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, 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 February 5, 1997:
Common Stock, No Par Value 2,520,797
- -------------------------- ------------------
(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 - None
ITEM 4 - Submission of Matters to a Vote of Security Holders - Minutes of 1996
Annual Meeting 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
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED
DECEMBER 31, 1996 AND 1995
<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
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Accountants' Review Report
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statement of Stockholders' Equity
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Supplementary Information
<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, 1996 and the
related consolidated statement of stockholders' equity for the six months ended
December 31, 1996 and the related consolidated statements of income and cash
flows for the six months ended December 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 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, 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 six months ended
December 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, 1996 was audited by us,
and we expressed an unqualified opinion on it in our report dated August 9,
1996. We have not performed any auditing procedures on the balance sheet since
August 9, 1996.
/s/MAURIELLO, FRANKLIN & LoBRACE PC
-----------------------------------
MAURIELLO, FRANKLIN & LoBRACE PC
January 23, 1997
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1996 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................ $ 1,040,949 $ 680,570
Marketable securities (Note 1) ........... 2,575,707 4,192,421
Accounts receivable--trade, net of
allowance for doubtful accounts of
$148,000 (June 30, 1996-$137,000) ...... 1,412,382 1,254,845
Inventories (Note 1) ..................... 272,899 273,073
Prepaid expenses ......................... 109,803 177,321
Other current assets ..................... 193,165 158,287
----------- -----------
Total current assets ................. $ 5,604,905 $ 6,736,517
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ............. 5,300,417 5,432,330
Cash surrender value of officers' life
insurance, net ........................... 664,162 664,162
Other assets (Note 3) ...................... 1,091,305 500,707
----------- -----------
Total assets ........................... $12,660,789 $13,333,716
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable ......................... $ 212,343 $ 437,113
Accrued liabilities (Note 5) ............. 325,822 559,903
Corporate income taxes payable ........... 50,349 70,560
------------ ------------
Total current liabilities .............. $ 588,514 $ 1,067,576
------------ ------------
Long-term liabilities:
Rent security deposit .................... $ 9,194 $ 7,877
Accrued deferred compensation (Note 6) ... 1,053,593 977,831
------------ ------------
Total long-term liabilities ............ $ 1,062,787 $ 985,708
------------ ------------
Total liabilities ...................... $ 1,651,301 $ 2,053,284
------------ ------------
Contingencies (Note 7)
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued and outstanding--2,520,797 shares
(June 30, 1996 - 2,634,797 shares) ..... $ 223,180 $ 223,180
Retained earnings ........................ 10,921,475 11,178,589
Foreign currency translation adjustment
(Note 1) ............................... (135,167) (121,337)
------------ ------------
Total stockholders' equity ............. $ 11,009,488 $ 11,280,432
------------ ------------
Total liabilities and
stockholders' equity ................. $ 12,660,789 $ 13,333,716
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1996
Foreign
Currency
Common Retained Translation
Stock Earnings Adjustment
--------- ------------ ------------
<S> <C> <C> <C>
Balance,
July 1, 1996 ................. $ 223,180 $ 11,178,589 $ (121,337)
Add--net income .............. -0- 688,767 -0-
Add--foreign currency
translation adjustment ...... -0- -0- (13,830)
Less--dividends paid ......... -0- (184,436) -0-
Less--purchase and retirement
of 114,000 treasury shares . -0- (761,445) -0-
--------- ------------ ------------
Balance, December 31, 1996 ... $ 223,180 $ 10,921,475 $ (135,167)
========= ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended Three Months Ended
December 31, December 31,
------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenue:
Sales ....................... $4,974,478 $4,847,152 $2,543,418 $2,420,821
Royalty and license income .. 164,993 136,412 99,806 95,014
Investment and other
income, net (Note 1) ...... 250,766 336,712 145,995 192,376
---------- ---------- ---------- ----------
$5,390,237 $5,320,276 $2,789,219 $2,708,211
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales ............... $2,084,455 $1,964,089 $1,028,982 $ 977,520
Selling and administration .. 1,951,780 1,955,878 1,024,978 1,019,771
Depreciation and amortization 287,501 300,676 145,529 145,370
Interest .................... 234 5,414 -0- 1,286
---------- ---------- ---------- ----------
$4,323,970 $4,226,057 $2,199,489 $2,143,947
---------- ---------- ---------- ----------
Income before corporate
income taxes ................ $1,066,267 $1,094,219 $ 589,730 $ 564,264
Corporate income taxes
(Notes 1 and 5) ............. 377,500 399,300 200,800 204,900
---------- ---------- ---------- ----------
Net income .................... $ 688,767 $ 694,919 $ 388,930 $ 359,364
========== ========== ========== ==========
Earnings per share (Note 1) ... $ .26 $ .25 $ .15 $ .13
========== ========== ========== ==========
Weighted average shares
outstanding ................. 2,603,133 2,731,770 2,571,469 2,720,884
========== ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net income .................................... $ 688,767 $ 694,919
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Unrealized investment income ............... $ (51,863) $ (97,771)
Depreciation and amortization .............. 287,501 300,676
Deferred taxes ............................. (25,300) (33,200)
Accrued deferred compensation .............. 58,763 91,968
Foreign currency translation adjustment .... (13,830) 483
Provision for doubtful accounts ............ 14,505 39,000
Increase (decrease) in cash resulting from
changes in current assets and liabilities:
Marketable securities ................... 1,668,577 76,811
Accounts receivable ..................... (174,042) (64,625)
Inventories ............................. 174 (144)
Other current assets .................... 56,204 79,882
Accounts payable and accrued liabilities (458,851) (95,172)
Corporate income taxes payable .......... (20,211) (187,504)
Rent security deposit ................... -- --
----------- -----------
Total adjustments ...................... $ 1,344,944 $ 110,404
----------- -----------
Net cash provided by operating activities ... $ 2,033,711 $ 805,323
----------- -----------
CASH FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment ... $ (153,649) $ (141,107)
Additions to patent costs and other assets .... (23,802) (3,376)
Note receivable--officer ...................... (550,000) --
----------- -----------
Net cash used in investing activities ....... $ (727,451) $ (144,483)
----------- -----------
CASH FROM FINANCING ACTIVITIES:
Reduction in long-term debt ................... $ -- $ (177,544)
Purchase and retirement of treasury shares ... (761,445) (288,590)
Dividends paid ................................ (184,486) (137,330)
----------- -----------
Net cash used in financing activities ....... $ (945,881) $ (603,464)
----------- -----------
<PAGE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(continued)
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH ..................... $ 360,379 $ 57,376
Cash and cash equivalents, beginning .......... 680,570 369,276
----------- -----------
Cash and cash equivalents, ending ............. $ 1,040,949 $ 426,652
=========== ===========
Supplemental cash flow data:
Interest paid ................................. $ 234 $ 5,414
Income taxes paid ............................. $ 423,011 $ 563,920
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<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.
Nature of Business
The Company is in one line of business. It provides
synergistic coatings and other related services to its customers'
products from five plants located in the United States and Canada.
Marketable Securities
All marketable securities are considered trading securities
and are valued at fair market value in accordance with SFAS No. 115.
Realized and unrealized gains and losses are reported in current period
income. Market value exceeded cost by $29,996 at December 31, 1996.
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 principally 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 periods not exceeding 17 years.
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>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies (Continued)
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.
Use of Estimates
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 financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2--Property, Plant and Equipment
Property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
----------- -----------
<S> <C> <C>
Land ................................... $ 805,350 $ 805,350
Buildings .............................. 3,366,208 3,366,208
Building improvements .................. 3,414,521 3,393,127
Factory machinery ...................... 4,567,500 4,465,319
Office equipment ....................... 882,702 865,614
Transportation equipment ............... 252,228 264,026
----------- -----------
Total .................................. $13,288,509 $13,159,644
Less--accumulated depreciation ......... 7,988,092 7,727,314
----------- -----------
Net .................................... $ 5,300,417 $ 5,432,330
=========== ===========
</TABLE>
Note 3--Other Assets
Other assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---------- ----------
<S> <C> <C>
Deferred income taxes ............................ $ 186,734 $ 174,676
Note receivable-related party .................... 235,000 235,000
Deferred compensation contracts .................. 71,010 54,011
Patents and trademarks, at cost, net of
accumulated amortization ...................... 58,883 37,020
Notes receivable-officer (less current maturity) . 539,678 --
---------- ----------
$1,091,305 $ 500,707
========== ==========
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4--Corporate Income Taxes
Components of corporate income taxes are as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current:
Federal $348,700 $385,600 $184,600 $199,900
State 54,100 46,900 29,100 21,600
Foreign -0- -0- -0- -0-
-------- -------- -------- --------
$402,800 $432,500 $213,700 $221,500
-------- -------- -------- --------
Deferred:
Federal $(19,600) $(25,400) $(10,000) $(12,500)
State (5,700) (7,800) (2,900) (4,100)
Foreign -0- -0- -0- -0-
-------- -------- -------- --------
$(25,300) $(33,200) $(12,900) $(16,600)
-------- -------- -------- --------
Total $377,500 $399,300 $200,800 $204,900
======== ======== ======== ========
</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,
1996 1995 1996 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Based on U.S. statutory
federal tax rate ........................ $362,500 $372,000 $200,500 $ 94,013
Increase (decrease) in taxes resulting from:
State taxes, net of
federal tax benefit ..................... 32,000 25,800 17,300 6,131
Non-deductible (reportable)
expenses (income) ...................... (17,000) 1,500 (17,000) 1,537
-------- -------- --------- --------
Total ................................. $377,500 399,300 $200,800 $204,900
======== ======= ======== ========
Effective tax rate .................... 35.4% 36.5% 37.2% 36.3%
</TABLE>
The Canadian subsidiary has available unused tax benefits in the form of
operating loss carryforwards of $168,000 to reduce future Canadian taxable
income. These carryforwards principally expire in 1999. Due to their uncertainty
of realization, these tax benefits have been reflected net of a 100% valuation
allowance.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5--Accrued Liabilities
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
-------- --------
<S> <C> <C>
Compensation ................................. $199,605 $309,695
Payroll, sales, and property taxes ........... 75,643 75,775
401-k plan contribution ...................... 50,574 27,176
Environmental and other costs ................ -0- 147,257
-------- --------
$325,822 $559,903
======== ========
</TABLE>
Note 6--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 $27,721 in 1996 and $26,806 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 $246,113 in 1996 and $272,869 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 obligation over the
active term of employment of the officer. The Company is also accruing and
funding deferred compensation contracts with two other officers based on 10% of
annual compensation. Total expense under these three obligations was $75,253 in
1996 and $91,968 in 1995.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7--Contingencies and Risks
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 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. also filed a
claim for breach of oral contract of employment for $119,000 which the
Company denied in their related statement of defense.
The Company reached an out of court agreement with the
plaintiffs in September, 1996 wherein the plaintiffs were collectively
paid the sum of $65,000 in full settlement of their claim. Such
settlement did not have an adverse effect on the Company's financial
statements.
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.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8--Related Party Transactions
The Company engaged in the following related party transactions:
<TABLE>
<CAPTION>
Six Months Ended
December 31
-------------------------
1996 1995
---- ----
<S> <C> <C>
Was charged computer consulting services
by an outside director of the Company $19,304 $17,470
Accrued interest income on 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 plus interest of 6.83% per annum commencing
July 1,
1999 with the final collection due July 1, 2003. $ 8,025 $ 8,025
Loaned $550,000 to its chief executive officer on December 16, 1996 in
consideration for a note receivable. The note is to be repaid in (36)
equal installments of $3,814 which includes interest of 5.6% per annum
commencing February 1, 1997 with the final balloon payment of $516,915
due December 16, 1999. $ -0- $ -0-
</TABLE>
Note 9--Fair Value of Financial Instruments
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and
Accrued Liabilities--The carrying amount approximates fair value
because of the short maturity of these instruments.
Marketable Securities--The carrying amount approximates fair value
because such securities are valued based on market quotes.
Notes Receivable - Long-term--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 1996
Cash and cash equivalents increased to $1,040,949 at December 31, 1996
from $680,570 at June 30,1996. For the period, $2,033,711 net cash was provided
by the operating activities, $727,451 was used in investing activities and
$945,881 was used in financing activities. During the past six months, the
registrant's investment activities were comprised of $153,649 used for additions
to property, plant and equipment, $23,802 used for additions to patent costs and
other assets and $550,000 used for a note receivable. The $945,881 used for
financing activities comprised of $761,445 for the purchase and retirement of
treasury stock and $184,486 used for payment of dividends.
Working capital of $5,016,391 decreased $652,550 or 13% during the six
months and the working capital ratio increased to 9.52 to 1 from 6.31 to 1 as of
June 30, 1996.
Stockholder's equity per share at December 31, 1996 increased 2.1% to
$4.37 per share compared with $4.28 at June 30, 1996. As previously authorized
by the Board, 114,000 shares of GMCC stock was purchased at the cost of $761,445
and was retired and canceled during the current six month period.
Management believes that internal cash flow and/or income from
marketable securities are expected to be sufficient to provide the capital
resources necessary to support future operating needs, and does not anticipate
any capital expenditures which will have significant impact on future cash
flows.
Item 2B - Management's Discussion and Analysis of Results of Operations :
Quarter --- December 31, 1996 compared with December 31, 1995
Sales increased this quarter as reflected in the current period sales
of $2,543,418 by $122,597 or 5.1% from the same quarter last year. Sales at all
locations continue to increase over last year due to an increase in customer
contracts, increased volume and a larger sales force. Management expects this
positive trend to continue through the remainder of the year. The additional
space at our Wisconsin facility is complete and will be operational by spring.
Response to our Web site on the World Wide Web (http://www.magnaplate.com) is
continuing to be met with tremendous response and has resulted in additional
sales.
The additional international advertising has been met with great
response as justified by the continuing increase in royalty income. Royalty
income for the quarter was $99,806 an increase of 5% compared with the same
quarter in 1995. Negotiations are continually taking place regarding potential
new licensees. The $46,381 decrease in investment and other income is
attributable to a decline in the market at December 31, 1996 and lower dividend
and interest income earned at the period end. 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 $2,789,219 increased $81,008 or 2.9% from the same quarter last year.
<PAGE>
Total costs and expenses were $2,199,489 in the second quarter, an
increase of $55,542 or 2.6% from the same quarter last year. The minimal
increase is due to moderate price increases from our vendors, higher inventory
of raw materials due to increased sales and increases in ordinary payroll.
Management has successfully stabilized costs in direct proportion to revenue and
continues to monitor spending.
Income before corporate income taxes was $589,730 in this year's
second quarter, an increase of $25,466 or 4.5% from the $564,264 achieved in
last year's second quarter. Corporate income taxes and the effective tax rate in
this year's second quarter were $200,800 and 37% respectively, compared with
$204,900 and 36% in the second quarter of last year.
Based on the above, net income of $388,930 increased by $29,566 or 8.2%
in the second quarter of this year from the $359,364 achieved in last year's
second quarter.
Earnings per share were up 15.4% in this year's second quarter ( or
$.15 compared to $.13 in last year's second quarter). During the current three
month period 114,000 shares of treasury stock were retired and canceled,
resulting in a weighted average of outstanding 2,571,469 compared to 2,720,884
for the same period last year.
Six Months --- December 31, 1996 compared with December 31, 1995:
Gross revenue for this year's first six months of $5,390,237 increased
$69,961 over last year, an increase of 1%.
Total costs and expenses for the current six month period were
$4,323,970 an increase of $97,913 or 2% from last year. As a percentage of gross
revenue, total costs and expenses in 1996 were 80% compared to 79% in 1995. Cost
of Sales as a percentage of gross revenue for the latest six months increased to
39% from 37% in the same period of last year. Selling and administration
decreased to 36% of gross revenue in the latest period compared with 37% last
year. Depreciation and amortization decreased to 5% of gross revenue this year
compared with 6% in 1995.
As a result of the above, gross income before corporate income taxes
for the first six months of this year was $1,066,267, a decrease of $27,952 or
2.6% from last year.
Corporate income taxes in this year's first six months were $377,500,
compared to $399,300 for the comparable period of last year, a decrease of
$21,800 or 5.8%. As detailed in note 5, this year's effective tax rate was 35%
compared with 36% last year.
As a result of the above, net income of $688,767 this year was $6,152
or .9% less than the $694,919 achieved last year. Earnings per share were $.26
this year, compared with $.25 a share last year an increase of $.01 or 4%.
During the six month period 114,000 shares of treasury stock were retired and
canceled, resulting in a weighted average this year of 2,603,133 compared with
2,731,770 in 1995.
As detailed in note 7 to the consolidated financial statements, the
previous legal matters have been resolved. No new legal matters are expected.
<PAGE>
Negotiations are continuing regarding a potential new licensee in
Korea.
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: February 13, 1997
/s/Candida C. Aversenti
- -----------------------
Candida C. Aversenti
President
DATE: February 13, 1997
/s/Susan E. Neri
- ----------------
Susan E. Neri
Chief Accounting Officer
<PAGE>
MINUTES OF THE 1996 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 6, 1996 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. Patricia Popovich,
Senior Account Administrator of Registrar and Transfer Company, duly sworn as to
the mailing on October 11, 1996, 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 4, 1996, as shown by the records maintained by
Registrar and Transfer Company, Cranford, New Jersey.
Upon motion duly made by Mr. T. Aitken, seconded by Mr. H. Levin, 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
4, 1996, 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 2,422,357 shares
of Common Stock out of 2,634,797 shares of the Company's stock outstanding as of
October 4, 1996. The Secretary declared that not only was a quorum present, but
noted that an extra-ordinary number, 91.9%, 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, 1996, 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 (1995) 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 1995 Annual Meeting of Shareholders was waived.
<PAGE>
The Chair announced the appointment of Ms. Susan Neri and Mr. Ralph
Confessore (shareholder) 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 Ms. A.
Dente, and seconded by Mr. T. Aitken, 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 2,409,021 0 13,336
Candida C. Aversenti 2,412,221 0 10,136
Edmund V. Aversenti, Jr. 2,405,521 0 16,836
Charles P. Covino 2,411,949 72 10,336
Harold F. Levin 2,409,021 0 13,336
Edward A. Partenope, Jr. 2,412,021 0 10,336
James H. Wallwork 2,412,021 0 10,336
</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 1997 Annual Meeting of Shareholders in
accordance with the By-Laws and to serve until their successors shall be elected
and shall qualify.
<PAGE>
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, 1997, 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, 1996. 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. J. Wallwork, and seconded by Ms. S. Neri, for confirmation of the
selection of Mauriello, Franklin & Lo Brace as the Company's independent
auditors for the current fiscal year ending June 30, 1997.
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 2,411,001 shares had been voted by proxy
in favor of the selection of the Company's independent auditors, that 972 shares
had been voted against, and that 10,384 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, 1997.
The Chair stated that Mr. Glen Wohlrob, 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. W. Alina 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
Linden, New Jersey February 12, 1997
NASDAQ SYMBOL GMCC
GENERAL MAGNAPLATE CORPORATION (GMCC)
Six Month Report To Stockholders -- December 31, 1996
The Board of Directors declared a dividend of $.06 per share to
stockholders of record February 28, 1997, payable on March 14, 1997.
Condensed Statement of Income - Six Months Ending December 31, 1996
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Gross Revenue ............................ $5,390,237 $5,320,276
Income Before Taxes ...................... 1,066,267 1,094,219
Net Income ............................... 688,767 694,919
Earnings Per Share ....................... $ 0.26 $ 0.25
Avg. Shares Outstanding .................. 2,603,133 2,731,770
</TABLE>
***********************
Condensed Statement of Income - Three Months Ending December 31, 1996
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Gross Revenue ............................ $2,789,219 $2,708,211
Income Before Taxes ...................... 589,730 564,264
Net Income ............................... 388,930 359,364
Earnings Per Share ....................... $ 0.15 $ 0.13
Avg. Shares Outstanding .................. 2,571,469 2,720,884
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,040,949
<SECURITIES> 2,575,707
<RECEIVABLES> 1,549,382
<ALLOWANCES> 137,000
<INVENTORY> 272,899
<CURRENT-ASSETS> 5,604,905
<PP&E> 5,300,417
<DEPRECIATION> 664,162
<TOTAL-ASSETS> 12,660,789
<CURRENT-LIABILITIES> 588,514
<BONDS> 0
0
0
<COMMON> 223,180
<OTHER-SE> 10,786,308
<TOTAL-LIABILITY-AND-EQUITY> 12,660,789
<SALES> 2,543,418
<TOTAL-REVENUES> 2,789,219
<CGS> 1,028,982
<TOTAL-COSTS> 2,199,489
<OTHER-EXPENSES> 1,170,507
<LOSS-PROVISION> 14,505
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 589,730
<INCOME-TAX> 200,808
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 388,930
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
