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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ x / Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended April 30, 1996, or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-16115
AIRSENSORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1039211
------------------------ ----------------------
(State of Incorporation) (IRS Employer ID. No.)
16804 Gridley Place, Cerritos, California 90703
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 860-6666
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock;
Common Stock Purchase Warrants; and
Units, consisting of one share of Common Stock
and one Common Stock Purchase Warrant
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
Approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 30, 1996 was $35,033,718.
Number of shares outstanding of each of the registrant's classes of common
stock, as of June 30, 1996:
5,683,190 shares of Common Stock
Documents incorporated by reference:
See Item 14
Information required by Part III is incorporated by reference from the
definitive proxy statement to be filed pursuant to Regulation 14A or by an
amendment hereto, in either case, within 120 days of the end of fiscal year
1996.
Exhibit Index at Page 22 Page 1 of 64
PART I
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ITEM 1 - BUSINESS
General
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AirSensors, Inc. (AirSensors) was incorporated in the State of Washington
in 1978 and became a Delaware corporation in 1985. AirSensors together with
its wholly owned subsidiary IMPCO Technologies, Inc. (IMPCO) and it's
subsidiary's are hereinafter referred to as the "Company." The Company
designs, manufactures and markets equipment that allows internal combustion
engines to operate on alternative fuels, primarily propane and natural gas.
ACQUISITIONS
In October 1995, the Company acquired 51% of the outstanding stock of
Technisch Bureau Media B.V. (Media), a private company in the Netherlands,
from Centradas B.V. for 3,187,500 NLG (U.S. $2,023,000). The acquisition was
financed through a term loan provided by Bank of America. Media distributes
gaseous fuel carburetion systems, components and related devices for use in
internal combustion engines along with catalytic converters for the off-
highway industrial market. Media services the European marketplace from its
headquarters in the Netherlands and through its subsidiaries and facilities in
Germany, France and the United Kingdom. During fiscal year 1996, Media
contributed approximately $5,601,000 to the Company's fiscal year 1996
revenue.
In April 1996, the Company acquired substantially all of the business
assets of Garretson Equipment Company, Inc. (Garretson) of Mt. Pleasant, Iowa
for approximately $1,041,000. Garretson is a leading manufacturer of fuel
systems, components and related devices that allow small engines of 35
horsepower or less to run on either compressed natural gas or propane. Major
product applications include generator sets, industrial equipment, utility
engines and material handling equipment.
In the first quarter of fiscal year 1997, the Company acquired certain
assets of Ateco Automotive Pty. Ltd. (Ateco), a private company in Australia,
for a purchase price of approximately $6,532,000. The purchase price was
primarily financed through an additional $4,000,000 of term loans provided by
Bank of America and its Sydney, Australia branch and forgiveness of accounts
receivable due to IMPCO from Ateco, totaling $1,852,000. Ateco Automotive Pty.
Ltd. has distributed IMPCO's gaseous fuel carburetion systems, components and
related devices for use in internal combustion engines since 1969. Ateco
serviced the Australian marketplace from its offices in Melbourne. Management
estimates annual sales volume to be approximately $8,500,000.
PRODUCTS AND MARKETS
CURRENT PRODUCTS. The Company's products include fuel management systems
and components, including carburetors, converters or regulators, fuel lock-
offs, repair kits or replacement parts and other sundry devices. The
Company's products, sold for aftermarket conversions and as original
equipment, are used in a variety of motor vehicles, forklifts and small
portable to large stationary engines. Worldwide, the products are marketed
through distributors and original equipment manufacturers (OEM) under the
brand names IMPCO(registered trademark), BEAM(registered trademark), and
GARRETSON(registered trademark). Ease of installation, consistent
performance, high quality and safety are attributes of the Company's products.
The Company's fuel management systems are designed to offer several
levels of technology to meet customer needs. The Adaptive Digital Processor
(ADP) uses advanced electronic technology to learn and store key
characteristics of the specific vehicle. The ADP enhancer complements the ADP
with diagnostics and spark timing modules. The Advanced Fuel Electronics
System (AFE) uses mass sensing hot wire anemometry to calculate the engine's
air/fuel mixture. During engine operation, an on board computer adjusts the
mixture to achieve optimum results in engine performance to reduce emissions.
The Company is also developing a Port Fuel Injection System for ultra low
emission vehicles. These injectors are designed for natural gas or vaporized
propane and are multi-point, sequential injectors.
The Company's carburetors are designed for use in 1 to 5,000 horsepower
engines. The Company's converter is a two stage regulator and vaporizer that
regulates the amount of fuel entering the carburetor and then transforms the
fuel from a pressurized liquid state to a gaseous vapor by exposing the fuel
to near atmospheric pressure. The Company's vacuum and electro-mechanical
fuel lock-off devices stop the flow of fuel when engines stop running. The
vacuum fuel lock-off has been a popular product with OEM's due to its safety
characteristics.
During fiscal year 1996, sales of carburetors represented approximately
32% of consolidated product sales, converters approximately 26%, fuel lock-
offs approximately 8%, repair kits approximately 9%, electronic control
systems approximately 11%, and other products and sundry devices approximately
14%. The product sales mix during fiscal year 1996 was substantially the same
as during the prior two years.
The Company's products are sold worldwide to distributors and OEM's and
as aftermarket components and/or retrofit systems. The Company's equipment
allows internal combustion engines to operate on alternative fuels and is
primarily used in forklift and automotive applications. During fiscal year
1996, sales to distributors accounted for approximately 69% of consolidated
product sales, sales to OEM customers accounted for approximately 25% and
aftermarket retrofit system conversions accounted for approximately 6% of
consolidated product sales. No customer accounted for more than 10% of the
Company's consolidated net revenue during fiscal year 1996.
Distributors primarily service the aftermarket conversion business and
are generally specialized and privately owned enterprises. Many domestic
distributors have been customers of IMPCO for more than 29 years, and most
export distributors have been customers for more than 19 years.
Most OEM customers are large engine, vehicle, and forklift manufacturers
such as Caterpillar Inc., Clark Material Handling Co., Cummins Engine Company
Inc., Ford Motor Company, NACCO Material Handling Group, Kohler Company,
Mitsubishi Caterpillar Forklift America, Inc., Onan Corporation, Toyota
Industrial Equipment Mfg. Inc. and Waukesha Engine Division Dresser
Industries, Inc.
PRODUCT EVOLUTION. The Company's traditional products include the use of
vacuum and mechanical controls to regulate engine air/fuel ratios. Motor
vehicle carburetors, as well as some ancillary devices, are mechanical and
operate independent of other engine functions. In recent years,
electronically controlled devices have replaced some vacuum actuated
mechanical devices to improve the engine performance and to more tightly
control the emissions from internal combustion engines. The Company has
addressed this change by introducing new electronic devices designed for
gaseous fuels that interface with the OEM electronics.
To remain competitive, the Company has focused its development efforts on
improving its traditional products. During fiscal year 1996, major upgrades
occurred on the Company's gaseous fuel management system that is based on its
mass-sensing technology and proprietary software. This product, named
Advanced Fuel Electronics (AFE), is designed to manage air/fuel ratios to
achieve the optimum air/fuel mixture and many other engine functions. The
Company is enhancing its on-board computer utilizing the vehicle-specific
software required for the AFE product, a mass-sensor and the necessary
hardware for a variety of vehicle types including pickup trucks, vans and
passenger cars. The Company is focusing its AFE marketing efforts on OEM's.
The Company believes that it will continue to satisfy the differing engine and
emission control approaches being used on engines in its domestic and foreign
markets.
MARKET AND REGULATORY ENVIRONMENT
The Company's worldwide market is influenced by environmental laws which
regulate emission standards and energy laws which strive for energy
independence. In addition, there are certain economic advantages to using
alternate gaseous fuels in many countries. Legislation has provided
incentives and programs to promote and develop infrastructures for alternative
fueled vehicles, some requiring fleet vehicle owners to phase in alternative
fueled vehicles and imposed penalties upon failure to meet standards and
guidelines.
The Federal Energy Policy Act of 1992 mandates that 75% of the light duty
vehicles acquired by the federal, state and municipal governments by fiscal
2000, and thereafter, be alternative fueled vehicles, and non-government fleet
operators of 20 or more vehicles be required to include at least 20%
alternative fueled light duty vehicles in their total vehicle purchases.
Beginning 2006 and thereafter, 70% of such vehicles acquired by fleet operators
of 20 or more must be alternative fueled vehicles.
The Texas Plan for Clean Air requires Texas state agencies with vehicle
fleets of more than 15 vehicles, school districts with more than 50 buses, and
all metropolitan transit authorities to purchase only alternative fuel
vehicles. The Texas plan also requires these entities to convert 90% of their
fleets to alternative fuel by 1998.
Title XIII of the California Code of Regulations imposes comprehensive
conversion requirements on operators of fleet vehicles to ensure that exhaust
emission standards are met. The Company believes that many fleet vehicle
operators are purchasing vehicles that operate on alternative fuels, such as
natural gas or propane, as a means of complying with these regulations.
Amendments to Title XIII also include provisions for certification and
installation of alternative fuel retrofit systems. A "retrofit system" is a
package of fuel, ignition, emission control, and engine components that are
modified, removed, or added during the process of converting a vehicle to
alternative fuels. These amendments require a certain percentage of retrofit
conversions in California be certified, inspected, carry a product warranty,
and comply with vehicle emission standards. Both the manufacturer and
equipment installers are required to certify their products and services.
Several other states have adopted similar regulations which are expected
to increase the demand for alternative fuels. These include Arkansas,
Colorado, Connecticut, Florida, Hawaii, Louisiana, Massachusetts, Missouri, New
Mexico, New York, Oklahoma, Utah and Washington. In addition, certain foreign
countries such as Australia, Mexico, Netherlands and Venezuela are adopting
environmental and/or energy legislation.
STRATEGIC MARKETING PLAN
The Company's goal is to retain its position as one of the world's leading
suppliers of engine components and systems that allow internal combustion
engines to operate on propane and natural gas. A key element of the Company's
steady growth has been the diversity of markets that its products serve. The
increasing worldwide demand for alternative fuel management products and
systems for motor vehicle uses, material handling equipment and small to large
mobile and stationary engines provides the Company with a broad market
foundation and eliminates any dependency on a single market segment. The
Company's two largest markets, motor vehicle (primarily fleet vehicles) and
material handling (primarily forklifts), accounted for approximately 83% of the
Company's consolidated product sales in the last fiscal year. See "Products
and Markets." Of these two markets, the motor vehicle market is believed to
have the greatest potential for significant growth. The Company anticipates
that this growth will result from governmental regulations imposing more
stringent emission standards to achieve energy independence. See "Market and
Regulatory Environment."
The Company's short-term strategy is to continue its presence in the
retrofit market for fleet vehicles and to continue introducing upgrades to its
existing products. The Company will also continue its presence in both the
retrofit and OEM market by promoting its products to meet the expected demand
for equipment which will allow motor vehicle engines to meet the more
stringent emission regulations.
In the long-term, the Company believes the worldwide demand for
alternative fueled vehicles may reach levels which would make it feasible for
OEM's to produce such vehicles. The Company is taking steps to become a
preferred OEM supplier for gaseous fuel components. The Company believes that
product quality is essential for OEM recognition and it is continually
upgrading its quality assurance program.
The Company's aftermarket products are primarily marketed through a
network of small specialized distributors which the Company expects to
continue to utilize for its existing product lines. However, under recent
regulations, the Company and its installers are required to certify their
products and services. To meet these requirements, the Company is upgrading
its existing distribution base with distributors qualified to meet these
installation requirements.
The Company has expanded the marketing of its existing mechanical
products in countries with less stringent emission standards. This strategy
is being applied in Central and South America, Eastern Europe and the Far
East. In countries such as Mexico and Taiwan, where the level of emission
standards is increasing, but is not as stringent as in the United States, the
Company's strategy is to upgrade its existing products to improve both
emission levels and engine performance.
Significant changes are occurring in the forklift industry. The increased
emphasis on emissions requires engine manufacturers to consider new fuel and
engine management products as a part of the engine configuration. During
fiscal year 1995, IMPCO signed a distribution agreement with Mikuni American
Corporation. Mikuni is a world leader in the technology and production of
gasoline fuel delivery systems for internal combustion engines. Its customers
include a number of major Japanese motor vehicle manufacturers and heavy
equipment companies. This distribution partnership has given the Company
access to the Japanese market for its array of clean fuel products.
COMPETITION AND OTHER MARKET FACTORS
The Company has numerous competitors worldwide in the motor vehicle
gaseous fuel equipment industry. The three major independent competitors are
Vialle B.V. Autogas System (Vialle), Koltec Necam B.V. and OMT Officina
Meccanica SPA (Tartarine). Vialle, is a competitor in the Mexican, Canadian,
European, Australian and Far Eastern markets. Koltec Necam is a competitor in
the Dutch market. Tartarine, an Italian company, competes in the European,
South American and Middle Eastern markets. In North America the Company's
competitors include MESA Environmental L.P., Gaseous Fuel Injection Control
Systems, Inc., Beacon Power Systems, Inc. and Algas Industries, Inc. The
Company also competes with OEM's such as Niki-Nippon Kikaki Seisakusyo (Nissan)
and Asian Seiki Co. Ltd. (Toyota) in the Far East.
To be competitive during the 1990's and into the future, the Company
believes it will be necessary to continue to enhance the gaseous fuel engine
management products utilizing mass-sensing, electronic and electro-mechanical
technology. Increasing regulations and competition may result in the
elimination of some current competitors who lack either financial resources or
technical capabilities. However, with the potential increase in the size of
the market, the Company anticipates new competitors will enter the alternative
fuel marketplace. These competitors may include large motor vehicle OEM's who
may adapt their existing gasoline technology to alternative fueled vehicles.
The Company believes some of its future competitors could be large, well
financed companies with marketing and research and development capacities
substantially greater than those of the Company.
MANUFACTURING
The Company's products are presently manufactured in the Company's
facilities in Cerritos, California. Manufacturing operations consist largely
of mechanical assembly with light machining. The Company places substantial
reliance on outside vendors for parts, components and electronic assemblies.
It obtains product components from a variety of domestic motor vehicle and
electronic part suppliers and assemblers, local diecasters, metal stamping and
machine shops. In fiscal year 1996, 10 suppliers accounted for approximately
54% of raw material purchases and one supplier accounted for approximately 20%
of such purchases. The Company has not experienced any significant difficulty
in obtaining outside suppliers of electronic assemblies.
Material costs represent the major component of cost of sales.
Coordination with suppliers for quality control and timely shipment is
critical to maximize the Company's inventory management. The Company uses a
computerized material requirements planning system to schedule material flow
and balance the competing demands of timely shipments, productivity and
inventory management.
The Company has not experienced, and does not expect to experience, any
significant difficulty in complying with environmental regulations applicable
to its manufacturing processes and facilities.
PRODUCT CERTIFICATION
The Company must obtain certification from the Environmental Protection
Agency (EPA) to sell certain of its products in the United States motor
vehicle markets and from the California Air Resources Board to market certain
products in California. California regulations require that all of model year
1997 retrofit conversions be certified, inspected, carry a product warranty
and comply with new emission standards. Manufacturers are also required by
California regulations to conduct 100,000 mile durability tests. Some other
states have similar types of regulations. While the Company has been
successful in obtaining certifications in the past, the Company's ability to
comply with these and future regulations will significantly affect its future
success in the aftermarket for motor vehicles in the United States.
Where appropriate, the Company seeks product approval by Underwriters
Laboratories, Inc. (registered trademark) (UL(registered trademark)) and
American Gas Association. While approval is not always required, the Company
believes such approval enhances the acceptability of products in the domestic
marketplace. Many foreign countries accept these agency approvals as
satisfying "approval for sale" requirements in their markets.
PATENTS AND TRADEMARKS
The Company holds a number of domestic and foreign patents. While the
Company believes that these patents and patent applications protect certain
proprietary rights and technologies, there can be no assurance that any
existing and future patents will provide such protection. Moreover, the
Company believes that its growth and future success are more dependent upon
technical expertise and marketing skills than on the ownership of patent
rights. Also, other technology exists which performs functions substantially
equivalent to the technology covered by the Company's patents and patent
applications, and that technology may be used by others without infringing
upon the Company's patents.
The "IMPCO" and "BEAM" marks are registered as trademarks on the United
States Principal Register. They are also registered in various other
countries throughout the world. The trademark "AirSensors" has been
registered as a trademark on the United States Supplemental Register.
BACKLOG
The Company's backlog consists of anticipated sales of products for which
the Company has confirmed orders scheduled for shipments over the next 90
days. Such backlog was approximately $10,900,000 and $10,600,000 at
April 30, 1996 and April 30, 1995, respectively. The Company believes that
backlog as of any date is not necessarily indicative of future product sales.
EMPLOYEES
The Company employed 415 persons as of April 30, 1996, including an
operations department with 277 employees, a marketing department with 37
employees, a research and development department with 61 employees, and an
accounting and administration department with 40 employees. None of the
employees are represented by labor unions, and relations with employees are
believed to be good.
ITEM 2 - PROPERTIES
The Company's executive offices and manufacturing facilities are located
in Cerritos, California and occupy 105,000 square feet in two buildings at a
single 4-acre location. The Company believes these facilities are adequate
for its present and planned operations. The site is leased until May 1999,
and the Company has two 5-year renewal options. The Company maintains a
research and development facility in a suburb of Seattle, Washington which
occupies approximately 10,000 square feet in a portion of an office park
building. These premises are leased until November 30, 1997. The Company
also owns a machine shop in Mt. Pleasant, Iowa which occupies approximately
16,500 square feet at an industrial site. The Company's facility in Rijswijk,
Holland occupies approximately 16,000 square feet and is leased until October
31, 2000, with a five year renewal option.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a party to several legal actions, but based on discussions
with legal counsel, management does not believe that any of these actions will
have a material adverse effect on its business or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year ended April 30, 1996.
PART II
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ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under
the symbol "ARSN". The following bid prices reflect the range of high and low
bid information during the last two fiscal years as quoted in the NASD Monthly
Statistical Report. The prices reflect inter-dealer prices and do not reflect
retail mark-up, mark-down or commissions.
Fiscal year 1996 Fiscal year 1995
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Quarter Ended High Low High Low
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July 31 $ 12 3/8 $ 8 1/2 $ 12 5/8 $ 9 3/4
October 31 13 3/4 8 3/8 13 1/8 9 3/4
January 31 9 7/8 7 1/2 12 1/8 8
April 30 9 1/2 7 3/4 10 5/8 8 1/4
At June 30, 1996, the number of shareholders of record of the common
stock was 869.
The Company has never paid dividends on its common stock. It intends to
retain future earnings to finance the operation and expansion of its business
and does not anticipate paying cash dividends in the foreseeable future on
common stock.
The holders of the 1993 Series 1 Preferred Stock are entitled to
cumulative cash dividends in an amount equivalent to interest at an annual
rate per share (based on a deemed value of $1,000 per share) equal to the
Seattle-First National Bank prime rate of interest, plus 1.5%, but not to
exceed $105 per share nor be less than $80 per share annually.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
In thousands, except per share amounts
----------------------------------------------------
Fiscal Years Ended April 30,
1996 1995 1994 1993 1992
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Statement of
operations data:
- ----------------
Net revenue(1) $ 51,575 $ 45,231 $ 36,410 $ 32,111 $ 25,200
Research and
development expense 7,171 6,197 5,103 2,095 1,948
Operating income 4,132 3,540 3,069 3,662 512
Financing charges(2) 504 292 320 1,415 2,192
Net income (loss)(3) 4,671 2,967 2,511 1,780 (1,734)
Preferred stock expenses(4) 610 54 612 821 653
Net income (loss) appli-
cable to common stock 4,061 2,420 1,898 960 (2,387)
Net income (loss)
per share:
Primary .65 .40 .32 .27 (.64)
Fully diluted .63 .40 .32 .27 (.64)
Number of shares used in
per share computation(5)
Primary 6,648 6,566 6,388 3,929 3,526
Fully diluted 7,771 6,566 6,388 3,929 3,526
Balance sheet data:
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Total current assets $ 24,578 $ 13,626 $ 10,420 $ 10,010 $ 9,677
Total assets 37,728 22,109 17,464 17,156 17,828
Total current liabilities 9,266 5,111 4,810 6,932 10,706
Long-term obligations 8,823 1,855 334 504 4,568
Put warrant to purchase
stock of subsidiary(6) - - - - 1,500
Stockholders' equity 19,256 15,143 12,320 9,721 1,053
- --------------------------
See accompanying notes.
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Includes contract revenue during fiscal year ended April 30, 1996, 1995
and 1994, of $3,087,229, $1,523,952 and $3,880,416, respectively. See
note 9 of the Notes to "Consolidated Financial Statements."
(2) Includes accretion on put warrant to purchase redeemable common stock of
IMPCO Technologies, Inc. of $333,000 for fiscal year ended April 30, 1992
and a $150,000 call premium for fiscal year ended April 30, 1993.
(3) Includes an income tax benefit of $1,700,000, due to the reduction in the
valuation allowance for deferred tax assets and $318,000 net income from
the Company's European subsidiary during the year ended April 30, 1996
(See notes 2 and 4 of the Notes to "Consolidated Financial Statements",
respectively). Includes an extraordinary charge of $130,000, net of tax
benefit, due to the early extinguishment of debt during the year ended
April 30, 1993 and $50,000 during the year ended April 30, 1992 due to the
early extinguishment of the 1990 Convertible Debenture.
(4) Includes dividends on Preferred Stock and charges arising from a Stock
Exchange Agreement.
(5) Number of shares used in per share computations are adjusted for a one-
for-six reverse stock split effective February 2, 1993, and includes the
dilution from the potential exercise of stock options and warrants when
the effect is dilutive. During fiscal year 1996, shares assumed to be
issued upon conversion of the Company's preferred stock were included in
the calculation since it resulted in a reportable dilution.
(6) At April 30, 1993 amounts related to the put warrant to purchase
redeemable common stock are included in current liabilities in the
Company's "Consolidated Balance Sheets."
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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Overview
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AirSensors, Inc. designs, manufactures and markets equipment that allows
internal combustion engines to operate on alternative fuels, primarily propane
and natural gas. The Company's products include fuel management systems and
components, and are sold for maintenance, aftermarket conversions and as
original equipment on motor vehicles, forklifts and small portable to large
stationary engines. Worldwide, the products are marketed through distributors
and original equipment manufacturers.
Acquisitions
- ------------
In October 1995, the Company acquired 51% of the outstanding stock of
Technisch Bureau Media B.V. (Media), a private company in the Netherlands,
from Centradas B.V. for 3,187,500 NLG (U.S. $2,023,000). The acquisition was
financed through a term loan provided by Bank of America. Media distributes
gaseous fuel carburetion systems and related devices for use in internal
combustion engines along with catalytic converters for the off-highway
industrial market. Media services the European marketplace from its
headquarters in the Netherlands and through its subsidiaries and facilities in
Germany, France and the United Kingdom. During fiscal year 1996, Media
contributed approximately $5,601,000 to the Company's consolidated revenue.
In April 1996, the Company acquired substantially all of the business
assets of Garretson Equipment Company, Inc. (Garretson) of Mt. Pleasant, Iowa
for approximately $1,041,000. Garretson is a leading manufacturer of fuel
systems, components and related devices that allow small engines of 35
horsepower or less to run on either compressed natural gas or propane. Major
product applications include generator sets, industrial equipment, utility
engines and material handling equipment.
In the first quarter of fiscal year 1997, the Company acquired certain
assets of Ateco Automotive Pty. Ltd. (Ateco), a private company in Australia,
for a purchase price of approximately $6,532,000. The purchase price was
primarily financed through an additional $4,000,000 of term loans provided by
Bank of America and its Sydney, Australia branch and forgiveness of accounts
receivable due to IMPCO from Ateco, totaling $1,852,000. Ateco Automotive Pty.
Ltd. has distributed IMPCO's gaseous fuel carburetion systems, components and
related devices for use in internal combustion engines since 1969. Ateco
serviced the Australian marketplace from its offices in Melbourne. Management
estimates annual sales volume to be approximately $8,500,000.
Net Revenue
- -----------
The Company continued to experience growth during fiscal year 1996, with
net revenue increasing by $6,344,000 or 14% to $51,575,000, compared to
$45,231,000 for fiscal year 1995. During fiscal year 1996, product sales and
contract revenue increased by approximately 11% and 103%, respectively. The
following table sets forth the Company's product sales by application, (all
dollars in thousands):
Fiscal years ended April 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
Motor vehicle products $ 17,063 $ 17,139 $ 12,489
Forklifts and other
material handling equipment 23,316 18,706 13,468
Small portable to
large stationary engines 8,108 7,862 6,572
--------- --------- ---------
Total product sales $ 48,487 $ 43,707 $ 32,529
========= ========= =========
During fiscal year 1996, sales for the Company's motor vehicle products
were comparable to fiscal year 1995. The following table sets forth the
Company's worldwide motor vehicle product sales by application, (all dollars
in thousands):
Fiscal years ended April 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
Component parts $ 13,982 $ 15,542 $ 12,489
Upfitting systems 3,081 1,597 -
--------- --------- ---------
Total motor vehicle products $ 17,063 $ 17,139 $ 12,489
========= ========= =========
Management believes that the decrease in component parts during fiscal year
1996, as compared to fiscal year 1995, was primarily due to lower shipments of
products to a South American customer and to a domestic original equipment
truck manufacturer and regulatory restrictions which limited the marketability
of certain motor vehicle products in the United States.
During fiscal year 1996, revenue attributable to upfitting vehicles with
the Company's systems for aftermarket fleet use increased by approximately 93%
as compared to fiscal year 1995 which primarily resulted from a Postal Service
contract to convert postal vehicles to compressed natural gas and initial
shipments of systems on liquefied petroleum gas specifically engineered to
operate with Ford F-150 and F-250 pickup trucks. Management anticipates that
motor vehicle revenue will be higher during fiscal year 1997 as compared to
fiscal year 1996.
Companies that manufacture retrofit systems for use in California are
required to comply with requirements under Title XIII, which require that a
certain percentage of retrofit conversions be certified, inspected, carry a
product warranty and comply with new emission standards. For vehicle model
year 1997, the Company will be required to certify all of its retrofit engine
families. Manufacturers are also required to conduct 100,000 mile durability
tests and comply with in-service emission standards. The Environmental
Protection Agency has proposed the adoption of similar requirements for the
entire United States. While the Company has been successful in obtaining
certifications for certain vehicle families in the past, the Company's ability
to comply with these and future regulations will significantly affect its
future success in the United States aftermarket for motor vehicles.
During fiscal year 1996, revenue attributable to the Company's forklifts
and other material handling equipment increased by approximately 25% as
compared to fiscal year 1995. The increase in revenue for the Company's
forklifts and other material handling equipment was primarily attributable to
the increase in the Company's European activity as a result of the Media
acquisition. Revenue attributable to the Company's domestic operations, for
the forklift and other material handling equipment, during fiscal year 1996
was comparable to levels recognized during fiscal year 1995. Management
anticipates that the market for forklifts, other material handling equipment
will remain strong during fiscal year 1997 primarily as a result of the Media
acquisition. In addition, the Environmental Protection Agency will adopt
emission requirements for forklifts, other material handling equipment and
small portable to large stationary engines that are similar to those being
adopted for the motor vehicle industry.
During fiscal year 1996, contract revenue increased by approximately $1.5
million, or 103%, as compared to fiscal year 1995. This increase was
primarily due to the extension of a development contract with General Motors
Corporation (GM) in August 1995, and the addition of other development
programs. Future contract revenue will be contingent upon the Company's
success in securing new development contracts. Management anticipates that
contract revenue during fiscal year 1997 will be maintained at the levels
experienced during fiscal year 1996.
During fiscal year 1995, total revenues increased by approximately 24% as
compared to fiscal year 1994. During fiscal year 1995, sales for the
Company's motor vehicle products increased by approximately 37%, as compared
to fiscal year 1994. This increase was primarily due to shipments of the
Company's products to its international markets, shipments to a domestic
original equipment truck manufacturer and upfitting of its compressed natural
gas systems onto vehicles for aftermarket fleet use.
During fiscal year 1995, revenue attributable to forklifts, other
material handling equipment and small portable to large stationary engines
increased by approximately 29% as compared to fiscal year 1994. This increase
was primarily attributable to continued sustained demand for new forklifts due
to the domestic and foreign economic recovery.
During fiscal year 1996, 1995 and 1994 the Company's revenue was
generated in the following geographic regions:
Fiscal years ended April 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
United States and Canada 67% 75% 79%
Pacific Rim 10% 11% 15%
Europe 16% 7% 6%
Latin America 7% 7% -
Cost of Sales
- -------------
During fiscal year 1996, cost of sales as a percentage of product sales
remained comparable to the percentages realized for each of the two fiscal
years ending April 30, 1995, and 1994. During fiscal year 1996, the Company's
gross profit margin on product sales was favorably impacted by its European
operation. This contribution was offset by lower gross profit margins on
upfitting motor vehicles, increased expenditures for current product support
and a net product warranty charge of approximately $217,000.
Research and Development
- ------------------------
Research and development (R&D) expense for fiscal year 1996 was
approximately $7,171,000, a 16% increase over fiscal year 1995 and a 41%
increase over fiscal year 1994. This increase was primarily for development
and testing of the Company's new products, durability testing, efforts
associated with the GM contract, enhancements to products to maintain mandated
emission standards and efforts expended to obtain California's Title XIII
engine certification. Management believes the Company's future success
depends on its ability to design, develop and market new products to meet
mandated emission standards and will therefore continue to incur significant
R&D costs. Management anticipates that R&D expense during fiscal year 1997
will be significantly higher than the levels experienced during fiscal year
1996 due to new product development.
Selling General and Administrative
- ----------------------------------
Selling, general and administrative (SG&A) expense for fiscal year 1996
was approximately $8,261,000, a 30% increase over fiscal year 1995 and a 26%
increase over fiscal year 1994. These increases were primarily attributable
to the inclusion of Media's SG&A expenses subsequent to the acquisition and to
an increase in IMPCO's sales force. Management anticipates that SG&A expenses
during fiscal year 1997 will increase as compared to fiscal year 1996
primarily as a result of including a full year of Media's activity.
Financing charges
- -----------------
Financing charges for fiscal year 1996 increased by approximately 73% and
57% as compared to fiscal year 1995 and 1994, respectively. These increases
are primarily attributable to loans associated with the acquisition of Media
and the increased use of the line of credit. Management anticipates that
financing charges for fiscal year 1997 will increase as compared to fiscal
year 1996 as a result of the recent acquisitions and debt service on the
Company's line of credit.
Provision for income taxes
- --------------------------
The Company adopted SFAS No. 109 "Accounting for Income Taxes" on
May 1, 1993, and applied its provisions without restating prior years'
financial statements. The adoption of SFAS No. 109 did not have a material
effect on the Company's accounting for income taxes since, for financial
reporting purposes, the Company recognized a valuation allowance to completely
offset its net deferred tax assets. During the fourth quarter of fiscal year
1996, the Company reduced its valuation allowance for deferred tax assets as
required by SFAS No. 109 and recorded a $1.7 million income tax benefit
primarily related to the assumed future utilization of net operating loss
carryforwards. Provision for taxes consist primarily of federal, state and
foreign income taxes which are computed using statutory rates. During fiscal
year 1996, the Company utilized approximately $1,650,000 of federal operating
loss carryforwards for tax purposes.
Outlook: issues and risks
- --------------------------
The preceding discussion includes management's outlook for revenues and
expenditures. The Company faces a number of risks and uncertainties that
should also be considered in evaluating its outlook. These risks include,
among others, the following: (1) the Company's ability to obtain product
certification, (2) continued legislation enforcing environmental laws which
regulate emission standards and energy independence, (3) the Company's ability
to secure future development programs, (4) economic trends that influence the
price disparity between gasoline and alternative fuels, (5) fluctuations in
the foreign exchange rates causing purchases from the United States to become
undesirable, and (6) the Company's ability to hire, train, and retain
qualified personnel. In addition, current economic forecasts indicate modest
growth in the economy, however actual economic conditions may deviate from
these forecasts. The Company is not currently aware of any significant new
competitors, however the Company could be adversely affected by the expansion
of existing competitors or increased price competition.
Liquidity and Capital Resources
- -------------------------------
During fiscal year 1996, cash provided by operations, excluding working
capital was approximately $6,386,000, as compared to approximately $4,373,000
and $4,028,000 in fiscal years 1995 and 1994, respectively. The Company
generated cash flow from its operating activities to assist in financing its
product development costs, capital expenditures, working capital requirements
and current debt obligations. During fiscal year 1996, the Company had a net
use of working capital of approximately $4,191,000, as compared to
approximately $3,003,000 during fiscal year 1995. The most significant
changes in the Company's current assets and liabilities in fiscal year 1996
were an increase in accounts receivable, other assets, inventories, accounts
payable and accrued expenses. The increase in accounts receivable at April
30, 1996 was primarily attributed to increased shipments of the Company's
products during the quarter ended April 30, 1996, as compared to the quarter
ended April 30, 1995. Other assets increased primarily as a result of the
Company reducing it's valuation allowance for deferred tax assets, and
inventory increased primarily as a result of higher purchases to meet
anticipated demand for the Company's products. Accounts payable and accrued
expenses levels increased primarily as a result of the inclusion of Media, and
increases in operating expenditures for IMPCO.
Net cash used in investing activities for fiscal year 1996 was
approximately $4,920,000, an increase of approximately $2,922,000 from fiscal
year 1995. Investing activities principally included the purchase of Media,
which resulted in a net use of cash of approximately $1,966,000. During
fiscal year 1996, the Company purchased approximately $1,996,000 of capital
purchases of which approximately $474,000 was for R&D test equipment.
Investing activities also included the purchase of dies, molds and patterns,
machinery and equipment, and the incurring of software production costs which
have been capitalized. Management projects an increase in capital
expenditures during fiscal year 1997, as compared to fiscal year 1996,
primarily as a result of equipment enhancements and quality requirements.
Net cash provided by financing activities for fiscal year 1996 was
approximately $3,471,000 of which $2,050,000 was from a term loan by Bank of
America to finance the acquisition of Media. During fiscal year 1996 the
Company increased its borrowing under the operating line of credit by
approximately $2,400,000 primarily for obligations for current operations and
material purchases.
In September 1994, IMPCO entered into a $10.6 million credit facility
with Bank of America and its subsidiary BA Leasing & Capital Corporation. The
credit facility consists of a secured revolving line of credit of $8,000,000
and a $2,600,000 capital lease facility. In September 1995, the credit
facility was increased to include a $2,050,000 term loan for the acquisition
of Media and an increase in the capital lease facility of $925,000. In
addition, the line of credit was amended to include a standby letter of credit
facility of $750,000. At April 30, 1996, approximately $3,400,000 and
$1,387,000 was outstanding under the revolving line of credit and the capital
lease facility, respectively. The revolving line of credit expires on August
31, 1997, and the capital lease facility expires on December 31, 2001.
On October 31, 1995, Media converted an outstanding debt obligation of
4,250,000 Dutch Guilders (U.S. $2,693,000) owed to DEPA Holding B.V. (DEPA)
into a term loan. In January 1996, the term loan was increased by 1,279,092
Dutch Guilders (U.S. $766,000) to reflect Media's current year earnings prior
to its acquisition by IMPCO. At April 30, 1996 the outstanding principal
balance on the term-loan was 5,320,000 Dutch Guilders (U.S. $3,128,000).
During the fourth quarter of fiscal year 1996, the Company reduced its
valuation allowance for deferred tax assets as required by SFAS No. 109 and
recorded a $1.7 million income tax benefit primarily related to the assumed
future utilization of net operating loss carryforwards. For federal income
tax purposes, at April 30, 1996, the Company had net operating loss
carryforwards of approximately $7,500,000 available to offset future taxable
income. For financial statement purposes, approximately $2,500,000 of net
operating loss carryforwards are available as an offset against future income
tax provisions.
The Company expects to incur significant expenditures relating to
equipment and facilities for the development and production of new products.
The Company expects to fund a major portion of these expenses from cash
generated from operations and by use of its bank credit facility.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is indexed in Part IV in Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
--------
The information required in Part III (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A or by an amendment hereto, in either case, no
later than 120 days after the end of the fiscal year covered by this Form 10-
K.
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed As Part of This Report: Page
--------------------------------------- ----
(1) Consolidated Financial Statements:
----------------------------------
Report of independent auditors 29
Consolidated balance sheets as of
April 30, 1996 and 1995 30
Consolidated income statements
for the years ended April 30, 1996,
1995 and 1994 32
Consolidated statements of stockholders'
equity for the years ended April 30, 1996,
1995 and 1994 33
Consolidated statements of cash flows
for the years ended April 30, 1996, 1995
and 1994 34
Notes to consolidated financial statements 35
(2) Supplemental Financial Statement Schedules: Page
------------------------------------------- ----
Schedule II - Valuation accounts 54
All other schedules are omitted because the information is not
applicable or is not material, or because the information is
included in the consolidated financial statements or the notes
thereto.
(3) Exhibits: Page
--------- ----
10.14 Amendment dated September 13, 1995 to
Loan and Security agreement dated
September 28, 1994, between Bank of
America National Trust and Savings,
as lender, and IMPCO Technologies, Inc.,
as the borrower. 55
11.1 Computation of net income per share. 62
22.1 Subsidiaries of the Company. 63
23.1 Consent of Ernst & Young LLP
dated July 25, 1996. 64
Executive Compensation Plans and Arrangements.
----------------------------------------------
Employment Agreement dated April 1, 1995,
between AirSensors, Inc. and IMPCO Technologies,
Inc., as the Company and Robert M. Stemmler, as
the Employee - Exhibit 10.13.
1991 Executive Stock Option Plan dated November 5,
1991 among AirSensors, Inc., as the Company, and
Bertram R. Martin, James J. Mantras and Dale L.
Rasmussen, as Optionees - Exhibit 10.3
1989 Incentive Stock Option Plan and Amendment
to 1989 Incentive Stock Option Plan - Exhibits
10.2 and 10.9, respectively.
(b) Reports on Form 8-K.
--------------------
No reports were filed on Form 8-K during the last quarter of
the Company's fiscal year covered by this report.
(c) Exhibits
--------
2.1 Agreement of Purchase and Sale of Stock by and
among IMPCO Technologies, Inc., as buyer, and
Centradas B.V., as Shareholder, dated as of
October 31, 1995. (10)
2.2 Shareholders Agreement for Technisch Bureau Media
B.V. by and among IMPCO Technologies, Inc., and
Centradas B.V., dated as of October 31, 1995. (10)
2.3 Loan Agreement for Technisch Bureau Media B.V.,
Technisch Bureau Media GmbH, Technique Media
S.A.R.L. as borrowers and Depa Holding B.V.,
as lendor, dated as of October 31,1995. (10)
2.4 Guarantee by and among, Depa Holding B.V., as
lendor, IMPCO Technologies, Inc., as Shareholder
and AirSensors, Inc., as Guarantor, dated as of
October 31, 1995. (10)
3.1 Articles of Incorporation and Bylaws. (1)
3.2 Amended Certificate of Designation of AirSensors,
Inc. establishing 1993 Series 1 Preferred Stock. (5)
3.3 Certificate of Amendment of Certificate of
Incorporation providing for limitation of
directors' liability. (3)
3.4 Certificate of Amendment of Certificate of
Incorporation providing for the decrease in
authorized shares of common stock from
50,000,000 to 25,000,000. (6)
10.1 Lease between L-W Income Properties and IMPCO
Technologies, Inc. dated May 10, 1989. (2)
10.2 1989 Incentive Stock Option Plan. (3)
10.3 1991 Executive Stock Option Plan dated
November 5, 1991, among AirSensors, Inc., as the
Company, and Bertram R. Martin, James J. Mantras
and Dale L. Rasmussen, as Optionees. (4)
10.4 First Amendment to Lease dated April 19, 1993,
between L-W Income Properties and IMPCO
Technologies, Inc. (6)
10.5 Warrant to Purchase Shares of AirSensors, Inc.
Common Stock issued to Cohig & Associates, Inc.
expiring in March 9, 1998. (6)
10.6 Warrant to Purchase Common Stock Purchase Warrants
issued by AirSensors, Inc. to Cohig & Associates,
Inc. expiring March 9, 1998. (6)
10.7 Pursuant Agreement between AirSensors, Inc. and
First Interstate Bank of Washington, N.A. dated
as of March 8, 1993, establishing terms and
conditions of Common Stock Purchase Warrants
expiring March 10, 1996. (6)
10.8 1993 Stock Option Plan for Nonemployee Directors (7)
10.9 Amendment to 1989 Incentive Stock Option Plan (7)
10.10 Amended and Restated Warrant Issued to Piper
Jaffray dated March 3, 1994. (7)
10.11 Loan and Security agreement dated September 28,
1994, between Bank of America National Trust
and Savings, as lender, and IMPCO Technologies,
Inc., as the borrower. (8)
10.12 Lease Intended as Security dated September 28,
1994, between BA Leasing and Capital Corporation,
as lessor, and IMPCO Technologies, Inc., as lessee. (8)
10.13 Employment Agreement dated April 1, 1995, between
AirSensors, Inc. and IMPCO Technologies, Inc., as
the Company and Robert M. Stemmler. (9)
10.14 Amendment dated September 13, 1995 to Loan and
Security agreement dated September 28, 1994,
between Bank of America National Trust and Savings,
as lender, and IMPCO Technologies, Inc., as the
borrower. (11)
11.1 Computation of net income per share. (11)
22.1 Subsidiaries of the Company. (11)
23.1 Consent of Ernst & Young LLP dated July 25, 1996. (11)
--------------------------------------
(1) Incorporated by reference from Form S-18 filed under
Registration No. 33-4013-S.
(2) Incorporated by reference from Form 10-K for fiscal year
1989.
(3) Incorporated by reference from Form 10-K for fiscal year
1990.
(4) Incorporated by reference from Form 10-K for fiscal year
1992.
(5) Incorporated by reference from Form S-2, File no. 33-56610
declared effective March 9, 1993
(6) Incorporated by reference from Form 10-K for fiscal year
1993.
(7) Incorporated by reference from Form 10-K for fiscal year
1994.
(8) Incorporated by reference from Form 8-K dated
September 28, 1994, and filed as Exhibit Numbers (10.25)
through (10.26) thereunder.
(9) Incorporated by reference from Form 10-K for fiscal year
1995.
(10) Incorporated by reference from Form 8-K dated October 31,
1995, and filed as Exhibit Numbers (2.1) through (2.4)
thereunder.
(11) Filed herewith
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AIRSENSORS, INC.
By /s/Robert M. Stemmler
----------------------
Robert M. Stemmler,
President and
Chief Executive Officer
Dated July 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Robert M. Stemmler President, July 26, 1996
- ---------------------- Chief Executive Officer
and Director
[Principal Executive Officer]
/s/Thomas M. Costales Chief Financial Officer July 26, 1996
- ---------------------- and Treasurer
[Principal Financial Officer]
/s/Cary M. Wong Corporate Controller July 26, 1996
- ---------------------- and Assistant Treasurer
/s/Rawley F. Taplett Chairman of the Board July 26, 1996
- ----------------------
- ---------------------- Vice-Chairman of the Board July 26, 1996
Edwin J. Schneebeck
/s/Peter B. Bensinger Director July 26, 1996
- ----------------------
/s/Norman L. Bryan Director July 26, 1996
- ----------------------
/s/V. Robert Colton Director July 26, 1996
- ----------------------
Director July 26, 1996
- ----------------------
Don Simplot
/s/Douglas W. Toms Director July 26, 1996
- ----------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AirSensors, Inc.
We have audited the accompanying consolidated balance sheets of AirSensors,
Inc. as of April 30, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended April 30, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AirSensors, Inc. at April 30, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended April 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Los Angeles, California
June 21, 1996
AIRSENSORS, INC.
CONSOLIDATED BALANCE SHEETS
April 30, 1996 and 1995
-----------
ASSETS
------
1996 1995
------------ ------------
Current assets:
Cash $ 811,148 $ 65,489
Accounts receivable 9,679,317 5,549,550
Less allowance for doubtful accounts 165,322 153,802
------------ ------------
Net accounts receivable 9,513,995 5,395,748
Inventories:
Raw materials and parts 6,096,292 4,720,035
Work-in-process 930,548 495,132
Finished goods 4,411,162 2,158,493
------------ ------------
Total inventories 11,438,002 7,373,660
Other current assets 2,815,181 791,209
------------ ------------
Total current assets 24,578,326 13,626,106
Equipment and leasehold improvements:
Dies, molds and patterns 3,297,764 2,419,448
Machinery and equipment 5,267,529 4,197,209
Office furnishings and equipment 2,895,187 1,939,757
Leasehold improvements 1,953,131 1,620,767
------------ ------------
13,413,611 10,177,181
Less accumulated depreciation and amortization 6,935,878 5,767,565
------------ ------------
Net equipment and leasehold improvements 6,477,733 4,409,616
Intangibles arising from acquisitions 7,915,314 5,701,916
Less accumulated amortization 2,689,397 2,449,757
------------ ------------
Net intangibles arising from acquisitions 5,225,917 3,252,159
Other assets 1,445,911 821,255
------------ ------------
$37,727,887 $22,109,136
============ ============
See accompanying notes.
AIRSENSORS, INC.
CONSOLIDATED BALANCE SHEETS
April 30, 1996 and 1995
(Continued)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1996 1995
------------ ------------
Current liabilities:
Notes payable $ 541,398 $ 406,413
Accounts payable 3,532,070 2,200,335
Accrued payroll obligations 1,701,034 1,248,957
Accrued warranty obligations 469,639 217,123
Income taxes payable 706,057 207,308
Other accrued expenses 1,598,451 830,611
Current portion of term loans 716,932 -
------------ ------------
Total current liabilities 9,265,581 5,110,747
Line of credit 3,400,000 1,000,000
Term loan - Bank of America NT&SA 1,435,000 -
Term loan - DEPA Holding B.V. 2,820,640 -
Other long term liabilities 1,167,447 855,446
Minority interest 383,197 -
Commitments and contingencies - -
Stockholders' equity:
1993 Series 1 Preferred Stock, $0.01 par value,
5,950 shares authorized, issued and
outstanding $5,950,000 liquidation value 5,650,000 5,650,000
Common stock, $.001 par value, authorized
25,000,000 shares; 5,654,568 issued and
outstanding at April 30, 1996
(5,641,370 at April 30, 1995) 5,655 5,641
Additional paid-in capital relating to
common stock 28,746,994 28,660,181
Accumulated deficit (15,111,879) (19,172,879)
Foreign currency translation adjustment (34,748) -
------------ ------------
Total stockholders' equity 19,256,022 15,142,943
------------ ------------
$37,727,887 $22,109,136
============ ============
See accompanying notes.
AIRSENSORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30, 1996, 1995 and 1994
---------
1996 1995 1994
------------ ------------ ------------
Revenue:
Product sales $48,487,480 $43,707,271 $32,529,281
Contract revenue 3,087,229 1,523,952 3,880,416
------------ ------------ ------------
Net revenue 51,574,709 45,231,223 36,409,697
Costs and expenses:
Cost of sales 32,011,253 29,124,860 21,693,645
Research and development expense 7,170,965 6,197,216 5,102,901
Selling, general and
administrative expense 8,260,778 6,369,632 6,544,380
------------ ------------ ------------
Total costs and expenses 47,442,996 41,691,708 33,340,926
------------ ------------ ------------
Operating income 4,131,713 3,539,515 3,068,771
Financing charges 503,886 292,024 320,257
------------ ------------ ------------
Income before income taxes and
minority interest in income of
consolidated subsidiary 3,627,827 3,247,491 2,748,514
Provision (benefit) for
income taxes (1,348,616) 280,000 238,000
Minority interest in income of
consolidated subsidiary 305,568 - -
------------ ------------ ------------
Net income before dividends 4,670,875 2,967,491 2,510,514
Dividends on preferred stock 609,875 547,895 612,354
------------ ------------ ------------
Net income applicable to
common stock $ 4,061,000 $ 2,419,596 $ 1,898,160
============ ============ ============
Net income per share:
Primary $ .65 $ .40 $ .32
============ ============ ============
Fully diluted $ .63 $ .40 $ .32
============ ============ ============
Number of shares used in
per share calculation:
Primary 6,647,993 6,566,022 6,387,853
============ ============ ============
Fully Diluted 7,771,482 6,566,022 6,387,853
============ ============ ============
See accompanying notes.
AIRSENSORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended April 30, 1996, 1995 and 1994
---------
1996 1995 1994
------------ ------------ ------------
1993 Series 1 Preferred Stock:
Beginning balance $ 5,650,000 $ 5,650,000 $ 5,650,000
Activity - - -
------------ ------------ ------------
Ending balance 5,650,000 5,650,000 5,650,000
Common Stock:
Beginning balance 5,641 5,577 5,466
Issuance of common stock
(13,198, 62,422, and 90,641 shares,
respectively) resulting from the
exercise of options pursuant to
the stock option plans 14 62 91
Issuance of common stock
(2,350 shares) resulting
from the exercise of warrants - 2 -
Issuance of common stock
(7,792 shares) for acquisition
of technology rights - - 8
Issuance of common stock
(12,170 shares) pursuant to the
1991 Stock Exchange Agreement - - 12
------------ ------------ ------------
Ending balance 5,655 5,641 5,577
Additional paid-in-capital:
Beginning balance 28,660,181 28,256,861 27,555,732
Issuance of common stock
resulting from the exercise
of options pursuant to the
stock option plans 86,813 350,185 543,649
Issuance of common stock
resulting from the exercise
of warrants - 17,625 -
Reduction in current tax liability
related to stock options - 35,510 -
Issuance of common stock for
acquisition of technology rights - - 44,992
Issuance of common stock pursuant
to 1991 Stock Exchange Agreement - - 112,488
------------ ------------ ------------
Ending balance 28,746,994 28,660,181 28,256,861
Deficit:
Beginning balance (19,172,879) (21,592,475) (23,490,635)
Net income applicable
to common stock 4,061,000 2,419,596 1,898,160
------------ ------------ ------------
Ending balance (15,111,879) (19,172,879) (21,592,475)
Foreign currency translation
adjustment (34,748) - -
------------ ------------ ------------
Total stockholders' equity $19,256,022 $15,142,943 $12,319,963
============ ============ ============
See accompanying notes.
AIRSENSORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30, 1996, 1995 and 1994
---------
1996 1995 1994
------------ ------------ ------------
Cash flows from operating activities:
Net income $4,670,875 $2,967,491 $2,510,514
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangibles
arising from acquisition 239,639 235,096 401,762
Depreciation and other
amortization 1,774,695 1,328,054 1,307,956
Increase in accounts receivable (2,578,110) (2,989,467) (694,383)
Increase in inventories (1,158,391) (1,130,359) (29,194)
Increase in deferred tax asset (1,700,000) - -
Increase (decrease) in accounts
payable 978,963 717,360 (705,827)
Increase in accrued expenses 266,570 399,028 610,649
Other, net (299,516) (157,295) (192,781)
------------ ------------ ------------
Net cash provided by
operating activities 2,194,725 1,369,908 3,208,696
Cash flows from investing activities:
Purchase of equipment and
leasehold improvements (1,995,981) (1,660,022) (1,384,874)
Investment in Media (1,965,678) - -
Deferred software production costs (430,597) (470,192) (140,879)
Other, net (528,020) 131,880 (8,952)
------------ ------------ ------------
Net cash used in
investing activities (4,920,276) (1,998,334) (1,534,705)
Cash flow from financing activities:
Net borrowings (payments)
on lines of credit 2,400,000 82,710 (232,897)
Payments on notes payable (508,833) (495,589) (411,016)
Proceeds from issuance of
notes payable 643,818 582,667 445,825
Proceeds from issuance of
common stock 86,828 403,384 543,740
Payments on term loan (334,656) (332,800) (127,200)
Payment related to call of
put warrant - - (1,650,000)
Proceeds from issuance of
bank term note 2,050,000 - -
Payment of other long-term
liabilities (256,072) (103,063) (134,653)
Dividends on preferred stock (609,875) (547,895) (612,354)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 3,471,210 (410,586) (2,178,555)
------------ ------------ ------------
Net increase (decrease) in cash 745,659 (1,039,012) (504,564)
Cash beginning of year 65,489 1,104,501 1,609,065
------------ ------------ ------------
Cash at end of year $ 811,148 $ 65,489 $ 1,104,501
============ ============ ============
See accompanying notes.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS - The
consolidated financial statements of AirSensors, Inc. (the Company) include
the accounts of the Company and its subsidiaries, including IMPCO
Technologies, Inc. (IMPCO) and its majority owned subsidiary IMPCO Media
Europe B.V. (Media). All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company is engaged in the design,
manufacturing and marketing of gaseous fuel delivery systems and related
devices that allow internal combustion engines to operate on alternative
fuels, primarily propane and natural gas. Worldwide the Company's products
are sold to distributors and OEM's.
(b) INVENTORIES - Inventories are valued at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method while
market is determined by replacement cost for raw materials and parts and net
realizable value for work-in-process and finished goods.
(c) PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated on the basis of historical cost. Depreciation of equipment is
provided using the straight-line method over the assets' estimated useful
lives, ranging from three to seven years. Amortization of leasehold
improvements, and equipment financed by the Company's capital lease facility,
is provided using the straight-line method over the shorter of the assets'
estimated useful lives or the lease terms.
(d) INTANGIBLES ARISING FROM ACQUISITION - Intangibles arising from
acquisition are recorded based on the excess of the cost of the acquisition
over amounts assigned to tangible assets and liabilities. These intangible
assets include goodwill, product rights and trademarks. The intangible
assets are being amortized using the straight-line method over their
estimated lives of twenty years.
(e) DEFERRED COSTS - Deferred costs represent amounts paid for software
and other costs incurred after the establishment of technological
feasibility. These costs are capitalized and subsequently amortized using
the greater of the straight-line method over the estimated economic life of
the related product or over the units of production beginning when the
related product is available for general release to customers.
(f) WARRANTY COSTS - The Company provides warranties on its products by
recognizing a charge to cost of sales to cover future warranty obligations.
Estimates are based, in part, on historical experience.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
-------------------------------------------
(g) RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
charged to expense as incurred. Equipment used in research and development
with alternative future uses is capitalized.
(h) CONTRACT REVENUE RECOGNITION - Contract revenue is principally
recognized by the percentage of completion method. Profits expected to be
realized on contracts are based on the Company's estimates of total contract
sales value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contracts.
(i) MINORITY INTEREST IN SUBSIDIARY - IMPCO purchased 51 percent of
Media on October 31, 1995. Minority interest represents the minority
shareholder's proportionate share of equity of the Company's European
subsidiary. The amounts in minority interest at April 30, 1996 represent 49
percent of the equity held by the single minority shareholder.
(j) NET INCOME PER SHARE - Net income per share was computed in
accordance with the modified treasury stock method. Primary income per share
is computed by dividing net income applicable to common stock by the weighted
average number of common shares and, if dilutive, all common stock
equivalents outstanding. Common stock equivalents include the Company's
outstanding stock options and warrants. Fully diluted income per share is
computed based on the weighted average number of common shares, all common
stock equivalents, and if dilutive, shares issued upon conversion of
preferred stock. During the twelve months and three months ended April 30,
1996, shares assumed to be issued upon conversion of the Company's preferred
stock were dilutive and are included in the calculation of fully dilutive
earnings per share.
(k) ACCOUNTING CHANGE - Effective May 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). The Company's adoption of SFAS 109 during fiscal year
1994, did not have a material effect on the Company's accounting for income
taxes since, for financial reporting purposes, the Company recognized a
valuation allowance to completely offset the net deferred tax asset. In
fiscal year 1996, the Company recognized a $1,700,000 reduction in its
valuation allowance with a corresponding benefit to its income tax provision.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
-------------------------------------------
(l) STOCK BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123 "Accounting for Stock Based Compensation,"
which established accounting and reporting standards for stock based employee
compensation plans effective for the Company in fiscal year 1997. SFAS 123
encourages entities to adopt the new method ("fair value based method") of
accounting; however it also allows an entity to continue to measure
compensation cost prescribed under existing rules ("intrinsic value based
method"). Such entities who elect to remain on this method must make certain
pro forma disclosures in fiscal year 1997 as if the new fair value method had
been applied. At this time, the Company does not expect to adopt the
recognition provision of SFAS 123 and will provide the required disclosures in
1997.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF - During 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of," which established accounting and reporting standards for
impairment losses relating to assets to be held and used in operations
effective in 1997. The Company will adopt SFAS No. 121 in the first quarter
of fiscal year 1997. The adoption of SFAS No. 121 should not have a material
effect on the consolidated financial position or results of operations of the
Company.
(n) USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
(o) RECLASSIFICATIONS - Certain reclassifications have been made to the
fiscal year 1994 and 1995 consolidated financial statements to conform to the
fiscal year 1996 presentation.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
2. ACQUISITION
-----------
On October 31, 1995, the Company, through its wholly owned subsidiary
IMPCO, acquired 51 percent of the outstanding stock of Media, a private
company in the Netherlands, from Centradas B.V., a private company in the
Netherlands, for cash in the amount of 3,187,500 Dutch Guilders (U.S.
$2,023,000). Media has distributed IMPCO's gaseous fuel carburetion systems
and related devices for use in internal combustion engines since 1972. Media
services the European marketplace from its headquarters in the Netherlands
and through its subsidiaries in Germany, France and the United Kingdom.
The acquisition was financed through a term loan provided by Bank of
America which will be repaid over a five-year period with interest at market
rates [See Note 3(a)(ii)]. The acquisition of Media has been accounted for
under the purchase method of accounting and has been included in the
consolidated financial statements since October 31, 1995, the date of
acquisition. The Company recognized $2,100,000 of intangible assets arising
from acquisition which will be amortized on the straight-line method over 20
years. The purchase price allocation is preliminary and based on
management's best estimate. The tangible assets and liabilities of Media
have been recorded at their estimated fair market values at the date of the
acquisition as follows:
Value
------------
Cash $ 57,747
Accounts receivable 1,808,609
Inventory 3,062,545
Equipment 591,109
Other assets 171,691
------------
5,691,701
Accounts payable and accrued expenses (2,021,422)
Term loan - DEPA Holding B.V. (2,693,283)
Other liability - DEPA Holding B.V. (810,561)
------------
Net tangible assets $ 166,435
============
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
2. ACQUISITION, continued
------------
The following table presents the unaudited pro forma consolidated
results of operations as if the acquisition had occurred at the beginning of
each period.
Year ended April 30,
1996 1995
-------------- --------------
Revenue $ 53,900,000 $ 50,828,000
Net income applicable to
common stock 4,230,000 2,550,000
Net income per share:
Primary .67 .42
The pro forma consolidated results of operations are not necessarily
indicative of the actual results of operations that would have occurred had
the purchase actually been made at the beginning of the respective periods or
of results which may occur in the future.
3. DEBT PAYABLE
------------
(a) Bank of America
---------------
On September 13, 1995, IMPCO amended its credit facility with Bank of
America by extending the term of the revolving line of credit for a twelve
month period ending August 31, 1997, expanding the facility to include a
$2,050,000 term loan for the acquisition of Media, and adding a standby letter
of credit facility. On September 22, 1995, the Company expanded the capital
lease facility from $2,600,000 to $3,525,000 and extended the expiration date
to December 31, 2001. Including the $8,000,000 revolving line of credit, the
total Bank of America credit facility is $13,575,000 (see note 14 of the
Consolidated Notes to Financial Statements).
(i) Revolving line of credit
------------------------
The revolving line of credit carries interest, payable monthly, at a
fluctuating per annum rate equal to the Bank of America reference rate (which
was 8.25% on April 30, 1996). The Company may elect to have all or portions
of the line bear interest at an alternative interest rate (Offshore rate which
was 6.94% on April 30, 1996) agreed upon by the Bank and IMPCO for periods of
not less than 30 days nor more than one year. At April 30, 1996, $2,500,000
of the total outstanding line of credit balance of $3,400,000 was subject to
the offshore rate. The remaining $900,000 was subject to the reference rate.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
3. DEBT PAYABLE, continued
-------------
(a) Bank of America, continued
----------------
(i) Revolving line of credit, continued
-------------------------
The unused portion of the line of credit is subject to a commitment fee
of .1875% per annum. It is management's intent to renew the amount of its
present long-term obligation under the revolving line of credit for an
uninterrupted period extending beyond one year from the balance sheet date.
The line may be used for financing commercial letters of credit with a
maximum maturity of 180 days and standby letters of credit with a maximum
maturity of five years. The amount of letters of credit outstanding at any
one time may not exceed $2,000,000 for commercial letters of credit and
$750,000 for standby letters of credit. At April 30, 1996, $125,000 was
outstanding on the standby letter of credit. The maximum amount available at
any one time on the revolving line of credit and the commercial letters of
credit is $8,000,000.
(ii) Term loan for acquisition of Media
----------------------------------
The term loan carries interest, payable on a monthly basis, at the
Bank's reference rate. The Company may elect to have all or portions of the
term loan bear interest at an alternative interest rate agreed upon by the
Bank and IMPCO for periods of not less than 30 days nor more than one year.
The alternative interest rate is based on the Offshore rate plus 1.50%. Each
alternative rate portion must be for an amount not less than $250,000 and may
not include any portion of principal which is scheduled to be repaid before
the last day of the applicable interest period. At April 30, 1996, the total
outstanding balance of $1,845,000 was subject to the offshore rate at 7.25%.
The term loan is to be repaid in eighteen consecutive quarterly installments
of $102,500 (principal only). The term loan may be prepaid, with payments
applied in inverse order of maturity, in whole or in part, at any time.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
3. DEBT PAYABLE, continued
-------------
(a) Bank of America, continued
----------------
(iii) Capital lease facility
----------------------
The capital lease facility is available in incremental draws of $50,000
or more to finance acquisitions of equipment such as machinery, dies, molds,
office furniture, and motor vehicles. At April 30, 1996, approximately
$1,387,000 was outstanding and approximately $2,138,000 was available under
the capital lease facility. Each draw is to be repaid in twenty consecutive
quarterly installments. Each draw bears interest at either a variable rate or
fixed rate of interest. The fixed rate of interest is the U.S. Treasury note
bond-equivalent yield per annum corresponding to the number of months
remaining on the draw, plus 2.899 percentage points. The variable rate of
interest is equal to Bank of America's London Branch 3-month LIBOR rate plus
2.45 percentage points. At April 30, 1996, all draws were subject to the
variable rate of interest. The long-term and short-term portions of the
capital lease facility are included in other long term liabilities and other
accrued expenses, respectively, on the Company's balance sheet.
If the Company exercises an early termination option before the scheduled
expiration date of a capital lease, a termination charge will be assessed.
The termination charge is a sliding percentage (not to exceed 5%) of the
balance on the lease at time of termination. The Company may also be assessed
a non-utilization fee of 3% for any amount less than $1,500,000 required to be
leased during the period starting on September 7, 1995 through December 31,
1996.
(iv) Loan covenants and collateral
-----------------------------
The Bank of America credit facility contains certain restrictions and
financial covenants, including liquidity, tangible net worth and cash flow
coverage thresholds, as well as limitations on other indebtedness, and is
secured by substantially all of the Company's assets.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
3. DEBT PAYABLE, continued
-------------
(b) Term loan - DEPA Holding B.V.
-----------------------------
At the date of acquisition Media had a term loan payable in the amount
of 4,250,000 Dutch Guilders (U.S. $2,693,000). On January 29, 1996, Media's
term-loan from DEPA was increased by 1,279,092 Dutch Guilders (U.S. $766,000)
to reflect Media's current year earnings prior to the acquisition. Interest
on the term loan is payable quarterly. Media may elect a rate of interest
for a three, six or twelve month period based on the Amsterdam Interbank
Offer Rate (AIBOR), plus 1%, or a sixty month interest period based on a
preferred rate of interest at a major Netherlands bank, plus 1%. Once an
interest period is elected, it may not be lengthened or shortened. If an
interest period is not elected, the default interest period is three months.
As of April 30, 1996, the outstanding principal balance on the term-loan was
5,320,000 Dutch Guilders (U.S. $3,128,000) and was subject to the twelve
month interest rate of 4.11%. The remaining balance is to be repaid in
thirty-eight additional quarterly principal installments of 140,000 Dutch
Guilders (U.S. $82,000).
(c) Credit Facility - Mees Pierson
------------------------------
In February of 1996, Media secured a 3,000,000 Dutch Guilder (U.S.
$1,829,000) revocable credit facility with Mees Pierson, a financial
institution in the Netherlands. The interest rate is determined weekly based
on a weighted average of several money market indices. Media's borrowings
under this facility may not exceed the combined total of a specified amount
of its accounts receivable (70% of book value) and inventory (50% of book
value). At April 30, 1996, there was no outstanding balance on the credit
facility (3,000,000 Dutch Guilders (U.S. $1,764,000) was available at April
30, 1996).
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
4. INCOME TAXES
------------
The provision (benefit) for income taxes consists of the following:
Fiscal years ended April 30,
1996 1995 1994
Current: ------------ ------------ ------------
Federal $ 32,352 $ 91,000 $ 69,000
State (29,966) 189,000 169,000
Foreign 348,998 - -
------------ ------------ ------------
351,384 280,000 238,000
Deferred:
Federal (1,600,000) - -
State (100,000) - -
Foreign - - -
------------ ------------ ------------
(1,700,000) - -
------------ ------------ ------------
Total provision (benefit)
for income taxes $(1,348,616) $ 280,000 $ 238,000
============ ============ ============
The components of income before taxes and minority interest are as follows:
Domestic $ 2,655,220 $ 3,247,491 $ 2,748,514
Foreign 972,607 - -
------------ ------------ ------------
$ 3,627,827 $ 3,247,491 $ 2,748,514
============ ============ ============
The current provision (benefit) for income taxes for fiscal years 1996, 1995
and 1994 has been reduced by the utilization of approximately $1,650,000,
$3,800,000 and $3,500,000 of federal net operating loss carryforwards,
respectively. During fiscal years 1996 and 1995, the current provision for
state taxes was reduced by the utilization of approximately $140,000 and
112,000, respectively, of investment and/or research tax credits. In
addition, in fiscal year 1996 a state income tax refund of approximately
$82,000 was applied to the current year provision. During fiscal year 1994
the current provision for state taxes was reduced by the utilization of
approximately $1,300,000 of net operating loss carryforwards.
During the fourth quarter of fiscal year 1996, the Company reevaluated
the valuation allowance for its deferred tax assets. Based on this
reevaluation, which considered among other items projections as to future
taxable income, the Company determined that the valuation allowance should be
reduced by $1,700,000 principally due to the presumed future use of federal
net operating loss carryforwards. This reduction in the valuation allowance
is reflected in the deferred tax benefit for fiscal year 1996.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
4. INCOME TAXES, continued
-------------
A reconciliation of income taxes computed at the federal statutory
income tax rate to income taxes reported in the consolidated statements of
operations is as follows:
Fiscal years ended April 30,
----------------------------
1996 1995 1994
-------- -------- --------
Federal statutory income tax rate 34.0% 34.0% 34.0%
Permanent differences 3.0 3.0 3.2
Benefit of net operating loss
carryforward (15.4) (35.0) (35.0)
Change in valuation allowance (56.5) - -
State tax, net (3.7) 3.8 4.0
Federal alternative minimum tax .9 2.8 2.5
Foreign tax .5 - -
-------- -------- --------
Effective tax rate (37.2%) 8.6% 8.7%
======== ======== ========
The components of the Company's deferred tax liabilities and assets and
the related valuation allowance is as follows:
Years ended April 30,
--------------------------
1996 1995
------------ ------------
Deferred tax liabilities:
Tax over book depreciation $ (336,000) $ (242,000)
Other (453,000) (269,000)
------------ ------------
(789,000) (511,000)
Deferred tax assets:
Net operating loss carryforwards 2,557,000 2,986,000
Tax credit carryforwards 1,158,000 873,000
Inventory reserves 150,000 435,000
Other provisions for estimated expenses 693,000 575,000
------------ ------------
4,558,000 4,869,000
------------ ------------
Gross deferred tax asset 3,769,000 4,358,000
Valuation allowance (2,069,000) (4,358,000)
------------ ------------
Net deferred tax asset recognized $ 1,700,000 $ -
============ ============
The valuation allowance decreased during fiscal year 1996 principally due to
the use of net operating loss carryforwards in the current fiscal year and
the presumed use of net operating loss carryforwards in future years.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
4. INCOME TAXES, continued
-------------
For federal income tax purposes, at April 30, 1996, the Company had net
operating loss carryforwards of approximately $7,500,000 available to offset
future taxable income which will expire in fiscal years 2000 through 2007.
Also, the Company has a general business tax credit carryforward available
for federal income tax purposes of approximately $950,000 which, if not
utilized, will expire by fiscal year 2007. Additionally, the Company has an
alternative minimum tax credit carryforward available for federal income tax
purposes of approximately $208,000 which does not expire for tax reporting
purposes.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
(a) Leases
------
The Company has certain noncancelable operating leases for facilities and
equipment, and noncancelable capital leases for machinery, equipment and motor
vehicles. Future minimum lease commitments under noncancelable leases are as
follows:
Lease Obligations
-----------------------
Fiscal years ending April 30, Capital Operating
----------------------------- ---------- ----------
1997 $ 445,954 $ 697,238
1998 431,742 658,901
1999 421,398 614,924
2000 373,479 182,834
2001 118,592 65,338
---------- ----------
Total minimum lease payments 1,791,165 $2,219,235
==========
Less imputed interest 304,240
----------
Present value of future minimum
lease payments 1,486,925
Less current portion 325,805
----------
Long-term capital lease obligation $1,161,120
==========
Total rental expense under the operating leases for the fiscal years
ended April 30, 1996, 1995 and 1994 was $631,724, $556,990 and $525,242,
respectively. IMPCO currently leases a facility in Cerritos, California at
an annual cost of approximately $460,000. The facility lease is a non-
cancelable operating lease ending May 1999, with two five-year renewable
options. Media leases a facility in Rijswijk, Holland at an annual cost of
approximately 200,000 Dutch Guilders (U.S. $120,000). The facility lease is
a non-cancelable operating lease ending October 31, 2000, with a five-year
renewal option.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
5. COMMITMENTS AND CONTINGENCIES, continued
------------------------------
(a) Leases, continued
-------
During fiscal year 1996, IMPCO increased its $2,600,000 capital lease
facility to $3,500,000 to finance acquisitions of equipment such as
machinery, dies, molds and patterns, office furniture and fixtures and motor
vehicles. At April 30, 1996 and 1995, respectively, approximately $1,387,000
and $951,000 had been borrowed under the capital lease facility.
(b) Contingencies
-------------
The Company is currently subject to certain legal proceedings and claims
arising in the ordinary course of business. Based on discussions with legal
counsel, management does not believe that the outcome of any of these matters
will have a materially adverse effect on the Company's consolidated financial
statements.
6. STOCKHOLDERS' EQUITY
--------------------
(a) 1993 Series 1 Preferred Stock
-----------------------------
The holders of the Company's 1993 Series 1 Preferred Stock (1993
Preferred) are entitled to receive annual cumulative dividends of up to $105
per share and not less than $80 per share ($103 per share at April 30, 1996).
The dividend rate which is adjusted on the first day of each calendar quarter,
is based on the Seattle-First National Bank prime rate of interest plus 1.5%
(assuming a deemed principal value of $1,000 per share). Holders of 1993
Preferred are entitled to vote on all matters brought before the common
stockholders and have the number of votes equal to the number of full shares
of common stock into which the 1993 Preferred could then be converted.
The 1993 Preferred is convertible into common stock at the option of the
holders by dividing the then conversion price into its liquidation value of
$1,000 for each share being converted. At April 30, 1996, the conversion
price was $5.30 per share. The conversion price decreases if additional
shares of common stock are issued for a consideration per share less than the
then conversion price.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
6. STOCKHOLDERS' EQUITY, continued
---------------------
(a) 1993 Series 1 Preferred Stock, continued
------------------------------
Each share of 1993 Preferred automatically converts into shares of
common stock upon the Company reporting audited consolidated net earnings of
$5,000,000 for a fiscal year, or upon the closing of an underwritten public
offering of the Company's common stock in which the Company realizes gross
proceeds of $10,000,000 or more and the public offering price is at least
$12.00 per share, provided that all dividends in arrears are paid and the
obligation of the underwriters is that all offered shares must be purchased.
Commencing March 31, 1999, the Company has the right to convert the 1993
Preferred to common stock if the average market price for the common stock
for the immediately preceding 30 trading days equals or exceeds the
conversion price then in effect and the Company pays all accrued dividends.
(b) Warrants to purchase common stock
---------------------------------
During fiscal year 1993, 1,725,000 common stock purchase warrants (1993
Warrants) were issued in a public offering. Two 1993 Warrants entitle the
holder to purchase one share of the Company's common stock for $7.50.
Effective November 3, 1995, the Company voluntarily extended the expiration
date of the 1993 Warrants from March 10, 1996 to March 7, 1997. The holders
of 1993 Warrants are not entitled to vote, to receive dividends or to
exercise any of the rights of stockholders for any purpose. The 1993
Warrants contain registration rights and antidilutive clauses. The Company
has the right, at its discretion, to call all of the 1993 Warrants for
redemption on 45 days prior written notice at a redemption price of $0.10 per
warrant if (i) the closing bid price of the Company's common stock exceeds
the warrant exercise price by at least 50% during a period of at least 20 of
the 30 trading days immediately preceding the notice of redemption and (ii)
the Company has in effect a current registration statement covering the
common stock issuable upon exercise of the warrants. If the Company elects
to exercise its redemption right, holders of warrants may either exercise
their warrants within 45 days or tender their warrants to the Company for
redemption. At April 30, 1996, 1,720,300, warrants of this type were
outstanding.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
6. STOCKHOLDERS' EQUITY, continued
---------------------
(b) Warrants to purchase common stock, continued
----------------------------------
In connection with the 1993 public offering, the Company issued two
types of warrants to the underwriter. One entitles the holders to purchase up
to 150,000 shares of the Company's common stock at a purchase price of $6.25
per share at any time prior to March 10, 1998. These warrants provide
certain registration rights and contain antidilutive clauses. The other
entitles the holders to purchase up to 150,000 common stock purchase warrants
at a purchase price of $0.001 per warrant. Two of these common stock
purchase warrants entitle the holders to purchase one share of the Company's
common stock for $7.50 any time prior to March 10, 1998. Except for the
expiration date, these warrants have the same rights and restrictions as the
1993 Warrants. At April 30, 1996, all of these warrants were outstanding.
At April 30, 1996, the Company also had the following outstanding
warrants which entitled the holders to purchase the Company's common stock at
various specified prices for each outstanding warrant. The following table
sets forth the expiration dates, number of warrants and the respective
exercise prices of these warrants.
Expiration Number
date of warrants Exercise price
------------- ----------- --------------
Fiscal 1997 80,321 $7.47
Fiscal 1998 166,667 $4.50
Of the 246,988 outstanding warrants, 80,321 provide for certain registration
rights. The Company had 246,988 and 258,191 outstanding warrants of this
type as of April 30, 1995 and 1994, respectively. These warrants have
certain antidilutive clauses.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
6. STOCKHOLDERS' EQUITY, continued
---------------------
(c) Stock options
-------------
As of April 30, 1996, 1995 and 1994, the Company had outstanding stock
options of 841,303, 798,335, and 718,360, respectively, to purchase shares of
common stock.
During fiscal year 1994, the Company adopted the 1993 Stock Option Plan
for Nonemployee Directors. Options for up to 350,000 shares of the Company's
common stock may be issued to members of the Company's Board of Directors who
are not and have not been employees of the Company within three years prior
to the date of the grant of an option. Options are not assignable and
generally vest cumulatively at the rate of 25% per year, commencing twelve
months following the date of grant. The option exercise price per share is
the higher of (i) the average of the fair market values for the fifteen
trading days immediately following the date of grant or (ii) the market value
on the fifteenth trading day immediately following the date of grant.
Further information relating to this plan is as follows:
1993 Stock Option Plan for Nonemployee Directors
------------------------------------------------
Fiscal year ended April 30,
-------------------------------
Option price
per share 1996 1995 1994
--------------- --------- --------- ---------
Beginning balance $8.93 to $11.78 220,000 180,000 -
Granted $8.64 to $11.78 70,000 40,000 180,000
Relinquished $11.78 (20,000) - -
--------- --------- ---------
Ending balance $8.64 to $11.78 270,000 220,000 180,000
========= ========= =========
Exerciseable at April 30 200,000 180,000 180,000
========= ========= =========
During fiscal year 1992, the Company adopted the 1991 Executive Stock
Option Plan, under which three executive officers were granted Series A and
Series B options. These options may be exercised at any time through
November 6, 2001, are not assignable, and may be exercised whether or not the
optionee is an employee at the time of exercise. The Series B options were
granted in exchange for the termination of certain executive officers rights
in the 1989 phantom stock pool. Further information relating to this Plan is
as follows:
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
6. STOCKHOLDERS' EQUITY, continued
---------------------
(c) Stock options, continued
--------------
Fiscal year ended April 30,
-------------------------------
SERIES A OPTIONS Option price
- ---------------- per share 1996 1995 1994
--------------- --------- --------- ---------
Beginning balance $ 3.89 126,668 141,668 166,668
Relinquished $ 3.89 - - (25,000)
Exercised $ 3.89 - (15,000) -
--------- --------- ---------
Ending balance $ 3.89 126,668 126,668 141,668
========= ========= =========
Exerciseable at April 30 126,668 126,668 141,668
========= ========= =========
SERIES B OPTIONS
- ----------------
Outstanding $ 0.06 96,900 96,900 96,900
========= ========= =========
Exerciseable at April 30 96,900 96,900 96,900
========= ========= =========
Under the Company's 1989 Incentive Stock Option Plan, up to 500,000
options may be issued. Options generally vest at the rate of 25% per year,
cumulatively, beginning on the first anniversary of the date of grant.
Further information relating to the 1989 Incentive Stock Option Plan is as
follows:
Fiscal year ended April 30,
-------------------------------
Option price
per share 1996 1995 1994
--------------- --------- --------- ---------
Beginning balance $5.25 to $15.00 354,767 299,792 205,000
Granted $5.25 to $15.00 25,000 133,000 206,655
Exercised $6.00 to $ 7.31 (13,198) (47,422) (90,641)
Relinquished $6.00 to $10.38 (18,834) (30,603) (21,222)
--------- --------- ---------
Ending balance $5.25 to $15.00 347,735 354,767 299,792
========= ========= =========
Exerciseable at April 30 153,321 97,272 91,449
========= ========= =========
Shares available for future grant 1,004 7,170 109,567
========= ========= =========
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
7. REVENUES
--------
During fiscal year 1996, the Media subsidiary accounted for
approximately eleven percent of total consolidated revenues and contract
revenue accounted for approximately six percent (see Note 9). During fiscal
years 1996 and 1995, no single customer exceeded 10% of consolidated
revenues. During fiscal year 1994, the Company entered into a contract with
a customer that accounted for 11% of the Company's consolidated revenue in that
year.
The Company routinely sells products to a broad base of customers, which
includes distributors and original equipment manufacturers. Based on the
nature of these customers, credit is generally granted without collateral
being required. Management does not anticipate that a significant credit
risk exists as a result of these customer relationships.
8. GEOGRAPHIC DATA
---------------
The Company has a U.S. based operating subsidiary (IMPCO) and a foreign
based operating subsidiary in Holland (Media). Transfers between geographic
areas include inter-company sales which are eliminated in consolidation.
Operating income is total revenue less operating expenses, excluding finance
charges and taxes. Information concerning the Company's geographic areas of
operation in fiscal year 1996 is as follows (dollars in thousands):
Fiscal year ended April 30, 1996
------------------------------------------------------
United States Europe Eliminations Consolidated
------------ ------------ ------------ ------------
Sales to unaffi-
liated customers $ 45,974 $ 5,601 $ - $ 51,575
Transfers between
geographic areas 1,579 - (1,579) -
------------ ------------ ------------ ------------
Total revenue 47,553 5,601 (1,579) 51,575
============ ============ ============ ============
Operating income 3,104 1,037 (9) 4,132
============ ============ ============ ============
Identifiable assets,
at April 30, 1996 31,518 6,373 (163) 37,728
============ ============ ============ ============
Export sales from the corporation's United States operations to unaffiliated
customers were as follows (dollars in thousands):
1996 1995 1994
---------- ---------- ----------
Canada $ 1,659 $ 1,963 $ 1,849
Pacific Rim 4,966 4,635 5,461
Europe 2,529 3,092 2,185
Latin America 3,779 2,844 -
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
8. GEOGRAPHIC DATA, continued
----------------
During fiscal year 1994, the Company entered into a contract with a customer
that accounted for 11% of the Company's consolidated revenuein that year.
Product sales by application are presented in Management's Discussion and
Analysis of Financial Condition and Results of Operations of this Annual Report.
9. CONTRACT REVENUE
----------------
In August 1995, the Company extended its original 1993 two year fixed-
price contract with General Motors Corporation (GM) to develop, manufacture
and install compressed natural gas engine management systems (CNG systems).
Under the terms of the contract, IMPCO is engineering, testing and validating
CNG systems for certain 1997 and 1998 model year car and truck platforms in
compliance with GM's specifications. To date, no product sales have
occurred under this contract and GM is not obligated to take delivery or
install CNG systems on a minimum number of vehicles.
Revenues for development efforts are principally recognized by the
percentage of completion method and principally related to contracts with GM.
During fiscal year 1996, 1995, and 1994 GM contract revenues comprised 4%, 2%
and 11% of the Company's total revenues, respectively. Operating income
earned on the GM development contract during fiscal year 1996, 1995 and 1994
was approximately $155,000, $90,000 and $500,000, respectively, after
deducting an allocation for selling, general and administrative costs.
10. PURCHASES
---------
During fiscal years 1996, 1995 and 1994, purchases from one vendor
constituted approximately 20%, 28% and 28% of consolidated net inventory
purchases, respectively. In fiscal year 1996, 10 suppliers accounted for
approximately 54% of raw material purchases.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
11. SUPPLEMENTARY CASH FLOW INFORMATION
-----------------------------------
During fiscal years 1996, 1995 and 1994 the following non-cash
transactions were effected and are not reflected in the Consolidated
Statements of Cash Flows:
a) The Company exchanged accrued liabilities of $157,500 for common
stock or common stock options in 1994.
b) The Company incurred capital lease obligations of $700,094,
$950,782 and $71,240, respectively.
c) Pursuant to the Media acquisition an outstanding debt obligation of
1,279,000 Dutch Guilders (U.S. $766,000), was converted into a term loan
during fiscal year 1996.
d) Interest and taxes paid during fiscal year 1996, 1995, and 1994 are
as follows:
Fiscal year ended April 30,
--------------------------------
1996 1995 1994
-------- -------- --------
Interest paid $435,553 $194,520 $224,198
Taxes paid 110,000 176,140 182,125
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
-------------------------------------------
A summary of the unaudited quarterly results of operations follows (in
thousands, except per share amounts):
Fiscal year 1996 July 31 Oct. 31 Jan. 31 Apr. 30
--------- --------- --------- ---------
Product sales $ 11,796 $ 10,402 $ 12,116 $ 14,173
Contract revenue 341 982 1,010 754
Total revenue 12,137 11,384 13,126 14,927
Cost of sales 7,611 7,105 8,302(2) 8,993
Research and
development expense 1,780 2,016 1,726 1,649
Net income 739 666 543 2,723(1)
Net income per share:
Primary .10 .09 .07 .40
Fully diluted .10 .09 .07 .36
--------------------------------
(1) Includes an income tax benefit of $1,700,000, due to the reduction
in the valuation allowance for deferred tax assets, or $.25 per
share.
(2) Includes a net product warranty charge of approximately $217,000.
Fiscal year 1995:
Product sales $ 10,102 $ 10,670 $ 11,727 $ 11,209
Contract revenue 241 280 167 836
Total revenue 10,343 10,950 11,893 12,045
Cost of sales 6,577 7,128 7,827 7,593
Research and
development expense 1,436 1,339 1,509 1,913
Net income 623 723 807 815
Net income per share:
Primary .08 .09 .11 .11
Fully diluted .08 .09 .11 .11
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The following assumption was used by the Company in estimating its fair
value disclosures for long-term debt as defined by the Financial Accounting
Standards Board (FASB) Statement No. 107, "Disclosure about Fair Value of
Financial Instruments." The fair value of the Company's long-term debt
approximates its fair value since the interest rates on the debt are reset at
intervals not to exceed twelve months.
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
14. SUBSEQUENT EVENTS (UNAUDITED)
-----------------------------
In the first quarter of fiscal year 1997, the Company acquired certain
assets of Ateco Automotive Pty. Ltd. (Ateco), a private company in Australia,
for a purchase price of approximately $6,532,000. The purchase price was
primarily financed through and additional $4,000,000 of term loans provided by
Bank of America and its Sydney, Australia branch and forgiveness of accounts
receivable due to IMPCO from Ateco, totaling $1,852,000. Ateco Automotive Pty.
Ltd. has distributed IMPCO's gaseous fuel carburetion systems, components and
related devices for use in internal combustion engines since 1969. Ateco
serviced the Australian marketplace from its offices in Melbourne. Management
estimates the annual sales volume to be approximately $8,500,000. In
connection with the purchase the Company renegotiated its debt arrangements
and debt facility with Bank of America.
AIRSENSORS, INC.
SCHEDULE II - VALUATION ACCOUNTS
Additions
charged
Balance at (credited) Write-offs Balance
beginning to costs & and other at end of
of period expenses adjustments period
---------- ---------- ---------- ----------
Allowance for doubtful accounts
for the years ended:
April 30, 1996 $ 153,802 $ 13,000 ($ 1,480) $ 165,322
April 30, 1995 143,802 10,000 - 153,802
April 30, 1994 147,222 12,000 (15,420) 143,802
Inventory valuation reserve
for the years ended:
April 30, 1996 1,280,000 237,151 (906,636) 610,515
April 30, 1995 994,489 308,319 (22,808) 1,280,000
April 30, 1994 931,360 70,257 (7,128) 994,489
Warranty reserve
for the years ended:
April 30, 1996 217,123 627,978 (375,462) 469,639
April 30, 1995 173,923 58,000 (14,800) 217,123
April 30, 1994 194,754 19,169 (40,000) 173,923
Product liability reserve
for the years ended:
April 30, 1996 234,489 - (77,641) 156,848
April 30, 1995 178,768 131,936 (76,215) 234,489
April 30, 1994 71,368 117,400 (10,000) 178,768