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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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 Number 0-16672
POWER SPECTRA, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2687782
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
919 HERMOSA COURT
SUNNYVALE, CA 94086
(Address of principal executive offices including zipcode)
Registrant's telephone number, including area code: (408) 737-7977
Securities Registered pursuant to Section 12(b) of the Act:
Common Stock, no par value (Title of Class)
Securities Registered pursuant to Section 12(g) of the Act: None
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 (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 ninety 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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 22, 1996, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $22,461,734, based upon the average of the
closing ask and bid prices as reported on the non-NASDAQ over-the-counter
bulletin board. For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of Common Stock, and
shares held by officers and directors, have been excluded, in that such persons
may be deemed to be "affiliates" as that term is defined in the rules and
regulations promulgated under the Securities Exchange Act of 1934. This
determination is not necessarily conclusive for other purposes.
As of March 22, 1996, 15,008,768 shares of the Registrant's Common Stock were
issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, and 12 of Part III of the Form 10-K are incorporated by
reference from the Company's Definitive Proxy Statement (the "Proxy Statement")
for the 1996 Annual Meeting of Shareholders. With the exception of the
information specifically incorporated in Items 10, 11, and 12 of Part III of the
Form 10-K, the Company's Proxy Statement is not to be deemed filed as part of
this report.
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PART I
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and elsewhere in this Report. The Company has attempted to identify
forward-looking statements by placing an asterisk immediately following the
sentence or phrase that contains the forward-looking statement.
ITEM 1. BUSINESS
GENERAL
Power Spectra, Inc. ("Power Spectra" or the "Company") is a California
corporation organized in 1979 and operates as a single business segment.
The Company develops, designs, and markets a family of products that
use proprietary high-speed semiconductor devices which generate extremely rapid,
high-power electromagnetic impulses. Prior to 1990, the Company was a
development stage company. The primary business of the Company is related to the
Bulk Avalanche Semiconductor Switch (BASS(TM)) and PSIristor(TM). These are
optically triggered high-power switches which have applicability in
high-resolution radar, electronic warfare, communications, and industrial
applications such as level control, positioning, velocity measurement, obstacle
detection and avoidance, and many other industrial uses. Although BASS(TM)
development and applications have primarily addressed military requirements and
historically have accounted for roughly 90% of the Company's revenues, the
Company believes its new family of powerful, reliable, cost effective pulsed
optical and impulse generating switches also have growing applications in a
number of existing and emerging commercial markets.
BULK AVALANCHE SEMICONDUCTOR SWITCH (BASS(TM))
The degree to which extremely rapid, high-power electromagnetic pulses
can be generated has been a limiting factor in the improvement of
high-resolution radar and electronic warfare systems. Generation of very short
duration, high peak power pulses is not possible with existing devices such as
krytrons, spark gaps, thyratrons, planar triodes, and avalanche transistors. All
these devices are limited by fundamental physics in turn-on time. It is also not
possible to generate the high peak power, very short duration, time and
frequency domain coherent RF pulses with other devices such as magnetrons,
klystrons, or gyrotrons.
The BASS(TM) device has been developed and patented by Power Spectra.
The creation of BASS(TM) technology has resulted from two important factors: the
evolution of gallium arsenide (GaAs) technology for high-speed semiconductor
applications, and the patented Bulk Avalanche process, developed by Power
Spectra founder Stephen Davis.
Gallium arsenide technology has well-established advantages for certain
semiconductor applications. GaAs allows significantly faster electron travel in
semiconductors and is much more resistant to radiation bombardment, a factor
that is important in military and space applications.
The BASS(TM) is a solid-state gallium arsenide device roughly the size
of a conventional power transistor and is triggered by a small external
semiconductor laser diode. In its "off" state, very high impedance is achieved
by the high-purity GaAs. Switching is achieved when electrons and holes are
rapidly accelerated within the field of the device. By this means, the BASS(TM)
changes from a non-conducting to a conducting state in approximately 20
trillionths of one second. Because conduction is enabled and controlled
throughout the volume of the BASS(TM), extremely high voltages can be
controlled, presently in excess of 15 kilovolts. In addition, because of the
uniform turn-on throughout the bulk of the BASS(TM), very rapid turn-on, high
voltage, high current pulses can be
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generated. The Company believes that the BASS(TM) could in the future enable the
development of high resolution imaging radar, a new system of electronic
warfare, and other applications.
BOEING PROGRAM
Effective January 1, 1989, Power Spectra and The Boeing Company
("Boeing") entered into a development and marketing agreement relative to the
Company's BASS(TM) products (the "Boeing Agreement"). Funding under the initial
2 1/2-year development term of that agreement was based on the Company's ability
to meet certain milestones in the development of the BASS(TM) technology and the
demonstration of manufacturable BASS(TM) devices.
The initial phase of the Boeing Agreement was completed in 2 1/4 years.
A new agreement, which continued through June 30, 1994, was negotiated pursuant
to which Boeing funded development costs of $4,200,000 in 1991 and $3,500,000 in
1992. In 1991 and 1992, the Company completed significant technical
demonstrations of capability with Boeing in the areas of wide-band radar and
electronic warfare.
In March 1993, the Company announced that Boeing would fund $3,100,000
for research activities which were performed entirely in 1993, and that Boeing
would fund $1,600,000 for activities to be completed in 1994. In February 1994,
Boeing and Power Spectra finalized the 1994 statement of work and extended the
research agreement to August 31, 1994. All work under the Boeing statement of
work was completed and no additional funding is being provided by Boeing.
The Boeing research period of performance expired in June 1994. Under
the terms of the amended agreement, Boeing continues to provide, on a loan
basis, $2.8 million of equipment and has agreed to allow the Company continued
rent-free use of this equipment, subject to annual review. If the Company
desires to acquire title and ownership to the equipment, the Company and Boeing
will negotiate appropriate consideration in return for such title and ownership.
Under the amended agreement, and in exchange for having provided $23.5
million in research and development funding, Boeing retains a perpetual,
non-exclusive license to use the technology developed during the agreement, and
to market systems containing BASS(TM) devices. In addition, the Company will pay
Boeing a royalty of 4% of BASS(TM) product sales up to a maximum cumulative
royalty payment of $10 million. The Company retains the right to manufacture
BASS(TM) devices for incorporation into larger systems to be marketed by Boeing.
AIR FORCE CONTRACT
In 1990, the Company was awarded the first phase of a two-phase
competitive contract for the development of a solid-state high-power microwave
source for the United States Air Force (the "Air Force Contract"). This source
was designed to exploit the capabilities of the BASS(TM) device and is being
used by the Air Force to test the effects of high power microwave pulses.
The Phase I cost-plus-fixed-fee contract value was $5,192,744,
including $957,688 awarded in 1992 pursuant to an amendment to Phase I. In
January 1993, the Air Force exercised an option (Phase II) to have the Company
manufacture a nine-element antenna array for a total contract price of
$3,537,510 over an 18-month period. An additional modification relating to site
support and training was added in June 1993, bringing the total contract value
to $8,739,290. At the end of 1993, an aggregate of $7,697,548 had been
recognized as revenue and $1,041,742 remained in backlog. The Company delivered
the nine-element array in mid-1994. Subsequent to this delivery, the Air Force
has extended the contract to upgrade the prototype equipment delivered in Phase
I to a technology level similar to that provided in Phase II. This contract
extension raised the aggregate contract value to $9,533,771. Subsequent to year
end, the US Army contracted through the Air Force using the Air Force's existing
contract with the Company to deliver a Phase II-type technology transmitter for
use in foliage and ground penetrating radar testing, and perform a risk
reduction assessment to make the technology suitable for use onboard aircraft.
The aggregate contract value
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was increased to $10,517,881 on February 8, 1995, and as of February 28, 1996,
the value remaining on the contract was $607,421. The contract is currently
scheduled to expire on June 1, 1996.
COMMERCIAL PRODUCTS
As part of the Company's diversification efforts in 1992, the Company
entered into a technology license and development agreement with the Ioffe
(pronounced "yahf-ah") Physical-Technical Institute (Ioffe), St. Petersburg,
Russia (the "Ioffe Agreement"). Ioffe and the Company are jointly developing
advanced gallium arsenide semiconductor devices. To accelerate the development
of such devices, Russian scientists, sponsored in part by the United States
Department of Commerce Special American Business Internship Training (SABIT)
Program, were brought to work at the Company's Sunnyvale facility for varying
periods to facilitate the technology transfer.
Development of a new line of semiconductor products, using advanced
gallium arsenide switching technology to enhance the Company's laser driver
technology, was launched. Initially undertaken to support the Company's
BASS(TM)-based systems, the Company believes that such a product line has
broader applications, and the Company's goals for this product line are now
focused on mass industrial and military markets not associated with the
BASS(TM).
Several new products have been developed for the industrial markets.
The Company introduced two products during late 1993 and an additional two in
the first quarter of 1994. Promotion of these products has included news
releases, advertising in trade publications, direct mailings, and exhibition at
trade conferences.
The first product, called the BASS-01X, is a compact, high-peak power,
ultra-wideband pulse generator based on the Company's BASS(TM) technology. This
unit generates a 0.5-megawatt, 600-picosecond video pulse waveform. This
waveform has a fast leading edge of less than 120 picoseconds, which provides an
ultra-wideband frequency spectrum extending from D.C. to in excess of 3GHz. The
unit is meant to serve as a reasonably priced demonstrator that permits
customers to explore high-power ultra-wideband pulse technology in their own
applications. The Company believes, as was exemplified by the sale of the first
unit, that small size and ruggedness will enable the BASS-01X to be used in the
field for such commercial objectives as underground site surveying, since its
high peak power makes it useful for airborne and deep ground penetration units.*
The second product, called the Pulsed Optical Source (POS(TM)), is a
device that integrated a pulsed laser diode and GaAs driver circuitry directly
within a windowed TO-5 can measuring 0.33 inches in diameter. Performance
features are high peak power and 5-nanosecond pulses at pulse repetition rates
up to 20 KHz. Potential applications include laser rangefinders, position
sensors, motion sensors, and communications. Sales to date for such applications
have been for small quantities, typically for evaluation and integration in
larger systems, and the Company knows of one large system design which has
incorporated a prototype into the product.
In mid-1995, the Company introduced an industrial laser-ranging product
based on the Pulsed Optical Source (POS(TM)) to address existing industrial
markets. Although the initial prototype experienced difficulty in its ability to
calculate range accurately, a new design is presently being tested and shows
promise of lower manufacturing costs.
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*This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
factors that could affect future performance.
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The PGS-401, a 2.5 KW impulse transmitter, was introduced early in
1994. At the end of the year, a lower cost, lower performance version, the
PGS-402, was introduced. The Company believes that these products have
applications for ground penetrating radar, test instrumentation, electronic
warfare, and communications.
Several variants of the BASS-01X were produced and sold during 1995.
The BASS-02X and BASS-03X produce waveforms and power levels different from the
basic BASS-01X. These were developed to match specific customer needs. All of
the BASS-0XX series are packaged in a common, 81-cubic inch, six-pound package.
During 1995, the Company's participation in both Army and Air Force
foliage- and ground-penetrating radar programs exposed an opportunity to
construct a small, lightweight mine-finding radar that promises the ability to
address the humanitarian aspects of the more than 100 million mines left in the
ground worldwide since World War I. The Company is aggressively pursuing this
opportunity at this time.
There can be no assurance that the Company will be successful in
developing additional new products, that the Company will not experience delays
in developing such products, or that such products will achieve commercial
success. A sustained failure to successfully develop and sell new products would
have a material adverse effect on the Company's business and its results of
operations.
MANUFACTURING
The Company manufactures all of its products at its Sunnyvale,
California manufacturing facility. In 1991, the Company completed construction
and put into operation a modern semiconductor fabrication facility for BASS(TM)
development. Boeing provided the funds to complete the construction of the
facility and owns the facility and most of the equipment. This facility was used
as a prototype facility to identify the manufacturing requirements for BASS(TM).
The facility and equipment are suitable for moderate volume pilot-line
production of devices to meet current application requirements. This capability
has facilitated significant improvements in product performance and reliability
as well as productivity of the staff. During 1994, the Company installed an
epitaxial furnace to a design specified by Ioffe that completed the principal
objective of the Ioffe Agreement technology transfer. Additional manufacturing
capacity, when required, is available through out-sourcing. The Company's sole
manufacturing facility is located in an area adjacent to major earthquake
faults. The destruction of the Company's facility due to fire or earthquake
would have a material adverse effect on the Company's results of operations.
Boeing has granted the Company the right to use its equipment on a
loaned basis for the Company's purposes, subject to annual renewal.
Additionally, should the Company desire to acquire title and ownership of the
loaned equipment, Boeing and the Company will attempt to negotiate appropriate
consideration in return for the transfer of title and ownership. However, there
is no assurance that an agreement satisfactory to the Company could be reached.
If Boeing chooses to no longer loan the equipment to the Company, as it may do
in its sole discretion, and an acceptable agreement for the Company's purchase
of the equipment cannot be attained, the Company would be required to find
alternative sources of equipment, either for purchase or rent, or would have to
outsource its manufacturing while still in possession of a manufacturing
facility. Any of these circumstances could cause delays in the manufacture and
delivery of the Company's products and could have a material adverse impact on
the Company's results of operations.
Materials and components used in the manufacture of devices are
generally available from a variety of sources.
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SALES, MARKETING, AND DISTRIBUTION
In order to meet changing market conditions, the Company's marketing
efforts were expanded during l995. Prior to 1996, the Company was almost solely
dependent on military-related contracts. The level of marketing effort towards
the solicitation of new military contracts intensified in 1995 and, in addition,
the Company placed more emphasis on sales of industrial and standard products.
The marketing goals of the Company include obtaining advanced
development contracts for new hardware based on equipment successfully delivered
to the Air Force and other military customers while continuing to expand its
industrial/standard product line. Product attractiveness continued to improve
during 1995 in several areas through miniaturization and increased reliability
resulting from ongoing developmental work. The Company believes that the unique
characteristics of the BASS(TM) make the product attractive for a variety of
potential new applications.
The Company seeks a balance between commercial or standard products,
and the major research and development efforts for military applications that
have sustained the Company in the past. In the military sector, the Company
believes that the markets for systems in which the Company's BASS(TM) and
PSIristor(TM) technologies could play a major role may experience less drastic
cutbacks than weapons systems suitable only for strategic warfare. The Company
also believes that U.S. Government spending is being increasingly directed
towards research and development of innovative technologies such as the
BASS(TM).* Also, advanced radar and electronic warfare systems were shown to be
particularly effective in "Desert Storm." The military publicly recognizes the
value of high technology for both leveraging strike force effectiveness in
regional conflicts, and for protecting forces from battlefield hazards.
Currently, mine detection capabilities are being evaluated and debated by the
military and in the national press.
The Company's marketing activities for its gallium arsenide products
are conducted by an internal marketing staff. The Company's marketing activities
include advertising in selected trade publications and participation in trade
shows, symposia, and conferences. As a result, inquiries were received during
the year, resulting in sales of over 100 units of standard products.
COMPETITION
BASS(TM)
The capabilities of the BASS(TM) device have attracted other companies
with light-activated semiconductor technologies to compete in this market. The
major competitive technology in this area is the linear-mode light-activated
switch. This device does not utilize the unique avalanche phenomenon of the
BASS(TM) and, therefore, requires a large laser for its operation. The Company
believes that system end-users will not consider these systems attractive since
the large lasers are generally unreliable, inefficient, and do not have the
pulse repetition capability needed for some applications.
In addition, other companies and government laboratories are studying
semiconductor devices like the BASS(TM).
The Company faces intense competition for government contracts from
larger companies with conventional technology, which have substantially greater
financial resources than the Company. The largest competitors include Hughes,
Raytheon, Lockheed Martin, TRW, Tracor, and Northrop Grumman.
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*This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
factors that could affect future performance.
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Pulsed Optical Source
Power Spectra is addressing a niche market for industrial measurement
devices using short-pulse diode lasers which have integrated driver circuitry.
The industrial measurement market is currently served primarily by expensive
high-performance laser-based systems at the top end of the market, and by
inexpensive, lower performance ultrasonic-based systems on the lower end.
The only close competitor in the pulsed-laser based measurement system
market currently is Laser Diode Products, Inc., which offers a product which,
while not a direct replacement, is a possible substitute. Future competition is
expected to develop from EG&G, Inc. The Company's management believes that
neither company will push leading-edge technology development, leaving Power
Spectra as the technology leader in the integrated short-pulse niche.* However,
there can be no assurances that these companies or others will not attempt
technology development sufficient to become the technology leader in this niche.
Power Spectra will also be competing with the major proximity sensor
vendors in the industrial measurement market, including Electro, Micro Switch,
Massa Products, and Siemens, which had a combined share of 67% of the world
market in 1993.
Pulse Generator Source
In order to compete for other niche markets, Power Spectra has
developed a family of PSIristor(TM)-based impulse transmitters that send out
high-power, ultra-wide bandwidth signals through an antenna. These products are
sold to system vendors for use in a number of potential industrial and
environmental applications such as geographical exploration, mine clearing,
pipeline mapping and leak detection, environmental cleanup, pavement assessment,
and airport ground surveillance.
PATENTS AND PROPRIETARY RIGHTS
The Company relies primarily on its technological and engineering
capabilities for the development of its business. The Company does not believe
that the grant of patents for concepts and processes developed by its employees
is a critical element of its future growth. However, the Company does file
patent applications for such concepts and processes. The Company has a patent
for a nanosecond pulse generator (planer triode) expiring in 2002, and three
patents for various aspects of BASS(TM) technology expiring in 2001, 2005, and
2006. The Company was also granted a patent for its Bulk Avalanche Semiconductor
Laser, which expires in 2007.
The patent positions of technology companies such as Power
Spectra are uncertain and involve complex legal issues and factual questions. No
assurances can be given that any future patent applications will issue as
patents or that any issued patents will provide the Company with adequate
protection with respect to the covered products, technology, or processes.
Moreover, it is possible that other companies may assert that their patents
cover the Company's technologies or expected products. If patents are issued to
other companies that contain claims that conflict with or cover the Company's
technologies, products or expected products, and such claims are ultimately
determined to be valid, no assurance can be given that the Company would be able
to obtain licenses to any such patents on acceptable terms, if at all, or
develop or obtain alternative non-infringing technology. In addition, there can
be no assurance that litigation will not be initiated against the Company or its
customers, regardless of merit, alleging infringement of patents held by others
or
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*This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
factors that could affect future performance.
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challenging the Company's patents. Such litigation could result in substantial
cost to and diversion of effort and management time by the Company, which could
have a material adverse effect on the Company, regardless of the results of the
litigation.
The Company, with the assistance of Boeing, has attempted to protect
its rights to the BASS(TM) technology by acquiring licenses to other patents
which could be relevant to the BASS(TM) technology. These license rights, as
provided in the Boeing Agreement, belong to the Company. The Company's
agreements with the U.S. Government provide that the Company's research and
development activities entitle the government to limited rights to the
applications developed by the Company in the performance of government-funded
contracts. However, the government does not obtain any rights to the BASS(TM)
technology itself.
In an effort to maintain the confidentiality and ownership of trade
secrets and other confidential information, the Company requires employees,
consultants, and certain collaborators to execute confidentiality and invention
assignment agreements upon commencement of a relationship with the Company. The
agreements are intended to enable the Company to protect the confidential
information by the disclosure and use of technology to which it has rights and
providing for ownership by or assignment to the Company of confidential
technology developed at the Company or with the Company's resources. There can
be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or other confidential information in
the event of unauthorized use or disclosure of such information.
BACKLOG
As of December 31, 1995, the Company's backlog was $801,261, versus
$1,261,338 at December 31, 1994, and $1,308,409 at December 31, 1993. The
Company expects to complete all of its current backlog within the next twelve
months.*
Sales of the Company's products are made pursuant to standard purchase
orders that are cancelable without significant penalties. In addition, purchase
orders are subject to price renegotiations and to changes in quantities or
products and delivery schedules caused by changes in customers' requirements. As
a result of the foregoing factors, the Company does not believe that backlog at
any given time is a meaningful indicator of future sales.
GOVERNMENT CONTRACT MATTERS
A material portion of the Company's business results from contracts
with or for federal government agencies. Government contracts generally provide
for the termination or adjustment of material terms of such contracts at the
election of the government, and the government may pursue contractual,
administrative, civil, and criminal remedies for improper or illegal activities
associated with obtaining and performing government contacts. Administrative
remedies include the suspension, debarment, or ineligibility of all or part of a
company from receiving government contracts and government-approved
subcontracts. As is the case with any company that performs material amounts of
business with the federal government, any such action by the government could
have a material impact upon the Company's business.
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*This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
factors that could affect future performance.
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ENVIRONMENTAL COMPLIANCE
The nature of the business subjects the Company to a variety of
federal, state, and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. The Company has not incurred any
material operating expenses nor been required to make any significant capital
expenditures to comply with these provisions. Management believes that the
Company is not subject to any outstanding issues on past non-compliance, and
that the Company is currently in compliance with all known environmental
provisions.
RESEARCH AND DEVELOPMENT
For the fiscal years ending December 31, 1995, 1994, and 1993, the
Company's research and development expenses were $213,667, $332,612, and
$309,172, respectively. See "Management Discussion and Analysis of Financial
Condition and Results of Operations," for further discussion of this topic.
EMPLOYEES
As of December 31, 1995, the Company had 24 full-time employees, with
15 in technical positions and nine in administrative capacities. None of the
Company's employees are represented by a labor union. The Company considers its
relations with its employees to be good. The Company's success depends on its
ability to hire and retain highly specialized engineers, scientists, and
management personnel, and competition for such personnel is intense.
ITEM 2. PROPERTIES
In late February 1992, the Company moved its headquarters from Fremont,
California, to Sunnyvale, California, to combine all operations at a new site
where the Company's semiconductor processing facility was installed. The Company
leases 25,000 square feet of space at 919 Hermosa Court, Sunnyvale, California,
under a five-year lease (with an option to renew for a two-year period) which
commenced February 3, 1992. Payments under the lease total $250,413 per year.
The Company believes that its current site is sufficient to house the Company's
operations for the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the non-Nasdaq over-the-counter
market and, prior to December 17, 1992, had been quoted on the National
Association of Securities Dealers Automated Quotation (Nasdaq) System. The
Company's Preferred Stock is not publicly traded. The Company's Common Stock
commenced trading on December 17, 1992, on the non-Nasdaq Over-the-Counter
Bulletin Board. On December 31, 1995, there were 709 holders of record of the
Company's Common Stock, 14 holders of record of the Company's Series A Preferred
Stock, and 25 holders of record of the Company's Series B Preferred Stock. The
following table sets forth the high, low, and closing bid prices for the
Company's Common Stock as reported by the National Quotation Bureau of Automatic
Data Processing for each quarter of 1995 and 1994. Prices reflect inter-dealer
prices, without retail markup or commissions, and do not necessarily represent
actual transactions. For the period from December 17, 1992, to July 31, 1994,
only bid and ask prices of the Company's Common Stock were available.
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1995
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Quarter Closing
Ended High Low Bid
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Mar. 31 1 - 5/16 11/16 7/8
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June. 30 1 - 5/8 3/4 1 - 3/8
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Sept. 30 1 - 5/8 7/8 1 - 1/16
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Dec. 31 1 - 1/4 1/2 11/16
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1994
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Quarter Closing
Ended High Low Bid
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Mar. 31 1 - 3/8 11/16 1 - 3/16
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June. 30 1 5/8 5/8
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Sept. 30 1 - 3/4 1/2 1 - 1/4
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Dec. 31 1 - 9/16 5/8 11/16
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No cash dividends on Common Stock have been paid by the Company since
its inception. The Company has no plans for payment of cash dividends on Common
Stock in the foreseeable future, and intends to retain its earnings, if any, for
the development of its business. The Company is required to pay cash dividends
on its Series A Preferred Stock issued in 1994, and on its Series B Preferred
Stock issued in 1995. Dividends payable on both series of the Preferred Stock on
December 31, 1995 were $49,201 and were paid subsequent to year end.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected financial data for the five
fiscal years ended December 31, 1995. The selected financial data as of and for
each of the years in the five-year period ended December 31, 1995, are derived
from the audited financial statements of the Company. The financial statements
as of December 31, 1995, and for the year then ended, have been audited by Grant
Thornton, LLP, independent accountants, and are included elsewhere in this
Report. The balance sheet as of December 31, 1994, and related statements of
operations, stockholders' equity, and cash flows for the two years then ended,
have been audited by Ernst & Young LLP, and are included elsewhere in this
Report. The 1993 balance sheet data, and the 1992 and 1991 selected financial
data presented below, were derived from the Company's audited financial
statements for those periods, but are not presented elsewhere in this report.
The data set forth below should be read in conjunction with the financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Report.
STATEMENT OF OPERATIONS DATA:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 1,429,625 $ 3,060,098 $ 6,052,692 $ 5,635,697 $ 6,958,899
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)
applicable to
common shares ($2,751,425) ($1,216,907) $ 146,293 ($786,139) $ 262,408
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)
per common share ($0.25) ($0.12) $ 0.01 ($0.08) $ 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average
shares outstanding 11,181,541 10,014,163 9,890,553 9,801,598 10,056,027
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
BALANCE SHEET DATA:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets $2,929,050 $ 661,045 $1,908,681 $1,794,321 $2,565,759
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities $ 962,314 $ 585,769 $ 524,393 $1,729,520 $1,102,283
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $1,966,736 $ 75,276 $1,384,288 $ 64,801 $1,463,476
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $3,442,208 $1,289,955 $2,362,679 $2,339,927 $3,206,205
- ------------------------------------------------------------------------------------------------------------------------------------
Long term debt $0 $0 $0 $0 $ 800,000
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders'
equity $2,479,894 $ 704,186 $1,838,286 $ 610,407 $1,303,922
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Revenues for the year ended December 31, 1995 were $1,429,625, which
were $1,630,473 less than revenues of $3,060,098 for the prior year. The
decrease in the Company's revenues in 1995 compared to 1994 was due to
expiration of the agreement with The Boeing Company on June 30, 1994, which
provided $1,600,000 of revenue in 1994, and no additional revenue in 1995.
12
<PAGE>
The Company recognized revenues of $814,285 under the Air Force
Contract in 1995, versus $1,233,829 for the contract in 1994. This revenue
accounted for 57% of the Company's revenue in 1995 and 40% in 1994. During 1995,
the Company was unable to add significant new contract revenues and, although
operating expenses have been reduced, the Company's revenues, results of
operations, and financial condition have been materially adversely affected.
The net loss for the year ended December 31, 1995 was $2,562,230,
compared to a net loss of $1,112,507 in 1994. After adjustment for dividends on
Preferred Stock of $189,195, the net loss applicable to common shares was
$2,751,425 or $0.25 per share as compared with a net loss for the year ended
December 31, 1994 of $1,216,907 or $0.12 per share.
Sales and marketing expenses were $494,804 in 1995, representing an
increase of $64,693 or 15% over sales and marketing expenses of $430,111 in
1994. Due to reduced Boeing and Air Force revenues, marketing and advertising of
the Company's product diversification efforts continued to expand in 1995 in an
attempt to obtain new military contracts and to sell industrial and standard
products.
Research and development costs decreased by $118,945 in 1995 to
$213,667 from $332,612 in 1994, a 36% decrease, primarily because of reduced
technical costs due to the completion of the transfer of the gallium arsenide
semiconductor technology from the Ioffe Physical-Technical Institute during the
year. Spending continued on new product development.
General and administrative expenses increased 9% or $85,048 in 1995 to
$1,062,589 from $977,541 in 1994 primarily due to increased personnel costs.
The Company had interest expense of $18,126 in 1995, compared to
interest expense of $895 in 1994, due to short-term financing.
1995 continued the transition period for the Company, as it moved from
research and development of laboratory hardware to application-specific design
and testing. The Company continues contacts with a number of contractors as well
as Army, Air Force and Navy research laboratories regarding potential R&D
contracts. One such application envisions a BASS(TM) product that is
appropriately designed and packaged to penetrate foliage or earth. An Army
Research Laboratory foliage penetration (FOPEN) contract for $984,000 was signed
February 8, 1995, and is scheduled to expire on June 1, 1996. The expiration of
this contract will have a material adverse impact on future revenues unless
other contracts are signed.
1994 COMPARED TO 1993
Revenues for the year ended December 31, 1994 were $3,060,098, which
were $2,992,594 less than revenues of $6,052,692 for the prior year. The
decrease in the Company's revenues in 1994 compared to 1993 was primarily due to
expiration of the agreement with The Boeing Company, completion of the second
phase of the contract with the Air Force, and delays in the authorization of
funding for an extension of the Air Force contract.
The Company recognized revenues of $1,600,000 under the Boeing
Agreement and $1,233,829 under the Air Force Contract in 1994 versus $3,088,958
and $2,847,225 for the two contracts in 1993, respectively. Such revenues
accounted for 93% of the Company's revenue in 1994 and 98% in 1993. The decrease
in revenues from such contracts was largely attributable to completion of both
the Boeing Agreement and Phase II of the Air Force contract before the end of
the third quarter of 1994. During the fourth quarter of 1994, the Company was
unable to replace the Boeing and Air Force revenues and, although operating
expenses have been reduced, the Company's revenues, results of operations, and
financial condition have been materially adversely affected.
13
<PAGE>
Sales and marketing expenses were $430,111 in 1994, representing an
increase of $122,279 or 40% over sales and marketing expenses of $307,832 in
1993. Due to reduced Boeing and Air Force revenues, marketing and advertising of
the Company's product diversification efforts expanded in 1994 in an attempt to
obtain new military contracts and to sell commercial and standard products.
Research and development costs increased by $23,440 in 1994 to $332,612
from $309,172 in 1993, an 8% increase, in an effort to both hasten the gallium
arsenide semiconductor technology transfer from the Ioffe Physical-Technical
Institute and to bring new products to market such as those introduced in late
1993 and throughout 1994.
General and administrative expenses decreased 17% or $206,591 in 1994
to $977,541 from $1,184,132 in 1993 primarily due to reduced personnel and
reduced expenditures for consultants.
The Company had interest expense of $895 in 1994, compared to interest
expense of $95,411 in 1993. The Company retired all long-term debt in 1993
through the issuance of Preferred Stock.
The net loss for the year ended December 31, 1994 was $1,112,507. After
adjustment for dividends on Preferred Stock of $104,400, the net loss applicable
to common shares was $1,216,907 or $0.12 per share as compared with net income
for the year ended December 31, 1993 of $146,292 or $0.01 per share.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1995 was $1,966,736, representing an
increase of $1,891,460 from $75,276 at December 31, 1994. This increase was due
primarily to net proceeds of $1,121,836 from the sale of the Series B Preferred
Stock and net proceeds of $3,320,922 from the sale of Common Stock, offset by
the net cash used in operating activities of $2,037,211.
The Company closed new financings of its Common Stock in the aggregate
amount of $1,186,590 from January 1, 1996, through March 22, 1996.
The Company's growth strategy includes the successful completion of
products under development, development of new product applications, and
development of marketing strategies. The Company continues its efforts to seek
new strategic partner(s) and/or debt or equity investors. There can, however, be
no assurances that the Company will be able to successfully obtain financing, or
that if completed, the terms of any such financing would be favorable to the
Company.
Accounts receivable increased at December 31, 1995, by $260,418 over
year end 1994, while unbilled accounts decreased by $65,762 over the same period
for a net increase of $194,656. The large increase in billed accounts receivable
reflects increased standard products sales activity during the last fiscal
quarter of 1995, offset by the decrease in unbilled accounts receivable due to
reduced government contract activity billable which is typically billed in the
month following actual contract activity.
Inventories decreased by $97,765 over 1994 year-end levels due to the
completion and shipment of a line-item under the Air Force contract and
increased standard product sales.
Accounts payable increased by $64,834 over 1994 year-end levels also as
a result of the increased level of sales activity at the end of 1995.
Deferred contract revenues increased by $238,704 as a result of
overpayments by a customer.
14
<PAGE>
The Company's current cash position, together with anticipated cash
flows from operations and new financing through the issuance of Common Stock,
are expected by management to be sufficient to finance the Company's operations
through December 31, 1996.* However, if the Company is not successful in
replacing the revenue and cash generated by the Boeing Agreement and the United
States Air Force contract, the Company, as presently sized, would continue to
experience significant operating losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements and supplementary data, see pages 18 through
32.
ITEM 9. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On January 19, 1996, the Registrant dismissed the accounting firm of
Ernst & Young LLP, which had previously been engaged as the Registrant's
independent accountant to audit the Registrant's financial statements. Ernst &
Young's reports on the Registrant's financial condition for the fiscal years
ended December 31, 1993 and December 31, 1994, did not contain any adverse
opinion or disclaimer of opinion, and such reports were not otherwise modified
or qualified as to uncertainty, audit scope, or accounting principles, except
that Ernst & Young's report on the Registrant's financial condition for the
fiscal year ended December 31, 1994, contained an explanatory paragraph with
respect to the Company's ability to continue as a going-concern. Furthermore, to
the knowledge of current management, during the last two fiscal years and any
interim period, the Registrant had no disagreements with Ernst & Young on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Ernst & Young, would have caused it to make reference to the
subject matter of the disagreements in connection with its report(s). The
decision to dismiss Ernst & Young was approved by the Registrant's Board of
Directors.
On January 19, 1996, the Registrant retained the accounting firm of
Grant Thornton LLP as its principal accountant to audit the Registrant's
financial statements in the future.
- -------------------
*This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
factors that could affect future performance.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors required by this item is
included under the heading "Election of Directors - Nominees," in the Company's
Proxy Statement, which information is incorporated herein by reference.
Information regarding the Company's executive officers required by this
item is included under the heading "Election of Directors - Executive Officers,"
in the Company's Proxy Statement, which information is incorporated herein by
reference.
Information regarding the filing of reports by insiders under Section
16(a) of the Securities Exchange Act of 1934 is included under the heading
"Election of Directors - Compliance with Section 16(a) of the Exchange Act," in
the Company's Proxy Statement, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the Company's remuneration of its executive
officers and directors required by this item is included under the heading
"Election of Directors - Executive Compensation," "Election of Directors - Board
Meetings and Committees," and "Election of Directors - Employee and Director
Benefit Plans," in the Company's Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information regarding the security ownership of certain beneficial
owners and management required by this item is included under the heading
"Election of Directors - Security Ownership of Management," in the Company's
Proxy Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
a) 1. FINANCIAL STATEMENTS
Reports of Independent Auditors
Balance Sheets
December 31, 1995 and 1994
Statements of Operations
Three years ended December 31, 1995
Statement of Stockholders' Equity
Three years ended December 31, 1995
Statements of Cash Flows
Three years ended December 31, 1995
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required, are
not applicable, or the information is included in the
financial statements or notes thereto.
3. EXHIBITS
3.0 Amended and Restated Articles of Incorporation of
the Registrant, as filed with the California
Secretary of State, November 28, 1988. (1)
3.1 Certificate of Amendment of Amended and Restated
Articles of Incorporation of Power Spectra, Inc.,
as filed with the California Secretary of State,
August 30, 1993. (2)
3.2 Certificate of Determination of Preferences of
Series A Preferred Stock of Power Spectra, Inc., as
filed with the California Secretary of State,
August 30, 1993. (2)
3.3 Certificate of Determination of Preferences of
Series B Preferred Stock of Power Spectra, Inc., as
filed with the California Secretary of State,
January 4, 1995. (8)
3.4 By-Laws of Registrant. (3)
10.0 1986 Incentive Stock Option Plan as amended and
forms of incentive and non-statutory stock option
agreements. (2) (6)
10.1 Research Agreement between Registrant and The
Boeing Company. (4)
10.2 Form of Indemnification Agreement, entered into by
the Registrant with each of its executive officers
and directors. (3)
10.3 1989 Director Incentive Stock Plan. (3) (6)
10.4 1991 Director Stock Plan. (6)
17
<PAGE>
10.5 Director Option Plan. (5) (6)
10.6 Power Spectra, Inc. Series A Securities Purchase
Agreement, dated April 7, 1993.
10.7 Power Spectra, Inc. Series B Securities Purchase
Agreement, dated January 13, 1995.
11.1 Statements, RE: Computation of Per Share Earnings
(Loss).
13.1 This Form 10-K constitutes the Registrant's 1995
Annual Report to Shareholders.
16.1 Letter of Ernst & Young dated January 22, 1996,
regarding the disclosure contained in Part II, Item
9, of this report.
24.1 Consent of Grant Thornton LLP.
24.2 Consent of Ernst & Young LLP.
---------------------
(1) Incorporated by reference from the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1988.
(2) Incorporated by reference from the Registrant's
Registration Statement on Form S-8 filed September
1, 1989 (No. 33-30855).
(3) Incorporated by reference from the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989.
(4) Incorporated by reference from the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1988. Confidential treatment
granted as to portions of this agreement.
(5) Incorporated by reference from the Registrant's
Registration Statement on Form S-8 filed on January
21, 1993 (No. 33-57280).
(6) Managerial contract or compensatory plan or
arrangement in which the Company's directors or
officers participate.
(7) Incorporated by reference from exhibit to
Registrant's current report on Form 8-K filed on
January 24, 1996.
(3) Incorporated by reference from the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
b) REPORTS ON FORM 8-K
None.
c) EXHIBITS
See response to Item 14 a) 3.
d) FINANCIAL STATEMENT SCHEDULES
See response to Item 14 a) 2.
18
<PAGE>
150 Almaden Boulevard
P.O. Box 6779
San Jose, CA 95150-6779
408 275-9000
FAX 408 275-0582
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
GRANT THORNTON
GRANT THORNTON LLP Accountants and
Management Consultants
The U.S. Member Firm of
Grant Thornton International
Board of Directors and Stockholders
Power Spectra, Inc.
We have audited the accompanying balance sheet of Power Spectra, Inc. (a
California corporation) as of December 31, 1995, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 statment presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Power Spectra, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
San Jose, California
February 29, 1996
19
<PAGE>
POWER SPECTRA, INC.
BALANCE SHEETS
December 31,
----------------------------
1995 1994
----------------------------
ASSETS
Current assets:
Cash and cash equivalents $2,395,372 $214,693
Accounts receivable 290,832 30,414
Unbilled accounts receivable 44,989 110,751
Inventories 124,818 222,583
Other current assets 73,039 82,604
----------------------------
Total current assets 2,929,050 661,045
Equipment and improvements, at cost
Furniture and fixtures 192,647 192,647
Equipment 1,016,094 984,500
Leasehold improvements 70,487 67,483
----------------------------
1,279,228 1,244,630
Accumulated depreciation and
amortization (860,049) (715,758)
----------------------------
Net equipment and improvements 419,179 528,872
Patents, less accumulated amortization
of $47,503 and $40,370 in
1995 and 1994 respectively 67,904 75,038
Deposits 26,075 25,000
----------------------------
$3,442,208 $1,289,955
============================
December 31,
----------------------------
1995 1994
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts payable $202,877 $138,043
Accrued compensation expense 178,148 161,191
Allowance for contract losses 100,000 100,000
Deferred contract revenue 311,320 72,616
Accrued professional fees 72,162 59,909
Preferred stock dividend payable 49,201 26,315
Other accrued expenses 48,606 27,695
----------------------------
Total current liabilities 962,314 585,769
Stockholders' equity
Preferred stock, no par value; 5,000,000
shares authorized; issuable in
series
Series A convertible, 1,500 shares authorized, 799 shares issued
and outstanding (1994-- 1,044 shares outstanding),
liquidation
preference of $799,000 674,473 881,289
Series B convertible, 1,200 shares
authorized, 1,153 shares issued
and outstanding, liquidation
preference of $1,153,000 1,006,536 --
Common stock, no par value,
30,000,000 shares authorized;
13,875,235 shares issued and
outstanding (1994 - 10,047,550) 11,878,089 8,150,676
Accumulated deficit (11,079,204) (8,327,779)
----------------------------
Total stockholders' equity 2,479,894 704,186
----------------------------
$ 3,442,208 $1,289,955
============================
See accompanying notes
20
<PAGE>
<TABLE>
POWER SPECTRA, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
-------------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues:
Product sales $87,877 $82,365 $37,122
Contract revenue 1,341,748 2,977,733 6,015,570
-------------------- ------------------ -----------------
Total revenues 1,429,625 3,060,098 6,052,692
Costs and expenses
Cost of revenue 2,235,623 2,468,379 4,002,354
Sales and marketing 494,804 430,111 307,832
Research and development 213,667 332,612 309,172
General and administrative 1,062,589 977,541 1,184,132
-------------------- ------------------ -----------------
Total costs and expenses 4,006,683 4,208,643 5,803,490
-------------------- ------------------ -----------------
Income (loss) from operations (2,577,058) (1,148,545) 249,202
Interest expense (18,126) (895) (95,411)
Interest income 37,083 25,611 22,117
Other income (expense) (4,129) 11,322 (3,300)
-------------------- ------------------ -----------------
Net income (loss) ($2,562,230) ($1,112,507) $172,608
==================== ================== =================
Net income (loss) applicable to common shares ($2,751,425) ($1,216,907) $146,293
==================== ================== =================
Net income (loss) per common share ($0.25) ($0.12) $0.01
==================== ================== =================
Number of shares used in share computation 11,181,541 10,014,163 9,890,553
==================== ================== =================
<FN>
See accompanying notes
</FN>
</TABLE>
21
<PAGE>
<TABLE>
Power Spectra, Inc.
Statement of Stockholders' Equity
For the three years in the period ended December 31, 1995
<CAPTION>
Preferred Stock
-------------------------------------
Common Stock Class A Class B
--------------------------- ------------- -------------
Shares Amount Shares Amount Shares Amount
---------- ------------ --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 9,821,197 $7,867,572 -- -- -- --
Common stock issued in payment of services
at $1.06 to $1.13 per share 13,706 15,750 -- -- -- --
Exercise of stock options
at $0.88 per share 5,883 5,147 -- -- -- --
Directors' stock grant
at $0.88 to $1.38 per share 68,814 75,000 -- -- -- --
Common stock issued in conjunction with
debenture placement at $1.35 per share 38,810 52,200 -- -- -- --
Warrants to purchase 38,810 shares of common
stock issued in conjunction with
debenture placement -- 52,200 -- -- -- --
Debentures net of issuance costs of $162,711
exchanged for preferred stock at
$1,000.00 per share -- -- 1,044 $881,289 -- --
Dividends on preferred stock -- -- -- -- -- --
Net income for the year -- -- -- -- -- --
---------- ------------ --------- ----------- --------- ------------
Balances at December 31, 1993 9,948,410 8,067,869 1,044 881,289 -- --
Common stock issued in payment of services
at $0.94 to $1.25 per share 9,000 9,375 -- -- -- --
Exercise of stock options
at $0.88 per share 3,922 3,432 -- -- -- --
Directors' stock grant
at $0.62 to $1.25 per share 90,924 75,000 -- -- -- --
Repurchase of common stock
at $1.06 per share (4,706) (5,000) -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net loss for the year -- -- -- -- -- --
---------- ------------ --------- ----------- --------- ------------
Balances at December 31, 1994 10,047,550 8,150,676 1,044 881,289 -- --
Issuance of 1,153 shares of Series B Preferred
net of issuance costs of $31,164 and
finders fees of $115,300 paid in
common stock at $0.78 per share 147,631 115,300 -- -- 1,153 $1,006,536
Exercise of stock options
at $0.88 to $1.13 per share 32,650 28,663 -- -- -- --
Common stock issued to directors
for directors' fees 89,065 84,375 -- -- -- --
Private placement of common stock at $1.10
less issuance costs of $407,900 3,358,326 3,292,259 -- -- -- --
Conversion of 245 shares of Class A
Preferred to common at $1.22 per share
net of allocated preferred issuance cost 200,013 206,816 (245) (206,816) -- --
Dividends on preferred stock -- -- -- -- -- --
Net loss for the year -- -- -- -- -- --
---------- ------------ --------- ----------- --------- ------------
Balances at December 31, 1995 13,875,235 $11,878,089 799 $674,473 1,153 $1,006,536
========== ============ ========= =========== ========= ============
</TABLE>
<PAGE>
Power Spectra, Inc.
Statement of Stockholders' Equity (continued)
For the three years in the period ended December 31, 1995
Total
Accumulated stockholders'
deficit equity
--------------- -------------
Balances at January 1, 1993 ($7,257,165) $610,407
Common stock issued in payment of services
at $1.06 to $1.13 per share -- 15,750
Exercise of stock options
at $0.88 per share -- 5,147
Directors' stock grant
at $0.88 to $1.38 per share -- 75,000
Common stock issued in conjunction with
debenture placement at $1.35 per share -- 52,200
Warrants to purchase 38,810 shares of common
stock issued in conjunction with
debenture placement -- 52,200
Debentures net of issuance costs of $162,711
exchanged for preferred stock at
$1,000.00 per share -- 881,289
Dividends on preferred stock (26,315) (26,315)
Net income for the year 172,608 172,608
--------------- -----------
Balances at December 31, 1993 (7,110,872) 1,838,286
Common stock issued in payment of services
at $0.94 to $1.25 per share -- 9,375
Exercise of stock options
at $0.88 per share -- 3,432
Directors' stock grant
at $0.62 to $1.25 per share -- 75,000
Repurchase of common stock
at $1.06 per share -- (5,000)
Dividends on preferred stock (104,400) (104,400)
Net loss for the year (1,112,507) 1,112,507)
--------------- -----------
Balances at December 31, 1994 (8,327,779) 704,186
Issuance of 1,153 shares of Series B Preferred
net of issuance costs of $31,164 and
finders fees of $115,300 paid in
common stock at $0.78 per share -- 1,121,836
Exercise of stock options
at $0.88 to $1.13 per share -- 28,663
Common stock issued to directors
for directors' fees -- 84,375
Private placement of common stock at $1.10
less issuance costs of $407,900 -- 3,292,259
Conversion of 245 shares of Class A
Preferred to common at $1.22 per share
net of allocated preferred issuance cost -- --
Dividends on preferred stock (189,195) (189,195)
Net loss for the year (2,562,230) (2,562,230)
--------------- -----------
Balances at December 31, 1995 ($11,079,204) $2,479,894
=============== ===========
See accompanying notes
22
<PAGE>
<TABLE>
POWER SPECTRA, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
---------------- -------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) (2,562,230) ($1,112,507) $172,608
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 151,425 145,242 168,228
Common stock issued for services and
director compensation 84,375 84,375 90,750
Changes in operating assets and liabilities:
Accounts receivable (260,418) 875,643 (558,631)
Unbilled accounts receivable 65,762 (35,834) 546,053
Inventories 97,765 (186,120) 17,687
Other current assets 9,565 (30,631) 62,579
Accounts payable 64,834 49,427 (297,892)
Accrued expenses 73,007 14,206 6,804
Deferred contract revenue 238,704 (2,257) (14,354)
Note payable -- -- (126,000)
---------------- -------------- ---------------
Total adjustments $525,019 914,051 (104,776)
---------------- -------------- ---------------
Total cash provided by (used in) operating activities ($2,037,211) (198,456) 67,832
INVESTING ACTIVITIES
Equipment and improvements
Additions (34,598) (318,204) (81,233)
Disposals -- 3,050 265
Patent costs incurred -- (5,000) --
Increase (decrease) in deposits (1,075) -- 4,348
---------------- -------------- ---------------
Total cash used in investing activities (35,673) (320,154) (76,620)
FINANCING ACTIVITIES
Proceeds from sale of common stock, net of stock
issuance costs and repurchases 3,320,922 (1,568) 5,147
Proceeds from sale of preferred stock, net of stock
issuance costs and repurchases 1,121,836 -- --
Dividends on preferred stock (189,195) (104,400) --
Proceeds from sale of convertible debentures -- -- 1,044,000
Issuance costs of convertible debentures -- -- (58,311)
Repayment of 9% convertible debentures -- -- (800,000)
---------------- -------------- ---------------
Total cash provided by (used in) financing activities 4,253,563 (105,968) 190,836
---------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents 2,180,679 (624,578) 182,048
Cash and cash equivalents, beginning of period 214,693 839,271 657,223
---------------- -------------- ---------------
Cash and cash equivalents, end of period $2,395,372 $214,693 $839,271
================ ============== ===============
Supplemental schedule of noncash financing activities:
Conversion of convertible debentures to preferred stock -- -- $1,044,000
================ ============== ===============
Conversion of preferred stock to common stock $206,816 -- --
================ ============== ===============
Common stock and warrants issued in connection with
issuance of preferred stock and debenture financing $115,300 -- $104,400
================ ============== ===============
Accrual of preferred stock dividends $49,201 $26,315 $26,315
================ ============== ===============
Cash paid during the period for:
Interest $18,126 $895 $95,411
================ ============== ===============
Income taxes $800 $800 $1,000
================ ============== ===============
<FN>
See accompanying notes
</FN>
</TABLE>
23
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements
December 31, 1995
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company develops, designs, and markets a family of products that use
proprietary high speed semiconductor devices which generate extremely rapid,
high-power electromagnetic impulses. The primary business of the Company is
related to the Bulk Avalanche Semiconductor Switch (BASS(TM)) and PSIristor(TM).
These switches have applicability in high-resolution radar, electronic warfare,
communications, and industrial applications such as level control, positioning,
velocity measurement, and obstacle detection and avoidance. Historically, over
90% of the Company's revenues have come from research and development contracts
with U.S. Government agencies. The Company has historically not experienced any
significant credit losses.
In preparing financial statements in conformity with generally accepted
accounting practices (GAAP), management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from these estimates.
The Company accounts for its long-term contracts using the
percentage-of-completion method. The Company currently has one long-term
contract that is scheduled for completion in the second quarter of 1996. A
reserve of $100,000 has been set up to handle any contingencies, which at this
time are unknown, related to completion of this contract.
A material portion of the Company's business results from contracts with or for
government agencies. There can be no assurances that the Government will
continue to fund such contracts or that the Company will prevail and capture
such contracts if funded. Additionally, government contracts generally provide
for the termination or adjustment of material terms of such contracts at the
election of the government, and the government may pursue contractual,
administrative, civil, and criminal remedies for improper or illegal activities
associated with obtaining and performing government contracts. Administrative
remedies include the suspension, debarment, or ineligibility of all or part of a
company from receiving government contracts and government-approved
subcontracts. As is the case with any company that performs material amounts of
business with the federal government, any such action by the government could
have a material impact upon the Company's business.
The Company's current cash position, together with anticipated cash flows from
operations and new financing through the issuance of Common Stock and Series B
Preferred Stock, are expected by management to be sufficient to finance the
Company's operations through December 31, 1996. However, if the Company is not
successful in replacing the revenue and cash generated by the Boeing Agreement
and the United States Air Force contract, the Company, as presently sized, would
continue to experience significant operating losses.
24
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNBILLED ACCOUNTS RECEIVABLE
Unbilled accounts receivable consists of the following:
DECEMBER 31
------------------
1995 1994
------------------
December 1995 and 1994 charges on cost plus contracts not
billed until January 1996 and 1995, respectively $44,989 $110,751
======= ========
INVENTORIES
Inventories, which are stated at the lower of cost (first-in, first-out basis)
or market, consist of the following:
DECEMBER 31
------------------------
1995 1994
------------------------
Work in progress $ 12,692 $ 97,923
Purchased parts 112,126 124,660
--------- --------
$124,818 $222,583
========= ========
DEPRECIATION
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets (3 to 10 years).
PATENTS
The cost of patents is being amortized over their statutory lives using the
straight-line method.
RESEARCH AND DEVELOPMENT CONTRACT REVENUE
Contract revenues are recognized on the percentage-of-completion method based on
costs incurred.
EARNINGS (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average of common
shares outstanding for all periods presented, computed using the net income
(loss) after deducting Series A and Series B Preferred Stock dividends in 1995,
and after deducting Series A Preferred Stock dividends in 1994 and 1993. The
weighted average number of shares outstanding in 1993 consist of only Common
Stock outstanding because the Common Stock equivalents were anti-dilutive. In
1994 and 1995, shares issuable upon exercise of stock options have not been
included in the calculation as the effect would be anti-dilutive. The Series A
and Series B Preferred Stock are not included as their effects are anti-dilutive
on an as-if-converted basis.
25
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company's cash and cash equivalents balance consists of bank demand deposits
and money market accounts, none of which has a maturity over three months. The
Company considers all highly liquid debt instruments purchased with an original
maturity date of three months or less to be cash equivalents.
401(K) PLAN
The Company has adopted a defined contribution plan under the provisions of
Section 401(k) of the Internal Revenue Code covering all employees. Employees
may contribute to the plan and Company contributions are determined annually by
the Board of Directors. For the year ended December 31, 1995, Company
contributions to the plan were $12,457 (1994--$8,785; 1993--$16,630).
2. CONVERTIBLE DEBENTURES
During the period ended June 30, 1993, the Company completed the placement of
$1,044,000 of 8% convertible debentures due September 30, 1998 (the "8%
Debentures"). Costs incurred in conjunction with this issue were $162,711, of
which $58,311 was cash for services, and the remainder was paid in shares of
Common Stock and warrants to purchase Common Stock. The primary use of the
proceeds was to retire the Company's $800,000 principal amount 9% Convertible
Debentures due September 30, 1993. The Company converted the 8% Debentures into
Series A Preferred Stock on September 30, 1993.
3. SERIES A PREFERRED STOCK
In July 1993, the stockholders approved an amendment to the Company's Articles
of Incorporation to create 5,000,000 shares of Preferred Stock, and the Company
designated 1,500 shares of the Preferred Stock as Series A. On September 30,
1993, the Company issued 1,044 shares of Series A Preferred Stock of the Company
in exchange for all of the outstanding Convertible Debentures at a conversion
rate of one share of the Series A Preferred for each One Thousand Dollars
($1,000) principal amount of Debentures. The holders of the Series A Preferred
are entitled to receive cumulative dividends at the rate of 10% of the original
purchase price of the Series A Preferred per annum, payable on a calendar
quarterly basis, in preference to any dividends on the Common Stock.
The Series A Preferred is convertible, at the option of the holder, at any time
after the date of issuance, into shares of Common Stock at a conversion price of
$1.225. Each share of the Series A Preferred will be automatically converted
into Common Stock if at any time the holders of at least sixty-seven percent
(67%) of the outstanding Series A Preferred vote to convert all such Preferred
into Common Stock.
The Series A Preferred is now subject to redemption at the option of the
Company. In the event that the Company redeems the Series A Preferred on or
before April 7, 1998, the redemption price will be equal to 106% of the original
purchase price of the Series A Preferred ($1,000), plus accumulated but unpaid
dividends to the date of redemption; thereafter, the redemption price shall be
equal to the original price of the Series A Preferred plus accumulated but
unpaid dividends to the date of redemption.
Each holder of the Series A Preferred has the right to vote that number of
shares equal to the number of shares of Common Stock issuable upon conversion of
such holder's Series A Preferred. The Series A Preferred shall vote with the
Common Stock on all matters, except as may be required under applicable law and
as follows. The Company is precluded, without first obtaining the approval of a
majority of the outstanding shares of the Series A Preferred, voting as a
separate class, from (1) engaging in any merger, consolidation, sale of
26
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
3. SERIES A PREFERRED STOCK (CONTINUED)
substantially all of its assets, or other reorganization in which the holders of
Series A Preferred would not receive their full liquidation preference; (2)
declaring any dividends on the Common Stock (except dividends payable solely in
Common Stock) while any Series A Preferred is outstanding; (3) authorizing or
issuing shares of any class or series having rights, preferences, or privileges
senior to the Series A Preferred with respect to dividends, liquidation, or
redemption, or issuing any convertible debt instruments or debt instruments
together with warrants which if converted or exercised would have a preference
or priority as to dividends, liquidation, or redemption senior to the Series A
Preferred; (4) amending the rights, preferences, privileges, or restrictions of
the Series A Preferred; or (5) reclassifying any shares of Common Stock or any
other shares of capital stock into shares having any preference or priority as
to dividends, liquidation, or redemption superior to the Series A Preferred.
In the event of any liquidation or winding up of the Company, the holders of the
Series A Preferred are entitled to receive, in preference to the holders of
Common Stock, an amount equal to the original purchase price per share ($1,000)
of the Series A Preferred plus accumulated but unpaid dividends.
On December 31, 1995, 245 shares of the Series A Preferred Stock were converted
into 200,013 shares of Common Stock.
4. SERIES B PREFERRED STOCK
In September 1994, the Company designated 1,200 shares of the Preferred Stock as
Series B. The Company closed new financings of its Series B Preferred Stock in
the aggregate amount of $1,153,000 (1,153 shares) in 1995. Costs incurred in
conjunction with the Series B issuance totaled $146,464, of which $31,164 was
paid in cash for services, and the remainder, $115,300, was paid in shares of
the Company's Common Stock at the Series B conversion price of $0.781 per share.
All holders of the Series B Preferred are entitled to receive cumulative
dividends at the rate of 10% of the original purchase price of the Series B
Preferred per annum, payable on a calendar quarterly basis, after any dividend
payments required to be made to the Series A Preferred Stock, and in preference
to any dividends on the Common Stock.
The Series B Preferred is convertible, at the option of the holder, at any time
after the date of issuance, into shares of Common Stock at a conversion price of
$0.781 per share. Each share of the Series B Preferred will be automatically
converted into Common Stock if at any time the holders of at least sixty-seven
percent (67%) of the outstanding Series B Preferred approve the conversion.
The Series B Preferred will be subject to redemption at the option of the
Company at any time on or after January 13, 1997. In the event that the Company
redeems the Series B Preferred on or after January 13, 1997, but not after
January 13, 2000, the redemption price will be equal to 106% of the original
purchase price of the Series B Preferred ($1,000), plus accumulated but unpaid
dividends to the date of redemption; thereafter, the redemption price shall be
equal to the original price of the Series B Preferred plus accumulated but
unpaid dividends to the date of redemption.
Each holder of the Series B Preferred has the right to vote that number of
shares equal to the number of shares of Common Stock issuable upon conversion.
The Series B Preferred Stockholders are entitled to vote with the holders of the
Series A Preferred Stock and holders of Common Stock together as a single class
on all matters, except as may be required under applicable law and as follows.
The Company is precluded, without first obtaining the approval of a majority of
the outstanding shares of the Series B Preferred, voting as a separate class,
from (1) engaging in any merger, consolidation, sale of substantially all of its
assets, or other reorganization in which the holders of Series B Preferred would
not receive their full liquidation preference; (2) declaring any dividends on
the Common Stock (except dividends payable solely in Common Stock) while any
27
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
4. SERIES B PREFERRED STOCK (CONTINUED)
Series B Preferred is outstanding; (3) authorizing or issuing shares of any
class or series having rights, preferences, or privileges senior to the Series B
Preferred with respect to dividends, liquidation, or redemption, or issuing any
convertible debt instruments or debt instruments together with warrants which if
converted or exercised would have a preference or priority as to dividends,
liquidation, or redemption senior to the Series B Preferred; (4) amending or
repealing any provision of, or adding any provision to, the Company's articles
of incorporation or by-laws if such action would alter or change the
preferences, rights, privileges, or powers of, or the restrictions provided for
the benefit of, the Series B Preferred materially and adversely; or (5)
reclassifying any shares of Common Stock or any other shares of capital stock
into shares having any preference or priority as to dividends, liquidation
preference, or redemption rights superior to any such preference or priority of
the Series B Preferred.
In the event of any liquidation or winding up of the Company, the holders of the
Series B Preferred are entitled to receive, in preference to the holders of
Common Stock but subject to the rights of the Series A Preferred Stock on
liquidation, an amount equal to the original purchase price per share ($1,000)
of the Series B Preferred plus accumulated but unpaid dividends.
5. TAXES ON INCOME
A reconciliation between the Company's effective tax rate and the United States
("U. S.") statutory rate (34%) is as follows:
Year ended December 31,
-----------------------------------------
1995 1994 1993
-------- ------- -------
Tax (benefit) at U. S.
statutory rate ($871,158) ($378,252) $58,687
Operating losses,
not utilized (utilized) 871,158 378,252 (58,687)
-------- ------- -------
Provision for income taxes $ -- $ -- $ --
======== ======== =======
At December 31, 1995, the Company has net loss operating carryforwards for
federal and state income tax purposes of approximately $9,800,000 and
$3,300,000, respectively. The Company also has research and development credit
carryforwards for federal tax purposes of approximately $132,000. The net
operating loss and credit carryforwards expire in varying amounts through the
year 2009.
Pursuant to the Tax Reform Act of 1986, use of the Company's net operating loss
and research and development credit carryforwards may be substantially limited
if a cumulative change in ownership of more than 50% of the value of the
Company's stock occurs within any three-year period.
28
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
5. TAXES ON INCOME (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities for
U. S. federal and state income taxes are as follows:
December 31,
-----------------------------------
1995 1994
------------ -----------
Deferred tax assets:
Reserves not deductible for tax purposes $120,724 $109,265
Book and tax depreciation and
amortization differences (7,094) 20,769
Net operating loss carryforwards 3,647,742 2,655,228
Tax credit carryforwards 144,790 144,790
State taxes (115,106) (66,540)
------------ -----------
Total deferred tax assets 3,791,056 2,863,512
Valuation allowance (3,791,056) (2,863,512)
------------ ------------
Net deferred tax assets $ -- $ --
============= ============
The valuation allowance increased by $927,544 and $388,848 in 1995 and 1994,
respectively.
6. COMMON STOCK
In August 1995 the Company initiated a private placement of its Common Stock
with a maximum gross proceeds to be raised from the offering of $6,000,000. The
placement currently is scheduled to close at March 31, 1996. Gross proceeds
raised through December 31, 1995 were $3,694,160 and proceeds through March 22,
1996 are $4,880,750.
The Company issued units in lieu of single shares of Common Stock. Each unit
consists of one share of Common Stock and one Common Stock Purchase Warrant (the
"Units"). Each Warrant entitles the holder to purchase one-half of a share of
Common Stock and is exercisable for ten years from the date of original issuance
of the Warrants at the initial closing of the Private Placement ( the "Original
Issuance Date"), subject to two vesting conditions described below. Two Warrants
are required to purchase one share. The Units are offered to accredited
investors only and are offered at $1.10 per Unit (the "Unit Offering Price").
There was no minimum offering amount.
The Warrants, which are issued as a component of the Units, are exercisable only
under the following circumstances and only to the following extent:
(i) 50% of the total number of Warrants held by the investor will
become exercisable if, within three years of the Original Issuance Date, the
Company issues Common Stock or securities convertible into Common Stock at a
price below the Unit Offering Price. The exercise price of such Warrants vested
in accordance with this paragraph (i) will be equal to the price offered to the
investors in the subsequent financing.
(ii) 50% of the total number of Warrants held by the investor will
become exercisable if, within two years of the Original Issuance Date, the
Company's Common Stock is not quoted on the NASDAQ SmallCap Market (or, at the
Company's sole discretion, the NASDAQ National Market). The exercise price of
such Warrants vested in accordance with this paragraph (ii) will be equal to the
Unit Offering Price.
29
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
6. COMMON STOCK (CONTINUED)
The Company has further agreed that, for three years from the Original Issuance
Date, it will not grant any stock options under its existing or future Stock
Option Plans at an exercise price less than 110% of the Unit Offering Price.
This plan provision may only be amended or rescinded by the approval of the
outstanding shareholders.
The Company has reserved 652,299 shares of Common Stock for the conversion of
the Series A Preferred Stock, and 1,476,313 shares of Common Stock for the
conversion of the Series B Preferred Stock. Under several stock option plans,
the Company has granted options to key employees, consultants, and directors to
acquire shares of the Company's Common Stock at prices that are generally equal
to fair value at the date of grant. Options generally vest over five years
(three years for grants prior to January 1, 1991) and expire if not exercised
within ten years of the date of grant. At December 31, 1995, 1,407,972 shares of
Common Stock were reserved for the issuance of shares under the Company's stock
option plans.
During 1995 the Company reserved a total of 200,000 additional shares of Common
Stock under the 1991 Director Stock Plan. The Director Option Plan provides for
the granting of options to directors to acquire shares of the Company's Common
Stock at prices equal to fair value at the date of grant. These options are
fully exercisable upon grant and expire if not exercised within ten years from
the date of grant. The Company issued 89,065 shares under the Director Plan
during 1995 (1994 -- 90,924 shares; 1993 -- 68,814 shares) and granted options
to acquire 70,000 stock shares of Common Stock under the Director Option Plan in
1995 at $1.16 per share (1994 -- granted options to acquire 60,000 shares of
Common Stock at $1.13 per share; 1993 -- granted options to acquire 60,000
shares of Common Stock at $1.38 per share).
In 1993, the Company had reserved a total of 50,000 shares of Common Stock to
issue under the Advisory Board Stock Program. The terms of the Advisory Board
Stock Program are similar to those of the 1991 Director Stock Plan except that
advisory board members are awarded 1,000 shares per meeting attended. The
Company issued 4,000 shares of Common Stock under the Advisory Board Stock
Program in 1995 at $0.88 per share. (1994 -- issued 9,000 shares of Common Stock
at $0.94 to $1.25 per share; 1993 -- issued 4,000 shares of Common Stock at
$1.13 per share).
Stock option activity for the three years ended December 31, 1995 is summarized
as follows.
OPTION PRICES NUMBER OF SHARES
-------------------- -----------------
Outstanding at December 31, 1992 $0.88 to $4.06 1,123,346
Exercised $0.88 (5,883)
Forfeited $0.88 to $3.75 (150,695)
Granted $0.84 to $1.44 188,750
----------------
Outstanding at December 31, 1993 $0.84 to $4.06 1,155,518
Exercised $0.88 (3,922)
Forfeited $0.69 to $3.44 (34,000)
Granted $0.69 to $1.13 210,500
----------------
Outstanding at December 31, 1994 $0.84 to $4.06 1,328,096
Exercised $0.88 to $1.13 (28,650)
Forfeited $0.84 to $3.44 (211,247)
Granted $0.94 to $1.31 319,773
----------------
Outstanding at December 31, 1995 $0.84 to $4.06 1,407,972
================
Exercisable at December 31, 1995 $0.84 to $4.06 1,062,146
30
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
6. COMMON STOCK (CONTINUED)
During 1989 and 1991, the Company reserved 30,000 shares and 100,000 shares,
respectively, of Common Stock for issuance to certain non-employee directors
under the 1989 and 1991 Director Incentive Stock Plan (Director Plan). Directors
must meet certain eligibility requirements for stock awards under the Director
Plan. All stock awards are fully vested at the time of grant and are for
services rendered to the Company. The number of shares issued is calculated upon
a fixed dollar amount and the share price at the date of record.
In connection with the issuance of the 8% convertible debentures in 1993, the
Company issued for services rendered warrants to acquire 38,810 shares of Common
Stock at $1.345 per share. The warrants are fully exercisable and expire
December 14, 1996.
Common shares issued for services have been recorded at amounts that approximate
the fair value of the shares at time of issuance.
7. DEVELOPMENT AND MARKETING AGREEMENT
In 1991, the Company received from The Boeing Company ("Boeing") $1.8 million
for equipment and the construction of a clean room laboratory. In connection
with the expiration of the agreement with Boeing in 1994, Boeing agreed to allow
the Company continued use of these assets at no cost. Accordingly, these assets
are considered to be on loan from Boeing and have not been recorded in the
accompanying balance sheets. On an annual basis, Boeing will review the
Company's continued use of these assets and such assets may either be returned
to Boeing or purchased, at the Company's option, for an amount to be negotiated.
In connection with the construction of the clean room laboratory, the Company
entered into an agreement to rent office and manufacturing space in a building
owned by Boeing for $20,868 per month until February 1997.
In connection with an agreement with Boeing for the development of the Company's
Bulk Avalanche Semiconductor Switch (BASS) device, the Company recognized $1.6
million in revenue in 1994 (1993 -- $3.1 million). This agreement expired June
30, 1994.
8. OPERATING LEASES
The Company has entered into operating leases for facilities and equipment. The
future minimum payments under these leases are as follows:
1996 $258,549
1997 29,001
1998 4,745
--------
Total minimum payments $292,295
========
For the year ended December 31, 1995, rent expense was $250,413 (1994 --
$250,416; 1993 -- $244,340).
31
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements (continued)
<TABLE>
9. VALUATION AND QUALIFYING ACCOUNTS
The following are the valuation and qualifying accounts for deferred tax assets
for December 1993, 1994, and 1995.
<CAPTION>
ADDITIONS
--------------------------------------------
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- AT END
OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
--------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Valuation allowance on
deferred tax assets $2,864 $927 $ -- $ -- $3,791
Year ended December 31, 1994
Valuation allowance on
deferred tax assets $2,475 $389 $ -- $ -- $2,864
Year ended December 31, 1993
Valuation allowance on
deferred tax assets $2,609 ($134) $ -- $ -- $2,475
</TABLE>
10. NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). SFAS 123 requires companies to account for stock-based compensation under
either the fair-value method, as defined, or continue the accounting prescribed
by Accounting Principle Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under SFAS 123, companies that elect to continue using
APB 25 are required to present pro forma net earnings and earnings per share as
if the fair-value based method of SFAS 123 was used. The Company intends to
continue accounting for stock-based compensation as prescribed by APB 25 and
present the disclosure requirements of SFAS 123 in 1996. The only affect of
adopting SFAS 123 will be the new disclosure requirements.
32
<PAGE>
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 on this 28th Day of
March, 1996.
POWER SPECTRA, INC.
By: /s/Michael I. Gamble
-----------------------------
Michael I. Gamble
President, Executive Officer
By: /s/Edward J. Lamb
-----------------------------
Edward J. Lamb
Controller, Financial Officer
33
<PAGE>
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.
Dated: March 28, 1996 /s/Gordon H. Smith
---------------------------------------
Gordon H. Smith, Chairman of the Board
Dated: March 28, 1996 /s/John Hewitt, Jr.
----------------------------------------
John Hewitt, Jr., Director
Dated: March 28, 1996 /s/Richard A. Williams
-----------------------------------
Richard A. Williams, Director
Dated: March 28, 1996 /s/James A. Glaze
----------------------------------
James A. Glaze, Director
Dated: March 28, 1996 /s/John W. Pauly
------------------------------
John W. Pauly, Director
Dated: March 28, 1996 /s/Drury J. Gallagher
---------------------------------------
Drury J. Gallagher, Director
Dated: March 28, 1996 /s/Gene J. Kennedy
---------------------------------------
Gene J. Kennedy, Director
Dated: March 28, 1996 /s/Michael I. Gamble
---------------------------------------
Michael I. Gamble
President, Chief Executive Officer and Director
Principal Executive Officer
Dated: March 28, 1996 /s/Edward J. Lamb
------------------------------
Edward J. Lamb
Controller, Chief Financial Officer
Principal Financial and Accounting Officer
34
<PAGE>
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit Sequentially
Number Exhibit Numbered Page
- ------- ------- --------------
<S> <C> <C>
3.0(1) Amended and Restated Articles of Incorporation of the --
Registrant, as filed with the California Secretary of State,
November 28, 1988
3.1(2) Certificate of Amendment of Amended and Restated --
Articles of Incorporation of Power Spectra, Inc., as
filed with the California Secretary of State, August 30, 1993
3.2(2) Certificate of Determination of Preferences of Series A --
Preferred Stock of Power Spectra, Inc., as filed with the
California Secretary of State, August 30, 1993.
3.3(9) Certificate of Determination of Preferences of Series B --
Preferred Stock of Power Spectra, Inc., as filed with the
California Secretary of State, January 4, 1995.
3.4(3) By-Laws of Registrant --
10.0(4)(7) 1986 Incentive Stock Option Plan as amended and --
forms of incentive and non-statutory stock option
agreements
10.1(5) Research Agreement between Registrant and The --
Boeing Company
10.2(3) Form of Indemnification Agreement, entered into by the --
Registrant with each of its executive officers and directors.
10.3(3)(7) 1989 Director Incentive Stock Plan --
10.4(7) 1991 Director Stock Plan as amended 37
10.5(6)(7) Director Option Plan --
10.6(2) Power Spectra, Inc. Series A Securities Purchase Agreement, --
dated April 7, 1993
10.7 Power Spectra, Inc. Series B Securities Purchase Agreement, --
dated January 13, 1995
11.1 Computation of Per Share Earnings (Loss) 42
13.1 This Form 10-K constitutes the Registrant's 1995 --
Annual Report to Shareholders
16.1(8) Letter of Ernst & Young dated January 22, 1996, regarding the --
disclosure contained in Part II, Item 9, of this report.
24.1 Consent of Grant Thornton LLP 43
24.2 Consent of Ernst & Young LLP 44
35
<PAGE>
<FN>
- -----------------------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987.
(2) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
(3) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
(4) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 filed on September 1, 1989 (No.
33-30855)
(5) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1988.
Confidential treatment granted as to portions of the agreement.
(6) Incorporated by reference from Registrant's Registration Statement on
Form S-8 filed on January 21, 1993 (No. 33-57280)
(7) Managerial contract or compensatory plan or arrangement in which the
Company's directors or officers participate.
(8) Incorporated by reference from Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991.
(9) Incorporated by reference from Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
</FN>
</TABLE>
36
POWER SPECTRA, INC.
1991 DIRECTOR STOCK PLAN
(as amended by the Board of Directors March 17, 1995,
and approved by the Shareholders on June 2, 1995)
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide incentive compensation to
eligible members of the Board of Directors of Power Spectra, Inc. (the
"Company") in order to attract and retain the services of highly qualified
directors and to give such directors a proprietary interest in the success of
the Company's business by granting them shares of the Company's Common Stock.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee (as defined below) or the Board of
Directors of the Company if no Committee is then designated.
(b) "Business Day" shall mean any day other than Saturday, Sunday or a
federal holiday.
(c) "Committee" shall have the meaning as specified in Section 4(a) of
the Plan.
(d) "Common Stock" shall mean the common stock of the Company.
(e) "Company" shall mean Power Spectra, Inc., a California corporation.
(f) "Date of Grant" shall mean, with respect to any calendar quarter,
the last day of such calendar quarter.
(g) "Effective Date of the Plan" shall mean the date the Plan is
approved by the Company's shareholders in accordance with Section 8 hereof.
(h) "Eligible Director" shall mean any director of the Company who is
not an employee or full time consultant of the Company or a Subsidiary.
(i) "Plan" shall mean this 1991 Director Stock Plan.
(j) "Share" shall mean a share of Common Stock reserved for grant or
granted under the Plan.
37
<PAGE>
(k) "Subsidiary" shall mean a corporation of which not less than 50% of
the voting shares are held by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired by the Company or a
Subsidiary.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of Shares which may be issued under the Plan is 450,000 shares
of Common Stock, which may be authorized but unissued or reacquired Common
Stock.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Board of Directors
of the Company. The Board of Directors may appoint a Committee consisting of not
less than two members of the Board of Directors to administer the Plan on behalf
of the Board of Directors, subject to such terms and conditions as the Board of
Directors may prescribe. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. From time to time the Board
of Directors may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan. Members of the
Board who are eligible to participate in the Plan may vote on any matters
affecting the administration of the Plan.
(b) Powers of the Board: Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to interpret the Plan;
(ii) to prescribe, amend and rescind rules and regulations relating to the Plan;
(iii) to determine eligibility to participate in the Plan; (iv) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the Plan; and (v) to make all other determinations deemed necessary or advisable
for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on Eligible Directors
who have acquired Shares under the Plan, or as to whom the issuance of Shares
under the Plan has been authorized.
5. ELIGIBILITY.
Shares may be issued only to Eligible Directors. The Plan shall not
limit the authority of the shareholders of the Company to elect directors in
accordance with applicable law and shall not confer any rights on participating
directors with respect to nomination by the Company for reelection or continued
representation on the Board.
-2-
38
<PAGE>
6. PROCEDURE FOR STOCK GRANTS.
(a) All grants of Shares hereunder shall be automatic and
non-discretionary and shall be made strictly in accordance with the provisions
hereof.
(b) No person shall have any discretion to select which Eligible
Directors shall be granted Shares or to determine the number of Shares to be
granted to Eligible Directors.
(c) In consideration for services rendered to the Company during the
preceding quarter, each member of the Board of Directors who is an Eligible
Director on any Date of Grant shall automatically be granted Shares on such Date
of Grant. The number of Shares granted to each Eligible Director hereunder on
each such Date of Grant shall be equal to $3,125 divided by the fair market
value of one share of the Company's Common Stock determined as of such Date of
Grant; provided, however, that for Eligible Directors who were not directors for
the full quarter, the number of shares automatically granted pursuant hereto
shall be calculated as follows: (i) $3,125 times (ii) a fraction, the numerator
of which shall be the number of days which have elapsed between the date such
director first became a director and the Date of Grant, and the denominator of
which shall be 90, which product shall be divided by (iii) the fair market value
of one share of the Company's Common Stock on such Date of Grant; and provided,
further, that if any director ceases to be an Eligible Director at any time, the
Company shall, within 90 days of the date he or she ceases to be an Eligible
Director, issue to such person that number of shares as is determined by
multiplying $3,125 by a fraction, the numerator of which is the number of days
from the last Date of Grant until the date such person ceases to be an Eligible
Director and the denominator of which is 90, which product shall be divided by
the fair market value of one share of the Company's Common Stock on the last day
of the calendar quarter in which such person ceased to be an Eligible Director.
(d) The fair market value of the Common Stock shall be determined by the
Board in its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share as of a particular date
shall be the closing bid price of the Common Stock in the over-the-counter
market on such date, as reported in The Wall Street Journal (or, if not so
reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System or by the National Quotations
Bureau) or, in the event the Common Stock is traded on the NASDAQ National
Market System or listed on a stock exchange, the fair market value per Share as
of a particular date shall be the closing price on such system or exchange on
such date, as reported in The Wall Street Journal; provided that if the date in
question is not a Business Day, the fair market value shall be determined as of
the last Business Day immediately prior to such date.
(e) Notwithstanding the provisions of subsection (c) hereof, in the
event that a grant would cause the number of Shares granted to exceed the number
of Shares reserved for issuance hereunder, then each such automatic grant shall
be for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Eligible
-3-
39
<PAGE>
Directors on such Date of Grant. Any further grants shall then be deferred until
such time, if any, as additional Shares become available for grant under the
Plan through action of the shareholders to increase the number of Shares which
may be issued under the Plan.
(f) The Shares granted to each Eligible Director shall be fully vested
on the Date of Grant.
(g) On the first Date of Grant following the Effective Date of the Plan,
each Eligible Director shall be granted Shares (in addition to the Shares to be
granted pursuant to Section 6(c) above) in an amount equal to (i) $12,500
multiplied by a fraction, (A) the numerator of which is the number of days from
the most recent anniversary of the date such Eligible Director became a director
(or, in the case of an Eligible Director who has been a director for less than
one year, the date such Eligible Director became a director) to the first day of
the calendar quarter in which such Date of Grant occurs and (B) the denominator
of which is 365, (ii) divided by the fair market value per Share as of such Date
of Grant.
7. TERM OF PLAN.
The Plan shall become effective upon adoption by the Board and approval
by the shareholders of the Company. The Plan shall continue in effect for a term
of ten (10) years from such date unless sooner terminated under Section 10 of
the Plan.
8. SHAREHOLDER APPROVAL.
The Plan shall be approved either (i) by the affirmative vote of the
holders of a majority of the Company's securities present or represented and
entitled to vote at a meeting duly held in accordance with applicable state law
or (ii) by the written consent of the holders of a majority of the Company's
securities entitled to vote. Such approval shall be solicited substantially in
accordance with Section 14(a) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by shareholders of the Company, the
number of shares of Common Stock reserved for issuance under the Plan shall be
proportionately adjusted if any recapitalization, reclassification, stock
dividend, stock split or combination of shares of Common Stock is effected. In
the event of the sale of all or substantially all the assets of the Company or
the merger of the Company with or into another corporation whereby the
shareholders of the Company own less than 50% of the equity securities of the
surviving corporation, each Eligible Director shall receive immediately prior to
the consummation of such action the number of shares proportionately adjusted to
reflect the days served by the Eligible Director since the commencement of the
calendar quarter in which the consummation of such action occurs or, if such
person was not an Eligible Director on the first day of such calendar quarter,
then since the
-4-
40
<PAGE>
date such Eligible Director became an Eligible Director, and the date on which
the fair market value of the Company's Common Stock is determined shall be the
first day of such calendar quarter or, in the case of an Eligible Director who
was not an Eligible Director on the first day of such calendar quarter, then the
date on which such Eligible Director became an Eligible Director.
10. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination.
The Board may amend, suspend, or terminate the Plan from time to time in
such respects as the Board may deem advisable; provided, however, that
shareholder approval shall be required for any amendment to the Plan which
would: (i) materially increase the benefits to participants under the Plan; (ii)
materially increase the number of Shares issuable under the Plan; or (iii)
materially modify the requirements as to eligibility for participation in the
Plan and provided further, however, that provisions of the Plan setting forth
the amount and price of the Shares to be issued hereunder, the class of persons
eligible to be granted Shares hereunder and the timing of such grants shall not
be amended more than once every six months, other than to comport with changes
in the Internal Revenue Code, the Employee Retirement Income Security Act, if
applicable, or the rules and regulations promulgated thereunder.
(b) Effect of Amendment or Termination.
Any such amendment or termination of the Plan shall not affect Shares
already issued.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
Shares shall not be issued under this Plan unless the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including without limitation the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, state securities laws and the
requirements of any stock exchange upon which Shares may then be listed.
12. RESERVATION OF SHARES.
The Company, during the term of the Plan, will at all times reserve and
keep available such number of Shares as is reserved for the Plan pursuant to
Section 3 hereof.
13. GOVERNING LAW.
The Plan shall be governed by the laws of the State of California.
-5-
41
EXHIBIT 11.1
<TABLE>
Power Spectra, Inc.
Computation of Per Share Earnings (Loss)
<CAPTION>
1995 1994 1993
-------------------- ------------------- -----------------
<S> <C> <C> <C>
Net income (loss) ($2,562,230) ($1,112,507) $172,608
Less: accrual of preferred dividends 189,195 104,400 26,315
-------------------- ------------------- -----------------
Net income (loss) applicable to common shares ($2,751,425) ($1,216,907) $146,293
==================== =================== =================
Earnings (loss) per common share:
Net income (loss) ($0.25) ($0.12) $0.01
==================== =================== =================
Weighted average shares of common stock
outstanding 11,181,541 10,014,163 9,890,533
Common stock equivalent shares from stock options
using the treasury stock method -- -- --
-------------------- ------------------- -----------------
Number of shares used in the per share computation 11,181,541 10,014,163 9,890,533
==================== =================== =================
</TABLE>
EXHIBIT 24.1
CONSENT OF GRANT THORNTON LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-57280) pertaining to the 1991 Director Stock Plan, Director
Option Plan, and Advisor Board Stock Program of Power Spectra, Inc., and in the
Registration Statement (Form S-8 No. 33-30855) pertaining to the Power Spectra,
Inc., 1986 Incentive Stock Option Plan, of our report dated February 29, 1996,
with respect to the financial statements of Power Spectra, Inc. included in the
Annual Report (10-K) for the year ended December 31, 1995.
GRANT THORNTON LLP
San Jose, California
February 29, 1996
EXHIBIT 24.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-57280) pertaining to the 1991 Director Stock Plan, Director Option
Plan and Advisor Board Stock Program of Power Spectra, Inc. and in the
Registration Statement (Form S-8 No. 33-30855) pertaining to the Power Spectra,
Inc. 1986 Incentive Stock Option Plan of our report dated February 17, 1995
(except Note 4 as to which the date is April 7, 1995) with respect to the
financial statements of Power Spectra, Inc. included in its Annual Report (Form
10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
San Francisco, California
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the Annual Report on Form 10-K of Power Spectra,
Inc. for the year ended September 30, 1995 and is qualfied in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000777527
<NAME> Power Spectra, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,395
<SECURITIES> 0
<RECEIVABLES> 291
<ALLOWANCES> 0
<INVENTORY> 125
<CURRENT-ASSETS> 2,929
<PP&E> 1,279
<DEPRECIATION> 860
<TOTAL-ASSETS> 3,442
<CURRENT-LIABILITIES> 962
<BONDS> 0
<COMMON> 11,878
0
1,681
<OTHER-SE> (11,079)
<TOTAL-LIABILITY-AND-EQUITY> 3,442
<SALES> 1,429
<TOTAL-REVENUES> 1,429
<CGS> 2,235
<TOTAL-COSTS> 4,006
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (2,561)
<INCOME-TAX> 1
<INCOME-CONTINUING> (2,562)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,562)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
