SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended January 31, 2000
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.)
7317 West Lake Street, Minneapolis, MN 55426
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (612) 929-4774
Not Applicable
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
At January 31, 2000, 2,738,264 shares of common stock of the Registrant
were issued and outstanding.
MILASTAR CORPORATION AND SUBSIDIARIES
PART I
Item 1. Financial Statements
The condensed financial statements included herein have been
prepared by Milastar Corporation (the "Company") without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's annual report on Form 10-K for the fiscal
year ended April 30, 1999.
The condensed financial statements included herein, which are
unaudited, include, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly
the financial position and results of operations of the Company for the
periods presented.
<TABLE>
<CAPTION>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, April 30,
2000 1999
Current assets: <C> <C>
Cash and cash equivalents. . . . . . . . 84,000 19,000
Accounts receivable:
Trade, less allowance for doubtful
accounts of $45,000 at January 31,
2000 and $50,000 at April 30, 1999. . . 1,246,000 1,408,000
Other . . . . . . . . . . . . . . . . . 16,000 14,000
Inventory. . . . . . . . . . . . . . . . 157,000 167,000
Prepaid expenses and other . . . . . . . 179,000 159,000
Total current assets . . . . . . . . 1,682,000 1,767,000
Property, plant and equipment:
Land. . . . . . . . . . . . . . . . . . 420,000 420,000
Buildings and improvements. . . . . . . 2,153,000 2,145,000
Equipment . . . . . . . . . . . . . . . 8,682,000 8,314,000
11,255,000 10,879,000
Less accumulated depreciation. . . . . (4,620,000) (3,831,000)
6,635,000 7,048,000
Other assets:
Non-compete agreement, net of
accumulative amortization of
of $164,000 & $96,000 respectively . . 282,000 350,000
Total assets . . . . . . . . . . . . 8,599,000 9,165,000
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: <C> <C>
Notes payable to bank . . . . . . . . . 200,000 100,000
Current maturities of long-term debt . . 713,000 792,000
Accounts payable . . . . . . . . . . . . 305,000 321,000
Income taxes payable . . . . . . . . . . 118,000 121,000
Accrued payroll and benefits . . . . . . 265,000 332,000
Accrued real estate taxes. . . . . . . . 94,000 106,000
Other accrued liabilities. . . . . . . . 130,000 154,000
Total current liabilities. . . . . . 1,825,000 1,926,000
Long-term debt,
less current maturities . . . . . . . . 2,279,000 2,765,000
Total liabilities. . . . . . . . . . 4,104,000 4,691,000
Stockholders' equity:
Preferred stock, $1.00 par value;
authorized 5,000,000 shares, none
issued. . . . . . . . . . . . . . . . .
Common stock, $.05 par value;
authorized 7,500,000 shares, issued
and outstanding 2,728,264 shares at
January 31, 2000 and April 30, 1999 . . 137,000 137,000
Note receivable from officer . . . . . . (20,000) (20,000)
Additional paid-in capital . . . . . . . 1,666,000 1,666,000
Retained earnings. . . . . . . . . . . . 2,712,000 2,691,000
Total stockholders' equity. . . . . . 4,495,000 4,474,000
Total liabilities and
stockholders' equity . . . . . . . . 8,599,000 9,165,000
</TABLE>
<TABLE>
<CAPTION>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
January 31, January 31,
2000 1999 2000 1999
<C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . 2,194,000 2,040,000 6,684,000 6,783,000
Cost of Sales . . . . . . . . . . . . 1,612,000 1,459,000 4,978,000 4,748,000
Gross margin. . . . . . . . . . . . . 582,000 581,000 1,706,000 2,035,000
Selling general and administrative
expenses . . . . . . . . . . . . . . 469,000 472,000 1,394,000 1,399,000
Amortization of non-compete
agreements . . . . . . . . . . . . . 24,000 22,000 68,000 66,000
Operating income. . . . . . . . . . . 89,000 87,000 244,000 570,000
Other income (expense):
Dividend and interest income . . . . 2,000 1,000 2,000 6,000
Interest expense . . . . . . . . . . (81,000) (86,000) (219,000) (262,000)
Other . . . . . . . . . . 4,000 35,000
Total other expense . . . . . . . . . (79,000) (81,000) (217,000) (221,000)
Income before income taxes . . . . . 10,000 6,000 27,000 349,000
Provision for income taxes. . . . . 3,000 2,000 7,000 7,000
Net income . . . . . . . . . . 7,000 4,000 20,000 342,000
Net income per common share-basic . . .00 .00 .01 .12
Net income per common share-diluted . .00 .00 .01 .12
</TABLE>
<TABLE>
<CAPTION>
MILASTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended January 31,
(Unaudited)
2000 1999
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . 20,000 342,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization . . . . 858,000 736,000
Changes in operating assets and
liabilities:
Accounts and other receivables. . . . 160,000 142,000
Inventory . . . . . . . . . . . . . . 10,000 (37,000)
Prepaid supplies and other. . . . . . (20,000) (29,000)
Accounts payable and accrued
expenses . . . . . . . . . . . . . . (122,000) 95,000
Net cash provided by operating
activities . . . . . . . . . . . . . . 906,000 1,249,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment. . . . . . . . . . . . . (376,000) (1,180,000)
Net cash used in investing
activities . . . . . . . . . . . . . . (376,000) (1,180,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit . . . 100,000
Principal payments on long-term debt. . (565,000) (672,000)
Proceeds from issuance of
long-term debt . . . . . . . . . . . . 485,000
Net cash used in
financing activities . . . . . . . . . (465,000) (187,000)
NET INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . 65,000 (118,000)
CASH AND CASH EQUIVALENTS BALANCE
AT BEGINNING OF YEAR. . . . . . . . . . 19,000 164,000
CASH AND CASH EQUIVALENTS BALANCE
AT END OF THE THIRD QUARTER . . . . . . 84,000 46,000
Supplemental disclosures of cash flow information:
Cash paid during the first nine months for:
Interest . . . . . . . . . . . . . . . . 219,000 262,000
Income taxes . . . . . . . . . . . . . . 10,000 7,000
</TABLE>
MILASTAR CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of Milastar
Corporation (the "Company") reflect the financial position and
results of operations of the Company and its wholly owned
subsidiaries, after elimination of all material intercompany
transactions and balances.
The consolidated financial statements as of January 31,
2000 and for the three and nine month periods ended January 31,
2000 and January 31, 1999, included herein are unaudited and
have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principals have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. The interim financial
statements reflect all adjustments (consisting of normal
recurring accruals) that are, in the opinion of management,
necessary for a fair statement of the results for the interim
periods. These consolidated financial statements should be
read in conjunction with the consolidated financial statements
and the note thereto included in the Company's 1999 Annual
Report to Shareholders and incorporated by reference in the
Company's annual report on Form 10-K filed with the Securities
and Exchange Commission. The result of operations for the
interim period should not be considered indicative of the
results to be expected for the entire year.
2 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, 2000. 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 three and nine month periods ended
January 31, 2000 was $600 and $1,800, respectively.
3 INCOME TAXES
The Company has provided for current income taxes
on earnings at the appropriate statutory state and federal
rates applicable to such earnings, and any deviation is solely
the result of book/tax differences arising mainly from the
recognition of tax depreciation expense.
4 INCOME PER COMMON SHARE
The following table presents a reconciliation of
the denominators used in the computation of net income per
common share - basic and net income per common share - diluted
for the three and six month periods ended January 31, 2000,
respectively:
Three Months Ended Nine Months Ended
January 31,2000 January 31,2000
Weighted shares of Class A Stock
outstanding - basic. . . . . . . . 2,738,264 2,738,264
Weighted shares of Class A Stock
assumed upon exercise of stock
options. . . . . . . . . . . . . . 97,806 198,881
Weighted shares of Class A Stock
outstanding - diluted. . . . . . . 2,836,070 2,937,145
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months Ended January 31, 2000 as Compared with the
Three Months Ended January 31, 1999. The Company recorded sales
of $2,194,000 during the third quarter of fiscal year 2000 as
compared with $2,040,000 for the same period last year, a
$154,000 (8%) increase. The sales increase was primarily
attributable to a stronger economy for the heat treating
industry in both the Midwest and New England markets.
Cost of sales of $1,612,000 (73% of net sales) during the
third quarter of fiscal year 2000 increased $153,000 (10%) from
$1,459,000 (72% of net sales) for the same period a year
earlier. The increase was primarily attributable to additional
payroll and supply costs at the New England facility and
additional supply and depreciation costs in the Midwest. Gross
margin increased to $582,000 as compared with $581,000 for the
prior year third quarter. The slight increase was primarily
attributable to higher sales being offset by increased costs.
Selling, general and administrative (SG&A) expenses of
$469,000 (21% of net sales) decreased $3,000 from $472,000 (23%
of net sales) for the same period a year earlier. The small
change in SG&A expenses is due to the relatively fixed nature of
these costs.
The Company recorded operating income of $89,000 in the
third quarter of fiscal 2000 as compared with operating income
of $87,000 recorded in the prior year third quarter. The slight
increase in operating income in the third quarter of fiscal year
2000 is primarily attributable to higher sales being offset by
increased costs.
Total other expense amounted to $79,000 in the third
quarter of fiscal 2000 as compared with other expense of $81,000
in the third quarter of last year. Other expense in both third
quarters was primarily due to interest expense.
The Company recorded net income of $7,000 in the third
quarter of fiscal 2000 as compared with net income of $4,000 in
the prior year third quarter.
Nine Months Ended January 31, 2000 as Compared with the
Nine Months Ended January 31, 1999. The Company recorded sales
of $6,684,000 during the first nine months of fiscal year 2000
as compared with $6,783,000 for the same period last year, a
$99,000 (1%) decrease. The sales decrease was primarily
attributable to changes in the economy which resulted in lower
sales in the first two quarters being offset by stronger sales
in the third quarter.
Cost of sales of $4,978,000 (74% of net sales) during the
first nine months of fiscal year 2000 increased $230,000 (5%)
from $4,748,000 (70% of net sales) for the same period a year
earlier. The increase was primarily attributable to additional
payroll and supply costs at the New England facility which was
the result of increased production in that territory. Gross
margin decreased to $1,706,000 as compared with $2,035,000 for
the prior year nine months. The decrease was primarily
attributable to the increased costs in fiscal year 2000 noted
above and lower sales in the Midwest area.
Selling, general and administrative (SG&A) expenses of
$1,394,000 (21% of net sales) decreased $5,000 (0%) from
$1,399,000 (21% of net sales) for the same period a year
earlier. The small change in SG&A expenses is due to the
relatively fixed nature of these costs.
The Company recorded operating income of $244,000 in the
first nine months of fiscal 2000 as compared with operating
income of $570,000 recorded in the prior year nine months. The
decrease in operating income in the first nine months of fiscal
year 2000 is primarily attributable to lower sales and that both
cost of sales and SG&A expenses are relatively fixed.
Total other expense amounted to $217,000 in the first nine
months of fiscal 2000 as compared with other expense of $221,000
in the same period of last year. Other expense in both periods
was primarily due to interest expense.
The Company recorded net income of $20,000 in the first
nine months of fiscal 2000 as compared with net income of
$342,000 in the prior year nine months.
Liquidity and Capital Resources
At January 31, 2000, the Company had negative working
capital of $143,000 compared with $159,000 of negative working
capital at April 30, 1999 and the ratio of current assets to
current liabilities was 0.9 to 1.0 for both periods. Cash and
accounts receivables represented 79% (81% at April 30, 1999) and
15% (16% at April 30, 1999) of total current assets and total
assets, respectively. During the first nine months of fiscal
2000, net cash provided by operating activities amounted to
$906,000 compared to $1,249,000 provided by operating activities
in the first nine months of fiscal 1999. Working capital
requirements for the first nine months of fiscal 2000 was funded
primarily from available cash, cash generated from operations
and short-term borrowings under the line of credit.
The Company believes it has sufficient capital resources to
meet its fiscal 2000 operations and equipment acquisitions cash
flow requirements.
Market Risks
The Company is exposed to certain market risks with its
$500,000 line of credit of which $200,000 is outstanding at
January 31, 2000. The line bears interest at the bank's
reference rate plus .25%.
Year 2000
Management devoted resources throughout the company
to minimize the risk of potential disruption from year
2000 issues related to computers or other equipment with date-
sensitive software and embedded chip systems. There were no
disruptions that adversely impacted our operations and as such
there was no material impact to our financial position, results
of operations or cash flows.
Forward-Looking Statements
Certain statements contained in Management's Discussion and
Analysis and elsewhere in the 10-Q are forward-looking
statements. These statements may 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.
PART II
Items 1 thru 5
No response to these items is furnished, since in each case the
appropriate response would be either not applicable or none.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
MILASTAR CORPORATION AND SUBSIDIARIES
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this interim report to be signed on its
behalf by the undersigned, there unto duly authorized.
MILASTAR CORPORATION
/s/ J. RUSSELL DUNCAN /s/ DENNIS J. STEVERMER
J. Russell Duncan Dennis J. Stevermer
Chairman of the Board, Chief Executive Vice President Treasurer, Principal
Officer and Director Financial and Accounting Officer
Dated: March 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JAN-31-2000
<CASH> 84,000
<SECURITIES> 0
<RECEIVABLES> 1,307,000
<ALLOWANCES> 45,000
<INVENTORY> 157,000
<CURRENT-ASSETS> 1,682,000
<PP&E> 11,255,000
<DEPRECIATION> 4,620,000
<TOTAL-ASSETS> 8,599,000
<CURRENT-LIABILITIES> 1,825,000
<BONDS> 0
0
0
<COMMON> 137,000
<OTHER-SE> 4,358,000
<TOTAL-LIABILITY-AND-EQUITY> 8,599,000
<SALES> 2,194,000
<TOTAL-REVENUES> 2,194,000
<CGS> 1,612,000
<TOTAL-COSTS> 493,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,000
<INCOME-PRETAX> 10,000
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 7,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,000
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
