<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 31, 1995
MAGNETIC TECHNOLOGIES CORPORATION
Incorporated under Commission File No. IRS Employer
the laws of the 0-4277 Identification No.
State of Delaware 16-0961159
770 Linden Avenue, Rochester, New York 14625
(716) 385-8711
AMENDMENT TO FORM 8-K REPORT DATED MARCH 31, 1995
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
In April, 1993, Magnetic Technologies Corporation ("the Company")
entered into an agreement with the Cookson Group plc ("Cookson") of London,
England, in which the two corporations formed a new company, Magnetic
Technologies Europe Limited ("MTE"), to manufacture and sell precision
magnetic, electronic and mechanical devices in Europe. Headquartered in
Rochester, England, MTE was capitalized with $1,000,000, of which $750,000 was
contributed by Cookson for all of the voting "A" Shares and $250,000 was
contributed by the Company for all of the non-voting "B" Shares, constituting
a 25% interest.
Concurrent with the formation of MTE, the Company sold Cookson and MTE
a license for the use of the Company's technology in connection with the
manufacture of products to be sold in Europe and the Near East; Cookson paid
the Company $1,250,000; and the Company agreed to discontinue selling to the
European market (its export sales in the immediate preceding 12 months had
aggregated $2,200,000). At the closing of the transaction, Cookson also placed
a $1,040,000 order on behalf of itself and MTE for the Company to produce
manufacturing machinery and related software to be shipped to England.
In March, 1994 Cookson sold certain of its businesses to Calder Group
Limited ("Calder") and Calder's subsidiary, Magnet Applications Limited, became
the owner of all of MTE's voting "A" shares. A year later, Calder decided to
dispose of certain of its operations including MTE. On March 31, 1995, the
Company acquired all of the voting shares of MTE from Calder's subsidiary.
With the acquisition, the Company re-enters the European market through MTE,
its now wholly-owned subsidiary.
The purchase price paid by the Company for MTE's voting shares was
$492,007, payable $186,597 at the closing with the $305,410 balance to be paid
over 36 months. The purchase price was based upon an evaluation of MTE's
working capital plus its depreciated fixed assets as of February 28, 1995. The
Company utilized available cash for the acquisition. The Company estimates
that, in the third quarter of its current fiscal year, it will incur a $312,000
write-down of its investment in MTE to account for an impairment in asset
value. The acquisition will be accounted for under the purchase method.
MTE engages in the same business as the Company's traditional domestic
operations -- namely, the design and manufacture of precision magnetic
assemblies for office equipment manufacturers. In the two years since its
formation MTE has obtained business from the Company's prior customer in
Europe, as well as orders from new European customers. The Company anticipates
that MTE will reach a break-even level within a year.
After the closing, MTE adopted a revised Memorandum of Association and
Articles of Association establishing a single class of shares and containing
provisions to facilitate the Company's operation of the business from the
United States. Gordon H. McNeil, President and Chief Executive Officer of the
Company, became MTE's sole director and its President. MTE has fewer than ten
employees.
2
<PAGE> 3
ITEM 5. OTHER EVENTS.
On March 31, 1995, the Company closed its Austro Mold Group Florida
plant. The Company had been previously shifting business from that plant to
Austro Mold's Rochester, New York facility and had only three remaining
employees. The Company sold the machinery and equipment in the Florida plant
to a local business for $158,000, which price was close to the aggregate
depreciated book value of the assets sold.
On March 13, 1995, the Company refinanced all of its bank debt with
First National Bank of Rochester ("First National"). While the Company's
aggregate bank debt did not materially change, First National offered a lower
interest rate of 1/4% above prime than had the Company's prior bank. The First
National credit accommodation includes (a) a $2,000,000 revolving line of
credit which matures on March 1, 1997, but which the Company has an option to
then convert into a five-year term loan and (b) a $1,000,000 line of credit.
The Company granted a security interest in all of its assets to First National,
just as it had to its prior bank.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following audited financial statements of MTE are attached to and
filed as a part of this Amended Report:
i. As of, and for the year ended, December 31, 1993 (Exhibit 4).
ii. As of, and for the year ended, December 31, 1994 (Exhibit 5).
(b) The following unaudited pro forma financial information is filed as
a part of this Amended Report:
i. Twelve-month unaudited pro forma combined income statement
utilizing the Company's income statement for the year
ended July 31, 1994 and MTE's income statement for the twelve
months ended July 31, 1994.
ii. Unaudited pro forma combined balance sheet based upon the
Company's balance sheet at January 31, 1995 and MTE's balance
sheet at January 31, 1995.
iii. Six-month unaudited pro forma combined income statement
utilizing the Company's income statement for the six-month
period ended January 31, 1995 and MTE's income statement for
the six-month period ended January 31, 1995.
iv. Notes to unaudited pro forma combined financial statements.
3
<PAGE> 4
(c) The Exhibits previously filed with this Report are as follows (the
Exhibit Index follows):
Exhibit No. Description
----------- -----------
1 Share Purchase Agreement relative to the Company's
acquisition of Magnetic Technologies Europe
Limited
2 Revised Memorandum of Association and Articles of
Association for Magnetic Technologies Europe
Limited
3 Credit Agreement, General Security Agreement,
$2,000,000 Revolving Line of Credit Note and
$1,000,000 Commercial Line of Credit Note
with First National Bank of Rochester.
4
<PAGE> 5
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS FOR MAGNETIC TECHNOLOGIES
- - ---------------------------------------------------------------------------
CORPORATION (MTC) AND MAGNETIC TECHNOLOGIES EUROPE LIMITED (MTE)
- - ----------------------------------------------------------------
The unaudited pro forma combined financial statements are presented to
reflect the estimated impact on the restated financial statements of MTC as a
result of the following transaction:
MTC paid $492,007 on March 31, 1995 for the remaining 75% interest in
MTE common shares it did not previously own. The transaction has been
accounted for using the purchase method.
As required by Regulation S-X Article 11-02, the unaudited pro forma
combined statements of income combine the results of MTC and MTE for the year
ended July 31, 1994 and the six months ended January 31, 1995, assuming the
acquisition occurred on August 1, 1993. In accordance with the Regulation,
extraordinary amounts have been excluded from the income statement and earnings
per share presentations.
The unaudited pro forma combined balance sheet assumes the acquisition
had occurred on January 31, 1995, combining the balance sheets of MTC and MTE
as of January 31, 1995.
The unaudited pro forma combined financial statements give effect to
the adjustments set forth in the accompanying notes and reflect estimated legal
and other professional fees directly attributable to the business combination.
The unaudited pro forma data is presented for informational purposes
only and is not necessarily indicative of the results of operations or
financial position which would have been achieved had the transactions been
completed as of the beginning of the earliest periods presented, nor is it
necessarily indicative of MTC's future results of operations or financial
position.
The unaudited pro forma combined financial statements should be read
in conjunction with the historical financial statements of MTC and MTE included
in this filing.
5
<PAGE> 6
ITEM 7. (b) i.
--------------
MAGNETIC TECHNOLOGIES CORPORATION
PRO FORMA COMBINED INCOME STATEMENT (UNAUDITED)
FOR THE TWELVE MONTH PERIOD ENDED
JULY 31, 1994
<TABLE>
<CAPTION>
Pro Forma
---------
MTC MTE Adjustments Combined
--- --- ----------- --------
(Note 1)
<S> <C> <C> <C> <C>
Net sales $17,616,480 $454,890 ($747,698)(a) $17,323,672
Cost of sales 15,241,215 668,487 (472,612)(a)(b) 15,437,090
---------- ------- ----------
Gross profit 2,375,265 (213,597) 1,886,582
Selling, general and administrative 2,837,504 362,697 3,200,201
--------- ------- ---------
Operating earnings (loss) (462,239) (576,294) (1,313,619)
Interest and other expenses 152,040 29,462 26,787 (c) 208,289
------- ------ -------
Loss before income taxes and extraordinary item (614,279) (605,756) (1,521,908)
Tax provision 500 0 500
--- - ---
Loss before extraordinary item ($614,779) ($605,756) ($1,522,408)
========== ========== ============
EARNINGS PER SHARE:
- - -------------------
Loss before extraordinary item ($0.21) ($0.52)
</TABLE>
6
<PAGE> 7
ITEM 7. (b) ii.
--------------
MAGNETIC TECHNOLOGIES CORPORATION
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
JANUARY 31, 1995
<TABLE>
<CAPTION>
Pro Forma
---------
MTC MTE Adjustments Combined
--- --- ----------- --------
(Note 1)
ASSETS
------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
- - ---------------
Cash $653,614 $14,550 ($186,597)(d) $481,567
Accounts receivable 2,261,988 103,449 (282,636)(a) 2,082,801
Inventories 3,078,844 116,614 (6,117)(a) 3,189,341
Cost and earnings in excess of billings 262,334 262,334
Deferred income taxes 318,650 318,650
Prepaid expenses and other current assets 221,688 221,688
------- ------- -------
Total current assets 6,797,118 234,613 6,556,381
--------- ------- ---------
Property plant and equipment, net 3,680,465 552,876 (229,950)(a)(b)(d) 4,003,391
Goodwill 61,141 61,141
Investment in affiliate 250,000 (250,000)(d)
Deferred income taxes 477,100 477,100
Other assets 399,806 399,806
------- ------- -------
Total assets $11,665,630 $787,489 $11,497,819
=========== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
- - --------------------
Accounts payable and accrued liabilities $3,226,157 $126,689 (245,086)(a)(c)(d) 3,107,760
Current portion of long-term debt and leases 317,450 317,450
Billings in excess of costs and earnings 169,897 169,897
------- ------- -------
Total current liabilities 3,713,504 126,689 3,595,107
Long-term debt and capital lease obligations 2,188,676 305,410 (d) 2,494,086
--------- ------- ---------
Total liabilities 5,902,180 126,689 6,089,193
--------- ------- ---------
STOCKHOLDERS' EQUITY:
- - ---------------------
Common stock 418,006 1,580 (1,580)(d) 418,006
Stock warrants outstanding 25,275 25,275
Additional paid-in capital 7,646,410 659,220 (659,220)(d) 7,646,410
Accumulated deficit (2,326,241) (354,824)(a)(b)(c)(d) (2,681,065)
----------- ------- ---------
Total stockholders' equity 5,763,450 660,800 5,408,626
--------- ------- ---------
Total liabilities and stockholders' equity $11,665,630 $787,489 $11,497,819
=========== ======== ===========
</TABLE>
7
<PAGE> 8
ITEM 7. (b) iii.
----------------
MAGNETIC TECHNOLOGIES CORPORATION
PRO FORMA COMBINED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTH PERIOD ENDED
JANUARY 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
---------
MTC MTE ADJUSTMENTS COMBINED
--- --- ----------- --------
(Note 1)
<S> <C> <C> <C> <C>
Net sales $10,868,774 $521,883 ($387,403) (a) $11,003,254
Cost of sales 9,402,506 372,072 (359,379) (a)(b) 9,415,199
--------- ------- ---------
Gross profit 1,466,268 149,811 1,588,055
Selling, general and administrative 1,384,705 647,390 312,302 (d) 2,344,397
--------- ------- ---------
Operating earnings (loss) 81,563 (497,579) (756,342)
Interest and other expenses 103,218 39,846 14,498 (c) 157,562
------- ------ -------
Loss before income taxes (21,655) (537,425) (913,904)
Tax provision 250 0 250
--- - ---
Net loss ($21,905) ($537,425) ($914,154)
--------- ---------- ----------
EARNINGS PER SHARE:
- - -------------------
Net loss ($0.01) ($0.32)
</TABLE>
8
<PAGE> 9
ITEM 7. (b) iv.
----------------
MAGNETIC TECHNOLOGIES CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1 - PRO FORMA ADJUSTMENTS
- - ------------------------------
UNAUDITED PRO FORMA ADJUSTMENTS CONSIST OF THE FOLLOWING:
(a) Elimination of sales, cost of sales, profit, accounts receivable and
accounts payable for sales from MTC to MTE
(b) Reduction in depreciation expense resulting from the writedown of MTC
profit in MTE equipment acquired
(c) Interest charges on note payable to Calder of $305,410 used to finance
the acquisition
(d) Acquisition accounting adjustment necessary to reflect the purchase of
MTE for $186,597 in cash and a note payable of $305,410 to Calder,
accrual of acquisition costs, the writedown in the investment in MTE of
$312,302 to account for the impairment of assets including a writedown
of MTC profit in MTE equipment acquired, as well as the elimination of
the investment in MTE against equity.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAGNETIC TECHNOLOGIES CORPORATION
By: /s/ Gordon H. McNeil
--------------------------
Gordon H. McNeil
President and CEO
Dated: May 30, 1995
10
<PAGE> 11
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
1 Share Purchase Agreement relative to the Company's
acquisition of Magnetic Technologies Europe Limited
(previously filed)
2 Revised Memorandum of Association and Articles of
Association for Magnetic Technologies Europe Limited
(previously filed)
3 Credit Agreement, General Security Agreement,
$2,000,000 Revolving Line of Credit Note and
$1,000,000 Commercial Line of Credit Note with
First National Bank of Rochester
(previously filed)
4 Audited financial statements of MTE as of, and for
the year ended, December 31, 1993
5 Audited financial statements of MTE as of, and for
the year ended, December 31, 1994
</TABLE>
11
<PAGE> 1
Exhibit 4
Magnetic Technologies Europe Limited
Directors' report and financial statements
31 December 1993
Registered number 2785063
<PAGE> 2
Magnetic Technologies Europe Limited
Directors' report and financial statements
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Directors' report 1
Directors' responsibilities statement 3
Auditors' report 4
Profit and loss account 5
Balance sheet 6
Notes 7
</TABLE>
<PAGE> 3
Magnetic Technologies Europe Limited
Directors' report
The directors present their first annual report and financial statements for
the period ended 31 December 1993.
INCORPORATION AND CHANGE IN NAME
The company was incorporated on 29 January 1993 as Ingleby (666) Limited and
changed its name to Magnetic Technologies Europe Limited on 10 March 1993.
PRINCIPAL ACTIVITY AND BUSINESS REVIEW
The principal activity of the company is the sale of magnetic brushes for use
in office automation products.
RESULTS AND DIVIDENDS
The loss on ordinary activities after taxation for the period ended 31 December
1993 was pound sterling 122,423. No dividends were paid or proposed during the
period.
FIXED ASSETS
Details of the movement in tangible fixed assets are given in Note 8 to the
financial statements.
DIRECTORS AND DIRECTORS' INTERESTS
The directors of the company during the year and the interests of those who
held office at the end of the year in the shares and debentures of Cookson
Group plc were as follows:
<TABLE>
<CAPTION>
OPTIONS ON OPTIONS ON
ORDINARY SHARES ORDINARY SHARES
OF 50P EACH OF 50P EACH
ORDINARY SHARES EXECUTIVE SHARE SAVINGS RELATED
OF 50P EACH OPTION SCHEME SCHEME
31 DECEMBER 31 DECEMBER 31 DECEMBER
1993 1992 1993 1992 1993 1992
Pound Sterling Pound Sterling Pound Sterling Pound Sterling Pound Sterling Pound Sterling
<S> <C> <C> <C> <C> <C> <C>
KR Blunden - - 33,315 30,520 20,631 19,974
DJ Hudson - - 189,497 127,258 16,311 15,800
CH Marsh - - 78,021 59,493 22,707 21,992
G McNeil - - - - - -
J Vangellow - - - - - -
</TABLE>
<TABLE>
<CAPTION>
SHARE OPTION MOVEMENTS IN YEAR
EXECUTIVE SHARE SAVINGS
OPTION SCHEME RELATED SCHEME
GRANTED EXERCISED GRANTED EXERCISED
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
KR Blunden 9,935 8,054 - -
DJ Hudson 58,420 - - -
CH Marsh 24,799 8,054 - -
G McNeil - - - -
J Vangellow - - - -
</TABLE>
The movements in options on ordinary shares do not reflect increases due to
rights issues.
1
<PAGE> 4
Magnetic Technologies Europe Limited
Directors' report
DIRECTORS AND DIRECTORS' INTEREST (continued)
Ingleby Holdings Limited was appointed as director on 29 January 1993 and
resigned on 29 April 1993.
Messrs KR Blunden, DJ Hudson, CH Marsh, G McNeil and J Vangellow were appointed
as directors on 29 April 1993.
None of the directors had any other interest in the shares of the company or
any other group undertakings.
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution for the
re-appointment of KPMG Peat Marwick as auditors of the company is to be
proposed at the forthcoming annual general meeting.
By order of the board
By: /s/ CH Marsh
-------------------------------
Secretary
Droitwich Road
Worcester
Worcestershire
WR3 7JX
7 February 1994
2
<PAGE> 5
Magnetic Technologies Europe Limited
Directors' responsibilities statement
DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE PREPARATION OF FINANCIAL
STATEMENTS
The directors are required by company law to prepare financial statements which
give a true and fair view of the state of affairs of the company at the end of
the year and of the loss for the period to that date. They are also
responsible for maintaining adequate accounting records, for safeguarding the
assets of the group and for preventing and detecting fraud and other
irregularities.
The financial statements must be prepared in compliance with the required
formats and disclosures of the Companies Act 1985 and with applicable
accounting standards. In preparing these financial statements the directors
are required:
- - - To select suitable accounting policies and then apply them
consistently;
- - - To make judgments and estimates that are reasonable and prudent;
- - - To take account of expenses and income relating to the period being
reported on, whether or not they have been paid or received in that
period; and
- - - To prepare the financial statements on a going concern basis unless it
is inappropriate to presume that the company will continue in
business.
The directors confirm that the financial statements comply with these
requirements.
3
<PAGE> 6
KPMG Peat Marwick
Auditors' report to the members of Magnetic Technologies Europe Limited
We have audited the financial statements on pages 5 to 12.
Respective responsibilities of directors and auditors
As described on page 3 the company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinions to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we consider necessary in order to provide us with sufficient
evidence to give reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 31 December 1993 and of the loss for the period
then ended and have been properly prepared in accordance with the Companies Act
1985.
By: /s/ KPMG Peat Marwick UK 7 February 1994
-------------------------------
Chartered Accountants
Registered Auditors
Birmingham, UK
4
<PAGE> 7
Magnetic Technologies Europe Limited
Profit and loss account
for the period ended 31 December 1993
<TABLE>
<CAPTION>
Note 11 MONTHS
1993
POUND STERLING
<S> <C> <C>
TURNOVER 2 24,519
Cost of sales 3 (146,942)
--------
OPERATING LOSS BEING THE LOSS ON ORDINARY
ACTIVITIES BEFORE TAXATION (122,423)
Tax on loss on ordinary activities 6 -
--------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION BEING
RETAINED LOSS FOR THE PERIOD TRANSFERRED TO RESERVES (122,423)
--------
</TABLE>
A statement of movements on reserves is given in note 14 on page 12.
There were no recognised gains or losses during the period ended 31 December
1993 other than the loss for the period of pound sterling 122,423.
There is no material difference between the results disclosed and the results
calculated on an unmodified historical cost basis.
5
<PAGE> 8
Magnetic Technologies Europe Limited
Balance sheet
at 31 December 1993
<TABLE>
<CAPTION>
NOTE 1993
---- -----------------------------------------
POUND STERLING POUND STERLING
-------------- --------------
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets 7 860,927
Tangible assets 8 143,138
---------
1,004,065
CURRENT ASSETS
Stocks 9 1,284
Debtors 10 249,689
Cash at bank and in hand 46,560
--------
297,533
Creditors: amounts falling due within one
year 11 (761,769)
--------
NET CURRENT ASSETS (464,236)
---------
NET ASSETS 539,829
---------
CAPITAL AND RESERVES
Called up share capital 13 1,000
Share premium account 14 661,252
Profit and loss account 14 (122,423)
---------
539,829
=========
</TABLE>
These financial statements were approved by the board of directors on 7 February
1994 and were signed on its behalf by:
By: /s/ KR Blunden
----------------------
Director
6
<PAGE> 9
Magnetic Technologies Europe Limited
Notes
(forming part of the financial statements)
1 ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The financial statements have been prepared in accordance with
applicable Accounting Standards under the historical cost convention.
TURNOVER
Turnover is the invoiced value of goods delivered and services
rendered less returns, net of value added tax.
INTANGIBLE FIXED ASSETS
Amortisation is provided to write off the cost of intangible fixed
assets over their estimated useful lives on a straight line basis.
Licence agreement - 5 years
TANGIBLE FIXED ASSETS
Depreciation is provided to write off the cost of tangible fixed
assets over their estimated useful lives on a straight line basis.
Motor vehicles - 5 years
Plant and machinery - 10 years
Furniture, fixtures and fittings - 5 to 10 years
STOCKS
Stocks are valued at the lower of cost and net realisable value. Cost
represents materials, direct labour and the costs incurred in bringing
the stock to its present location.
DEFERRED TAXATION
Provision is made on the liability basis for taxation deferred due to
the excess of capital allowances over historical depreciation and
other timing differences only to the extent that such tax may become
payable in the foreseeable future. The amounts provided in respect of
excess capital allowances are based on estimates of the future level
of capital expenditure.
CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rate of exchange ruling at the balance
sheet date. Exchange differences on trading are dealt with in the
profit and loss account.
7
<PAGE> 10
Magnetic Technologies Europe Limited
Notes
(forming part of the financial statements)
PENSION COSTS
Contributions are charged against profit in the year in which they
fall due.
LEASED ASSETS
All leases are operating leases. Annual rentals are charged to the
profit and loss account in accordance with the individual lease
agreements.
2 TURNOVER
The whole of the turnover was derived from the sale of magnetic
brushes in the United Kingdom.
3 COST OF SALES
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
Change in stocks of finished goods (1,284)
Raw materials and consumables 23,016
Other external charges 334
Staff costs (see note 4) 47,381
Depreciation of tangible fixed asses (see note 8) 4,106
Management charge payable to parent undertaking 12,000
Other operating charges 61,389
-------
146,942
-------
Costs included above:
Auditors' remuneration - audit fee 3,000
</TABLE> =======
8
<PAGE> 11
Magnetic Technologies Europe Limited
Notes
(forming part of the financial statements)
4 STAFF NUMBERS AND COSTS
The average number of persons (excluding directors) employed by the
company was as follows:
<TABLE>
<CAPTION>
1993
NUMBER
------
<S> <C>
Administration 1
Production 1
---
2
===
</TABLE>
The aggregate payroll costs of these
persons were as follows:
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
Wages and salaries 40,151
Social security costs 3,333
Pension and other costs 3,897
------
47,381
------
</TABLE>
5 DIRECTORS' EMOLUMENTS
There were no directors' emoluments paid in the period.
6 TAX ON LOSS ON ORDINARY ACTIVITIES
No credit has been taken in these accounts for the taxable losses
incurred in the period, since it is not certain that group relief will
be available to relieve these losses.
7 INTANGIBLE FIXED ASSETS
Intangible fixed assets represents a production licence purchased in
the year for pound sterling 860,927 on which no amortisation has been
charged.
9
<PAGE> 12
Magnetic Technologies Europe Limited
Notes
(forming part of the financial statements)
8 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
MOTOR PLANT AND FURNITURE, TOTAL
VEHICLES MACHINERY FIXTURES &
FITTINGS
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
COST
Additions 15,698 105,000 26,546 147,244
------ ------- ------ -------
At end of period 15,698 105,000 26,546 147,244
------ ------- ------ -------
DEPRECIATION
Charge for the period 1,286 2,066 754 4,106
------ ------- ------ -------
At end of period 1,286 2,066 754 4,106
------ ------- ------ -------
NET BOOK VALUE
AT 31 DECEMBER 1993 14,412 102,934 25,792 143,138
------ ------- ------ -------
</TABLE>
9 STOCKS
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
Finished goods 1,284
</TABLE>
10 DEBTORS
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
Trade debtors 28,809
Other debtors 29,930
Prepayments and accrued income 190,950
-------
249,689
-------
</TABLE>
10
<PAGE> 13
Magnetic Technologies Europe Limited
Notes
(forming part of the financial statements)
<TABLE>
<CAPTION>
11 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 1993
POUND STERLING
--------------
<S> <C>
Trade creditors 79,961
Amounts owed to group undertakings 638,465
Other creditors 43,343
-------
761,769
-------
</TABLE>
12 DEFERRED TAXATION
No provisions for deferred taxation has been made as no actual
liability is expected to arise in the normal conduct of the company's
business in the foreseeable future.
The potential deferred taxation asset is as follows:
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
Excess of capital allowances over depreciation 87,710
------
</TABLE>
13 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
AUTHORISED, ALLOTTED, CALLED UP AND FULLY PAID:
750 ordinary A shares of pound sterling 1 each 750
250 ordinary B shares of pound sterling 1 each 250
-----
1,000
-----
</TABLE>
On incorporation 2 ordinary shares were issued; one in the name of
Ingleby Nominees Limited and one in the name of Ingleby Holdings
Limited. On 30 April 1993 these 2 shares were redesignated with a
further 748 of the authorized ordinary shares as "A" ordinary shares
and 250 were redesignated as "B" ordinary shares.
On 30 April 1993 the 2 "A" ordinary shares were transferred and 748 "A"
ordinary shares were applied for and allotted with a total nominal
value of 750 and consideration given for the 750 shares was pound
sterling 496,689.
On 30 April 1993 250 "B" ordinary shares were applied for and allotted
with a nominal value of pound sterling 250 and consideration of pound
sterling 165,563.
The shares were allotted to strengthen the capital base of the company.
11
<PAGE> 14
Magnetic Technologies Europe Limited
Notes
(forming part of the financial statements)
14 RESERVES
<TABLE>
<CAPTION>
PROFIT AND SHARE
LOSS PREMIUM
POUND STERLING POUND STERLING
-------------- --------------
<S> <C> <C>
At beginning of year - -
Premium on issue of shares - 661,252
Profit for the year (122,423) -
-------- -------
At end of the year (122,423) 661,252
-------- -------
</TABLE>
15 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
Loss for the financial period (122,423)
New share capital subscribed 662,252
--------
Shareholders funds carried forward 539,829
--------
</TABLE>
16 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
1993
POUND STERLING
--------------
<S> <C>
Contracted for but not provided 584,000
-------
</TABLE>
17 PENSIONS
The company is a member of the UK defined benefit scheme of Cookson
Group plc, the assets of which are held in trustee administered funds.
The total pension cost to the company was pound sterling 3,897.
Pension costs are assessed in accordance with the advice of a
qualified actuary using the projected unit method; valuations are
carried out every three years, the last being in April 1992. Details
of the latest actuarial valuation of the scheme are given in the
consolidated annual accounts of Cookson Group plc.
18 ULTIMATE HOLDING COMPANY
The company's ultimate holding company is Cookson Group plc, a
company incorporated in Great Britain and registered in England and
Wales.
The accounts of Cookson Group plc are the only group accounts
incorporating the company. Copies of those accounts can be obtained
from 130 Wood Street, London, EC2V 6EQ.
12
<PAGE> 1
MAGNETIC TECHNOLOGIES EUROPE LIMITED Exhibit 5
DIRECTORS' REPORT AND FINANCIAL STATEMENTS
31 DECEMBER 1994
REGISTERED NUMBER 2785063
<PAGE> 2
MAGNETIC TECHNOLOGIES EUROPE LIMITED
- - --------------------------------------------------------------------------------
DIRECTORS' REPORT
The directors present their annual report and financial statements for the
period ended 31 December 1994.
Principal activity and business review
The principal activity of the company is the sale of magnetic brush assemblies
for use in office automation products.
On 12 March 1994 the company became part of the Calder Group Limited group of
companies. Subsequent to the year end their 75% shareholding was sold to the
minority shareholders, Magnetic Technologies Corporation on 31 March 1995.
RESULTS AND DIVIDENDS
The loss on ordinary activities after taxation for the year of pound sterling
1,432,000 (1993: loss of pound sterling 122,000) has been taken to reserves. No
dividends were paid or proposed during the period (1993: Nil).
FIXED ASSETS
Details of the movements in tangible fixed assets are given in note 8 to the
financial statements.
DIRECTORS AND DIRECTORS' INTERESTS
The directors of the company during the year were as follows:
<TABLE>
<S> <C>
KR Blunden (resigned 31 March 1995)
DJ Hudson (resigned 31 March 1995)
CH Marsh (resigned 21 April 1994)
G McNeil
J Vangellow (resigned 30 July 1994)
J Cooper (resigned 31 March 1995)
</TABLE>
DJ Hudson and J Cooper are directors of Calder Group LImited and accordingly
their interests are shown in the accounts of that company. None of the
directors had any other interest in the shares of the company or any other
group undertakings.
1
<PAGE> 3
MAGNETIC TECHNOLOGIES EUROPE LIMITED
- - --------------------------------------------------------------------------------
DIRECTORS' REPORT (continued)
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors of the company are responsible for the preparation of the
company's accounts. In preparing the accounts, the Directors are responsible
for ensuring that suitable accounting policies have been used and applied
consistently, and that reasonable and prudent judgements and estimates have
been made.
The Directors are required to state whether applicable accounting standards
have been followed, subject to any material departures disclosed and explained
in the accounts and to prepare the accounts on a going concern basis unless it
is inappropriate to assume that the company will continue in business.
The Directors are also responsible for maintaining adequate accounting records,
for taking reasonable steps to safeguard the assets of the company, and for
ensuring the operation of systems which will both deter and detect fraud and
other irregularities.
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution for the
re-appointment of Price Waterhouse as auditors of the company is to be proposed
at the forthcoming annual general meeting.
By order of the board
/s/ G McNeil
G McNeil
Director
25 May 1995
2
<PAGE> 4
AUDITORS' REPORT TO THE MEMBERS OF MAGNETIC TECHNOLOGIES EUROPE LIMITED
We have audited the financial statements on pages 4 to 13 which have been
prepared under the historical cost convention and the accounting policies set
out on pages 6 and 7.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 2 the company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we consider necessary in order to provide us with sufficient
evidence to give reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 31 December 1994 and of its loss for the year then
ended and have been properly prepared in accordance with the Companies Act 1985.
/s/ Price Waterhouse
Price Waterhouse
Chartered Accountants and
Registered Auditors 25 May 1995
3
<PAGE> 5
MAGNETIC TECHNOLOGIES EUROPE LIMITED
- - --------------------------------------------------------------------------------
PROFIT AND LOSS ACCOUNT
For the year ended 31 December 1994
<TABLE>
<CAPTION>
NOTE 12 MONTHS 11 MONTHS
ENDING ENDING
31 DECEMBER 31 DECEMBER
1994 1993
POUND STERLING'000 POUND STERLING'000
<S> <C> <C> <C>
Turnover 2 586 25
Operating costs 3 (1,978) (147)
------ ----
Operating loss (1,392) (122)
Interest payable to group undertakings (40) -
------ ----
Loss on ordinary activities before
taxation (1,432) (122)
Tax on loss on ordinary activities 6 - -
------ ----
Retained loss for the financial
year taken to reserves 14 (1,432) (122)
====== ====
</TABLE>
There were no recognised gains or losses during the year ended 31 December 1994
other than the loss for the year of pound sterling 1,432,000.
The format of the profit and loss account has been changed to Format 1 as the
managment believe that this gives a fairer representation of the company's
operations and is consistent with the format adopted by other companies in the
Calder Group Limited group.
The notes on pages 6 to 13 form part of these accounts.
4
<PAGE> 6
MAGNETIC TECHNOLOGIES EUROPE LIMITED
- - --------------------------------------------------------------------------------
BALANCE SHEET
At 31 December 1994
<TABLE>
<CAPTION>
NOTE 1994 1993
----------------------- -----------------------
POUND POUND POUND POUND
STERLING'000 STERLING'000 STERLING'000 STERLING'000
<S> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets 7 - 861
Tangible assets 8 353 143
------ ----
353 1,004
Current assets
Stocks 9 35 1
Debtors 10 110 250
Cash at bank and in hand 5 46
------ ----
150 297
Creditors: amounts falling due
within one year 11 (1,395) (761)
------ ----
Net current liabilities (1,245) (464)
------ -----
Total assets less current
liabilities (892) 540
====== =====
Capital and reserves
Called up share capital 12 1 1
Share premium account 13 661 661
Profit and loss account 13 (1,554) (122)
------ -----
Shareholders' funds 14 (892) 540
====== =====
</TABLE>
Approved by the board of directors on 25 May 1995
/s/ G McNeil
G McNeil
Director
The notes on pages 6 to 13 form part of these accounts.
5
<PAGE> 7
MAGNETIC TECHNOLOGIES EUROPE LIMITED
---------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994
1 ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The financial statements have been prepared in accordance with applicable
Accounting Standards under the historical cost convention.
TURNOVER
Turnover is the invoiced value of goods delivered and services rendered
less returns, net of value added tax.
INTANGIBLE FIXED ASSETS
Intangible fixed assets are in respect of license fees paid for the use of
technology and know-how. Provision is made to the extent that the
directors consider there has been a permanent diminution in value of the
intangible.
TANGIBLE FIXED ASSETS
Depreciation is provided to write off the cost of tangible fixed assets
over their estimated useful lives on a straight line basis.
<TABLE>
<S> <C>
Motor vehicles - 5 years
Plant and machinery - 10 years
Furniture, fixtures and fittings - 5 to 10 years
</TABLE>
STOCKS
Stocks are valued at the lower of cost and net realisable value. Cost
represents materials, direct labour and the costs incurred in bringing the
stock to its present location and condition.
DEFERRED TAXATION
Provision is made on the liability basis for taxation deferred due to the
excess of capital allowances over historical depreciation and other timing
differences only to the extent that such tax is likely to become payable in
the foreseeable future. The amounts provided in respect of excess capital
allowances are based on estimates of the future level of capital
expenditure.
6
<PAGE> 8
MAGNETIC TECHNOLOGIES EUROPE LIMITED
- - -------------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994 (Continued)
1 ACCOUNTING POLICIES (Continued)
CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rate of exchange ruling at the balance
sheet date. Exchange differences on trading are dealt with in the profit
and loss account.
PENSION COSTS
The company is a member of the Calder Group pension scheme and was formerly
a member of the Cookson Group pension scheme. The charge for the year is
based upon an allocation of the cost for the group as a whole.
LEASED ASSETS
All leases are operating leases. Annual rentals are charged to the profit
and loss account in accordance with the individual lease agreements.
2 TURNOVER
The whole of the turnover was derived from the sale of magnetic brush
assemblies in the United Kingdom.
3 OPERATING COSTS
<TABLE>
<CAPTION>
12 MONTHS 11 MONTHS
ENDING ENDING
31 DECEMBER 31 DECEMBER
1994 1993
POUND STERLING'000 POUND STERLING'000
<S> <C> <C>
Cost of sales 505 24
Distribution - -
Administration 213 123
Write down of intangible assets 1260 -
----- ---
1,978 147
===== ===
Costs included above:
Auditors' remuneration 2 3
Depreciation of tangible fixed assets (note 8) 26 4
===== ===
</TABLE>
7
<PAGE> 9
MAGNETIC TECHNOLOGIES EUROPE LIMITED
---------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994 (Continued)
4 STAFF NUMBERS AND COSTS
The average number of persons (excluding directors) employed by the company
was as follows:
<TABLE>
<CAPTION>
12 MONTHS 11 MONTHS
ENDING ENDING
31 DECEMBER 31 DECEMBER
1994 1993
NUMBER NUMBER
<S> <C> <C>
Administration 3 1
Production 2 1
- -
5 2
= =
</TABLE>
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
12 MONTHS 11 MONTHS
ENDING ENDING
31 DECEMBER 31 DECEMBER
1994 1993
POUND STERLING'000 POUND STERLING'000
<S> <C> <C>
Wages and salaries 116 40
Social security costs 9 3
Pension and other costs 14 4
--- --
139 47
=== ==
</TABLE>
5 DIRECTORS' EMOLUMENTS
The directors received no emolumnets in respect of their services to the
company in the year (1993: Nil).
6 TAX ON LOSS ON ORDINARY ACTIVITIES
All tax losses arising in the year are to be surrendered for group relief
for which no payment is to be received.
8
<PAGE> 10
MAGNETIC TECHNOLOGIES EUROPE LIMITED
---------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994 (continued)
7 INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
COST POUND STERLING'000
<S> <C>
At 1 January 1994 861
Additions 399
-----
At 31 December 1994 1,260
=====
Amortisation
At 1 January 1994 -
Provision for diminution in value 1,260
-----
At 31 December 1994 1,260
=====
Net book amount
At 31 December 1994 -
=====
At 31 December 1993 861
=====
</TABLE>
9
<PAGE> 11
MAGNETIC TECHNOLOGIES EUROPE LIMITED
---------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994 (Continued)
8 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FURNITURE,
MOTOR PLANT AND FIXTURES &
VEHICLES MACHINERY FITTINGS TOTAL
POUND POUND POUND POUND
STERLING'000 STERLING'000 STERLING'000 STERLING'000
<S> <C> <C> <C> <C>
Cost
At 1 January 1994 16 105 26 147
Additions - 237 - 237
Disposals - (1) - (1)
-- --- -- ---
At 31 December 1994 16 341 26 383
== === == ===
Depreciation
At 1 January 1994 1 2 1 4
Charge for the period 6 17 3 26
Disposals - - - -
-- --- -- ---
At 31 December 1994 7 19 4 30
== === == ===
Net book amount
At 31 December 1994 9 322 22 353
At 31 December 1993 15 103 25 143
== === == ===
</TABLE>
9 STOCKS
<TABLE>
<CAPTION>
1994 1993
POUND POUND
STERLING'000 STERLING'000
<S> <C> <C>
Work in progress 35 1
== =
</TABLE>
10
<PAGE> 12
MAGNETIC TECHNOLOGIES EUROPE LIMITED
---------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994 (Continued)
10 DEBTORS
<TABLE>
<CAPTION>
1994 1993
POUND POUND
STERLING'000 STERLING'000
<S> <C> <C>
Trade debtors 106 29
Amounts owed by group undertakings 4 -
Other debtors - 30
Prepayments and accrued income - 191
--- ---
110 250
=== ===
</TABLE>
11 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1994 1993
POUND POUND
STERLING'000 STERLING'000
<S> <C> <C>
Trade creditors 359 80
Amounts owed to group undertakings 1,024 638
Other creditors 12 43
----- ---
1,395 761
===== ===
</TABLE>
Since the year end pound sterling 1,004,000 owing to Calder Group Companies has
been converted to ordinary shares in the Company.
11
<PAGE> 13
MAGNETIC TECHNOLOGIES EUROPE LIMITED
---------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994 (Continued)
12 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1993
POUND STERLING POUND STERLING
<S> <C> <C>
Authorised, allotted, called up and fully paid:
750 ordinary A shares of pound sterling 1 each 750 750
250 ordinary B shares of pound sterling 1 each 250 250
--- ---
1,000 1,000
=== ===
</TABLE>
13 RESERVES
<TABLE>
<CAPTION>
PROFIT SHARE
AND LOSS PREMIUM
POUND POUND
STERLING'000 STERLING'000
<S> <C> <C>
At 1 January 1994 (122) 661
Loss for the year (1,432) -
------ ---
At 31 December 1994 (1,554) 661
====== ===
</TABLE>
14 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1994 1993
POUND POUND
STERLING'000 STERLING'000
<S> <C> <C>
Shareholders' funds brought forward 540 -
Loss for the financial period (1,432) (122)
New share capital subscribed - 662
------ ----
Shareholders funds carried forward (892) 540
====== ====
</TABLE>
15 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
1994 1993
POUND POUND
STERLING'000 STERLING'000
<S> <C> <C>
Contracted for but not provided - 584
= ===
</TABLE>
12
<PAGE> 14
MAGNETIC TECHNOLOGIES EUROPE LIMITED
---------------------------------------------------------------------------
NOTES TO THE ACCOUNTS - 31 DECEMBER 1994 (Continued)
16 PENSIONS
During the year the company became a member of Calder Group Limited. The
Group pension scheme was established on 16 June 1994 and is a defined
benefit scheme, the assets of which are held in trustee administered
funds. Until 30 September 1994 the company contributed to the Cookson plc
group pension schemes. In both the Cookson and Calder schemes
contributions are based on pension costs across the group as a whole. The
total pension cost to the company was pound sterling 14,000 (1993: pound
sterling 4,000).
Pension costs are assessed in accordance with the advice of a qualified
actuary. Valuations will be carried out every three years using the
projected unit method.
17 ULTIMATE HOLDING COMPANY
The ultimate parent company for which consolidated accounts have been
prepared is Calder Group Limited, registered in England and Wales. Copies
of the group accounts can be obtained from Calder Group Limited, Crescent
House, Newcastle Upon Tyne NE99 1PH. Since the year end the ultimate
parent company has changed to Magnetic Technologies Corporation (MTC), a
company incorporated in the United States of America. MTC have confirmed
their intention to provide such financial support to enable the Company to
meet its liabilities as and when they fall due.
13
