UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission file number 0-2977
------
General Magnaplate Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1641813
------------------------------- ------------------
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.
1331 U.S. Route 1, Linden, New Jersey 07036
------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 862-6200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 30, 1996 :
Common Stock, No Par Value 2,643,497
- -------------------------- ------------------
(Class) (Number of Shares)
<PAGE>
INDEX OF DOCUMENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Accountants' Report
Balance Sheet - End of Current Quarter
Balance Sheet - End of Prior Fiscal Year
Statement of Income
Statement of Changes in Financial Position
Notes to Consolidated Financial Statements
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the registrant's Form 10-Q for the quarter ended 12/31/95 it was stated:
A. The California subsidiary was a party to a lawsuit filed by former
owners of an adjacent property who alleged damages arising from soil
contamination to their property by the Company and other parties. The
lawsuit was settled on October 20, 1992 by settlement conference, in
order not to incur any additional legal costs. The settlement, in the
amount of $45,000, will be paid by registrant in installments: $25,000
payable January 6, 1993, and the remaining balance of $20,000 payable
in three installments of $6,666 each to be paid on January 6, 1994,
January 6, 1995 and January 6, 1996.
B. In April, 1991, a claim was served on the Canadian subsidiary, General
Magnaplate Canada, Ltd., by Dynasurf International, Inc. for $170,000
representing the unpaid contract liability for the net assets acquired
by the Canadian subsidiary from the sellers, Carrigan Industries, Ltd.
and Dynasurf International, Inc. on January 2, 1990.
The Subsidiary has filed a counterclaim for environmental and other
costs which resulted from the seller not resolving certain
environmental issues warranted in the contract of purchase.
Further, a shareholder of Dynasurf International, Inc. has also filed a
claim for breach of oral contract of employment of $162,000 which the
Company has denied in their related statement of defense.
It is the opinion of management that the ultimate resolution of both
claims will not have a materially adverse effect on the Company's
financial statements.
ITEM 4 - Submission of Matters to a Vote of Security Holders - None
ITEM 5 - Other Information - Press Release - Enclosed
ITEM 6 - Exhibits and Reports on Form 8-K - None
<PAGE>
MAURIELLO, FRANKLIN & LoBRACE
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
45 SPRINGFIELD AVENUE, SPRINGFIELD, NEW JERSEY 07081
TELEPHONE (201) 379-5400 FAX (201) 379-3696
ACCOUNTANTS' REVIEW REPORT
To The Board of Directors of
General Magnaplate Corporation:
We have reviewed the accompanying balance sheet of General Magnaplate
Corporation and Wholly-Owned Subsidiaries as of March 31, 1996 and the related
consolidated statement of stockholders' equity for the nine months ended March
31, 1996 and the related consolidated statements of income and cash flows for
the nine months ended March 31, 1996 and 1995, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of General Magnaplate
Corporation.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion on
the March 31, 1996 and 1995 statements.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
Our review was made for the purpose of expressing limited assurance
that there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles. The supplementary information for the nine months ended
March 31, 1996 and 1995 included in the accompanying supplementary information
is presented for supplementary analysis purposes. Such information has been
subjected to the inquiry and analytical procedures applied in the review of the
basic financial statements, and we are not aware of any material modifications
that should be made thereto.
The balance sheet for the year ended June 30, 1995 was audited by us,
and we expressed an unqualified opinion on it in our report dated August 11,
1995. We have not performed any auditing procedures on the balance sheet since
August 11, 1995.
/s/Mauriello, Franklin & LoBrace, P.C.
April 26, 1996
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ 945,049 $ 369,276
Marketable securities (Note 1) ............... 3,639,515 4,128,758
Accounts receivable--trade, net of
allowance for doubtful accounts of
$159,000 (June 30, 1995-$106,000) .......... 1,393,726 1,328,954
Inventories (Note 1) ......................... 271,758 271,518
Prepaid expenses ............................. 103,582 170,141
Other current assets ......................... 164,821 292,814
----------- -----------
Total current assets ..................... $ 6,518,451 $ 6,561,461
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................. 5,238,719 5,427,711
Cash surrender value of officers' life
insurance, net ............................... 552,941 555,141
Note receivable - sale of land (Note 8) ........ 235,000 235,000
Other assets (Note 3) .......................... 211,784 143,763
----------- -----------
Total assets ............................... $12,756,895 $12,923,076
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable--bank (Note 4) ................ $ -- $ 177,544
Accounts payable ........................... 163,592 193,360
Accrued liabilities (Note 6) ............... 538,132 644,593
Corporate income taxes payable ............. 62,317 187,504
------------ ------------
Total current liabilities ................ $ 764,041 $ 1,203,001
------------ ------------
Long-term liabilities:
Rent security deposit ...................... $ 7,877 $ 7,877
Accrued deferred compensation (Note 7) ..... 939,782 810,000
------------ ------------
Total long-term liabilities .............. $ 947,659 $ 817,877
------------ ------------
Total liabilities ........................ $ 1,711,700 $ 2,020,878
------------ ------------
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued and outstanding--2,659,581
shares (June 30, 1995--2,774,013
shares) .................................. $ 223,180 $ 223,180
Retained earnings .......................... 10,941,296 10,798,949
Foreign currency translation adjustment
(Note 1) ................................. (119,281) (119,931)
------------ ------------
Total stockholders' equity ............... $ 11,045,195 $ 10,902,198
------------ ------------
Total liabilities and
stockholders' equity ................... $ 12,756,895 $ 12,923,076
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Foreign
Currency
Common Retained Translation
Stock Earnings Adjustment
--------- ------------ ------------
<S> <C> <C> <C>
Balance,
July 1, 1995 .................. $ 223,180 $ 10,798,949 $ (119,931)
Add--net income ................. -0- 1,094,007 -0-
Less-foreign currency
translation adjustment ......... -0- -0- 650
Less--dividends paid ............ (273,404)
Less-purchase and retirement
of 114,432 treasury shares ..... -0- (678,256) -0-
--------- ------------ ------------
Balance,
March 31, 1996 ................ $ 223,180 $ 10,941,296 $ (119,281)
========= ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross revenue:
Sales ............... $ 7,470,665 $ 7,105,351 $ 2,623,513 $ 2,471,900
Royalty income ...... 203,999 136,226 67,587 56,226
Investment and other
income, net ....... 364,886 (7,855) 28,174 5,923
----------- ----------- ----------- -----------
$ 8,039,550 $ 7,233,722 $ 2,719,274 $ 2,534,049
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales ....... $ 3,025,623 $ 2,920,997 $ 1,061,534 $ 999,757
Selling and
administration .... 2,837,470 2,572,480 881,592 831,326
Depreciation and
amortization ...... 448,236 461,549 147,560 154,207
Interest ............ 5,414 32,445 -- 11,171
----------- ----------- ----------- -----------
$ 6,316,743 $ 5,987,471 $ 2,090,686 $ 1,996,461
----------- ----------- ----------- -----------
Income before corporate
income taxes ........ $ 1,722,807 $ 1,246,251 $ 628,588 $ 537,588
Corporate income taxes
(Notes 1 and 6) ..... 628,800 495,000 229,500 224,000
----------- ----------- ----------- -----------
Net income ............ $ 1,094,007 $ 751,251 $ 399,088 $ 313,588
=========== =========== =========== ===========
Earnings per share
(Note 1) ............ $ .40 $ .26 $ .15 $ .11
=========== =========== =========== ===========
Weighted average shares
outstanding ......... 2,742,767 2,921,910 2,704,344 2,869,153
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................ $ 1,094,007 $ 751,251
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ......... $ 448,236 $ 461,549
Deferred taxes ........................ (58,500) (26,700)
Accrued deferred compensation ......... 129,782 81,000
Foreign currency translation adjustment 650 (8,806)
Allowance for doubtful accounts ....... 53,000 16,000
Increase (decrease) in cash resulting
from changes in current assets and
liabilities:
Marketable securities .............. 489,243 (1,130,604)
Accounts receivable ................ (117,772) 22,588
Inventories ........................ (240) 277
Other current assets ............... 187,248 159,819
Accounts payable and accrued
liabilities ...................... (136,229) 17,940
Corporate income taxes payable ..... (125,187) 25,426
Rent security deposit .............. -- 7,875
----------- -----------
Total adjustments .................. $ 870,231 $ (373,636)
----------- -----------
Net cash provided by
operating activities .................. $ 1,964,238 $ 377,615
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant,
and equipment ........................... $ (256,106) $ (237,104)
Additions to patent costs and other assets (5,355) (2,243)
Cash surrender value--life insurance ...... 2,200 24,766
----------- -----------
Net cash used in
investing activities ................... $ (259,261) $ (214,581)
----------- -----------
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase and retirement of
treasury stock .......................... $ (678,256) $ (887,883)
Dividends paid ............................ (273,404) (145,090)
Reduction in long-term debt ............... (177,544) (59,091)
----------- -----------
Net cash used in
financing activities .................. $(1,129,204) $(1,092,064)
----------- -----------
Increase (decrease) in cash and cash
equivalents ............................... $ 575,773 $ (929,030)
Cash and cash equivalents, beginning of
period .................................... 369,276 1,332,266
----------- -----------
Cash and cash equivalents, end of period .... $ 945,049 $ 403,236
=========== ===========
Supplementary cash flow data:
Income taxes paid ......................... $ 814,597 $ 496,274
Interest paid ............................. $ 5,414 $ 32,445
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
- --------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
General Magnaplate Corporation and its wholly-owned subsidiaries;
accordingly all intercompany transactions and balances have been
eliminated in consolidation.
Marketable Securities
---------------------
Effective July 1, 1994 marketable securities are all
considered trading securities and are reported at fair market value in
accordance with Financial Accounting Standard #115 issued by the
Financial Accounting Standards Board of the American Institute of
Certified Public Accountants.
In prior years marketable securities were valued at the lower
of cost or market. There is no effect on retained earnings from the
change in accounting principle.
Inventories
-----------
Inventories consist principally of industrial supplies and
plating solutions which are valued at the lower of FIFO cost or market
and are included in Cost of Sales.
Depreciation and Amortization
-----------------------------
Property, plant and equipment are stated at cost and
depreciation is provided on a straight line basis using estimated
service lives of 3-5 years for transportation equipment, 5-10 years for
factory machinery and office equipment, and 10-39 years for buildings
and building improvements. Expenditures for renewals and betterments
are capitalized. Items of identifiable property which are sold,
retired, or otherwise disposed of are removed from the asset accounts,
and any gains or losses thereon are reflected in income.
Patents and trademarks are amortized on a straight line basis
over 17 years, as the reasonable period of benefit.
<PAGE>
Corporate Income Taxes
----------------------
Taxes are provided based on income reported for financial
statement purposes, including deferred taxes which are principally
provided due to temporary differences between financial and tax
reporting of certain revenue and expense items.
Company Earnings Per Share
--------------------------
Earnings per share of common stock have been computed based on
the weighted average number of shares outstanding during the period.
Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Foreign Currency Translation Adjustment
---------------------------------------
Assets and liabilities of the subsidiary operating in Canada
are translated into U.S. dollars using the exchange rate in effect at
the balance sheet date. Results of operations are translated using the
average exchange rate prevailing throughout the period. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included as part of the Foreign
Currency Translation Adjustment component of shareholders' equity,
while gains and losses resulting from foreign currency transactions are
generally included in income.
Segment Information
-------------------
The Company is in one line of business. It provides
synergistic coatings and other related services to its customers'
products.
<PAGE>
Note 2--Property, Plant and Equipment
- -------------------------------------
Property, plant and equipment are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Land ....................................... $ 805,350 $ 805,350
Buildings .................................. 3,366,208 3,366,208
Building improvements ...................... 3,104,382 3,007,478
Factory machinery .......................... 5,137,332 5,064,890
Office equipment ........................... 859,764 822,687
Transportation equipment ................... 264,051 224,440
----------- -----------
Total ...................................... $13,537,087 $13,291,053
Less--accumulated depreciation ............. 8,298,368 7,863,342
----------- -----------
Net ........................................ $ 5,238,719 $ 5,427,711
=========== ===========
</TABLE>
Note 3--Other Assets
- --------------------
Other assets are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
-------- --------
<S> <C> <C>
Patents and trademarks, at cost,
net of accumulated amortization .............. $ 33,809 $ 30,414
Unamortized deferred mortgage fees ............. -0- 1,178
Deferred income taxes ...................... 177,975 112,171
-------- --------
$211,784 $143,763
======== ========
</TABLE>
<PAGE>
Note 4--Note Payable - Bank
- ---------------------------
This obligation is as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
-------- --------
<S> <C> <C>
Note payable Bank One, Racine, NA in
the original amount of $260,000
secured by a first mortgage on Racine,
Wisconsin real estate and payable in
equal monthly installments of $2,955
commencing November 1, 1990 and
continuing until October 1, 1995 at
which time the note balance is due in
full. Interest is computed at the
bank's base lending rate plus .4% per
annum subject to a floor of 7% and a
ceiling of 13% per annum. The note was
paid off on October 29, 1995. $ -0- $177,544
--------
$177,544
Less--debt due within one year -0- 177,544
-------- --------
Total long-term debt $ -0- $ -0-
======== ========
</TABLE>
<PAGE>
Note 5--Corporate Income Taxes
- ------------------------------
Components of corporate income taxes are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------------ -------------------------
March 31, March 31,
------------------------ -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current:
Federal ...... $ 582,800 $ 460,700 $ 197,200 $ 218,800
State ........ 104,500 61,000 57,600 16,800
Foreign ...... -- -- -- --
--------- --------- --------- ---------
$ 687,300 $ 521,700 $ 254,800 $ 235,600
--------- --------- --------- ---------
Deferred:
Federal .......... $ (45,300) $ (20,700) $ (19,900) $ (9,000)
State ............ (13,200) (6,000) (5,400) (2,600)
Foreign .......... -- -- -- --
--------- --------- --------- ---------
$ (58,500) $ (26,700) $ (25,300) $ (11,600)
--------- --------- --------- ---------
Total .............. $ 628,800 $ 495,000 $ 229,500 $ 224,000
========= ========= ========= =========
</TABLE>
A reconciliation of the provision for corporate income taxes compared
with amounts computed at the US statutory tax rate is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------------- -----------------------
March 31, March 31,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Based on U.S.
statutory federal
tax rate ................ $ 585,754 $ 423,725 $ 213,754 $ 182,825
Increase (decrease)
in taxes resulting
from:
State taxes, net of
federal tax benefit .... 60,258 36,300 34,458 11,600
Non-deductible
(reportable)
expenses (income) ..... (17,212) 34,975 (18,712) 29,575
--------- --------- --------- ---------
Total ............... $ 628,800 $ 495,000 $ 229,500 $ 224,000
========= ========= ========= =========
Effective tax rate ....... 36.5% 39.7% 36.5% 42.2%
</TABLE>
<PAGE>
The Canadian subsidiary has available unused tax benefits in the form
of operating loss carryforwards of $225,000 to reduce future Canadian taxable
income. These carryforwards principally expire in 1999 and 2002. Due to their
uncertainty of realization, these tax benefits have been reflected net of a 100%
valuation allowance.
Note 6--Accrued Liabilities
- ---------------------------
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
-------- --------
<S> <C> <C>
Compensation ................................... $241,981 $375,276
Payroll, sales, and property taxes ............. 102,916 73,247
401-K plan contribution ........................ 42,924 44,014
Environmental and other costs .................. 150,311 152,056
-------- --------
$538,132 $644,593
======== ========
</TABLE>
Note 7--Employee Benefits
- -------------------------
The Company maintains a 401(k) savings plan which covers all full time
U.S. employees. The Company matches 50% of voluntary pre-tax employee
participant contributions up to 4% of compensation as well as providing
discretionary contributions based on compensation for all employees. Employer
discretionary contributions, which are forfeited due to employee termination
prior to the full seven year vesting period, revert back to the Company. Total
expense under the plan was $16,349 in 1996 and $38,207 in 1995.
Pursuant to employment contracts and letter agreements with officers
and key employees, the Company maintains non-qualified incentive compensation
plans which are based on the realization of pre-tax income and royalty income.
Total expense under these plans was $375,300 in 1996 and $251,924 in 1995.
The Company is obligated to provide a non-qualified retirement pension
to its chief executive officer. Such obligation provides a monthly benefit of
$7,100 and is payable for a period of fifteen years to the officer, or to his
wife in the event of his death. The Company is accruing the present value of its
obligation over the active term of employment of the officer. The Company is
also accruing and funding a deferred compensation contract with two other
officers based on 10% of annual compensation.
Note 8--Sale of Land to Related Party
- -------------------------------------
On June 30, 1995 the Texas real estate subsidiary sold 7 acres of
unimproved land in Carrollton, Texas to a limited partnership controlled by a
shareholder of the Company at an independently appraised price of $310,000.
<PAGE>
The Company received cash of $75,000 in July 1995 and an installment
note receivable of $235,000 secured by a deed of trust on the Texas real estate.
The note bears interest of 6.83% per annum collectible annually for three years.
Thereafter the note shall be collected in (5) equal annual principal
installments of $47,000 commencing July 1, 1999 with the final collection due
July 1, 2004 plus interest of 6.83% per annum.
Note 9--Significant Risks and Uncertainties
- -------------------------------------------
Nature of Operations and Customer Concentration
-----------------------------------------------
General Magnaplate Corporation is engaged in providing
synergistic coatings and other related services to its customers'
products from five plants located in the United States and Canada.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Certain Significant Estimates
-----------------------------
A. Litigation
----------
In April, 1991, a claim was served on the Canadian subsidiary,
General Magnaplate Canada, Ltd., by Dynasurf International, Inc. for
$170,000 representing the unpaid contract liability for the net assets
acquired by the Canadian subsidiary from the sellers, Carrigan
Industries, Ltd. and Dynasurf International, Inc. on January 2, 1990.
The Subsidiary has filed a counterclaim for environmental and
other costs incurred which resulted from the seller not resolving
certain environmental issues warranted in the contract of purchase.
Further, a shareholder of Dynasurf International, Inc. has also filed a
claim for breach of oral contract of employment for $162,000 which the
Company has denied in their related statement of defense.
It is the opinion of management that the ultimate resolution
of both claims will not have a materially adverse effect on the
Company's financial statements.
<PAGE>
B. Environmental
-------------
The Company is subject to extensive U.S. and Canadian federal,
state, provincial and local environmental laws and regulations. These
laws, which are constantly changing, regulate the storage and discharge
of chemical materials into the environment. The Company has received
various communications from regulatory authorities concerning certain
environmental matters and believes that the costs of these matters are
not reasonably likely to have a material adverse effect on the
Company's consolidated financial condition, results of operations, or
liquidity.
Concentrations of Credit Risk
-----------------------------
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of its cash, marketable
securities and trade receivables.
The Company's cash and marketable securities are in
high-quality securities placed with a wide array of institutions with
high credit and investment ratings. This investment policy limits the
Company's exposure to concentrations of credit risk.
The trade receivable balances, reflecting the Company's
diversified sources of revenue, are dispersed across many different
geographic areas. As a consequence, concentrations of credit risk are
limited. The Company routinely assesses the financial strength of its
customers and generally does not require collateral to support its
credit sales.
Note 10--Related Party Transactions
- -----------------------------------
The Company was charged legal and computer consulting services by two
outside directors of the Company in the ordinary course of business as follows:
1996 - $25,353 and 1995 - $41,234.
Note 11--Financial Instruments
- ------------------------------
Cash and Cash Equivalents--The carrying amount approximates fair value
because of the short maturity of those instruments.
Marketable Securities--The carrying amount approximates fair value
because such securities are valued based on market quotes.
Note Receivable - Sale of Land--The carrying amount approximates fair
value because of similar rates on issues offered to the Corporation
under some or similar provisions.
Accrued Deferred Compensation--The carrying amount approximates fair
value because such liability is being valued based on current market
values.
<PAGE>
ACCOUNTANTS' REVIEW REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors of
General Magnaplate Corporation:
Our report on our review of the basic financial statements of General
Magnaplate Corporation for the nine months ended March 31, 1996 appears on Page
1. The review was made for the purpose of expressing limited assurance that
there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles. The information included in the accompanying schedules
are presented only for supplementary analysis purposes. Such information has not
been subjected to the inquiry and analytical procedures applied in the review of
basic financial statements, and we are not aware of any material modifications
that should be made thereto.
/s/Mauriello, Franklin & LoBrace, P.C.
April 26, 1996
<PAGE>
Item 2A - Management's Discussion and Analysis of Financial Position:
- ---------------------------------------------------------------------
Financial Condition
Liquidity and Capital Resources
Nine-Months ended March 1996
Cash and cash equivalents increased $575,773 from June 30, 1995 to
March 31, 1996. For the period, $1,964,238 net cash was provided by the
operating activities, $259,261 was used for investing activities and $1,129,204
was used for financing activities. During the past nine months, the registrant's
investment activities were comprised of $256,106 used for additions to property,
plant and equipment $5,355 used for additions to patent costs and other assets
and $2,200 was provided by increased cash value to officer's life insurance. The
$1,129,204 used for financing activities was made up of a reduction of long-term
debt in the amount of $177,544, $273,404 used for payment of dividends, and
$678,256 used for the purchase and retirement of treasury stock.
Working capital of $5,754,410 increased $395,950 or 7% during the nine
months and the working capital ratio increased to 8.53 to 1 from 5.45 to 1 at
June 30, 1995.
Stockholders' equity per share March 31, 1996 increased 6% to $4.15 per
share compared with $3.93 per share June 30, 1995. As previously authorized by
the Board, 114,432 of GMCC stock was purchased at the cost of $678,256 which was
retired and canceled during the current nine month period.
Management believes that internal cash flow and/or incomes from
marketable securities are expected to be sufficient to provide the capital
resources necessary to support future operating needs, and does not anticipate
any material expenditures that will have a significant impact on future cash
flows.
Item 2B - Management's Discussion and Analysis of Results of Operations
-----------------------------------------------------------------------
Quarter --- March 31, 1996 compared with March 31, 1995:
--------------------------------------------------------
Sales increased this quarter, as reflected in the current period sales
of $2,623,513, by $151,613 or 6% from the same quarter last year. Management
expects positive trends to continue at all locations for the remainder of the
year. Construction of additional space at our Wisconsin facility is expected to
be completed shortly. As expected, the inception of our "home page" on the World
Wide Web (http://www.magnaplate.com) has had exceptional response both in the
U.S. and abroad. Increased international advertising has been meet with
tremendous response. Management expects increased sales from both our U.S.
facilities, as well as increased royalties from our licensees.
Royalty and investment and other income for this quarter was $95,761
compared with $62,149 from last year's third quarter. The $11,361 or 20%
increase in royalty income is directly attributed to an increase in sales volume
from our licensees throughout the world. Negotiations are continually taking
place regarding potential new licensees around the world. The $22,251 increase
in investment and other income is directly associated with a stronger market and
the high yield fixed income investments in our portfolio. Management believes
the investment portfolio to be sound, diversified and less susceptible to market
fluctuations while providing dividend and interest income.
<PAGE>
Reflecting the above, gross revenue for the latest quarter of this year
of $2,719,274 increased $185,225 or 7% from the same quarter last year.
Total costs and expenses were $2,090,686 in the third quarter, an
increase of $94,225 or 5% from the same quarter of last year. Management has
successfully stabilized costs in direct proportion to revenue and will continue
to monitor spending.
Income before corporate income taxes was $628,588 for the current
quarter, an increase of $91,000 or 17% from the $537,588 achieved in the same
quarter last year. Corporate income taxes and the effective tax rate in this
year's third quarter were $229,500 and 36.5% respectively, compared with
$224,000 and 42.2% in the third quarter of last year.
As a result of the above, net income in the third quarter of this year
of $399,088 increased $85,500 or 27% from the same quarter last year.
Earnings per share were up 36% in this year's third quarter (or $.15
compared to $.11 in last year's third quarter). During the current three month
period 61,893 shares of treasury stock were retired and canceled, resulting in a
weighted average shares outstanding of 2,704,344 compared to 2,869,153 for the
same period last year.
Nine Months ------- March 31, 1996 compared with March 31, 1995:
----------------------------------------------------------------
Gross revenue for this year's first nine months of $8,039,550 increased
$805,828 or 11% from last year.
Total costs and expenses for the current nine month period were
$6,316,743 an increase of $329,272 or 5% from last year. As a percentage of
gross revenue, total costs and expenses in 1996 were 79% compared to 83% in
1995. Cost of Sales as a percentage of gross revenue for the latest nine months
decreased to 38% from 40% in the same period of last year. Selling and
administration decreased to 35% of gross revenue in the latest period compared
to 36% last year. Depreciation and amortization remained at 6% of gross revenue.
Interest expense in the current year of .06% of gross revenue decreased compared
with .4% last year.
As a result of the above, income before corporate income taxes for the
first nine months of this year was $1,722,807, an increase of $476,556 or 38%
from last year.
Corporate income taxes in this year's first nine months were $628,800,
compared with $495,000 for the same period of last year, an increase of $133,800
or 27%. As detailed in Note 5, this year's effective tax rate was 36.5% compared
with 39.7% in 1995.
As a result of the above, net income of $1,094,007 this year was
$342,756 or 46% more than the $751,251 achieved last year. Earnings per share
were $.40 this year, a $.14 or 54% increase from the $.26 earned last year.
During the nine month period 114,432 shares of treasury stock were retired and
canceled resulting in a weighted shares outstanding of 2,742,767 compared with
2,921,910 in 1995.
<PAGE>
Management believes the existing legal matters as detailed in note 9 to
the consolidated financial statements, will have no significant impact on future
earnings.
Discussions continue with principals in Beijing, China regarding future
joint ventures throughout mainland China.
No other significant financial matters are expected in future months
which will have an adverse impact on earnings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL MAGNAPLATE CORPORATION
------------------------------
(Registrant)
DATE 5/10/96
----------------
/s/Candida C. Aversenti
- ------------------------------------------
Candida C. Aversenti
President
DATE 5/10/96
----------------
/s/Susan E. Neri
- ------------------------------------------
Susan E. Neri
Chief Accounting Officer
<PAGE>
[GRAPHIC -- COMPANY LOGO]
MAGNAPLATE NEWS
1331 U.S. Route #1
Linden, New Jersey 07036
Telephone: 908-862-6200
Fax: 908-862-6110
FOR IMMEDIATE RELEASE
May 8, 1996
GENERAL MAGNAPLATE CORPORATION (GMCC)
Nine Months Report To Stockholders -- March 31, 1996
Condensed Statement of Income
Nine Months Ending March 31, 1996
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Gross Revenue ............................ $8,039,550 $7,233,722
Income Before Taxes ...................... 1,722,807 1,246,251
Net Income ............................... 1,094,007 751,251
Earnings Per Share ....................... $ 0.40 $ 0.26
Avg. Shares Outstanding .................. 2,742,767 2,921,910
</TABLE>
***********************
Condensed Statement of Income
Three Months Ending March 31, 1996
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Gross Revenue ............................ $2,719,274 $2,534,049
Income Before Taxes ...................... 628,588 537,588
Net Income ............................... 399,088 313,588
Earnings Per Share ....................... $ 0.15 $ 0.11
Avg. Shares Outstanding .................. 2,704,344 2,869,153
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 945,049
<SECURITIES> 3,639,515
<RECEIVABLES> 1,552,726
<ALLOWANCES> 159,000
<INVENTORY> 271,758
<CURRENT-ASSETS> 6,518,451
<PP&E> 13,537,087
<DEPRECIATION> 8,298,368
<TOTAL-ASSETS> 12,756,895
<CURRENT-LIABILITIES> 764,041
<BONDS> 0
0
0
<COMMON> 223,180
<OTHER-SE> 10,822,015
<TOTAL-LIABILITY-AND-EQUITY> 12,756,895
<SALES> 2,623,513
<TOTAL-REVENUES> 2,719,274
<CGS> 1,061,534
<TOTAL-COSTS> 1,943,126
<OTHER-EXPENSES> 147,560
<LOSS-PROVISION> 14,276
<INTEREST-EXPENSE> 5,414
<INCOME-PRETAX> 628,588
<INCOME-TAX> 229,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 399,088
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
