SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 0-7390
AERO SYSTEMS ENGINEERING, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0913117
(State of incorporation) (I.R.S. Employer
Identification No.)
358 East Fillmore Avenue, St. Paul, Minnesota 55107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 227-7515
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.20 Per Share
(Title of Class)
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in defini-tive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of January 31, 1997 was approximately $3,508,611 based upon the
average of the closing bid and asked prices of the stock on such date.
The number of common shares outstanding as of January 31, 1997 was 2,551,717.
TABLE OF CONTENTS
Page
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DOCUMENTS INCORPORATED BY REFERENCE...........................................3
CROSS-REFERENCE SHEET BETWEEN ITEMS IN PART III
OF FORM 10-K AND PROXY STATEMENT PURSUANT TO
GENERAL INSTRUCTION G(4)......................................................4
PART I
Item 1. Business.............................................................5
Item 2. Properties...........................................................8
Item 3. Legal Proceedings....................................................9
Item 4. Submission of Matters to a Vote of Security Holders..................9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................10
Item 6. Selected Financial Data.............................................11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................11
Item 8. Consolidated Financial Statements and Supplementary Data............15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................32
PART III
Item 10. - Item 13. See Documents Incorporated by Reference.................32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....32
Signatures...................................................................34
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the Form 10-K:
PARTS OF FORM 10-K
INTO WHICH INCORPORATED
DOCUMENT BY REFERENCE
- --------------------------------------------------------------------------------
Proxy Statement to be filed on or before April 11, 1997
for the annual meeting of shareholders on May 14, 1997 III
CROSS-REFERENCE SHEET BETWEEN ITEMS IN PART III
OF FORM 10-K AND PROXY STATEMENT PURSUANT TO
GENERAL INSTRUCTION G(4)
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SUBJECT HEADINGS IN
DOCUMENT PROXY STATEMENT
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Item 10. Directors and Executive Officers of the Registrant Election of Directors
Item 11. Executive Compensation Election of Directors
Item 12. Security Ownership of Certain Beneficial Owners and Management Principal Shareholders
Item 13. Certain Relationships and Related Transactions Election of Directors
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PART I
ITEM 1 - BUSINESS
GENERAL DEVELOPMENT OF BUSINESS - Aero Systems Engineering, Inc. (the "Company")
is a Minnesota corporation that was organized on May 11, 1967. From that time
until 1993, the Company had been primarily engaged in selling products and
services related to testing turbine engines. On July 30, 1993, the Company
purchased substantially all of the assets of FluiDyne Engineering Corporation
("FluiDyne") relating to FluiDyne's business of designing, constructing and
supplying various types of test facilities, such as wind tunnels and other
aerodynamic test facilities. An additional business line that was purchased in
the acquisition is the Aerotest Laboratory which provides aeropropulsion
component and aerodynamic testing services.
Approximately 80% of the Company's outstanding common stock is owned by Celsius
Inc. Celsius Inc. is a wholly-owned subsidiary of Celsius Invest and ultimately
by Celsius AB, both of which are Swedish companies. Celsius AB is also publicly
traded in Sweden and is partially owned by the Swedish government.
The plan of operations for 1997 with respect to the Company and its subsidiaries
is to continue with its current activities and operations in the test cell, wind
tunnel, and aerodynamic testing markets. In addition, the Company plans to
explore new markets as deemed appropriate using joint ventures with established
companies. Acoustic measurements to measure noise levels are technologies where
the company is creating new customers and providing additional value to existing
customers.
LINES OF BUSINESS/SEGMENT REPORTING - The Company is engaged in three lines of
business. The first two are related to the design, equipping, manufacture and
construction of test facilities for turbine engines, engine accessories, and for
wind tunnels. The third business line is providing aeropropulsion component
testing and aerodynamic testing services at the Aerotest laboratory facility.
The Company regards these lines of business as being in their entirety, one
segment of business. The Company's revenues by line were as follows:
1996 1995 1994
---------------------------------------------------
Test Cell $ 9,798,000 $15,901,000 $19,031,000
Wind Tunnel 6,979,000 7,700,000 2,310,000
Aerotest Lab 3,606,000 2,436,000 3,889,000
===================================================
$20,383,000 $26,037,000 $25,230,000
===================================================
PRODUCTS AND SERVICES - The Company's products and services include the
following:
* Design and overall project management for jet engine testing facilities and
wind tunnel testing facilities;
* Design and manufacture of electronic and
mechanical turbine engine testing equipment;
* Providing of aerodynamic and propulsion system testing services;
* Acoustical measurement and analysis;
* Application of engineering technology to specific engine and aerodynamic
testing problems.
The Company undertakes research and development projects by applying leading
edge technology to customer situations in engine, wind tunnel, and aerodynamic
testing.
The Company's principal sources of revenue are the design and construction of
turbine and wind tunnel test facilities and associated test equipment. An
additional important source of revenue for the Company is providing aerodynamic
and propulsion system testing services at the Aerotest laboratory.
The Company does not generally produce products as inventory items; rather, the
Company's products are usually made to order and are limited to individual
application and adaptation. The Company does build and inventory limited amounts
of selected electronic products and spare parts and components for customer
support.
Most of the instrumentation and much of the equipment used in a jet engine or
wind tunnel test facility are not manufactured by the Company. The Company adds
value by combining these electronic and mechanical components purchased from
other companies and assembles them to make the desired testing equipment or
facility. For a complete test facility, which includes designing and
construction of a building, the Company subcontracts certain civil aspects of
the project.
Sales of test facilities have resulted principally from direct customer
contracts, independent sales agents, and the Company's internal marketing staff.
RAW MATERIALS - The principal raw materials used by the Company and its
subsidiaries are raw and fabricated steel and aluminum. Various electronic
components are also purchased and assembled into completed units. These
materials are readily available from a number of suppliers. Therefore, the
Company anticipates no difficulty in securing an alternate source of supply of
these products should it be unable to obtain materials from its present
suppliers.
PATENTS AND TRADEMARKS - The Company currently owns several patents relating to
a free piston shock tube and for a test cell stack design. The Company has
applied to various foreign countries' patent offices to register the U.S.
patents in those countries.
Periodically, the Company seeks trademark protection for certain of its
products. The Company does not hold nor has it issued any significant licenses,
franchises, or concessions. While the Company may apply for patents on some of
its instruments or components thereof, generally, the Company does not consider
the patentability or the protection that may be afforded by patents to be
material to its present business.
SEASONAL NATURE OF BUSINESS - The business of the Company is not seasonal in
nature.
WORKING CAPITAL - The Company is not required to maintain significant amounts of
inventory or supplies. The Company does not generally grant extended payment
terms to customers. However, because many of the Company's contracts with its
customers are over multiple years, outstanding balances due from a customer may
be quite large. The Company generally is required to issue standby letters of
credit as a guarantee for customers' advances and performance of the project by
the Company.
Additionally, in various governmental contracts, there are retainages, usually
5% - 10%, that are held back by governmental agencies to ensure contract
performance. The Company's practices concerning inventory and credit are
consistent with practices in the industry.
Availability of working capital financing is necessary for the current
operations of the business. The Company presently has a line of credit with a
Swedish bank in New York for $6,000,000. Funds provided by this bank are
actually provided by Celsius Inc. and ultimately by Celsius Finance AB. In
consideration of providing working capital funds, a first security interest in
all assets of the Company has been granted to Celsius Inc. and a fee is also
paid to Celsius Inc. Although the Company's management has no reason to believe
that availability of such funds from Celsius Inc. will cease in the near future,
there can be no assurance that such availability will continue indefinitely.
CUSTOMERS - The Company provides services for numerous companies in the aircraft
industry as well as the U.S. federal government and foreign governmental
entities. The orders to provide these services can originate from many customers
and quite frequently result in repeat business. In 1996, two customers accounted
for more than 10% of the Company's consolidated revenues. These two customers
were the U.S. Government and the Aeronautical Maritime Research Laboratory in
Victoria, Australia. The Company believes that the loss of no other single
customer would have a material adverse effect on its future revenues.
BACKLOG - The Company's order backlog constitutes future revenue to be earned on
contracts, including unearned revenue on projects currently in progress. The
backlog of orders as of January 31, 1997 was $15,696,000 as compared to the
December 31, 1996 backlog of $9,457,300. There were an additional $7,419,600 in
additional new orders issued to the Company in January 1997.
This compares with a backlog of $19,919,000 on January 31, 1996, including
$1,685,000 for contracts entered into subsequent to December 31, 1995.
COMPETITION - There are several other firms in the world offering services
similar to those provided by the Company. These firms are based in North
America, Europe and the Pacific Rim. The exact competitive position of the
Company in the markets in which it operates is not known to the Company, but the
Company believes that it is one of the major suppliers in the markets it serves.
The technology used by the Company is not proprietary, and most commercial
airlines, engine manufacturers, and airframe manufacturers have the in-house
engineering capability to compete directly with the Company in the design and
building of jet engine test facilities. The Company believes that in order to
reduce cost and risk many of these firms generally prefer to engage the services
of the Company or one of its competitors. In the test cell industry in which the
Company competes, the principal means of competition are price, technological
design, project management knowledge, and delivery capability.
In the wind tunnel facilities area, the Company has historically designed and
built high speed wind tunnels for worldwide governmental agencies, commercial
companies, and other research institutions.
With worldwide defense budgets being reduced during the past few years, the
number of wind tunnel projects has been steadily declining. However, there has
been steady growth in the automotive wind tunnel area. In order to capture some
of this new automotive wind tunnel business, ASE has entered into a teaming
agreement with a leading automotive architecture and engineering company. The
team has submitted proposals, but to date no contracts have been awarded.
The Company has in the past been aided in financing projects by utilizing the
financial strength of Celsius AB. Without the ability to issue standby letters
of credit to guarantee the performance of the project, ASE would not have been
the prime contractor on many of these projects.
RESEARCH AND DEVELOPMENT - Research and development performed by the Company is
applied engineering, that is, applying present engineering knowledge and
technology toward solving customer problems in turbine engine and aerodynamic
testing. The Company is currently enhancing the ASE2000, which is a new computer
data acquisition system. The expense of research and development was $500,000,
$919,000 and $318,000 for the years ended December 31, 1996, 1995, and 1994,
respectively.
ENVIRONMENTAL MATTERS - There has not been, and it is not expected that there
will be, any material effect upon capital expenditures, earnings, or the
competitive position of the Company due to compliance with federal, state and
local environmental protection regulations.
EMPLOYEES - As of December 31, 1996, the Company and its subsidiaries employed
146 employees. Contract labor has been used as business conditions require.
FOREIGN OPERATIONS - While business in foreign countries is always subject to
interference or restrictions by foreign governments or restrictions imposed by
the United States government, the Company believes that the nature of its
business is such that it is not likely to be subject to such interference. Wind
tunnels with a mach number in excess of 1.2 need to have approval from the U.S.
State Department if they are sold to a foreign country.
For each foreign or domestic project, the Company obtains payment terms or
financial protections, such as irrevocable letters of credit and bank
guarantees, to better assure payment to the Company in the event of any
financial difficulty. Nevertheless, foreign projects always have inherent
foreign currency risks with respect to currency exposures or purchase
commitments. The Company hedges currency exposure as deemed appropriate to
minimize the foreign exchange exposure.
ITEM 2 - PROPERTIES
The Company's headquarters are located in a concrete building in a light
industrial area at 358 East Fillmore Avenue, Saint Paul, Minnesota that it has
been occupying since 1971. The Company purchased this facility during 1993 from
the Port Authority of Saint Paul (the "Port Authority"). Currently, the Company
has approximately 52,000 total square feet of which 45,000 is used for offices
and 7,000 square feet is used for manufacturing.
In September 1988, the Company exercised an option to assume a lease from the
Port Authority on a building that has 24,000 square feet of manufacturing and
warehouse space located at 181 East Florida Street, Saint Paul, Minnesota. The
Company paid approximately $114,000 in cash and assumed the remaining lease with
the Port Authority. The cost of the lease has been capitalized at $273,000 for
financial reporting purposes. The lease agreement contains several purchase
options at various times during the lease period. The most favorable option
occurs at the end of the lease period when the Company may purchase the facility
for approximately $95,000. The Company intends to continue leasing the facility
until the end of the lease term.
As a part of the FluiDyne asset acquisition, the Company purchased an
aerodynamic testing facility located at 13825 Schmidt Lake Road, Plymouth,
Minnesota. Currently, the Company has approximately 25,000 total square feet of
specialized engineering and testing space at this facility of which 18,000
square feet is used for manufacturing and 7,000 square feet is used for offices.
ITEM 3 - LEGAL PROCEEDINGS
There is no material litigation presently pending to which the Company or any of
its subsidiaries is a party or of which the property of the Company or any of
its subsidiaries is the subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote of security
holders through the solicitation of proxies or otherwise.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
In May 1985, the Company obtained a listing for its common stock on Nasdaq. The
Company's common stock currently is quoted on the Nasdaq Small Cap Market. The
Company's common stock is traded primarily in the local over-the-counter market.
On January 31, 1997, the closing bid and asked prices for the Company's common
stock were $1.625 and $1.938, respectively.
The high and low bid prices for the Company's common stock for each quarter
during 1995 and 1996 as quoted on Nasdaq were as follows:
HIGH LOW
--------------------------------
1995:
First Quarter $1.13 $1.00
Second Quarter 1.50 1.13
Third Quarter 2.38 1.38
Fourth Quarter 2.00 1.38
1996:
First Quarter $1.94 $1.25
Second Quarter 2.31 1.38
Third Quarter 1.63 0.94
Fourth Quarter 1.38 1.00
The quotations set forth above reflect inter-dealer prices, without retail
markup, markdown, or commission, and may not necessarily represent actual
transactions.
No dividends have ever been paid in the history of the Company. The Company
intends to use its earnings to finance operations and does not intend to pay
dividends on its capital stock in the foreseeable future. As of December 31,
1996 there were approximately 221 holders of record of common stock of the
Company and 2,551,717 total shares outstanding.
ITEM 6 - SELECTED FINANCIAL DATA
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Selected financial data for the years ended December 31 are as follows:
1996 1995 1994 1993 1992
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SELECTED INCOME STATEMENT DATA
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Earned revenue $20,383,352 $26,037,288 $25,229,583 $27,871,999 $25,054,249
Net income (loss) (2,527,754) 189,488 (1,175,286) 594,008 318,637
Net income (loss) per common share (.99) .07 (0.46) 0.23 0.12
Weighted average common shares
outstanding 2,551,717 2,551,717 2,551,717 2,551,717 2,551,717
SELECTED BALANCE SHEET DATA
Current assets $11,006,645 $17,391,439 $13,898,995 $19,901,048 $18,915,136
Current liabilities 10,469,625 13,775,994 10,000,407 14,248,261 12,636,983
Working capital 537,020 3,615,445 3,898,588 5,652,787 6,278,153
Total assets 17,754,429 24,176,077 21,010,244 27,285,927 22,788,316
Long-term debt and capital lease
obligations 1,671,191 2,255,127 3,209,519 4,310,500 2,439,905
Stockholders' equity 4,650,641 7,178,395 6,988,907 8,164,193 7,570,185
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Aero Systems Engineering, Inc. ("Company") is engaged in selling products and
services related to (1) testing turbine engines, (2) design and operation of
aerodynamic wind tunnels, and (3) providing aerodynamic and propulsion system
testing services. The Company will design the testing facility but will
subcontract the civil engineering work and construction to local civil
construction companies.
Results of Operations
The backlog of orders as of January 31, 1997 was $15,696,000 which consisted of
$2,806,000 for jet engine test cell projects and $12,890,000 related to wind
tunnel projects. The December 31, 1996 backlog of $9,457,000 was composed of
$3,001,000 that was related to jet engine test cell projects and $6,456,000 that
was related to wind tunnel projects. Backlog of orders as of December 31, 1995
was $27,016,000 of which $6,165,000 was related to test cell projects and
$20,851,000 was related to wind tunnel projects. Backlog of orders as of
December 31, 1994 was $18,455,000 of which $9,679,000 was related to test cell
projects and $8,776,000 was related to wind tunnel projects.
The change in backlog from 1995 to 1996 represents a 65% decrease in total
backlog. Also, new orders received decreased 70% as compared to the previous
year. The test cell project backlog decreased 59% and the wind tunnel project
backlog decreased 74%. The change in backlog from 1994 to 1995 represents a 46%
increase in total backlog. The test cell project backlog decreased 36% and the
wind tunnel project backlog increased 138%.
The 1996 decrease in test cell backlog is primarily the result of a continued
low level of orders from the airlines, independent jet engine overhaul
companies, and the U.S. Armed Services. However, with recent sales of large jet
engine aircraft, notably the Boeing 777 aircraft, the Company anticipates an
increase in test cell backlog during 1997 and future years. The decrease in wind
tunnel backlog is due to a major governmental customer canceling a project in
February 1996 with a contract value of $7,644,000.
Earned revenue for the year ended December 31, 1996 was $20,383,000, a decrease
of $5,654,000 or 22% as compared to the 1995 revenue of $26,037,000. Earned
revenue for 1994 was $25,230,000. The revenue decrease from 1995 to 1996 was due
to a decrease in new orders and the completion of projects.
The Company recorded a net loss of $2,528,000 in 1996, net income of $189,000 in
1995, and a net loss of $1,175,000 in 1994. The loss incurred in 1996 was
primarily due to decreased orders and an increase in proposal and marketing
expenditures.
The cost of earned revenue as a percentage of earned revenue was 78% in 1996 as
compared to 75% in 1995 and 82% in 1994. The percentage increase in cost of
earned revenue during 1996 was due to a mix of lower margins incurred on
existing wind tunnel and test cell projects and lower margins on new projects.
Operating expenses were $5,673,000, $4,545,000, and $4,984,000 in years 1996,
1995, and 1994, respectively. These expenses increased 25% in 1996 as compared
to 1995 as a result of retaining staff in anticipation of future projects.
Research and Development (R&D) costs were $500,000, $919,000, and $318,000 in
years 1996, 1995, and 1994, respectively. The decrease during 1996 was $419,000
or 46% as compared to 1995's R&D amount. The Company continued to enhance the
ASE2000 computer data acquisition system, which had been developed with R&D
funds during 1994 and 1995. Additional R&D funds will be used in 1997 to further
develop the ASE2000 System in both wind tunnel and test cell environments to
maintain a leadership role in the industry.
Interest income was $5,000 in 1996, $51,000 during 1995, and $365,000 in 1994.
The decrease from 1994 was due to the interest on Internal Revenue Service
refunds received in 1994 which related to prior year tax return adjustments.
Interest expense was $752,000 in 1996, $816,000 during 1995, and $658,000 in
1994. The decrease of $64,000 in 1996 as compared to 1995, was due to the
overall reduction of debt to Celsius Inc.
The Company recorded income tax expense of $5,000 in 1996, as compared to
$23,000 in 1995 and $107,000 in 1994.
Liquidity and Capital Resources
The current ratio was 1.1, 1.3, and 1.4 as of December 1996, 1995, and 1994,
respectively. Working capital amounts were $537,000, in 1996, $3,615,000 in
1995, and $3,899,000 in 1994. Both current assets and current liabilities
decreased during 1996 as compared to 1995.
The December 31, 1996 accounts receivable balance was $5,139,000, a decrease of
$2,235,000 as compared to 1995's balance of $7,374,000. The decrease in the
accounts receivable balance for 1996 was due to collection of several large
invoices issued in late 1995 and the reduced amount of sales during 1996.
Accounts payable and accrued expenses amounts were $3,716,000, $5,920,000, and
$5,883,000 in 1996, 1995, and 1994, respectively. The 1996 decrease is
$2,204,000 or 37% as compared to 1995. The decrease from 1995 is due primarily
to the decreased amount of sales thus reducing the amount of materials needed to
be ordered for projects.
Billings in excess of earnings were $392,000, a decrease of $1,580,000 when
compared to 1995's balance of $1,972,000. This is due primarily to advances
received on contracts at the end of 1995.
The Company had $563,665 remaining available on one line of credit as of
December 31, 1996. The total line of credit available is $6,000,000 at a Swedish
bank in New York City which is guaranteed by the Company's immediate parent,
Celsius Inc. The average outstanding borrowings were $4,704,000 and $4,395,000
during 1996 and 1995, respectively. The increase in borrowings from 1995 to 1996
reflects borrowings incurred to fund ongoing operations. If additional working
capital needs are incurred during the future, the Company anticipates that the
available line of credit amount can be increased.
Current financial resources, i.e., working capital and short-term line of credit
facilities, plus anticipated funds from operations, are expected to be adequate
to meet cash requirements in 1997.
Capital expenditures were $502,000, $646,000, and $663,000 in years 1996, 1995,
and 1994, respectively. The 1996 decrease was 22% as compared to 1995. Most of
the 1996 capital expenditures were used to update the computer systems of the
Company, improve the buildings, and provide additional engineering hardware. The
Company entered into capital leases aggregating $415,000 during 1996 to purchase
additional engineering and manufacturing equipment.
Highly competitive market conditions have minimized the effect of inflation on
contract selling prices and the cost of purchased materials.
During 1996, approximately 49% of revenues were from international projects.
Most of the contract amounts are payable in U.S. Dollars. For those contracts
that are denominated in foreign currencies, the Company has taken steps to
minimize the foreign currency exchange rate risks.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT AUDITORS...............................................16
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets............................................................17
Statements of Operations..................................................19
Statements of Changes in Stockholders' Equity.............................20
Statements of Cash Flows..................................................21
Notes to Consolidated Financial Statements................................22
Report of Independent Auditors
Stockholders and Board of Directors
Aero Systems Engineering, Inc.
We have audited the accompanying consolidated balance sheets of Aero Systems
Engineering, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aero Systems
Engineering, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
January 24, 1997
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Aero Systems Engineering, Inc. and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31
1996 1995
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ASSETS
Current assets:
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Cash and cash equivalents $ 135,084 $ 140,641
Accounts receivable--billed contracts, net of allowances of
$50,000 in 1996 and 1995, including retainages of $319,000 and
$60,000 in 1996 and
1995, respectively 5,139,417 7,374,288
Costs and estimated earnings in excess of billings on uncompleted
contracts 3,977,135 7,677,864
Inventories 1,092,257 1,410,954
Prepaid expenses 96,068 182,753
Deferred income tax benefit 466,999 501,780
Income tax receivable 99,685 103,159
------------------------------------
Total current assets 11,006,645 17,391,439
Property, plant and equipment--net 6,167,894 6,182,940
Non-compete agreement, net of accumulated amortization of $181,083 and
$128,083 in 1996 and 1995, respectively 83,917 136,917
Investments 495,973 464,781
------------------------------------
Total assets $17,754,429 $24,176,077
====================================
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<TABLE>
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Aero Systems Engineering, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
DECEMBER 31
1996 1995
------------------------------------
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 126,894
Current maturities of capital lease obligations 125,510 27,497
Current maturities of long-term debt to affiliated company 800,000 800,000
Notes payable to banks 5,436,335 4,929,577
Accounts payable:
Trade 1,260,748 2,878,370
Affiliated companies 63,227 118,101
Billings in excess of costs and estimated earnings on
uncompleted contracts 391,766 1,972,272
Accrued warranty and losses 690,762 701,395
Accrued salaries and wages 797,451 764,489
Income taxes payable 4,734 3,196
Other accrued liabilities 899,092 1,454,203
------------------------------------
Total current liabilities 10,469,625 13,775,994
Other liabilities:
Deferred income taxes 466,999 501,780
Deferred revenue 495,973 464,781
Long-term debt to affiliated company, less current maturities 1,200,000 2,000,000
Capital lease obligations, less current maturities 471,191 255,127
Commitments and contingencies
Stockholders' equity:
Common Stock, $.20 par value:
Authorized shares - 3,000,000
Issued and outstanding shares - 2,551,717 in
1996 and 1995 510,343 510,343
Additional contributed capital 516,722 516,722
Retained earnings 3,623,576 6,151,330
------------------------------------
Total stockholders' equity 4,650,641 7,178,395
------------------------------------
Total liabilities and stockholders' equity $17,754,429 $24,176,077
====================================
SEE ACCOMPANYING NOTES.
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Aero Systems Engineering, Inc. and Subsidiaries
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31
1996 1995 1994
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Earned revenue $ 20,383,352 $ 26,037,288 $ 25,229,583
Cost of earned revenue 15,933,811 19,591,711 20,718,583
-----------------------------------------------
Gross profit 4,449,541 6,445,577 4,511,000
Operating expenses 5,672,734 4,545,051 4,984,326
Research and development 499,776 918,946 318,314
-----------------------------------------------
Operating profit (loss) (1,722,969) 981,580 (791,640)
Other income (expense):
Interest income 5,280 50,915 364,642
Interest expense (751,547) (816,417) (658,485)
Other (53,518) (3,950) 17,677
-----------------------------------------------
(799,785) (769,452) (276,166)
-----------------------------------------------
Income (loss) before income taxes (2,522,754) 212,128 (1,067,806)
Income tax expense 5,000 22,640 107,480
-----------------------------------------------
Net income (loss) $ (2,527,754) $ 189,488 $ (1,175,286)
===============================================
Net income (loss) per common share $ (.99) $ .07 $ (.46)
===============================================
Weighted average common and common equivalent shares
outstanding 2,551,717 2,551,717 2,551,717
===============================================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
Aero Systems Engineering, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
COMMON STOCK ADDITIONAL
------------------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 2,551,717 $510,343 $516,722 $7,137,128
Net loss - - - (1,175,286)
-------------------------------------------------------------------------
Balance at December 31, 1994 2,551,717 510,343 516,722 5,961,842
Net income - - - 189,488
-------------------------------------------------------------------------
Balance at December 31, 1995 2,551,717 510,343 516,722 6,151,330
Net loss - - - (2,527,754)
-------------------------------------------------------------------------
Balance at December 31, 1996 2,551,717 $510,343 $516,722 $3,623,576
=========================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
Aero Systems Engineering, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(2,527,754) $ 189,488 $(1,175,286)
Adjustments to reconcile to net cash (used in) provided by
operating activities:
Depreciation and amortization 984,891 923,329 878,577
Interest accrued on note receivable - - (35,059)
Deferred income taxes - - 83,380
Decrease (increase) in assets:
Accounts receivable 2,234,871 (2,612,715) 3,376,937
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,700,729 (954,402) 2,280,565
Inventories 318,697 (239,311) (147,542)
Prepaid expenses 86,685 12,411 85,915
Refundable income taxes 3,474 - 3,473
(Decrease) increase in liabilities:
Accounts payable and accrued expenses (2,205,278) 32,908 (2,314,899)
Income taxes payable 1,538 3,196 -
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,580,506) 1,224,011 (1,644,528)
------------------------------------------------------
Net cash provided by (used in) operating activities 1,017,347 (1,421,085) 1,391,533
INVESTING ACTIVITIES
Capital expenditures (501,933) (645,521) (662,892)
Proceeds from sale of assets - 1,000 45,644
Acquisition expenditures - - (15,121)
Principal payments received on note receivable - 335,059 43,730
------------------------------------------------------
Net cash used in investing activities (501,933) (309,462) (588,639)
FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit
agreements 506,758 2,388,956 (235,792)
Payment of notes payable (126,894) - -
Principal payments on borrowings from affiliates (800,000) (800,000) (400,000)
Principal payments under capital lease obligations (100,835) (27,876) (24,678)
------------------------------------------------------
Net cash (used in) provided by financing activities (520,971) 1,561,080 (660,470)
------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (5,557) (169,467) 142,424
Cash and cash equivalents at beginning of year 140,641 310,108 167,684
------------------------------------------------------
Cash and cash equivalents at end of year $ 135,084 $ 140,641 $ 310,108
======================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during
the year for:
Interest $ 772,093 $ 815,071 $ 658,526
Income taxes (800) 6,449 7,072
SEE ACCOMPANYING NOTES.
</TABLE>
Aero Systems Engineering, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's major operations are in the design and manufacture of electronic,
mechanical, and computerized engine and engine accessory test equipment and the
design, equipping, and construction of engine test facilities, wind tunnels and
other aerodynamic test facilities. In addition, the Company provides
aeropropulsion component testing and vehicle aerodynamic testing services. The
Company is an 80% owned subsidiary of Celsius Inc. See Note 11.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
CONTRACTS
Income on long-term contracts is recognized using the percentage-of-completion
method. On contracts where the percentage-of-completion method is used, revenue
is recognized for a portion of the total contract revenue, in the proportion
that costs incurred bear to management's estimate of total contract costs to be
incurred, commencing when progress reaches a point where experience is
sufficient to estimate final results with reasonable accuracy. Earnings and
costs on contracts are subject to revision throughout the terms of the contract,
and any required revisions are made in the periods in which revisions become
known. Provision is made for the full amount of anticipated losses in the period
in which they are determinable.
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenues recognized on contracts for which billings will be presented
in accordance with contract provisions. Such revenues are generally expected to
be billed and collected within one year.
INVENTORIES
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market.
EARNINGS PER SHARE
Net income (loss) per share of common stock is computed by dividing net income
(loss) for the year by the weighted average number of common shares outstanding
during the year.
WARRANTY POLICY
The Company's warranty policy generally provides for one-year coverage on
defective equipment due to faulty design, workmanship, or nonconformity to
specifications. Estimated warranty costs are recorded when revenues are
recognized.
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted Statement 121 in the first
quarter of 1996. The adoption did not have a material effect on the Company's
financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Property, plant and equipment are recorded at cost and depreciated over their
estimated useful lives of three to forty years using straight-line and
accelerated methods. Depreciation expense includes the amortization of capital
lease assets.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Effective November 1, 1990, the
Company became a consolidated subsidiary of Celsius Inc. and is included in the
consolidated federal income tax return with Celsius Inc. The Company's income
tax provision is calculated and presented on a separate return basis.
2. ASSET ACQUISITION
On July 30, 1993, the Company purchased substantially all of the assets of
FluiDyne Engineering Corporation ("FluiDyne") relating to FluiDyne's business of
(i) designing, constructing and supplying various types of test facilities, such
as wind tunnels and other aerodynamic test facilities, and (ii) providing
aeropropulsion component testing and aerodynamic testing services. The remaining
assets not purchased by the Company continued to operate as Phoenix Solutions
("Phoenix"). As consideration for the assets purchased, the Company paid
FluiDyne cash of approximately $2,300,000, assumed certain liabilities, and
issued to FluiDyne a three-year promissory note in the original amount of
$400,000. The note bears interest at the rate of 8% and was payable in three
equal annual installments on the anniversary date of the note. The note was
subject to adjustment based on various terms as noted in the purchase agreement.
Based on these terms, the note was adjusted to $126,894 and was paid in full in
1996.
The Company also paid to FluiDyne $265,000 in exchange for a five-year covenant
not to compete on the part of FluiDyne and an executive officer of FluiDyne.
This covenant is being amortized over the life of the agreements. The Company
also agreed to pay to FluiDyne royalties calculated on the basis of revenue
earned during the period from August 1, 1993 through July 31, 1995. No royalties
were earned under this agreement during 1995. In addition, the Company acquired
a collaboration and license agreement that calls for a foreign entity to pay the
Company a 5% royalty on the value of certain components manufactured by the
foreign entity with the use of FluiDyne technology. Advances received for future
royalties of $495,973 have been reflected as deferred revenue in the
accompanying consolidated balance sheet as of December 31, 1996. The Company
acquired a stripped (zero coupon) United States Treasury bond which will repay
the royalty advance if none is earned.
<TABLE>
<CAPTION>
3. CONTRACTS IN PROCESS
YEAR ENDED DECEMBER 31
1996 1995
---------------------------------
<S> <C> <C>
Costs incurred on uncompleted contracts $24,721,747 $25,400,123
Estimated earnings thereon 8,367,209 7,103,964
---------------------------------
Total billable on uncompleted contracts 33,088,956 32,504,087
Less billings applicable thereto 29,503,587 26,798,495
---------------------------------
$ 3,585,369 $ 5,705,592
=================================
Included in the accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 3,977,135 $ 7,677,864
Billings in excess of costs and estimated earnings on
uncompleted contracts 391,766 1,972,272
=================================
$ 3,585,369 $ 5,705,592
=================================
</TABLE>
The Company is a contractor/subcontractor on various U.S. federal
government-related firm, fixed-price contracts. The negotiated firm, fixed price
is subject to downward readjustment if it is subsequently determined that the
cost data submitted by the Company is erroneous.
The Company is a subcontractor on various U.S. federal government cost-plus,
fixed-fee contracts. The final contract price will be determined when the
contract is completed. The Company is recognizing revenue on the contracts based
on estimates of the final contract values.
CONCENTRATIONS OF CREDIT RISK
At December 31, 1996, the Company had certain concentrations of credit risk with
approximately $2,966,856 of unbilled charges and approximately $2,348,678 of
accounts receivable from six customers, which are partially secured by letters
of credit.
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31
1996 1995
------------------------------------
Materials and supplies $ 685,276 $ 779,861
Projects-in-process 406,981 631,093
====================================
$1,092,257 $1,410,954
====================================
5. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31
1996 1995
------------------------------------
Land $ 486,105 $ 486,105
Buildings 3,025,460 3,025,460
Furniture, fixtures and equipment 6,130,459 5,577,119
Wind tunnels and instrumentation 2,590,843 2,270,312
Building improvements 1,298,001 1,255,027
------------------------------------
13,530,868 12,614,023
Less accumulated depreciation (7,362,974) (6,431,083)
------------------------------------
Property, plant and equipment--net $ 6,167,894 $ 6,182,940
====================================
6. NOTES PAYABLE TO BANKS
At December 31, 1996, the Company had borrowings of $5,436,335 on a $6,000,000
line of credit with a bank bearing interest at a variable rate (9.25% at
December 31, 1996). As of December 31, 1996, the Company had $563,665 available
on this line of credit.
Funds provided under this credit line are actually provided by Celsius Inc. and
ultimately from AB Celsius Finance. A first security interest in all assets of
the Company has been granted to Celsius AB, and a fee is paid through Celsius
Inc.
At December 31, 1995, the Company had borrowings of $4,929,577 on a $6,000,000
line of credit with a bank bearing variable interest at the bank's reference
rate.
6. NOTES PAYABLE TO BANKS (CONTINUED)
During 1996 and 1995 the average borrowings on these lines of credit were
$4,704,000 and $4,395,000 with weighted average interest rates during the year
of 9.40% and 9.9%, respectively.
On February 15, 1994, the Company borrowed $4,000,000 from Celsius Inc. over a
five year term bearing interest at the rate of 6.7%. This loan was used to
reduce the Company's short-term borrowings under its line of credit. Currently,
$1,200,000 is classified as long-term with the remaining $800,000 classified as
short-term. The loan is secured by a mortgage on the Company's facilities.
Principal and interest is due in semi-annual installments that began August 15,
1994 and will extend through February 15, 1999.
<TABLE>
<CAPTION>
7. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets are
as follows:
DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
Deferred tax assets:
Contract related costs $ 291,000 $ 171,000
Warranty costs 148,000 149,000
Vacation accrual 123,000 143,000
Inventory and receivable reserves 179,000 193,000
Net operating loss carryforward 1,467,000 634,000
Other -- 20,000
------------------------------------
Total deferred tax assets 2,208,000 1,310,000
Valuation allowance for deferred tax assets (1,728,000) (808,000)
------------------------------------
Net deferred tax assets 480,000 502,000
Deferred tax liabilities:
Tax over book depreciation 467,000 502,000
Other 13,000 -
------------------------------------
Total deferred tax liabilities 480,000 502,000
------------------------------------
Net deferred taxes $ -- $ --
====================================
</TABLE>
The net operating loss carryforward of $3,966,000 will expire in the year 2009.
<TABLE>
<CAPTION>
7. INCOME TAXES (CONTINUED)
The components of income tax expense for the years ended December 31 are:
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Current $5,000 $ 22,640 $ 24,100
Deferred - - 83,380
======================================================
$5,000 $ 22,640 $107,480
======================================================
Total income tax expense differs from taxes computed by applying the United
States statutory federal income tax rate as follows:
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------------
Income taxes at 34% $(857,736) $ 72,123 $(363,054)
State taxes, net of federal benefit 1,848 6,386 2,376
Foreign sales corporation tax (benefit) - 12,963 (72,115)
Change in valuation allowance 848,709 (70,926) 538,573
Other 12,179 2,094 1,700
------------------------------------------------------
$ 5,000 $ 22,640 $ 107,480
======================================================
</TABLE>
8. LEASE OBLIGATIONS
The Company has capitalized leases which expire through 2002. The capitalized
cost at December 31, 1996 and 1995 was $843,313 and $514,204, less accumulated
amortization of $235,989 and $175,054, respectively. In 1996, the Company
acquired equipment financed with capitalized leases aggregating $414,912. One
capitalized lease agreement, which relates to a warehouse facility in St. Paul,
Minnesota, contains several purchase options at various times during the lease
period. The most favorable option occurs at the end of the lease period when the
Company may purchase the facility for approximately $95,000.
The Company also has a number of operating lease agreements primarily involving
manufacturing and warehouse space and office equipment, which expire on various
dates through 2000. Total rental expense under operating leases for occupancy
and equipment was approximately $144,000, $177,000 and $196,000 for 1996, 1995
and 1994, respectively.
8. LEASE OBLIGATIONS (CONTINUED)
Following is a schedule of future minimum lease payments:
CAPITAL OPERATING
LEASES LEASES
--------------------------------
Years ending December 31:
1997 $175,582 $ 68,293
1998 175,581 54,907
1999 124,917 54,907
2000 92,652 45,756
2001 58,260 -
Thereafter 122,349 -
--------------------------------
Total minimum lease payments 749,341 $223,863
============
Less amount representing interest 152,640
-----------------
Present value 596,701
Less principal amount due currently 125,510
-----------------
$471,191
=================
9. CONTINGENCIES AND COMMITMENTS
Guarantees of approximately $5,500,000 were outstanding at December 31, 1996 to
various customers as bid bonds or in exchange for down payments or warranty
performance bonds.
10. RETIREMENT/SAVINGS PLAN
The Company has a Retirement/Savings Plan which qualifies under Section 401(k)
of the Internal Revenue Code and covers all employees. Members of the Plan who
have completed at least twelve consecutive months of service, during which they
have worked at least 1,000 hours, are eligible for the employer matching
contribution. Contributions up to 6% of the employees' compensation are matched
at a rate of 50% by the Company. Company contributions to the plan for the years
ended December 31, 1996, 1995 and 1994 were $218,000, $206,000 and $84,000,
respectively.
11. RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, Celsius Inc. owned 2,041,782 shares of the
Company's common stock. This amount represents 80% of the voting shares
outstanding. Celsius Inc. is a wholly-owned subsidiary of Celsius Invest, which
is a subsidiary of Celsius AB, a Swedish holding company.
Celsius Inc. and its affiliated companies provide certain administrative support
services to the Company and the Company is charged a fee for such services.
Transactions with affiliates are summarized as follows:
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------------
Interest expense $117,000 $121,000 $150,500
Administrative charges $ 86,000 $ 84,000 $ 69,500
12. SEGMENT INFORMATION
The Company operates primarily in one business segment relating to engine and
aerodynamic test facilities. This segment represented more than 90% of
consolidated revenue, operating profit and identifiable assets during 1996. The
Company's operations are structured to achieve consolidated objectives. As a
result, significant inter-dependencies and overlaps exist among the Company's
operating units.
Export sales were $9,512,160, $12,306,218 and $15,609,686 for 1996, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
12. SEGMENT INFORMATION (CONTINUED)
Information concerning major customers with sales greater than 10% of total
sales for the years ended December 31:
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Sales to the United States federal government $6,289,664 $9,989,460 $4,157,153
======================================
Sales to foreign customers:
Government-owned (1 customer in 1996) $3,260,238 $ - $ -
Other than government-owned (2 customers
in 1994) - - 6,689,557
--------------------------------------
$3,260,238 $ - $6,689,557
======================================
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 through ITEM 13
Items 10 through 13 of this Annual Report on Form 10-K are omitted because the
Company intends to file on or before April 11, 1997 a definitive proxy statement
conforming to Schedule 14A involving the election of directors. Certain
information set forth in such proxy statement is hereby incorporated by
reference into this Annual Report on Form 10-K as Items 10, 11, 12 and 13 of
Part III.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)1. Financial Statements
The financial statements and notes thereto are set forth in the Index to
Financial Statements filed as Item 8 to this Annual Report on Form 10-K.
(a)2. Financial Statement Schedules
All schedules have been omitted, as the required information is not
present or not present in amounts sufficient to require submission of
the schedules or because the information required is included in the
financial statements or notes thereto.
(a)3. Exhibits
The following exhibits are incorporated by reference to Exhibits 3a.,
respectively, to the Company's Annual Report on Form 10-K for the year
ended December 31, 1983:
3a. Restated Articles of Incorporation
The following exhibit is incorporated by reference to Exhibit 10c. to
the Company's Annual Report on Form 10-K for the year ended December 31,
1986:
10c. Sublease with Northland Electric Supply Company
The following exhibit is incorporated by reference to Exhibit 3b. to the
Company's Annual Report on Form 10-K for the year ended December 31,
1990:
3b. Amended Bylaws
(b)3. Reports on Form 8-K
None.
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.
AERO SYSTEMS ENGINEERING, INC.
(Registrant)
____________________ By _____________________________________
Date Dr. Leon Ring,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
____________________ _____________________________________
Date Dr. Leon Ring,
President and Chief Executive Officer
____________________ _____________________________________
Date Christer Persson, Chairman of the Board
____________________ _____________________________________
Date Lennart Hednert, Vice Chairman of the Board
____________________ _____________________________________
Date A. L. Maxson, Director
____________________ _____________________________________
Date Robert A. Davis, Director
____________________ _____________________________________
Date Charles Rooks, Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 135
<SECURITIES> 496
<RECEIVABLES> 5,139
<ALLOWANCES> 0
<INVENTORY> 1,092
<CURRENT-ASSETS> 11,007
<PP&E> 13,531
<DEPRECIATION> 7,363
<TOTAL-ASSETS> 17,754
<CURRENT-LIABILITIES> 10,470
<BONDS> 0
0
0
<COMMON> 510
<OTHER-SE> 517
<TOTAL-LIABILITY-AND-EQUITY> 17,754
<SALES> 20,383
<TOTAL-REVENUES> 20,383
<CGS> 15,934
<TOTAL-COSTS> 15,934
<OTHER-EXPENSES> 48
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 752
<INCOME-PRETAX> (2,523)
<INCOME-TAX> 5
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,528)
<EPS-PRIMARY> (.99)
<EPS-DILUTED> 0
</TABLE>