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 December 31, 1995
-----------------
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 January 31, 1996:
Common Stock, No Par Value 2,691,474
- -------------------------- ------------------
(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 9/30/95 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 - Minutes of Annual
Meeting of Shareholders Enclosed
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 December 31, 1995 and the
related consolidated statement of stockholders' equity for the six months ended
December 31, 1995 and the related consolidated statements of income and cash
flows for the six months ended December 31, 1995 and 1994, 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 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 December 31, 1995 and 1994 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 six months ended
December 31, 1995 and 1994 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 12,
1995. We have not performed any auditing procedures on the balance sheet since
August 12, 1995.
/s/ Mauriello, Franklin & LoBrace
January 29, 1996
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents .................... $ 426,652 $ 369,276
Marketable securities (Note 1) ............... 4,149,718 4,128,758
Accounts receivable--trade, net of
allowance for doubtful accounts of
$122,000 (June 30, 1995-$l06,000) .......... l,354,579 1,328,954
Inventories (Note 1) ......................... 271,662 271,518
Prepaid expenses ............................. 148,218 170,141
Other current assets ......................... 226,585 292,814
----------- -----------
Total current assets ..................... $ 6,577,414 $ 6,561,461
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................. 5,270,599 5,427,711
Cash surrender value of officers' life
insurance, net ............................... 555,141 555,141
Note receivable - sale of land (Note 8) ........ 235,000 235,000
Other assets (Note 3) .......................... 185,186 143,763
----------- -----------
Total assets ............................... $12,823,340 $12,923,076
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Note payable--bank (Note 4) ................ $ -- $ 177,544
Accounts payable ........................... 197,102 193,360
Accrued liabilities (Note 6) ............... 545,679 644,593
Corporate income taxes payable ............. -- 187,504
------------ ------------
Total current liabilities ................ $ 742,781 $ 1,203,001
------------ ------------
Long-term liabilities:
Rent security deposit ...................... $ 7,877 $ 7,877
Accrued deferred compensation (Note 7) ..... 901,968 810,000
------------ ------------
Total long-term liabilities .............. $ 909,845 $ 817,877
------------ ------------
Total liabilities ........................ $ 1,652,626 $ 2,020,878
------------ ------------
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued and outstanding--2,691,474
shares (June 30, 1995--2,744,013
shares) .................................. $ 223,180 $ 223,180
Retained earnings .......................... 11,067,948 10,798,949
Foreign currency translation adjustment
(Note 1) ................................. (120,414) (119,931)
------------ ------------
Total stockholders' equity ............... $ 11,170,714 $ 10,902,198
------------ ------------
Total liabilities and
stockholders' equity ................... $ 12,823,340 $ 12,923,076
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31. 1995
<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- 694,919 -0-
Add--foreign currency
translation adjustment ...... -0- -0- (483)
Less--dividends paid ........... (137,330)
Less-purchase and retirement
of 52,539 treasury shares ... -0- (288,590) -0-
------------ ------------ ------------
Balance,
December 31, 1995 ........... $ 223,180 $ 11,067,948 $ (120,414)
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
------------------------------ ------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross revenue:
Sales ................ $ 4,847,152 $ 4,633,451 $ 2,420,821 $ 2,405,003
Royalty and license
income ............. 136,412 80,000 95,014 59,629
Investment and other
income, net (Note 1) 336,712 (13,778) 192,376 (199,944)
----------- ----------- ----------- -----------
$ 5,320,276 $ 4,699,673 $ 2,708,211 $ 2,264,688
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales ........ $ 1,964,089 $ 1,921,240 $ 977,520 $ 966,003
Selling and
administration ..... 1,955,878 1,741,154 1,019,771 857,207
Depreciation and
amortization ....... 300,676 307,342 145,370 154,055
Interest ............. 5,414 21,274 1,286 10,782
----------- ----------- ----------- -----------
$ 4,226,057 $ 3,991,010 $ 2,143,947 $ 1,988,047
----------- ----------- ----------- -----------
Income before corporate
income taxes ......... $ 1,094,219 $ 708,663 $ 564,264 $ 276,641
Corporate income taxes
(Notes 1 and 5) ...... 399,300 271,000 204,900 111,800
----------- ----------- ----------- -----------
Net income ............. $ 694,919 $ 437,663 $ 359,364 $ 164,841
=========== =========== =========== ===========
Earnings per share
(Note 1) ............. $ .25 $ .15 $ .13 $ .06
=========== =========== =========== ===========
Weighted average shares
outstanding .......... 2,731,770 2,947,716 2,720,884 2,939,237
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net income ................................... $ 694,919 $ 437,663
--------- ---------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Unrealized investment losses (income) ..... $ (97,771) 81,149
Depreciation and amortization ............. 300,676 307,342
Deferred taxes ............................ (33,200) (15,100)
Accrued deferred compensation ............. 91,968 54,000
Foreign currency translation
adjustment .............................. 483 (16,848)
Allowance for doubtful accounts ........... 39,000 27,700
Increase (decrease) in cash
resulting from changes in current
assets and liabilities:
Accounts receivable .................... (64,625) (131,531)
Inventories ............................ (144) 338
Other current assets ................... 79,882 33,925
Accounts payable and accrued
liabilities .......................... (95,172) (16,896)
Corporate income taxes payable ......... (187,504) (26,398)
Rent security deposit .................. -- 7,894
----------- -----------
Total adjustments ..................... $ 33,593 $ 305,575
----------- -----------
Net cash provided by
operating activities ..................... $ 728,512 $ 743,238
----------- -----------
CASH FROM INVESTING ACTIVITIES:
Sales of (additions to) marketable
securities ................................. $ 76,811 $(1,124,317)
Additions to property,
plant, and equipment ....................... (141,107) (197,935)
Additions to patent costs
and other assets ........................... (3,376) (1,595)
Proceeds-cash value--life insurance .......... -- 24,766
----------- -----------
Net cash used in investing
activities ............................... $ (67,672) $(1,299,081)
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FROM FINANCING ACTIVITIES:
Reduction in long-term debt .................. $ (177,544) $ (39,650)
Purchase and retirement of
treasury shares ............................. (288,590) (108,754)
Dividends paid ............................... (137,330) -0-
----------- -----------
Net cash used in financing activities ...... $ (603,464) $ (148,404)
----------- -----------
INCREASE (DECREASE) IN CASH .................... $ 57,376 $ (704,247)
Cash and cash equivalents, beginning ......... 369,276 1,332,266
----------- -----------
Cash and cash equivalents, ending ............ $ 426,652 $ 628,019
=========== ===========
Supplemental cash flow data:
Interest paid ................................ $ 5,414 $ 21,274
Income taxes paid ............................ $ 563,920 $ 413,274
</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.
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.
<PAGE>
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>
December 31, June 30,
1995 1995
----------- -----------
<S> <C> <C>
Land ....................................... $ 805,350 $ 805,350
Buildings .................................. 3,366,208 3,366,208
Building improvements ...................... 3,053,214 3,007,478
Factory machinery .......................... 5,129,050 5,064,890
Office equipment ........................... 835,786 822,687
Transportation equipment ................... 242,510 224,440
----------- -----------
Total ...................................... $13,432,118 $13,291,053
Less--accumulated depreciation ............. 8,161,519 7,863,342
----------- -----------
Net ........................................ $ 5,270,599 $ 5,427,711
=========== ===========
</TABLE>
Note 3--Other Assets
Other assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
-------- --------
<S> <C> <C>
Patents and trademarks, at cost,
net of accumulated amortization .............. $ 32,511 $ 30,414
Unamortized deferred mortgage fees ............. -0- 1,178
Deferred income taxes .......................... 152,675 112,171
-------- --------
$185,186 $143,763
======== ========
</TABLE>
<PAGE>
Note 4--Note Payable Bank
This obligation is as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1995 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>
Note 5--Corporate Income Taxes
Components of corporate income taxes are as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
------------------------ ------------------------
December 31, December 31,
------------------------ ------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current:
Federal .......... $ 385,600 $ 241,900 $ 199,900 $ 104,600
State ............ 46,900 44,200 21,600 14,301
Foreign .......... -0- -0- -0- -0-
--------- --------- --------- ---------
$ 432,500 $ 286,100 $ 221,500 $ 118,901
--------- --------- --------- ---------
Deferred:
Federal .......... $ (25,400) $ (11,700) $ (12,500) $ (5,500)
State ............ (7,800) (3,400) (4,100) (1,600)
Foreign .......... -0- -0- -0- -0-
--------- --------- --------- ---------
$ (33,200) $ (15,100) $ (16,600) $ (7,100)
--------- --------- --------- ---------
Total .............. $ 399,300 $ 271,000 $ 204,900 $ 111,801
========= ========= ========= =========
</TABLE>
<PAGE>
A reconciliation of the provision for corporate income taxes compared
with amounts computed at the US statutory tax rate is as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------- --------------------
December 31, December 31.
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Based on U.S. ..................
statutory federal
tax rate ..................... $372,000 $240,900 $191,819 $ 94,013
Increase (decrease)
in taxes resulting
from:
State taxes, net of
federal tax benefit ...... 25,800 24,700 11,544 6,131
Non-deductible expenses .... 1,500 5,400 1,537 11,656
-------- -------- -------- --------
Total .................. $399,300 $271,000 $204,900 $111,800
======== ======== ======== ========
Effective tax
rate ................. 36.5% 38.3% 36.3% 40.4%
</TABLE>
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.
<PAGE>
Note 6--Accrued Liabilities
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
-------- --------
<S> <C> <C>
Compensation ................................... $283,365 $375,276
Payroll, sales, and property taxes ............. 29,109 73,247
401-K plan contribution ........................ 45,523 44,014
Environmental and other costs .................. 187,682 152,056
------- -------
$545,679 $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 pretax 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 $26,806 in 1995 and $25,292 in 1994.
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 $272,869 in 1995 and $145,594 in 1994.
In addition 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.
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.
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.
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:
1995 - $17,470 and 1994 - $32,389.
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>
Item 2A - Management's Discussion and Analysis of Financial Position:
Financial Condition
Liquidity and Capital Resources
Six-Months ended December 1995
Cash and cash equivalents increased $57,376 from June 30, 1995 to
December 31, 1995. For the period, $728,512 net cash was provided by the
operating activities, $67,672 was used by investing activities and $603,464 was
used by financing activities. During the past six months, the registrant's
investment activities were comprised of $141,107 used for additions to property,
plant and equipment, $3,376 used for additions to patent costs and other assets
and $76,811 provided by sales of marketable securities. The $603,464 used for
financing activities was made up of a reduction of long-term debt in the amount
of $177,544, $288,590 for the purchase and retirement of treasury stock and
$137,330 used for payment of dividends.
Working capital of $5,834,633 increased $476,173 or 9% during the six
months and the working capital ratio increased to 8.86 to 1 from 5.45 to 1 as of
June 30, 1995.
Stockholders' equity per share December 31, 1995 increased 6% to $4.15
per share compared with $3.93 per share June 30, 1995. Board authorization has
also been made to repurchase up to $1,500,000 of GMCC stock. During the current
period 52,539 shares held in the treasury at the cost of $288,590 were retired
and canceled.
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 --- December 31, 1995 compared with December 31. 1994
Sales increased this quarter as reflected in the current period sales of
$2,420,821 by $15,818 or .6% from the same quarter last year. Sales at all
locations continue to increase over last year and management expects this
positive trend to continue through the remainder of the year. With the
continuing sales growth at our Wisconsin facility and the need for expansion,
construction of additional space to the plant is now underway. Completion is
expected in the spring of 1996. In keeping with our progressive marketing
attitude, Magnaplate plans to reach a broader industrial market base, by going
"on-line" with the inception of it's "home page" on the World Wide Web
(http://www.magnaplate.com).
Royalty income and investment and other income for this quarter was
$287,390 compared with $(140,315) from last year's second quarter. The $35,385
increase in royalty income is a direct result of continuing economic growth in
Europe and the addition of new licenses with existing licensees. Negotiations
are continually taking place regarding potential new licensees around the world.
The $392,320 increase in investment and other income is attributable to a
stronger market and our switch to high yield fixed income investments in our
portfolio. Management believes the investment portfolio to be sound, diversified
and less susceptible to extreme market fluctuations while providing dividend and
interest income.
Reflecting the above, gross revenue for the latest quarter of this year
of $2,708,211 increased $443,523 or 20% from the same quarter last year.
Total costs and expenses were $2,143,947 in the second quarter, an
increase of $155,900 or 8% from the same quarter last year. Management has
successfully stabilized costs in direct proportion to revenue and continues to
monitor spending.
Income before corporate income taxes was $564,264 in this year's second
quarter, an increase of $287,623 or 105% from the $276,641 achieved in last
year's second quarter. Corporate income taxes and the effective tax rate in this
year's second quarter were $204,900 and 36% respectively, compared with $111,800
and 40% in the second quarter of last year.
Based on the above, net income of $359,364 increased by $194,523 or 118%
in the second quarter of this year from the $164,841 achieved in last year's
second quarter.
Earnings per share were up 116.7 % in this year's second quarter ( or
$.13 compared to $.06 in last year's second quarter). During the current three
month period 45,389 shares of treasury stock were retired and canceled,
resulting in a weighted average of outstanding 2,720,884 compared to 2,939,237
for the same period last year.
Six Months --- December 31. 1995 compared with December 31, 1994:
Gross revenue for this year's first six months of $5,320,276 increased
$620,603 over last year.
Total costs and expenses for the current six month period were
$4,226,057 an increase of $235,047 or 6% from last year. As a percentage of
gross revenue, total costs and expenses in 1995 were 79% compared to 85% in
1994. Cost of Sales as a percentage of gross revenue for the latest six months
decreased to 37% from 41 % in the same period of last year. Selling and
administration remained the same at 37 % of gross revenue. Depreciation and
amortization decreased to 6% of gross revenue this year compared with 7% in
1994. Interest expense in the current year decreased to .1 % of gross revenue
compared to .4% last year.
As a result of the above, gross income before corporate income taxes for
the first six months of this year was $1,094,219, an increase of $385,556 or 54%
from last year.
Corporate income taxes in this year's first six months were $399,300,
compared to $271,000 for the comparable period of last year, an increase of
$128,300 or 47%. As detailed in note 5, this year's effective tax rate was 36%
compared with 38% last year.
As a result of the above, net income of $694,919 this year was $257,256
or 58.8% more than the $437,663 achieved last year. Earnings per share were $.25
this year, compared with $.15 a share last year an increase of $.10 or 67% .
During the six month period 52,539 shares of treasury stock were retired and
canceled, resulting in a weighted average this year of 2,731,770 compared with
2,947,716 in 1994.
Management believes the existing legal matters, as detailed in note 9 to
the consolidated financial statements, will have no significant impact on future
earnings.
The Russian joint venture is on hold pending financing from world
banking sources which are still under consideration.
Discussions continue with principals in Beijing, China regarding a
future joint ventures throughout mainland China.
No other significant financial matters are expected in future months
that 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
/s/Candida C. Aversenti
- -----------------------------
Candida C. Aversenti
President
DATE
/s/Susan E. Neri
- -----------------------------
/s/Susan E. Neri
Chief Accounting Officer
<PAGE>
MINUTES OF THE 1995 ANNUAL MEETING
OF SHAREHOLDERS OF
GENERAL MAGNAPLATE CORPORATION
The Annual Meeting of the Shareholders of General Magnaplate Corporation
was held at the offices of the Company at 1331 U.S. Route 1, Linden, New Jersey,
on November 8, 1995 at 2:00 p.m., E.S.T., pursuant to due notice.
Mrs. Candida C. Aversenti, President of the Company, presided as Chair
of the Meeting, and Mr. Edmund V. Aversenti served as Secretary of the Meeting.
The Chair introduced those Officers and Directors of the Company who
were present.
At the request of the Chair, the Secretary presented a copy of the
Annual Report, the Notice of Annual Meeting of Shareholders, and the Proxy
Statement and Proxy Card, together with an Affidavit of Ms. Valerie Corigliano,
a secretary of the Corporation, duly sworn as to the mailing on October 12,
1995, of such Annual Report, the Notice of Annual Meeting of Shareholders, and
the Proxy Statement and Proxy Card for such Meeting, to each holder of record of
the Common Stock of the Company as of the close of business on October 6, 1996,
as shown by the records maintained by Registrar and Transfer Company, Cranford,
New Jersey.
Upon motion duly made by Mr. H. Levin, seconded by Mr. W. Alina, and
unanimously carried, the reading of the Annual Report, the Notice of Annual
Meeting of Shareholders, the Proxy Statement and Proxy Card and the Affidavit of
Mailing thereof, was waived. The Secretary was instructed to file the Affidavit
and annexed exhibits with the Minutes of the Meeting.
The Chair requested the Secretary to report the number of shares present
in person and by proxy. The Secretary submitted a list of holders of record of
the Common Stock of the Company as of the close of business on October 6, 1995,
prepared and certified by Registrar and Transfer Company, Cranford, New Jersey,
Transfer Agent for the Company, and stated the list would remain open during the
Meeting for inspection by any interested shareholder. He reported that there
were present, in person and by proxy, the holders of 2,535,781 shares of Common
Stock out of 2,736,863 shares of the Company's stock outstanding as of October
6, 1995. The Secretary declared that not only was a quorum present, but noted
that an extraordinary number, almost 93 %, of the shareholders had responded and
were present in person or by proxy, whereupon the Chair declared that the
Meeting was open for the conduct of business.
The Chair stated that extra copies of the Annual Report to Shareholders
of the Company for the fiscal year ending June 30, 1995, including financial
statements audited by Mauriello, Franklin & Lo Brace, filed on Form 10-K with
the Securities and Exchange Commission, as well as other printed material
concerning products and services of the Company, were available for those who
wished to examine same.
The Chair stated that the next order of business was the reading of the
Minutes of the last (1994) Annual Meeting of the Shareholders. Upon motion made
by Mr. W. Alina, seconded by Mr. J. Wallwork, and unanimously carried, the
reading of the Minutes of the 1994 Annual Meeting of Shareholders was waived.
<PAGE>
The Chair announced the appointment of Ms. Susan DeFalco and Ms. Valerie
Corigliano as Inspectors of Election. The Inspectors of Election delivered their
Oath of Office, which Oath of Office and Certificate thereof was ordered filed
with the Minutes of the Meeting. The list of shareholders of the Company was
delivered to the Inspectors of Election, and the Chair asked all persons present
who were shareholders of the Company and who had not sent in a proxy, to
identify themselves to the Inspectors of Election, and if they did not wish to
vote in person, there were extra proxies on hand which they could fill in and
give to the Inspectors of Election.
The Chair then stated that the first item of business was the election
of Seven (7) persons to serve as Directors of the Company. Upon Motion duly
made by Mr. W Alina, and seconded by Mr. L. Campbell, the following persons
were nominated to serve as Directors of the Company until the next Annual
Meeting of Shareholders, and until their successors shall be elected and shall
qualify:
S. Thomas Aitken Harold F. Levin
Candida C. Aversenti Edward A. Partenope Jr.
Edmund V. Aversenti, Jr. James H. Wallwork
Charles P. Covino
The Chair called for any further nominations and, there being none, and
the nominees having accepted their nomination, upon motion duly made by Mr. L.
Lentz, and seconded by Mr. H. Levin, and unanimously carried, nominations were
closed.
The ballots were submitted to the Inspectors of Election. After the
Ballots were tabulated, the Inspectors of Election reported to the Secretary
that the result of the vote taken at such Meeting was as follows:
<TABLE>
<CAPTION>
No. of Shares Voting By Proxy For Against Abstain
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
S. Thomas Aitken 2,532,509 972 2300
Candida C. Aversenti 2,532,485 996 2300
Edmund V. Aversenti, Jr. 2,525,985 996 8800
Charles P. Covino 2,532,509 972 2300
Harold F. Levin 2,522,485 996 12,300
Edward A. Partenope, Jr. 2,532,485 996 2300
James H. Wallwork 2,532,485 996 2300
</TABLE>
The Inspectors of Election also reported to the Secretary that no shares
had been voted in person in favor of or in opposition to the nominees, and that
no shares had been voted for any person other than the nominees. The Report of
the Inspectors of Election was ordered filed with these Minutes.
The Secretary reported the results to the Meeting, and the chair
thereupon announced that the Seven (7) persons nominated had received a
plurality of the votes cast at the Meeting and had been duly elected Directors
of the Company to hold office until the 1996 Annual Meeting of Shareholders in
accordance with the By-Laws and to serve until their successors shall be elected
and shall qualify. The Chair stated that the next item of business was
ratification of the selection of the Company's independent auditors for the
fiscal year ending June 30, 1996, adding that Mauriello, Franklin & Lo Brace of
Springfield, New Jersey had served as the Company's independent auditors nearly
thirty years, and for the fiscal year ended June 30, 1995. She indicated that
the Board of Directors had selected the same firm as the Company's independent
auditors for the current fiscal year, subject to the vote of the shareholders. A
motion was then duly made by Mr. W. Alina, and seconded by Mr. T. Aitken, for
confirmation of the selection of Mauriello, Franklin & Lo Brace as the Company's
independent auditors for the current fiscal year ending June 30, 1996.
Balloting for the confirmation of the selection of the Company's
independent auditors then took place, after which the ballots were submitted to
the Inspectors of Election. After the ballots were tabulated, the Inspectors of
Election reported to the Secretary that 2,531,809 shares had been voted by proxy
in favor of the selection of the Company's independent auditors, that 1372
shares had been voted against, and that 2600 shares had voted to abstain. The
Inspectors of Election also reported to the Secretary that no shares had been
voted in person in favor of or in opposition to the selection. The Report of the
Inspectors of Election was ordered filed with these minutes.
The Secretary reported the vote and the Chair thereupon announced that
Mauriello, Franklin & Lo Brace having received a plurality of the votes cast at
the Meeting, had been duly elected and confirmed as the Company's independent
auditors for the current fiscal year ending June 30, 1996.
The Chair stated that Mr. Joseph Franklin, a member of Mauriello,
Franklin & Lo Brace was present at the Meeting and was available to respond to
appropriate questions.
There being no questions asked or matters to be considered, the Chair
stated she wished to thank all those present for attending the meeting, the
shareholders for their confidence in the Company and its officials, and
particularly all the officers, staff, and employees of the Company for their
loyal support.
The Chair then proposed that she would entertain a motion to adjourn,
for which a motion was made by Mr. T. Aitken, seconded by Mr. J. Wallwork and
unanimously carried.
The Chair then declared the Annual Meeting of Shareholders officially
adjourned.
<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
February 8, 1996
GENERAL MAGNAPLATE CORPORATION (GMCC)
Six Month Report To Stockholders
December 31, 1995
Financial results for the past six months are a direct reflection of the
global economic upswing. Earnings per share increased by 67% when compared to
the similar six month period last year. Total revenues increased by $620,603 to
$5,320,276 -- a 13% increase for this period. Net income increased by 59%,
resulting in earnings per share of $0.25, an increase of $0.10 compared to $0.15
per share for the same period last year. Current working capital ratio increased
to 8.86 to 1 from 5.45 to 1 as of June 30, 1995.
The Board of Directors has declared a dividend of $.05 per share to
stockholders of record February 23, payable on March 8, 1996. Board
authorization has also been made to repurchase up to $1,500,000 of GMCC stock,
and 52,539 shares have been purchased during this period. Current book value
increased from $4.06 to $4.15 for the similar period last year.
The nomination of our Hi-T-Lube process into the "Guiness Book of
Records" for 1996 was a high point in this past year's accomplishments. We have
received nationwide acclaim for this award, having replaced Teflon as the
world's most slippery solid.
<PAGE>
<TABLE>
<CAPTION>
Condensed Statement of Income Six Months Ending December 31, 1995
-----------------------------------------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Gross Revenue .......................... $5,320,276 $4,699,673
Income Before Taxes .................... 1,094,219 708,663
Net Income ............................. 694,919 437,663
Earnings Per Share ..................... $ 0.25 $ 0.15
<CAPTION>
Condensed Statement of Income for Three Months Ending December 31, 1995
-----------------------------------------------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Gross Revenue .......................... $2,708,211 $2,264,688
Income Before Taxes .................... 564,264 276,641
Net Income ............................. 359,364 164,841
Earnings Per Share ..................... $ 0.13 $ 0.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 426,652
<SECURITIES> 4,149,718
<RECEIVABLES> 1,460,579
<ALLOWANCES> 106,000
<INVENTORY> 271,662
<CURRENT-ASSETS> 6,577,414
<PP&E> 13,432,118
<DEPRECIATION> 8,161,519
<TOTAL-ASSETS> 12,823,340
<CURRENT-LIABILITIES> 741,981
<BONDS> 0
0
0
<COMMON> 223,180
<OTHER-SE> 10,947,534
<TOTAL-LIABILITY-AND-EQUITY> 12,823,340
<SALES> 4,847,152
<TOTAL-REVENUES> 5,320,276
<CGS> 1,964,089
<TOTAL-COSTS> 3,991,010
<OTHER-EXPENSES> 2,069,770
<LOSS-PROVISION> 48,584
<INTEREST-EXPENSE> 5,414
<INCOME-PRETAX> 1,094,219
<INCOME-TAX> 399,300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694,919
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
</TABLE>
