations and cash flows for the periods covered.
RECLASSIFICATIONS
- -----------------
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year presentation.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of the Company
for the periods presented and the accounts of its wholly-owned foreign
subsidiary, Magnetic Technologies Europe Limited (MTE), as of March 1, 1995.
(See acquisition disclosures following.) All significant intercompany
balances, transactions and profits are eliminated.
TRANSLATION OF FOREIGN CURRENCIES
- ---------------------------------
Assets and liabilities of MTE are translated into U.S. dollars at currency
exchange rates in effect at the end of the balance sheet period. Revenues and
expenses are translated at average exchange rates in effect during the related
income statement periods. Gains and losses resulting from foreign currency
translations are included in the results of operations. Gains and losses
resulting from the translation of the foreign subsidiary balance sheet are
recorded directly to the accumulated translation adjustment, a component of
stockholders' equity.
REVENUE RECOGNITION
- -------------------
The Company accounts for contracts for the manufacture of precision plastic
molds and custom tooling using the percentage of completion method of
accounting. Revenue is recognized in the ratio that costs incurred bear to
total estimated costs of the contracts. Contract costs include direct material
and labor costs as well as indirect costs related to contract performance.
Losses expected to be incurred are charged to operations in the period such
losses are determined.
INVENTORIES
- -----------
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis and are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
<S> <C> <C>
Raw material $2,502,269 $2,558,700
Work in process 1,988,846 1,271,105
Finished goods 299,311 352,968
---------- ----------
$4,790,426 $4,182,773
========== ==========
</TABLE>
5
<PAGE> 6
COSTS, ESTIMATED EARNINGS AND BILLINGS ON CONTRACTS IN PROCESS
- --------------------------------------------------------------
The following is a summary of costs, estimated earnings and billings on
contracts in process:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
<S> <C> <C>
Costs and estimated earnings $1,188,410 $1,136,537
Less: Billings to date 1,215,726 1,016,746
---- ------------ ----------
($ 27,316) $ 119,791
=============== ==========
</TABLE>
Costs, estimated earnings and billings are presented in the accompanying
balance sheets as:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
contracts in process $146,227 $291,288
Billings in excess of costs and estimated earnings on
contracts in process (173,543) (171,497)
---------- ---------
($ 27,316) $119,791
========== =========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Major classifications of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
<S> <C> <C>
Equipment under capital lease $ 844,202 $ 844,202
Machinery and engineering equipment 4,988,155 4,887,098
Furniture and fixtures 1,470,591 1,393,874
Leasehold improvements 526,776 513,453
Vehicles 99,981 101,243
Construction in process 112,835 116,526
---------- ----------
8,042,540 7,856,396
Less: Accumulated depreciation and amortization 4,461,505 3,978,445
---- ---------- ----------
$3,581,035 $3,877,951
========== ==========
</TABLE>
ACQUISITION
- -----------
In April 1993, the Company entered into an agreement with the Cookson
Group plc (Cookson) of London, England, in which the two corporations formed a
new company, Magnetic Technologies Europe Limited (MTE), to manufacture and
sell precision magnetic, electronic and mechanical devices in Europe.
Headquartered in Rochester, England, MTE was capitalized with $1,000,000, of
which $750,000 was contributed by Cookson for all of the voting "A" shares of
stock and $250,000 was contributed by the Company for all of the non-voting "B"
shares of stock, constituting a 25% interest in MTE. The investment in MTE was
accounted for under the cost method due to the Company's inability to exercise
any influence over the operating and financial policies of MTE. The Company
had no voting stock, no voting Board members, no policy-making influence, and
no interchange of personnel. Thus, Management believes that the cost method of
accounting for this transaction was appropriate.
Concurrent with the formation of MTE, the Company sold Cookson and MTE a
license for the use of the Company's technology in connection with the
manufacture of products to be sold in Europe and the Near East. Cookson paid
the Company $1,250,000 for the technology and the Company agreed to discontinue
selling to the European market. (The Company's export sales in the immediately
preceding twelve month period had aggregated $2,200,000.) At the closing of
the transaction, Cookson also placed a $1,040,000 order on behalf of itself and
MTE for the Company to produce manufacturing machinery and related software to
be shipped to England.
6
<PAGE> 7
In March 1994, Cookson sold certain of its businesses to Calder Group
Limited (Calder) and Calder's subsidiary, Magnet Applications Limited, became
the owner of all of MTE's voting "A" shares of stock. A year later, Calder
decided to dispose of certain of its operations, including MTE. On March 31,
1995, the Company acquired all of the voting shares of stock of MTE from
Calder's subsidiary. The acquisition was effective as of February 28, 1995 and
the accounts of MTE are consolidated with those of the Company from March 1,
1995 forward. The purchase price of the acquisition of the remaining 75%
interest in MTE was $492,007 plus closing costs of $23,054, before cash
acquired of $3,340. In connection with the acquisition, the Company incurred a
note payable to Calder of $351,000, payable in equal monthly installments of
$9,750 over a thirty-six month period commencing May 1, 1995. The note payable
to Calder has no stated interest; therefore, interest was imputed at a rate of
9.25%. The balance of the note payable was $305,410 at acquisition and was
reflected in the Company's consolidated balance sheet at January 31, 1996 as
current portion of long-term debt of $94,761 and long-term debt of $142,080.
Prior to the acquisition of the remaining 75% of the outstanding stock of
MTE in March 1995, the Company evaluated its investment in MTE by reviewing the
monthly operating performance to determine whether any permanent impairment in
the value of its investment had occurred. These reviews took into
consideration MTE's performance as compared to budgeted amounts, as well as the
start-up plan for the company. Based upon those evaluations, the Company had
determined that the value of the investment had not been impaired. Effective
March 1, 1995, the acquisition of MTE was then accounted for under the purchase
method. At acquisition, the Company incurred a $312,302 write-down of its
investment in MTE to account for an impairment in asset value. This impairment
in value primarily related to the write-off of previously recognized profit in
equipment manufactured by the Company and sold to MTE, as well as various costs
related to the acquisition.
MTE engages in the same business as the Company's traditional domestic
operations, namely, the design and manufacture of precision magnetic assemblies
for office equipment manufacturers. In the two years since its formation, MTE
has obtained business from the Company's prior customer in Europe, as well as
orders from new European customers. Management anticipates that MTE will reach
a break-even level by the end of fiscal 1996.
Subsequent to the closing of the acquisition agreement, MTE adopted a
revised Memorandum of Association and Articles of Association establishing a
single class of stock and containing provisions to facilitate the Company's
operating of the business from the United States. Gordon H. McNeil, President
and Chief Executive Officer of the Company, became MTE's sole Director and its
President.
The following table presents unaudited pro forma results of operations as
if the acquisition of MTE had occurred at the beginning of each of the periods
presented, after giving effect to certain adjustments for intercompany
transactions, depreciation, interest and related income tax effects. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition been
made at the beginning of the periods presented or of results which may occur in
the future. The unaudited combined pro forma results should be read in
conjunction with the historical financial statements of the Company and with
the historical financial statements of MTE as filed with the Company's most
recent Form 8-K.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, 1995 JANUARY 31, 1995
------------------ ----------------
<S> <C> <C>
Net sales $5,407,617 $11,003,254
Net loss ($ 797,668) ($ 914,154)
Net loss per share:
------------------
Primary ($ .29) ($ .32)
Weighted average number of shares outstanding:
---------------------------------------------
Primary 2,786,711 2,840,442
</TABLE>
7
<PAGE> 8
EARNINGS PER SHARE OF COMMON STOCK AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------
Earnings per common share are based on the weighted average number of
shares outstanding during the period. In November 1993, the Company issued
stock warrants for 22,500 shares of common stock to an investment securities
consultant. The warrants are exercisable at a price of $5.00 per share of
common stock and expire on December 31, 1997. The warrants were valued at
$82,500 utilizing the Black-Scholes method of securities valuation. The
deferred expense related to the issuance of the warrants is being amortized
ratably to expense over a period of forty-nine months. The unamortized
deferred expense was $37,005 at January 31, 1996. The value of the outstanding
warrants, net of unamortized deferred expense, or $45,495, was reflected in
stockholders' equity at January 31, 1996.
CAPITAL EXPENDITURES
- --------------------
Capital expenditures for the six month period ended January 31, 1996
amounted to $192,669. These expenditures were funded with working capital.
INCOME TAXES
- ------------
Effective fiscal 1994, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), ACCOUNTING FOR INCOME TAXES. The
adoption of SFAS 109 changed the Company's method of accounting for income
taxes from the deferred method under Accounting Principles Board Opinion No. 11
(APB 11), ACCOUNTING FOR INCOME TAXES, to an asset and liability approach.
Previously, the Company deferred the past tax effects of timing differences
between financial reporting and taxable income. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
The following is a summary of current and long-term deferred tax assets and
the related valuation allowances:
<TABLE>
<CAPTION>
AT JANUARY 31, 1996 AT JULY 31, 1995
------------------- ----------------
<S> <C> <C>
Current deferred tax assets:
Accrued expenses $104,600 $109,700
Inventory 62,800 44,800
Warranty reserves 20,100 15,100
Other deferred tax assets 13,800 11,800
-------- --------
$201,300 $181,400
======== ========
Long-term deferred tax assets:
Federal net operating loss carryforwards $306,700 $306,700
State net operating loss carryforwards 45,500 45,500
Federal investment tax credit carryforwards 48,200 96,300
State investment tax credit carryforwards 218,300 218,300
Federal alternative minimum tax credit carryforwards 51,000 51,000
State alternative minimum tax credit carryforwards 6,800 6,000
Depreciation 477,100 412,100
Other deferred tax assets 66,050 102,900
-------- --------
1,219,650 1,238,800
Less: Valuation allowances 627,700 627,700
---- -------- --------
$591,950 $611,100
======== ========
</TABLE>
The realization of the deferred tax assets related to the net operating
loss and tax credit carryforwards is dependent upon future taxable income. In
addition, if certain substantial changes in the Company's ownership should
occur, there would be an annual limitation on the amount of net operating loss
and tax credit carryforwards which could be utilized.
8
<PAGE> 9
BORROWINGS
- ----------
The Company had $423,892 of its $1,250,000 bank line of credit available
and $826,108 outstanding on the line at January 31, 1996. In addition, the
Company's $2,000,000 revolving loan had an available balance of $200,000 at
January 31, 1996. The line of credit and revolving loan require interest
payments at prime plus .25%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Even though the Company's debt increased by reason of the acquisition of
its Austro Mold Group in November 1992, and its acquisition of MTE in March
1995, its current cash flow position should be adequate to fund the non-compete
agreement payments related to the Austro Mold acquisition, as well as the
interest and principal on current long-term debt.
Cash provided by operating activities decreased $304,081 for the six month
period ended January 31, 1996 over the comparable period in fiscal 1995. The
variance was primarily the result of increased losses over the prior year and
increased inventories supporting higher volumes of sales activity in fiscal
1996.
Cash used for investing activities decreased $277,793 for the six month
period ended January 31, 1996 over the comparable period in fiscal 1995. The
variance was due to lower capital expenditures in the first half of fiscal 1996
over the prior year.
Cash used for financing cash flows totaled $160,586 for the six month
period ended January 31, 1996 compared to cash provided from financing
activities of $352,494 for the comparable period of the prior year, a decrease
in financing cash flows of $513,080. The variance was primarily due to
increased borrowings and the proceeds from the exercise of stock options in the
prior year. The Company had no borrowings and no stock options were exercised
during the six month period ended January 31, 1996.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MAGNETIC TECHNOLOGIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS (UNAUDITED)
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED
JANUARY 31, 1996 AND JANUARY 31, 1995
RESULTS OF OPERATIONS
- ---------------------
THREE MONTH PERIOD COMPARISON
The Company's consolidated net sales for the three months ended January 31,
1996 increased $346,293, or 6%, over the comparable period last year. The
results included sales of $3,891,677 for the Magnetic Assembly Group, a
decrease of $93,962, or 2%, from the prior year. The Company's European
subsidiary, MTE, reported sales of $572,590 for the second quarter of fiscal
1996. (MTE's results have been included in the Company's consolidated financial
statements since March 1, 1995). In aggregate, Austro Mold reported sales of
$1,311,655 for the quarter ended January 31, 1996 versus $1,443,990 for the
comparable period of fiscal 1995, a $132,335, or 9%, decrease. The Austro Mold
plastics molding operation reported sales of $911,191, an increase of $222,009
over the comparable period of the prior year, while its tooling operation
reported sales of $400,464, a decrease of $239,994 over the comparable fiscal
1995 period. In addition, the second quarter of fiscal 1995 included sales of
$114,350 for the Austro Mold Florida tooling operation, which was closed during
fiscal 1995.
Consolidated gross profit of $580,032 for the quarter ended January 31,
1996 decreased $73,178 over the comparable period in the prior year, and the
consolidated gross margin decreased from 12% to 10%. The Magnetic Assembly
Group's gross margin for the second quarter of fiscal year 1996 was $568,753,
or 15%, compared with 17% for the second quarter of fiscal 1995. The decrease
was a result of a shift in the sales mix toward remanufacturing sales volume
carrying lower gross margins, as well as continuing pricing pressure from the
Company's major customer. The Austro Mold Group experienced a negative 6%
gross margin, or $79,921, for the second quarter of fiscal 1996, versus a
negative 2% in the comparable period the prior year. The decrease is partially
attributable to training costs related to the addition of automated equipment
to establish unattended tool making capability. The purpose of upgrading
Austro Mold to a more automated manufacturing environment is to reduce the
overall dependence on labor, to add state-of-the-art capability, and to assist
in the goal of better containing manufacturing costs, with which Austro Mold is
experiencing continuing difficulty. MTE reported a gross margin of 16% for the
quarter ended January 31, 1996, which is consistent with the Company's
projections for that new operation.
Selling, general and administrative expenses increased $62,625 over the
comparable fiscal 1995 quarter. The increase was the result of selling,
general and administrative expenses for MTE of $93,777, partially offset by
savings in this category for the domestic operations. For the most recent
quarter, the consolidated selling, general and administrative costs remained
consistent with the comparable quarter a year ago at 13% as a percentage of net
sales. Interest expense increased $22,884, or 41%, over the comparable prior
year period. The increase in interest expense was due to higher borrowings
outstanding during the fiscal 1996 period.
The three month period ended January 31, 1996 resulted in a consolidated
net loss of $249,407 versus a consolidated net loss of $58,394 in the
comparable fiscal 1995 period, a decline of $191,013 over the prior year. The
Magnetic Assembly Group, Austro Mold Group and MTE reported losses before
income taxes of $2,228, $255,517 and $862, respectively.
10
<PAGE> 11
SIX MONTH PERIOD COMPARISON
The Company's consolidated net sales for the six months ended January
31, 1996 increased $1,732,160, or 16%, over the comparable period last
year. The increased volumes included sales of $9,265,789 for the Magnetic
Assembly Group, an increase of $948,938, or 11%, over the prior year,
primarily with the Company's major customer. In addition, the Company's
European subsidiary, MTE, reported sales of $1,010,741 for the first half
of fiscal 1996. (MTE's results have been included in the Company's
consolidated financial statements since March 1, 1995.) In aggregate,
Austro Mold reported sales of $2,324,404 for the six month period versus
$2,551,923 for the comparable period of fiscal 1995, a $227,519, or 9%,
decrease. The Austro Mold plastics molding operation reported sales of
$1,584,015, an increase of $346,725 over the comparable period of the prior
year, while its tooling operation reported sales of $740,389, a decrease of
$308,428 over the comparable fiscal 1995 period. Fiscal year 1996 results
included no sales for Austro Mold's former Florida tooling operation, which
was closed during fiscal 1995. The first half of fiscal 1995 included
sales of $265,816 for that operation.
Consolidated gross profit of $1,370,813 for the period ended January
31, 1996, decreased $95,455 over the comparable period in the prior year,
and the consolidated gross margin decreased from 13% to 11%. The Magnetic
Assembly Group's gross margin for the first half of fiscal year 1996 was
$1,396,523, or 15%, compared with 18% for the first half of fiscal 1995.
The decrease was a result of the addition of significant remanufacturing
sales volume carrying lower gross margins, as well as continuing pricing
pressure from the Company's major customer. The Austro Mold Group
experienced a negative 7% gross margin, or $155,003, for the first half of
fiscal 1996, versus a negative 1% in the comparable period the prior year.
The decrease is partially attributable to training costs related to the
addition of automated equipment to establish unattended tool making
capability. The purpose of upgrading Austro Mold to a more automated
manufacturing environment is to reduce the overall dependence on labor, to
add state-of-the-art capability, and to assist in the goal of better
containing manufacturing costs, with which Austro Mold is experiencing
continuing difficulty. MTE reported a gross margin of 13% for the first
half of fiscal 1996, which is consistent with the Company's projections for
that new operation.
Selling, general and administrative expenses increased $75,733 over the
comparable fiscal 1995 period. The increase was the result of selling,
general and administrative expenses for MTE of $170,762, partially offset
by savings in this category for the domestic operations. For the most
recent six month period, the consolidated selling, general and
administrative costs decreased to 12% from 13% as a percentage of net sales
from the comparable quarter a year ago. The percentage variance was the
result of the Company's continued cost management efforts. Interest
expense increased $31,638, or 29%, over the comparable prior year period.
The increase in interest expense was due to higher borrowings outstanding
during fiscal 1996.
The six month period ended January 31, 1996 resulted in a consolidated
net loss of $226,072 versus a net loss of $21,905 a year ago, a decrease of
$204,167 from the comparable period last year. The Magnetic Assembly Group
reported a profit before income taxes of $316,404 for the most recent six
month period, while the Austro Mold Group and MTE reported losses before
income taxes of $504,210 and $38,016, respectively.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 Financial Data Schedules
12
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MAGNETIC TECHNOLOGIES CORPORATION
Date: March 14, 1996 By: /s/ Gordon H. McNeil
---------------------
Gordon H. McNeil, President and
Principal Executive Officer
13
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 450,579
<SECURITIES> 0
<RECEIVABLES> 2,557,891
<ALLOWANCES> 32,500
<INVENTORY> 4,790,426
<CURRENT-ASSETS> 8,399,130
<PP&E> 8,042,540
<DEPRECIATION> 4,461,505
<TOTAL-ASSETS> 13,170,839
<CURRENT-LIABILITIES> 5,976,612
<BONDS> 2,383,252
<COMMON> 417,995
0
0
<OTHER-SE> 4,392,980
<TOTAL-LIABILITY-AND-EQUITY> 13,170,839
<SALES> 5,775,922
<TOTAL-REVENUES> 5,775,922
<CGS> 5,195,890
<TOTAL-COSTS> 5,195,890
<OTHER-EXPENSES> 757,353
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 78,286
<INCOME-PRETAX> (258,607)
<INCOME-TAX> (9,200)
<INCOME-CONTINUING> (249,407)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (249,407)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
