Milastar Corporation and Consolidated Subsidiaries
Form 10-K
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, 1998
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 (561)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 twelve months (or for such a 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.
[x]
The aggregate market value of the Class A Common Stock held by non-affiliates
of the Registrant on July 10, 1998 was $2,396,000 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 7, 1998.
PART I
Item 1. Business
General
Milastar Corporation ("Milastar" and sometimes the "Company") sells special
metallurgical services to a diversified list of manufacturers primarily
located in the greater Midwest and New England regions. The customer base
manufactures a variety of mechanical end-products and customarily outsources
(subcontracts) the processing of some components incorporated in those
end-products. The menu of special processing services performed include
metallurgical engineering, heat treating, brazing and surface finishing.
Milastar owns one wholly-owned subsidiary; Flame Metals Processing
Corporation ("Flame Metals") located in Minnesota. New England Metal
Treating Corporation ("NEMT") located in Auburn, Massachusetts is a wholly-
owned subsidiary of Flame Metals.
Flame Metals and its subsidiary generate 100% of Milastar's consolidated net
sales, which flow from the sale of a variety of subcontract 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 specified characteristics. The following primary
categories of services accounted for more than 15 percent of total net sales
in fiscal 1998, 1997 and 1996:
1998 1997 1996
Harden - Neutral/Case 61% 60% 53%
Salt Bath Nitriding 26% 26% 29%
Flame Metals' customer list includes more than 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 accounting for 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, MN. 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. located in Bloomington, MN. The third acquisition occurred in
April 1996 when Flame Metals directly acquired certain assets and assumed
certain liabilities from New England Metal Treating Inc. located in Auburn,
Massachusetts. Flame Metals operates this entity as the wholly owned
subsidiary, New England Metal Treating Corporation. The fourth acquisition
occurred in March 1998 when Flame Metals directly acquired certain assets
and assumed certain liabilities from Twin City Steel Treating, Inc. located
in Rogers, MN for a net purchase price of approximately $628,000. This
acquired company competed directly with Flame Metals in the greater
Minneapolis-St. Paul market; nevertheless, this acquisition broadened market
coverage, added metal treating capabilities and expanded production capacity.
The Company has three plants located in the Minneapolis-St. Paul, Minnesota
area and one plant in Massachusetts. These facilities include
Flame Metals - St. Louis Park, MN (35,000 sq. ft. owned),
Flame Metals - Bloomington, MN (35,000 sq. ft. leased) and
Flame Metals - Rogers, MN (33,000 sq. ft. owned). The Company's fourth plant
is operated by New England Metal Treating Corporation - Auburn, MA
(9,000 sq. ft. leased).
Milastar earned income before income taxes of $498,000 in fiscal 1998 and
incurred a loss before income taxes of $62,000 in fiscal 1997. Fiscal 1998
operating results improved primarily because of increased sales and increased
labor efficiency. Net income after taxes amounted to $484,000 in fiscal
1998 and the net loss after income taxes amounted to $63,000 in fiscal 1997.
Results of operations are discussed more fully in "Management's Discussion
and Analysis" beginning on page 5.
The Company's non-operating other income (expense) resulted in a net
expense of $158,000 in fiscal year 1998, up $34,000 from the $124,000 in
expense recorded in fiscal year 1997. Current assets as a percent of total
assets amounted to 20% and 26% at April 30, 1998 and 1997, respectively.
The book value per share was $1.47 per share at April 30, 1998 compared with
$1.29 per share at April 30, 1997. The bid price per share, as quoted on the
OTC Electronic Bulletin Board, was $1.13 as of April 30, 1998.
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, Flame Metals has approximately five or six
metallurgical processing competitors in both the Minneapolis-St. Paul,
Minnesota and Auburn, Massachusetts markets who can be classified as being
competitive with Flame Metals. Some of these competitors may possess
greater resources and may be more cost efficient. 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
midsummer due to vacations and plant shutdowns by Flame Metals' customers.
Flame Metals is not materially affected by the sources or availability of raw
material in that nearly 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 communication numbers are: Telephone (561) 655-9590
and fax number (561) 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 four separate plant locations and employs a total of
approximately 83 employees; 40 in St. Louis Park, MN, 22 in Bloomington, MN,
13 in Rogers, MN and 8 in Auburn, MA. 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 1999. Seventeen production
employees at the Bloomington, MN plant are represented by the International
Union of Electronic, Electrical, Salaried, Machine and Furniture Workers,
AFL-CIO Local 1140. The plants in St. Louis Park, MN, Rogers, MN and
Auburn, MA are not subject to a collective bargaining agreement.
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 four industrial properties as listed below:
ACTIVITY LOCATION SIZE (SQ. FT.) STATUS
Flame Metals St. Louis Park, MN 35,000 Owned
Flame Metals Rogers, MN 33,000 Owned
Flame Metals Bloomington, MN 35,000 Leased
New England Metal Treating Auburn, MA 9,000 Leased
The lease on the Bloomington, MN plant is a ten-year lease providing for
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 anytime during the
lease term subject to the terms and conditions specified in the lease.
The lease on the Auburn, MA plant is a five-year lease providing for annual
rent of $46,000 adjusted each year for changes in the Consumer Price Index.
Such rental payments are payable in monthly installments due and payable on
the first day of each calendar month. The lease is renewable and the Company
does not have a purchase option.
Item 3.
Legal Proceedings
The Company has been party to various legal proceedings incidental to its
normal operating activities. Although it is impossible to predict the
outcome of such proceedings, management believes, based on the facts currently
available, that none of such claims will result in losses that would
have a materially adverse effect on the Company's financial condition.
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, 1998.
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) . . . 81 Chairman of the Board; Treasurer
until April 19, 1995.
L. Michael McGurk . . . . . 47 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.
Dennis J. Stevermer . . . . 37 Vice President 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.
Lance H. Duncan (2) . . . . 42 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.
(1) Mr. J. Russell Duncan is Chairman and a director of Sound Techniques,
Inc. (audio-video production 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 production 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 1998
fiscal year. The Company expects to file the Information Statement with the
Securities and Exchange Commission on or before August 7, 1998 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 OTC Bulletin Board
and the Pink Sheets under the ticker symbol "MILAA". 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 1998 Fiscal 1997
High Low High Low
First Quarter . . . . . . . . . . $ 0.63 $ 0.50 $ 0.75 $ 0.63
Second Quarter. . . . . . . . . . $ 1.03 $ 0.50 $ 0.75 $ 0.69
Third Quarter . . . . . . . . . . $ 1.13 $ 0.82 $ 0.75 $ 0.63
Fourth Quarter. . . . . . . . . . $ 1.13 $ 0.94 $ 0.63 $ 0.50
On July 10, 1998 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,
1998 1997 1996 1995 1994
(In thousands except per share data)
Net sales. . . . . . . . . . . . $ 8,261 $ 7,325 $ 6,642 $ 6,708 $ 5,307
Net income (loss). . . . . . . . 484 (63) (254) (614) (960)
Net income (loss) per common
share - basic . . . . . . . . . .18 (.02) (.09) (.22) (.35)
Net income (loss) per common
share - diluted . . . . . . . . .17 (.02) (.09) (.22) (.35)
Financial Position:
Total assets. . . . . . . . . . 9,022 6,093 5,902 5,315 15,042
Short-term obligations. . . . . 1,838 1,493 1,433 1,410 10,501
Long-term obligations . . . . . 3,172 1,072 842 40 82
Stockholders' equity. . . . . . $ 4,012 $ 3,528 $ 3,627 $ 3,865 $ 4,459
During the periods presented, no cash dividends were declared.
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, 1998
improved as a result of higher sales activity and increased labor efficiency.
This is the fourth consecutive year that Milastar has shown a significant
net profit (loss) improvement.
Milastar's primary revenues flow from metallurgical services provided by
Flame Metals Processing Corporation and New England Metal Treating
Corporation. The Company's management continues to increase prices and cut
operating costs. The price increases, which are quoted individually
according to each customer's particular specifications, are taking effect
on an ongoing basis focused on low margin accounts. Significant reductions
in cost of sales, including factory labor and primary production supply
costs as a percentage of sales, are being accomplished. These major areas
will continue to receive increased focus as the Company strives to increase
equipment utilization, expand capacity and absorb fixed overhead costs.
Milastar has net operating loss carry forwards for state and federal
purposes of approximately $3,500,000 and $1,400,000, respectively, available
to offset future taxable income, if any, which in the future may enhance
earnings as well as cash flow. See note 4 to "Notes to Consolidated
Financial Statements."
Results of Operations
Fiscal 1998 Compared to Fiscal 1997.
Net sales for fiscal 1998 totaled $8,261,000, a 13% increase from
$7,325,000 in fiscal 1997. The increase was primarily attributable to
successful marketing strategies combined with a continuing strong economy.
Cost of sales as a percentage of sales was reduced to 69% in fiscal 1998,
down from 74% in fiscal 1997. The reduction reflects the ongoing efforts to
increase productivity through effective use of labor and asset resources.
Management continues to provide training to increase efficiency and has
significantly reduced employee turnover.
Selling, general and administrative expense decreased as a percentage of
sales to 22% in fiscal 1998, down 3% from 25% in fiscal 1997. The decrease
as a percent of sales is the result of overhead costs being absorbed by
increased net sales.
Total other expense amounted to $158,000 in fiscal 1998, compared with
other expense of $124,000 reported in fiscal 1997. The increase was
directly attributable to an increase in interest expense due to additional
debt resulting from the Twin City Steel Treating, Inc. asset purchase.
Fiscal 1997 Compared to Fiscal 1996.
Net sales for fiscal 1997 totaled $7,325,000 a 10% increase from
$6,642,000 in fiscal 1996. The increase was primarily attributable to the
additional sales from New England Metal Treating Corporation.
Cost of sales as a percentage of sales was reduced to 74% in fiscal 1997,
down from 76% in fiscal 1996. The reduction reflects the progressive cuts in
total payroll which coincidently increased productivity. Management
continues to provide training to increase efficiency and has significantly
reduced employee turnover.
Selling, general and administrative expense decreased as a percentage of
sales to 25% in fiscal 1997, down 1% from 26% in fiscal 1996. The decrease
as a percent of sales is the result of overhead costs being absorbed by the
additional sales from New England Metal Treating Corporation.
Total other expense amounted to $124,000 in fiscal 1997, compared with
other expense of $48,000 reported in fiscal 1996. The increase was directly
attributable to an increase in interest expense due to additional debt
resulting from the acquisition of New England Metal Treating and the
purchase of a mesh belt furnace.
Effects of Inflation
During fiscal 1998 and 1997 the Company's monetary liabilities materially
exceeded its monetary assets resulting in a net negative monetary position.
In periods in which the general price-level index is rising (inflation), it
is advantageous to maintain a net negative 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 effects of inflation and the
Company's earning capacity.
Liquidity and Capital Resources
At April 30, 1998, the Company had negative working capital of $34,000
compared with $76,000 of positive working capital as of April 30, 1997, and
the ratio of current assets to current liabilities was 1.0 to 1.0 and 1.1 to
1.0 at April 30, 1998 and 1997, respectively. Cash, marketable securities
and current receivables represented 84% (78% at April 30, 1997) and 17% (20%
at April 30, 1997) of total current assets and total assets, at April 30,
1998, respectively.
During fiscal 1998 cash provided by operating activities amounted to
$784,000 compared with cash provided of $560,000 in fiscal 1997. The Company
added $656,000 to property, plant and equipment, net of the effect of the
purchase of the assets of Twin City Steel Treating, in fiscal 1998 compared
with $1,133,000 in the previous year. Working capital requirements for
fiscal 1998 were funded primarily from available cash and cash generated
from operations.
On March 8, 1996, the Company filed Form 1139 "Corporate Application
for Tentative Refund" to carry back losses under Section 172(f) of the
Internal Revenue Code in the amount of $146,300. The Company was notified
in April 1996 that the IRS had allowed the carryback loss and received a
refund in June 1996. Section 172(f) is an area of the tax law without
substantial legal precedent or guidance. Accordingly, assurances cannot be
made as to whether the IRS will later challenge the Company's entitlement to
such refund. Consequently, a valuation allowance of $118,000 has been
recorded in the amount of the refund net of the collection expenses which
will be reimbursed if the Company's position does not withstand any such
challenge and the refund is reversed.
The Company believes it has sufficient capital resources to meet its
fiscal 1999 operations and equipment acquisitions cash flow requirements.
At April 30, 1998, the Company had commitments for the purchase of production
equipment of approximately $500,000.
Forward-Looking Statements
Certain statements contained in Management's Discussion and Analysis and
elsewhere in the annual report are forward-looking statements.
These statements discuss, among other things, expected growth, future
revenues and future performance. The forward-looking statements are subject
to risks and uncertainties, including, but not limited to, competitive
pressures, inflation, consumer debt levels, currency exchange fluctuations,
trade restrictions, changes in tariff and freight rates, capital market
conditions and other risks indicated in the Company's filings with the
Securities and Exchange Commission. Actual results may materially differ
from anticipated results described in these statements.
Year 2000
In January 1997, the Company completed a comprehensive evaluation of its
computer systems and identified those systems that could be affected by the
"Year 2000" issue. An implementation plan to address this issue has been
developed and it includes the replacement of the Company's present computer
system with a new computer system. This new system will be both "Year 2000"
compliant and more "user-friendly" and it is expected to be fully operational
by December 1998. Therefore the Company does not expect its operations to be
adversely affected by the "Year 2000" issue. The total cost for the new
computer system and conversion efforts is estimated to be $125,000 and is
being funded through operating cash flows. The Company is capitalizing the
purchase of the new computer system and will capitalize or expense, where
appropriate, the related conversion costs.
Milastar Corporation and Consolidated Subsidiaries
Auditors' Report
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, 1998 and 1997, and the related consolidated
statements of operations, cash flows and changes in stockholders' equity for
each of the fiscal years in the three-year period ended April 30, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the fiscal years in the
three-year period ended April 30, 1998 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, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick
Minneapolis, Minnesota
June 5, 1998
<TABLE>
<CAPTION>
Milastar Corporation and Consolidated Subsidiaries
Financial Statements
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and 1997
ASSETS
1998 1997
<S>
Current assets: <C> <C>
Cash and cash equivalents. . . . . . . . 164,000 71,000
Accounts and other receivables:
Trade, less allowance for doubtful
accounts of $50,000 in 1998 and
35,000 in 1997 . . . . . . . . . . . . 1,311,000 1,151,000
Other . . . . . . . . . . . . . . . . . 37,000 9,000
Inventory. . . . . . . . . . . . . . . . 153,000 185,000
Prepaid supplies and other . . . . . . . 139,000 153,000
Total current assets . . . . . . . . 1,804,000 1,569,000
Property, plant and equipment:
Land. . . . . . . . . . . . . . . . . . 420,000 199,000
Buildings and improvements. . . . . . . 1,868,000 742,000
Deposits on equipment . . . . . . . . . 279,000
Equipment . . . . . . . . . . . . . . . 7,645,000 6,337,000
10,212,000 7,278,000
Less accumulated depreciation. . . . . (3,475,000) (2,825,000)
6,737,000 4,453,000
Other assets:
Non-compete agreements. . . . . . . . . 481,000 71,000
Total assets . . . . . . . . . . . . 9,022,000 6,093,000
</TABLE>
<TABLE>
<CAPTION>
Milastar Corporation and Consolidated Subsidiaries
Financial Statements
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
<S>
Current liabilities: <C> <C>
Note payable to stockholder. . . . . . . 100,000 165,000
Current maturities of long-term debt . . 774,000 342,000
Accounts payable . . . . . . . . . . . . 321,000 426,000
Income taxes payable . . . . . . . . . . 119,000 119,000
Accrued payroll and benefits . . . . . . 243,000 243,000
Accrued real estate taxes. . . . . . . . 86,000 68,000
Other accrued liabilities. . . . . . . . 195,000 130,000
Total current liabilities. . . . . . 1,838,000 1,493,000
Long-term debt, less current
maturities. . . . . . . . . . . . . . . 3,172,000 1,072,000
Total liabilities. . . . . . . . . . 5,010,000 2,565,000
Commitments and contingencies (Notes 9 and 10)
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 1998 and 1997 . . . . . . . . 137,000 137,000
Note receivable from officer . . . . . . (20,000) (20,000)
Additional paid-in capital . . . . . . . 1,666,000 1,666,000
Retained earnings. . . . . . . . . . . . 2,229,000 1,745,000
Total stockholders' equity. . . . . . 4,012,000 3,528,000
Total liabilities and
stockholders' equity. . . . . . . . 9,022,000 6,093,000
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Milastar Corporation and Consolidated Subsidiaries
Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended April 30,
1998 1997 1996
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . 8,261,000 7,325,000 6,642,000
Cost of sales. . . . . . . . . . 5,719,000 5,414,000 5,036,000
Gross profit . . . . . . . . . . 2,542,000 1,911,000 1,606,000
Selling, general and
administrative expenses . . . . 1,851,000 1,795,000 1,754,000
Amortization of non-compete
agreements. . . . . . . . . . . 35,000 54,000 56,000
Operating income (loss). . . . . 656,000 62,000 (204,000)
Other income (expense):
Dividend and interest income. . 15,000 9,000 16,000
Interest expense. . . . . . . . (177,000) (142,000) (36,000)
Net gain on sale of
marketable securities. . . . . 45,000
Net gain (loss) on sale
of property and equipment. . . 4,000 (36,000) 15,000
Unrealized market loss on
building held for sale . . . . (43,000)
Total other income (expense) . . (158,000) (124,000) (48,000)
Income (loss) before
income taxes. . . . . . . . . . 498,000 (62,000) (252,000)
Income tax expense . . . . . . . 14,000 1,000 2,000
Net income (loss). . . . . . . . 484,000 (63,000) (254,000)
Net income (loss) per Class A
common share - basic. . . . . . .18 (.02) (.09)
Net income (loss) per Class A
common share - diluted. . . . . .17 (.02) (.09)
</TABLE>
<TABLE>
<CAPTION>
Milastar Corporation and Consolidated Subsidiaries
Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended April 30,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss). . . . . . . 484,000 (63,000) (254,000)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation and
amortization . . . . . . . . 718,000 666,000 535,000
Net loss (gain) on disposal
of property and equipment. . (4,000) 79,000 (15,000)
Net loss (gain) on
marketable securities. . . . (45,000)
Unrealized market loss
(gain) on building held
for sale . . . . . . . . . . (43,000) 43,000
Changes in operating assets
and liabilities, net of
effect of the purchase of
the net assets of a business:
Accounts and other
receivables. . . . . . . . . 78,000 (194,000) 269,000
Inventory . . . . . . . . . . 32,000 39,000 (32,000)
Prepaid supplies and other. . 14,000 29,000 77,000
Accounts payable and
accrued expenses . . . . . . (538,000) (22,000) (140,000)
Income taxes payable. . . . . 114,000
Net cash provided by
operating activities. . . . . . 784,000 560,000 483,000
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property, plant
and equipment, net of effect
of the purchase of the net
assets of a business. . . . . (656,000) (1,133,000) (962,000)
Proceeds from disposal of
property, plant and
equipment . . . . . . . . . . 24,000 253,000 52,000
Proceeds from sale of
marketable securities and
other investments . . . . . . 49,000
Deposits made for equipment. . (279,000)
Payment for purchase of net
assets of a business. . . . . (174,000) (731,000)
Net cash used in investing
activities. . . . . . . . . . . (1,085,000) (831,000) (1,641,000)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from bank line
of credit borrowing . . . . . 60,000
Repayments on bank line
of credit . . . . . . . . . . (60,000)
Principal payments of
long-term debt. . . . . . . . (317,000) (200,000) (67,000)
Proceeds from issuance of
long-term debt, net of effect
of the purchase of the net
assets of a business. . . . . 776,000 564,000 1,018,000
Proceeds from issuance of
note payable - stockholder . 6,000 100,000
Repayments on note
payable - stockholder. . . . (65,000) (112,000) (174,000)
Net cash provided by
financing activities. . . . . . 394,000 198,000 937,000
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS. . 93,000 (73,000) (221,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR . . . . . . . 71,000 144,000 365,000
CASH AND CASH EQUIVALENTS,
END OF YEAR . . . . . . . . . . 164,000 71,000 144,000
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest. . . . . . . . . . . 181,000 189,000 7,000
Income taxes. . . . . . . . . 14,000 5,000 2,000
</TABLE>
<TABLE>
<CAPTION>
Milastar Corporation and Consolidated Subsidiaries
Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Fiscal Years Ended April 30, 1998, 1997 and 1996
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, 1995 . 2,738,264 137,000 (20,000) 20,000 1,666,000 2,062,000
Unrealized
holding gains
on marketable
equity
securities . . . 16,000
Net loss
for 1996 . . . . (254,000)
Balance,
April 30, 1996 . 2,738,264 137,000 (20,000) 36,000 1,666,000 1,808,000
Unrealized
holding gains
on marketable
equity
securities . . . (36,000)
Net loss
for 1997 . . . . (63,000)
Balance,
April 30, 1997 . 2,738,264 137,000 (20,000) 0 1,666,000 1,745,000
Net income
for 1998 . . . . 484,000
Balance,
April 30, 1998 . 2,738,264 137,000 (20,000) 0 1,666,000 2,229,000
</TABLE>
Milastar Corporation and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business - Milastar Corporation ("Milastar" and
sometimes the "Company") sells special metallurgical services to a
diversified list of manufacturers primarily located in the greater Midwest
and New England regions. The menu of special processing services
performed include metallurgical engineering, heat treating, brazing and
surface finishing. The Company extends credit to many of its
customers.
Principles of consolidation - The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiary, Flame Metals Processing Corporation ("Flame Metals") and Flame
Metals' wholly owned subsidiary New England Metal Treating 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 - The Company accounts for marketable
securities under 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.
Inventory - Inventory is valued at the lower of cost or market
utilizing costing methods that approximate the First-In-First-Out (FIFO)
method.
Prepaid supplies - Prepaid supplies are 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 to 40 years
Equipment . . . . . . . . . . . 5 to 12 years
Vehicles. . . . . . . . . . . . 3 to 5 years
Other assets - Other assets are comprised of one four-year non-
compete agreement which is being amortized over 48 months using the
straight-line method and one five-year non-compete agreement which is
being amortized over 60 months using the straight-line method.
Income taxes - The Company accounts for income taxes under
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement 109). Statement 109 requires the use of 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.
Accounting 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 the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fair value of financial instruments - The Company's financial
instruments are recorded on its balance sheet. The carrying amount for
cash, accounts receivable, accounts payable, and accrued expenses
approximates fair value due to the immediate or short-term maturity of
these financial instruments. The fair value of notes receivable and notes
payable approximate their carrying value.
Impairment of long-lived assets and long-lived assets to be
disposed of - The Company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-lived Assets and the Long-lived
Assets to be Disposed Of (SFAS No. 121), on May 1, 1996. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
Stock-based compensation - The Company adopted, on May 1,
1996, SFAS No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and provide certain pro
forma information. APB Opinion No. 25 requires that compensation
expense be recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Earnings per share - In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, Earnings Per Share, which
simplifies the standards for computing earnings per share. SFAS No.
128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share, which excludes dilution. SFAS
No. 128 also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with complex
capital structures, and requires a reconciliation. Diluted earnings per
share is computed similarly to fully diluted earnings per share pursuant
to APB No. 15. SFAS No. 128 was required for financial statements
issued for periods ended after December 15, 1997, including interim
periods; earlier application was not permitted. The Company adopted
SFAS No. 128 during the fiscal year ended April 30, 1998. SFAS No.
128 requires restatement of all prior-period earnings-per-share data
presented.
2 ACQUISITION
On March 16, 1998, the Company acquired certain assets and
assumed certain liabilities from Twin City Steel Treating, Inc. (TCST),
a commercial heat treater, located in Rogers, Minnesota. This
acquisition was accounted for using the purchase method and,
accordingly, the aggregate acquisition costs have been allocated to the
net assets acquired based on the fair values of such assets and liabilities
at the acquisition date. The operating results of this additional plant
location have been included in the Company's statement of operations
for fiscal 1998 from the acquisition date forward.
The Company paid $174,000 in cash and issued a note payable to
the former owner of TCST for the remainder of the purchase price.
The assets acquired and liabilities assumed consist of the
following:
Accounts and other receivables $ 266,000
Property, plant and equipment 2,052,000
Non-compete agreement 446,000
Accounts payable (516,000)
Long-term debt (1,620,000)
Total $ 628,000
The operating results of this acquisition are included in the
Company's consolidated results of operations from the date of
acquisition. The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisition had occurred at the
beginning of fiscal 1997, after giving effect to certain adjustments,
including amortization of goodwill, interest expense on the acquisition
debt and related tax effects. These unaudited pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made
as of those dates or of results which may occur in the future.
Fiscal 1998 Fiscal 1997
Net sales $ 10,092,000 $ 9,248,000
Net income 737,000 111,000
Net income per common share - basic .27 .04
Net income per common share - diluted $ .25 .04
3 LONG-TERM DEBT
Long-term debt consisted of the following at April 30:
1998 1997
Amount due under loan agreement
with Phoenixcor Inc., payable in
monthly installments of varying
amounts, including interest at
10.3% through October, 2000 $ 710,000 $ 834,000
Amount due under loan agreement
with Paul J. Ricard as part of the
purchase of NEMT, payable in annual
installments of $50,000, without
interest through January, 2000 200,000 200,000
Amount due under loan agreement
with First Mass Bank as part of the
purchase of NEMT, payable in monthly
installments of $9,926,including
interest at 8.85% through April, 2000 218,000 313,000
Amount due under loan agreement
with TCF National Bank as part of
the purchase of TCST, payable in
monthly installments of $21,896,
including interest at 8.2% through
March, 2003 1,042,000
Amount due under loan agreement
with TCF National Bank as part of
the purchase of TCST, payable in
monthly installments of $5,891
including interest at 9.4% through
May, 2017 626,000
Amount due under loan agreement
with the Small Business
Administration, facilitated by
TCF National Bank, as part of the
purchase of TCST, payable in monthly
installments of $4,321 including
interest at 7.4% through December, 2016 507,000
Amount due under loan agreement with
Marvin Schendel as part of the
purchase of TCST, payable in monthly
installments of $10,000, including
interest at 8.0% through September, 2002 438,000
Capital lease obligations, secured by
specific equipment 205,000 67,000
3,946,000 1,414,000
Less current maturities (774,000) (342,000)
Total long-term debt $ 3,172,000 $ 1,072,000
One loan agreement contains covenants which, among other
things, require the Company to maintain a minimum level of tangible net worth
and other financial ratios. The Company was not in compliance with the cash
flow coverage ratio as of April 30, 1998. The Company received a letter from
the bank that waived the default as of April 30, 1998.
Maturities of long-term debt and capitalized lease obligations
for each of the five years following April 30, 1998 are as follows:
1999 $ 774,000
2000 750,000
2001 744,000
2002 419,000
2003 and thereafter 1,259,000
Total obligations $ 3,946,000
Total interest expense incurred on long-term debt and
capitalized lease obligations for the years ended April 30, 1998, 1997
and 1996 amounted to $158,000, $120,000 and $12,000, respectively.
4 INCOME TAXES
Income tax expense attributable to net income (loss) from
operations consists of:
Current Deferred Total
Year ended April 30, 1998:
U.S. Federal $ 7,000 $ - $ 7,000
State and local 7,000 - 7,000
Total $ 14,000 $ - $ 14,000
Year ended April 30, 1997:
U.S. Federal $ - $ - $ -
State and local 1,000 - 1,000
Total $ 1,000 $ - $ 1,000
Year ended April 30, 1996:
U.S. Federal $ - $ - $ -
State and local
2,000 - 2,000
Total $ 2,000 $ - $ 2,000
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:
1998 1997 1996
Computed expected tax expense
(benefit) at 34% $ 169,600 $ (21,200) $ (85,000)
State taxes, net of federal
effect (1,500) 700 1,000
Dividends received deduction - - (300)
Increase (decrease) in valuation
allowance (323,900) 15,000 95,900
Adjustments to prior year timing
differences 161,400 - -
Adjustment to net operating loss
carryforward - 10,000 (16,000)
Other net 8,400 (3,500) 6,400
$ 14,000 $ 1,000 $ 2,000
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets (liabilities) at
April 30, 1998 and 1997 are as follows:
1998 1998 1997 1997
Current Non-current Current Non-current
Allowance for doubtful
accounts $ 19,400 $ - $ 14,000 $ -
Accrued vacation pay 13,500 - 38,300 -
Accrued legal fees 19,400 - - -
Differences in tax and
book depreciation of
plant and equipment - (530,300) - (404,300)
Differences in tax and
book amortization of
intangibles - 22,800 - -
Differences in tax and
book treatment of
prepaid supplies - (11,300) (11,600) (11,600)
Foreign tax credit
carryforward - 16,600 - 16,600
Alternative minimum tax
credit carry forwards - 73,500 - 74,200
State net operating loss
carryforward - 284,500 - 306,300
Federal net operating loss
carryforwards, net of state
net operating loss impact - 385,200 - 813,500
Capital loss carryover - 216,100 - -
Other - - (17,300) 15,200
Total gross deferred tax asset 52,300 457,100 23,400 809,900
Less valuation allowance (52,300) (457,100) (23,400) (809,900)
Net deferred tax asset $ - $ - $ - $ -
A reconciliation of the valuation allowance for deferred taxes
is as follows:
1998 1997
Valuation allowance at beginning of year $ 833,300 $ 818,300
Increase (decrease) in allowance (323,900) 15,000
Valuation allowance at end of year $ 509,400 $ 833,300
At April 30, 1998, the Company has net operating loss carry
forwards for federal purposes of $1,400,000 which are available to offset
future federal taxable income, if any, and expire between April 30, 2007
and April 30, 2012. The Company also has net operating loss carry
forwards for state purposes of $3,500,000 which are available to offset
future state taxable income, if any, and expire between April 30, 2007
and April 30, 2013. The Company also has federal and state alternative
minimum tax credit carry forwards of approximately $73,500 which are
available to reduce future federal and state regular income taxes, if any,
over an indefinite period. In addition the Company also has foreign tax
credit carry forwards of approximately $16,600 which are available to
reduce future foreign income taxes, if any, which began to expire in
1997.
On March 8, 1996, the Company filed Form 1139 "Corporate
Application for Tentative Refund," to carry back losses under Section
172(f) of the Internal Revenue Code, for a refund amount of $146,300.
The Company was notified in April 1996 that the IRS had allowed the
carryback loss and it received a refund in June 1996. Section 172(f) is
an area of the tax law without substantial legal precedent or guidance.
Accordingly, assurances cannot be made as to whether the IRS would
later challenge the Company's entitlement to such refund.
Consequently, a reserve of $118,000 has been recorded in the amount
of the refund net of the collection expenses which will be reimbursed if
the Company's position does not withstand any such challenge and the
refund is reversed.
5 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. Duncan's 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.
6 STOCK OPTION PLAN
In accordance with the Milastar Corporation Stock Option Plan
(the "Option Plan") options to purchase 400,000 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 1998, 1997 and 1996 are as follows:
1998 1997 1996
Options outstanding May 1 273,666 273,666 156,666
Granted 95,000 230,333
Exercised
Canceled 113,333
Options outstanding at April 30 368,666 273,666 273,666
Weighted average exercise
price at April 30 $ .6380 $ .6640 $ .6640
Option price range at April 30 $ .5625 $ .5625 $ .5625
to to to
.9609 .9609 .9609
Options exercisable at April 30 368,666 273,666 273,666
Options available for grant
at April 30
The Company has adopted the disclosure-only provisions of SFAS
No. 123, Accounting for Stock-Based Compensation. Accordingly, no
compensation cost has been recognized with respect to the Option Plan.
Had compensation cost for the Option Plan been determined based on the
fair value methodology prescribed by SFAS 123, the Company's
earnings per share would have been reduced to the pro forma amounts
indicated below:
1998 1997 1996
Net income (loss) - as reported $ 484,000 $ (63,000) $ (254,000)
Net income (loss) - pro forma $ 464,000 $ (63,000) $ (299,000)
Net income (loss) per
share - basic - as reported $ .18 $ (.02) $ (.09)
Net income (loss) per
share - basic - pro forma $ .17 $ (.02) $ (.10)
The pro forma amounts may not be representative of the effects
on reported net incone (loss) for future years. The per share,
weighted-average fair value of each option granted during 1998 was $0.53 on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in the following years:
1998 1997 1996
Dividend yield 0% 0% 0%
Expected volatility 59% 0% 67%
Risk-free interest rate 6.0% 0% 6.0%
Expected lives 5 years 0 years 5 years
At April 30, 1998, the weighted average remaining contractual
life of the outstanding options was 5.5 years.
7 RELATED PARTY TRANSACTIONS
Notes Receivable
The Company entered into a note during fiscal 1993 with 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 that was originally due on August 15, 1995
has been extended until August 15, 1999. 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 this note for the fiscal
years ended April 30, 1998, 1997 and 1996 amounted to $3,000, $2,000
and $2,000, respectively.
Notes Payable
During fiscal 1995 the Company entered into a series of note
payable transactions which at April 30, 1998 had a balance of $0,
including accrued interest, payable to J. Russell Duncan, Chairman of
the Board and a director of the Company. The notes bore an interest
rate of 8% and were payable on demand. The Company classified the
notes payable as a current liability. Total interest expense related to this
note payable for the fiscal years ended April 30, 1998, 1997 and 1996
was $5,000, $13,000 and $23,000, respectively.
During fiscal 1996 the Company entered into a $100,000 note
payable to L. Michael McGurk, President, Chief Operating Officer and
a director of the Company. The note bears an interest rate of 8.7% and
is payable on demand. The Company classifies the note payable as a
current liability. Total interest expense related to this note payable for
the fiscal years ended April 30, 1998, 1997 and 1996 was $9,000,
$9,000 and $1,000, respectively.
8 INCOME (LOSS) PER COMMON SHARE
The following table presents a reconciliation of the
denominators used in the computation of income (loss) per
common share - basic and income (loss) per common share - diluted
for the years ended April 30, 1998, 1997 and 1996:
1998 1997 1996
Weighted shares of Class A
Stock outstanding - basic 2,738,264 2,738,264 2,738,264
Weighted shares of Class A
Stock assumed upon exercise
of stock options 196,941
Weighted shares of Class A
Stock outstanding - diluted 2,935,205 2,738,264 2,738,264
For fiscal years 1997 and 1996, stock options were excluded
from the above calculation due to their anti-dilutive effect.
9 OPERATING LEASE COMMITMENTS
Leased property is comprised of Company automobiles, plant
equipment and two buildings. The buildings represent the majority of
future minimum rental payments. The leases are renewable and
provides for the Company to pay all real estate taxes and maintenance
expenses.
Future minimum rental payments under noncancellable operating
leases, excluding real estate taxes, are as follows:
1999 $ 155,000
2000 152,000
2001 144,000
2002 64,000
2003 12,000
Thereafter 7,000
$ 534,000
Total rent expense, excluding real estate taxes, for the
fiscal years ended April 30, 1998, 1997 and 1996 was $203,000, $207,000 and
$161,000, respectively.
10 COMMITMENTS AND CONTINGENCIES
The Company has been party to various legal proceedings
incidental to its normal operating activities. Although it is impossible
to predict the outcome of such proceedings, management believes, based on
the facts currently available, that none of such claims will result in
losses that would have a materially adverse effect on the Company's financial
condition.
At April 30, 1998, the Company had commitments outstanding to
purchase production equipment of approximately $500,000.
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
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 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 7. 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:
Page No.
1. Financial Statements
Auditors' Report 8
Consolidated Balance Sheets at April 30, 1998 and 1997 9 - 10
Consolidated Statements of Operations for
the three years ended April 30, 1998 11
Consolidated Statements of Cash Flows for
the three years ended April 30, 1998 12
Consolidated Statements of Changes in
Stockholders' Equity for the
three years ended April 30, 1998 13
Notes to Consolidated Financial Statements 14 - 22
2. Financial Statement Schedules
Schedule VIII-Valuation and Qualifying Accounts 25
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 24
Milastar Corporation and Consolidated Subsidiaries
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 3.2
to Registrant's Form 10-K dated for the fiscal year ended
April 30, 1998 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 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
10.2 Asset Purchase Agreement dated as of April 4, 1996, between
Registrant and New England Metal Treating Inc., a copy of
which was filed as Exhibit 10.10 to the Registrant's Current
Report on Form 8-K dated April 17, 1996 and, by this
reference, such Exhibit is incorporated herein
10.3 Executive Employment Agreement dated as of April 30, 1997
by and between Registrant and L. Michael McGurk
10.4 Executive Employment Agreement dated as of April 30, 1997
by and between Registrant and J. Russell Duncan
10.5 Asset Purchase Agreement dated as of March 16, 1998,
between Registrant and Twin City Steel Treating Inc., a copy
of which was filed as Exhibit 10.5 to the Registrant's Current
Report on Form 8-K dated March 27, 1998 and, by this
reference, such Exhibit is incorporated herein
21.1 List of Significant Subsidiaries
Subsidiary State ofIncorporation
Flame Metals Processing Corporation Delaware
New England Metal Treating Corporation Massachusetts
(b) Reports on Form 8-K:
Form 8-K dated March 27, 1998 reporting the asset
purchase of Twin City Steel, Inc. and, by this reference,
incorporated herein.
Milastar Corporation and Consolidated Subsidiaries
Schedule VIII
VALUATION AND QUALIFYING ACCOUNTS
Balance Balance
at beginning at end
of year Additions Deductions (1) of year
Allowance for doubtful accounts:
April 30, 1998 $ 35,000 $ 21,000 $ 6,000 $ 50,000
April 30, 1997 $ 37,000 $ 8,000 $ 10,000 $ 35,000
April 30, 1996 $ 26,000 $ 24,000 $ 13,000 $ 37,000
(1) Direct write-off of accounts deemed uncollectible.
Milastar Corporation and Consolidated Subsidiaries
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, hereunto duly authorized.
MILASTAR CORPORATION
(REGISTRANT)
By: /s/ J. RUSSELL DUNCAN
J. Russell Duncan
Chairman of the Board
Dated: July 29, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities indicated
this report of the Registrant and in the capacities indicated on
July 24, 1998.
/s/ J. RUSSELL DUNCAN /s/ L. MICHAEL McGURK
J. Russell Duncan, L. Michael McGurk
Chairman of the Board, Chief Executive President, Chief Operating Officer
Officer and Director and Director
/s/ DENNIS J. STEVERMER /s/ LANCE H. DUNCAN
Dennis J. Stevermer Lance H. Duncan
Vice President Treasurer,
Principal Financial Secretary and Director
and Accounting Officer
Exhibit 3.2
RESTATED BYLAWS
OF
MILASTAR CORPORATION
ARTICLE I
OFFICES
SECTION l. REGISTERED OFFICE. The registered
office shall be established and maintained at the office of The
Corporation Trust Company, in the City of Wilmington, in the
County of New Castle, in the State of Delaware, and said
corporation shall be the registered agent of this corporation.
SECTION 2. OTHER OFFICES. The corporation may
have other offices, either within or without the State of Delaware at
such place or places as the Board of Directors may from time-to-
time appoint or the business of the corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION l. MEETINGS. All meetings of stockholders,
including annual meetings for the election of directors shall be held
at such time, and on such date and at such place, either within or
without the State of Delaware, as shall be determined by the
Chairman of the Board or the Board of Directors, acting pursuant
to Section 4 of this Article II. In the event the Chairman of the
Board or the Board of Directors fails to so determine the time, date
and place of meeting the annual meeting of stockholders shall be
held at the registered office of the corporation in Delaware at the
hour of eleven thirty o'clock A.M., on the second Thursday in
August of each year. If the date of the annual meeting shall fall
upon a legal holiday, the meeting shall be held on the next
succeeding business day. At each annual meeting, the stockholders
entitled to vote shall elect a Board of Directors and may transact
such other business as may properly come before the meeting. In
lieu of holding an annual meeting, the Chairman of the Board or
the Board of Directors may allow a written consent that meets the
requirements of Section 228 of the Delaware General Corporation
Law to serve as the meeting.
SECTION 2. VOTING. Except as otherwise required by
the Certificate of Incorporation, each stockholder at every meeting
of stockholders shall be entitled to one vote for each share of the
capital stock of the corporation held by such stockholder. Except
as otherwise required by the laws of the State of Delaware or by
the Certificate of Incorporation, all matters submitted to a vote at
all meetings of stockholders shall be decided by a majority vote.
SECTION 3. QUORUM. Except as otherwise required by
the laws of the State of Delaware, or by the Certificate of
Incorporation, the presence in person, or by proxy of stockholders
having the right to cast a majority of the votes upon the matters to
be acted upon at any meeting of stockholders, shall constitute a
quorum for such meeting. In case a quorum shall not be present at
any meeting, the officer entitled to preside at such meeting shall
have the power to adjourn the meeting by announcing that such
meeting has been adjourned to another specified time, date and
place.
SECTION 4. CALL OF MEETINGS. Except as otherwise
required by the laws of the State of Delaware or the Certificate of
Incorporation, either the Chairman of the Board, by written notice
to the Secretary, or the Board of Directors, by resolution, shall have
the power to call special meetings of the stockholders and shall
have the power to determine that the annual meeting of
stockholders shall be held at a time, on a date, or at a place other
than the time, date and place specified in Section l of this Article
II. Any such notice or resolution shall state the time, date, place
and purpose or purposes of the meeting.
SECTION 5. NOTICES OF MEETINGS. Except as
otherwise required by the laws of the State of Delaware or the
Certificate of Incorporation, the Secretary shall give written notice
of the annual or any special meetings to the holders of the
Common Stock of the corporation not less than ten nor more than
fifty days before the date of a meeting, which notice shall specify
the time, date and place of the meeting and the purpose or purposes
for which the meeting is being held.
ARTICLE III
DIRECTORS
SECTION l. NUMBER. The number of directors which
shall constitute the whole board shall initially be four, but such
number may be increased or decreased, from time to time, by
resolution of the Board of Directors, to not less than three nor more
than seven.
SECTION 2. REMOVAL. Any director or directors may
be removed either for or without, cause at any time by the
affirmative vote of that number of directors which constitutes a
majority of the then whole Board of Directors.
SECTION 3. VACANCIES. Vacancies on the board, and
newly created directorships resulting from any increase in the
authorized number of directors, may be filled by the affirmative
vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director.
SECTION 4. POWERS. The Board of Directors shall
exercise all of the powers of the corporation except such as are by
law, or by the Certificate of Incorporation of the corporation or by
these Bylaws conferred upon or reserved to the stockholders.
SECTION 5. COMMITTEES. The Board of Directors
may, by resolution or resolutions passed by a majority of the whole
board, designate one or more committees, each committee to
consist of two or more of the directors of the corporation. The
board may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to
the extent provided in the resolution, shall have and may exercise
the powers of the Board of Directors in the management of the
business and affairs of the corporation.
SECTION 6. MEETINGS. If a quorum shall be present, a
newly elected Board of Directors may hold its first meeting,
without notice, immediately after the annual meeting of
stockholders. Regular meetings of the Board of Directors may be
held, without notice, at such Places and times as shall be
determined, from time to time, by resolution of the Board of
Directors. Special meetings of the Board of Directors may be
called by the Chairman of the Board and shall be called by the
Chairman of the Board or Secretary on the written request of any
two directors. Notice of the date, time and place of each special
meeting of the Board of Directors shall be mailed to each director
at least two (2) days prior to the meeting; or if notice is delivered
by telephone, telegraph, fax, or by electronic mail ("E-Mail") or in
person, at least twenty-four (24) hours prior thereto; provided that
no notice of any meeting need be given to any director while the
director is in the Armed Forces of the United States. Unless
required by law, the notice need not state the purpose of the
meeting. No notice is required if the meeting has been announced
at a previous meeting.
SECTION 7. QUORUM. A majority of the directors shall
constitute a quorum for the transaction of business. If at any
meeting of the board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to
time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be
so adjourned.
SECTION 8. ACTION WITHOUT MEETING. Any
action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken
without a meeting if all of the members of the board or committee,
as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the board
or committee.
ARTICLE IV
OFFICERS
SECTION l. OFFICERS. The officers of the corporation
shall be a Chairman of the Board, a President, a Secretary and a
Treasurer, all of whom shall be elected by the Board of Directors
and who shall hold office until their successors are elected or
qualified. In addition, the Board of Directors may elect one or
more Vice Presidents and such Assistant Secretaries and Assistant
Treasurers as they may deem proper. The Chairman of the Board
and President shall be a director, but none of the other officers of
the corporation need be directors. The officers shall be elected at
the first meeting of the Board of Directors after each annual
meeting. Two or more offices may be held by the same person.
SECTION 2. CHAIRMAN OF THE BOARD. The
Chairman of the Board shall be the chief executive officer of the
corporation and shall be responsible for formulating general
policies and programs for the corporation for submission to the
Board of Directors, and for carrying out the programs and policies
approved by the Board of Directors. The Chairman of the Board
shall preside at all meetings of the stockholders and of the Board of
Directors at which he shall be present and he shall be, ex officio, a
member of all standing committees. He shall supervise the
activities of the President, and, in the absence or disability of the
President, or in the event that for any reason it is impracticable for
the President to act personally he shall have the powers and duties
of the President. The Chairman shall have the power to sign and
execute in the name of the corporation all bonds, deeds, mortgages,
leases and other contracts and instruments, except in any case
where the signing and execution thereof has been delegated to
some other officer or agent of the corporation. The Chairman of the
Board shall also have such other powers and duties as shall be
assigned to him by the Board of Directors.
SECTION 3. PRESIDENT. The President shall be the
chief administrative officer of the corporation and shall have
general supervision over the business and operations of the
corporation. He shall have the power to sign and execute in the
name of the corporation all bonds, deeds, mortgages, leases and
other contracts and instruments. In the absence or disability of the
Chairman of the Board, or in the event that for any reason it is
impracticable for the Chairman to act personally, the President
shall have the powers and duties of the Chairman, including the
responsibility to preside at all meetings of stockholders and of the
Board of Directors in the absence of the Chairman of the Board. In
the performance of all of the duties hereunder, the President shall
be subject to the supervision of, and shall report to, the Chairman
of the Board. The President shall also have such other powers and
duties as shall be assigned to him by the Chairman of the Board or
the Board of Directors.
SECTION 4. VICE PRESIDENTS. The Vice Presidents
shall have the power to sign and execute in the name of the
corporation all bonds, deeds, mortgages, leases and other contracts
and instruments. The Vice Presidents shall also have such other
powers and duties as shall be assigned to them by the Chairman of
the Board, the President or the Board of Directors, and they shall
be subject to the supervision of, and shall report to, the Chairman
of the Board and the President.
SECTION 5. THE SECRETARY. The Secretary shall
give, or cause to be given, notice of all meetings of stockholders
and directors, and all other notices required by law or by these
Bylaws. He shall record all the proceedings of the meetings of the
corporation and of the directors in a proper corporate minute book.
He shall also perform such other duties as may be assigned to him
by the Chairman of the Board, the President or the Board of
Directors.
SECTION 6. ASSISTANT SECRETARIES. An Assistant
Secretary (or in the event there be more than one Assistant
Secretary, the Assistant Secretaries in the order designated by the
Board of Directors, or in the absence of any designation, then in
the order of their election) shall in the absence of the Secretary, or
in the event that for any reason it is impracticable for the Secretary
to act, shall have the powers and the duties of the Secretary.
SECTION 7. TREASURER. The Treasurer shall be the
chief financial officer of the corporation. He shall have the
custody of the corporate funds and securities and shall keep full
and accurate account of receipts and disbursements in books
belonging to the corporation. He shall deposit all monies and other
valuables in the name and to the credit of the corporation as may be
ordered by the Board of Directors, or the President, taking proper
vouchers for such disbursements. He shall render to the President
and Board of Directors at the regular meetings of the Board of
Directors, or whenever they may request it, an account of all his
transactions as Treasurer and of the financial condition of the
corporations. If required by the Board of Directors, he shall give
the corporation a bond for the faithful discharge of his duties in
such amount and with such surety as the Board shall prescribe.
The Treasurer shall also perform such other duties as may be
assigned to him by the Chairman of the Board, the President or the
Board of Directors.
SECTION 8. CONTROLLER. The Controller shall be the
chief accounting officer of the corporation and shall have general
supervision over the keeping of the books of account and other
financial records of the corporation. In the performance of all the
duties hereunder, the Controller shall be subject to the supervision
of, and shall report to, the President and the Treasurer. The
Controller shall also have such other powers and duties as shall be
assigned to him by the Chairman of the Board, President and
Treasurer.
SECTION 9. ASSISTANT TREASURERS. The Assistant
Treasurer (or in the event there be more than one Assistant
Treasurer, the Assistant Treasurers in the order designated by the
Board of Directors, or in the absence of any designation, then in
the order of their election) shall in the absence of the Treasurer, or
in the event that for any reason it is impracticable for the Treasurer
to act, shall have the powers and the duties of the Treasurer.
ARTICLE V
INDEMNIFICATION
SECTION 1. The corporation shall have the right to
indemnify any director, officer, employee or agent of the
corporation to the fullest extent permitted by law. Without limiting
the foregoing, the following provisions shall also be applicable.
SECTION 2. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact
that the person is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the
person in connection with such action suit or proceeding if the
person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe the person's conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendre or its equivalent, shall not, of itself create a presumption
that the person did not act in good faith and in a manner which the
person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
SECTION 3. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in it favor by reason of the
fact that the person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to
the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of the
person's duty to the corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
SECTION 4. To the extent that a director, officer,
employee or agent of the corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding
referred to in Sections l and 2, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
SECTION 5. Any indemnification under Sections 2 and 3
(unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that
indemnification of the director officer, employee, or agent is proper
in the circumstances because the person has met the applicable
standard of conduct set forth in Sections 2 and 3. Such
determination shall be made (l) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if so directed by a
majority vote of a quorum of directors whether or not such quorum
consists of directors who were not parties to such action, suit or
proceeding), by independent legal counsel in a written opinion, or
(3) by the stockholders.
SECTION 6. Expenses (including attorneys' fees) incurred
by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be
paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such
amount unless it shall ultimately be determined that such person is
entitled to be indemnified by the corporation as authorized in this
Article V. Such expenses (including attorneys' fees) incurred by
other employees and agents may be paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
SECTION 7. The indemnification and advancement of
expenses provided by this Article V shall not be exclusive of any
other rights of indemnification, whether existing at the time of the
adoption of this Article V or hereafter, to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in official
capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to he a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person. Each
person who is or becomes a director, officer, employee or agent as
aforesaid shall be deemed to have served or to have continued to
serve in such capacity in reliance upon the indemnity herein
provided for in this Article V.
SECTION 8. The directors may authorize the purchase and
maintenance of insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any capacity, or
arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person
against such liability under the provisions of this Article V or
otherwise.
SECTION 9. For purposes of this Article V, references to
"the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under this section with respect to the resulting or surviving
corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
SECTION 10. For purposes of this Article V, references to
"other enterprises" shall include employee benefits; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith
and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of any employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in
this section.
ARTICLE VI
MISCELLANEOUS
SECTION l. CERTIFICATES OF STOCK. Certificates of
stock, signed by the Chairman of the Board, President or any Vice
President, and the Treasurer or an Assistant Treasurer, or Secretary
or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation;
the signatures of such officers may be facsimiles. When such
certificates are countersigned (l) by a transfer agent other than the
corporation or its employee, or, (2) by a registrar other than the
corporation or its employee, the signatures of such agents may be
facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate
of stock may be issued in the place of any certificate theretofore
issued by the corporation, alleged to have been lost or destroyed,
and the directors may, in their discretion, require the owner of the
lost or destroyed certificate, or his legal representatives, to give the
corporation a bond, in such sum as they may direct, not exceeding
double the value of the stock, to indemnify the corporation against
any claim that may be made against it on account of the alleged
loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES. The shares of
stock of the corporation shall be transferable only upon its books
by holders thereof in person or by their duly authorized attorneys or
legal representatives, and upon such transfer the old certificates
shall be surrendered to the corporation by the delivery thereof to
the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued.
A record shall be made of each transfer and whenever a transfer
shall be made for collateral security and not absolutely, it shall be
so expressed in the entry of the transfer.
SECTION 4. DIVIDENDS. Subject to the provisions of
the Certificate of Incorporation, the Board of Directors may, out of
funds legally available therefore, at any regular or special meeting,
declare dividends upon the capital stock of the corporation as and
when they deem expedient.
SECTION 5. SEAL. The corporation shall not have a
corporate seal.
SECTION 6. FISCAL YEAR. The fiscal year of the
corporation shall be determined by resolution of the Board of
Directors.
SECTION 7. CHECKS All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation shall be signed by such
officer or officers, agent or agents of the corporation, and in such
manner as shall be determined from time-to-time by resolution of
the Board of Directors.
SECTION 8. NOTICE AND WAIVER OF NOTICE.
Whenever any notice is required by these Bylaws to be given,
personal notice is not meant unless expressly so stated, and any
notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears
on the records of the corporation, and such notice shall be deemed
to have been given on the day of such mailing. Stockholders not
entitled to vote shall not be entitled to receive notice of any
meetings except as otherwise required by the laws of the State of
Delaware.
Whenever any notice whatever is required to be given
under the provisions of any law, or under the provisions of the
Certificate of Incorporation or the corporation or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VII
AMENDMENTS
These Bylaws may be made, altered, amended or repealed
by resolution of the Board of Directors.
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<PERIOD-END> APR-30-1998
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<RECEIVABLES> 1,398,000
<ALLOWANCES> 50,000
<INVENTORY> 153,000
<CURRENT-ASSETS> 1,804,000
<PP&E> 10,212,000
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0
<COMMON> 137,000
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<OTHER-EXPENSES> (19,000)
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<INTEREST-EXPENSE> 177,000
<INCOME-PRETAX> 498,000
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 484,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 484,000
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
