<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended APRIL 30, 1997
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-4277
------
MAGNETIC TECHNOLOGIES CORPORATION
---------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 16-0961159
- --------------------------------- ------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
770 LINDEN AVENUE
ROCHESTER, NEW YORK 14625
-------------------------
(Address of principal executive offices)
(716) 385-8711
--------------
(Issuer's telephone number)
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ] N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
2,786,515 SHARES OF THE ISSUER'S COMMON STOCK WERE OUTSTANDING AS OF APRIL 30,
1997.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAGNETIC TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
AT APRIL 30, 1997 AND JULY 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS APRIL 30, 1997 JULY 31, 1996
-------------- -------------
<S> <C> <C>
Current assets:
Cash, including interest-bearing deposits of $540,700 and $476,325
at April 30, 1997 and July 31, 1996, respectively $ 803,427 $ 846,363
Accounts receivable, less allowance for doubtful accounts of
$128,033 and $120,000 at April 30, 1997 and July 31, 1996,
respectively 1,415,865 2,027,821
Inventories 3,756,282 3,470,874
Deferred income taxes 211,000 338,100
Prepaids and other current assets 242,743 100,140
----------- -----------
Current assets 6,429,317 6,783,298
Property, plant and equipment, net 1,704,535 1,992,635
Deferred income taxes 524,100 454,400
Other assets 505,898 514,300
----------- -----------
$ 9,163,850 $ 9,744,633
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses $ 2,906,019 $ 3,349,380
Notes payable 610,259 1,217,830
Current portion of long-term debt and capital lease obligations 321,528 321,528
Billings in excess of costs and estimated earnings on contracts in
process 103,616
----------- -----------
Current liabilities 3,837,806 4,992,354
Long-term debt and capital lease obligations 1,547,890 1,726,243
----------- -----------
Total liabilities 5,385,696 6,718,597
----------- -----------
Stockholders' equity:
Common stock - $.15 par value;
Authorized - 15,000,000 shares
Issued and outstanding - 2,786,515 and 2,786,584 shares at
April 30, 1997 and July 31, 1996, respectively 417,977 417,988
Stock warrants outstanding for 22,500 shares of common stock, valued at
$82,500, net of unamortized deferred expense of $11,730 and $26,895 at
April 30, 1997 and July 31, 1996, respectively 70,770 55,605
Additional paid-in capital 7,645,686 7,645,921
Cumulative translation adjustment (2,961) 2,359
Accumulated deficit (4,353,318) (5,095,837)
----------- -----------
Total stockholders' equity 3,778,154 3,026,036
----------- -----------
$ 9,163,850 $ 9,744,633
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
2
<PAGE> 3
MAGNETIC TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS AND NINE MONTHS ENDED APRIL 30, 1997 AND APRIL 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net sales $ 5,207,807 $ 15,921,114 $ 6,806,339 $ 19,407,273
Cost of sales 4,361,633 13,279,317 6,199,253 17,429,374
------------ ------------ ------------ ------------
Gross profit 846,174 2,641,797 607,086 1,977,899
Selling, general and administrative
expenses 554,336 1,757,526 727,603 2,188,041
Provision for loss on sale of the
Austro Mold Group 1,800,000 1,800,000
------------ ------------ ------------ ------------
Operating earnings (loss) 291,838 884,271 (1,920,517) (2,010,142)
Interest expense 38,736 166,420 77,129 219,213
Other income and expenses, net (40,151) (90,168) (3,486) (9,373)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 293,253 808,019 (1,994,160) (2,219,982)
Provision (benefit) for income taxes 21,500 65,500 125 375
------------ ------------ ------------ ------------
Net income (loss) 271,753 742,519 (1,994,285) (2,220,357)
Accumulated deficit beginning (4,625,071) (5,095,837) (3,305,273) (3,079,201)
------------ ------------ ------------ ------------
Accumulated deficit ending ($ 4,353,318) ($ 4,353,318) ($ 5,299,558) ($ 5,299,558)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1996
------------------ ----------------- ------------------ -----------------
PRIMARY PRIMARY PRIMARY PRIMARY
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) per share $ .09 $ .26 ($ .72) ($ .80)
=========== ========== =========== ===========
Weighted average number of
shares outstanding 2,882,246 2,879,651 2,786,626 2,786,640
=========== ============ =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
3
<PAGE> 4
MAGNETIC TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED APRIL 30, 1997 AND APRIL 30, 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, 1997 APRIL 30, 1996
----------------- -----------------
<S> <C> <C>
Net cash provided by operating activities $ 852,234 $ 270,761
--------- ---------
Cash flows from investing activities:
Capital expenditures (127,049) (244,732)
Proceeds from sales of property, plant and equipment 19,551
--------- ---------
Net cash used by investing activities (107,498) (244,732)
--------- ---------
Cash flows from financing activities:
New borrowings 200,000
Principal payments on long-term borrowings and capital leases (796,054) (237,761)
Purchase and retirement of common stock (246) (288)
--------- ---------
Net cash used by financing activities (796,300) (38,049)
--------- ---------
Effect of exchange rate changes on cash 8,628 (11,055)
--------- ---------
Net decrease in cash (42,936) (23,075)
Cash and cash equivalents at the beginning of the period 846,363 746,434
--------- ---------
Cash and cash equivalents at the end of the period $ 803,427 $ 723,359
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
4
<PAGE> 5
MAGNETIC TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1997
INTERIM ACCOUNTING POLICY
- -------------------------
The unaudited consolidated financial statements herein have been prepared
in accordance with 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 these rules and
regulations. The preparation of financial statements in conformity with such
principles requires the use of estimates by management during the reporting
period. Actual results could differ from those estimates.
The financial information included in this quarterly report should be read
in conjunction with the Company's most recent Form 10-KSB and annual report. In
the opinion of Management, the information furnished reflects all adjustments
necessary to present a fair statement of the financial condition, results of
operations and cash flows for the periods covered.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of the Company
for the periods presented and the accounts of its wholly-owned foreign
subsidiary, Magnetic Technologies Europe Limited (MTE), as of March 1, 1995. All
significant intercompany balances, transactions and profits are eliminated.
TRANSLATION OF FOREIGN CURRENCIES
- ---------------------------------
Assets and liabilities of MTE are translated into U.S. dollars at currency
exchange rates in effect at the end of the balance sheet period. Revenues and
expenses are translated at average exchange rates in effect during the related
income statement periods. Gains and losses resulting from foreign currency
transactions are included in the results of operations. Gains and losses
resulting from the translation of the foreign subsidiary balance sheet are
recorded directly to the cumulative translation adjustment, a component of
stockholders' equity.
REVENUE RECOGNITION
- -------------------
The Company accounts for long-term contracts using the percentage of
completion method of accounting. Revenue is recognized in the ratio that costs
incurred bear to total estimated costs of the contracts. Contract costs include
direct material and labor costs as well as indirect costs related to contract
performance. Losses expected to be incurred are charged to operations in the
period such losses are determined.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------
Fiscal 1997 earnings per common share amounts are based on the weighted
average number of shares outstanding during the period after consideration of
the dilutive effect of stock options and warrants. Per share amounts for fiscal
1996 are based on the weighted average number of shares outstanding during the
period. The amounts do not include any adjustments for stock options or warrants
due to the antidilutive effect they have on the net losses in that year.
SALE OF AUSTRO MOLD GROUP ASSETS
- --------------------------------
During the fourth quarter of fiscal 1996, the Company sold its Austro Mold
Group fixed assets, the mold manufacturing work in process and the majority of
the plastics injection molding inventory to an unrelated third party. An
estimated loss on the sale of $1,800,000 was recorded in the third quarter of
fiscal 1996 and is reflected in the accompanying statements. The Austro Mold
Group operating results are also reflected in the consolidated statement of
operations for the nine month period ended April 30, 1996.
5
<PAGE> 6
INVENTORIES
- -----------
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis and are summarized as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 JULY 31, 1996
-------------- -------------
<S> <C> <C>
Raw material $2,801,587 $1,995,447
Work in process 733,416 1,400,556
Finished goods 221,279 74,871
---------- ----------
$3,756,282 $3,470,874
========== ==========
</TABLE>
COSTS, ESTIMATED EARNINGS AND BILLINGS ON CONTRACTS IN PROCESS
- --------------------------------------------------------------
The following is a summary of costs, estimated earnings and billings on
contracts in process:
<TABLE>
<CAPTION>
JULY 31, 1996
-------------
<S> <C>
Costs and estimated earnings $ 87,134
Billings to date (190,750)
---------
($103,616)
=========
</TABLE>
Costs, estimated earnings and billings were presented in the accompanying
balance sheet as:
<TABLE>
<CAPTION>
JULY 31, 1996
-------------
<S> <C>
Costs and estimated earnings in excess of billings on
contracts in process $ 0
Billings in excess of costs and estimated earnings on
contracts in process (103,616)
----------
($103,616)
==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Major classifications of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 JULY 31, 1996
---------------- ---------------
<S> <C> <C>
Equipment under capital lease $ 537,513 $ 537,513
Machinery and engineering equipment 3,404,191 3,405,256
Furniture and fixtures 1,459,682 1,414,578
Leasehold improvements 378,326 378,326
Vehicles 20,861 46,320
---------- ----------
5,800,573 5,781,993
Less: Accumulated depreciation and amortization 4,096,038 3,789,358
---- ---------- ----------
$1,704,535 $1,992,635
========== ==========
</TABLE>
CAPITAL EXPENDITURES
- --------------------
Capital expenditures for the nine month period ended April 30, 1997
amounted to $127,049. These expenditures were funded with working capital.
6
<PAGE> 7
INCOME TAXES
- ------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. The
statement requires the recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
The following is a summary of current and long-term deferred tax assets and
the related valuation allowances:
<TABLE>
<CAPTION>
AT APRIL 30, 1997 AT JULY 31, 1996
----------------- ----------------
<S> <C> <C>
Current deferred tax assets:
Accrued expenses $ 127,400 $ 252,600
Inventory 18,600 28,500
Warranty reserves 10,300 10,300
Other deferred tax assets 54,700 46,700
----------- ----------
$ 211,000 $ 338,100
=========== ==========
Long-term deferred tax assets:
Federal net operating loss carryforwards $ 641,200 $ 832,600
State net operating loss carryforwards 151,500 202,100
Federal investment tax credit carryforwards 40,900 40,900
State investment tax credit carryforwards 272,700 272,700
Federal alternative minimum tax credit carryforwards 55,000 51,000
State alternative minimum tax credit carryforwards 8,000 6,000
Depreciation 475,500 430,500
Other deferred tax assets 108,600 90,000
----------- ----------
1,753,400 1,925,800
Less: Valuation allowances 1,229,300 1,471,400
---- ----------- ----------
$ 524,100 $ 454,400
=========== ==========
</TABLE>
The realization of the deferred tax assets related to the net operating
loss and tax credit carryforwards is dependent upon future taxable income. In
addition, if certain substantial changes in the Company's ownership should
occur, there would be an annual limitation on the amount of net operating loss
and tax credit carryforwards which could be utilized.
BORROWINGS
- ----------
The Company had $639,742 available and $610,258 outstanding on its bank
line of credit at April 30, 1997. The Company's entire $1,500,000 revolving loan
was outstanding at April 30, 1997. The line of credit and revolving loan require
interest payments at prime plus .25%.
STOCK OPTION PLAN
- -----------------
Effective September 13, 1996, the Company's Board of Directors adopted the
1996 Stock Option Plan. The plan was approved by the Company's shareholders on
December 17, 1996. The plan authorizes the Board of Directors to grant qualified
incentive stock options and non-qualified options for the purchase of the
Company's common stock to directors, officers, key employees and consultants up
to an aggregate of 125,000 shares. During the first quarter of fiscal 1997,
twelve key employees received qualified incentive stock option grants under the
plan to purchase an aggregate of 77,500 shares of common stock at an exercise
price of $3.50 per share. A consultant also received a non-qualified option to
purchase 10,000 shares of common stock at the same price. During the second
quarter of fiscal 1997, a previously granted option for 2,500 shares expired
upon resignation of an employee. In addition, three directors received stock
option grants under the plan to purchase 7,500 shares each of common stock for a
total of 22,500 options at an exercise price of $4.00 per share. At April 30,
1997, options for an aggregate of 107,500 shares were outstanding under the
plan.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MAGNETIC TECHNOLOGIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS (UNAUDITED)
COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED
APRIL 30, 1997 AND APRIL 30, 1996
RESULTS OF OPERATIONS
- ---------------------
THREE MONTH PERIOD COMPARISON
The Company's consolidated net sales of $5,207,807 for the three months
ended April 30, 1997 decreased $1,598,532, or 23%, from the comparable period
last year. The primary reason for the decrease was the sale of the Company's
Austro Mold Group assets in July 1996. Austro Mold had reported net sales of
$1,140,519 for the third quarter of fiscal 1996. The fiscal 1997 results
included net sales of $4,424,538 for the Magnetic Assembly Group, a decrease of
$681,959, or 13%, from the comparable prior year period. The decrease in the
Magnetic Assembly sales was the result of declines in sales volumes for the
Company's major customer as the sales mix shifted to mature product lines with
reduced demands. In addition, the comparable period in fiscal 1996 included
non-recurring sales to the Company's major customer for the establishment of
inventory at several new distribution centers. The Company's European
subsidiary, Magnetic Technologies Europe Ltd. (MTE), reported net sales of
$783,269 for the third quarter of fiscal 1997, compared with $559,323 for the
third quarter of the prior year, an increase of $223,946, or 40%.
Consolidated gross profit of $846,174 for the quarter ended April 30, 1997
increased $239,088 over the comparable period in the prior year, and the
consolidated gross margin increased from 9% to 16%. There were several factors
affecting the gross margin variance; first was the sale of Austro Mold, which
had experienced a negative 1% gross profit of $16,983 for the third quarter of
fiscal 1996, and second the Magnetic Assembly Group's gross margin for the third
quarter of fiscal year 1997 was $716,330, or 16%, compared with 10% for the
third quarter of fiscal 1996. The margin improved due to lower costs from
improvements in production efficiencies and the resulting labor force
reductions. In addition, the gross margin for the third quarter of the prior
year was unusually low due to the sales mix which included a large number of
lower margin tooling projects. MTE reported a gross margin of 17% for the
quarter ended April 30, 1997, versus a 20% gross margin for the comparable prior
year period.
Consolidated selling, general and administrative expenses for the third
quarter of fiscal 1997 decreased $173,267 from the comparable fiscal 1996
quarter. The decrease was primarily the result of the sale of the Austro Mold
Group assets in fiscal 1996. Austro Mold reported selling, general and
administrative expenses of $165,139 for the third quarter of the previous year.
The consolidated selling, general and administrative costs for the quarter ended
April 30, 1997 were consistent with the prior year at 11% of net sales. Interest
expense for the third quarter of fiscal 1997 decreased $38,393 from the
comparable prior year period due to reductions in outstanding debt balances.
The three month period ended April 30, 1997 resulted in consolidated net
income of $271,753 versus a consolidated net loss of $1,994,285 in the
comparable fiscal 1996 period, an improvement of $2,266,038 over the prior year.
The fiscal 1996 loss included an estimated loss on the sale of Austro Mold of
$1,800,000. In addition, the Austro Mold Group reported an net operating loss of
$185,966 for the third quarter of fiscal 1996. The Magnetic Assembly Group
reported net income of $258,091 for the third quarter of fiscal 1997 versus a
prior year net loss of $25,826. MTE reported net income of $13,662 for the
fiscal 1997 quarter.
8
<PAGE> 9
NINE MONTH PERIOD COMPARISON
The Company's consolidated net sales of $15,921,114 for the nine months
ended April 30, 1997 decreased $3,486,159, or 18%, from the comparable period
last year. The primary reason for the decrease was the sale of the Company's
Austro Mold Group assets in July 1996. Austro Mold had reported net sales of
$3,464,923 for the first three quarters of fiscal 1996. The Magnetic Assembly
Group reported net sales of $13,698,613 for the nine months ended April 30,
1997, compared with $14,372,286 in the comparable period of the prior year, a
decrease of $673,673, or 5%. The decrease was the result of declines in sales
volumes for the Company's major customer as the sales mix shifted to mature
product lines with reduced demands. In addition, the third quarter of fiscal
1996 included non-recurring sales to the Company's major customer for the
establishment of inventory at several new distribution centers. The Company's
European subsidiary, Magnetic Technologies Europe Ltd. (MTE), reported net sales
of $2,222,501 for the first nine months of fiscal 1997, compared with $1,570,064
for the comparable period of the prior year, an increase of $652,437, or 42%.
Consolidated gross profit of $2,641,797 for the nine months ended April 30,
1997 increased $663,898 over the comparable period in the prior year, and the
consolidated gross margin increased from 10% to 17%. There were several factors
affecting the gross margin variance. First was the sale of Austro Mold, which
had experienced a negative 5% gross profit of $171,986 during the comparable
nine month period of the prior year. The Magnetic Assembly Group's gross margin
for the first nine months of fiscal year 1997 was $2,225,500, or 16%, compared
with 13% for the same period in fiscal 1996. The margin improved due to lower
costs resulting from labor force reductions and improvements in production
efficiencies. In addition, the gross margin for the third quarter of the prior
year was unusually low due to the sales mix which included a large number of
lower margin tooling projects. MTE reported a gross margin of 19% for the nine
month period ended April 30, 1997, versus a 15% gross margin for the comparable
prior year period.
Consolidated selling, general and administrative expenses for the first
nine months of fiscal 1997 decreased $430,515 from the comparable fiscal 1996
period. The decrease was the result of the sale of the Austro Mold Group assets
in fiscal 1996. Austro Mold reported selling, general and administrative
expenses of $506,652 for the first nine months of fiscal 1996. The Magnetic
Assembly Group and MTE reported increases in selling, general and administrative
expenses during the first nine months of fiscal 1997 over the comparable prior
year period of $7,254 and $68,883, respectively. The increases were the result
of several factors, including new product development costs, stockholder
relations expenses and employer retirement contributions. The consolidated
selling, general and administrative costs for the nine month period ended April
30, 1997 were consistent with the prior year at 11% of net sales. Interest
expense for first nine months of fiscal 1997 decreased $52,793 from the
comparable prior year period due to reductions in outstanding debt balances.
The nine month period ended April 30, 1997 resulted in consolidated net
income of $742,519 versus a consolidated net loss of $2,220,357 in the
comparable fiscal 1996 period, an improvement of $2,962,876 over the prior year.
The improvement was the result of the Austro Mold sale. During the third quarter
of the prior year, the Company recorded a $1,800,000 estimated loss on the sale.
In addition, Austro Mold incurred a net operating loss of $690,176 for the first
three quarters of fiscal 1996. The Magnetic Assembly Group reported net income
of $655,180 for the first nine months of fiscal 1997 versus net income of
$290,328 in the comparable fiscal 1996 period. MTE reported net income of
$87,339 for the nine month period ended April 30, 1997, versus a net loss of
$20,509 in the comparable period of the prior year.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Even though the Company's debt increased due to the acquisition of MTE in
March 1995 and the earlier acquisition of its Austro Mold Group in November
1992, its cash flow should be adequate to fund the interest and principal on the
current portion of long-term debt.
Cash provided by operating activities totaled $852,234 for the nine month
period ended April 30, 1997 compared with $270,761 for the comparable period of
the prior year, an increase of $581,473. The variance was primarily the result
of an increase in net income and the liquidation of the Austro Mold accounts
receivable during fiscal 1997.
Cash used for investing activities decreased $137,234 for the nine month
period ended April 30, 1997 from the comparable period in the prior year. The
variance was primarily due to lower capital expenditures in fiscal 1997.
Cash used for financing cash flows increased $758,251 for the first nine
months of fiscal 1997 compared with the prior year period. The variance was
primarily the result of additional principal payments made on the Company's
outstanding line of credit balance. In addition, new borrowings of $200,000 were
incurred during the comparable fiscal 1996 period.
FROM TIME TO TIME, THE COMPANY MAY PUBLISH FORWARD-LOOKING STATEMENTS
RELATING TO SUCH MATTERS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS
PROSPECTS, TECHNOLOGICAL IMPROVEMENTS AND NEW PRODUCT DEVELOPMENTS. ALL SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING ANTICIPATIONS, EXPECTATIONS AND
PROJECTIONS CONTAINED IN THIS FORM 10-QSB REPORT, ARE MADE BY THE COMPANY
PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. ALL SUCH FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM SUCH PROJECTIONS.
THE RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S
DEPENDENCE UPON OBTAINING ORDERS FROM ITS CUSTOMERS TO SUPPLY COMPONENT PARTS
FOR CERTAIN OF THEIR PRODUCT LINES, WHICH ORDERS ARE IN TURN DEPENDENT UPON THE
MARKET SUCCESS OF THOSE PARTICULAR PRODUCTS -- A MATTER OVER WHICH THE COMPANY
HAS LITTLE INFLUENCE OR CONTROL.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective September 13, 1996, the Board of Directors of the Company adopted
the 1996 Stock Option Plan, which authorized option grants for the Company's
directors, officers, key employees and consultants to purchase up to an
aggregate of 125,000 shares of the Company's common stock. On December 17, 1996,
the Company's shareholders approved the plan. As of April 30, 1997, options for
an aggregate of 107,500 shares were outstanding under the plan.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNETIC TECHNOLOGIES CORPORATION
Date: June 11, 1997 By: /s/ Gordon H. McNeil
- --------------------------------- -----------------------------------------
Gordon H. McNeil, President and
Principal Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 803,427
<SECURITIES> 0
<RECEIVABLES> 1,543,898
<ALLOWANCES> 128,033
<INVENTORY> 3,756,282
<CURRENT-ASSETS> 6,429,317
<PP&E> 5,800,573
<DEPRECIATION> 4,096,038
<TOTAL-ASSETS> 9,163,850
<CURRENT-LIABILITIES> 3,837,806
<BONDS> 0
<COMMON> 417,977
0
0
<OTHER-SE> 3,360,177
<TOTAL-LIABILITY-AND-EQUITY> 9,163,850
<SALES> 15,921,114
<TOTAL-REVENUES> 15,921,114
<CGS> 13,279,317
<TOTAL-COSTS> 13,279,317
<OTHER-EXPENSES> 1,658,358
<LOSS-PROVISION> 9,000
<INTEREST-EXPENSE> 166,420
<INCOME-PRETAX> 808,019
<INCOME-TAX> 65,500
<INCOME-CONTINUING> 742,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 742,519
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
