SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MARCH 18, 2005
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EMRISE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 001-10346 77-0226211
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
9485 HAVEN AVENUE, SUITE 100, RANCHO CUCAMONGA, CALIFORNIA 91730
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 987-9220
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
On March 1, 2005, Emrise Corporation ("Emrise") and XCEL Corporation
Limited, a second-tier wholly-owned subsidiary of Emrise ("XCEL"), entered into
an agreement ("Purchase Agreement") to acquire all of the issued and outstanding
capital stock of Pascall Electronic (Holdings) Limited ("PEHL"). The closing of
the purchase occurred on March 18, 2005. Emrise loaned to XCEL the funds that
XCEL used to purchase PEHL. PEHL has one wholly-owned subsidiary, Pascall
Electronics Limited ("Pascall"), which produces, designs, develops, manufactures
and sells power supplies and radio frequency products for a broad range of
applications, including in-flight entertainment systems and military programs.
Under the Purchase Agreement, XCEL purchased all of the outstanding
capital stock of PEHL, using funds loaned to XCEL by Emrise. The purchase price
for the acquisition totaled $9,669,000, subject to adjustments as described
below, and included a $5,972,000 cash payment to PEHL's former parent, a
$3,082,000 loan to PEHL and Pascall and approximately $615,000 in acquisition
costs, as described below.
The initial portion of the purchase price was 3,100,000 British pounds
sterling (approximately U.S. $5,972,000 based on the exchange rate in effect on
March 18, 2005). The initial portion of the purchase price was paid in cash at
the closing and is subject to upward or downward adjustment on a pound for pound
basis to the extent that the value of the net assets of Pascall as of the
closing date was greater or less than 2,520,000 British pounds sterling.
On May 6, 2005, Emrise submitted to Intelek Properties Limited (which
is a subsidiary of Intelek plc, a London Stock Exchange public limited company,
and is the former parent of PEHL), Emrise's calculation of the value of the net
assets of Pascall as of the closing date, which Emrise believes slightly
exceeded 2,520,000 British pounds sterling. Intelek Properties Limited has
indicated that its own calculation exceeds Emrise's calculation by approximately
100,000 British pounds sterling (approximately U.S. $193,000 based on the
exchange rate in effect on March 18, 2005). Emrise is working to resolve this
discrepancy. Any payment relating to the increase or reduction of the purchase
price based on the value of the net assets of Pascall will be due from XCEL or
Intelek Properties Limited, as the case may be, within 14 days of the acceptance
of the calculation. A default rate of interest equal to 3% above the base
lending rate of Barclays Bank plc London will apply if the adjustment payment is
not timely made. However, Emrise anticipates that any adjustment payment based
on this calculation will not be material to Emrise's financial results and that
it will be timely made. The purchase price is also subject to downward
adjustments for any payments that may be made to XCEL under indemnity, tax or
warranty provisions of the Purchase Agreement.
XCEL loaned to PEHL and Pascall at the closing 1,600,000 British pounds
sterling (approximately U.S. $3,082,000 based on the exchange rate in effect on
March 18, 2005) in accordance with the terms of a Loan Agreement entered into by
those entities at the closing. The loaned funds were used to immediately repay
outstanding intercompany debt owed by PEHL and Pascall to Intelek Properties
Limited.
Emrise and Intelek plc have agreed to guarantee payment when due of all
amounts payable by XCEL and Intelek Properties Limited, respectively, under the
Purchase Agreement. Emrise and XCEL agreed to seek to replace the guaranty that
Intelek Properties Limited has given to Pascall's landlord with a guaranty by
Emrise, and XCEL has agreed to indemnify Intelek Properties Limited and its
affiliates for damages they suffer as a result of any failure to obtain the
release of the guarantee of the 17-year lease that commenced in May 1999. The
leased property is a 30,000 square foot administration, engineering and
manufacturing facility located off the south coast of England.
2
Intelek Properties Limited has agreed to various restrictive covenants
that apply for various periods following the closing. The covenants include
non-competition with Pascall's business, non-interference with Pascall's
customers and suppliers, and non-solicitation of Pascall's employees. In
conjunction with the closing, Intelek Properties Limited, Intelek plc, XCEL, and
Emrise entered into a Supplemental Agreement dated March 18, 2005. The
Supplemental Agreement provides, among other things, that an interest-free
bridge loan of 200,000 British pounds sterling (approximately U.S. $385,000
based on the exchange rate in effect on March 17, 2005) that was made by Intelek
Properties Limited to Pascall on March 17, 2005 would be repaid by Pascall by
March 31, 2005. XCEL agreed to ensure that Pascall had sufficient funds to repay
the bridge loan. The bridge loan was repaid in full by Pascall on the March 31,
2005 due date.
The following table summarizes the unaudited assets acquired and
liabilities assumed in connection with this acquisition, including $615,000 in
acquisition costs:
Dollars
in Thousands
-------------
Current assets............................... $ 6,196
Property, plant and equipment................ 1,367
Intangibles, including goodwill.............. 4,721
-------------
Total assets acquired........................ 12,284
Current liabilities.......................... 2,535
Other liabilities............................ 80
-------------
Total liabilities assumed.................... 2,615
-------------
Net assets acquired.......................... $ 9,669
=============
The purchase price represented a significant premium over the recorded
net worth of Pascall's assets. In determining to pay this premium, we considered
various factors, including the opportunities that Pascall presented for us to
add radiofrequency ("RF") components and RF subsystem assemblies to our product
offerings, the marketing resources of Pascall in the United States power
supplies market, and expected synergies between Pascall's business and our
existing power supplies business.
In conjunction with the acquisition of Pascall, Emrise has selected a
valuation firm to determine what portion of the purchase price should be
allocated to identifiable intangible assets. The Company has considered whether
the acquisition included various types of identifiable intangible assets,
including trade names, trademarks, patents, covenants not to compete, customers,
workforce, technology and software. Emrise has estimated that the Pascall trade
name and trademark are valued at $50,000. Emrise has estimated that the
covenants not to compete that were obtained from Pascall's former affiliates are
valued at $100,000 in light of public statements made by those affiliates
indicating that they were strategically exiting the power supply business, which
Emrise believes result in a low probability that they would return to the power
supply business absent the covenants not to compete. Emrise believes that no
other identifiable intangible assets of significant value were acquired. The
Company has not ascribed any value to Pascall's customer base because Emrise's
United Kingdom subsidiary, XCEL Power Systems, Ltd., already sells to Pascall's
key customers. Pascall's workforce does not hold any special skills that are not
readily available from other sources. Emrise did not identify any valuable
completed technology that was acquired, because Pascall utilizes non-proprietary
technology to produce custom power supplies pursuant to customer specifications.
Pascall does not develop or design software and does not own software of any
material value.
Accordingly, Emrise has estimated that the goodwill associated with the
Pascall acquisition totaled $4,571,000. The Pascall trade name and trademark
were determined to have indefinite lives and therefore are not being amortized
but rather are being periodically tested for impairment. The covenants not to
compete will be amortized over their three-year duration. The valuation of the
identified intangible assets is expected to be completed during the quarter
ending September 30, 2005 and could result in changes to the value of these
identified intangible assets and corresponding changes to the value of goodwill.
However, Emrise does not believe these changes will be material to its financial
position or results of operations.
3
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
--------------------------------------------
The following financial statements of PEHL and its subsidiary are
included in this report:
Page
----
Report of Independent Auditors...............................................F-1
Consolidated Profit and Loss Account for the Period Ended 18 March
2005 and for the Twelve Months Ended 31 March 2004...........................F-2
Consolidated Balance Sheet at 18 March 2005 and 31 March 2004................F-3
Balance Sheet at 18 March 2005 and 31 March 2004.............................F-4
Consolidated Cash Flow Statement for the Period Ended 18 March 2005
and for the Twelve Months Ended 31 March 2004................................F-5
Notes to Consolidated Financial Statements for the Period
from 1 April 2004 to 18 March 2005 and for the Twelve Months
Ended 31 March 2004..........................................................F-6
4
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PASCALL ELECTRONIC (HOLDINGS)
LIMITED
We have audited the consolidated balance sheets and the company balance sheets
of Pascall Electronic (Holdings) Limited as at 18 March 2005 and 31 March 2004
and the consolidated profit and loss accounts and consolidated cash flows for
the period from 1 April 2004 to 18 March 2005 and for the year ended 31 March
2004. These financial statements are the responsibility of Pascall Electronic
(Holdings) Limited's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Pascall Electronic (Holdings)
Limited as at 18 March 2005 and 31 March 2004 and the results of its operations
and its cash flows for the period from 1 April 2004 to 18 March 2005 and for the
year ended 31 March 2004 in conformity with generally accepted accounting
principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effect of such
differences is presented in Note 29 to the financial statements.
GRANT THORNTON UK LLP
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
Northampton, England
26 May 2005
F-1
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
CONSOLIDATED PROFIT AND LOSS ACCOUNT
PERIOD YEAR
ENDED ENDED
18 MARCH 2005 31 MARCH 2004
NOTE (POUNDS) (POUNDS)
TURNOVER 2 5,577,648 6,650,278
Cost of sales (4,864,212) (5,642,113)
----------- -----------
GROSS PROFIT 713,436 1,008,165
----------- -----------
Administrative expenses (including an exceptional
charge of (pounds)241,976 - see Note 4) (712,958) (707,735)
Distribution costs (591,262) (454,760)
Other operating income 3 108,880 120,972
----------- -----------
(1,195,340) (1,041,523)
----------- -----------
OPERATING LOSS 4 (481,904) (33,358)
Exceptional item-gain on disposal of dormant subsidiaries 5 315,686 --
----------- -----------
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAXATION (166,218) (33,358)
Bank interest (59,344) (37,369)
----------- -----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (225,562) (70,727)
Tax on loss on ordinary activities 7 191,623 44,944
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (33,939) (25,783)
Equity dividends 9 -- (39,000)
----------- -----------
RETAINED LOSS FOR THE PERIOD 19 (33,939) (64,783)
=========== ===========
All of the activities of the group are classed as continuing.
There were no recognised gains or losses other than the loss for the financial
period.
The accompanying accounting policies and notes form an
integral part of these financial statements.
F-2
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
CONSOLIDATED BALANCE SHEET
18 MARCH 31 MARCH
2005 2004
NOTE (POUNDS) (POUNDS)
FIXED ASSETS
Tangible assets 10 709,719 810,007
----------- -----------
CURRENT ASSETS
Stocks 12 1,451,595 1,013,377
Debtors 13 1,871,930 1,782,160
Cash at bank and in hand 170,150 475,767
----------- -----------
3,493,675 3,271,304
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 14 (3,395,842) (3,220,309)
----------- -----------
NET CURRENT ASSETS 97,833 50,995
----------- -----------
TOTAL ASSETS LESS CURRENT LIABILITIES 807,552 861,002
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 15 (20,219) (39,730)
----------- -----------
NET ASSETS 787,333 821,272
----------- -----------
CAPITAL AND RESERVES
Called up share capital 17 364,711 364,711
Share premium account 18 68,856 68,856
Capital redemption reserve 18 312,714 312,714
Profit and loss account 18 41,052 74,991
----------- -----------
SHAREHOLDERS' FUNDS 19 787,333 821,272
----------- -----------
Equity 647,013 680,952
Non-equity 140,320 140,320
----------- -----------
787,333 821,272
=========== ===========
The financial statements were approved by the Board of Directors on 26 May 2005.
Director: Carmine T. Oliva.
The accompanying accounting policies and notes form an
integral part of these financial statements.
F-3
PASCALL ELECTRONIC (HOLDINGS) LIMITED (PARENT COMPANY ONLY)
BALANCE SHEET
18 MARCH 31 MARCH
2005 2004
NOTE (POUNDS) (POUNDS)
FIXED ASSETS
Investments 11 746,499 585,548
--------- ---------
CURRENT ASSETS
Debtors 13 -- 759,703
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 14 -- (598,970)
--------- ---------
NET CURRENT ASSETS -- 160,733
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 746,499 746,281
========= =========
CAPITAL AND RESERVES
Called up share capital 17 364,711 364,711
Share premium account 18 68,856 68,856
Capital redemption reserve 18 312,714 312,714
Profit and loss account 18 218 --
--------- ---------
SHAREHOLDERS' FUNDS 746,499 746,281
========= =========
Equity 606,179 605,961
Non-equity 140,320 140,320
--------- ---------
746,499 746,281
========= =========
The financial statements were approved by the Board of Directors on 26 May 2005.
Director: Carmine T. Oliva.
The accompanying accounting policies and notes form an
integral part of these financial statements.
F-4
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
CONSOLIDATED CASH FLOW STATEMENT
PERIOD YEAR
ENDED ENDED
18 MARCH 2005 31 MARCH 2004
NOTE (POUNDS) (POUNDS)
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 20 360,759 (233,832)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (61,868) (35,613)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (61,868) (35,613)
--------- ---------
TAXATION 20 149,858
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (183,488) (84,542)
Sale of tangible fixed assets 39,657 62,433
--------- ---------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (143,831) (22,109)
--------- ---------
ACQUISITIONS AND DISPOSALS
Sale of subsidiary undertakings 76,000 --
--------- ---------
NET CASH INFLOW FROM ACQUISITIONS AND DISPOSALS 76,000 --
--------- ---------
EQUITY DIVIDENDS PAID (39,000) --
FINANCING
Capital elements of finance lease rentals (41,544) (36,073)
--------- ---------
NET CASH OUTFLOW FROM FINANCING (41,544) (36,073)
--------- ---------
INCREASE/(DECREASE) IN CASH 21 150,536 (177,769)
========= =========
The accompanying accounting policies and notes form an
integral part of these financial statements.
F-5
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
1. PRINCIPAL ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial statements are prepared in accordance with applicable
United Kingdom accounting standards and under the historical cost
convention. During the latest period presented, the company changed its
fiscal year end to 18 March from 31 March.
The principal accounting policies of the group are set out below. The
policies have remained unchanged from the previous year.
BASIS OF CONSOLIDATION
The "group" financial statements consolidated those of the company,
being Pascall Electronic (Holdings) Limited, and its subsidiary
undertaking (see Note 11) drawn up to 18 March 2005. Acquisitions of
subsidiaries are dealt with by the acquisition method of accounting.
GOODWILL
Goodwill arising on consolidation representing the excess of the fair
value of the consideration given over the fair values of the
identifiable net assets acquired, is capitalised and is amortised on a
straight line basis over its estimated useful economic life. Negative
goodwill is written back to the profit and loss account to match the
recovery of the non-monetary assets acquired.
As a matter of accounting policy, purchased goodwill first accounted
for in accounting periods ending before 23 December 1998, the
implementation date of Financial Reporting Standard No 10, was
eliminated from the financial statements by immediate write-off on
acquisition against reserves. Such goodwill will be charged or credited
to the profit and loss account on the subsequent disposal of the
business to which it relates.
TURNOVER
Turnover consists of the invoiced value (excluding VAT) for goods and
services supplied in the period.
RESEARCH AND DEVELOPMENT
Research and development expenditure is written off in the period in
which it is incurred.
F-6
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost or valuation, net of
depreciation and any provision for impairment.
Depreciation is calculated to write down the cost less estimated
residual value of all tangible fixed assets over their useful economic
lives. Where there is evidence of impairment, fixed assets are written
down to their recoverable amount. The principal annual rates used are
as follows:
Short leasehold property life of lease
Plant and machinery 10%-25% Straight line
Motor vehicles 25% Reducing balance
STOCKS AND WORK IN PROGRESS
Stocks and work in progress are stated at the lower of cost and net
realisable value. Cost is determined on a first-in first-out basis. The
cost of work in progress and finished goods comprises materials, direct
labour and attributable production overheads. Net realisable value is
based on estimated sales price after allowing for all further costs of
completion and disposal.
DEFERRED TAXATION
Deferred tax is provided, except as noted below, on timing differences
that have arisen but not reversed by the balance sheet date, where the
timing differences result in an obligation to pay more tax, or a right
to pay less tax, in the future. Timing differences arise because of
differences between the treatment of certain items for accounting and
taxation purposes.
In accordance with FRS 19 deferred tax is not provided on timing
differences arising from:
a) revaluation gains on land and buildings, unless there is a
binding agreement to sell them at the balance sheet date; and
b) gains on the sale of non-monetary assets, where on the basis of
all available evidence it is more likely than not that the
taxable gain will be rolled over into replacement assets.
Deferred tax assets are recognised to the extent that it is regarded as
more likely than not that they will be recovered.
Deferred tax is measured at the tax rates that are expected to apply in
the periods when the timing differences are expected to reverse, based
on tax rates and law enacted or substantively enacted at the balance
sheet date. Deferred tax assets and liabilities are not discounted.
F-7
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the rate of exchange
at the date of the transaction, or if hedged at the forward contract
rate. Monetary assets and liabilities denominated in foreign currency
are translated into sterling at the rate of exchange ruling at the
balance sheet date, or if hedged the forward contract rate. All
exchange differences are recognised in the profit and loss account.
GOVERNMENT GRANTS
Grants in respect of fixed assets are credited to the profit and loss
account in equal annual instalments over the useful lives of the assets
concerned.
Other grants are credited to the profit and loss account in the same
year as the expenditure to which they contribute.
LEASED ASSETS
Fixed assets subject to finance leases are capitalised and depreciated
in accordance with the depreciation policy stated above. The
corresponding liability for the capital element is included in
creditors, and the interest, calculated on a straight line basis, is
charged against profits over the period of the lease. The rental and
operating lease costs of all other assets are charged against profit
before interest, as incurred.
RETIREMENT BENEFITS
DEFINED CONTRIBUTION PENSION SCHEME
The pension costs charged against operating profits are the
contributions payable to the scheme in respect of the accounting
period.
DEFINED BENEFIT PENSION SCHEME
Pascall Electronics Limited, the trading subsidiary of Pascall
Electronic (Holdings) Limited, participated in the Intelek plc Group
Defined Benefit Pension Scheme.
Prior to the cessation of Pascall Electronics Limited's participation
in the Intelek plc Group Defined Benefit Pension Scheme on 18 March
2005, in accordance with SSAP 24, contributions to the scheme were
charged to profits on the recommendation of a qualified actuary using
the defined accrued benefit method so as to spread the cost of pensions
over the anticipated service lives of scheme members. Deferred tax is
fully accounted for on any difference between accumulated pension costs
charged against profits and accumulated contributions paid.
F-8
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
2. TURNOVER BY GEOGRAPHICAL MARKET
Turnover is wholly attributable to the principal activity of the group.
An analysis of turnover by geographical market is given below:
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
European Community (excluding UK) 153,147 157,703
Rest of Europe -- 5,964
North America 3,405,990 4,797,849
South America 235 21,620
Asia 716,695 846,371
Africa 27,486 13,249
---------- ----------
Export sales 4,303,553 5,842,756
United Kingdom 1,274,095 807,522
---------- ----------
5,577,648 6,650,278
========== ==========
3. OTHER OPERATING INCOME
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Rental income 87,662 99,972
DTI Grant 21,000 21,000
Other 218 --
---------- ----------
108,880 120,972
========== ==========
F-9
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
4. OPERATING LOSS
The operating loss is arrived at after charging/(crediting):
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Depreciation of tangible fixed assets 283,131 287,038
Auditors' remuneration - audit services 23,669 9,500
Research and development 645,125 641,000
Operating lease rentals
- plant and machinery 9,231 9,662
- land and buildings 331,557 313,625
Loss on sale of fixed assets 2,628 20,044
Deferred income from Government Grants (21,000) (21,000)
Exceptional item - write-off of
pension prepayment 241,976 --
========= =========
On 18 March 2005 the company ceased its participation in the Intelek
plc group pension scheme. As a result the company no longer
participates in a defined benefit pension scheme.
Accordingly, the SSAP 24 prepayment amounting to (pounds)241,976
recognised in the prior year accounts has been charged to the profit
and loss account through administrative expenses as an exceptional item
for the period ended 18 March 2005. The related deferred tax liability
of (pounds)72,593 has been released to the profit and loss account.
5. EXCEPTIONAL ITEMS
On 22 February 2005 the subsidiary undertaking, Pascall Microwave
Limited, was sold for consideration of (pounds)1 to the ultimate parent
undertaking at that time, being Intelek plc. The gain arising on
disposal amounted to (pounds)315,685.
F-10
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
6. DIRECTORS AND EMPLOYEES
The average number of staff employed by the group during the period,
including directors was:
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
Production and ancillary 92 93
Administration and sales 16 15
---------- ----------
108 108
========== ==========
Staff costs during the period were as follows:
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Wages and salaries 2,277,533 2,264,745
Social security costs 212,066 212,786
Other pension costs 338,082 101,734
---------- ----------
2,827,681 2,579,265
========== ==========
F-11
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
6. DIRECTORS AND EMPLOYEES (CONTINUED)
Remuneration in respect of directors was as follows:
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Emoluments 211,010 221,186
Pension contributions to money
purchase schemes 12,667 11,795
-------- --------
223,677 232,981
======== ========
The emoluments of the highest paid director excluding pension
contributions were (pounds)76,122 (2004: (pounds)96,502).
Pension contributions for the highest paid director were (pounds)4,106
(2004: (pounds)5,055).
There were two directors accruing benefits under a money purchase
scheme (2004: 6).
F-12
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
7. TAXATION ON LOSS ON ORDINARY ACTIVITIES
(a) Analysis of charge in the period
TWELVE
PERIOD MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
CURRENT TAX:
UK corporation tax based at 30% (2004: 30%) -- --
Adjustment in respect of prior year -- (66,808)
Group relief
Adjustment in respect of prior year -- 32,055
--------- --------
Total current tax -- (34,753)
DEFERRED TAXATION:
Origination and reversal of timing differences (191,623) (10,191)
--------- --------
Taxation on loss on ordinary activities (191,623) (44,944)
========= ========
Unrelieved tax losses of (pounds)240,000 remain available to offset
against future taxable trading profits.
F-13
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
7. TAXATION ON LOSS ON ORDINARY ACTIVITIES (CONTINUED)
(b) Factors affecting current tax charge
The tax assessed on the loss on ordinary activities for the period is
higher than the standard rate of corporation tax in the UK of 30%
(2004: 30%). The differences are explained as follows:
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Loss on ordinary activities before taxation (225,562) (70,727)
========= ========
Loss on ordinary activities multiplied by
standard rate of corporation tax in the
UK of 30% (2004: 30%) (67,669) (21,218)
Effects of:
Research and development tax credit (33,856) (22,780)
Expenses not deductible for tax purposes 76,525 5,081
Non taxable gains on disposal of dormant subsidiaries (94,706) --
Capital allowances in excess of depreciation 14,881 14,858
Creation of tax losses 72,167 --
Other timing differences 32,658 18,739
Group losses not paid for -- 5,320
Adjustments in respect of prior years -- (34,753)
--------- --------
Total current tax (note 7(a)) -- (34,753)
========= ========
8. PROFIT FOR THE FINANCIAL YEAR
The parent company has taken advantage of section 230 of the Companies
Act 1985 and has not included its own profit and loss account in these
financial statements. The parent company's profit for the year was
(pounds)218 (2004: (pounds)Nil).
F-14
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
9. DIVIDENDS
TWELVE
PERIOD MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Equity dividends:
Ordinary shares - proposed final dividend
of Nil per share (2004: 17.38p) -- 39,000
======== ========
10. TANGIBLE FIXED ASSETS
SHORT
LEASEHOLD
LAND AND PLANT AND MOTOR
BUILDINGS MACHINERY VEHICLES TOTAL
THE GROUP (POUNDS) (POUNDS) (POUNDS) (POUNDS)
COST
At 1 April 2004 251,477 3,278,730 85,949 3,616,156
Additions -- 196,170 28,958 225,128
Disposals -- (9,457) (55,913) (65,370)
----------- ----------- ----------- -----------
At 18 March 2005 251,477 3,465,443 58,994 3,775,914
----------- ----------- ----------- -----------
DEPRECIATION
At 1 April 2004 94,473 2,683,423 28,253 2,806,149
Charge for the period 12,296 254,902 15,933 283,131
Disposals -- -- (23,085) (23,085)
----------- ----------- ----------- -----------
At 18 March 2005 106,769 2,938,325 21,101 3,066,195
----------- ----------- ----------- -----------
NET BOOK VALUE
At 18 March 2005 144,708 527,118 37,893 709,719
=========== =========== =========== ===========
At 31 March 2004 157,004 595,307 57,696 810,007
=========== =========== =========== ===========
F-15
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
10. TANGIBLE FIXED ASSETS (CONTINUED)
The figures stated above include assets held under finance leases and
similar hire purchase contract as follows:
(POUNDS)
Net book value at 18 March 2005 81,409
========
Net book value at 31 March 2004 84,666
========
Depreciation provided in the period 31,257
========
THE COMPANY
The company held no fixed assets at 18 March 2005 or 31 March 2004.
F-16
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
11. FIXED ASSET INVESTMENTS
SHARES IN
SUBSIDIARY
UNDERTAKINGS
(POUNDS)
THE COMPANY
Cost
At 1 April 2004 585,548
Additions 236,951
Disposals (76,000)
---------
At 18 March 2005 746,499
=========
NET BOOK VALUE
At 18 March 2005 746,499
=========
At 31 March 2004 585,548
=========
At 18 March 2005 the company held more than 20% of the allotted share
capital of the following subsidiary undertaking:
PROPORTION
CLASS OF SHARE HELD BY
SUBSIDIARY UNDERTAKING CAPITAL HELD COMPANY NATURE OF BUSINESS
Pascall Electronics Ordinary 100% Design, development and
Limited manufacture of electronic
instruments, components and
sub systems
The subsidiary undertaking is consolidated within these financial
statements under the acquisition method of accounting.
F-17
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
12. STOCKS
THE GROUP
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Raw materials and consumables 401,273 399,019
Work in progress 743,872 339,989
Finished goods and goods for resale 306,450 274,369
---------- ----------
1,451,595 1,013,377
========== ==========
THE COMPANY
The company had no stocks at 18 March 2005 or 31 March 2004.
13. DEBTORS
THE GROUP
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Trade debtors 1,525,256 1,391,867
Amounts owed by group undertakings -- --
Other debtors 21,421 14,142
Prepayments and accrued income 102,886 345,387
Taxation recoverable 26,153 26,173
Deferred tax asset (Note 16) 196,214 4,591
---------- ----------
1,871,930 1,782,160
========== ==========
Included in prepayments is a SSAP 24 pension prepayment of (pounds)Nil
(2004: (pounds)241,976).
THE COMPANY
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Amounts owed by group undertakings -- 759,703
F-18
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
14. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
THE GROUP 18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Bank overdrafts 140,657 596,810
Obligations under finance leases 50,194 30,587
Trade creditors 846,251 789,836
Amounts owed to group undertakings 1,600,000 1,178,877
Other taxation and social security 129,809 128,054
Other creditors 7,848 2,983
Proposed dividend -- 39,000
Accruals and other deferred income 621,083 454,162
---------- ----------
3,395,842 3,220,309
========== ==========
Amounts payable under finance leases and hire purchase contracts are
secured upon the assets to which they relate.
THE COMPANY
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Amounts owed to group undertakings -- 598,970
========== ==========
15. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
THE GROUP 18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Obligations under finance leases
- one to two years 20,219 39,730
========== ==========
THE COMPANY
The company had no liabilities due in greater than one year at 18 March
2005 or 31 March 2004.
F-19
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
16. DEFERRED TAXATION
THE GROUP DEFERRED
TAX ASSET
(POUNDS)
At 1 April 2004 4,591
Reversed during period 191,623
--------
At 18 March 2005 196,214
========
The deferred tax asset recognised in the financial statements is set
out below:
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Accelerated capital allowances 42,805 28,824
Other timing differences 81,243 (26,263)
Losses 72,166 2,030
-------- -------
196,214 4,591
======== =======
THE COMPANY
The company had no deferred tax assets or liabilities at 18 March 2005
or 31 March 2004.
F-20
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
17. SHARE CAPITAL
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
AUTHORISED
307,190 ordinary shares of (pounds)1 each 307,190 307,190
215,250 9 1/2% redeemable convertible cumulative preference
shares of (pounds)1 each 215,250 215,250
300,640 10% non-cumulative preference shares of (pounds)1 each 300,640 300,640
------- -------
823,080 823,080
======= =======
ALLOTTED, CALLED UP AND FULLY PAID
224,391 ordinary shares of (pound)1 each 224,391 224,391
140,320 10% non-cumulative preference shares of (pound)1 each 140,320 140,320
------- -------
364,711 364,711
======= =======
Rights of non-equity shareholders:
The holders of the 10% non-cumulative preference shares are entitled to
be paid a fixed non-cumulative preferential dividend at the rate of 10%
per annum out of the profits of the company resolved to be distributed
in respect of that period.
On a winding up the holders of the 10% non-cumulative preference shares
would have a right to receive out of the assets available for
distribution, repayment in full of the nominal amount paid up on these
preference shares in priority to all other shares of the company. There
is no other right to participate in the profits or assets of the
company under such circumstances.
The preference shares do not confer on the holders the right to receive
notices of, or to attend or vote at, general meetings of the company
unless a resolution for the winding up of the company shall be proposed
and then only on such resolution.
F-21
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
18. SHARE PREMIUM ACCOUNT AND RESERVES
SHARE CAPITAL PROFIT
PREMIUM REDEMPTION AND LOSS
ACCOUNT RESERVE ACCOUNT
THE GROUP (POUNDS) (POUNDS) (POUNDS)
At 1 April 2004 68,856 312,714 74,991
Loss for the period -- -- (33,939)
-------- -------- --------
At 18 March 2005 68,856 312,714 41,052
======== ======== ========
SHARE CAPITAL PROFIT
PREMIUM REDEMPTION AND LOSS
ACCOUNT RESERVE ACCOUNT
THE COMPANY (POUNDS) (POUNDS) (POUNDS)
At 1 April 2004 68,856 312,714 --
Profit for the period -- -- 218
-------- -------- --------
At 18 March 2005 68,856 312,714 218
======== ======== ========
The cumulative amount of goodwill arising from acquisitions accounted
for in years ending before 23 December 1998 which has been written off
to group reserves, net of goodwill charged or credited to the profit
and loss account on subsequent disposal of the business to which it
related is (pounds)280,797 (2004: (pounds)280,797).
The balance on the share premium account and capital redemption reserve
may not be distributed legally under the Companies Act 1985.
F-22
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
19. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Loss for the financial period (33,939) (25,783)
Dividends - (39,000)
--------- --------
Net decrease in shareholders' funds (33,939) (64,783)
Shareholders' funds at 1 April 2004 821,272 886,055
--------- --------
Shareholders' funds at 18 March 2005 787,333 821,272
========= ========
20. NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Operating loss (481,904) (33,358)
Depreciation 283,131 287,038
Profit on sale of fixed assets 2,628 20,044
(Increase)/decrease in stock (438,218) 126,596
Decrease/(increase) in debtors 341,519 (379,651)
Increase/(decrease) in creditors 653,603 (254,501)
--------- ---------
Net cash inflow/(outflow) from operating activities 360,759 (233,832)
========= =========
F-23
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
21. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
PERIOD TWELVE MONTHS
ENDED ENDED
18 MARCH 31 MARCH
2005 2004
(POUNDS) (POUNDS)
Increase/(decrease) in cash in year 150,536 (177,769)
Cash outflow from finance leases 41,544 36,073
--------- ---------
Change in net debt resulting from cash flows 192,080 (141,696)
Inception of finance leases (41,640) (106,390)
--------- ---------
Movement in net debt in the year 150,440 (248,086)
Net debt at 1 April 2005 (191,360) 56,726
--------- ---------
Net debt at 18 March 2005 (40,920) (191,360)
========= =========
22. ANALYSIS OF CHANGES IN NET DEBT
AT AT
1 APRIL CASH FLOW NON-CASH 18 MARCH
2004 (POUNDS) ITEMS 2005
(POUNDS) (POUNDS) (POUNDS)
Cash at bank and in hand 475,767 (305,617) -- 170,150
Overdrafts (596,810) 456,153 -- (140,657)
--------- --------- -------- ---------
(121,043) 150,536 -- 29,493
Finance leases (70,317) 41,544 (41,640) (70,413)
--------- --------- -------- ---------
(191,360) 192,080 (41,640) (40,920)
========= ========= ======== =========
F-24
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
23. DISPOSALS
During the period the group disposed of its interest in Pascall
Microwave Limited and Pascall Electronic Systems Limited. Group profits
include (pounds)Nil earned by Pascall Microwave Limited and Pascall
Electronic Systems Limited up to their date of disposal on 22 February
2005. The net assets/(liabilities) on the date of disposal were:
PASCALL
PASCALL ELECTRONIC
MICROWAVE SYSTEMS
LIMITED LIMITED
(POUNDS) (POUNDS)
Debtors 796,699 2,205
Creditors (720,701) (317,889)
--------- ---------
75,998 (315,684)
Profit on disposal 1 315,685
--------- ---------
75,999 1
--------- ---------
Satisfied by:
Cash 75,999 1
--------- ---------
Pascall Microwave Limited and Pascall Electronic Systems Limited were
dormant for the period ended 18 March 2005 and the year ended 31 March
2004 and therefore made no contribution to group cash flows.
Analysis of the net cash inflow of cash in respect of disposals during
the period:
2005 2004
(POUNDS) (POUNDS)
Cash consideration 76,000 --
========= =========
F-25
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
24. RETIREMENT BENEFITS
DEFINED CONTRIBUTION PENSION SCHEME
The group operates a defined contribution pension scheme for the
benefit of the employees. The assets of the scheme are administered by
trustees in a fund independent from those of the group.
DEFINED BENEFIT PENSION SCHEME
On 18 March 2005, Intelek plc, the group's ultimate parent undertaking
for the period to that date, undertook to meet Pascall Electronics
Limited's proportion of the scheme deficit at that date. The potential
liability has not yet been finalised by the scheme's actuaries, but it
is not expected to exceed (pounds)800,000.
Since the period-end a sum in excess of this amount has been paid over
to the Trustees of the scheme by Intelek plc to meet Pascall
Electronics Limited's proportion of the deficit arising in the scheme.
Furthermore the scheme trustees have given an undertaking discharging
Pascall Electronics Limited from any further liability to the Scheme.
At 1 April 2004, the financial statements included a prepayment in
respect of scheme contributions of (pounds)241,976 as required by SSAP
24. As at 18 March 2005 following agreement by Intelek plc to make up
the shortfall for the elements of the scheme attributable to Pascall
Electronics Limited, this prepayment was written off to the profit and
loss account.
Full disclosures as required by SSAP 24 and FRS 17 transitional
disclosures are given in the financial statements of Intelek plc.
F-26
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
25. FINANCIAL COMMITMENTS
CAPITAL COMMITMENTS
Capital expenditure commitments are as follows:
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Contracted for, but not provided in the accounts 712 1,188
======== ========
OPERATING LEASE COMMITMENTS
The payments which the group is committed to make in the next year
under operating leases are as follows:
(i) Land and buildings, leases expiring
beyond five years 276,530 298,500
======== ========
(ii) Other assets, leases expiring
within one year 5,334 --
one to five years 5,705 8,054
-------- --------
11,039 8,054
======== ========
26. CONTINGENT LIABILITIES
The group has entered into foreign exchange commitments totalling
(pounds)2,178,000 (2004: (pounds)1,539,000).
27. RELATED PARTY DISCLOSURES
The group has taken advantage of the exemption offered by FRS 8 not to
disclose transactions with other group companies on the grounds that it
is a wholly owned subsidiary and group accounts are publicly available
from the registered office of the ultimate parent undertaking.
F-27
PASCALL ELECTRONIC (HOLDING) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
28. ULTIMATE PARENT UNDERTAKING
The company's immediate parent undertaking is Xcel Corporation Limited.
The company's ultimate parent undertaking was Intelek plc for the year
ended 31 March 2004 and for the period to 18 March 2005. Intelek plc is
a company incorporated in the United Kingdom.
At 18 March 2005, the company's ultimate parent undertaking changed
from Intelek plc to Emrise Corporation, a company incorporated in the
United States of America. The largest group of undertakings for which
group accounts are drawn up is that headed by Emrise Corporation.
Copies of the consolidated financial statements of Emrise Corporation
and Intelek plc are available from the registered office of the
relevant company.
F-28
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
29. SUMMARY OF CERTAIN DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA
The financial statements are prepared in conformity with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP") which
differ in certain respects from accounting principles generally
accepted in the United States of America ("U.S. GAAP").
The following is a summary of the significant adjustments to loss on
ordinary activities and shareholders' funds when reconciling amounts
recorded in the financial statements to the corresponding amounts in
accordance with U.S. GAAP. There are no differences between turnover
recorded in the financial statements and the corresponding amounts in
accordance with U.S. GAAP.
PERIOD YEAR
ENDED ENDED
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Loss on ordinary activities under U.K. GAAP (33,939) (25,783)
U.S. GAAP adjustments:
Adjustments under SFAS No. 133-Derivatives (a) 61,717 (2,471)
Provision for compensated absences (b) 2,781 1,338
Adjustment to pension charge (c) 169,383 (59,483)
Elimination of gain on disposal of dormant
subsidiaries (d) (315,686) --
-------- --------
Loss on ordinary activities under U.S. GAAP (115,744) (86,399)
======== ========
18 MARCH 2005 31 MARCH 2004
Shareholders' funds under U.K. GAAP 787,333 821,272
U.S. GAAP adjustments:
Adjustments under SFAS No. 133-Derivatives (a) 56,871 (4,846)
Provision for compensated absences (b) (15,991) (18,772)
Elimination of pension asset (c) -- (169,383)
Elimination of dividend provision (e) -- 39,000
Adjustment to record goodwill previously written
off to group reserves (f) 42,000 42,000
-------- --------
Shareholders' funds under U.S. GAAP 870,213 709,271
======== ========
The following table reflects the effects on balance sheet line items as
a result of the adjustments listed above. The effects on shareholders'
funds are reflected in the table above.
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
Debtors under U.K. GAAP 1,871,930 1,782,160
U.S. GAAP adjustments:
Adjustments under SFAS No. 133-Derivatives (a) 56,871 (4,846)
Elimination of pension asset (c) - (169,383)
-------- ---------
Debtors under U.S. GAAP 1,928,801 1,607,931
========= =========
Creditors: Amounts falling due within one year
under U.K. GAAP 3,395,842 3,220,309
U.S. GAAP adjustments:
Provision for compensated absences (b) 15,991 18,772
Elimination of dividend provision (e) - (39,000)
-------- ---------
Creditors: Amounts falling due within one year
under U.S. GAAP 3,411,833 3,200,081
========= =========
Goodwill under U.K. GAAP - -
U.S. GAAP adjustments:
Adjustment to record goodwill previously
written off to group reserves (f) 42,000 42,000
-------- ---------
Goodwill under U.S. GAAP 42,000 42,000
======= ========
F-29
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
(a) Adjustments under SFAS No. 133-Derivatives
Under U.K. GAAP, at each balance sheet date, monetary assets and
liabilities denominated in a foreign currency may be translated at a
forward rate where there are related or matching forward contracts in
respect of trading transactions. Under U.K. GAAP the fair value of
derivatives is not permitted to be recognised on the balance sheet.
Under U.S. GAAP, Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments, requires the valuation of
monetary assets and liabilities at their fair value. Changes in fair
value are either reflected in current earnings or comprehensive income
depending on the nature of the derivative.
(b) Provision for compensated absences
Under U.K. GAAP, no provision is made for employee compensated
absences. Under U.S. GAAP provision is made for the cost of employee's
rights to compensated absences from work.
(c) Adjustment to pension charge and elimination of pension asset
The Intelek plc Group Defined Benefit Pension Scheme provided the same
defined benefits to the employees of all companies within the group,
including the company. The assets contributed by Intelek plc were
available to provide benefits to employees of all companies within the
group and were not segregated into separate accounts for each company
nor were assets restricted in any way to limit the benefits provided to
any one company within the group.
Intelek plc performed an actuarial calculation of the entire group's
pension cost in accordance with SSAP 24, "Accounting for Pension
Costs." In addition, the supplemental disclosure requirement of FRS 17,
"Retirement Benefits," was presented on a group level. Intelek plc
recorded a prepaid pension asset in accordance with the U.K. GAAP
requirements that permit the recognition of an asset if the net
periodic pension cost is less than the amounts the employer has
contributed to the scheme. Intelek plc allocated a portion of this
asset to the company based on an internal formula developed by Intelek
plc, which resulted in a prepaid pension asset on the books of the
company through 31 March 2004. The allocation of this asset was not
based on actuarial data because separate actuarial computations were
not performed for each company in the group. As described in Note 24,
under U.K. GAAP, the company recorded a charge to write off the pension
asset that was previously recorded under SSAP 24.
The characteristics of the scheme are similar to those of a
multiemployer pension plan that provides defined benefits under U.S.
GAAP. Under a multiemployer pension plan, the company would have been
required under U.S. GAAP to recognize as net period pension cost the
required contribution for the period, and any contributions due and
unpaid would have been reflected as a liability of the company. U.S.
GAAP would not have permitted the initial recording of the pension
asset. Accordingly, the pension asset was eliminated at 31 March 2004
for U.S. GAAP presentation. Also, the charge to write off the pension
asset recorded under U.K. GAAP in the period ended 18 March 2005 was
reversed in the U.S. GAAP reconciliation.
(d) Elimination of gain on disposal of dormant subsidiaries
During the period ended 18 March 2005, the company reported an
"exceptional item-gain on disposal of dormant subsidiaries" of
(POUNDS)315,686 in its Consolidated Profit and Loss Account.
Under U.K. GAAP, gains arising upon the disposal of a subsidiary
undertaking to a related party may be recognised in the profit and loss
account for the period. Under U.S. GAAP, gains arising upon the
disposal of a subsidiary undertaking to a related party must be
recognized directly in shareholders' funds and not included in the
calculation of net profit and loss..
(e) Elimination of dividend provision
Under U.K. GAAP, for accounting periods beginning before 1 January
2005, dividends not approved for payment prior to the year-end may be
provided for at the balance sheet date. Under U.S. GAAP, a dividend
must be approved prior to the year-end in order for it to be recorded
as a liability at the balance sheet date.
(f) Adjustment to record goodwill previously written off to group
reserves.
For acquisitions prior to 1998, U.K. GAAP permitted goodwill arising on
acquisitions to be written off directly to group reserves. Under U.S.
GAAP, the amount of goodwill required to be recognised would be
(pounds)42,000 at 18 March 2005 and 31 March 2004.
PRESENTATIONAL DIFFERENCES
BALANCE SHEET PRESENTATION
Under U.K. GAAP, assets in the balance sheet are presented in ascending
order of liquidity.
Under U.S. GAAP, assets are presented in descending order of liquidity.
F-30
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2004 TO 18 MARCH 2005 AND THE
TWELVE MONTHS ENDED 31 MARCH 2004
COMPREHENSIVE INCOME (LOSS)
The comprehensive loss under U.S. GAAP is the same as net loss under
U.S. GAAP for all periods presented.
CASH FLOW STATEMENT
As permitted by Item 17 of Form 20-F, the following statements of cash
flows were prepared in conformity with U.S. GAAP.
PERIOD YEAR
ENDED ENDED
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (115,744) (86,399)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization 283,131 287,038
Gain on sale of property, plant and equipment 2,628 20,044
Deferred income taxes (108,907) (87,307)
Changes in operating assets and liabilities:
Accounts receivable (173,994) (330,145)
Inventories (438,218) 126,596
Accounts payable and accrued expenses 811,015 (100,551)
Other liabilities -- 51,137
Cash provided by (used in) operating activities 259,911 (119,587)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of property, plant and equipment (183,488) (84,542)
Proceeds from sale of property, plant and equipment 39,657 62,433
Proceeds from sale of investments in subsidiary 76,000 --
Cash used in investing activities (67,831) (22,109)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings on bank overdraft (456,153) 469,284
Repayments of capital lease obligations (41,544) (36,073)
Cash provided by (used in) financing activities (497,697) 433,211
Net increase (decrease) in cash and cash equivalents (305,617) 291,515
Cash and cash equivalents at beginning of period 475,767 184,252
Cash and cash equivalents at end of period 170,150 475,767
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 61,868 35,613
Income taxes -- --
Noncash transactions:
Purchase of equipment under capital lease 41,640 106,390
Conversion of payable to Intelek plc into equity 315,684 --
========= ==========
F-31
PASCALL ELECTRONIC (HOLDINGS) LIMITED AND ITS SUBSIDIARY UNDERTAKINGS
NOTES TO THE FINANCIAL STATEMENTS
PERIOD FROM APRIL 1, 2004 TO MARCH 18, 2005 AND THE
TWELVE MONTHS ENDED MARCH 31, 2004
RELATED PARTY DISCLOSURES
U.S. GAAP requires the disclosure of related party transactions. The
following summarizes the related party balances and transactions for
each period with Intelek plc, the ultimate parent undertaking for the
period to 18 March 2005 and the year ended 31 March 2004:
AT AT
18 MARCH 2005 31 MARCH 2004
(POUNDS) (POUNDS)
---------- ----------
Non-interest bearing payable to Intelek plc 1,800,000 1,178,877
Of the (pounds)1,800,000 payable to Intelek plc at 18 March 2005,
(pounds)200,000 is included in trade creditors in Note 14. The
remaining (pounds)1,600,000 was replaced by debt payable to Xcel
Corporation Limited, the company's immediate parent undertaking at 18
March 2005.
During the period ended 18 March 2005 Intelek plc charged the group
(pounds)Nil(2004: (pounds)252,370) in respect of management charges.
On 22 February 2005 the group sold its interest in Pascall Microwave
Limited and Pascall Electronic Systems Limited for cash consideration
amounting to (pounds)76,000.
During the period ended 18 March 2005 Intelek plc converted payables
amounting to (pounds)315,684 into equity.
F-32
(b) Pro Forma Financial Information.
--------------------------------
As described in Item 2.01 of this report, effective as of March 18,
2005, XCEL acquired all of the issued and outstanding capital stock of PEHL. The
accompanying unaudited condensed consolidated statements of operations for the
periods ended March 31, 2005 and December 31, 2004 are set forth herein to give
effect to the acquisition of PEHL and Pascall as if the acquisition had been
consummated at the beginning of the earliest period presented (January 1, 2004).
A pro forma condensed consolidated balance sheet is not presented because the
balance sheets of PEHL and Pascall and related purchase accounting adjustments
were included in the financial statements included in Emrise's quarterly
report on Form 10-Q for the three months ended March 31, 2005, as amended.
Emrise previously acquired, effective as of July 13, 2004, all of
the issued and outstanding common stock of Larus Corporation. The accompanying
unaudited condensed consolidated statements of operations for the year ended
December 31, 2004 also give effect to the acquisition of Larus Corporation and
Larus Corporation's subsidiary as if that acquisition had been consummated at
January 1, 2004.
The acquisitions were accounted for under the purchase method of
accounting in accordance with accounting principles generally accepted in the
United States. Under this method, tangible and identifiable intangible assets
acquired and liabilities assumed are recorded at their estimated fair values.
The excess of the purchase price, plus estimated fees and expenses related to
the acquisitions, over the fair value of net assets acquired are recorded as
goodwill.
The unaudited pro forma condensed consolidated statements of operations
do not reflect any potential cost savings that were or may be realized following
the acquisitions. The pro forma adjustments and assumptions are based on
estimates, evaluations and other data currently available and, in Emrise's
opinion, provide a reasonable basis for the fair presentation of the estimated
effects directly attributable to the acquisition and related transactions. The
unaudited pro forma condensed consolidated statements of operations are provided
for illustrative purposes only and are not necessarily indicative of what the
consolidated results of operations or financial position would actually have
been had the acquisitions occurred on January 1, 2004, nor do they represent a
forecast of the consolidated results of operations or financial position for any
future period or date.
All information contained herein should be read in conjunction with
Emrise's annual report on Form 10-K for the year ended December 31, 2004, its
quarterly report on Form 10-Q for the three months ended March 31, 2005, as
amended, the consolidated financial statements and notes thereto of PEHL and
subsidiary included in Item 9.01(a) of this Form 8-K and the notes to unaudited
pro forma financial information included herein. The following pro forma
financial information is included in this report:
Page
----
Pro Forma Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 2005...................................F-1
Pro Forma Condensed Consolidated Statements of Operations for
the Year Ended December 31, 2004........................................F-3
5
EMRISE CORPORATION AND PASCALL ELECTRONIC (HOLDINGS) LIMITED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2005
(Dollars and Shares In Thousands, Except Per Share Data)
PRO FORMA
EMRISE PEHL ADJUSTMENT TOTALS
--------- --------- --------- ---------
Net sales ...................................... $ 7,299 $ 3,241 $ -- $ 10,540
Cost of sales .................................. 4,187 1,648 -- 5,835
--------- --------- --------- ---------
Gross profit ................................... 3,112 1,593 -- 4,705
Selling, general and administrative expenses ... 2,831 1,070 3 (a) 3,904
Engineering and product development expenses ... 532 359 -- 891
--------- --------- --------- ---------
Income (loss) from operations .................. (251) 164 (3) (90)
Total interest and other expense ............... (33) -- -- (33)
--------- --------- --------- ---------
Income (loss) before income taxes .............. (284) 164 (3) (123)
Income tax expense ............................. 66 -- -- 66
--------- --------- --------- ---------
Net income (loss) .............................. $ (350) $ 164 $ (3) $ (189)
========= ========= ========= =========
Loss per share - basic (b) ..................... $ (0.01) -- -- $ (0.01)
Loss per share - diluted (b) ................... $ (0.01) -- -- $ (0.01)
Shares outstanding - basic ..................... 36,788 -- 556 37,344
Shares outstanding - diluted ................... 36,788 -- 556 37,344
------------------
(a) Amortization of intangible assets (technology and customer relationships)
totaled $3 for the quarter based on the following estimated values and
service lives: trademarks - $50 and 5 years.
F-1
EMRISE CORPORATION AND PASCALL ELECTRONIC (HOLDINGS) LIMITED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2005
(Dollars and Shares In Thousands, Except Per Share Data)
(b) The following table summarizes the combined pro forma basic and diluted
loss per share as if Emrise had acquired PEHL as of January 1, 2005:
PRO FORMA
EMRISE PEHL ADJUSTMENT TOTALS
--------- --------- --------- ---------
Earnings (loss) per share
Numerator:
Net income (loss) attributable to common
stockholders $ (350) $ 164 $ (3) $ (189)
Denominator:
Weighted average number of common shares
outstanding during the period - basic 36,788 -- -- 36,788
Additional weighted average common shares
if private placement occurred at January
1, 2005 (considered necessary to acquire PEHL) -- -- 556 556
Adjusted weighted average shares 36,788 -- 556 37,344
Incremental shares from assumed
conversions of warrants, options and
preferred stock -- -- -- --
Adjusted weighted average shares 36,788 -- 556 37,344
Loss per share - basic ........................ $ (0.01) -- -- $ (0.01)
Loss per share - diluted ...................... $ (0.01) -- -- $ (0.01)
F-2
EMRISE CORPORATION AND PASCALL ELECTRONIC (HOLDINGS) LIMITED AND LARUS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
YEAR ENDED DECEMBER 31, 2004
(Dollars and Shares In Thousands, Except Per Share Data)
LARUS PRO FORMA
EMRISE CORPORATION PEHL ADJUSTMENT TOTALS
--------- --------- --------- --------- ---------
Net sales ............................. $ 29,861 $ 2,625 $ 13,574 -- $ 46,060
Cost of sales ......................... 16,146 1,260 10,659 (60) (a) 28,005
--------- --------- --------- --------- ---------
Gross profit .......................... 13,715 1,365 2,915 60 18,055
Selling, general and administrative
expenses ........................... 10,226 682 3,285 (15) (a) 14,228
-- -- -- 40 (b) --
-- -- -- 10 (c) --
Engineering and product development ... -- -- -- -- --
expenses ........................... 1,521 220 359 -- 2,100
--------- --------- --------- --------- ---------
Income (loss) from operations ......... 1,968 463 (729) 25 1,727
Interest expense ...................... (433) -- (110) (76) (d) (527)
-- -- -- (18) (e) --
-- -- -- 110 (f) --
Other expense, net .................... (6) (2) -- -- (4)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ..... 1,529 465 (839) 41 1,196
Income tax (benefit) expense .......... 49 181 (355) (7) (g) (132)
--------- --------- --------- --------- ---------
Net income (loss) ..................... $ 1,480 $ 284 $ (484) 48 $ 1,328
========= ========= ========= ========= =========
Earnings per share - basic (h) ........ $ 0.06 -- -- $ (0.02) $ 0.04
Earnings per share - diluted (h) ...... $ 0.06 -- -- $ (0.03) $ 0.03
Shares outstanding - basic (h) ........ 24,063 -- -- 13,718 37,781
Shares outstanding - diluted (h) ...... 24,839 -- -- 13,718 38,557
---------------
(a) Reduction of $60 rent allocated to manufacturing overhead and $15
allocated to selling and administration due to a recording of a
liability in purchase accounting for an unfavorable lease in the
Larus Corporation acquisition.
(b) Amortization of Larus Corporation intangible assets (technology and
customer relationships) totaled $40 for the year based on the following
estimated values and service lives: technology - $500 and 10 years;
customer relationships - $300 and 10 years.
(c) Amortization of Pascall intangible assets (trademarks) totaled $10 for
the year based on the following estimated values and service lives:
trademarks -$50 and 5 years.
(d) Increase in interest cost of $76 for long-term notes. The long-term
notes for $3,000 carry an interest rate of 30-day LIBOR plus 1.0%
(average interest rate of 5.0% would have resulted in interest expense
of $76 for the additional six month period).
(e) Increase of $18 in working capital interest. Working capital interest
is expected to be 5.0% of expected additional capital needs of
approximately $700 on an annual basis.
(f) Decrease in interest cost of $110 related to Pascall debt repaid as a
result of acquisition.
F-3
EMRISE CORPORATION AND PASCALL ELECTRONIC (HOLDINGS) LIMITED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 2004
(Dollars and Shares In Thousands, Except Per Share Data)
(g) Income tax effect of additional income from the pro forma adjustments
(h) The following table summarizes the combined pro forma basic and diluted
earnings per share as if Emrise had acquired Larus Corporation and PEHL
as of January 1, 2004:
LARUS PRO FORMA
EMRISE CORPORATION PEHL ADJUSTMENT TOTALS
--------- --------- --------- --------- ---------
Earnings per share
Numerator:
Net income (loss) attributable to
common stockholders $ 1,480 $ 284 $ (484) $ 48 $ 1,328
Denominator:
Weighted average number of common
shares outstanding during the
period - basic 24,063 -- -- -- 24,063
Common shares issued to acquire
Larus Corporation -- -- -- 1,214 1,214
Additional weighted average common
shares if private placement occurred at
January 1, 2004 (considered necessary to
acquire PEHL) -- -- -- 12,504 12,504
Adjusted weighted average shares
-basic 24,063 -- -- 13,718 37,781
Incremental shares from assumed
conversions of warrants, options
and preferred stock 776 -- -- -- 776
Adjusted weighted average shares 24,839 -- -- 13,718 38,557
Earnings per share - basic $ 0.06 -- -- $ (0.02) $ 0.04
Earnings per share - diluted $ 0.06 -- -- $ (0.03) $ 0.03
F-4
(c) Exhibits.
---------
Number Description
------ -----------
2.1 Agreement dated March 1, 2005 among Intelek Properties Limited,
XCEL Corporation Limited, Intelek PLC and Emrise Corporation
relating to the sale and purchase of the outstanding capital
shares of Pascall Electronic (Holdings) Limited (1)
2.2 Supplemental Agreement dated March 18, 2005 among Intelek
Properties Limited, XCEL Corporation Limited, Intelek PLC and
Emrise Corporation (1)
2.3 Loan Agreement dated March 18, 2005 among XCEL Corporation
Limited, Pascall Electronics Limited and Pascall Electronic
(Holdings) Limited (1)
------------------
(1) Filed as an exhibit to the initial filing of this Form 8-K.
6
SIGNATURE
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.
Date: June 13, 2005 EMRISE CORPORATION
By: /S/ CARMINE T. OLIVA
---------------------------------
Carmine T. Oliva, Acting Chief
Financial Officer
7