UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1995
Commission File Number: 0-5105
MILASTAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2636669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
No. 9 Via Parigi, Palm Beach, Florida 33480
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (407)655-9590
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.05 per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the Registrant on July 14, 1995 was $1,198,000
based upon the bid price of the Class A common stock as quoted on
OTC Electronic Bulletin Board. On that date there were 2,738,264
shares of Class A Common Stock issued and outstanding.
Documents Incorporated by Reference
Parts I and III incorporate by reference certain information to be
included in Registrant's definitive Information Statement relating
to action taken by written consent of the Board of Directors and
Majority Stockholders, which Registrant intends to file with the
Securities and Exchange Commission pursuant to Regulation 14C on
or before August 6, 1995.
<PAGE>
PART I
Item 1. Business
General
Milastar Corporation ("Milastar" and sometimes the "Company") is
primarily involved in selling special metallurgical and secondary
metal processing services to durable goods manufacturers in the
greater Midwest industrial market.
Milastar owns four wholly-owned subsidiaries; Flame Metals
Processing Corporation ("Flame Metals") and three inactive
corporations, Jardun Apparel Corp ("Jardun"), Milastar Services
Corporation and Northwest Engineering Labs, Inc. All related
plants are located in Minnesota.
Flame Metals generates 100% of Milastar's consolidated net sales
, which flow from the sale of a variety of sub-contract services to
industrial customers. These special services include
metallurgical-related processing involving the heating and cooling
of metal products under controlled conditions in order to
restructure the molecular property of such products to achieve
desired characteristics. The following primary categories of
services accounted for more than 15 percent of total net sales for
fiscal 1995, 1994 and 1993.
1995 1994 1993
Harden - Neutral/Case 57% 52% 45%
Salt Bath Nitriding 25% 25% 26%
Flame Metal's customer list includes over 800 firms generally
classified as manufacturers. The customer furnishes all direct
materials and components processed for their account. These parts
are then heat treated, primarily to achieve a certain hardness or
surface finish, in preparation of the metal parts for their
designated use. The Company does not have any customer
representing more than 10 percent of total net sales.
Flame Metals' operating assets were acquired by Milastar in May
1985. Flame Metals has since been expanded by a succession of
acquisitions of complementary businesses. The initial acquisition
was consummated in October 1988 when Milastar directly acquired
certain assets of Northwest Engineering Labs, Inc. ("Northwest")
located in Minneapolis for approximately $390,000. These assets
were concurrently contributed to Flame Metals thus rendering the
Northwest entity inactive. The second acquisition was consummated
in November 1991 when Flame Metals directly acquired certain assets
and assumed certain liabilities from Getchell Steel Treating
Company, Inc. ("Getchell") located in Bloomington for a purchase
price of $1,358,365. Both of these acquired companies competed
directly with Flame Metals in the greater Minneapolis-St. Paul
market; never the less, the said acquisitions broadened market
coverage, added metal treating capabilities and expanded production
capacity.
The Company's three plants are all located in the Minneapolis-St.
Paul, Minnesota suburbs. These facilities include Flame Metals -
St. Louis Park, (35,000 sq. ft. owned) and Getchell -
Bloomington, (35,000 sq. ft. leased). The Northwest plant in
Minneapolis, (15,000 sq. ft. owned) was closed May 7, 1993 and
its activities integrated into the St. Louis Park facility. The
Northwest facility is currently being leased out to an assembly
company and is offered for sale. Northwest's production was
shifted to St. Louis Park primarily because the St. Louis Park
facility was not at full capacity and therefore could absorb the
additional volume.
Flame Metals incurred net losses before income taxes in fiscal
1995 of $612,000 and in fiscal 1994 of $955,000. Fiscal 1995
operating results improved primarily as a result of a 26% increase
in sales and a corresponding increase in gross margin of 57%. The
net loss after taxes amounted to $614,000 in fiscal 1995 and
$960,000 in fiscal 1994. Results of operations are discussed more
fully in "Management's Discussion and Analysis".
The Company's non-operating other income (expense) resulted in
a net expense of $117,000 in fiscal 1995, down $381,000 from the
$264,000 in net income recorded in 1994. The net loss on
marketable securities was attributable to the sale of two reverse
repurchase agreements. Current assets as a percent of total assets
at April 30, 1995 accounted for 36% compared to 79% at April 30,
1994. The book value per share was $1.41 per share at April 30,
1995 compared to $1.63 per share at April 30, 1994. The bid price
per share, as quoted on the OTC Electronic Bulletin Board, was
$0.44 as of April 30, 1995.
Competition
The heat treat business is highly competitive, with price,
quality and consistency of service being the principal factors
affecting customer preferences. Since the customers' outside
manufactured product components are sensitive to freight charges,
the proximity of the heat treat facility to the customers'
production location is also a primary competitive factor. Thus
Flame Metals' business is generally localized and, to a lesser
degree, regionalized. In this regard, approximately six or seven
metallurgical processing competitors, some of which may possess
greater resources and may be more cost efficient, can be regarded
as competitive with Flame Metals. Nevertheless, the Company
believes Flame Metals' geographical location to customers, relative
price structure, processing quality and reliability, collectively,
provide Flame Metals with the resources to be competitive.
Seasonality and Raw Materials
The heat treat business is affected during the winter holiday
season and mid-summer due to vacations and plant shutdowns by Flame
Metals' customers. Flame Metals is not materially impacted by the
sources or availability of raw material in that virtually all
revenue is generated by services performed on customer owned
products.
Corporate
Milastar was organized under Delaware law on February 24, 1969.
Its principal executive offices are located at No. 9 Via Parigi,
Palm Beach, Florida 33480. Its communications numbers are:
Telephone (407) 655-9590 and fax number (407) 833-7253.
Environmental
To the best of its knowledge, the Company believes that it is
presently in substantial compliance with all existing applicable
environmental laws and does not anticipate that such compliance
will have a material effect on its future capital expenditures,
liquidity, earnings or competitive position.
Employee Relations
The Company operates two separate plant locations: Flame Metals
and Getchell, as identified herein before. The Company employs a
total of approximately 120 employees; 85 at Flame Metals and 35 at
Getchell. The Company believes the prevailing wage rates, fringe
benefits and working conditions afforded its employees compare
favorably with those received by employees employed by regional
businesses competitive with the Company. The Company believes its
employee relations are satisfactory; therefore the Company does not
anticipate any labor disruption during the forthcoming fiscal 1995.
Twenty-five production employees at the Getchell - Bloomington
plant are represented by the International Union of Electronic,
Electrical, Salaried, Machine and Furniture Workers, AFL-CIO Local
1140. The Flame Metals plant in St. Louis Park is not subject to
a collective bargaining agreement.<PAGE>
Item 2. Properties
The Company believes that its property and equipment are well
maintained, in good working condition, and are adequately insured.
Executive Offices
The Company currently maintains its executive offices located in
leased facilities in a building owned by J. Russell Duncan,
Chairman of the Board and a director of the Company, located at No.
9 Via Parigi, Palm Beach, Florida (see also "Corporate" above).
The lease covers 1,200 square feet, is on a month to month basis,
and provides for rental at a rate of $250 per month, which rate is
below prevailing rental rates for comparable facilities in the
area. Management regards such lease as being favorable and in the
best interests of the Company and its stockholders.
Flame Metals
Flame Metals owns or leases three industrial properties as
listed below:
ACTIVITY LOCATION SIZE (SQ.FT.) STATUS
Flame Metals St. Louis Park 35,000 Owned
Northwest Minneapolis 15,000 Owned
Getchell Bloomington 35,000 Leased
As pointed out on Page 1 the Northwest building is currently being
leased out and is offered for sale.
The lease on the Getchell plant is a ten year lease providing for
an annual rent of $72,000 per lease year in years one through five
and $75,600 per lease year in years six through ten. Such rental
payments are payable in monthly installments due and payable on the
first day of each calendar month. The Company is obligated under
the lease to pay all real estate taxes, maintenance expense and
insurance. The lease is renewable and the Company has the right to
purchase the leased building at any time during the lease term
subject to the terms and conditions specified in the lease.
Item 3. Legal Proceedings
Neither the Company nor any of its consolidated subsidiaries is
a party to any material pending legal or administrative
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security
holders during its fiscal year ended April 30, 1995.
Executive Officers of the Company
The following table sets forth with respect to each executive
officer of the Company his name, age and all positions and offices
with the Company held by him since May 1, 1988. Unless otherwise
indicated in the table below, all positions and offices indicated
have been continuously held since May 1, 1988. All executive
officers serve at the will of the Board of Directors until their
successors are duly appointed and qualified. Mr. J. Russell
Duncan, Chairman of the Board and a director of the Company, is the
father of Mr. Lance H. Duncan, Secretary and a director of the
Company. With the foregoing exception, no family relationship
exists among the directors or officers of the Company.
Positions and Offices Held with
Name Age the Company and Period Held
J. Russell Duncan (1) . . .78 Chairman of the Board; Treasurer
until April 19, 1995.
L. Michael McGurk . . . . .44 President and Chief Operating
Officer since March 4, 1991;
prior thereto Vice President and
Secretary from April 29, 1988 to
March 4, 1991. President and
Treasurer of Flame Metals since
April, 29 1988; prior thereto
Vice President of Flame Metals
from May 29, 1985 to April 29,
1988
Lance H. Duncan (2) . . . .39 Secretary since March 4, 1991;
prior thereto President from
April 29, 1988 to March 4, 1991
and Secretary from August 24,
1983 to April 29, 1988
Dennis J. Stevermer . . . .34 Treasurer since April 19, 1995
and Chief Financial Officer of
Flame Metals since September
1993; prior thereto financial
manager at Unisys from May 1,
1988 to September 1993.
Michael M. Gumma. . . . . .53 Executive Vice President and
General Manager of Flame Metals
since March 1993; prior thereto
Vice President and General
Manager of Wyman-Gordon from
September 1, 1990 to December 31,
1992 and Director of Turbine
Programs of Wyman-Gordon from May
1, 1988 to September 1, 1990.
(1) Mr. J. Russell Duncan is a director of XTRA Corporation (a
trailer leasing company) and Sound Techniques, Inc. (audio-
video recording studios) and has otherwise been engaged in
private investment activities since September 1988 and prior
thereto was Chairman of the Board of Steego Corporation and
Director of other public companies.
(2) Mr. Lance H. Duncan is President and Chief Operating
Officer of Sound Techniques, Inc. (audio-video recording
studios) and has been engaged in private investment
activities for more than the past five years.
Similar information respecting the directors of the Company will
be included under the heading "Respecting the Election of
Directors" in the Company's definitive Information Statement
("Information Statement") to be distributed to the stockholders of
the Company and filed with the Securities and Exchange Commission
pursuant to the Securities and Exchange Act of 1934, as amended,
respecting notification of certain action taken by written consent
in lieu of the Company's Annual Meeting of Stockholders for its
1995 fiscal year. The Company expects to file the Information
Statement with the Securities and Exchange Commission on or prior
to August 6, 1995 and reference is expressly made thereto for the
information incorporated herein by the aforesaid reference.
PART II
Item
5. Market for the Company's Common Equity and Related Stockholder
Matters
The Company's Class A Common Stock is traded on the
over-the-counter Electronic Bulletin Board market (ticker symbol
"MILAA") and was previously traded on the NASDAQ until March 23,
1995. The following table provides, for the periods indicated, the
high and low bid prices per share of the Company's Class A Common
Stock. The Class A share prices represent prices established
between broker-dealers and therefore do not reflect prices of
actual transactions.
Fiscal 1995 Fiscal 1994
High Low High Low
First Quarter . . . . . $ 1.44 $ 1.44 $ 1.50 $ 1.25
Second Quarter. . . . . $ 1.44 $ 0.81 $ 1.63 $ 1.31
Third Quarter . . . . . $ 0.81 $ 0.63 $ 1.44 $ 1.31
Fourth Quarter. . . . . $ 0.63 $ 0.38 $ 1.44 $ 1.38
On July 15, 1995 there were approximately 5,000 holders of record
of the Company's Common Stock. The Company has not paid any cash
dividends in respect of its Class A Common Stock, and it is not
presently anticipating paying any cash dividends, thereon, in the
near term.
Item 6. Selected Financial Data
Year Ended April 30,
1995 1994 1993 1992 1991
(In thousands except per share data)
Net sales. . . . . . . . . . . . $6,708 $5,307 $5,518 $4,291 $3,634
Income (loss) before cumulative effect
of changes in accounting principles (614) (960) (423) (333) 213
Cumulative effect of changes in
accounting principles - - 66 53 -
Net income (loss). . . . . . . . (614) (960) (357) (280) 213
Net income (loss) before extraordinary
credit and cumulative effect of
changes in accounting principles
per common share . . $(.22) $(.35) $(.15) $(.12) $.08
Cumulative effect of changes in
accounting principles - - .02 .02 -
Net income (loss) per common share $(.22) $(.35) $(.13) $(.10) $.08
Financial Position:
Total assets. . . . . . . . . . 5,315 15,042 18,442 14,108 7,728
Short-term obligations . . . . 1,410 10,501 12,524 7,614 1,248
Long-term obligations . . . . . 40 82 299 498 204
Stockholders' equity. . . . . . $3,865 $4,459 $5,619 $5,996 $6,276
During the periods presented, no cash dividends were declared.
(1) Amounts include the results of operations of Getchell Steel
Treating Company Inc. since November 15, 1991, the date of
acquisition.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company's operating results for the fiscal year ended April
30, 1995 improved significantly as a result of substantially higher
sales and gross margin. Even though the total year fell short of
plan, each successive quarters operating results improved from the
preceding quarter with the fourth quarter of fiscal 1995 showing an
operating profit. Milastar's overall results were negatively
impacted by a non-operating loss on the sale of marketable
securities.
Milastar's primary revenues flow from its core business, Flame
Metals Processing Corporation, a metal component processing and
heat treating operation. Flame Metals management continues to
increase prices and cut cost of sales as a percentage of sales.
The price increases, which are quoted individually by each
customer's particular products, are taking effect on an on-going
basis with a focus on low margin accounts. Significant progress
has been made in reducing factory labor, energy costs and primary
production supply costs as a percent of sales. These major areas
will continue to receive increased focus as the Company strives to
increase equipment utilization, expanded capacity and absorption
of fixed overhead costs.
Milastar has net operating loss carryforwards for state and
federal purposes of $3,772,000 and $1,793,000 respectively,
available to offset future taxable income, if any, which in the
future may enhance earnings as well as cash flow. In addition, the
Northwest building is being offered for sale and the resulting
proceeds will be added to current assets. With working capital at
year-end of $501,000 and minimal long term debt, the Company has
sufficient capital resources to meet fiscal 1996 requirements as
well as potential acquisitions.
Results of Operations
Fiscal 1995 Compared to Fiscal 1994. Net sales for fiscal 1995
totalled $6,708,000 a 26% increase from $5,307,000 in fiscal 1994.
The increase was primarily attributable to a recovering economy,
improved equipment utilization, price increases and a concentration
on our top twenty customers.
Cost of sales as a percentage of sales was 79% in fiscal 1995
compared to 83% in fiscal 1994. The drop as a percent of sales is
the result of improved labor efficiency, equipment utilization and
increased equipment reliability. Management continues to provide
training for its inexperienced work force and strives to reduce
employee turnover.
Selling, general and administrative expense decreased
significantly as a percentage of sales to 27% in fiscal 1995, down
12% from 39% in fiscal 1994. The decrease as a percent of sales
and in total dollars is the result of higher sales, the elimination
of non-recurring charges, and managements concentration on reducing
overhead as a percent of sales.
Total dividend and interest income, net of the related interest
expense amounted to $164,000 in fiscal 1995, a 37% decrease from
the $260,000 reported in fiscal 1994. The net loss on marketable
securities totalled $281,000 in fiscal 1995 compared to a gain of
$4,000 in fiscal 1994. Both decreases were directly attributable
to the continued paydown and eventual sale of the Company's
remaining reverse repurchase agreements.
Fiscal 1994 Compared to Fiscal 1993. Net sales for fiscal 1994
totalled $5,307,000 a 4% decrease from $5,518,000 in fiscal 1993.
The decrease was primarily attributable to the loss of marginal
customers and the consolidation of three plants down to two. When
the Northwest facility was closed, most production was transferred
to the St. Louis Park plant which was not at full capacity.
Certain heat treat methods, considered by management to be marginal
or unprofitable, were discontinued.
Cost of sales as a percentage of sales was 83% in both 1994 and
1993. The high percentage of cost of sales was driven by quality
and equipment downtime problems. Both 1994 and 1993 experienced
similar reliability problems which were primarily the result of an
inexperienced workforce, both in operating and maintaining the
equipment and in recognizing inconsistent quality which must be
corrected by rework. Management continued to provide increased
training and installation of process controls to solve these
problems.
Selling, general and administrative expense rose slightly as a
percentage of sales to 39% in fiscal 1994, up 2% from 37% in fiscal
1993. The increase was the result of lower sales and additional
non-recurring charges for the consolidation and closing of the
Northwest plant, $105,000; and placement, relocation and severance
associated with the management change, $95,000. In addition, salary
expense for new management and related employee costs increased by
approximately $170,000.
The non-recurring charges for fiscal 1994 were the result of
continued restructuring implemented in fiscal 1993. The Northwest
consolidation and closing started in fiscal 1993 was completed,
with the facility offered for sale. In addition, the transition to
new management was further implemented.
Investment related income slipped to $733,000 in fiscal 1994 from
$854,000 reported in fiscal 1993. Interest expense increased to
$473,000 in fiscal 1994 compared to $443,000 in fiscal 1993. The
decrease in dividend and interest income as well as an increase in
interest expense resulted from a lower yield spread on the
Company's investment in reverse repurchase agreements.
Fiscal 1993 Compared to Fiscal 1992. Net sales for fiscal 1993
totalled $5,518,000 a 29% increase from $4,291,000 in fiscal 1992.
Over 90% of this increase was attributable to the acquisition of
Getchell in the prior fiscal year, which included only six months
of Getchell sales.
Cost of sales as a percentage of sales was 83% and 82% in fiscal
1993 and 1992, respectively. The slight increase resulted from the
recognition of past quality problems in fiscal 1993 and
underpricing which was corrected.
Selling, general and administrative expense rose significantly
as a percentage of sales to 37% in fiscal 1993, up 5% from 32% in
fiscal 1992. The increase was a consequence of non-recurring
charges such as consolidation and closing of the Northwest plant,
$150,000; relocation of new management, $48,000; severance payment
to former management, $39,000; sales tax audit of prior years,
$50,000; and legal fees defending against the union dispute,
$70,000. Selling, general and administrative expense, as adjusted
for the non-recurring charges, was 30% of sales in fiscal 1993, a
2% improvement over 1992.
The non-recurring charges for fiscal 1993 primarily resulted from
the following three actions. 1). The consolidation and closing of
the Northwest facility. This consolidation involved the
transferring of production to the St. Louis Park plant which was
not operating at full capacity. The production realignment was
expected to absorb more factory overhead, eliminate duplicate
functions and reduce inter-plant material handling. 2). The
transition to new management. This transition, which replaced the
General Manager, was implemented primarily due to poor performance.
The costs included severance for old management and placement fees
and relocation expenses for new management. 3). Legal fees in
defending a dispute with the union over whether the union should be
recognized as the exclusive bargaining representative for certain
employees at the Getchell plant.
An increase in dividend and interest income as well as interest
expense was the direct result of the Company's investment in
reverse repurchase agreements.
In 1993, the Company recognized a benefit from the cumulative
effect of change in accounting principle of $66,000 due to a change
in its method of accounting for income taxes (discussed more fully
in Note 5 of Notes to Consolidated Financial Statements).
Effects of Inflation
During fiscal 1995 and 1994 the Company's monetary assets
materially exceeded its monetary liabilities resulting in a
positive monetary position. During periods of significant price
inflation, the Company's purchasing power could be eroded if the
value of the Company's underlying tangible assets fail to
appreciate in value. Under such a scenario, the Company may be
positioned to raise prices to offset the inflation effect and in
addition take advantage of revaluation of underlying tangible
assets to bolster borrowing capacity. There is no clear
correlation between the side effects from inflation and the
Company's earning capacity.
Liquidity and Capital Resources
At April 30, 1995 the Company's working capital was $501,000
compared to $1,397,000 as of April 30, 1994, and the ratio of
current assets to current liabilities was 1.4 to 1 (April 30, 1995)
and 1.1 to 1 (April 30, 1994). Cash, marketable securities and
current receivables represented 76% (98% at April 30, 1994) and 27%
(77% at April 30, 1994) of total current assets and total assets,
respectively. On a cash basis the working capital is highly
liquid, over 78% consists of cash equivalents and marketable
securities which can be converted to cash in less than 10 days.
During fiscal 1995 cash used in operations amounted to $427,000
compared to $338,000 in fiscal 1994. The Company added $803,000 to
property, plant and equipment in fiscal 1995 compared to $639,000
in the previous year. The net cash flows from investing and
financing activities of the purchase and sale of marketable
securities and investments, along with the related note payables,
provided cash of $945,000 in fiscal 1995 compared to cash usage of
$43,000 in fiscal 1994. Working capital requirements for fiscal
1995 were funded primarily from the sale of cash equivalents,
marketable securities and other investments.
The Company has sufficient capital resources to meet its fiscal
1996 operations cash flow requirements as well as potential
acquisitions. At April 30, 1995 the Company did not have any
material commitments for capital resources.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Milastar Corporation:
We have audited the consolidated balance sheets of Milastar
Corporation and subsidiaries as of April 30, 1995 and 1994, and the
related consolidated statements of operations, cash flows and
changes in stockholders' equity for each of the years in the
three-year period ended April 30, 1995. In connection with our
audits of the consolidated financial statements, we have also
audited the accompanying consolidated financial statement schedule.
These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Milastar Corporation and subsidiaries as of April 30,
1995 and 1994, and the results of their operations and their cash
flows for each of the years in the three-year period ended April
30, 1995 in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements,
Milastar Corporation and subsidiaries adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," in
1993.
Minneapolis, Minnesota
June 16, 1995
<PAGE>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1995 and 1994
ASSETS
1995 1994
Current assets:
Cash and cash equivalents. . . . . . . . . $365,000 $247,000
Marketable securities and other investments
($0 and $10,359,000 invested in accordance
with the terms of a reverse repurchase
agreement in 1995 and 1994, respectively). 25,000 10,556,000
Accounts and other receivables:
Trade, less allowance for doubtful accounts
of $26,000 in 1995 and $32,000 in 1994 . . 1,070,000 801,000
Other 4,000 66,000
Inventory. . . . . . . . . . . . . . . . . 192,000 68,000
Prepaid supplies and other . . . . . . . . 255,000 160,000
Total current assets . . . . . . . . . . 1,911,000 11,898,000
Notes receivable related party . . . . . . 76,000
Property, plant and equipment:
Land . . . . . . . . . . . . . . . . . . . 199,000 199,000
Building and improvements. . . . . . . . . 605,000 523,000
Equipment. . . . . . . . . . . . . . . . . 4,178,000 3,457,000
4,982,000 4,179,000
Less accumulated depreciation . . . . . . . (1,962,000) (1,551,000)
3,020,000 2,628,000
Other assets:
Non-compete agreement. . . . . . . . . . . 86,000 142,000
Building held for sale, net of valuation
allowance 298,000 298,000
Total assets . . . . . . . . . . . . . . $5,315,000 $15,042,000
<PAGE>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
Current liabilities:
Note payable (reverse repurchase agreements) $ $9,310,000
Note payable (shareholder) . . . . . . . . 345,000
Current maturities of long-term debt . . . 59,000 52,000
Accounts payable . . . . . . . . . . . . . 483,000 656,000
Income taxes payable . . . . . . . . . . . 5,000 5,000
Accrued payroll and benefits . . . . . . . 201,000 177,000
Accrued real estate taxes. . . . . . . . . 145,000 147,000
Other accrued liabilities. . . . . . . . . 172,000 154,000
Total current liabilities. . . . . . . . 1,410,000 10,501,000
Long-term debt, less current maturities. . . 40,000 82,000
Total liabilities. . . . . . . . . . . . 1,450,000 10,583,000
Commitments (Note 11)
Stockholders' equity:
Preferred stock, $1.00 par value; authorized
5,000,000 shares, none issued
Common stock, Class A, $.05 par value.
Authorized 7,500,000 shares, issued and
outstanding 2,738,264 shares in 1995
and 1994 137,000 137,000
Note receivable from officer . . . . . . . (20,000) (20,000)
Unrealized holding gains on marketable
equity securities 20,000
Additional paid-in capital . . . . . . . . 1,666,000 1,666,000
Retained earnings. . . . . . . . . . . . . 2,062,000 2,676,000
Total stockholders' equity. . . . . . . . 3,865,000 4,459,000
Total liabilities and stockholders' equity $5,315,000 $15,042,000
<PAGE>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended April 30,
1995 1994 1993
Net sales. . . . . . . . . . . . . . . $6,708,000 $5,307,000 $5,518,000
Cost of sales. . . . . . . . . . . . . 5,299,000 4,408,000 4,587,000
Gross margin . . . . . . . . . . . . . 1,409,000 899,000 931,000
Selling, general and administrative. . 1,817,000 2,047,000 2,026,000
Amortization of non-compete agreement. 56,000 56,000 56,000
Other operating expenses . . . . . . . 31,000 15,000 14,000
Operating loss . . . . . . . . . . . . (495,000) (1,219,000) (1,165,000)
Other income (expense):
Dividend and interest income . . . . 500,000 733,000 854,000
Interest expense . . . . . . . . . . (336,000) (473,000) (443,000)
Net gain (loss) on marketable
securities (281,000) 4,000 (346,000)
Total other income (expense) . . . (117,000) 264,000 65,000
Loss before income taxes and cumulative
effect of change in accounting
principles (612,000) (955,000) (1,100,000)
Income tax expense (benefit) . . . . . 2,000 5,000 (677,000)
Net loss before cumulative effect of
change in accounting principles . . .(614,000) (960,000) (423,000)
Cumulative effect of change in
accounting principles. . . . . . . . 66,000
Net loss . . . . . . . . . . . . . . . $(614,000) $(960,000) $(357,000)
Net loss per Class A common share:
Net loss before cumulative effect of
change in accounting principles . . $(.22) $(.35) $(.15)
Cumulative effect of change in
accounting principles . . . . . . . .02
Net loss . . . . . . . . . . . . . . $(.22) $(.35) $(.13)
Weighted average number of Class A
common shares outstanding
during the period. . . . . . . . . . 2,738,264 2,738,264 2,738,264
<PAGE>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended April 30,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before cumulative effect of
change in accounting principle. . . $(614,000) $(960,000) $(423,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization . . . 465,000 448,000 454,000
Loss on disposal of equipment . . . - 205,000 5,000
Provision for deferred taxes* . . . - - (238,000)
Net loss (gain) on marketable
securities 281,000 (4,000) 346,000
Changes in operating assets and
liabilities
Accounts and other receivables. . . (207,000) 284,000 368,000
Inventory . . . . . . . . . . . . . (124,000) 20,000 (18,000)
Prepaid supplies and other* . . . . (95,000) (42,000) 14,000
Accounts payable and accrued
expenses (133,000) (294,000) (228,000)
Income taxes payable. . . . . . . . - 5,000 (300,000)
Net cash used in operating activities(427,000) (338,000) (20,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (803,000) (639,000) (412,000)
Purchase of marketable securities
and other investments - (8,059,000) (12,798,000)
Proceeds from disposal of property,
plant and equipment. . . . . . . . - 30,000 1,000
Proceeds from sale of marketable
securities and other investments. . 10,255,000 9,744,000 8,182,000
Proceeds from (advances to) related
parties 76,000 - (76,000)
Issuance of note receivable from
officer - - (20,000)
Treasury stock purchase
(Class B Common) - (200,000) -
Net cash provided by (used in)
investing activities 9,528,000 876,000 (5,123,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt(53,000) (58,000) (104,000)
Proceeds from issuance of long-term
debt 18,000 - 14,000
Proceeds from issuance of note
payable - shareholder 457,000 - -
Repayments on note payable -
shareholder (95,000) - -
Proceeds from issuance of note
payable - repo - 7,455,000 10,800,000
Repayments on note payable - repo . (9,310,000) (9,183,000) (5,332,000)
Net cash provided by (used in)
financing activities (8,983,000) (1,786,000) 5,378,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . 118,000 (1,248,000) 235,000
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 247,000 1,495,000 1,260,000
CASH AND CASH EQUIVALENTS, END OF YEAR $365,000 $247,000 $1,495,000
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . $344,000 $437,000 $813,000
Income taxes, net of refunds
received $2,000 $(268,000) $-
*Excluding effect of change in accounting in 1993 (see Note 5).
<TABLE>
<CAPTION>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Fiscal Years Ended April 30, 1995, 1994 and 1993
Note Unrealized
Common Common receivable holding Additional
Stock Stock from gains on paid in Retained
Shares Amount officer securities capital earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1992 3,706,915 $185,000 $1,818,000 $3,993,000
Purchase of treasury stock
Class A ($214) . . . (178)
Issuance of note receivable
from officer (20,000)
Net loss for 1993. . (357,000). .
Balance, April 30, 1993 3,706,737 185,000 (20,000) 1,818,000 3,636,000
Retirement of Class B stock (968,473) (48,000) (152,000)
Net loss for 1994. . (960,000). .
Balance, April 30, 1994 2,738,264 137,000 (20,000) 1,666,000 2,676,000
Unrealized holding gains on
marketable equity securities 20,000
Net loss for 1995. . (614,000)
Balance, April 30, 1995 2,738,264 $137,000 $(20,000) $20,000 $1,666,000 $2,062,000
</TABLE>
<PAGE>
MILASTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries, Flame Metals Processing Corporation, Northwest
Engineering Labs, Inc., Jardun Apparel Corp. and Milastar Services
Corporation. In consolidation, all significant intercompany
accounts and transactions are eliminated.
Cash and cash equivalents The Company considers cash equivalents
to include all investments purchased with an original maturity of
90 days or less.
Marketable securities and other investments On May 1, 1994 the
Company adopted the provisions of Statement of Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity
Securities (Statement 115). Under Statement 115, the Company
classifies its debt and equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose
of selling them in the near term. Held-to-maturity securities are
those securities in which the Company has the ability and intent to
hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as
available-for-sale. Trading and available-for-sale securities are
recorded at fair value. Held-to-maturity securities are recorded
at amortized cost, adjusted for the amortization or accretion of
premiums of discounts. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding
gains and losses on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders'
equity until realized. Transfers of securities between categories
are recorded at fair value at the date of transfer. A decline in
the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged
to earnings resulting in the establishment of a new cost basis for
the security. At April 30, 1994 marketable securities were carried
at the lower of aggregate cost or market.
Inventory Inventory is carried at cost as determined by the
First-In-First-Out (FIFO) method.
Prepaid supplies Prepaid supplies are capitalized and expensed
as used.
Property, plant and equipment Property, plant and equipment are
carried at cost. Depreciation is computed using the straight-line
method. When assets are retired or otherwise disposed of, the cost
and related depreciation are removed from the accounts, and any
gain or loss is reflected in income for the period. The cost of
maintenance and repairs is charged to income as incurred, whereas
significant renewals and betterments are capitalized and deductions
are made for retirements resulting from the renewals or
betterments.
The estimated useful lives of the fixed assets are as follows:
Buildings . . . . . . 35 years
Equipment . . . . . . 5 to 12 years
Vehicles. . . . . . . 3 to 5 years
Other assets Other assets are comprised of two five-year non-
competition agreements which are being amortized over 60 months
using the straight-line method.
Income taxes In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (Statement 109). Statement 109
requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method
of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences
are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
Effective May 1, 1992, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of
accounting for income taxes in the 1993 consolidated statement of
operations.
Reclassification Some fiscal 1994 and 1993 amounts have been
changed to conform to fiscal 1995 presentation.
2 MARKETABLE SECURITIES AND OTHER INVESTMENTS
Marketable securities and other investments consists of bonds and
common stock and are being used to invest excess cash until an
appropriate acquisition or operating need arises. In accordance
with Statement 115, for the year ended April 30, 1995, marketable
securities and other investments are classified as available-for-
sale and as such unrealized gains and losses are reported as a
separate component of shareholders' equity until realized.
Dividend income, interest income, and prepayment losses on debt
securities are accrued as earned. The Company uses specific
identification to determine the fair value of marketable securities
and other investments.
Marketable securities and other investments were comprised of the
following at April 30:
Description 1995 1994
RJR Nabisco Preferred Stock $ $154,000
Glaxo Preferred Stock - 307,000
Sears Mtg. Securities ARM (Reverse Repurchase
Agreement) - 3,917,000
Sears Mtg. Securities ARM (Reverse Repurchase - 6,442,000
Agreement)
First Colonial Bank Common Stock 5,000 5,000
Total cost 5,000 $10,825,000
Gross unrealized holding gains 20,000
Fair Value $25,000
Prior to the adoption of Statement 115, the Company recorded
unrealized gains and losses in accordance with Statement of
Financial Accounting Standards No. 12, Accounting for Certain
Marketable Securities. The 1994 balance sheet included a write
down to aggregate market value of $290,000.
3 NOTE PAYABLE
On April 1, 1992 and June 18, 1993 the Company entered into two
reverse repurchase agreements ("Repos") to finance an Adjustable
Rate Mortgage ("ARM") portfolio aggregating $6,205,000 and
$8,059,000, respectively. Each ARM was leveraged at a financing to
equity ratio of 9:1. Accordingly, the Company invested $635,000
and $604,000 and entered into notes payable for $5,570,000, and
$7,455,000, respectively. The interest rate charged on the notes
payable is the London Interbank Offered Rate ("LIBOR") and ranged
from 3.75% to 4.56%. As of April 30, 1995 the Company has
liquidated all of the reverse repurchase agreements and the
associated notes payable.
Each ARM, which was pledged as collateral against the respective
note payable, earned interest at the LIBOR rate plus 135 basis
points and such interest was paid monthly. Total interest costs
incurred on notes payable for the years ended April 30, 1995, 1994
and 1993 amounted to $310,000, $468,000 and $437,000, respectively.
4 LONG-TERM DEBT
Long-term debt consisted of the following at April 30:
1995 1994
Amount due under non-competition agreements, payable in
monthly installments of $3,256, without interest . . $62,000 $101,000
Capital lease obligations, secured by specific equipment 37,000 33,000
99,000 134,000
Less current maturities. . . . . . . . . . . . . (59,000) (52,000)
Total long-term debt . . . . . . . . . . . . . $40,000 $82,000
Maturities of long-term debt and capitalized lease obligations
for each of the five years following April 30, 1995 are as follows:
1996 $ 59,000
1997 31,000
1998 5,000
1999 4,000
2000 -
Total obligations $ 99,000
Total interest expense incurred on long term debt and capitalized
lease obligations for the years ended April 30, 1995, 1994 and 1993
amounted to $3,000, $4,000 and $6,000, respectively.
5 INCOME TAXES
As discussed in Note 1, the Company adopted Statement 109 as of
May 1, 1992. The cumulative effect of this change in accounting
for income taxes is $66,000 as of May 1, 1992 and is reported
separately in the consolidated statement of operations for the year
ended April 30, 1993.
<PAGE>
Income tax expense (benefit) attributable to net income (loss)
from operations consists of:
Current Deferred
Total Year ended April 30, 1995:
U.S. Federal $ - $ - $ -
State and local 2,000 - 2,000
$ 2,000 $ - $ 2,000
Year ended April 30, 1994:
U.S. Federal $ - $ - $ -
State and local 5,000 - 5,000
$ 5,000 $ - $ 5,000
Year ended April 30, 1993:
U.S. Federal $(441,000) $(238,000) $(679,000)
State and local 2,000 - 2,000
$(439,000) $(238,000) $(677,000)
The provision for income taxes differs from the amount computed
by applying the statutory U.S. federal income tax rate to
operations for the following reasons:
1995 1994 1993
Computed expected tax benefit at 34% $(208,200) $(324,700) $(374,000)
State taxes, net of federal effect (36,700) (36,000) (358,000)
Dividends received deduction . . (1,600) (15,000) (12,000)
Increase in valuation allowance. 245,700 380,700 60,000
Other net. . . . . . . . . . . . 2,800 - 7,000
$ 2,000 $ 5,000 $(677,000)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets (liabilities) at
April 30, 1995 are as follows:
1995 1995 1994 1994
Current Non-current Current Non-current
Valuation allowance of marketable
equity securities and other
investments. . . . . . . . . $ - $ - $107,600 $ -
Allowance for doubtful accounts 10,500 - 12,900 -
Accrued vacation pay . . . 32,800 - 39,500 -
Differences in tax and book
depreciation of plant and
equipment. . . - (359,800) - (304,200)
Differences in tax and book
treatment of prepaid supplies . (11,600) (34,900) (17,000) (35,200)
Plant closing, principally due to
accrual for financial reporting
purposes - - - -
Foreign tax credit carryforward - 12,500 - 11,000
Alternative minimum tax credit
carryforwards - 75,000 - 83,000
State net operating loss carryforward - 223,600 - 180,000
Net operating and other loss carryforward - 774,100 - 405,000
Other . . . . . . . . . . - 200 (5,900) -
Total gross deferred tax asset 31,700 690,700 137,100 339,600
Less valuation allowance (31,700) (690,700) (137,100) (339,600)
Net deferred tax asset $ - $ - $ - $ -
<PAGE>
A reconciliation of the valuation allowance for deferred taxes is
as follows:
1995 1994
Valuation allowance at beginning of year $ 476,700 $ 96,000
Increase in allowance 245,700 380,700
Valuation allowance at end of year $ 722,400 $ 476,700
At April 30, 1995 the Company has alternative minimum tax credit
carryforwards of approximately $75,000 which are available to
reduce future federal regular income taxes, if any, over an
indefinite period, in addition the Company also has foreign tax
credit carryforwards of approximately $14,200 which are available
to reduce future foreign income taxes, if any,which begin to expire
in 1997. The Company also has net operating loss carryforwards for
state purposes of $3,772,000 which are available to offset future
state taxable income, if any, through the year 2010. The
Company has net operating loss carryforwards for federal purposes
of $1,793,000 which are available to offset future federal taxable
income, if any, through the year 2010.
6 OPTIONS
Pursuant to the terms of two Promissory Notes each dated April
26, 1988, issued by the Company to Mimi G. Duncan, the wife of J.
Russell Duncan, Chairman of the Board and a director of the
Company, which Promissory Notes have been repaid in full, the
Company granted Mrs. Duncan options to purchase an aggregate of
233,333 shares of the Company's Class A common stock ("Class A
Stock") at $0.6738 per share, 115% of the average of the closing
"bid" and "ask" quotations for a share of such Common Stock on the
date of grant. On June 19, 1989, Mrs. Duncan, exercised options to
purchase 66,666 shares of the Company's Class A Stock and acquired
the same for a purchase price of $45,000. The unexercised options
granted to Mrs. Duncan were to expire on April 26, 1995. On April
19, 1995 the board of directors elected to extend Mrs. Duncans'
options to April 26, 1999 at a price of $0.6738 per share.
In accordance with the terms of an Executive Employment Agreement
dated as of April 12, 1989, between the Company and L. Michael
McGurk, the then Vice President and Secretary of the Company, and
a Stock Option Agreement dated as of April 12, 1989, between the
Company and Lance H. Duncan, the then President of the Company, the
Company granted each of Messrs. McGurk and Duncan options to
purchase 100,000 shares of the Company's Class A Stock at $1.125
per share, the average of the closing "bid" and "ask" quotations
for a share of the Company's Class A Stock on the date of grant.
The options granted to Messrs. McGurk and Duncan expire on April
12, 2000.
7 STOCK OPTION PLAN
In accordance with the Milastar Corporation Stock Option Plan
(the "Option Plan") adopted at the March 4, 1991 Board of Directors
meeting, options to purchase 200,000 shares of Class A Stock may be
granted to directors, key employees and key consultants. The
options granted under the Option Plan may be incentive or
nonstatutory stock options and are subject to approval by a stock
option committee (the "Committee") comprised of one or more
disinterested persons and appointed by the Board of Directors.
Nonstatutory options have a per share exercise price of not less
than 85% of the fair market value of a share of Class A Stock on
the effective date of the grant of the stock option while incentive
options have a per share exercise price of not less than 100% of
the fair market value of a share of Class A Stock on the effective
date of the grant. Options are exercisable in such installments
and during such period as may be fixed by the Committee at the time
of grant, but no option is exercisable after the expiration of ten
years from the date of grant of such option.
Transactions for 1995, 1994 and 1993 are as follows:
1995 1994 1993
Options outstanding May 1 156,666 156,666 156,666
Granted
Exercised
Canceled
Options outstanding at April 30 156,666 156,666 156,666
Option price range at April 30 $ .9609 $ .9609 $ .9609
to to to
1.0570 1.0570 1.0570
Options exercisable at April 30 156,666 156,666 156,666
Options available for grant at
April 30 43,334 43,334 43,334
8 RELATED PARTY TRANSACTIONS
The Company entered into two Note Agreements during fiscal 1993.
The first note of $76,000 is dated October 1, 1992, bears interest
at 8.0% and is due in 48 monthly installments commencing June 1,
1994. The note is between the Company and Sound Techniques, Inc.,
a Subchapter S Corporation wholly-owned by J. Russell Duncan,
chairman of the Board and a director of the Company. Lance H.
Duncan, the son of J. Russell Duncan and a director of the Company,
is President of Sound Techniques, Inc. The note resulted from
advances to and payments by the Company on behalf of Sound
Techniques, Inc. On April 18, 1995 the entire balance of the note
which consisted of $76,000 in principal and $17,000 in interest was
paid by Sound Techniques, Inc.
The second note is between the Company and L. Michael McGurk,
President, Chief Operating Officer and a director of the Company
who, with the encouragement of the Company, bought 15,000 shares of
Milastar Class A Common Stock and entered into a note with the
Company. The note of $20,000 is dated August 15, 1992 and bears
interest at 50 basis points over NYC Prime adjustable upward or
downward at the end of each six-month period, which interest rate
is subject to an 8% "cap" during the life of the loan. Interest on
the principal is payable each year on the anniversary date of the
note. The principal portion of the note is due on August 15, 1995.
The Company is holding Mr. McGurk's 15,000 shares of Milastar Class
A Common Stock as collateral for the note.
Total interest income related to these notes for the fiscal years
ended April 30, 1995, 1994 and 1993 amounted to $10,000, $6,000 and
$5,000, respectively.
During fiscal 1995 the Company entered into a series of note
payable transactions which at April 30, 1995 had a balance of
$345,000 payable to J. Russell Duncan, Chairman of the Board and a
director of the Company. The notes bear a interest rate of 8% and
are payable on demand. The Company classifies the notes payable as
a current liability. Total interest expense related to this note
payable was $23,000 for fiscal 1995.
9 LOSS PER COMMON SHARE
The computation of loss per share for the years ended April 30,
1995, 1994 and 1993 is as follows:
1995 1994 1993
Weighted average shares of Class A Stock
outstanding. . . . . . . . . 2,738,264 2,738,264 2,738,264
Dilutive effect of stock options after
application of treasury stock method . .
Weighted average shares of Class A Stock
outstanding during the period 2,738,264 2,738,264 2,738,264
The Company also had 968,473 shares of Class B Stock issued and
outstanding at April 30, 1993, which did not participate in
earnings or dividends until a liquidation preference of $6,690,000
has been satisfied in favor of the Class A Stock. At April 30,
1993 the liquidation preference had not been satisfied and
therefore the Class B Stock was not included in the earnings per
share calculation.
10 .TREASURY STOCK
In April 1994, the Company purchased all of its 968,473 issued
and outstanding Class B Common Shares for cash consideration
amounting to $200,000. On August 10, 1994 in an Information
Statement distributed to the stockholders, the Company eliminated
the 2,500,000 authorized shares of Class B Common Stock. The
Company purchased 178 shares of its Class A Stock at prevailing
market prices ($214 total value) during fiscal 1993. The Company
recorded the Class A shares as treasury stock.
11 .OPERATING LEASE COMMITMENTS
Leased property is comprised of Company automobiles, plant
equipment and a building. The building represents the majority of
future minimum rental payments. The lease is renewable and
provides for the Company to pay all real estate taxes and
maintenance expenses.
Future minimum rental payments under noncancelable operating
leases, excluding real estate taxes, are as follows:
1996 $ 106,000
1997 93,000
1998 81,000
1999 76,000
2000 76,000
Thereafter 117,000
$ 549,000
Total rent expense, excluding real estate taxes, for the fiscal
years ended April 30, 1995, 1994 and 1993 was $155,000, $162,000
and $131,000, respectively.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain of the information respecting Registrant's executive
officers required by this Item is set forth under the caption
"Executive Officers of Registrant" in Item 4, Part I. Other
information respecting the executive officers, as well as the
required information for directors, will be contained in the
Information Statement, and reference is expressly made thereto for
the information incorporated herein by the aforesaid reference.
Item 11. Executive Compensation
The information required by this Item will be contained in the
Information Statement, and reference is expressly made thereto for
the information incorporated herein by the aforesaid reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item will be contained in the
Information Statement, and reference is expressly made thereto for
the information incorporated herein by the aforesaid reference.
Item 13. Certain Relationships and Related Transactions
Certain information required by this Item is set forth under the
caption "Related Party Transactions" in Part II, Item 8, Note 8.
Other information required by this Item will be contained in the
Information Statement, and reference is expressly made thereto for
the information incorporated herein by the aforesaid reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets at April 30, 1995 and 1994
Consolidated Statements of Operations for the three years
ended April 30, 1995
Consolidated Statements of Cash Flows for the three years
ended April 30, 1995
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended April 30, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule VIII-Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted
since they are either not applicable, not required or the
information is included elsewhere herein.
3. Exhibits
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
3.1 Certificate of Incorporation, as amended, a copy of which was
filed as Exhibit (1) to Registrant's
Registration Statement on Form 10 dated August 27,
1970 and, by this reference, such Exhibit is
incorporated herein
3.2 By-laws, as amended a copy of which was filed as Exhibit 1(2)
to Registrant's Registration Statement on
Form 10 dated August 27, 1970 and, by this reference,
such Exhibit is incorporated herein
3.3 Certificate of Amendment to Certificate of Incorporation, a
copy of which was filed as Exhibit 3.3
to Registrant's Annual Report on Form 10-K for the
fiscal year ended April 30, 1984 and, by this
reference, such Exhibit is incorporated herein
3.4 Certificate of Amendment to Restated Certificate of
Incorporation a copy of which was filed as Exhibit 3.4
to Registrant's Annual Report on Form 10-K for the
fiscal year ended April 30, 1987 and, by this
reference, such Exhibit is incorporated herein
3.5 Certificate of Amendment to Certificate of Incorporation of
Milastar Corporation, a copy of which was filed
as Exhibit 3.5 to Registrant's Form 10-Q for the quarter
ended January 31, 1989 and, by this reference, such Exhibit
is incorporated herein
10.1 Agreement and Plan of Reorganization, dated as of March 11,
1983, between Registrant and certain
wholly-owned subsidiaries to Steego Corporation, a
copy of which was included as Exhibit A to
Registrant's definitive Proxy Statement dated April
15, 1983 relating to a Special Meeting of Stockholders
held on May 6, 1983, as filed with the Securities and
Exchange Commission pursuant to Regulation 14A and, by
this reference, such Exhibit is incorporated herein
10.2 Asset Purchase Agreement dated as of March 25, 1985, between
Registrant and Flame Industries, Inc.,
a copy of which was filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated May 29,
1985 and, by this reference, such Exhibit is
incorporated herein
10.3 Stock Purchase Agreement dated June 21, 1988, among Industrial
Equity (Pacific) Limited, a Hong Kong
Corporation, its wholly-owned subsidiary Auckland
Pension Funds Limited, a New Zealand corporation, and
the registrant, a copy of which was filed as Exhibit
A to Registrant's Information Statement dated August
25, 1988 and by this reference such Exhibit is
incorporated herein
10.4 Executive Employment Agreement dated as of April 12, 1989 by
and between the Registrant and L.
Michael McGurk, a copy of which was filed as Exhibit 10.4 to
Registrant's Form 10-K for the fiscal year ended April 30,
1989 and, by this reference, such Exhibit is incorporated
herein
10.5 Stock Option Agreement dated as of April 12, 1989 by and
between the Registrant and Lance H. Duncan
a copy of which was filed as Exhibit 10.5 to Registrant's
Form 10-K for the fiscal year ended April 30, 1989 and, by
this reference, such Exhibit is incorporated herein
10.6 Milastar Corporation Stock Option Plan dated as of March 4,
1991 a copy of which was filed as Exhibit 10.6 to Registrant's
Form 10-K for the fiscal year ended April 30, 1991 and, by
this reference, such Exhibit is incorporated herein
10.7 Asset Purchase Agreement dated as of November 8, 1991 by and
among Flame Metals Processing
Corporation, a Delaware Corporation and a wholly-owned
subsidiary of the Registrant, Getchell Steel Treating
Company, Inc., a Minnesota corporation, Woodrow C. Lindstrom
and William C. Lindstrom, a copy of which was filed as
Exhibit 10.7 to the Registrant's current report on Form 8-K
dated November 15, 1991 and, by this reference, such Exhibit
is incorporated herein
<PAGE>
INDEX TO EXHIBITS
(continued)
Exhibit
No. Description
10.8 Executive Employment Agreement dated as of April 13, 1992 by
and between Registrant and L. Michael
McGurk
10.9 Melonite Agreement dated November 6, 1992 between Flame Metals
Processing Corporation, a wholly
owned subsidiary of the Registrant, and Kolene Corporation,
a Michigan corporation, a copy of which was
filed as Exhibit 10.9 to the Registrant's Form 10-K for the
fiscal year ended April 30, 1994 and by this
reference, such Exhibit is incorporated herein
22.1 List of Subsidiaries
(b) Reports on Form 8-K: None
<PAGE>
Schedule VIII
MILASTAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance Charged to Charged to Balance
at beginning costs and other at end
of year expenses accounts Deductions of year
Allowance for doubtful accounts:
April 30, 1995 $32,000 $ $ $6,000 $26,000
April 30, 1994 $115,000 $ $(68,000) $15,000 $32,000
April 30, 1993 $109,000 $48,000 $(9,000) $33,000 $115,000
(1) Direct write-off of accounts deemed uncollectible.
(2) Amount represents allowance for doubtful accounts purchased in the
Getchell Acquisition.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MILASTAR CORPORATION
(REGISTRANT)
By: /s/ J. RUSSELL DUNCAN
J. Russell Duncan
Chairman of the Board
Dated: July 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on July 28, 1995.
/s/ J. RUSSELL DUNCAN /s/ L. MICHAEL McGURK
J. Russell Duncan, Chairman of the Board L. Michael McGurk
(Chief Executive and Principal President, Chief Operating
Financial and Accounting Officer) Officer and Director
/s/ LANCE H. DUNCAN /s/ C. PAUL JOHNSON
Lance H. Duncan C. Paul Johnson
Secretary and Director Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
<CASH> 365,000
<SECURITIES> 25,000
<RECEIVABLES> 1,100,000
<ALLOWANCES> 26,000
<INVENTORY> 192,000
<CURRENT-ASSETS> 1,911,000
<PP&E> 4,982,000
<DEPRECIATION> 1,962,000
<TOTAL-ASSETS> 5,315,000
<CURRENT-LIABILITIES> 1,410,000
<BONDS> 40,000
<COMMON> 137,000
0
0
<OTHER-SE> 3,728,000
<TOTAL-LIABILITY-AND-EQUITY> 5,315,000
<SALES> 6,708,000
<TOTAL-REVENUES> 6,708,000
<CGS> 5,299,000
<TOTAL-COSTS> 1,904,000
<OTHER-EXPENSES> 281,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 336,000
<INCOME-PRETAX> (612,000)
<INCOME-TAX> 2,000
<INCOME-CONTINUING> (614,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (614,000)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
