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, 1998
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 May 6, 1998 :
Common Stock, No Par Value 4,918,794
- -------------------------- -----------------
(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 - 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
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<PAGE>
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
<PAGE>
MAURIELLO, FRANKLIN & LOBRACE
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
45 Springfield Avenue, Springfield, New Jersey 07081
Telephone (973) 379-5400 Fax (973) 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, 1998 and the related
consolidated statement of stockholders' equity for the nine months ended March
31, 1998 and the related consolidated statements of income and cash flows for
the nine months ended March 31, 1998 and 1997, 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 March 31, 1998 and 1997 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
and three months ended March 31, 1998 and 1997 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, 1997 was audited by us,
and we expressed an unqualified opinion on it in our report dated August 8,
1997. We have not performed any auditing procedures on the balance sheet since
August 8, 1997.
/s/ Mauriello, Franklin & LoBrace
---------------------------------
Mauriello, Franklin & LoBrace
April 28, 1998
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 1,402,114 $ 1,216,824
Marketable securities (Note 1) ................. 3,178,562 2,875,776
Accounts receivable--trade, net of
allowance for doubtful accounts of
$116,000 (June 30, 1997-$116,000) ............ 1,474,709 1,426,471
Inventories (Note 1) ........................... 322,305 303,088
Prepaid expenses ............................... 122,008 170,806
Other current assets ........................... 168,136 215,298
----------- -----------
Total current assets ....................... $ 6,667,834 $ 6,208,263
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................... 6,198,434 5,355,600
Cash surrender value of officers' life insurance . 806,173 752,148
Note receivable-officer (Note 8) ................. 494,319 532,449
Note receivable-related party partnership (Note 8) 235,000 235,000
Other assets (Note 3) ............................ 552,575 429,816
----------- -----------
Total assets ................................. $14,954,335 $13,513,276
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Current maturity of mortgage note payable (Note 4) $ 33,150 $ 0
Broker loan payable .............................. 504,714 0
Accounts payable ................................. 282,527 196,179
Accrued liabilities (Note 6) ..................... 417,068 548,333
Corporate income taxes payable ................... 104,961 168,389
------------ ------------
Total current liabilities ...................... $ 1,342,420 $ 912,901
------------ ------------
Long-term liabilities:
Rent security deposit ............................ $ 9,193 $ 9,193
Accrued deferred compensation (Note 7) ........... 1,280,543 1,139,698
Mortgage note payable (Note 4) ................... 424,775 0
------------ ------------
Total long-term liabilities .................... $ 1,714,511 $ 1,148,891
------------ ------------
Total liabilities .............................. $ 3,056,931 $ 2,061,792
------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued--4,918,794 shares of which 6,000 shares
are held in the treasury .................... $ 223,180 $ 223,180
Retained earnings ................................ 11,896,721 11,365,263
Foreign currency translation adjustment (Note 1) . (162,547) (136,959)
------------ ------------
$ 11,957,354 $ 11,451,484
Cost of treasury stock--6,000 shares ............. (59,950) 0
------------ ------------
Total stockholders' equity ..................... $ 11,897,404 $ 11,451,484
------------ ------------
Total liabilities and stockholders' equity ..... $ 14,954,335 $ 13,513,276
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1998
Foreign
Currency
Common Retained Translation Treasury
Stock Earnings Adjustment Stock
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance,
July 1, 1997 ............. $ 223,180 $ 11,365,263 $ (136,959) $ 0
Add--net income ............ 0 1,023,038 0 0
Less--foreign currency
translation adjustment .... 0 0 (25,588) 0
Purchase of 10,000 shares of
treasury stock ........... 0 0 0 (64,750)
Issuance of 4,000 shares of
treasury stock as employee
compensation ............. 0 0 0 4,800
Less--dividends paid
of $.10 per share ........ 0 (491,580) 0 0
------------ ------------ ------------ ------------
Balance,
March 31, 1998 ........... $ 223,180 $ 11,896,721 $ (162,547) $ (59,950)
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross revenue:
Sales ....................... $8,075,936 $7,712,118 $2,693,494 $2,737,640
Royalty income .............. 256,073 232,276 79,525 67,283
Investment and other
income, net ............... 418,581 324,528 120,075 73,762
---------- ---------- ---------- ----------
$8,750,590 $8,268,922 $2,893,094 $2,878,685
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales ............... $3,542,224 $3,274,116 $1,244,432 $1,189,661
Selling and administration .. 3,095,175 2,932,954 1,006,838 981,174
Depreciation and amortization 471,795 437,069 161,070 149,568
Interest .................... 15,658 234 9,187 --
---------- ---------- ---------- ----------
$7,124,852 $6,644,373 $2,421,527 $2,320,403
---------- ---------- ---------- ----------
Income before corporate
income taxes ................ $1,625,738 $1,624,549 $ 471,567 $ 558,282
Corporate income taxes
(Notes 1 and 5) ............. 602,700 589,100 176,200 211,600
---------- ---------- ---------- ----------
Net income .................... $1,023,038 $1,035,449 $ 295,367 $ 346,682
========== ========== ========== ==========
Earnings per share
(Note 1) .................... $ .21 $ .20 $ .06 $ .07
========== ========== ========== ==========
Weighted average shares
outstanding ................. 4,914,152 5,141,300 4,911,994 5,008,488
========== ========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 1,023,038 $ 1,035,449
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Reserve for unrealized gain ........................ $ (80,916) $ (34,452)
Depreciation and amortization ...................... 471,795 437,069
Deferred taxes ..................................... (52,900) (37,600)
Accrued deferred compensation ...................... 114,852 115,179
Foreign currency translation adjustment ............ (25,588) (16,997)
Provision for doubtful accounts .................... 16,300 28,336
Increase (decrease) in cash resulting from changes
in current assets and liabilities:
Marketable securities ........................... (221,870) 1,512,565
Accounts receivable ............................. (64,538) (233,226)
Prepaid expenses and other current assets ....... 53,468 65,180
Accounts payable and accrued liabilities ........ (44,917) (412,541)
Corporate income taxes payable .................. (28,999) 82,953
Rent security deposit ........................... 0 1,316
----------- -----------
Total adjustments ............................... $ 136,687 $ 1,507,782
----------- -----------
Net cash provided by operating activities ............ $ 1,159,725 $ 2,543,231
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to deferred compensation contracts ........... $ (33,849) $ 0
Additions to property, plant, and equipment ........... (1,305,501) (264,975)
Additions to patent costs and other assets ............. (21,718) (93,963)
Note receivable - officer .............................. 0 (550,000)
Installment collections - note receivable .............. 35,676 1,674
Increase in cash surrender value - life insurance ...... (54,025) 0
----------- -----------
Net cash used in investing activities ................ $(1,379,417) $ (907,264)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(continued)
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage note ............................ $ 457,925 $ 0
Purchase of treasury stock ............................. (64,750) (1,096,063)
Dividends paid ......................................... (491,580) (335,684)
Issuance of treasury stock as compensation ............. 4,800 0
Net proceeds from broker loan .......................... 504,714 0
Mortgage financing costs ............................... (6,127) 0
----------- -----------
Net cash provided by (used in) financing activities .. $ 404,982 $(1,431,747)
----------- -----------
Increase in cash and cash equivalents .................... $ 185,290 $ 204,220
Cash and cash equivalents, beginning of period ........... 1,216,824 680,570
----------- -----------
Cash and cash equivalents, end of period ................. $ 1,402,114 $ 884,790
=========== ===========
</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.
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 $95,405 and $12,542 as of March 31, 1998 and 1997 respectively.
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 10 years.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies (Continued)
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 reporting periods after
giving effect to the 2 for 1 stock split effective December 2, 1997.
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>
March 31, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Land ................................... $ 1,037,677 $ 805,350
Buildings .............................. 3,685,991 3,366,208
Building improvements .................. 3,560,423 3,450,824
Factory machinery ...................... 5,391,966 4,828,457
Office equipment ....................... 944,938 911,058
Transportation equipment ............... 313,277 271,018
----------- -----------
Total .................................. $14,934,272 $13,632,915
Less--accumulated depreciation ......... 8,735,838 8,277,315
----------- -----------
Net .................................... $ 6,198,434 $ 5,355,600
=========== ===========
</TABLE>
Note 3--Other Assets
Other assets are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------- --------
<S> <C> <C>
Patents and trademarks, at cost, net of
accumulated amortization of $109,609
and $100,481 ................................ $ 95,608 $ 83,018
Deferred income taxes ............................ 277,300 233,100
Deferred compensation contracts ............... 173,540 113,698
Mortgage financing costs ...................... 6,127 0
-------- --------
$552,575 $429,816
======== ========
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4--Mortgage Note Payable
The Company is indebted to Business Development Bank of Canada for
$457,925 borrowed March 31, 1998 and payable in equal monthly principal
installments of $2,571 together with interest of 7.6% per annum commencing June
23, 1998 with a final payment of $311,142 due April 23, 2003.
Current maturities of the debt for the five years ended March 23, 2003
are as follows: 1999 - $23,354; 2000 - $30,857; 2001 - $30,857; 2002 - $30,857;
and 2003 - $342,000.
The note is secured by a first mortgage on real estate owned in Ajax,
Ontario.
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,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current:
Federal ..... $ 568,000 $ 533,000 $ 169,300 $ 184,300
State ....... 87,600 93,700 29,100 39,600
Foreign ..... -- -- -- --
--------- --------- --------- ---------
$ 655,600 $ 626,700 $ 198,400 $ 223,900
--------- --------- --------- ---------
Deferred:
Federal ...... $ (41,000) $ (29,100) $ (17,200) $ (9,500)
State ........ (11,900) (8,500) (5,000) (2,800)
Foreign ...... -- -- -- --
--------- --------- --------- ---------
$ (52,900) $ (37,600) $ (22,200) $ (12,300)
--------- --------- --------- ---------
Total .......... $ 602,700 $ 589,100 $ 176,200 $ 211,600
========= ========= ========= =========
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Based on U.S. statutory
federal tax rate .......................... $ 552,750 $ 552,347 $ 160,333 $ 189,816
Increase (decrease) in taxes resulting from:
State taxes, net of
federal tax benefit ..................... 49,962 56,232 18,876 24,288
Non-deductible (reportable)
expenses (income) ....................... (12) (19,479) (3,009) (2,504)
--------- --------- --------- ---------
Total ................................. $ 602,700 $ 589,100 $ 176,200 $ 211,600
========= ========= ========= =========
Effective tax rate ......................... 37.1% 36.3% 37.4% 37.9%
</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.
Note 6--Accrued Liabilities
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- ---------
<S> <C> <C>
Compensation $ 263,354 $ 435,256
Payroll, sales, and property taxes 75,454 61,718
401-k plan contribution 45,710 19,954
Environmental and other costs 32,550 31,405
--------- ---------
$ 417,068 $ 548,333
========= =========
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $33,307 in 1998 and $30,124 in 1997.
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 $377,933 in 1998 and $370,770 in 1997.
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 $114,852 in
1998 and $129,783 in 1997.
<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>
Nine Months Ended
March 31,
-------------------------
1998 1997
------- -------
<S> <C> <C>
Was charged computer consulting
services by an outside director of
the Company; $43,840 $39,481
Accrued interest income on an
installment note receivable of
$235,000 from a limited partnership
which is controlled by a stockholder
of the Company. The note is secured
by a deed of trust on Texas real
estate, which was sold to the
partnership. 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: $12,038 $12,038
Charged interest income on a
mortgage note receivable of $550,000
from its chief executive officer on
December 16, 1996. The note is to be
repaid in (34) equal monthly
installments of $3,814 which
includes interest of 6.16% per annum
commencing February 1, 1997 with the
final balloon payment of $512,124
due December 16. 1999. The
receivable balance at March 31, 1998
was $509,319 and is secured by a
real estate first mortgage. $24,935 $ 8,924
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 - Related Parties--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.
Mortgage Note Payable--The carrying amount approximates fair value because such
liability is being valued based on current borrowing rates.
Note 10--Commitments and Contingencies
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 $119,000 which the Company has denied in their
related statement of defense.
The Company reached an out of court agreement with the plaintiffs on
September 9, 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.
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Lease Commitment
The Company leases warehouse space in its New Jersey facility to a
tenant under an operating lease expiring December 31, 1999. Minimum future
rentals to be received on the lease as of June 30, 1997 are as follows: 1997-98
- - $115,198; 1998-99 - $118,443; and 1999-00 - $60,844.
Note 10--Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Supplementary cash flow data:
Income taxes paid ......... $ 684,599 $ 543,747
Interest paid ............. $ 15,658 $ 234
</TABLE>
<PAGE>
Item 2A - Management's Discussion and Analysis of Financial Position:
Financial Condition
Liquidity and Capital Resources
Nine-Months ended March 1998
Cash and cash equivalents increased to $1,402,114 at March 31,
1998 from $1,216,824 at June 30, 1997. For the period, $1,159,725 net cash was
provided by the operating activities, $1,379,417 was used for investing
activities and $404,982 was provided by financing activities. During the past
nine months, the registrant's investment activities were primarily comprised of
$1,305,501 used for additions to property, plant and equipment $21,718 used for
additions to patent costs and $54,025 for additions to cash surrender value-life
insurance. The $404,982 provided by financing activities comprised of the
payment of dividends of $491,580, the purchase of treasury stock for $64,750,
while $457,925 was provided by proceeds from mortgage note and $504,714 from
proceeds of broker loan net of principal payments.
Working capital of $5,325,414 increased $30,052 or .6% during the nine
months and the working capital ratio decreased to 4.97 to 1 from 6.80 to 1 at
June 30, 1997.
All references to stock give effect to the December 16, 1997 two for one
forward stock split as if same had occurred prior. Stockholders' equity per
share March 31, 1998 increased 3.9% to $2.42 per share compared with $2.33 per
share June 30, 1997. As previously authorized by the Board, 10,000 shares of
GMCC stock were purchased at the cost of $64,750. Of these shares 4,000 were
issued as employee bonuses , while the remaining 6,000 shares are being held in
the treasury.
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, 1998 compared with March 31, 1997:
Sales decreased this quarter, as reflected in the current period sales of
$2,693,494, by $44,146 or 1.6% from the same quarter last year. Sales at our New
Jersey, Texas and Canadian facilities increased while decreases were reported
from the California and Wisconsin facilities. The decrease at our California
facility was attributable to forced shut downs for approximately one third of
the month of February due to the violent storms associated with El Nino and
unexpected road closings. The decrease at our Wisconsin facility is attributable
to a general slow down in the Wisconsin manufacturing sector. Additional
management has been added to our Wisconsin plant. During the current quarter we
made significant purchases of Plasmadize equipment for all of our locations and
will be up and running by June 30, 1998. This will open up new markets for us
and pave the way for future growth.
<PAGE>
Royalty income for the quarter was $79,525 an increase of 18.2% compared
with the same quarter in 1997. The international advertising continues to be
very successful. Investment income increased $46,313 or 62.8% compared with the
same period in 1997. This is directly associated with 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.
Reflecting the above, gross revenue for the latest quarter of this year of
$2,893,094 increased $14,409 or .5% from the same quarter last year.
Total costs and expenses were $2,421,527 in the third quarter, an increase
of $101,124 or 4.4% from the same quarter of last year. The primary increases to
expenses are due to additional employees, advance raw material purchases and
costs associated with the new building purchased in Canada. Currently, the
Canadian facility is paying expenses to cover the operating costs of two
locations until the move is completed in the latter part of this year's fourth
quarter.
Income before corporate income taxes was $471,567 for the current quarter,
a decrease of $86,715 or 15.5% from the $558,282 achieved in the same quarter
last year. Corporate income taxes and the effective tax rate in this year's
third quarter were $176,200 and 37.4% respectively, compared with $211,600 and
37.9% in the third quarter of last year.
As a result of the above, net income in the third quarter of this year of
$295,367 dropped $51,315 or 14.8% from the same quarter last year.
Earnings per share were $.06 compared to $.07 in last year's third quarter.
During the current three month period 4,000 shares of GMCC stock which were held
in the treasury were issued as employee bonuses. Weighted average shares
outstanding of 4,911,994 compared to 5,008,488 for the same period last year.
Nine Months ------- March 31, 1998 compared with March 31, 1997:
Gross revenue for this year's first nine months of $8,750,590 increased
$481,668 or 5.8% from last year.
Total costs and expenses for the current nine month period were $7,124,852,
an increase of $480,479 or 7.2% from last year. As a percentage of gross
revenue, total costs and expenses in the same period 1998 were 81% compared to
80% in 1997. Cost of Sales as a percentage of gross revenue for the latest nine
months increased to 40% from 39% in the same period of last year. Selling and
administration remained at 35% of gross revenue. Depreciation and amortization
also remained at 5% of gross revenue compared with last year.
As a result of the above, income before corporate income taxes for the first
nine months of this year was $1,625,738, a slight increase from last year.
Corporate income taxes in this year's first nine months were $602,700
compared with $589,100 for the same period last year. As detailed in Note 5,
this year's effective tax rate was 37.1% compared with 36.3% in 1997.
<PAGE>
As a result of the above, net income of $1,023,038 this year was $12,411 or
1% less than the $1,035,449 achieved last year. Earnings per share were $.21 a
share this period compared with $.20 a share last year, an increase of $.01 or
5%. During the nine month period 10,000 shares of common stock were purchased.
Of these 10,000 shares, 4,000 shares were issued as employee compensation and
the remaining 6,000 shares are being held in the treasury. The weighted average
this year of 4,914,152 compared with 5,141,300 in 1997.
During the period General Magnaplate Canada purchased a newer more modern
facility located in Ajax, Ont. which will allow for increased production
capabilities and further expansion of the Canadian market. The administrative
and selling departments have already relocated and production will be moved and
operational by June 30, 1998.
General Magnaplate was again honored by OSHA as a merit worksite in their
Voluntary Protection Program. This is a pilot program for smaller companies with
outstanding safety records combined with employee and management commitment to
strict safety standards.
After examining the Year 2000 computer issues, management has determined
that it will not have a material impact on its business, operations nor its
financial condition.
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 May 15, 1998 /s/Candida C. Aversenti
--------------------
Candida C. Aversenti
President
DATE May 15, 1998 /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
Dedicated to the Future Needs of Mankind Fax: 908-862-6110
Through Surface Enhancement http://www.magnaplate.com
e-mail:[email protected]
FOR IMMEDIATE RELEASE
-----------------------------------
LINDEN, NEW JERSEY May 6, 1998
GENERAL MAGNAPLATE CORPORATION ANNOUNCES INCREASE
IN EARNINGS PER SHARE AND GROSS REVENUE FOR THE
NINE MONTHS ENDED MARCH 31, 1998
General Magnaplate Corporation (NASDAQ: GMCC), a world leader in the
development and application of surface enhancement technology for the aerospace,
food, pharmaceutical and industrial markets announces a 5.8% increase in gross
revenue, from $8,268,922 last year to $8,750,590 this year. Total assets are up
from $13,513,276 to $14,954,335; a 10.7% increase over the same period last
year. Income before taxes is up only slightly due to lost production time at the
California facility because of forced road closings during the month of February
from El Nino. We have added new management at the Wisconsin plant and our new
Canadian building will be fully operational by fiscal year end (June 30, 1998).
Our "patent pending" process, Magnaplate CMPT(TM), is moving from the research
and development stage to the production stage.
Condensed Statement of Income - Nine Months Ended March 31
1998 1997
Gross Revenue $8,750,590 $8,268,922
Income Before Taxes 1,625,738 1,624,549
Net Income 1,023,038 1,035,449
Earnings Per Share $ 0.21 $ 0.20
Average Shares Outsanding 4,914,152 5,141,300
Condensed Statement of Income - Three Months Ended March 31
1998 1997
Gross Revenue $2,893,094 $2,878,685
Income Before Taxes 471,567 558,282
Net Income 295,367 346,682
Earnings Per Share $ 0.06 $ 0.07
Average Shares Outstanding 4,911,994 5,008,488
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,402,114
<SECURITIES> 3,178,562
<RECEIVABLES> 1,590,709
<ALLOWANCES> 116,000
<INVENTORY> 322,305
<CURRENT-ASSETS> 6,667,834
<PP&E> 14,934,272
<DEPRECIATION> 8,735,838
<TOTAL-ASSETS> 14,954,335
<CURRENT-LIABILITIES> 1,342,420
<BONDS> 0
0
0
<COMMON> 223,180
<OTHER-SE> 11,897,404
<TOTAL-LIABILITY-AND-EQUITY> 14,954,335
<SALES> 8,075,936
<TOTAL-REVENUES> 8,750,590
<CGS> 3,542,224
<TOTAL-COSTS> 7,109,194
<OTHER-EXPENSES> 15,658
<LOSS-PROVISION> 16,300
<INTEREST-EXPENSE> 15,658
<INCOME-PRETAX> 1,625,738
<INCOME-TAX> 602,700
<INCOME-CONTINUING> 1,023,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,023,038
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
