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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to_____
Commission File 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 zip code)
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 31, 1997, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $6,492,146, 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 31, 1997, 16,161,009 shares of the Registrant's Common Stock were
issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
This section and other parts of this Report contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Factors Affecting
Operating Results and Market Price of Stock" commencing on page 15. Certain
sections in this report have been identified as containing forward looking
statements. The reader is cautioned that other sections and other sentences not
so identified may also contain forward looking information.
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. Prior
to 1990, the Company was a development stage company.
The Company develops, designs, manufactures and markets a family of
products that utilize proprietary Gallium Arsenide ("GaAs") high-speed
semiconductor devices which are capable of generating 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 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. Historically BASS(TM)
development and applications have primarily addressed military requirements and
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 industrial markets such as Ultra-Wideband Ground Penetrating Radar
("UWB GPR"), distance measurement sensors and automotive collision avoidance
systems.
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
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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
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. 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. In 1995, 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 was increased to
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$10,517,881 on February 8, 1995. The Company has delivered all items required by
the contract and all items were accepted by the government. The contract expired
on June 1, 1996, but is still subject to audit by the Defense Contract Audit
Agency for overhead rates applied to the contract for fiscal years, 1994, 1995,
and 1996. As such the Company may be subject to adjustments up or down on
contract revenues. While such audits are both routine and required, the
timetable for the audit is unknown at present, and no assurances can be given
that such audit will not result in significant payment obligation to the
government.
Commercial Products
As part of the Company's diversification effort 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
Depar(TM)ent 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).
In 1996 the Company changed the main focus of its business efforts from
the military market to the commercial sector. The Company has identified and
begun the development of the initial products and services for three separate
commercial applications, each with significant market and profit potential for
the Company.* These initiatives are: 1) a joint venture for the development of a
commercial GPR-based mineral and petroleum exploration system; 2) a joint
venture for the development of a helicopter-mounted GPR system for the location
and identification of buried artifacts; and 3) the development and marketing of
an electro-optical range finder for the industrial marketplace.
Several other products have been developed for the industrial markets.
The Company introduced two such products during late 1993 and an additional two
products 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.
- -------------------
*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 a discussion of
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. Subsequently, the PGS-403, PGS-404, and PGS-405 have
been introduced. The PGS-401 and PGS-402 are no longer offered for sale. The
Company believes that these products have applications for ground penetrating
radar, test instrumentation, electronic warfare, and communications.*
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.
Several variants of the BASS-01X were produced and sold during 1995 and
1996. 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.
To date, the Company has not generated significant revenues from sales
of commercial products. There can be no assurance that any of these
aforementioned commercial will be accepted in their target markets, 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, which was the principal
objective of the Ioffe Agreement. The Company believes that additional
manufacturing capacity, when required, will be 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.
- ------------------
*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 a discussion of
factors that could affect future performance.
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Sales, Marketing, and Distribution
Until the beginning of 1996, the Company was primarily focused on the
military marketplace and its applications for the Company's technology. In
January 1996, the Company changed the main focus of its business efforts from
the military market to the commercial sector. The Company has identified and
begun the development of the initial products and services for several
commercial applications.
The Company seeks a balance between industrial or standard products,
and the major research and development efforts 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) and PSIristoro(TM).*
Also, advanced radar and electronic warfare systems were shown to be
particularly effective in "Desert Storm." The military, has in the past,
publicly stated that technology may allow leveraging strike force effectiveness
in regional conflicts, and protection for forces from battlefield hazards.
Currently, mine detection capabilities are being evaluated and debated by the
military and in the national press.
The marketing goals of the Company include obtaining advanced
development contracts for new hardware based on equipment successfully delivered
to military customers while continuing to expand its industrial/commercial
product line. The Company believes that, its products improved in several
respects during 1996 through miniaturization and increased reliability resulting
from ongoing developmental work. The Company believes that the unique
characteristics of the BASS(TM) and PSIristoro(TM) make the products attractive
for a variety of potential new applications.*
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.
Competition
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 may 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.
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.
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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 a discussion of
factors that could affect future performance.
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The Company's competitors in the pulsed-laser based measurement system
market include Laser Diode Products, Inc., which offers a product which, while
not a direct replacement, is a possible substitute. In addition, future
competition is expected to develop from EG&G, Inc. 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 also competes 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
available for sale 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.
Failure to adequately compete in the future would have a material
adverse affect on the Company's business and results of operation.
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 certain 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
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 from the unauthorized disclosure and use of technology to which it
has rights, and to provide 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
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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, 1996, the Company's backlog was $113,606, versus
$801,261 at December 31, 1995, and $1,261,338 at December 31, 1994. 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
Historically, 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.
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, 1996, 1995, and 1994, the
Company's research and development expenses were $714,368, $213,667, and
$332,612, respectively. See "Management Discussion and Analysis of Financial
Condition and Results of Operations," for further discussion of this topic.
Employees
As of December 31, 1996, the Company had 20 full-time employees, with
14 in technical positions and six 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.
- ------------------
*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 a discussion of
factors that could affect future performance.
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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
leased 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. The Company is currently negotiating renewal option
terms. Payments under the lease total $250,413 in 1996. 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 Nasdaq Stock
Market. The Company's Preferred Stock is not publicly traded. On December 31,
1996, there were 703 holders of record of the Company's Common Stock, 13 holders
of record of the Company's Series A Preferred Stock, and 34 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 1996
and 1995. Prices reflect inter-dealer prices, without retail markup or
commissions, and do not necessarily represent actual transactions.
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1996
- --------------------------------------------------------------------------------
Quarter Closing
Ended High Low Bid
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Mar. 31 2 - 1/8 11/16 1 - 11/16
- -------------------------------------------------------------------------------
June. 30 2 - 1/16 7/8 1 - 11/16
- --------------------------------------------------------------------------------
Sept. 30 1 - 13/16 1 1 - 3/8
- --------------------------------------------------------------------------------
Dec. 31 1 - 11/16 1/2 17/32
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1995
- --------------------------------------------------------------------------------
Quarter Closing
Ended High Low Bid
================================================================================
Mar. 31 1 - 5/16 11/16 7/8
- --------------------------------------------------------------------------------
June. 30 1 - 5/8 3/4 1 - 3/8
- --------------------------------------------------------------------------------
Sept. 30 1 - 5/8 7/8 1 - 1/16
- --------------------------------------------------------------------------------
Dec. 31 1 - 1/4 1/2 11/16
================================================================================
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
for the 1996 fiscal year were $195,453.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The following table reflects selected financial data for the five
fiscal years ended December 31, 1996. The selected financial data as of and for
each of the years in the five-year period ended December 31, 1996, are derived
from the audited financial statements of the Company. The financial statements
as of December 31, 1995 and 1996, and for the years then ended, have been
audited by Grant Thornton LLP, independent accountants, and are included
elsewhere in this Report. The statements of operations, stockholders' equity,
and cash flows for the year ended December 31, 1994, were audited by Ernst &
Young LLP, and are included elsewhere in this Report. The 1994, 1993 and 1992
balance sheet data and the 1993 and 1992 statements of operation 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.
<CAPTION>
Statement of Operations Data:
=====================================================================================================
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 1,000,114 $ 1,429,625 $ 3,060,098 $ 6,052,692 $ 5,635,697
- -----------------------------------------------------------------------------------------------------
Net income (loss)
applicable to
common shares ($ 3,983,752) ($ 2,751,425) ($ 1,216,907) $ 146,293 ($ 786,139)
- -----------------------------------------------------------------------------------------------------
Net income (loss)
per common share ($ 0.26) ($ 0.25) ($ 0.12) $ 0.01 ($ 0.08)
- -----------------------------------------------------------------------------------------------------
Weighted average
shares outstanding 15,622,268 11,181,541 10,014,163 9,890,553 9,801,598
- -----------------------------------------------------------------------------------------------------
Balance Sheet Data:
=====================================================================================================
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
Current assets $ 1,205,439 $ 2,929,050 $ 661,045 $ 1,908,681 $ 1,794,321
- -----------------------------------------------------------------------------------------------------
Current liabilities $ 992,441 $ 962,314 $ 585,769 $ 524,393 $ 1,729,520
- -----------------------------------------------------------------------------------------------------
Working capital $ 212,998 $ 1,966,736 $ 75,276 $ 1,384,288 $ 64,801
- -----------------------------------------------------------------------------------------------------
Total assets $ 1,672,827 $ 3,442,208 $ 1,289,955 $ 2,362,679 $ 2,339,927
- -----------------------------------------------------------------------------------------------------
Long term debt $ 0 $ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------
Stockholders'
equity $ 680,386 $ 2,479,894 $ 704,186 $ 1,838,286 $ 610,407
=====================================================================================================
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section and other parts of this Report contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Factors Affecting
Operating Results and Market Price of Stock" commencing on page 15. Certain
sections in this report have been identified as containing forward looking
statements. The reader is cautioned that other sections and other sentences not
so identified may also contain forward looking information.
Results of Operations
1996 Compared to 1995
Revenues for the year ended December 31, 1996 were $1,000,114, which
were $429,511 less than revenues of $1,429,625 for the prior year. The decrease
in the Company's revenues in 1996 compared to 1995 was primarily
12
<PAGE>
due to expiration of the Air Force Contract on June 1, 1996, which provided
$814,285 of revenue in 1995, and $242,279 of revenue in 1996.
The revenue recognized under the Air Force Contract accounted for 24%
of the Company's revenue in 1996 and 57% in 1995. Revenues recognized from the
Company's Phase 1 development effort with the LandRay Technologies joint venture
accounted for $550,000, or 55%, of the Company's revenues in 1996. During 1996,
the Company was unable to add significant new contract revenues other than from
the LandRay Technologies joint venture, and, as a result, although operating
expenses have been reduced, the Company's results of operations, and financial
condition have been materially adversely affected.
The net loss for the year ended December 31, 1996 was $3,788,299,
compared to a net loss of $2,562,230 in 1995. After adjustment for dividends on
Preferred Stock of $195,453, the net loss applicable to common shares was
$3,983,752 or $0.26 per share as compared with a net loss for the year ended
December 31, 1995 of 2,751,425 or $0.25 per share.
Sales and marketing expenses were $374,469 in 1996, representing an
decrease of $120,335, or 24%, compared to sales and marketing expenses of
$494,804 in 1995. Due to reduced emphasis government contract revenues,
personnel costs associated with such marketing government programs declined
while marketing expenditures related to the Company's industrial and standard
products continued in 1996 in an attempt to establish a market for such
products.
Research and development costs increased by $500,701 in 1996 to
$714,368 from $213,667 in 1995, a 334% increase, primarily because of increased
technical consulting costs due to the Company's redirection to industrial
sensing products and ground penetrating radar applications.
General and administrative expenses increased by 13% or $140,880 in
1996 to $1,203,469 from $1,062,589 in 1995 primarily due to increased personnel
costs.
The Company had no interest expense in 1996 compared to interest
expense of $18,126 in 1995, which was due to short-term financing. Interest
income increased by $57,469 or 155% to $94,552 in 1996 from $37,083 in 1995 as a
result of short term investment of cash reserves which increased due to
completion of a private placement of Common Stock in March 1996.
1996 was a period of continued transition 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) extension to the Air Force
Contract for $984,000 was completed and expired on June 1, 1996. The expiration
of this contract will have a material adverse impact on future revenues unless
other contracts are signed.
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.
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
13
<PAGE>
$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, due primarily to increased personnel costs.
The Company had no interest expense in 1996 compared to $18,126 in 1995
which arose from 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 expired on June 1, 1996. The expiration of this contract
will have a material adverse impact on future revenues unless other contracts
are signed.
Liquidity and Capital Resources
Working capital at December 31, 1996 was $212,998, representing a
decrease of $1,753,738 from $1,966,736 at December 31, 1995. This decrease was
due primarily to net operating loss $3,879,659 offset by the net proceeds of
$2,008,007 from the sale of Common Stock in the first quarter of 1996 and the
interest income generated from cash reserves.
The Company completed an offering of its Common Stock with proceeds to
the Company of $2,266,050 between January 1, 1996 and March 31, 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 additional
financing or strategic partners, or that if completed, or that the terms of any
such financing or partnership would be favorable to the Company.
Accounts receivable at December 31, 1996 declined by $221,531 over
year-end 1995, while unbilled accounts decreased by $19,176 over the same period
for a net decrease of $240,707. The large net decrease in accounts receivable
reflects both decreases in sales of standard products and decreases in contract
development activity during the last fiscal quarter of 1996, and the fact that
the LandRay Technologies Phase I development effort was prepaid in the late
third quarter and early fourth quarter 1996.
Inventories increased by $92,926 over 1995 year-end levels due
primarily to completion of sub-assemblies for the Company's electro-optical
product line.
Accounts payable decreased by $41,455 over 1995 year-end levels as a
result the timing of vendor payments related to the Company's annual holiday
plant closure.
Deferred contract revenues increased by $121,857 from customer
payments.
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, 1997.* However, the actual amount of time that the
Company's cash resources last is dependent upon a variety of factors including
the timing of obtaining new contracts, the timing of new financings, the success
of its current joint ventures and the competition with other vendors. If the
Company determines that it requires additional funds prior to December 31, 1997,
there can be no assurance that additional funds will be obtainable on reasonable
terms, or at all. Any such failure could result in the Company becoming unable
to meet its obligations as they come due. If the Company is not successful in
replacing the revenue and cash generated by the Boeing Agreement and the Air
Force Contract, the Company would continue to experience significant operating
losses. The Company does not presently have access to any credit facilities.
Subsequent to year end, the Company entered into a $1.2 million
contract with LandRay Technologies, Inc. ("LandRay"), a joint venture partially
owned by the Company, as the first phase of a program to develop Ground
Penetrating Radar (GPR) production prototype system to detect precious metals
and minerals in subterranean locations. Contract terms call for the Company to
develop and deliver an operational GPR sensor assembly, designated the "Seeker,"
as the first phase of a complete portable system that will identify and target
gold deposits behind mine walls. The goal is to detect gold at distances of more
than 10 feet beyond the mine tunnel wall surface. Recent propagation tests in an
operational gold mine produced encouraging results. The project is expected to
be completed within calendar year 1997.* The funds payable to the Company under
this joint venture are payable on a milestone basis. Therefore, in the event the
Company is unable to achieve the milestones, it will not realize all of such
revenue. The failure to meet the required milestones under the LandRay agreement
would have a material adverse effect on the Company's results of operations and
financial condition. To date approximately $450,000 has been raised by LandRay
to fund the $1.2 million contract. Of that amount, $250,000 has been paid to the
Company. Receipt of the balance of the contract revenue is also dependent upon
the ability of LandRay to raise the balance of the funds needed to fulfill the
contract obligations
On April 10, 1997 the Company closed on a private placement of
4,370,000 shares of its Common Stock with gross proceeds of $1,092,500. The
Company agreed to pay a selling agent a placement fee equal to 5% of the gross
proceeds of the offering. In addition the Company has agreed to issue to the
selling agent Warrants to purchase Common Stock in a number of shares equal to
5% of the total number of shares sold in the offering. The selling agent's
Warrants will be exercisable at $0.25 per Share (equal to the offering price of
the shares) and will be exercisable for a period of five years. The Company has
agreed to register for resale the shares of Common Stock issued in the private
placement, as well as the shares issuable upon exercise of the selling agent's
warrants.
Factors Affecting Operating Results and Market Price of Stock
Power Spectra operates in a rapidly changing environment that involves a number
of uncertainties, some of which are beyond the Company's control. In addition to
the uncertainties described elsewhere in this report, these uncertainties
include:
History of Losses; Accumulated Deficit. Since its inception, the Company has
generally operated at a loss as government contract revenues, which represent
most of the historical revenues of the Company, and other sources of income were
insufficient to cover general and administrative, research and development and
other costs incurred by the Company. The Company recorded net losses of
($3,788,299), ($2,562,230) and ($1,112,507) for the years ended December 31,
1996, December 31, 1995 and December 31, 1994, respectively. At December 31,
1996, the Company had an accumulated deficit of $15,062,956. The Company expects
that it will continue to incur losses for the foreseeable future and does not
expect to become profitable until its contract revenues increase substantially
from current levels or the Company begins to receive significant product sales
and license and/or royalty income. There is no assurance that the Company will
achieve profitable operations in the foreseeable future, if at all.
- -----------------------
*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 a discussion of
factors that could affect future performance.
15
<PAGE>
Product Development and Enhancements. The development of high power switching
components and products, and the development of commercial applications for such
components and products, is a complex engineering effort involving significant
risk. While the Company believes it has completed development of its core
technology, significant additional development efforts must be made in order to
achieve commercial acceptance of its products. There is no assurance that the
Company will succeed in this effort.
Complex Manufacturing Process. The manufacture of semiconductor-based power
switching devices is highly complex and sensitive to a wide variety of factors,
including the level of contaminants in the manufacturing environment, impurities
in the materials used and the perrformance of personnel and equipment. The
Company has periodically experienced yield problems, and there can be no
assurance that these problems will not recur. Should the Company experience
protracted production delays attributable to manufacturing complexity, its
ability to deliver products would be materially affected.
Historical Dependence on Boeing Relationship. From October 1988 through July
1994, the Company received approximately $23,500,000 in research funding from
Boeing Electronics Company for development and enhancement of the BASS
technology and products. In the years ended December 31, 1994, 1993 and 1992,
the Company recognized revenues of $1,600,000, $3,100,000 and $3,700,000,
respectively, in connection with the Boeing Research Agreement. Although the
Company successfully completed several contracts throughout the duration of this
relationship, during 1994, Boeing made the strategic decision to focus its
resources on its missile and aircraft business. As part of this decision, Boeing
reorganized its electronics company and consolidated it with its Defense and
Space Group. The Company will have to look to alternative revenue sources to
replace the revenues generated by the Boeing relationship, and there is no
assurance that the Company will successfully be able to do so in the short-term,
if at all.
Dependence on Boeing Equipment. 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 can
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.
Expiration of Air Force Contract. The Company's contract with the United States
Air Force expired in June 1996, and such contract has been a significant source
of revenues since it was awarded to the Company in 1990. The aggregate contract
value has increased over the period of the contract, from the Phase I
cost-plus-fixed-fee value of $5,192,744 to $10,517,881 as of February 8, 1995.
With the termination of the Air Force Contract, it is necessary to find
alternative sources of revenue, and there is no assurance that the Company will
be successful in accomplishing this result. If the Company is not successful in
replacing the revenue and cash generated by the Air Force contract, the Company,
will continue to experience significant operating losses and significant
negative cash flow. Although the Company has substantially reduced the size of
its operations since expiration of the Air Force Contract, there can be no
assurance that the Company's revenues and proceeds from the equity financings
will be sufficient to allow the Company to support its operating expenses.
Dependence on Government Contracts. A material portion of the Company's business
has historically resulted from contracts with or for government agencies.
Although the Air Force Contract expired in 1996, the Company hopes to obtain
additional government contract work in the future. Competition for government
development contracts is intense, and no assurance can be given that the Company
will be able to secure significant government contracts in the future. Moreover,
general political and economic conditions, which cannot be accurately predicted,
directly and indirectly affect the quantity and allocation of expenditures by
governmental agencies. Therefore, cutbacks in the federal budget could have a
material adverse impact on the Company's prospects of obtaining significant
government development contracts.
Limitations on Protection of Intellectual Property. The Company believes its
ability to compete effectively with other companies may be materially dependent
upon the proprietary nature of its technologies. The Company holds a number
16
<PAGE>
of domestic and foreign patents covering various aspects of its BASS technology,
but has no patents or patent applications pending on its PSIristor(TM)
technology. There is no assurance that any additional patents will be granted to
the Company, or that the Company's patents will provide meaningful protection
from competition. Moreover, there can be no assurance that any patents will be
upheld by a court should the Company seek to enforce its rights against an
infringer, or that the Company will have sufficient resources to prosecute its
patent and other intellectual property rights. Furthermore, issuance of a valid
patent does not prevent other companies from independently developing technology
similar to the Company's, and there can be no assurance that any particular
aspect of the Company's technology will not be found to infringe the claims of
other existing patents. In addition to patent protection, the Company relies to
a significant extent on proprietary know-how and trade secrets particularly with
respect to its PSIristor(TM), which it considers a highly proprietary invention.
There can be no assurance, however, that others will not independently develop
superior know-how or obtain access to know-how and trade secrets used by the
Company that the Company now considers proprietary.
Future Reliance upon Distributors. Historically, the Company has relied
primarily upon a direct sales organization and, to a lesser extent, upon
manufacturers' representatives to sell and distribute its commercial products.
In order to materially increase revenues and achieve sustained profitability (of
which there is no assurance) as the Company continues to commercialize its
products, it expects that it will be required to depend to a far greater degree
upon distributors. While any particular distributor may have an extensive
distribution network, distributors typically represent other third-party
suppliers, including competitors of the Company, to whom it may devote greater
time, effort and attention. There can be no assurance that the Company will
successfully establish the requisite distribution relationships, or that those
relationships will result in increased revenues.
Competition. The markets for the Company's products are highly competitive and
characterized by rapid technological change, sudden price fluctuations, rapid
rates of product obsolescence, periodic shortages of materials and variations in
manufacturing yields and efficiencies. The Company's competitive position is
affected by all of these factors and by industry competition for effective sales
and distribution channels. The Company's potential and existing competitors
include major ultrasonic proximity sensor vendors. Most of the Company's
competitors have substantially greater financial, technical, marketing and other
resources than does the Company. Principal competitive factors include price,
performance and features. The Company expects that its markets will become more
competitive in the future, and there is no assurance that the Company will be
able to successfully compete in its selected markets.
Need to Successfully Launch and Fund New Ventures. The Company believes it must
continue to seek and obtain other sources of revenue to continue operations. As
part of this strategy, the Company recently negotiated a joint venture, called
PEAC Airborne Technologies, Inc. and completed the formation of a second joint
venture, called LandRay Technologies, Inc. Both ventures will require additional
funding in order to enable the Company and its joint venture partners to carry
out their respective plans of operations. PEAC is initially seeking $7,000,000
in equity financing. If the offering is successfully completed, the Company will
receive a portion of the net proceeds to develop its ultra-wideband ground
penetrating radar ("UWB GPR") technologies. Failure of PEAC to raise the
necessary financing will have a material adverse impact on the Company's
revenues and cash flows. Although the Company has entered into the LandRay joint
venture, its success is dependent upon demonstrating the feasibility of UWB GPR
systems capable of locating and identifying minerals and oil and gas formations.
There is no assurance that LandRay and the Company will be successful in this
regard. Failure of LandRay and the Company to adequately demonstrate such
feasibility will have a material adverse impact on the Company's revenues and
cash flows. There can be no assurances that the proposed PEAC joint venture will
be consummated, that the PEAC and LandRay joint ventures will be able to raise
adequate funding on acceptable terms, that the Company will be able to
successfully enter into any additional suitable partnership or joint venture
arrangements or that such arrangements, when entered into, will prove to be
beneficial for the Company and its shareholders. There also can be no assurance
that the proposed joint venture agreements, if consummated, will generate
sufficient revenues to replace the revenues previously generated by the Air
Force contract. Failure to succeed in one or more strategic partnerships or
joint venture relationships could have a material adverse effect on the
Company's plan of operations and results.
Volatility of Stock Price. The market price of the Common Stock is highly
volatile. Factors such as variations in the Company's operating results and
announcements of technological innovations or price reductions by the Company,
its competitors or providers of alternative products and processes may cause the
market price of the Common Stock to fluctuate substantially. In addition, the
securities markets have recently experienced substantial price and volume
fluctuations that have particularly affected technology-based companies, and
resulted in changes in the market prices of the stocks of many companies that
have not been directly related to the operating performance of those companies.
17
<PAGE>
The price of the Company's Common Stock is particularly susceptible to extreme
fluctuation because of thin trading volume in the Common Stock and lack of
widely available pricing information.
No Assurance of Nasdaq Trading. The Company's Common Stock is currently traded
in dealer transactions on the Electronic Bulletin Board maintained by the
National Quotation Bureau, Inc., an over-the-counter market in which liquidity
is typically limited and price volatility can be great. The Electronic Bulletin
Board is generally considered to be a less efficient market because, among other
reasons, it does not automatically provide real time quotation. The Company's
Common Stock is currently not eligible for quotation on The Nasdaq SmallCap
Market, and there is no assurance that the Company will meet the eligibility
requirements for quotation on Nasdaq in the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference
herein from , Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 19,1996, the Company dismissed the accounting firm of Ernst
& Young LLP, which had previously been engaged as the Company's independent
accountant to audit the Company's financial statements. Ernst & Young's reports
on the Company'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 & Youngs's
report on the Company's financial condition for the fiscal year ended December
31, 1994 contained a going concern qualification. Furthermore, to the knowledge
of current management, during the 1994 and 1995 fiscal years, the Company 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 Company's Board of Directors.
On January 19,, 1996 the Company retained the accounting firm of Grant
Thornton LLP as its principal accountant to audit the Company's financial
statements in the future.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
<TABLE>
The Board of Directors, as presently constituted, has seven members.
The term of each director continues until the next Annual Meeting of
Shareholders. The names of the directors and certain information about them, are
set forth below.
<CAPTION>
Name of Director Age* Principal Occupation Director Since
- -------------------------------- -------- ------------------------------------- ---------------------------
<S> <C> <C> <C>
Michael I. Gamble 61 Vice President of Defense Contract April 1991
Firm / Consultant
James A. Glaze 59 Vice President of Industry June 1995
Association
John Hewitt, Jr. 68 Investment Advisor August 1989
Gene J. Kennedy 55 Consultant / Counselor November 1990
John W. Pauly 74 General, U..S. Air Force, Retired May 1990
Gordon H. Smith 68 Chairman of the Board of the January 1995
Company, President and Chief
Executive of the Company, Rear
Admiral, U.S. Navy, Retired
Richard A. Williams 72 Consultant October 1987
<FN>
- --------------------------------
* As of March 31, 1997
</FN>
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There are no
family relationships between any director or executive officer of the Company.
Mr. Gamble joined the Company as Director in April 1991 and served as
the Company's President and Chief Executive Officer from April 1991 to May 1996.
From April 1991 until March 1993 he served as the Company's Secretary, and from
April 1991 to November 1993 as he also served as Chief Financial Officer. Prior
to joining the Company, Mr. Gamble was with The Boeing Company for 24 years,
where he was responsible for concept development, preliminary design and initial
market assessment for advanced products and systems. Since October 1996, Mr.
Gamble has served as Vice President, Business Development and Planning of
ARGOSystems, Inc., a subsidiary of The Boeing Company.
Mr. Glaze joined the Board of Directors in June 1995. Since August
1993, Mr. Glaze has served as a Vice President of the Semiconductor Industry
Association. Prior to August 1993, Mr. Glaze was President of Jmar Technology,
Inc., a laser technology developer.
Mr. Hewitt joined the Board of Directors in August 1989 and was its
Chairman from June 1990 to June 1995. Mr. Hewitt founded John Hewitt Investment
Counsel, a financial counseling company, in 1962 and has served as its President
for more than five years. He was a founding investor in Microwave Electronics
Corporation which later became a division of Teledyne, Inc.
Mr. Kennedy has been in private practice related to organizational and
individual counseling and psychotherapy since 1974. In 1981 he was a founding
investor and Vice President of Beepers Northwest, Inc., a pager company which
was later purchased by McCaw Cellular Communications.
General Pauly served as the Chairman of the Board and Chief Executive
Officer of Systems Control Technology, Inc., a software company, from 1982 until
his retirement in 1994. General Pauly is a consultant to the Army Science Board
and was a participant in the National Research Council Study on strategic
technologies in the Army.
19
<PAGE>
Admiral Smith joined the Board of Directors in January 1995, and has
served as President and Chief Executive Officer of the Company since May 1996.
Admiral Smith served as an officer of Lockheed Missiles and Space Co., a space
systems manufacturer, from 1988 to 1990. From 1990 to 1994, he served as
President and Chief Executive Officer of Sargent Fletcher Company. From October
1994 to November 1995, he served as President and Chief Executive Officer of
Sargent Fletcher, Inc., a military aircraft component manufacturer.
Mr. Williams served as a technical staff manager of Ford Aerospace &
Communications Corp., a manufacturer of satellites, from 1965 to 1982. Since
1982, following his retirement, he has been a consultant for Ford Aerospace,
Loral Corp., and other high technology firms.
Board Meeting and Committees
The Board of Directors of the Company held a total of eleven meetings
during the fiscal year ended December 31, 1996 (the "Last Fiscal Year"). During
the Last Fiscal Year, no director attended fewer than 75% of the aggregate of
all meetings of the Board of Directors and committees on which he served, if
any.
The Board has established an Audit Committee and a Compensation
Committee. The Audit Committee consists of Messrs. Hewitt, Glaze, and Williams.
The Audit Committee recommends engagement of the Company's independent auditors
and approves the services performed by such auditors and reviews and evaluates
the Company's accounting policies and its systems of internal controls. The
Compensation Committee is comprised of Messrs. Pauly, Gamble, Kennedy and Smith.
The Compensation Committee recommends to the Board of Directors the compensation
of the Company's Chief Executive Officer and determines the compensation levels
of the Company's other officers. The Audit Committee and the Compensation
Committee held two meetings and six meetings, respectively. The Company does not
have a Nominating Committee or a committee performing similar functions.
Director Compensation
As compensation for their services as directors, non-employee directors
receive shares of the Company's Common Stock under the 1991 Director Stock Plan
described below and options to purchase Common Stock under the the Director
Option Plan, also described below. See "Employee and Director Benefit Plans."
During 1996, 10,522 shares of Common Stock were issued to each of the
following directors pursuant to the 1991 Director Stock Plan: John Hewitt, Jr.,
Richard A. Williams, John W. Pauly, Gene J. Kennedy, and James A. Glaze. Mr.
Gamble and Mr. Smith received 2,890 and 7,632 respectively, and Drury J.
Gallagher, a former director of the Company, received 9,007 shares.
Additionally, each director is reimbursed for reasonable out-of-pocket expenses
incurred in attending meeting of the Board of Directors. Before being appointed
President and Chief Executive Officer, Admiral Smith was paid $1,500 per month
as non-executive Chairman of the Board. He received $9,000 for such services in
the Last Fiscal Year. In addition, heads of committees of the Board of Directors
are paid $250 per quarter as compensation for serving in such positions.
Non-qualified stock options to purchase 10,000 shares of Common Stock
were issued to each of the non-employee Directors pursuant to the Director
Option Plan in March 1996. See "Employee and Director Benefit Plans" below.
Executive Officers of the Registrant
The current executive officers of the Company and their ages as of
March 31, 1997 are as follows:
Name Age Position
- --------------------------------------------------------------------------------
Gordon H. Smith 68 Chairman of the Board, President,
Chief Executive Officer
Charles C. Byer 52 Executive Vice President, Chief
Operating Officer
Edward J. Lamb 49 Chief Financial Officer, Secretary
All executive officers serve at the discretion of the Board of
Directors and there are no family relationships between any director or
executive officer.
20
<PAGE>
Mr. Byer joined the Company as Executive Vice President in May 1995 and
has served as Chief Operating Officer since May 1996. Prior to joining Power
Spectra, he was with Beta Phase, Inc., a electrical connector manufacturer, from
August 1991 to January 1995, serving as its President. From June 1990 to August
1991, he was founder and President of Emerald Pacific Seafood, a fresh seafood
provider. Mr. Byer served in a variety of positions with E. I. DuPont Denemours,
Inc., a deversified manufacturing company, from 1973 to 1990.
Mr. Lamb joined the Company as Controller in March 1992 and has served
as Chief Financial Officer since October 1993 and as Secretary since November
1994. Prior to joining Power Spectra, he was Division Controller for Quantic
Industries, Inc., a munitions manufacturer from August 1990 to February 1992,
and served as Finance Manager for CAE-Link Corporation, a flight simulation
systems supplier from June 1988 to August 1990.
See "Directors of the Registrant" above, for background information on
Mr. Smith.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
The following table sets forth certain information regarding compensation paid
by the Company in the fiscal year ended December 31, 1996 (the "Last Fiscal
Year") to its Chief Executive Officer and the other three executive officers
whose total compensation in the Last Fiscal Year exceeded $100,000 (the "Named
Executive Officers").
Summary Compensation Table
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------- ------------------------
Stock
Options Stock
Grants Grants
Cash (# of (# of
Name Capacity Served Year Compensation Shares) Shares)
- --------------------- ---------------------------- ----------- ----------------- ------------------------
<S> <C> <C> <C> <C> <C>
Gordon H. Smith Chairman, Chief Executive 1996 $104,457(1) 50,000 7,632
Officer, President 1995 $ 9,000 10,000 0
Michael I. Gamble Former Chief Executive 1996 $235,953(2) 0 2,890
Officer, President 1995 $163,320 8,535 0
1994 $165,000 5,000 0
Charles C. Byer Executive Vice President, 1996 $137,893 0 0
Chief Operating Officer 1995 $ 75,206 80,000 0
Edward J. Lamb Chief Financial Officer, 1996 $107,072 0 0
Secretary 1995 $ 94,630 4,764 0
1994 $ 88,087 5,000 0
<FN>
(1) Mr. Smith's cash compensation included $95,457 in salary and $9,000 paid to
him as non-executive Chairman in 1996. Mr. Smith joined the Board of Directors
in January 1995.
(2) Mr. Gamble's 1996 cash compensation includes $103,217 in salary and $105,000
lump sum payment, together with $27,736 for consulting services paid under a
separation agreement. The separation agreement requires a minimum payment
approximating $27,000 in 1997.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
The following table sets forth certain information regarding stock options
granted to Mr. Smith, the only Named Executive Officer who received options in
the Last Fiscal Year.
<CAPTION>
Option Grants in Last Fiscal Year
Number of Securities Percent of Total Options
Underlying Options Granted to Employees/ Exercise Price Expiration
Name Granted (#) Directors in Fiscal Year ($/Sh) Date
---- ----------- ------------------------ ------ ----
<S> <C> <C> <C> <C>
Gordon H. Smith 40,000(1) 21.0% $1.2500 5/2006
Gordon H. Smith 10,000(2) 14.3% $1.8500 3/2006
<FN>
- -----------------------------
(1) Incentive Stock option granted under 1986 Stock Option Plan. The Option
vests over a period of five years. The exercise price of the Option equaled the
fair market value of the underlying securities as of the date of the grant. (2)
Nonstatuatory option granted under the 1992 Director Option plan. The Option is
immediately exercisable. The exercise price of the Option equaled the fair
market value of the underlying securities as of the date of the grant.
</FN>
</TABLE>
<TABLE>
The following table sets forth the value of all unexercised stock options held
on December 31, 1996 by the Named Executive Officers. No Named Executive Officer
exercised stock options during the Last Fiscal Year.
<CAPTION>
Fiscal Year-End Option Values
Number of Securities Underlying
Unexercised Options at Fiscal Year Value of Unexercised In-The-
End (#) Money Options at Fiscal Year End
Name (Exercisable/Unexercisable) (#)(Exercisable/Unexercisable)
---- --------------------------- ------------------------------
<S> <C> <C>
Gordon H. Smith 40,000/20000 0/0 (1)
Michael I. Gamble 133,535/0 0/0 (1)
Charles C. Byer 24,000/56,000 0/0 (1)
Edward J. Lamb 44,167/10,597 0/0 (1)
<FN>
- ----------------------------------------
(1) Based on the over-the-counter bulletin board closing bid price of the
Company's Common Stock price as of December 31, 1991, which was $0.531 per
share. The exercise prices of Messrs. Smith, Gamble, Byer, and Lamb's
exercisable and unexercisable options granted under the 1986 Stock Option Plan
and 1992 Director Option Plan were greater than the closing bid. Consequently,
all Named Executive Officers' options are not in-the-money.
</FN>
</TABLE>
Employee and Director Benefit Plans
The following is a brief summary of plans in effect during the Last
Fiscal Year under which officers, directors and employees of the Company
received benefits.
1986 Stock Option Plan. The Company's 1986 Stock Option Plan (the "1986
Plan") was adopted by the Company's Board of Directors in March 1987 and
approved by the Company's shareholders in October 1987. A total of 1,690,000 of
Common Stock was reserved for issuance under the Option Plan.
The 1986 Plan is administered by the Board of Directors, which has the
authority to select the employees and consultants of the Company (including
officers and employee directors) who are to receive option grants and to
determine whether each option granted is to be an incentive stock option
satisfying the requirements of Section 422A of the Internal Revenue Code of
1986, as amended, or a nonstatuatory stock option. The exercise price of each
incentive stock option granted may not be less than 100% of the fair market
value of the Company's Common Stock on the date of the grant and the exercise
price of a nonstatuatory option may not be less than 85% of the fair market
value of the Company's Common Stock on the date of the grant. No option may have
a term in excess of ten years measured from the date of grant. The Board of
Directors selects the optionees, the number of shares to be subject to each
option and the vesting period of options granted under the 1986 Plan. In making
such determination, the Board of Directors takes into account the dutites and
responsibilities of the employee or consultant, as the case may be, the value of
the optionee's services, his or her present and potential contribution to the
success of the Company and anticipated number of years of future service and
other relevant factors.
The 1986 Plan expired as to future grants upon adoption of the 1996
Stock Plan in June 1996.
1996 Stock Plan. The Board of Directors adopted the 1996 Stock Plan
(the "1996 Plan") in April 1996 and the Plan was approved by the Company's
shareholders in June 1996. A total of 1,500,000 shares of Common Stock were
reserved for issuance upon exercise of options granted under the 1996 Plan, in
addition to the shares which remained available for issuance under the 1986
Plan. The plan provides for grants in a manner similar to the 1986 Plan and is
not a deferred compensation plan under Section 401(a) of the Code and is not
subject to the provisions of ERISA. In accordance with Section 162(m) of the
Code, the 1996 Plan imposes a limitation on grants to any optionee in any fiscal
year so that the aggregate grants in any one year to any optionee may not exceed
300,000 share per fiscal year, provided, however, that new hires may receive
additional option grants for no more than 300,000 shares in the
22
<PAGE>
year they are hired. In addition, there is a limit of $100,000 on the aggregate
fair market value of shares subject to all Incentive Stock Options which are
exercisable for the first time in any calendar year by an employee. As of March
31, 1996, options to purchase 9,500 shares had been granted under the 1996 Plan,
and 1,614,176 shares were available for future grants.
The 1996 Plan provides that, in the event of a merger of the Company
with or into another corporation, the sale of more than fifty perent (50%) of
the Company's voing stock, a sale of substantially all of the Company's assets
or a liquidation or dissolution of the Company ("Transfer of Control"), the
acquiring or successor corporation may assume or substitute substantially
equivalent awards for the awards outstanding. To the extent awards are not
assumed or substituted for, they will vest in full prior to the Transfer of
Control. To the extent options are not assumed, substituted for, or exercised
prior to the Transfer of Control, they will terminate.
1991 Director Stock Plan. The Company's 1991 Director Stock Plan (the
"Stock Plan") was adopted in March 1991 and approved by the Company's
shareholders in June 1991. The Company initially reserved 100,000 shares of
Common Stock for issuance under the Stock Plan. The shareholders approved
increases of 150,000 shares and 200,000 shares in the number of shares available
for issuance under the Stock Plan in June 1993 and June 1995, respectively.
Under the Stock Plan, each director who is not an employee or full-time
consultant of the Company (an "Outside Director") receives each quarter $3,125
in shares of Common Stock of the Company (based on a price per share equal to
the fair market value of the Common Stock on the last day of such quarter). The
Company currently has six Outside Directors.
1992 Director Option Plan. The Company's Director Option Plan was
adopted in October 1992 by the Board of Directors, and approved by the
shareholders in June, 1993. An aggregate of 230,000 shares of Common Stock was
reserved for issuance under the 1992 Director Option Plan (the "Director Option
Plan"). Under the 1992 Director Option Plan each Outside Director is
automatically granted an option to purchase 10,000 shares each year on the third
trading day following the public announcement of the Company's financial results
for th preceding fiscal year. Only Outside Directors are eligible to participate
in the Director Option Plan. The shareholders approved an increase of 170,000
shares in the number of share available for issuance under the Director Option
Plan in June 1996. Each Outside Director was automatically granted an option for
10,000 shares in March 1996. Options granted under the Director Option Plan are
nonstatutory options, and do not qualify as "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Ownership of Certain Persons
<TABLE>
The following table sets forth the beneficial ownership of Common Stock
of the Company as of March 31, 1996 by (1) each director, (2) the Named
Executive Officers, (3) all directors and executive officers as a group and (4)
each person known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock.
<CAPTION>
Shares of Common Stock Beneficially Owned (1)
------------------------------------------------------------------------------
Name No. of Shares Percent of Total
---- ------------- ----------------
<S> <C> <C>
Entities Affiliated with Travelers
Group, Inc.
388 Greenwich St. 3,414,090 20.3%
New York, NY 10013 (2)
Michael I. Gamble (3) 146,035 *
James A. Glaze (4) 25,348 *
John Hewitt, Jr. (5) 151,057 *
Gene J. Kennedy (6) 478,825 3.0%
John W. Pauly (5) 171,531 *
Gordon H. Smith (7) 88,916 *
Richard A. Williams (8) 157,235 *
All directors and executive officers
as a group (9 persons) (9) 1,303,475 7.8%
<FN>
* Represents less than 1% of the 16,161,009 shares of Common Stock
outstanding on March 31, 1997.
23
<PAGE>
(1) Except as indicated below, the persons named in the table, to the
Company's knowledge, have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
(2) As reported in Amendment No. 2 to Schedule 13G/A filed by Travelers
Group, Inc. on January 30, 1997. Includes shares held by Smith Barney
Holdings, Inc. and Smith Barney Mutual Funds Management, Inc., and
includes 681,818 shares issuable upon exercise of warrants exercisable
within 60 days of March 31, 1997.
(3) Includes 133,535 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997 and 2,500 shares issuable upon
exercise of warrants exercisable within 60 days of March 31, 1997.
(4) Includes 10,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997.
(5) Includes 40,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997.
(6) Includes 40,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997 and 5,000 shares issuable upon
exercise of warrants exercisable within 60 days of March 31 1997.
(7) Includes 60,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997 and 2,500 shares issuable upon
exercise of warrants exercisable within 60 days of March 31, 1997.
(8) Includes 55,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997.
(9) Includes 477,356 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997 held by seven directors, one of whom
is also an officer, 10,000 shares issuable to three directors, one of
whom is an officer, upon exercise of warrants with 60 days of March 31,
1997, and 77,643 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997 by two officers who are not directors.
</FN>
</TABLE>
<TABLE>
The following table sets forth the beneficial ownership of Series A
Preferred Stock and Series B Preferred Stock of the Company as of March 31, 1997
by (1) each director and (2) each Named Executive Officer, (3) each holder of 5%
or more of the Series A Preferred Stock and Series B Preferred Stock, and (4)
all directors and executive officers as a group.
<CAPTION>
Shares of Preferred Stock Beneficially Owned (1)
------------------------------------------------------------------------------
Name No. of Shares Percent of Class (2)
---- ------------- --------------------
<S> <C> <C>
Gene J. Kennedy 89 4.8%
Michael I. Gamble (3) 10 *
John Hewitt, Jr. 10 *
Richard A. Williams 10 *
Edward J. Lamb 10 *
First Interstate Bank, Custodian for 500 19.4%
the benefit of James Ermet Haldan Trust
P.O. Box 30100
Reno, NV 89560
David J. Holmgren (4) 308 18.7%
30 Birch Lane
Coscob, CT 06807
Estate of John C. Cahill (5) 185 11.2%
284 President Avenue
Providence, RI 02906
All directors and executive officers
as a group (9 persons) (8) 129 6.8%
<FN>
* Represents less than 1% of the total number of shares of Preferred
Stock outstanding.
(1) Except as noted below, the persons named in the table, to the Company's
knowledge, have sole voting and investment power with respect to all
shares of Preferred Stock shown as beneficially owned by them, subject
to community property laws where applicable
(2) Represents the percentage obtained by dividing the number of shares of
Common Stock into which shares of Series A Preferred Stock and Series B
Preferred Stock held by the beneficial owner are convertible by the
number of shares of Common Stock into which all outstanding Shares of
Series A Preferred Stock and Series B Preferred Stock are convertible.
(3) Represents shares owned jointly by Mr. Gamble and his spouse, Charlotte
Anne Gamble.
(4) Includes 14 shares owned jointly by Mr. Holmgren and his spouse, Karen
C. Holmgren.
(5) Does not include 5 shares held by each of Ann Catherine Cahill and Mary
Elizabeth Cahill, Mr. Cahill's daughters.
</FN>
</TABLE>
24
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Based solely on its review of the copies of Forms 3,4, and 5 received
by the Company, or written representations from certain reporting persons that
no Forms 5 were required for such persons, the Company believes that, during the
fiscal year ended December 31, 1996, all filing requirements under Section 16(a)
of the Securities Exchange Act applicable to its officers, directors and 10%
shareholders were complied with.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sale of Common Stock
Between August 1995 and March 1996, the Company sold units of its
securities ("Units") with an aggregate value of $5,960,000 in a private
placement priced at $1.10 per Unit (the "Private Placement"). Each Unit
consisted of one share of Common Stock of the Company and a warrant to purchase
one-half of one share of Common Stock. The Company issues Common Stock, or
securities convertible into Common Stock, at a price per share less than the
offering price of the Units (the "Subsequent Offering Price"), the warrants
issued pursuant to the Private Placement become exercisable as to 50% of the
underlying shares at the Subsequent Offering Price. The warrants will become
exercisable as to the remainder of the underlying shares at the Unit offering
price if the Company's Common Stock is not listed on the Nasdaq National Market
or the Nasdaq Small Cap Market within two years of the issuance date of such
warrants. The Company also agreed to register the Common Stock issued pursuant
to the Private Placement with the Securities and Exchange Commission, and to
indemnify the holders of such Common Stock under certain circumstances. For
further information, see Note 5 to the financial statements included with this
Report.
Among the entities purchasing Units were entities associated with the
Travelers' Group, Inc., a holder of more than 10% of the Company's outstanding
shares of Common Stock, which purchased 2,727,272 Units. Michael I. Gamble, a
director and former President and Chief Executive Officer of the Company,
purchased 10,000 Units and Gene J. Kennedy, a director of the Company, purchased
20,000 Units.
Severance Agreement with Executive Officer
On June 1, 1996, the Company entered into an employment termination and
mutual release agreement with Michael I. Gamble, its former President and Chief
Executive Officer, and a director of the Company. The agreement provides for a
one-time payment of $105,000 to Mr. Gamble. The Company also agreed to pay Mr.
Gamble's medical insurance premiums through December 31, 1996, and certain fees
for outplacement services and moving expenses. The terms of options to purchase
Common Stock held by Mr. Gamble were extended to May 31, 1998.
In addition, the Company and Mr. Gamble agreed that Mr. Gamble would be
available to provide consulting services to the Company for 13 days in each
two-month period through May 31, 1997. The Company agreed to pay Mr. Gamble
$692.32 for each day he makes himself available to provide such services,
whether or not the Company uses his services. For the period from June 1, 1997
to May 31, 1998, Mr. Gamble will provide consulting services to the Company as
mutually agreed by the parties from time to time.
Mr. Gamble agreed to waive any other rights or claims he may have based
on his employment relationship with the Company.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND Page
REPORTS ON FORM 8-K ------
a) 1. Financial Statements
The following documents are filed as part of this report
Reports of Independent Auditors F-1
Balance Sheets
As of December 31, 1996 and 1995 F-3
Statements of Operations
For the years ended December 31, 1996, 1995, and 1994 F-4
Statement of Stockholders' Equity
For the years ended December 31, 1996, 1995 and 1994. F-5
Statements of Cash Flows
For the years ended December 31, 1996, 1995, and 1994 F-6
Notes to Financial Statements F-7
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(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 the Registrant, 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 the Registrant, as filed with the
California Secretary of State, August 30, 1993.
3.3(7) Certificate of Determination of Preferences of Series B
Preferred Stock of the Registrant , as filed with the
California Secretary of State, January 4, 1995.
3.4 Certificate of Amendment of Amended and Restated Articles of
Incorporation of the Registrant, as filed with the
California Secretary of State, April 4, 1997.
3.5(3) By-Laws of Registrant.
10.0(2)(6) 1986 Incentive Stock Option Plan as amended and forms of
incentive and non-statutory stock option agreements.
10.1(4) 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.
26
<PAGE>
10.3(3)(6) 1989 Director Incentive Stock Plan.
10.4(8) 1991 Director Stock Plan.
10.5(5)(6) Director Option Plan.
10.6(9) Power Spectra, Inc. Series A Securities Purchase Agreement,
dated April 7, 1993.
10.7(7) Power Spectra, Inc. Series B Securities Purchase Agreement,
dated January 13, 1995.
10.8 Ground Pentrating Radar Development Agreement dated June 19,
1996, between the Registrant and European Industries
Associates.
10.9 GPR Systems Development and License Agreement dated December
17, 1996 between the Registrant and LandRay Technologies,
Inc.
10.10 Letter Agreement amending GPR Systems Development and
License Agreement dated March 13, 1997 between the
Registrant and LandRay Technologies, Inc.
10.11 Registration Rights Agreement, dated April 11, 1996 between
the Registrant and certain investors.
11.1 Computation of Loss per Share.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
----------------------
(*) To be filed by amendment.
(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 trea(TM)ent 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 the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(8) Incorporated by reference from the Registrant's Registration
Statement on Form S-8 filed on December 26, 1996 (No. 33-18837).
(9) Incorporated by reference from the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
b) Reports on Form 8-K
None.
27
<PAGE>
c) Exhibits
See response to Item 14 (a) 3.
d) Financial Statement Schedules
See response to Item 14 (a) 2.
28
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholders
Power Spectra, Inc.
We have audited the accompanying balance sheets of Power Spectra, Inc. (a
California corporation) as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the years
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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Power Spectra, Inc. as of
December 31, 1996 and 1995, and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
San Jose, California
February 21, 1997 (except for
Note 10 as to which the date
is April 10, 1997)
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Power Spectra, Inc.
We have audited the accompanying statements of operations, stockholders' equity,
and cash flows of Power Spectra, Inc., for the year ended December 31, 1994.
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 statement 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 results of operations, changes in stockholders'
equity and cash flows of Power Spectra, Inc., for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
The Company's recurring losses from operations raise substantial doubt about its
ability to continue as a going concern. The Company's cash position at December
31, 1994, together with anticipated cash flows from operations and new financing
through the issuance of Series B Preferred Stock, are expected by management to
be sufficient to finance the Company's operations through December 31, 1995.
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. The 1994 financial statements have been prepared on the basis that the
Company will continue as a going concern and do not include any adjustments that
might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Jose, California
February 17, 1995,
except for Note 3 as to which date is
April 7, 1995
F-2
<PAGE>
Power Spectra, Inc.
Balance Sheets
December 31,
---------------------------
1996 1995
----------- -----------
Assets
Current Assets
Cash and cash equivalents $ 843,304 $ 2,395,372
Accounts receivable 69,301 290,832
Unbilled accounts receivable 25,813 44,989
Inventories 217,744 124,818
Other current assets 49,277 73,039
----------- -----------
Total current assets 1,205,439 2,929,050
Equipment and improvements, at cost
Furniture and fixtures 196,574 192,647
Equipment 1,088,013 1,016,094
Leasehold improvements 70,487 70,487
Construction in progress -- --
----------- -----------
1,355,074 1,279,228
Accumulated depreciation and
amortization (986,754) (860,049)
----------- -----------
Net equipment and improvements 368,320 419,179
Patents, less accumulated amortization
of $67,415 and $47,503 in 1996 and
1995 respectively 72,993 67,904
Deposits 26,075 26,075
$ 1,672,827 $ 3,442,208
=========== ===========
See accompanying notes
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 161,422 $ 202,877
Accrued compensation expense 145,049 178,148
Allowance for contract losses 100,000 100,000
Deferred contract revenue 433,177 311,320
Accrued professional fees 76,350 72,162
Preferred stock dividend payable 48,747 49,201
Other accrued expenses 27,696 48,606
------------ ------------
Total current liabilities 992,441 962,314
Stockholders' equity
Preferred stock, no par value; 5,000,000
shares authorized; issuable in series
Series A convertible, 1,500 shares
authorized, 1,044 shares issued,
791 outstanding (1995 - 799)
liquidation preference of $791,000 667,720 674,473
Series B convertible, 1,200 shares
authorized, 1,153 shares issued,
1,143 outstanding (1995 - 1,153)
liquidation preference of $1,143,000 997,806 1,006,536
Common stock, no par value,
30,000,000 shares authorized;
16,125,699 shares issued and
outstanding (1995 - 13,875,235) 14,077,816 11,878,089
Accumulated deficit (15,062,956) (11,079,204)
------------ ------------
Total stockholders' equity 680,386 2,479,894
------------ ------------
$ 1,672,827 $ 3,442,208
============ ============
<FN>
See accompanying notes
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
Power Spectra, Inc.
Statements of Operations
<CAPTION>
Year ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales $ 35,932 $ 87,877 $ 82,365
Contract revenue 964,182 1,341,748 2,977,733
------------ ------------ ------------
Total revenues 1,000,114 1,429,625 3,060,098
Costs and expenses
Cost of revenue 2,587,467 2,235,623 2,468,379
Sales and marketing 374,469 494,804 430,111
Research and development 714,368 213,667 332,612
General and administrative 1,203,469 1,062,589 977,541
------------ ------------ ------------
Total costs and expenses 4,879,773 4,006,683 4,208,643
------------ ------------ ------------
Loss from operations (3,879,659) (2,577,058) (1,148,545)
Interest expense 0 (18,126) (895)
Interest income 94,552 37,083 25,611
Other income (expense) (3,192) (4,129) 11,322
------------ ------------ ------------
Net loss ($ 3,788,299) ($ 2,562,230) ($ 1,112,507)
============ ============ ============
Net loss applicable to common shares ($ 3,983,752) ($ 2,751,425) ($ 1,216,907)
============ ============ ============
Loss per common share ($ 0.26) ($ 0.25) ($ 0.12)
============ ============ ============
Number of shares used in share computation 15,622,268 11,181,541 10,014,163
============ ============ ============
<FN>
See accompanying notes
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
Power Spectra, Inc.
Statements of Cash Flows
<CAPTION>
Year ended December 31,
----------------------------------------------------
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Operating activities
Net loss ($3,788,299) ($2,562,230) ($1,112,507)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 146,616 151,425 145,242
Common stock issued for services and
director compensation 88,508 84,375 84,375
Changes in operating assets and liabilities:
Accounts receivable 221,531 (260,418) 875,643
Unbilled accounts receivable 19,176 65,762 (35,834)
Inventories (92,926) 97,765 (186,120)
Other current assets 23,762 9,565 (30,631)
Accounts payable (41,455) 64,834 49,427
Accrued compensation expense (33,099)
Accrued expenses (17,176) 73,007 14,206
Deferred contract revenue 121,857 238,704 (2,257)
--------------- -------------- ---------------
Total adjustments 436,794 525,019 914,051
--------------- -------------- ---------------
Total cash used in operating activities (3,351,505) (2,037,211) (198,456)
Investing activities
Equipment and improvements
Additions (87,533) (34,598) (318,204)
Disposals 11,687 -- 3,050
Patent costs incurred (25,000) -- (5,000)
Increase in deposits -- (1,075) --
--------------- -------------- ---------------
Total cash used in investing activities (100,846) (35,673) (320,154)
Financing activities
Proceeds from sale of common stock, net of stock
issuance costs and repurchases 2,095,736 3,320,922 (1,568)
Proceeds from sale of preferred stock, net of stock
issuance costs and repurchases -- 1,121,836 --
Dividends on preferred stock (195,453) (189,195) (104,400)
--------------- -------------- ---------------
Total cash provided by (used in) financing activities 1,900,283 4,253,563 (105,968)
--------------- -------------- ---------------
Increase (decrease) in cash (1,552,068) 2,180,679 (624,578)
Cash and cash equivalents, beginning of period 2,395,372 214,693 839,271
--------------- -------------- ---------------
Cash and cash equivalents, end of period $843,304 $2,395,372 $214,693
=============== ============== ===============
Supplemental schedule of noncash financing activities:
Conversion of preferred stock to common stock $15,483 $206,816 --
=============== ============== ===============
Common stock and warrants issued in connection with
financing -- $115,300 --
=============== ============== ===============
Accrual of preferred stock dividends $48,747 $49,201 $26,315
=============== ============== ===============
Cash paid during the period for:
Interest $0 $18,126 $895
=============== ============== ===============
Income taxes $800 $800 $800
=============== ============== ===============
<FN>
See accompanying notes
</FN>
</TABLE>
F-6
<PAGE>
<TABLE>
Power Spectra, Inc.
Statements of Stockholders' Equity
For the three years in the period ending December 31, 1996
<CAPTION>
Common Stock Preferred Stock
------------------------------ -----------------------------------------------
Class A Class B
---------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------- --------------- ------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
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 -- -- -- --
Common stock issued to directors for
directors' fees 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
Prererred net of issuance costs of
$31,164 and finders fees of
$115,300 paid, convertable
to common stock at $0.78 147,631 115,300 -- -- 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
Private placement of common stock at
$1.10 less issuance costs
of $258,044 2,060,046 2,008,007 -- -- -- --
Exercise of stock options:
at $0.88 to $1.28 per share 95,945 87,729 -- -- -- --
Common stock issued to directors for
directors' fees 72,138 85,415 -- -- -- --
Common stock issued in payment of
services at $1.03 per share 3,000 3,093 -- -- -- --
Conversion of 8 shares of Class A
Preferred to common at $1.22 per
share net of allocated preferred
issuance cost 6,531 6,753 (8) (6,753) -- --
Conversion of 10 shares of Class B
Preferred to common at $0.78 per
share net of allocated preferred
issuance cost 12,804 8,730 -- -- (10) (8,730)
Dividends on preferred stock -- -- -- -- -- --
Net loss for the year -- -- -- -- -- --
------------- --------------- ------- ------------- --------- -----------
Balances at December 31, 1996 16,125,699 $14,077,816 791 $667,720 1,143 $997,806
============= =============== ======= ============= ========= ===========
<FN>
See accompanying notes
</FN>
</TABLE>
Total
Accumulated stockholders'
deficit equity
-------------- --------------
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
Common stock issued to directors for
directors' fees -- 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
Prererred net of issuance costs of
$31,164 and finders fees of
$115,300 paid, convertable
to common stock at $0.78 -- 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
Private placement of common stock at
$1.10 less issuance costs
of $258,044 -- 2,008,007
Exercise of stock options:
at $0.88 to $1.28 per share -- 87,729
Common stock issued to directors for
directors' fees -- 85,415
Common stock issued in payment of
services at $1.03 per share -- 3,093
Conversion of 8 shares of Class A
Preferred to common at $1.22 per
share net of allocated preferred
issuance cost -- --
Conversion of 10 shares of Class B
Preferred to common at $0.78 per
share net of allocated preferred
issuance cost -- --
Dividends on preferred stock (195,453) (195,453)
Net loss for the year (3,788,299) (3,788,299)
-------------- --------------
Balances at December 31, 1996 ($15,062,956) $680,386
============== ==============
See accompanying notes
F-5
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements
December 31, 1996
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.
In preparing financial statements in conformity with generally accepted
accounting principles (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 had one long-term contract whose
final deliverable was completed 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 this contract.
A material portion of the Company's historical 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 growth strategy includes the successful completion of products
under development, development of new applications, and development of marketing
strategies.
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, 1997.* However, the actual amount of time that the Company's cash
resources last is dependent upon a variety of factors including the timing of
obtaining new contracts, the timing of new financings, the success of its
current joint ventures and the competition with other vendors. If the Company
determines that it requires additional funds prior to December 31, 1997, there
can be no assurance that additional funds will be obtainable on reasonable
terms, or at all. Any such failure could result in the Company becoming unable
to meet its obligations as they come due. If the Company is not successful in
replacing the revenue and cash generated by the Boeing Agreement and the Air
Force Contract, the Company would continue to experience significant operating
losses. The Company does not presently have access to any credit facilities.
- ----------------------
*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 a discussion of
factors that could affect future performance.
F-7
<PAGE>
1. The Company and summary of significant accounting policies (continued)
Unbilled accounts receivable
<TABLE>
Unbilled accounts receivable consists of the following:
<CAPTION>
December 31,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
December 1996 and 1995 charges on cost plus contracts not billed until January
1996 and 1995, respectively $25,813 $44,989
======= =======
Inventories
Inventories, which are stated at the lower of cost (first-in, first-out basis)
or market, consist of the following:
December 31,
---------------------------------
1996 1995
---- ----
Work in progress $112,949 $ 12,692
Purchased Parts 104,795 112,126
------- -------
$217,744 $124,818
======= =======
</TABLE>
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.
Deferred revenues
Deferred revenues are payments made by customers for which the Company has
deferred revenue recognition until the contract is closed out.
Loss per common share
Loss per common share is based on the weighted average of common shares
outstanding for all periods presented, computed using the net loss after
deducting Series A and Series B Preferred Stock dividends in 1996 and 1995, and
after deducting Series A Preferred Stock dividends in 1994. 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.
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.
F-8
<PAGE>
1. The Company and summary of significant accounting policies (continued)
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, 1996, Company
contributions to the plan were $12,660 (1995--$12,457, 1994--$8,785).
2. 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
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 and on July 9, 1996, 8 shares of the Series
A Preferred Stock were converted into 6,531 shares of Common Stock.
F-9
<PAGE>
3. Series B Preferred Stock
In September 1994, the Company designated 1,200 shares of the Preferred Stock as
Series B. The Company closed new financing 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
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.
On December 17, 1996, 10 shares of the Series B Preferred Stock were converted
into 12,804 shares of Common Stock.
F-10
<PAGE>
4. 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,
1996 1995 1994
---- ---- ----
Tax (benefit) at U.S. statutory rate ($1,288,022) ($ 871,158) ($ 378,252)
Operating losses, not utilized 1,288,022 871,158 378,352
----------- ----------- -----------
Provision for income taxes $ -- $ -- $ --
=========== =========== ===========
At December 31, 1996, the Company had net loss operating carryforwards for
federal and state income tax purposes of approximately $13,500,000 and
$3,800,000, respectively. The Company also had research and development credit
carryforwards for federal tax purposes of approximately $145,000. The net
operating loss and credit carryforwards expire in varying amounts through the
year 2011.
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.
Significant components of the Company's deferred tax assets and liabilities for
U. S. federal and state income taxes are as follows:
December 31,
1996 1995
----------- -----------
Deferred tax assets:
Reserves not deductible for tax purposes $ 120,000 $ 120,724
Book and tax depreciation and
amortization differences (12,000) (7,094)
Net operating loss carryforwards 5,036,000 3,647,742
Tax credit carryforwards 145,000 144,790
State taxes (158,000) (115,106)
----------- -----------
Total deferred tax assets 5,131,000 3,791,056
Valuation allowance (5,131,000) (3,791,056)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
5. 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 closed at March 29, 1996. Gross proceeds raised through December 31,
1995 were $3,694,000 and gross proceeds through March 31, 1996 were $5,960,000.
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 were offered to accredited
investors only and were offered at $1.10 per unit (the "unit offering price").
There was no minimum offering amount.
The warrants, which were 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.
F-11
<PAGE>
6. Common Stock (continued)
(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.
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.
In connection with the private placement issuance of Common Stock in 1995 and
1996, the Company issued for services rendered warrants to acquire 225,765
shares of Common Stock at $1.32 per share. The warrants are fully exercisable
and expire March 26, 2001.
Common shares issued for services have been recorded at amounts that approximate
the fair value of the shares at time of issuance.
During 1989, 1991, 1993, and 1995, the Company reserved 30,000 shares, 100,000
shares, 150,000 shares, and 200,000 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.
During 1995 the Company reserved a total of 200,000 additional shares of Common
Stock under the 1991 Director Stock Plan. The Company issued 72,138 shares under
the Director Plan during 1996 (1995 --89,965, 1994 -- 90,924 shares).
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 3,000 shares of Common Stock under the Advisory Board Stock
Program in 1996 at $1.03 per share (1995 -- issued 4, 000 at $0.88 per share,
1994 -- issued 9,000 shares of Common Stock at $0.94 to $1.25 per share).
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.
Employees and consultants 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. On June 7, 1996 the Company's shareholders approved
the 1996 Stock Plan. Under the plan 1,500,000 shares of Common Stock were
reserved for issuance upon exercise of options granted under the 1996 plan.
Effective with the approval of the 1996 Plan the 1986 Plan was terminated as to
future grants, and the shares reserved for issuance under such Plan were made
available for issuance under the 1996 Plan. Any reserved shares that are not
issued as a result of the termination of existing options under the 1986 Plan
before they are exercised, will also be available for grant under the 1996 Plan.
Such termination will not affect the shares subject to options currently
outstanding under the 1986 Plan. At December 31, 1996, there were 811,458
options issued and outstanding under the 1986 Plan and 9,500 options issued and
outstanding under the 1996 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 granted
options to acquire 70,000 stock shares of Common Stock under the Director Option
Plan in 1996 at $1.85 per share (in 1995 granted 70,000 options at $1.16 per
share and in 1994 granted options to acquire 60,000 shares of Common Stock at
$1.13 per share).
F-12
<PAGE>
6. Common Stock (continued)
The exercise price of each option generally approximates the market price of the
Company's stock on the date of grant. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the plan been determined
based on the fair value of the options at the grant dates consistent with the
method of Statement of Financial Accounting Standards 123, Accounting for
Stock-Based Compensation ("SFAS 123"), the Company's net loss and loss per share
would have been reduced to the pro forma amounts indicated below.
1995 1996
Net loss As reported $(2,751,425) $(3,983,752)
(applicable to Pro forma (2,779,525) (4,056,820)
common shares)
Loss per share As reported $(0.25) $(0.26)
Pro forma (0.25) (0.26)
The fair value of each option grant is estimated on the date of grant using the
Black Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: no expected
dividends; expected volatility of 200%; weighted average risk-free interest rate
of 6.55%; and expected lives of 5 years.
A summary of the status of the company's stock option plan for the three years
ended December 31, 1996, and changes during those years is presented below.
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at December 31, 1993 1,169,018 $1.73
Granted 201,500 1.04
Exercised (3,922) 0.88
Forfeited (112,500) 1.89
-------
Outstanding at December 31, 1994 1,254,096 1.61
Granted 295,773 1.09
Exercised (38,650) 0.88
Forfeited (201,397) 1.80
-------
Outstanding at December 31, 1995 1,309,822 1.49
Granted 189,500 1.60
Exercised (95,945) 0.89
Forfeited (313,419) 1.81
-------
Outstanding at December 31, 1996 1,089,958 1.46
The weighted-average fair values of options granted during the years ended
December 31, 1995 and 1996 are $0.97 and $1.56, respectively.
The following information applies to options outstanding at December 31, 1996:
Range of exercise prices $0.88 - $1.85 $2.00 - $3.75
Options outstanding 961,958 128,000
Weighted average exercise price $1.30 $2.69
Weighted-average remaining
contractual life (years) 6 6
Options exercisable 795,614 118,600
Weighted average exercise price $1.33 $2.73
F-13
<PAGE>
7. Development and marketing agreement
In 1991, the Company received from The Boeing Company ("Boeing") $2.8 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. 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:
1997 29,001
1998 4,745
---------
Total minimum payments $ 33,746
=========
For the year ended December 31, 1996, rent expense was $250,413 (1995
- --$250,413, 1994 -- $250,413).
F-14
<PAGE>
9. Valuation and Qualifying Accounts
<TABLE>
The following are the valuation and qualifying accounts for deferred tax assets
for December 31, 1994, 1995, and 1996. (Dollars in thousands)
<CAPTION>
.Additions
-----------------------------------------------
Charged to
Balance at Charged to other Balance at
beginning of costs and accounts Deductions end of
period expenses describe describe period
-------------- ---------------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Valuation allowance on
deferred tax assets $3,791 $1,340 $ -- $ -- $5,131
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
</TABLE>
10. Subsequent Events
Subsequent to year end, the Company entered into a $1.2 million
contract with LandRay Technologies, Inc. ("LandRay"), a joint venture partially
owned by the Company, as the first phase of a program to develop Ground
Penetrating Radar (GPR) production prototype system to detect precious metals
and minerals in subterranean locations. Contract terms call for the Company to
develop and deliver an operational GPR sensor assembly, designated the "Seeker,"
as the first phase of a complete portable system that will identify and target
gold deposits behind mine walls. The goal is to detect gold at distances of more
than 10 feet beyond the mine tunnel wall surface. Recent propagation tests in an
operational gold mine produced encouraging results. The project is expected to
be completed within calendar year 1997.* The funds payable to the Company under
this joint venture are payable on a milestone basis. Therefore, in the event the
Company is unable to achieve the milestones, it will not realize all of such
revenue. The failure to meet the required milestones under the LandRay agreement
would have a material adverse effect on the Company's results of operations and
financial condition. To date approximately $450,000 has been raised by LandRay
to fund the $1.2 million contract. Of that amount, $250,000 has been paid to the
Company. Receipt of the balance of the contract revenue is also dependent upon
the ability of LandRay to raise the balance of the funds needed to fulfill the
contract obligations
On April 10, 1997 the Company closed on a private placement of 4,370,000 shares
of its Common Stock with gross proceeds of $1,092,500. The Company agreed to pay
a selling agent a placement fee equal to 5% of the gross proceeds of the
offering. In addition the Company has agreed to issue to the selling agent
Warrants to purchase Common Stock in a number of shares equal to 5% of the total
number of shares sold in the offering. The selling agent's Warrants will be
exercisable at $0.25 per share (equal to the offering price of the shares) and
will be exercisable for a period of five years. The Company has agreed to
register for resale the shares of Common Stock issued in the private placement,
as well as the shares issuable upon exercise of the selling agent's warrants.
F-15
<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 14th Day of
April, 1997.
Power Spectra, Inc.
By: /s/Gordon H. Smith
----------------------------------------
Gordon H. Smith
Chairman of the Board
President, Executive Officer
43
<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: April 14, 1997 /s/Gordon H. Smith
-------------------------------------
Gordon H. Smith, Chairman of the Board
President and Chief Executive Officer
Principal Executive Officer
Dated: April 14, 1997 /s/Edward J. Lamb
-------------------------------------
Edward J. Lamb
Controller and Chief Financial Officer
Principal Financial and Accounting Officer
Dated: April 14, 1997 /s/Michael I. Gamble
-------------------------------------
Michael I. Gamble, Director
Dated: April 14, 1997 /s/James A. Glaze
-------------------------------------
James A. Glaze, Director
Dated: April 14, 1997 /s/John Hewitt, Jr.
-------------------------------------
John Hewitt, Jr., Director
Dated: April 14, 1997 /s/Gene J. Kennedy
-------------------------------------
Gene J. Kennedy, Director
Dated: April 14, 1997 /s/John W. Pauly
-------------------------------------
John W. Pauly, Director
Dated: April 14, 1997 /s/Richard A. Williams
-------------------------------------
Richard A. Williams, Director
44
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
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 the Registrant, 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 the Registrant, as filed with the
California Secretary of State, August 30, 1993.
3.3(7) Certificate of Determination of Preferences of Series B
Preferred Stock of the Registrant , as filed with the
California Secretary of State, January 4, 1995.
3.4 Certificate of Amendment of Amended and Restated Articles of
Incorporation of the Registrant, as filed with the California
Secretary of State, April 4, 1997.
3.5(3) By-Laws of Registrant.
10.0(2)(6) 1986 Incentive Stock Option Plan as amended and forms of
incentive and non-statutory stock option agreements.
10.1(4) 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)(6) 1989 Director Incentive Stock Plan
10.4(8) 1991 Director Stock Plan as amended
10.5(5)(6) Director Option Plan
10.6(7)(9) Power Spectra, Inc. Series A Securities Purchase Agreement,
dated April 7, 1993
10.7(7) Power Spectra, Inc. Series B Securities Purchase Agreement,
dated January 13, 1995
10.8 Ground Penetrating Radar Development Agreement dated June 19,
1996 between the Registrant and European Industries
Associates.
10.9(*) GPR Systems Development and License Agreement dated December
17,1996 between the Registrant and LandRay Technologies, Inc.
10.10 Letter Agreement amending 1 to GPR Systems Development and
License Agreement dated March 13, 1997 between the Registrant
and Land Ray Technologies, Inc.
45
<PAGE>
10.11 Registration Rights Agreement dated April 11, 1997 between
the Registrant and certain investors
11.1 Computation of Loss Per Share
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
27.0 Financial Data Schedule
- ----------------------------
(*) To be filed by amendment.
(1) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1988.
(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 trea(TM)ent 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.
(10) Incorporated by reference from Registrant's Registration Statement on
Form S-8 filed on December 26, 1996 (No. 333-18837)
46
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
POWER SPECTRA, INC.
Gordon H. Smith and Aaron J. Alter hereby certify that:
1. They are the President and Assistant Secretary, respectively, of
Power Spectra, Inc., a California corporation.
2. Article III of the Articles is hereby amended and restated to read
in its entirety as follows:
"This corporation is authorized to issue two classes of shares
of stock to be designated as "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is
authorized to issue is sixty million (60,000,000), of which
fifty-five million (55,000,000) shall be designated Common
Stock and five million (5,000,000) shall be designated
Preferred Stock. The Preferred Stock may be issued in series
with rights, preferences, privileges, restrictions,
designation and number of shares as determined by the board of
directors."
3. The foregoing amendment has been duly approved by the board of
directors and the required vote of shareholders in accordance with Sections 902
and 903 of the California Corporations Code. The total number of shares voting
in favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than fifty percent (50%) of the outstanding shares of
Common Stock and more than 50% of the outstanding shares of Common Stock and
Preferred Stock, voting together on an as-converted to Common Stock basis.
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing certificate are true of their own knowledge.
Sunnyvale, CA /s/ Gordon H. Smith
4-3-97 ------------------------------------
Gordon H. Smith, President
/s/ Aaron J. Alter
------------------------------------
Aaron J. Alter, Assistant Secretary
LANDRAY
TECHNOLOGY, INC
- --------------------------------------------------------------------------------
March 13, 1997 via fax to 408-732-1832
Power Spectra, Inc.
919 Hermosa Court
Sunnyvale, CA 94086
Attn: Chuck Byer
Gentlemen:
This letter is a formal amendment to that certain GPR System Development, Sale
and License Agreement between LandRay Technology, Inc. ("LandRay") and Power
Spectra, Inc., ("PSI") dated as of December 17, 1996 (the "Agreement"). Except
as set forth herein, the Agreement shall remain in full force and effect. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Agreement.
The intent of this amendment is to restructure certain aspects of the existing
Agreement, which presently provides for a $3,000,000 payment by us and
concurrent performance by you on a number of different aspects of the GPRS.
Because of mutual resource limitations, we both want to restructure the program
into a series of three manageable projects or steps which are independent,
sequential, and optional on LandRay's part, to provide for certainty with
respect to the grant to us of manufacturing rights on a project-by-project basis
to be effective upon the bankruptcy of PSI or the failure of PSI to deliver GPR
Products based upon agreed schedules per Exhibits D-1 and D-2, to change the
cure period and to effect other clean- up items.
To implement that intent:
1. Section 4.1 of the Agreement is amended to read in full as follows:
LandRay will pay PSI the sum of up to $3,000,000 (the "Contract Price") for
the development of the work to be performed hereunder. Such payment will
occur in three discrete, independent steps. The first step, involving the
payment of $1,200,000 shall have up to five tranches. The first $250,000
payable by LandRay within ten business days after the date hereof, shall
confirm to LandRay the irrevocability of the license :
- --------------------------------------------------------------------------------
235 Montgomery Street, Suite 807 San Francisco, California 94104
tel 415.433.6930 -:- fax 415.433.0627
<PAGE>
Power Spectra, Inc. Contract Amendment
March 13, 1997
Page 2
grant referred to in Paragraph 5. l(d) hereof with respect to the Seeker;
the remaining balance of $950,000 for this step shall be payable upon
achievement of the milestones set forth in Exhibit D-1 attached hereto.
Upon completion of (i) a complete technical data package with respect to
the Seeker, and (ii) delivery of one finished Seeker unit, LandRay shall
have six months to exercise its option to pursue the Imager and the
Borehole-to-Borehole applications of the Imager for an aggregate price of
$1,800,000 payable upon achievement of milestones with respect thereto set
forth on Exhibit D-2 attached hereto. The aforementioned technical data
package shall be reviewed for approval by LandRay (which approval will not
be unreasonably withheld, and which shall be done within 30 days of
submittal to LandRay) and will be kept in a secure place for immediate
release to LandRay as provided for in Section 5.1(d) hereof. All payments
set forth on Exhibits D-1 and D-2 shall be due and payable within ten
business days after the respective events set forth therein. If LandRay has
not exercised its option to pursue steps 2 (Imager) or 3
(Borehole-to-Borehole) within six months after completion of the delivery
of the Seeker and the related technical data package, then LandRay shall
lose its rights with respect to the unexercised option(s).
2. Paragraph 5. l(a) is hereby amended to encompass one license grant with
respect to the Seeker for the licensed applications upon the initial
payment of $250,000, and a second and third license grant with respect to
the "Imager" and the "Borehole-to-Borehole" GPR for the licensed
applications upon the initial payment therefor as contemplated hereunder.
3. The second sentence of Section 5.l(a) is amended to read in full as
follows:
During the term hereof, PSI shall not make available to any third party any
rights under the GPR Patents or the GPR Know-How, or make available to any
third party any products which are the functional equivalents of the GPR
products, in either case for the licensed applications.
4. Paragraph 5.1(d) is amended to provide for a 60 day cure period on line 5
and to include the word "automatically" between the words "shall" and
"include" in line 7. PSI shall deliver the technical data package with
<PAGE>
Power Spectra, Inc. Contract Amendment
March 13, 1997
Page 3
sufficient content and detail to permit LandRay to manufacture the subject
device (Seeker, Imager and/or Borehole-to-Borehole, as appropriate) either
internally or by contract manufacturer without additional consulting
assistance.
5. Paragraph 5.3(a) shall be amended to read in full as follows:
Following delivery of the PSI Deliverables to LandRay and LandRay's full
payment of the Contract Price and other fees set forth in Article 4 with
respect to that independent phase, LandRay shall take title to, and become
the exclusive owner of, the PSI Deliverables delivered with respect to that
phase.
6. The reference to the number "forty-five (45)" in the second line of
Paragraph 7.2 shall be amended to "sixty (60)".
7. In Article 13, the following sentence shall be added after the third
sentence:
"PSI shall manufacture GPR products upon receipt of LandRay's order(s) and
provide prompt delivery;"
the following clause shall be added to the fifth sentence, on line nine,
between the words "GPR Products" and "and":
"(calculated using standard product cost accounting methods)"
and the following clause shall be added to the end of the fifth sentence,
following the word "margin":
"(not to exceed 20%)"
8. The second line of Section 15.8 is amended to read in full as follows:
"...bankruptcy rejects this Agreement. LandRay's rights under this
Agreement shall be as..."
9. The reference in Section 7.4(c) to "Section 7.6" (which does not exist) is
to be changed to refer to "Section 7.5".
<PAGE>
Power Spectra, Inc. Contract Amendment
March 13, 1997
Page 4
10. In reviewing the relevant documentation, we noted an awkwardness in the
identification of the parties to the original Ground Penetrating Radar
Development Agreement dated June 19, 1996 (the "Initial Agreement"). By
this letter we each confirm that the parties to the Initial Agreement are
only PSI and LandRay, acting by and through third parties for the benefit
of LandRay.
11. The Initial Agreement provides for an anti-dilution minimum of 25% for PSI.
PSI hereby agrees to reduce its anti-dilution minimum to 22.67%, and the
parties agree to resolve any further reduction of this anti-dilution
minimum by future amendment.
Please sign and return the enclosed copy of this letter to evidence an initial
agreement with respect to the amendment of the Agreement.
Very truly yours,
LANDRAY TECHNOLOGY, INC.
/s/ Thomas A. Spanier
Thomas A. Spanier
AGREED:
POWER SPECTRA, INC.
By: /s/ Gordon H. Smith
--------------------
Its: CEO
--------------------
Dated: 18 March 1997 ,1997
--------------
<PAGE>
Power Spectra, Inc. Contract Amendment
March 13, 1997
Page 5
EXHIBIT D- 1
Event Amount Payable
----- --------------
1. LandRay, Phase 3 Contract Amendment executed $250,000
2. Milestone 2 $250,000
3. Milestone 3
[Milestones from Seeker Development Plan should be listed here, in roughly
$250,000 increments, with the final payment for the final deliverable. The
present interim seeker plan is not clear on "Interim Seeker" description and
delivery schedule. Suggested milestones should include delivery of a defined
"Interim Seeker" and the final "Production Seeker", along with interim
milestones to link funding with some sort of definable progress -- milestones
can refer to the GANTT schedule Task ID line numbers. These are issues we need
to clarify, but we can't hold up the funding process to do so. Therefore, we
agree to detail this to our mutual satisfaction at the earliest possible date.]
<PAGE>
Power Spectra, Inc. Contract Amendment
March 13, 1997
Page 6
EXHIBIT D-2
This needs to be open at this point - We don't have a good picture of the
milestones and schedule, but during the progress of the Seeker development we
will be able to put this together. We can agree to the amount of $1,800,000
subject to the escalation clause, but it would be unrealistic to button down
specifics at this point. We agree to agree on a schedule along the lines of the
Seeker funding concept, and to do so by the time the 6 month option period
begins.
POWER SPECTRA, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into effective this 11th day of April, 1997, by and among POWER SPECTRA,
INC., a California corporation (the "Company") and certain undersigned holders
of the Company's securities as are appear on the signature page hereof and
similar forms of Registration Rights Agreement entered into in connection with
the private placement of the Company's Common Stock pursuant to the offering
memorandum dated February 7, 1997 and/or for whose benefit this Agreement is
being entered into as described elsewhere herein.
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein, the parties do hereby agree as follows:
1. REGISTRATION UNDER THE SECURITIES ACT.
1.1 Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act and the declaration or ordering of
effectiveness of such registration statement;
(c) The term "Registrable Securities" means (i) the Company's
no par value Common Stock (the "Common Stock") sold in a private offering more
fully described in the Company's Confidential Private Offering Memorandum dated
February 7, 1997 (the "Offering") and "Memorandum," respectively); and (ii) any
Common Stock or other securities of the Company issued or issuable with respect
to such shares of Common Stock upon any stock split, stock dividend,
recapitalization, or similar event, or any Common Stock otherwise issued or
issuable with respect to such Common Stock; provided, however, that Registrable
Securities shall not include any securities no longer subject to the
restrictions on transfer imposed by or on account of the Act.
(d) The term "Holder" means the person or entity holding
Registrable Securities, who is also a party to this Agreement.
(e) Unless otherwise indicated, any other capitalized term
used herein shall have the meaning set forth in the Memorandum.
<PAGE>
1.2 Registrable of Registrable Securities. Within six (6) months
following the final closing of the Offering, the Company shall use its best
efforts to file a registration statement under the Act covering the Registrable
Securities and to use its further best efforts to cause such registration
statement to be declared effective by the Securities and Exchange Commission.
The Company is obligated to effect only one (1) registration pursuant to this
Section 1.2 unless the Company fails to effect the registration of all
Registrable Securities for which registration is required and have such
registration declared or ordered effective.
1.3 Obligations of the Company. Whenever required under Paragraph 1.2
to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to be declared or ordered effective.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective for a period ending the earlier of (i) the completion of the
distribution of the Registrable Securities included in the registration
statement or (ii) one year from the date hereof.
(c) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service or
process in any such states or jurisdictions, and further provided that (anything
in this Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by selling shareholders pro rata, to the extent
required by such jurisdiction.
(e) Use its best efforts to maintain a current prospectus
allowing the resale of the Shares covered by the registration statement for so
long as any of the Registrable Securities remain unsold pursuant to the
prospectus, subject to termination of this obligation as set forth in paragraph
1.8, below.
2
<PAGE>
1.4 Furnish Information. It shall be a condition preceding to the
obligations of the Company to take any action pursuant to this Agreement as to
any Holder that such Holder shall furnish to the Company such information
regarding him or it, the Registrable Securities held by him or it, and the
intended method of disposition of such securities as the Company shall
reasonably request and as shall be requested or required by the Commission or
otherwise in connection with the action to be taken by the Company.
1.5 Expenses of Registration. All expenses incurred in connection with
registration pursuant to Paragraph 1.2 hereof (excluding underwriters' discounts
and commissions), including, without limitation, all registration and
qualification fees, printers' and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company.
1.6 Delay of Registration. Notwithstanding any other provision of this
Agreement, no Holder shall have any right to take any action to restrain, enjoin
or otherwise delay any registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Agreement.
1.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers and directors and partners, and each person
controlling such Holder within the meaning of Section 15 of the Act, with
respect to which registration, qualification or compliance has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Act, against
all expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Act or any rule or regulation
promulgated under the Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or alleged omission, made in reliance upon and in conformity with
written information furnished to the Company by such Holder, officer, director,
partner, controlling person or underwriter and stated to be specifically for use
therein.
3
<PAGE>
(b) To the extent required by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its officers and directors, each underwriter of
the Company's securities covered by such a registration statement, each person
who controls the Company or such underwriting within the meaning of Section 15
of the Act, and each other such Holder, each of its officers and directors and
partners and each person controlling such Holder within the meaning of Section
15 of the Act, against all expenses, claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to such registration,
qualification or compliance, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, partners, persons, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or allege omission) is made
in such registration statement, prospectus, offering circular or other document
in reliance upon and in conformity with written information furnished to the
Company by any instrument duly executed by such Holder and stated to be
specifically for use therein. Notwithstanding the foregoing, the liability of
each Holder under this subsection (b) shall be limited in an amount equal to the
initial public offering price of the shares sold by such Holder, unless such
liability arises out of or is based on willful conduct by such Holder.
(c) Each party entitled to indemnification under this
Paragraph 1.7 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnified Party's ability to
defend such action; and provided further that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
4
<PAGE>
1.8 Termination of the Company's Obligations. The Company shall have no
obligations pursuant to Paragraph 1.2 if the benefits of Rule 144 promulgated
under the Act as currently in effect or any other similar rule or regulation
that may hereinafter be enacted by the Commission permitting a Holder to sell
securities of the Company to the public without registration on terms and
conditions as beneficial to the Holder as those of Rule 144 as it exists at the
date of this Agreement, are available to the Holder, then the Company shall have
no obligation to register securities (or continue to maintain an effective
registration statement covering the resale of such securities) pursuant to this
Agreement to any Holder who owns less than one percent (1%) of the Company's
Common Stock (on a fully diluted basis) and whose sales are not required to be
aggregated with others.
1.9 Reports under the Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the Commission that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to ninety (90)
days after the effective date of the first registration statement covering an
underwritten public offering filed by the Company, or if such registration
statement has already been filed, as of the date hereof;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Act and the Securities
Exchange Act of 1934, as amended (the "1934 Act"); and
(c) Furnish to any Holder so long as such Holder owns any of
the Registrable Securities forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of said first registration
statement filed by the Company, or if such registration statement has already
been filed, as of the date hereof), and of the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements, or, if already so
subject, as of the date hereof), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested in availing any Holder of any rule or
regulation of the Commission permitting selling of any such securities without
registration.
1.10 Proposed Transfers of Registrable Securities. The Holder of each
certificate representing Registrable Securities, by accepting those securities,
agrees to comply in all respects with the following provisions:
(a) Prior to any proposed transfer of any Registrable
Securities (other than under the circumstances described in Paragraph 1.2,
above), the Holder of those Registrable Securities shall given written notice to
the Company of such Holder's intention to effect the transfer.
5
<PAGE>
(b) Each such notice shall describe the manner and
circumstances of the proposed transfer, shall be accompanied by such information
as is necessary in order to establish that such transfer may be made without
registration under the Act and, other than in connection with a proposed
transfer in according with Rule 144 or any similar rule or regulation that may
hereafter be enacted by the Commission permitting a Holder to sell securities to
the public without registration on terms and conditions analogous to those of
Rule 144, and except with respect to transactions not involving a change in
beneficial ownership or transactions involving the distribution without
consideration of Registrable Securities by any of the Holders to any of their
partners, retired partners, or any estate of their partners or retired partners,
or to any affiliated venture capital partnership or to any members of the
immediate family of the Holders or to a family trust of the Holders, shall be
accompanied by either (i) a written opinion of legal counsel who shall be
reasonably satisfactory to the Company and its counsel stating that the proposed
transfer of the Registrable Securities may be effected without registration
under the Act and without qualification; or (ii) a Ano action" letter from the
SEC; or (iii) an appropriate registration statement with respect to such
Registrable Securities filed by the Company with the Commission and declared
effective by the Commission.
(c) Having satisfied paragraph 1.10(b) above, the Holder of
such Registrable Securities shall be entitled to transfer the Registrable
Securities in accordance with the terms of the notice delivered by the Holder to
the Company.
(d) Each certificate evidencing the Registrable Securities
transferred shall bear the appropriate restrictive legends as set forth on the
Registrable Securities themselves prior to transfer. But the Company shall
remove such restrictive legend upon the request of the Holder if (i) the Company
has received an opinion of counsel who is reasonably acceptable to it and its
counsel to the effect that registration of any and all future transfers is not
required; and (ii) an appropriate registration statement with respect to such
Registrable Securities has been filed by the Company with the Commission and
declared effective by the Commission; or (iii) such transfer shall be made in
compliance with the requirements of Rule 144 or its successor. In these events,
the Company shall cause new certificates without the said restrictive legend to
be issued promptly to the Holder in exchange for outstanding legended
certificates, and such unlegended securities shall no longer be Registrable
Securities under this Agreement.
1.11 Transfer of Registration Rights. The registration rights of the
Holders under this Agreement may be transferred to any transferee who acquires
Registrable Securities; provided, however, that such transfer of rights shall be
effective only where the Company is given written notice by the Holder stating
the names and address of the transferee and identifying the securities with
respect to which the rights under this Agreement are being assigned.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights
Agreement on the date indicated below.
Date: April 11, 1997
POWER SPECTRA, INC.
a California corporation
By: /s/ Edward J. Lamb
---------------------------------------
Its: Chief Financial Officer and Secretary
---------------------------------------
Date: , 1997
HOLDER (Non-Individual):*
---------------------------------------
NAME OF ENTITY
By:
---------------------------------------
Number of Shares:
--------------------------
Date: , 1997
HOLDER (Individual):*
---------------------------------------------
Number of Shares:
--------------------------
* See attached list of Subscribers attached as Exhibit A.
7
<PAGE>
Exhibit A
---------
Subscribers who are parties to
Registration Rights Agreement
dated April 11, 1997
Barnett & Co.
California Central Trust Bank TTEE FBO Frederick S. Moore
William B. Cormack
Paul Escobosa
European Industries
Robert A. Leisses
Michael L. Meyer
Barry Reder
Kenneth J. Smith
Alan R. Stephenson and Janice A. Saunders
Michael Sugarman
William G. Van Horn
8
Exhibit 11.1
<TABLE>
Power Spectra, Inc.
Computation of Loss Per Share
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net loss ($ 3,788,299) ($ 2,562,230) ($ 1,112,507)
Less: accrual of preferred dividends 195,453 189,195 104,400
------------ ------------ ------------
Net loss appplicable to common shares ($ 3,983,752) ($ 2,751,425) ($ 1,216,907)
============ ============ ============
Loss per conmon share ($ 0.26) ($ 0.25) ($ 0.12)
============ ============ ============
Weighted average shares of common stock
outstanding 15,622,268 11,181,541 10,014,163
Common stock equivalent shares from stock options
using the treasury stock method -- -- --
------------ ------------ ------------
Number of shares used in the per share computation 15,622,268 11,181,541 10,014,163
============ ============ ============
</TABLE>
Exhibit 23.1
Consent Of Grant Thornton LLP, Independent Certified Public Accountants
-----------------------------------------------------------------------
We consent to the incorporation by reference in the Registration Statements
(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 21, 1997
(except for Note 10 as to which the date is April 10, 1997) with respect to the
financial statements of Power Spectra, Inc. included in the Annual Report (10-K)
for the year ended December 31, 1996.
GRANT THORNTON LLP
San Jose, California
April 14, 1997
Exhibit 23.2
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 3, as to which the date is April 7, 1995) with respect to the
financial statements of Power Spectra, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
San Jose, California
April 14 1997
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholders
Power Spectra, Inc.
We have audited the accompanying balance sheets of Power Spectra, Inc. (a
California corporation) as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the years
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 statement 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, 1996 and 1995, and the results of its operations and cash flows fo
the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
San Jose, California
February 21, 1997 (except for
Note 10 as to which the date
is April 10, 1997)
<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 December 31, 1996 and is qualified 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> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Dec-31-1995
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<CASH> 843
<SECURITIES> 0
<RECEIVABLES> 69
<ALLOWANCES> 0
<INVENTORY> 217
<CURRENT-ASSETS> 1,205
<PP&E> 1,355
<DEPRECIATION> 987
<TOTAL-ASSETS> 1,673
<CURRENT-LIABILITIES> 992
<BONDS> 0
<COMMON> 14,078
0
1,666
<OTHER-SE> (15,063)
<TOTAL-LIABILITY-AND-EQUITY> 1,673
<SALES> 1,000
<TOTAL-REVENUES> 1,000
<CGS> 2,587
<TOTAL-COSTS> 4,880
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,787)
<INCOME-TAX> 1
<INCOME-CONTINUING> (3,788)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,788)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
