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, 1997
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 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 -
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
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996
<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 December 31, 1997 and the
related consolidated statement of stockholders' equity for the six months ended
December 31, 1997 and the related consolidated statements of income and cash
flows for the six months ended December 31, 1997 and 1996, 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, 1997 and 1996 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, 1997 and 1996 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
January 23, 1998
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1997 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 903,209 $ 1,216,824
Marketable securities (Note 1) ................. 3,169,234 2,875,776
Accounts receivable--trade, net of
allowance for doubtful accounts of
$126,000 (June 30, 1997-$116,000) ............ 1,429,688 1,426,471
Inventories (Note 1) ........................... 302,172 303,088
Prepaid expenses ............................... 114,770 170,806
Other current assets ........................... 207,599 215,298
----------- -----------
Total current assets ....................... $ 6,126,672 $ 6,208,263
Property, plant, and equipment, at
cost, net of accumulated
depreciation (Notes 1 and 2) ................... 6,067,366 5,355,600
Cash surrender value of officers' life insurance . 806,173 752,148
Note receivable-officer (Note 7) ................. 525,881 532,449
Note receivable-related party partnership (Note 7) 235,000 235,000
Other assets (Note 3) ............................ 492,644 429,816
----------- -----------
Total assets ................................. $14,253,736 $13,513,276
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
------------ ------------
<S> <C> <C>
Current liabilities:
Broker loan payable ............................. $ 486,561 $ 0
Accounts payable ................................ 249,584 196,179
Accrued liabilities (Note 5) .................... 369,850 548,333
Corporate income taxes payable .................. 72,837 168,389
------------ -----------
Total current liabilities ..................... $ 1,178,832 $ 912,901
------------ -----------
Long-term liabilities:
Rent security deposit ........................... $ 9,193 $ 9,193
Accrued deferred compensation (Note 6) .......... 1,225,242 1,139,698
------------ -----------
Total long-term liabilities ................... $ 1,234,435 $ 1,148,891
------------ -----------
Total liabilities ............................. $ 2,413,267 $ 2,061,792
------------ -----------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock--no par value
Authorized--5,000,000 shares
Issued--4,918,794 shares of which 10,000 shares
are held in the treasury ................... $ 223,180 $ 223,180
Retained earnings ............................... 11,846,994 11,365,263
Foreign currency translation adjustment (Note 1) (164,955) (136,959)
------------ -----------
$ 11,905,219 $11,451,484
Cost of treasury stock--10,000 shares ........... (64,750) 0
------------ -----------
Total stockholders' equity .................... $ 11,840,469 $11,451,484
------------ -----------
Total liabilities and stockholders' equity .... $ 14,253,736 $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
SIX MONTHS ENDED DECEMBER 31, 1997
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 ............ 0 727,671 0
Less--foreign currency
translation adjustment .... 0 0 (27,996)
Purchase of 10,000 shares of
treasury stock ........... 0 0 0 (64,750)
Less--dividends paid
of $.05 per share ........ 0 (245,940) 0 0
------------ ------------ ------------ ------------
Balance,
December 31, 1997 ........ $ 223,180 $ 11,846,994 $ (164,955) $ (64,750)
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended Three Months Ended
December 31, December 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross revenue:
Sales ....................... $5,382,442 $4,974,478 $2,701,582 $2,543,418
Royalty and license income .. 176,548 164,993 120,376 99,806
Investment and other
income, net (Note 1) ...... 298,506 250,766 140,037 145,995
---------- ---------- ---------- ----------
$5,857,496 $5,390,237 $2,961,995 $2,789,219
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales ............... $2,297,792 $2,084,455 $1,121,578 $1,028,982
Selling and administration .. 2,088,337 1,951,780 1,067,129 1,024,978
Depreciation and amortization 310,725 287,501 157,259 145,529
Interest .................... 6,471 234 6,471 0
---------- ---------- ---------- ----------
$4,703,325 $4,323,970 $2,352,437 $2,199,489
---------- ---------- ---------- ----------
Income before corporate
income taxes ................ $1,154,171 $1,066,267 $ 609,558 $ 589,730
Corporate income taxes
(Notes 1 and 4) ............. 426,500 377,500 226,900 200,800
---------- ---------- ---------- ----------
Net income .................... $ 727,671 $ 688,767 $ 382,658 $ 388,930
========== ========== ========== ==========
Earnings per share (Note 1) ... $ .15 $ .13 $ .08 $ .08
========== ========== ========== ==========
Weighted average shares
outstanding ................. 4,915,208 5,206,266 4,911,620 5,142,938
========== ========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net income ............................................. $ 727,671 $ 688,767
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Reserve for unrealized gain ......................... $ (59,531) $ (51,863)
Depreciation and amortization ....................... 310,725 287,501
Deferred tax credits ................................ (30,700) (25,300)
Accrued deferred compensation ....................... 77,442 58,763
Foreign currency translation adjustment ............. (27,996) (13,830)
Allowance for doubtful accounts ..................... 27,565 14,505
Increase (decrease) in cash resulting from
changes in current assets and liabilities:
Marketable securities ............................ (233,927) 1,668,577
Accounts receivable .............................. (30,782) (170,725)
Inventories ...................................... 916 174
Prepaid and other current assets ................. 33,398 56,204
Accounts payable and accrued liabilities ......... (125,078) (458,851)
Corporate income taxes payable ................... (61,123) (20,211)
----------- -----------
Total adjustments .............................. $ (119,091) $ 1,344,944
----------- -----------
Net cash provided by operating activities ............ $ 608,580 $ 2,033,711
----------- -----------
CASH FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment ............ $(1,016,613) $ (153,649)
Additions to patent costs and other assets ............. (10,162) (23,802)
Collection (issuance) of note receivable--officer ...... 6,176 (550,000)
Additions to deferred compensation contracts ........... (23,442) 0
Increase in cash surrender value--life insurance ....... (54,025) 0
----------- -----------
Net cash used in investing activities ................ $(1,098,066) $ (727,451)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(continued)
1997 1996
----------- -----------
<S> <C> <C>
CASH FROM FINANCING ACTIVITIES:
Proceeds from broker loan .............................. $ 500,000 $ 0
Principal payments on broker loan ...................... (13,439) 0
Purchase of treasury shares ........................... (64,750) (761,445)
Dividends paid ......................................... (245,940) (184,436)
----------- -----------
Net cash provided by (used in) financing activities .. $ 175,871 $ (945,881)
----------- -----------
INCREASE (DECREASE) IN CASH .............................. $ (313,615) $ 360,379
Cash and cash equivalents, beginning ................... 1,216,824 680,570
----------- -----------
Cash and cash equivalents, ending ...................... $ 903,209 $ 1,040,949
=========== ===========
</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 $76,637 and $29,996 as of December 31, 1997 and 1996
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>
December 31, June 30,
1997 1997
----------- -----------
<S> <C> <C>
Land ................................... $ 1,035,929 $ 805,350
Buildings .............................. 3,683,585 3,366,208
Building improvements .................. 3,450,326 3,450,824
Factory machinery ...................... 5,221,890 4,828,457
Office equipment ....................... 939,326 911,058
Transportation equipment ............... 313,176 271,018
----------- -----------
Total .................................. $14,644,232 $13,632,915
Less--accumulated depreciation ......... 8,576,866 8,277,315
----------- -----------
Net .................................... $ 6,067,366 $ 5,355,600
=========== ===========
</TABLE>
Note 3--Other Assets
Other assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
-------- --------
<S> <C> <C>
Patents and trademarks, at cost, net of
accumulated amortization of $106,359
and $100,481 ................................ $ 87,302 $ 83,018
Deferred income taxes ............................ 260,100 233,100
Deferred compensation contracts ............... 145,242 113,698
-------- --------
$492,644 $429,816
======== ========
</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,
--------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current:
Federal $398,700 $348,700 $208,500 $184,600
State 58,500 54,100 33,100 29,100
Foreign 0 0 0 0
-------- -------- -------- --------
$457,200 $402,800 $241,600 $213,700
-------- -------- -------- --------
Deferred:
Federal $(23,800) $(19,600) $(11,400) $(10,000)
State (6,900) (5,700) (3,300) (2,900)
Foreign 0 0 0 0
--------- -------- --------- --------
$(30,700) $(25,300) $(14,700) $(12,900)
-------- -------- -------- --------
Total $426,500 $377,500 $226,900 $200,800
======== ======== ======== ========
</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>
Six Months Ended Three Months Ended
December 31, December 31,
--------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Based on U.S. statutory
federal tax rate $392,400 $362,500 $207,232 $200,500
Increase (decrease) in taxes
resulting from:
State taxes, net of
federal tax benefit 34,000 32,000 19,612 17,300
Non-deductible (reportable)
expenses (income) 100 (17,000) 56 (17,000)
-------- -------- -------- ---------
Total $426,500 $377,500 $226,900 $200,800
======== ======== ======== ========
Effective tax rate 37.0% 35.4% 37.2% 34.0%
</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 5--Accrued Liabilities
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
December June 30,
1997 1997
--------- ---------
<S> <C> <C>
Compensation $ 223,213 $ 435,256
Payroll, sales, and property taxes 72,212 61,718
401-k plan contribution 41,296 19,954
Environmental and other costs 33,129 31,405
--------- ---------
$ 369,850 $ 548,333
========= =========
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $24,747 in 1997 and $27,721 in 1996.
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 $262,524 in 1997 and $246,113 in 1996.
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 $77,442 in
1997 and $75,253 in 1996.
Note 7--Related Party Transactions
The Company engaged in the following related party transactions:
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Was charged computer consulting services by an outside director of the
Company; $29,492 $19,304
Accrued interest income on an installment note receivable of $235,000
from a limited partnership who 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; $ 8,025 $ 8,025
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 June 30, 1997 was $544,996 and is secured by a real estate
first mortgage. $16,707 $ 0
</TABLE>
<PAGE>
GENERAL MAGNAPLATE CORPORATION
AND
WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8--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.
Note 9--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>
Six Months Ended
December 31,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Supplementary data:
Interest expense paid $ 6,471 $ 234
Income taxes paid 518,324 423,011
</TABLE>
<PAGE>
Item 2A - Management's Discussion and Analysis of Financial Position:
Financial Condition
Liquidity and Capital Resources
Six-Months ended December 1997
Cash and cash equivalents decreased to $903,209 at December 31, 1997
from $1,216,824 at June 30,1997. For the period, 608,580 net cash was provided
by the operating activities, $1,098,066 was used in investing activities and
$175,871 was provided by financing activities. During the past six months, the
registrant's investment activities were primarily comprised of $1,016,613 used
for additions to property, plant and equipment, $10,162 used for additions to
patent costs and other assets, $23,442 for additions to deferred compensation
contracts and $54,025 for additions to cash surrender value-life insurance. The
$175,871 provided by financing activities comprised of $64,750 for the purchase
of treasury stock, and $245,940 used for payment of dividends and $486,561
provided by proceeds from broker loan net of principal payments.
Working capital of $4,947,840 decreased $347,522 or 7% during the six
months and the working capital ratio decreased to 5.20 to 1 from 6.80 to 1 as of
June 30, 1997.
Stockholder's equity per share at December 31, 1997 increased 3.4% to
$2.41 per share compared with $2.33 at June 30, 1997. As previously authorized
by the Board, 10,000 shares of GMCC stock was purchased at the cost of $64,750
and was held in the treasury during the current six month period. A two for one
forward stock split also occurred in 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, 1997 compared with December 31, 1996
Sales increased this quarter as reflected in the current period sales
of $2,701,582 by $158,164 or 6.2% from the same quarter last year. We
feel that sales will continue to increase thru the remaining six
months, based on an increase in customer contracts, volume and a larger
sales force. We are in full production with the Black and Decker OSD
steam iron production and have an exclusive trademark agreement
allowing them to use our MAGNAGLIDE mark.
Royalty income for the quarter was $120,376, an increase of 20.6%,
compared with the same quarter in 1996. International advertising
continues to be very successful. We are continuing to investigate
potential licensee candidates in Italy, Mexico and Korea. Investment
income was down slightly by 4.2%, which was indicative of the stock
market at December 31. Management believes the investment portfolio to
be sound, diversified and less susceptible to extreme market
fluctuations while providing dividend and interest income.
<PAGE>
Reflecting the above, gross revenue for the latest quarter of this year
of $2,961,995 increased $172,776 or 6.2% from the same quarter last
year.
Total costs and expenses were $2,352,437 in the second quarter, an
increase of $152,948 or 6.9% from the same quarter last year. The
primary increase is due to additional employees and advance raw
material purchases to accommodate increased production and costs
associated with the new building purchase in Canada.
Income before corporate income taxes was $609,558 in this year's second
quarter, an increase of $19,828 or 3.4% from the $589,730 achieved in
last year's second quarter. Corporate income taxes and the effective
tax rate in this year's second quarter were $226,900 and 37.2%
respectively, compared with $200,800 and 34.0% in the second quarter of
last year.
Based on the above, net income of $382,658 decreased by $6,272 or 1.6%
in the second quarter of this year from the $388,930 achieved in last
year's second quarter.
Earnings per share remained constant with last year's second quarter at
$.08. During the current three month period 10,000 shares of common
stock were purchased and held in the treasury, resulting in a weighted
average of outstanding 4,911,620 compared to 5,142,938 for the same
period last year.
Six Months --- December 31, 1997 compared with December 31, 1996:
Gross revenue for this year's first six months of $5,857,496 increased
$467,259 over last year, an increase of 8.7%.
Total costs and expenses for the current six month period were
$4,703,325 an increase of $379,355 or 8.7% from last year. As a
percentage of gross revenue, total costs and expenses remained at 80%
from 1996. Cost of Sales as a percentage of gross revenue for the
latest six months remained at 39% from the comparative six month
period. Selling and administration expenses remained at 36% of gross
revenue in the latest period compared with last year. Depreciation and
amortization also remained at 5% of gross revenue this year compared
with 1996.
As a result of the above, gross income before corporate income taxes
for the first six months of this year was $1,154,171, an increase of
$87,904 or 8.2% from last year.
Corporate income taxes in this year's first six months were $426,500,
compared to $377,500 for the comparable period of last year. As
detailed in note 4, this year's effective tax rate was 37% compared
with 35% last year.
As a result of the above, net income of $727,671 this year was $38,904
or 5.6% higher than the $688,767 achieved last year. Earnings per share
were $.15 this year, compared with $.13 a share last year an increase
of $.02 or 15.4%. During the six month period 10,000 shares of common
stock were purchased and held in the treasury, resulting in a weighted
average this year of 4,915,208 compared with 5,206,266 in 1996.
<PAGE>
During the period General Magnaplate Canada purchased a newer, more
modern facility located in Ajax, Ont., which will allow for further
expansion of the Canadian market. The administrative and selling
departments are relocating the first week of February and the factory
should be moved and operational in the following few months.
During the period we purchased 25 new computers which enable all our
facilities to be year 2,000 compliant, with no significant costs
associated with this.
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: 2/13/98
/s/Candida C. Aversenti
-----------------------
Candida C. Aversenti
President
DATE: 2/13/98
/s/Susan E. Neri
----------------
Susan E. Neri
Chief Accounting Officer
<PAGE>
MINUTES OF THE 1997 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 5, 1997 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 10, 1997, 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 3, 1997, as shown by the records maintained by
Registrar and Transfer Company, Cranford, New Jersey.
Upon motion duly made by Mr. E. Partenope, 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
3, 1997, 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 2,292,457 shares
of Common Stock out of 2,459,397 shares of the Company's stock outstanding as of
October 3, 1997. The Secretary declared that not only was a quorum present, but
noted that an extraordinary number, 93.2%, 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, 1997, 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 (1996) Annual Meeting of the Shareholders. Upon motion made
by Mr. S.T. Aitken, seconded by Mr. L. Campbell, and unanimously carried, the
reading of the Minutes of the 1996 Annual Meeting of Shareholders was waived.
<PAGE>
The Chair announced the appointment of Ms. V. Corigliano and Mr. R.
Carlton (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. C.P. Covino, and seconded by Mr. W. Alina, 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. T.
Aitken and seconded by Mrs. A. Dente, 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:
No. of Shares Voting By Proxy For Against Abstain
- ----------------------------- --- ------- -------
S. Thomas Aitken 2,286,677 940 5240
Candida C. Aversenti 2,288,477 940 3440
Edmund V. Aversenti, Jr. 2,286,477 940 5440
Charles P. Covino 2,288,677 940 3240
Harold F. Levin 1,187,048 824,801 281,008
Edward A. Partenope, Jr. 2,286,877 940 5040
James H. Wallwork 2,286,677 940 5240
The Inspectors of Election also reported to the Secretary that 8,000
shares had been voted in person in favor of the nominees (included in the above
totals), 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 1998 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, 1998, 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, 1997. 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. E. Aversenti, for confirmation of the
selection of Mauriello, Franklin & Lo Brace as the Company's independent
auditors for the current fiscal year ending June 30, 1998.
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 2,286,813 shares had been voted by proxy
in favor of the selection of the Company's independent auditors, that 940 shares
had been voted against, and that 5,104 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, 1998.
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. R. Carlton 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
Dedicated to the Future Needs of Mankind Fax: 908-862-6110
Through Surface Enhancement http://www.magnaplate.com
e-mail:[email protected]
NASDAQ SYMBOL GMCC
General Magnaplate Corporation announces a 53.8% increase in
dividends; reports record-high 6-month revenues
Linden, NJ, February 11, 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 that its Board of Directors has declared a dividend of $0.05 per share
to stockholders of record February 27, 1998 and payable March 13, 1998. This
represents a 53.8% increase in dividends over the prior fiscal year. The company
also announced another record-high of $5,857,496 in gross revenue, up 8.7% over
the same period last year. Six-month net income rose by 5.6% and earnings per
share were up 15.4%. A 2-for-1 stock split also took place in the past six-month
reporting period.
Six Months Report to Shareholders - December 31, 1997
Condensed Comparative Statement of Income -
Six Months Ended December 31
1997 1996
---------- ----------
Gross Revenue $5,857,496 $5,390,237
Income Before Taxes 1,154,171 1,066,267
Net Income 727,671 688,767
Earnings Per Share $0.15 $0.13
Average Shares Outstanding 4,915,208 5,206,266
Condensed Comparative Statement of Income -
Three Months Ended December 31
1997 1996
---------- ----------
Gross Revenue $2,961,995 $2,789,219
Income Before Taxes 609,558 589,730
Net Income 382,658 388,930
Earnings Per Share $0.08 $0.08
Average Shares Outstanding 4,911,620 5,142,938
<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]
General Magnaplate's innovative technological advances in surface
enhancement for lightweight metals and composites has converted an
industry pioneer into one of the nation's heavyweight high-tech companies
Changes in the nation's economic infrastructure over the last few years have
fueled the emergence of many high-tech, niche companies; and they are beginning
to play a much greater role in the future success of many segments of the
economy. General Magnaplate is fast being recognized as one of those emerging
companies who offer specialized technological assistance to meet the demand for
improvements in product performance and quality by companies who want to stay
alive in a global competitive atmosphere.
"Originally, Magnaplate's business was concentrated in the aerospace
and nuclear industries" says company founder and CEO Charles P. Covino. "But as
the world's population grows and as markets for goods and services increase, we
are witnessing parallel increases in the need for our unique technologies to
improve the wearlife and performance of metal components of equipment used in
those burgeoning markets."
Pioneered for NASA and its space program, General Magnaplate developed
proprietary "Synergistic" Surface Enhancement Technology that hardens the
exterior of such lighter metals as aluminum, titanium and some alloys of steel.
The coatings which Magnaplate applies create protective surfaces that help parts
wear longer, resist corrosion, conduct heat and electricity better, and survive
in environments which would destroy any unprotected metal or even other
conventional protective coatings.
Today, as a result of increased awareness of the company's technological
achievements, manufacturers worldwide and in every sector of industry are
enthusiastically embracing the goal of improved product performance through
surface enhancement, and in the process, are turning Magnaplate into a leading
high-tech company with both niche strength and reach.
Rapid company growth is reflected in expanded use of its coatings on
products as diverse as a new line of easier-gliding steam irons by Black &
Decker, with whom Magnaplate has recently signed a major contract to treat
hundreds of thousands of soleplates with a super-slippery, MAGNAGLIDE(R)
coating.
<PAGE>
All five of its plants in the US and Canada, as well as its licensees
around the world are being sought out to solve surface enhancement problems.
Magnaplate's strong cash position and steadily increasing revenues and net
profits stemming from its worldwide growth in sales has permitted it to complete
extensive expansions to plant and production facilities. The most recent was
purchase of new plant facilities in Canada to handle the rapidly expanding need
for its specialized technologies in the Canadian market.
Magnaplate's newest enhancement technology, PLASMADIZE(R), has been
playing an increasingly significant role in helping to revolutionize the
utilization of composites. Developed as a result of a direct request by one of
the world's largest aircraft manufacturers, PLASMADIZE permits the release of
composites from lay-up molds without damaging the highly sophisticated and
highly expensive molds. Although less than 5% of aircraft components are made of
composites, their use is rapidly expanding - not only for aircraft, but also for
trains, buses, autos and trucks. To prepare for this new market for PLASMADIZE,
a multi-million dollar expansion program is under way to extend Magnaplate's
PLASMADIZE capabilities to all of its plants throughout North America.
Magnaplate is also currently developing a new low-cost method of
fabricating molds to make composite structures. According to Covino, 'We believe
this new way to make composite structures will reduce the cost of mold
fabrication by more than 50 percent. It will also permit rapid design changes as
assembly and structures are put into production."
"As Magnaplate has increased its marketing program throughout the world
- - both through conventional media and the Internet,' says Magnaplate President
Candida C. Aversenti, "we are seeing a marked increase in the demand for our
service around the globe." The company's agreements with its Swedish and
Japanese licensees have just been expanded and extended. "We continually monitor
regions around the world in search of new business opportunities," says
President Aversenti. "The results of our expanded marketing and sales programs
are reflected in our strong six-month statement."
"Despite the purchase of a new building for our Canadian plant and the
expenditure of additional capital for upgrades in that operation as well as in
expansions of our Wisconsin and Texas facilities, our performance at the fiscal
half-year mark", continued Aversenti, "was outstanding. Revenues increased 8.7%
and net income 5.6%. Earnings per share increased 15.4%, and a 2-for-1 stock
split was declared. Dividends are up 53.8% over the prior fiscal year. We're
confident that we're perfectly positioned - right on the threshold of a new
period of major growth."
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 903,209
<SECURITIES> 3,169,234
<RECEIVABLES> 1,555,688
<ALLOWANCES> 126,000
<INVENTORY> 302,172
<CURRENT-ASSETS> 6,126,672
<PP&E> 14,644,232
<DEPRECIATION> 8,576,866
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<COMMON> 223,180
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<SALES> 5,382,442
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<CGS> 2,297,792
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