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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ x / Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended April 30, 1997, or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-16115
AIRSENSORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1039211
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(State of Incorporation) (IRS Employer ID. No.)
16804 Gridley Place, Cerritos, California 90703
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (562) 860-6666
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock;
Common Stock Purchase Warrants; and
Units, consisting of one share of Common Stock
and one Common Stock Purchase Warrant
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
Approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 30, 1997 was $46,168,112.
Number of shares outstanding of each of the registrant's classes of common
stock, as of June 30, 1997:
5,771,014 shares of Common Stock
Documents incorporated by reference:
See Item 14
Information required by Part III is incorporated by reference from the
definitive proxy statement to be filed pursuant to Regulation 14A or by an
amendment hereto, in either case, within 120 days of the end of fiscal year
1997.
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PART I
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ITEM 1 - BUSINESS
General
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AirSensors, Inc. (AirSensors) was incorporated in the State of Washington
in 1978 and became a Delaware corporation in 1985. AirSensors, together with
its wholly owned subsidiary IMPCO Technologies, Inc. (IMPCO) and IMPCO's
subsidiaries, are hereinafter referred to as the "Company." The Company
designs, manufactures and markets equipment that allows internal combustion
engines to operate on alternative fuels, primarily propane and natural gas.
ACQUISITIONS
In October 1995, the Company acquired 51% of the outstanding stock of
Technisch Bureau Media B.V., a private company in the Netherlands, from
Centradas B.V. for 3,187,500 NLG (U.S. $2,023,000). The acquisition was
financed through a term loan provided by Bank of America. The new company
operates as IMPCO Media Europe B.V.(Media) and distributes gaseous fuel
carburetion systems, components and related devices for use in internal
combustion engines along with catalytic converters for the off-highway
industrial market. Media services the European marketplace from its
headquarters in the Netherlands and through its subsidiaries and facilities in
Germany, France and the United Kingdom. Media's revenues totaled approximately
$9,203,000 and $5,601,000 in fiscal years 1997 and 1996, respectively.
In April 1996, the Company acquired substantially all of the business
assets of Garretson Equipment Company, Inc. (Garretson) of Mt. Pleasant, Iowa
for approximately $1,041,000. Garretson is a leading manufacturer of fuel
systems, components and related devices that allow small engines of 35
horsepower or less to run on either natural gas or propane. Major
product applications include generator sets, industrial equipment and utility
engines.
In July 1996, the Company acquired certain assets of Ateco Automotive Pty.
Ltd. (Ateco), a private company in Australia, for a purchase price of
approximately $6,532,000. The purchase price was primarily financed through
$4,000,000 of term loans provided by Bank of America and its Sydney, Australia
branch and forgiveness of accounts receivable due to IMPCO from Ateco, totaling
$1,852,000. Ateco had distributed IMPCO's gaseous fuel carburetion systems,
components and related devices for use in internal combustion engines since
1969. The new company operates as IMPCO Technologies Pty Ltd (Pty) and services
the Australian marketplace from its offices near Melbourne. Pty's revenues
totaled approximately $7,816,000 for 10 months of operations since it was
acquired by the Company.
PRODUCTS AND MARKETS
CURRENT PRODUCTS. The Company's products include fuel management systems
and components, including electronic fuel control processors, carburetors,
converters or regulators, fuel lock-offs, repair kits or replacement parts and
other sundry devices. The Company's products, sold for aftermarket conversions
and as original equipment, are used in a variety of motor vehicles, forklifts
and small portable to large stationary engines. Worldwide, the products are
marketed through distributors and original equipment manufacturers (OEM) under
the brand names IMPCO-registered trademark-, BEAM-registered trademark-,
GARRETSON-registered trademark- and J&S Carburetion-registered trademark-.
Ease of installation, consistent performance, high quality and safety are
attributes of the Company's products.
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The Company's fuel management systems are designed to offer several
levels of technology to meet customer needs. The Adaptive Digital Processor
(ADP) uses advanced electronic technology to learn and store key operating
characteristics of the specific vehicle. The ADP enhancer complements the ADP
with diagnostics and spark timing modules. The Advanced Fuel Electronics
System (AFE) uses mass sensing hot wire anemometry to calculate the engine's
air/fuel mixture. During engine operation, an on-board computer adjusts the
mixture to achieve optimum results in engine performance to reduce emissions.
The Company is also developing a Fuel Injection System for ultra low emission
vehicles. These injectors are designed for vaporized natural gas or vaporized
propane for use in the latest engine technologies.
The Company's carburetors are designed for use in 5 to 5,000 horsepower
engines. The Company's liquid propane gas (LPG) converter is a two stage
regulator and vaporizer that regulates the amount of fuel entering the
carburetor and then transforms the fuel from a pressurized liquid state to a
gaseous vapor by exposing the fuel to near atmospheric pressure. The Company's
vacuum and electro-mechanical fuel lock-off devices stop the flow of fuel when
engines stop running. The vacuum fuel lock-off has been a popular product with
OEM's due to its safety characteristics.
During fiscal year 1997, sales of carburetors represented approximately
33% of consolidated product sales, converters approximately 26%, fuel lock-
offs approximately 6%, repair kits approximately 8%, electronic control
systems approximately 11%, and other products and sundry devices approximately
16%. The product sales mix during fiscal year 1997 was substantially the same
as during the prior two fiscal years.
The Company's products are sold worldwide to distributors and OEMs and
as aftermarket components and/or retrofit systems. The Company's equipment
allows internal combustion engines to operate on alternative gaseous fuels and
is primarily used in forklift and automotive applications. During fiscal year
1997, sales to distributors accounted for approximately 67% of consolidated
product sales, sales to OEM customers accounted for approximately 28% and
aftermarket retrofit system conversions accounted for approximately 5% of
consolidated product sales. No customer accounted for more than 10% of the
Company's consolidated net revenue during fiscal year 1997.
Distributors primarily service the aftermarket conversion business and
small-volume OEMs, and are generally specialized and privately owned
enterprises. Many domestic distributors have been customers of IMPCO for more
than 30 years, and most export distributors have been customers for more than 20
years.
Most OEM customers are large engine, vehicle, and forklift manufacturers
such as Caterpillar Inc., Clark Material Handling Co., Cummins Engine Company
Inc., Ford Motor Company, General Motors Corporation, NACCO Material Handling
Group, Kohler Company, Mitsubishi Caterpillar Forklift America, Inc., Onan
Corporation, Toyota Industrial Equipment Mfg. Inc. and the Waukesha Engine
Division of Dresser Industries, Inc.
PRODUCT EVOLUTION. The Company's traditional products include the use of
vacuum and mechanical controls to regulate engine air/fuel ratios. Motor
vehicle carburetors, as well as some ancillary devices, often are mechanical and
operate independent of other engine functions. In recent years,
electronically controlled devices have replaced some vacuum actuated
mechanical devices to improve the engine performance and to more tightly
control the emissions from internal combustion engines. The Company has
addressed this change by introducing new electronic devices designed for
gaseous fuels that interface with the OEM electronics.
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To remain competitive, the Company is improving its traditional products
and is developing new products. The Company upgraded its AFE gaseous fuel
management system that is based on its mass-sensing technology and proprietary
software. AFE is designed to manage air/fuel ratios to achieve the optimum
air/fuel mixture and many other engine functions. The Company is enhancing its
on-board computer utilizing the vehicle-specific software required for the AFE
product, a mass-sensor and the necessary hardware for a variety of vehicle types
including pickup trucks, vans and passenger cars. The Company is focusing its
AFE marketing efforts on OEMs. The Company is also developing improved
technologies including injectors, high and low pressure regulators, on-board
diagnostics, high performance 32-bit engine control modules, fuel lockoffs and
related components. The Company believes that it will continue to satisfy the
different engine and emission control approaches being used on engines in its
domestic and foreign markets.
MARKET AND REGULATORY ENVIRONMENT
The Company's worldwide market is influenced by global environmental laws
which regulate emission standards and energy laws which strive for energy
independence. In addition, there are certain economic advantages to using
alternate gaseous fuels in many countries. Legislation has provided
incentives and programs to promote and develop infrastructures for alternative
fueled vehicles, some requiring fleet vehicle owners to phase in alternative
fueled vehicles and imposed penalties upon failure to meet standards and
guidelines.
In the United States, the Federal Energy Policy Act of 1992 mandates that
75% of the light duty vehicles acquired by the federal, state and municipal
governments by fiscal 2002, and thereafter, be alternative fueled vehicles, and
non-government fleet operators of 20 or more vehicles be required to include at
least 20% alternative fueled light duty vehicles in their total vehicle
purchases by fiscal 2002. Beginning 2006 and thereafter, 70% of such vehicles
acquired by fleet operators of 20 or more must be alternative fueled vehicles.
Title XIII of the California Code of Regulations imposes comprehensive
conversion requirements on operators of fleet vehicles to ensure that exhaust
emission standards are met. The Company believes that many fleet vehicle
operators are purchasing vehicles that operate on alternative fuels, such as
natural gas or propane, as a means of complying with these regulations.
Amendments to Title XIII also include provisions for certification and
installation of alternative fuel retrofit systems. A "retrofit system" is a
package of fuel, ignition, emission control, and engine components that are
modified, removed, or added during the process of converting a vehicle to
alternative fuels. These amendments require a certain percentage of retrofit
conversions in California be certified, inspected, carry a product warranty,
and comply with vehicle emission standards. Both the manufacturer and
equipment installers are required to certify their products and services.
Several other states have adopted similar regulations and mandates which
are expected to increase the demand for alternative fuels. These include
Arizona, Arkansas, Colorado, Connecticut, Florida, Georgia, Hawaii, Iowa,
Kansas, Louisiana, Massachusetts, Missouri, New Hampshire, New Mexico, New York,
Oklahoma, Oregon, Texas, Utah, Virginia, Washington and West Virginia. In
addition, legislation to foster energy independence and/or reduce
pollution is spurning growth in the use of gaseous fuels in countries such as
Australia, Mexico, Netherlands, Taiwan, Turkey and Venezuela.
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STRATEGIC MARKETING PLAN
The Company's goal is to retain its position as one of the world's leading
suppliers of engine components and systems that allow internal combustion
engines to operate on gaseous fuels. A key element of the Company's
steady growth has been the diversity of markets that its products serve. The
increasing worldwide demand for gaseous alternative fuel management products and
systems for motor vehicle uses, material handling equipment and industrial
engines, provides the Company with a broad market foundation and eliminates
dependency on a single market segment. The Company's two largest markets, motor
vehicle (primarily fleet vehicles) and material handling (primarily forklifts),
accounted for approximately 81% of the Company's consolidated product sales in
the last fiscal year. See "Products and Markets." Of these two markets, the
motor vehicle market is believed to have the greatest potential for significant
growth. The Company anticipates that this growth will result from worldwide
governmental regulations imposing more stringent emission standards to achieve
energy independence. See "Market and Regulatory Environment."
The Company's global short-term strategy is to continue its presence in the
retrofit market for fleet vehicles and to continue introducing upgrades to its
existing products. The Company will also continue its presence in both the
retrofit and OEM market by promoting its products to meet the expected demand
for equipment which will allow motor vehicle engines to meet the more
stringent emission regulations.
In the long-term, the worldwide demand for alternative fueled vehicles
is making it feasible for OEM production. The Company has taken steps to
become a preferred OEM supplier for gaseous fuel components. General Motors
Corporation has contracted with the Company to develop and commercialize
several gaseous fueled vehicle platforms. The Company believes that product
quality is essential for OEM recognition and it is continually upgrading its
quality assurance program.
The Company's aftermarket products are primarily marketed through a
network of specialized distributors which the Company expects to continue to
utilize for its existing product lines. However, under recent regulations in
the U.S., the Company and its installers are required to certify their products
and services. To meet these requirements, the Company is seeking new channels
of distribution to complement its existing distributor network.
The Company has expanded the marketing of its existing non-electronically
controlled products in countries with less stringent emission standards than
those in the United States. This strategy is being applied in Central and South
America, Eastern Europe and the Far East. In countries such as Mexico and
Taiwan, where the level of emission standards is increasing, but is not as
stringent as in the United States, the Company's strategy is to upgrade its
existing products to improve both emission levels and engine performance.
Significant changes are also occurring in the forklift industry. The
increased emphasis on emissions requires engine manufacturers to consider new
fuel and engine management products as a part of the engine configuration.
During fiscal year 1995, IMPCO signed a distribution agreement with Mikuni
American Corporation. Mikuni is a world leader in the technology and production
of gasoline fuel delivery systems for internal combustion engines. Its
customers include a number of major Japanese motor vehicle manufacturers and
heavy equipment companies. This distribution partnership has given the Company
access to the Japanese market for its array of clean fuel products.
The primary growth potential for the industrial engine business is in
the power generation market. North American generator set production continues
to increase in response to growing global demand. Many of these sets are fueled
by propane or natural gas.
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COMPETITION AND OTHER MARKET FACTORS
The Company has competitors in various worldwide market segments in the
motor vehicle gaseous fuel equipment industry. The three major independent
competitors are Vialle B.V. Autogas System (Vialle), Koltec Necam B.V. and
Landi. Vialle is a competitor in the European and Australian markets. Koltec
Necam is a competitor in the Dutch market and the Far East. Landi, an Italian
company, competes in the European, South American and Middle Eastern markets.
In North America the Company's competitors include Gaseous Fuel Injection
Control Systems, Inc., Beacon Power Systems, Inc. and Algas Industries, Inc.
The Company also competes with OEMs such as Niki-Nippon Kikaki Seisakusyo
(Nissan) and Asian Seiki Co. Ltd. (Toyota) in the Far East.
To be competitive into the future, the Company believes it will be
necessary to continue to enhance its gaseous fuel engine management products
utilizing mass-sensing, electronic and electro-mechanical technology.
Increasing regulations and competition may result in the elimination of some
current competitors who lack either financial resources or technical
capabilities. However, the Company anticipates new competitors will enter the
alternative fuel marketplace due to the potential increase in the size of the
market. These competitors may include large motor vehicle OEMs who
may adapt their existing gasoline technology to alternative fueled vehicles.
MANUFACTURING
The Company's products are presently manufactured in the Company's
facilities in Cerritos, California. Manufacturing operations consist largely
of mechanical assembly with light machining. A machining facility is also
operated in Mt. Pleasant, Iowa. The Company places substantial reliance on
outside vendors for parts, components and electronic assemblies. It obtains
product components from a variety of domestic motor vehicle and electronic
part suppliers and assemblers, diecasters, metal stamping and machine shops.
In fiscal year 1997, 10 suppliers accounted for approximately 46% of
consolidated net inventory purchases and one supplier accounted for
approximately 17% of such purchases.
Material costs represent the major component of cost of sales.
Coordination with suppliers for quality control and timely shipment is
critical to maximize the Company's inventory management. The Company uses a
computerized material requirements planning system to schedule material flow
and balance the competing demands of timely shipments, productivity and
inventory management.
The Company has not experienced, and does not expect to experience, any
significant difficulty in complying with environmental regulations applicable
to its manufacturing processes and facilities.
PRODUCT CERTIFICATION
The Company must obtain certification from the Environmental Protection
Agency (EPA) to sell certain of its products in the United States and from the
California Air Resources Board to market certain products in California.
California regulations require that all of model year 1997 retrofit conversions
be certified, inspected, carry a product warranty and comply with new emission
standards. Manufacturers are also required by California regulations to conduct
100,000 mile durability tests. Some other states have similar types of
regulations. The Company has been successful in obtaining certifications in the
past, and the Company's continued ability to comply with these and future
regulations will significantly affect its future success in the aftermarket for
motor vehicles in the United States.
The Company seeks product approval by Underwriters Laboratories, Inc.
(registered trademark) (UL-registered trademark-), the American Gas Association,
and international approval services on certain products. While approval is not
always required, the Company believes such approval enhances the acceptability
of products in the domestic marketplace. Many foreign countries also accept
these agency approvals as satisfying "approval for sale" requirements in their
markets.
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PATENTS AND TRADEMARKS
The Company holds a number of domestic and foreign patents. While the
Company believes that these patents and patent applications protect certain
proprietary rights and technologies, there can be no assurance that any existing
and future patents will provide such protection. Moreover, the Company believes
that its growth and future success are more dependent upon technical expertise
and marketing skills than on the ownership of patent rights. Also, other
technology exists which performs functions substantially equivalent to the
technology covered by the Company's patents and patent applications, and that
technology may be used by others without infringing upon the Company's patents.
The "IMPCO", "BEAM", "GARRETSON" and "CARBURETION J&S" marks are registered
as trademarks on the United States Principal Register. They are also registered
in various other countries throughout the world. The trademark "AirSensors" has
been registered as a trademark on the United States Supplemental Register.
BACKLOG
The Company's backlog consists of anticipated sales of products for which
the Company has confirmed orders scheduled for shipments over the next 90 days.
Such backlog was approximately $11,500,000 and $10,900,000 at April 30, 1997 and
April 30, 1996, respectively. The Company believes that backlog as of any date
is not necessarily indicative of future product sales.
EMPLOYEES
The Company employed 426 persons worldwide as of April 30, 1997. None of
the employees are represented by labor unions, and rapport with employees is
believed to be good.
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ITEM 2 - PROPERTIES
The Company's executive offices and manufacturing facilities are located
in Cerritos, California and occupy 105,000 square feet in two buildings at a
single 4-acre location. The Company believes these facilities are adequate
for its present core product manufacturing operations, however, an additional
facility may be needed in the near future for OEM development programs and
production. The site is leased until May 1999, and the Company has two
5-year renewal options. The Company maintains a research and development
facility in a suburb of Seattle, Washington which occupies approximately
10,000 square feet in a portion of an office park building. These premises
are leased until November 30, 1997. The Company also owns a machine shop in
Mt. Pleasant, Iowa which occupies approximately 16,500 square feet at an
industrial site. The Company's facility in Rijswijk, Holland occupies
approximately 16,000 square feet and is leased until October 31, 2000, with a
five year renewal option. The Company's facility in Cheltenham, Australia
occupies approximately 15,000 square feet and is leased until May 31, 2001,
with a four year renewal option.
ITEM 3 - LEGAL PROCEEDINGS
In late July 1997, the Company became aware that a certain fourth
quarter 1997 transaction could be in violation of certain U.S. Government
export regulations. The Company immediately engaged legal counsel to
investigate and assess whether a violation of such regulations had occurred
and determine what, if any, fines, penalties, or other punishment could be
assessed against the Company. In addition, the Company authorized legal
counsel to notify the appropriate Government authorities of the matter. The
Company has also instituted policies and procedures which are designed to
insure that all export transactions will comply with appliciable Government
regulations.
Currently no charges of wrongdoing have been brought against the Company
or any employee of the Company by any Government authority.
It is the opinion of the Company that its voluntary disclosure of the
facts to the appropriate authorities, and in light of the facts that the
transaction was a one-time sale of non-sensitive products and the Company has
installed policies and procedures to prevent future violations of export
regulations, that the ultimate settlement with the Government should not have
a material adverse effect on the Company's financial position or results of
operations. However, until the matter is settled with the Government, the
amount of fines, if any, or other sanctions that may be imposed cannot be
reasonably estimated.
The Company is a party to several legal actions, but based on discussions
with legal counsel, management does not believe that any of these actions will
have a material adverse effect on its business or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year ended April 30, 1997.
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PART II
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ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under
the symbol "ARSN". The following bid prices reflect the range of high and low
bid information during the last two fiscal years as quoted in the NASD Monthly
Statistical Report. The prices reflect inter-dealer prices and do not reflect
retail mark-up, mark-down or commissions.
Fiscal year 1997 Fiscal year 1996
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Quarter Ended High Low High Low
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July 31 $ 11 1/8 $ 8 $ 12 3/8 $ 8 1/2
October 31 9 7/8 6 13 3/4 8 3/8
January 31 10 7/8 5 3/4 9 7/8 7 1/2
April 30 11 7/8 7 1/2 9 1/2 7 3/4
At June 30, 1997, the number of shareholders of record of the common
stock was 832.
The Company has never paid dividends on its common stock. It intends to
retain future earnings to finance the operation and expansion of its business
and does not anticipate paying cash dividends in the foreseeable future on
common stock.
The holders of the 1993 Series 1 Preferred Stock are entitled to
cumulative cash dividends in an amount equivalent to interest at an annual
rate per share (based on a deemed value of $1,000 per share) equal to the
Seafirst Bank prime rate of interest, plus 1.5%, but not to exceed $105 per
share nor be less than $80 per share annually.
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ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
In thousands, except per share amounts
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Fiscal Years Ended April 30,
1997 1996 1995 1994 1993
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Statement of
operations data:
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Net revenue(1) $ 61,828 $ 51,575 $ 45,231 $ 36,410 $ 32,111
Research and
development expense 8,480 7,171 6,197 5,103 2,095
Operating income 4,850 4,132 3,540 3,069 3,662
Financing charges(2) 1,100 504 292 320 1,415
Net income(3) 3,225 4,671 2,967 2,511 1,780
Preferred stock expenses(4) 581 610 548 612 821
Net income applicable
to common stock 2,644 4,061 2,420 1,898 960
Net income per share:
Primary .45 .65 .40 .32 .27
Fully diluted .45 .63 .40 .32 .27
Number of shares used in
per share computation(5)
Primary 6,793 6,648 6,566 6,388 3,929
Fully diluted 6,793 7,771 6,566 6,388 3,929
Balance sheet data:
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Total current assets $ 29,904 $ 24,578 $ 13,626 $ 10,420 $ 10,010
Total assets 47,113 37,728 22,109 17,464 17,156
Total current liabilities(6) 11,656 9,266 5,111 4,810 6,932
Long-term obligations 12,721 8,823 1,855 334 504
Stockholders' equity 22,063 19,256 15,143 12,320 9,721
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See accompanying notes.
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NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Includes contract revenue during fiscal year ended April 30, 1997, 1996,
1995 and 1994, of $3,392,000, $3,087,000, $1,524,000 and $3,880,000,
respectively. See note 10 of the Notes to "Consolidated Financial
Statements."
(2) Includes a $150,000 call premium for fiscal year ended April 30, 1993 on
put warrant to purchase redeemable common stock of IMPCO Technologies, Inc.
(3) Includes an income tax benefit of $1,700,000, due to the reduction in the
valuation allowance for deferred tax assets and $318,000 net income from
the Company's European subsidiary during the year ended April 30, 1996 (See
notes 2 and 4 of the Notes to "Consolidated Financial Statements",
respectively). Includes an extraordinary charge of $130,000, net of tax
benefit, due to the early extinguishment of debt during the year ended
April 30, 1993.
(4) Includes dividends on Preferred Stock and charges arising from a Stock
Exchange Agreement.
(5) Number of shares used in per share computations are adjusted for a
one-for-six reverse stock split effective February 2, 1993, and includes
the dilution from the potential exercise of stock options and warrants when
the effect is dilutive. During fiscal year 1996, shares assumed to be
issued upon conversion of the Company's preferred stock were included in
the calculation since it resulted in a reportable dilution.
(6) At April 30, 1993 amounts related to the put warrant to purchase redeemable
common stock are included in current liabilities in the Company's
"Consolidated Balance Sheets."
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not historical in nature
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
in "Certain Factors" at the end of this discussion and other factors identified
from time to time in the Company's reports filed with the Securities and
Exchange Commission. All period references are to the Company's fiscal periods
ended April 30, 1997, 1996 or 1995, unless otherwise indicated.
Overview
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AirSensors, Inc. designs, manufactures and markets equipment that allows
internal combustion engines to operate on alternative gaseous fuels, primarily
propane and natural gas. The Company's products include fuel management systems
and components, and are sold for maintenance, aftermarket conversions and as
original equipment on motor vehicles, forklifts and small portable to large
stationary engines. Worldwide, the products are marketed through distributors
and original equipment manufacturers.
Results of Operations
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Acquisitions
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In October 1995, the Company acquired 51% of the outstanding stock of
Technisch Bureau Media B.V., a private company in the Netherlands, from
Centradas B.V. for 3,187,500 NLG (U.S. $2,023,000). The acquisition was
financed through a term loan provided by Bank of America. The new company
operates as IMPCO Media Europe B.V.(Media) and distributes gaseous fuel
carburetion systems and related devices for use in internal combustion engines
along with catalytic converters for the off-highway industrial market. Media
services the European marketplace from its headquarters in the Netherlands and
through its subsidiaries and facilities in Germany, France and the United
Kingdom. Media's revenues totaled approximately $9,203,000 and $5,601,000 in
fiscal years 1997 and 1996, respectively.
In April 1996, the Company acquired substantially all of the business
assets of Garretson Equipment Company, Inc. (Garretson) of Mt. Pleasant, Iowa
for approximately $1,041,000. Garretson is a leading manufacturer of fuel
systems, components and related devices that allow small engines of 35
horsepower or less to run on either compressed natural gas or propane. Major
product applications include generator sets, industrial equipment, utility
engines and material handling equipment.
In July 1996, the Company acquired certain assets of Ateco Automotive Pty.
Ltd. (Ateco), a private company in Australia, for a purchase price of
approximately $6,532,000. The purchase price was primarily financed through
$4,000,000 of term loans provided by Bank of America and its Sydney, Australia
branch and forgiveness of accounts receivable due to IMPCO from Ateco totaling
$1,852,000. Ateco had distributed IMPCO's gaseous fuel carburetion systems,
components and related devices for use in internal combustion engines since
1969. The new company operates as IMPCO Technologies Pty Ltd (Pty) and services
the Australian marketplace from its offices near Melbourne. Pty's revenues
totaled approximately $7,816,000 for 10 months of operations since it was
acquired by the Company.
<PAGE>
Net Revenue
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The Company continued to experience growth during fiscal year 1997, with
net revenue increasing by $10,253,000 or 20% to $61,828,000, compared to
$51,575,000 in 1996. During 1997, product sales and contract revenue increased
by approximately 21% and 10%, respectively. The following table sets forth the
Company's product sales by application, (all dollars in thousands):
Fiscal years ended April 30,
---------------------------------
1997 1996 1995
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Motor vehicle products $ 23,784 $ 17,063 $ 17,139
Forklifts and other
material handling equipment 23,291 23,316 18,706
Small portable to
large stationary engines 11,362 8,108 7,862
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Total product sales $ 58,437 $ 48,487 $ 43,707
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During fiscal year 1997, sales for the Company's motor vehicle products
increased by $6,721,000, or 39%, over 1996. The following table sets forth the
Company's worldwide motor vehicle product sales by application, (all dollars in
thousands):
Fiscal years ended April 30,
---------------------------------
1997 1996 1995
--------- --------- ---------
Component parts $ 20,864 $ 13,982 $ 15,542
Upfitting systems 2,920 3,081 1,597
--------- --------- ---------
Total motor vehicle products $ 23,784 $ 17,063 $ 17,139
--------- --------- ---------
--------- --------- ---------
Sales for the Company's motor vehicle component parts in 1997 increased
$6,882,000, or 49%, as compared with 1996. The Company recognized incremental
revenue of $5,294,000 resulting from its Australian acquisition. Increased
sales to Latin America accounted for most of the remaining increase. The
decrease in component parts sales during 1996, as compared to 1995, was
primarily due to lower shipments of products to a South American customer and to
a domestic original equipment truck manufacturer, as well as regulatory
restrictions which limited the marketability of certain motor vehicle products
in the United States. Management anticipates that revenue attributable to the
Company's motor vehicle component parts will be higher during fiscal year 1998
as compared to 1997 primarily as a result of its Australian operations and an
increase in demand in Latin America. This is a forward-looking statement. See
"Certain Factors" below.
<PAGE>
A portion of revenue attributable to upfitting vehicles for aftermarket
fleet use in 1997 resulted from a program with Ford Motor Company in which the
Company's bi-fuel propane system was utilized in 1996 model year F-150 and F-250
pickup trucks. The Ford program was completed during the second quarter of
fiscal year 1997. During the third quarter, the Company began converting postal
vehicles to compressed natural gas under a $1.5 million Postal Service contract.
Deliveries were completed during the fourth quarter of the current year. During
fiscal year 1996, upfitting revenue increased approximately 93% as compared to
1995, which primarily resulted from a Postal Service contract to convert postal
vehicles to compressed natural gas and initial shipments of the aforementioned
1996 model year F-150 and F-250 Ford trucks utilizing the Company's bi-fuel
propane system. Management anticipates that the commercialization by General
Motors Corporation of model year 1997 and 1998 Chevrolet and GMC pickup trucks,
and other vehicles, with the Company's systems will result in significantly
higher revenue during 1998. This is a forward looking statement. See "Certain
Factors" for a description of risk factors.
Companies that manufacture retrofit systems for use in California are
required to comply with requirements under Title XIII, which require that a
certain percentage of retrofit conversions be certified, inspected, carry a
product warranty and comply with new emission standards. For vehicle model year
1998, the Company will be required to certify all of its retrofit engine
families. Manufacturers are also required to conduct 100,000 mile durability
tests and comply with in-service emission standards. The Environmental
Protection Agency has proposed the adoption of similar requirements for the
entire United States. While the Company has been successful in obtaining
certifications for certain vehicle families in the past, the Company's ability
to comply with these and future regulations will significantly affect its future
success in the United States aftermarket for motor vehicles.
Total revenue from forklifts and material handling equipment in fiscal year
1997 was comparable to 1996 revenue. During 1996, revenues increased by
approximately 25% as compared to 1995. This increase was primarily attributable
to the acquisition of Technisch Bureau Media B.V. in the Netherlands in October
1995. Revenue attributable to the Company's domestic operations, for the
forklift and other material handling equipment, during fiscal year 1996 was
comparable to levels recognized during fiscal year 1995. Management anticipates
that the market for forklifts and other material handling equipment will grow
during fiscal year 1998, primarily as a result of its European operations. In
addition, it is anticipated in the near future that the Environmental Protection
Agency will adopt emission requirements for forklifts, other material handling
equipment and small portable to large stationary engines that are similar to
those being adopted for the motor vehicle industry. This is a forward-looking
statement. See "Certain Factors" below.
During fiscal year 1997, sales of small portable to large stationary
engines increased $3,254,000, or 40%, over sales in 1996. The increase was
attributable to the Garretson product line purchased in April 1996 and to higher
demand for large and small power generation units used in power replacement and
recreational applications. Management anticipates that revenue from industrial
engines in fiscal year 1998 will be comparable to 1997 levels. This is a
forward-looking statement. See "Certain Factors" below.
Contract revenue was 5% of total revenue in fiscal year 1997, as compared to 6%
and 3% in 1996 and 1995, respectively. During 1997, total contract revenue
increased by approximately $304,000, or 10%, as compared to 1996. Revenues
relating to General Motors Corporation (GM) development contracts increased 70%
to approximately $3.2 million. During 1996, contract revenue increased by
approximately $1.5 million, or 103%, as compared to 1995. This increase was
primarily due to the extension of a development contract with GM in August 1995,
and the addition of other development programs. Management anticipates that
contract revenues during fiscal year 1998 will be significantly higher than 1997
due to continuing development contracts with GM and other new developmental
contracts. This is a forward-looking statement. See "Certain Factors" below.
<PAGE>
During fiscal year 1997, 1996 and 1995 the Company's revenue was
generated in the following geographic regions:
Fiscal years ended April 30,
---------------------------------
1997 1996 1995
--------- --------- ---------
United States and Canada 66% 67% 75%
Pacific Rim 11% 10% 11%
Europe 12% 16% 7%
Latin America 11% 7% 7%
Gross Profit Margin --------------------- The Company's gross profit
margin on product sales during fiscal year 1997 was $21,095,000 (36%) as
compared to $16,476,000 (34%) during 1996. The Company's foreign operations
contributed significantly to this increase. Favorable market driven sales
price adjustments and product mix improvements from domestic operations
accounted for the remaining increase. Gross profit margins on product sales
were comparable in 1996 and 1995. During fiscal year 1996, the Company's
gross profit margin on product sales was favorably impacted by its European
operation. This contribution was offset by lower gross profit margins on
upfitting motor vehicles, increased expenditures for current product support
and a net product warranty charge of approximately $217,000.
Research and Development
- --------------------------
Research and development (R&D) expense for fiscal year 1997 was
approximately $8,480,000, a 18% increase over 1996. This increase was primarily
due to application and development of the Company's products under the GM
contract and internally funded product development work. Management believes the
Company's future success depends on its ability to design, develop and market
new products that interface successfully with new engine electronic technology,
and which meet mandated emission standards. This expenditure level on R&D costs
is expected to continue in the future as a result. Management anticipates that
R&D expense during fiscal year 1998 will be significantly higher than the levels
experienced during the current year due to new product development under the GM
contract. This is a forward-looking statement. See "Certain Factors" below.
Selling General and Administrative
- ------------------------------------
Selling, general and administrative (SG&A) expense for fiscal year 1997
was approximately $11,157,000, a $2,896,000 (35%) increase over 1996. The
combined SG&A expenses for the Company's European and Australian operations
in 1997 were $4,526,000, compared to $1,357,000 for European expenses only in
1996. SG&A as a percentage of sales has increased due to the Company's
foreign operations. The European facilities distribute alternative fuel
products from multiple locations in Europe and incur higher SG&A expenses as
a percentage of sales than the Company's domestic operations. Management
anticipates that SG&A expenses during fiscal year 1998 will increase as
compared to 1997 primarily as a result of including a full year of the
Company's Australian operations and additional expenses to support
anticipated growth in revenues. However, SG&A expenses, as a percent of
revenue is expected to be lower in fiscal year 1998 as compared to 1997.
This is a forward-looking statement. See "Certain Factors" below.
Financing charges
- -------------------
Financing charges for fiscal year 1997 increased by approximately 118% as
compared to 1996. The increase is attributable to loans associated with the
acquisitions of Media and Ateco, and the increased use of the line of credit.
Financing charges in 1996 increased 73% over 1995 due to loans associated with
the acquisition of Media and increased use of the line of credit.
<PAGE>
Provision for income taxes
- ----------------------------
The Company's effective income tax rate for fiscal years 1997, 1996 and
1995 was 7.6%, (37.2%), and 8.6%, respectively. The effective tax rate
represents the statutory income tax rate reduced by the use of net operating
loss carryforwards, R&D tax credits and other items. During the fourth
quarter of fiscal year 1996, the Company reduced its valuation allowance for
deferred tax assets as required by SFAS No. 109 and recorded $1,700,000 of
income tax benefits primarily related to the assumed future utilization of
net operating loss carryforwards. During the fourth quarter of fiscal year
1997, the Company increased the tax asset by $273,000 increasing the deferred
tax asset account to $1,973,000 at April 30, 1997. Provision for taxes
consist primarily of federal, state and foreign income taxes which are
computed using statutory rates.
Liquidity and Capital Resources
- ---------------------------------
The Company uses cash generated from its operations and external financing
to fund capital expenditures, pay dividends on the preferred stock and invest in
and operate its existing operations and new businesses. These sources are
sufficient to meet all current obligations on a timely basis. Management
believes that such sources of funds will be sufficient to meet the needs of its
business for the foreseeable future. This is a forward looking statement. See
"Certain Factors" for a description of risk factors.
The Company's financial condition remains strong. The ratio of current
assets to current liabilities was 2.57 at April 30, 1997, as compared to 2.65 at
the end of 1996. The total amount of working capital increased by $2,936,000 to
$18,248,000 at the end of 1997. This compares to $15,312,000 at the end of the
prior year. Net cash provided by operating activities was $3,418,000 during
1997, compared to $2,195,000 and $1,370,000 in 1996 and 1995, respectively.
Net cash used in investing activities in fiscal year 1997 was approximately
$6,096,000, an increase of approximately $1,176,000 from 1996. Investing
activities principally included the purchase of the Company's Australian
subsidiary, which resulted in a net use of cash of approximately $4,655,000.
Capital expenditures for dies, molds and patterns and machinery and equipment
totaled $1,628,000 in 1997, compared to $1,996,000 in 1996 and $1,660,000 in
1995. Management projects an increase in capital expenditures during fiscal
year 1998, as compared to fiscal year 1997, primarily relating to equipment
enhancements and facilities for the development and production of new products.
The Company expects to fund a major portion of these expenditures from cash
generated from operations and by use of its bank credit facility. This is a
forward-looking statement. See "Certain Factors" below.
Net cash provided by financing activities in fiscal year 1997 was
approximately $4,174,000, of which $3,969,000 was from a term loan with Bank
of America to finance the acquisition of the Company's Australian subsidiary.
During 1997, the Company increased its borrowing under the operating line of
credit by approximately $2,050,000 primarily for current operations and
material purchases.
<PAGE>
The Company has a $8,000,000 revolving line of credit and a $3,525,000
capital lease facility with Bank of America. At April 30, 1997, approximately
$5,450,000 and $1,819,000 was outstanding under the revolving line of credit and
the capital lease facility, respectively. The revolving line of credit expires
on August 31, 1998, and the capital lease facility expires on December 31, 2001.
In addition, the Company's subsidiary in the Netherlands has a 3,000,000 NLG
(U.S. $1,829,000) credit facility with Mees Pierson, a financial institution in
the Netherlands. At April 30, 1997, there was no outstanding balance on the
Dutch credit facility.
Certain Factors
- -----------------
The preceding discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company faces a
number of risks and uncertainties which could cause actual results or events to
differ materially from those contained in any forward-looking statement.
Factors that could cause or contribute to such differences include, but are not
limited to, the following:
DELAY IN IMPLEMENTATION OF GOVERNMENT REGULATIONS
The market for alternative fueled vehicles and the demand for the Company's
products are, to a significant degree, driven by local, state and federal
regulations in the United States related to air quality and requiring conversion
of motor vehicles to alternative fuels. The Company's international business is
also affected by similar foreign governmental regulations. Delays in
implementing these regulations could have an unfavorable impact on the Company.
DEPENDENCE ON ALTERNATIVE FUEL MARKET
Although the Company believes that there will be substantial growth in the
market for alternative fueled engines, especially among fleet vehicle owners,
there can be no assurance that such growth will materialize or, if such growth
does occur, that it will result in increased sales of the Company's products.
The Company's products are designed for gaseous alternative fueled vehicles, but
not for alternative fuels such as electricity, reformulated gasoline, methanol
and ethanol. If the major growth in the alternative fuel market is for such
fuels, the Company will be adversely affected. At present, the lack of a
well-developed infrastructure for the supply of alternative fuels is limiting
growth in the alternative fuel engine market. Such an infrastructure is
necessary for widespread use of alternate fuels.
DEPENDENCE ON NEW PRODUCTS
The Company believes that its future success is dependent upon its ability to
design and market new fuel management products as well as enhance its existing
products. It believes that the markets for its products will be characterized
by rapidly changing technology, new product introductions and the entry of new
competitors. The Company's ability to enhance existing products in a timely
manner and to develop and introduce new products that incorporate new
technologies, conform to increasingly stringent emission standards and achieve
market acceptance in a timely manner will significantly affect its future
performance.
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are subject to annual and quarterly fluctuations
as a result of a variety of factors, including without limitation, budget cycles
and funding arrangements of governmental agencies, purchasing cycles of fleet
operators, the uncertainty of timing of deliveries of vehicles to be upfitted,
the timing of implementation of government regulations promoting alternative
fuel vehicles, as well as general economic factors.
RISK OF INTERNATIONAL OPERATIONS
The Company operates in Europe and Australia and markets its products and
technologies in other international markets, including both industrialized and
developing countries. The Company's international operations are subject to
various risks common to international activities, such as exposure to currency
fluctuations, the inherent difficulty of administering business abroad and the
need to comply with a wide variety of foreign import and United States export
laws. The Company's competitiveness in overseas markets may be negatively
impacted when there is a significant increase in the value of the dollar against
foreign currencies where the Company does business.
COMPETITION
The Company believes that competition in the alternative fuel engine marketplace
is increasing, particularly in the growing market for propane and natural gas
fueled vehicle products. Many of the current competitors and potential future
competitors are large, well-financed companies, with financial and marketing
resources and research and development capabilities that are substantially
larger than those of the Company.
ENTRY OF ORIGINAL EQUIPMENT MANUFACTURERS INTO MARKET
As the market for alternative fueled vehicles increases, original equipment
manufacturers may find it advantageous to develop and produce their own fuel
management equipment rather than purchasing such equipment from suppliers such
as the Company. If this occurs, the demand for the Company's products could be
adversely impacted.
ABILITY TO MEET OEM SPECIFICATIONS
In 1995 the Company began to offer complete alternative fuel systems, which
include tanks, brackets, electronics and all other under-hood components
required to convert a motor vehicle to alternative fuels. Customers for such
systems require that they meet OEM standards. These requirements have resulted
in increased development, manufacturing, warranty and administrative costs. If
these costs increase significantly, the Company's profitability could be
adversely affected.
DEPENDENCE ON QUALIFIED PERSONNEL
The Company is dependent upon a limited number of key management and technical
personnel. In addition, as products become complex, the Company's future
success will depend in part upon its ability to attract and retain highly
qualified personnel.
INCREASED WARRANTY CLAIMS
Vehicle manufacturers are, in response to consumer demand, providing
increasingly longer warranty periods for their products. Suppliers, such as the
Company, are required to provide correspondingly longer product warranties.
Consequently, the Company could incur substantially greater warranty claims in
the future.
<PAGE>
NEED TO COMPLY WITH GOVERNMENTAL REGULATIONS
The Company must obtain product certification from governmental agencies such as
the Environmental Protection Agency and the California Air Resources Board to
sell certain of its products in the United States automotive markets. A
substantial portion of the Company's future sales will depend upon sales of fuel
management products that are certified to meet existing and future air quality
and energy standards. Although the Company believes its technologies will
permit its existing and new products to meet these standards, there can be no
assurance that this will occur.
ABILITY TO SECURE FUTURE DEVELOPMENT CONTRACTS
The Company has obtained funding under development contracts with original
equipment manufacturers and governmental agencies to develop specified products.
There can be no assurance that such funding will be obtainable in the future,
the lack of which may significantly impact the Company's ability to develop and
market new products and technologies.
PRODUCT LIABILITY
Although the Company carries and plans to continue to carry product liability
insurance, there can be no assurance that such coverage is adequate or that
adequate coverage will continue to be available or, if available, that it will
be available at an acceptable cost.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is indexed in Part IV in Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
--------
The information required in Part III (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A or by an amendment hereto, in either case, no
later than 120 days after the end of the fiscal year covered by this Form 10-K.
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed As Part of This Report:
---------------------------------------
(1) Consolidated Financial Statements:
----------------------------------
Report of independent auditors
Consolidated balance sheets as of
April 30, 1997 and 1996
Consolidated income statements
for the years ended April 30, 1997,
1996 and 1995
Consolidated statements of stockholders'
equity for the years ended April 30, 1997,
1996 and 1995
Consolidated statements of cash flows
for the years ended April 30, 1997, 1996
and 1995
Notes to consolidated financial statements
<PAGE>
(2) Supplemental Financial Statement Schedules:
-------------------------------------------
Schedule II - Valuation accounts
All other schedules are omitted because the information is not
applicable or is not material, or because the information is
included in the consolidated financial statements or the notes
thereto.
(3) Exhibits:
---------
10.12 Employment Agreement dated April 1, 1997
between AirSensors, Inc and IMPCO Technologies
Inc., as the Company, and Robert M. Stemmler,
as the Employee.
10.14 1996 Incentive Stock Option Plan
11.1 Computation of net income per share.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP
dated July 25, 1997.
Executive Compensation Plans and Arrangements.
----------------------------------------------
Employment Agreement dated April 1, 1997,
between AirSensors, Inc. and IMPCO Technologies,
Inc., as the Company, and Robert M. Stemmler, as
the Employee - Exhibit 10.12.
1991 Executive Stock Option Plan dated November 5,
1991 among AirSensors, Inc., as the Company, and
Bertram R. Martin, James J. Mantras and Dale L.
Rasmussen, as Optionees - Exhibit 10.3
1989 Incentive Stock Option Plan and Amendment
to 1989 Incentive Stock Option Plan - Exhibits
10.2 and 10.9, respectively.
1996 Incentive Stock Option Plan - Exhibit 10.14.
(b) Reports on Form 8-K.
--------------------
No reports were filed on Form 8-K during the last quarter of
the Company's fiscal year covered by this report.
(c) Exhibits
--------
<PAGE>
2.1 Agreement of Purchase and Sale of Stock by and
among IMPCO Technologies, Inc., as buyer, and
Centradas B.V., as Shareholder, dated as of
October 31, 1995. (10)
2.2 Shareholders Agreement for Technisch Bureau Media
B.V. by and among IMPCO Technologies, Inc., and
Centradas B.V., dated as of October 31, 1995. (10)
2.3 Loan Agreement for Technisch Bureau Media B.V.,
Technisch Bureau Media GmbH, Technique Media
S.A.R.L. as borrowers and Depa Holding B.V.,
as lendor, dated as of October 31,1995. (10)
2.4 Guarantee by and among, Depa Holding B.V., as
lendor, IMPCO Technologies, Inc., as Shareholder
and AirSensors, Inc., as Guarantor, dated as of
October 31, 1995. (10)
2.5 Deed of Sale of Business by and among IMPCO Technologies
Pty Limited, as buyer, and Ateco Automotive Pty Limited,
as seller, dated as of July 1, 1996. (12)
2.6 Deed of Release by and among IMPCO Technologies, Inc. and
Ateco Automotive Pty Limited dated as of July 1, 1996. (12)
2.7 Shareholders Agreement for Gas Parts (NSW) Pty Limited by
and among IMPCO Technologies Pty Limited, Gas Parts Pty
Limited and Gas Parts (NSW) Pty Limited, dated as of July
4, 1996. (12)
2.8 Loan Agreement for IMPCO Technologies, Inc. as borrower,
AirSensors, Inc., as Guarantor, and Bank of America Nattional
Trust and Savings Association, as lendor, dated as of June
25, 1996. (12)
2.9 Loan Agreement for IMPCO Technologies Pty Limited as
borrower and Bank of America Pty Limited, as lendor,
dated as of June 27, 1996. (12)
3.1 Articles of Incorporation and Bylaws. (1)
3.2 Amended Certificate of Designation of AirSensors,
Inc. establishing 1993 Series 1 Preferred Stock. (5)
3.3 Certificate of Amendment of Certificate of
Incorporation providing for limitation of
directors' liability. (3)
3.4 Certificate of Amendment of Certificate of
Incorporation providing for the decrease in
authorized shares of common stock from
50,000,000 to 25,000,000. (6)
10.1 Lease between L-W Income Properties and IMPCO
Technologies, Inc. dated May 10, 1989. (2)
10.2 1989 Incentive Stock Option Plan. (3)
<PAGE>
10.3 1991 Executive Stock Option Plan dated
November 5, 1991, among AirSensors, Inc., as the
Company, and Bertram R. Martin, James J. Mantras
and Dale L. Rasmussen, as Optionees. (4)
10.4 First Amendment to Lease dated April 19, 1993,
between L-W Income Properties and IMPCO
Technologies, Inc. (6)
10.5 Warrant to Purchase Shares of AirSensors, Inc.
Common Stock issued to Cohig & Associates, Inc.
expiring in March 9, 1998. (6)
10.6 Warrant to Purchase Common Stock Purchase Warrants
issued by AirSensors, Inc. to Cohig & Associates,
Inc. expiring March 9, 1998. (6)
10.7 Pursuant Agreement between AirSensors, Inc. and
First Interstate Bank of Washington, N.A. dated
as of March 8, 1993, establishing terms and
conditions of Common Stock Purchase Warrants
expiring March 10, 1996. (6)
10.8 1993 Stock Option Plan for Nonemployee Directors (7)
10.9 Amendment to 1989 Incentive Stock Option Plan (7)
10.10 Loan and Security agreement dated September 28,
1994, between Bank of America National Trust
and Savings, as lender, and IMPCO Technologies,
Inc., as the borrower. (8)
10.11 Lease Intended as Security dated September 28,
1994, between BA Leasing and Capital Corporation,
as lessor, and IMPCO Technologies, Inc., as lessee. (8)
10.12 Employment Agreement dated April 1, 1997, between
AirSensors, Inc. and IMPCO Technologies, Inc., as
the Company, and Robert M. Stemmler, as the employee. (13)
10.13 Amendment dated September 13, 1995 to Loan and
Security agreement dated September 28, 1994,
between Bank of America National Trust and Savings,
as lender, and IMPCO Technologies, Inc., as the
borrower. (11)
10.14 1996 Incentive Stock Option Plan (13)
11.1 Computation of net income per share. (13)
22.1 Subsidiaries of the Company. (13)
23.1 Consent of Ernst & Young LLP dated July 25, 1997. (13)
<PAGE>
--------------------------------------
(1) Incorporated by reference from Form S-18 filed under
Registration No. 33-4013-S.
(2) Incorporated by reference from Form 10-K for fiscal year
1989.
(3) Incorporated by reference from Form 10-K for fiscal year
1990.
(4) Incorporated by reference from Form 10-K for fiscal year
1992.
(5) Incorporated by reference from Form S-2, File no. 33-56610
declared effective March 9, 1993
(6) Incorporated by reference from Form 10-K for fiscal year
1993.
(7) Incorporated by reference from Form 10-K for fiscal year
1994.
(8) Incorporated by reference from Form 8-K dated
September 28, 1994, and filed as Exhibit Numbers (10.25)
through (10.26) thereunder.
(9) Incorporated by reference from Form 10-K for fiscal year
1995.
(10) Incorporated by reference from Form 8-K dated October 31,
1995, and filed as Exhibit Numbers (2.1) through (2.4)
thereunder.
(11) Incorporated by reference from Form 10-K for fiscal year
1996.
(12) Incorporated by reference from Form 8-K/A dated July 1,
1996, and filed as Exhibit Number (2.5) through (2.9)
thereunder.
(13) Filed herewith.
<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.
AIRSENSORS, INC.
By /s/ Robert M. Stemmler
-------------------------------------
Robert M. Stemmler,
President &
Chief Executive Officer
Dated August 11, 1997
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Robert M. Stemmler President, August 11, 1997
------------------------- Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Thomas M. Costales Chief Financial Officer August 11, 1997
------------------------- and Treasurer
(Principal Financial Officer)
/s/ Brian Olson Corporate Controller August 11, 1997
-------------------------
/s/ Rawley F. Taplett Chairman of the Board August 11, 1997
-------------------------
Vice-Chairman of the Board
-------------------------
Edwin J. Schneebeck
/s/ Peter B. Bensinger Director August 11, 1997
-------------------------
/s/ Norman L. Bryan Director August 11, 1997
-------------------------
/s/ V. Robert Colton
------------------------- Director August 11, 1997
/s/ Paul Mlotok Director August 11, 1997
-------------------------
/s/ Don Simplot Director August 11, 1997
-------------------------
/s/ Douglas W. Toms Director August 11, 1997
-------------------------
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AirSensors, Inc.
We have audited the accompanying consolidated balance sheets of AirSensors, Inc.
as of April 30, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended April 30, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
AirSensors, Inc. at April 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
April 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Los Angeles, California
June 27, 1997, except for Note 14,
as to which the date is August 11, 1997
<PAGE>
AIRSENSORS, INC.
CONSOLIDATED BALANCE SHEETS
April 30, 1997 and 1996
-----------
ASSETS
------
1997 1996
------------ ------------
Current assets:
Cash $ 1,975,903 $ 811,148
Accounts receivable 11,456,539 9,679,317
Less allowance for doubtful accounts 288,111 165,322
------------ ------------
Net accounts receivable 11,168,428 9,513,995
Inventories:
Raw materials and parts 7,717,710 6,096,292
Work-in-process 754,576 930,548
Finished goods 5,711,966 4,411,162
------------ ------------
Total inventories 14,184,252 11,438,002
Other current assets 2,575,055 2,815,181
------------ ------------
Total current assets 29,903,638 24,578,326
Equipment and leasehold improvements:
Dies, molds and patterns 4,272,220 3,297,764
Machinery and equipment 4,846,940 5,267,529
Office furnishings and equipment 4,130,351 2,895,187
Leasehold improvements 1,997,174 1,953,131
------------ ------------
15,246,685 13,413,611
Less accumulated depreciation and amortization 8,026,594 6,935,878
------------ ------------
Net equipment and leasehold improvements 7,220,091 6,477,733
Intangibles arising from acquisitions 11,351,802 7,915,314
Less accumulated amortization 2,950,805 2,689,397
------------ ------------
Net intangibles arising from acquisitions 8,400,997 5,225,917
Other assets 1,588,364 1,445,911
------------ ------------
$47,113,090 $37,727,887
------------ ------------
------------ ------------
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
CONSOLIDATED BALANCE SHEETS
April 30, 1997 and 1996
(Continued)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1997 1996
------------ ------------
Current liabilities:
Notes payable $ 328,839 $ 541,398
Accounts payable 4,538,243 3,532,070
Accrued payroll obligations 1,564,028 1,701,034
Accrued warranty obligations 275,760 469,639
Income taxes payable 563,947 706,057
Other accrued expenses 2,869,218 1,598,451
Current portion of term loans 1,515,585 716,932
------------ ------------
Total current liabilities 11,655,620 9,265,581
Line of credit 5,450,000 3,400,000
Term loan - Bank of America NT&SA 3,592,013 1,435,000
Term loan - DEPA Holding B.V. 2,154,399 2,820,640
Other long term liabilities 1,524,906 1,167,447
Minority interest 673,044 383,197
Commitments and contingencies - -
Stockholders' equity:
1993 Series 1 Preferred Stock, $0.01 par value,
5,950 shares authorized, issued and
outstanding $5,950,000 liquidation value 5,650,000 5,650,000
Common stock, $.001 par value, authorized
25,000,000 shares; 5,814,587 issued and
outstanding at April 30, 1997
(5,654,568 at April 30, 1996) 5,815 5,655
Additional paid-in capital relating to
common stock 29,342,121 28,746,994
Shares held in trust (8,814) -
Accumulated deficit (12,467,953) (15,111,879)
Foreign currency translation adjustment (458,061) (34,748)
------------ ------------
Total stockholders' equity 22,063,108 19,256,022
------------ ------------
$47,113,090 $37,727,887
------------ ------------
------------ ------------
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30, 1997, 1996 and 1995
---------
1997 1996 1995
------------ ------------ ------------
Revenue:
Product sales $58,436,508 $48,487,480 $43,707,271
Contract revenue 3,391,528 3,087,229 1,523,952
------------ ------------ ------------
Net revenue 61,828,036 51,574,709 45,231,223
Costs and expenses:
Cost of sales 37,341,704 32,011,253 29,124,860
Research and development expense 8,479,919 7,170,965 6,197,216
Selling, general and
administrative expense 11,156,547 8,260,778 6,369,632
------------ ------------ ------------
Total costs and expenses 56,978,170 47,442,996 41,691,708
Operating income 4,849,866 4,131,713 3,539,515
Financing charges 1,100,449 503,886 292,024
------------ ------------ ------------
Income before income taxes and
minority interest in income of
consolidated subsidiary 3,749,417 3,627,827 3,247,491
Provision (benefit) for
income taxes 262,459 (1,348,616) 280,000
Minority interest in income of
consolidated subsidiary 261,667 305,568 -
------------ ------------ ------------
Net Income before Dividends 3,225,291 4,670,875 2,967,491
Dividends on preferred stock 581,365 609,875 547,895
------------ ------------ ------------
Net income $ 2,643,926 $ 4,061,000 $ 2,419,596
------------ ------------ ------------
------------ ------------ ------------
Net income per common share:
Primary $ .45 $ .65 $ .40
------------ ------------ ------------
------------ ------------ ------------
Fully diluted $ .45 $ .63 $ .40
------------ ------------ ------------
------------ ------------ ------------
Number of shares used in
per share calculation:
Primary 6,792,548 6,647,993 6,566,022
------------ ------------ ------------
------------ ------------ ------------
Fully Diluted 6,792,548 7,771,482 6,566,022
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended April 30, 1997, 1996 and 1995
---------
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
1993 Series 1 Preferred Stock:
Beginning balance $ 5,650,000 $ 5,650,000 $ 5,650,000
------------ ------------ ------------
Ending balance 5,650,000 5,650,000 5,650,000
Common Stock:
Beginning balance 5,655 5,641 5,577
Issuance of common stock
(13,198, 62,422, and 90,641 shares,
respectively) resulting from the
exercise of options pursuant to
the stock option plans 139 14 62
Issuance of common stock
(2,350 shares) resulting
from the exercise of warrants 21 - 2
------------ ------------ ------------
Ending balance 5,815 5,655 5,641
Additional paid-in-capital:
Beginning balance 28,746,994 28,660,181 28,256,861
Issuance of common stock
resulting from the exercise
of options pursuant to the
stock option plans 439,335 86,813 350,185
Issuance of common stock
resulting from the exercise
of warrants 155,792 - 17,625
Reduction in current tax liability
related to stock options - - 35,510
------------ ------------ ------------
Ending balance 29,342,121 28,746,994 28,660,181
Treasury Stock (8,814) - -
Deficit:
Beginning balance (15,111,879) (19,172,879) (21,592,475)
Net income applicable
to common stock 2,643,926 4,061,000 2,419,596
------------ ------------ ------------
Ending balance (12,467,953) (15,111,879) (19,172,879)
Foreign currency translation
adjustment (458,061) (34,748) -
------------ ------------ ------------
Total stockholders' equity $22,063,108 $19,256,022 $15,142,943
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30, 1997, 1996 and 1995
---------
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
Net income $3,225,291 $4,670,875 $2,967,491
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangibles
arising from acquisition 263,998 239,639 235,096
Depreciation and other
amortization 2,452,594 1,774,695 1,328,054
Increase in accounts receivable (2,750,026) (2,578,110) (2,989,467)
Increase in inventories (385,003) (1,158,391) (1,130,359)
Increase in deferred tax asset (272,856) (1,700,000) -
Increase in accounts payable 58,508 978,963 717,360
Increase in accrued expenses 799,321 266,570 399,028
Other, net 26,201 (299,517) (157,295)
------------ ------------ ------------
Net cash provided by
operating activities 3,418,028 2,194,724 1,369,908
Cash flows from investing activities:
Purchase of equipment and
leasehold improvements (1,628,158) (1,995,981) (1,660,022)
Investment in Media - (1,965,678) -
Investment in Impco Pty (4,654,794) - -
Deferred software production costs - (430,597) (470,192)
Other, net 186,610 (528,020) 131,880
------------ ------------ ------------
Net Cash Used in
investing activities (6,096,342) (4,920,276) (1,998,334)
Cash flow from financing activities:
Net borrowings
in lines of credit 2,050,000 2,400,000 82,710
Payments on notes payable (1,083,615) (508,833) (495,589)
Proceeds from issuance of
notes payable 558,685 643,818 582,667
Proceeds from issuance of
common stock 595,288 86,828 403,384
Payments on term loan (1,035,454) (334,656) (332,800)
Proceeds from issuance of
bank term note 3,968,750 2,050,000 -
Payment of other long-term
liabilities (297,961) (256,072) (103,063)
Dividends on preferred stock (581,365) (609,875) (547,895)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 4,174,328 3,471,210 (410,586)
------------ ------------ ------------
Translation Adjustment (331,259) - -
Net increase (decrease) in cash 1,164,755 745,659 (1,039,012)
Cash beginning of year 811,148 65,489 1,104,501
------------ ------------ ------------
Cash at end of year $ 1,975,903 $ 811,148 $ 65,489
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS - The
consolidated financial statements of AirSensors, Inc. (the Company) include the
accounts of the Company and it's subsidiaries, including IMPCO Technologies,
Inc. (IMPCO), and IMPCO's majority owned subsidiary Impco Europe Media B.V.
(Media) and its wholly owned subsidiary IMPCO Technologies, Pty, Ltd (Impco
Pty). All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company is engaged in the design,
manufacturing and marketing of gaseous fuel delivery systems and related devices
that allow internal combustion engines to operate on alternative fuels,
primarily propane and natural gas. Worldwide the Company's products are sold to
distributors and original equipment manufacturers (OEMs).
(b) INVENTORIES - Inventories are valued at the lower of cost or market.
Cost is determined by the first-in, first-out (FIFO) method while market is
determined by replacement cost for raw materials and parts and net realizable
value for work-in-process and finished goods.
(c) PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated on the basis of historical cost. Depreciation of equipment is provided
using the straight-line method over the assets' estimated useful lives, ranging
from three to seven years. Amortization of leasehold improvements, and
equipment financed by the Company's capital lease facility, is provided using
the straight-line method over the shorter of the assets' estimated useful lives
or the lease terms.
(d) INTANGIBLES ARISING FROM ACQUISITION - Intangibles arising from
acquisition are recorded based on the excess of the cost of the acquisition over
amounts assigned to tangible assets and liabilities. These intangible assets
include goodwill, product rights and trademarks. The intangible assets are
being amortized using the straight-line method over their estimated lives of
twenty years.
(e) DEFERRED COSTS - Deferred costs represent amounts paid for software
and other costs incurred after the establishment of technological feasibility.
These costs are capitalized and subsequently amortized using the greater of the
straight-line method over the estimated economic life of the related product or
over the units of production beginning when the related product is available for
general release to customers.
(f) WARRANTY COSTS - The Company provides warranties on its products by
recognizing a charge to cost of sales, to cover future warranty obligations.
Estimates are based, in part, on historical experience.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
(g) RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
charged to expense as incurred. Equipment used in research and development with
alternative future uses is capitalized.
(h) CONTRACT REVENUE RECOGNITION - Contract revenue is principally
recognized by the percentage of completion method. Profits expected to be
realized on contracts are based on the Company's estimates of total contract
sales value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contracts.
(i) MINORITY INTEREST IN SUBSIDIARY - In October 1995, IMPCO purchased
51 percent of Media. In July 1996, IMPCO acquired Impco Pty which included a
50 percent share in a subsidiary (Gas Parts, NSW.) Minority interest
represents the minority shareholder's proportionate share of equity in Media
and the Impco Pty subsidiary. The amounts in minority interest at April 30,
1997 represent 49 percent of the equity held by the single minority
shareholder in Media and 50 percent of the equity held by the single minority
shareholder in Gas Parts, NSW.
(j) NET INCOME PER SHARE - Net income per share was computed in accordance
with the modified treasury stock method. Primary income per share is computed
by dividing net income applicable to common stock, by the weighted average
number of common shares and, if dilutive, all common stock equivalents
outstanding. Common stock equivalents include the Company's outstanding stock
options and warrants. Fully diluted income per share is computed based on the
weighted average number of common shares, all common stock equivalents, and if
dilutive, shares issued upon conversion of preferred stock. During the twelve
months and three months ended April 30, 1997, shares assumed to be issued upon
conversion of the Company's preferred stock were anti-dilutive and were excluded
in the calculation of fully diluted earnings per share.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
(k) STOCK BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123 "Accounting of Stock Based Compensation",
which established accounting and reporting standards for stock based employee
compensation plans effective in 1996. SFAS 123 encourages entities to adopt the
new method ("fair value based method") of accounting; however it also allows an
entity to continue to measure compensation cost prescribed under existing rules
("intrinsic value based method") prescribed by Accounting Principle Board No.
25. Such entities who elect to remain on the "intrinsic value based" method
must make certain pro forma disclosures as if the new fair value method had been
applied (see note 7).
(l) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF - During the first quarter of 1997, the company adopted SFAS No. 121
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" which established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets. The Statement requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment (significant
decrease in market value of an asset, significant change in extent or manner in
which the asset is used or significant physical change to the asset) are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. During fiscal year 1997, the Company did
not experience any significant changes in the business climate or in the use of
assets that would require the Company to write down the value of the assets
recorded in the balance sheet. The adoption of SFAS No.121 did not have a
material effect on the consolidated financial position or results of operations
of the Company.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
(m) USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
(n) RECLASSIFICATIONS - Certain reclassifications have been made to the
fiscal year 1995 and 1996 consolidated financial statements to conform to the
fiscal year 1997 presentation.
(o) FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the company's
foreign subsidiaries are generally translated at current exchange rates, and
related revenues and expenses are translated at average exchange rates in effect
during the period. Resulting translation adjustments are recorded as a currency
component in shareholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of an identifiable foreign
currency commitment or as a hedge of a foreign currency investment position, are
included in the results of operations as incurred.
(p) FAIR VALUE OF FINANCIAL INSTRUMENTS - The following assumption was
used by the Company in estimating its fair value disclosures for long-term debt
as defined by the Financial Accounting Standards Board (FASB) Statement No. 107,
"Disclosure about Fair Value of Financial Instruments". The carrying value of
the Company's long-term debt approximates its fair value since the interest
rates on the debt are reset at intervals not to exceed twelve months.
2. ACQUISITION
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(a) ATECO AUTOMOTIVE PTY. LTD.
On July 1, 1996, the Company acquired certain assets of Ateco Automotive
Pty. Ltd. ("Ateco") for approximately $6,532,000. Ateco, an Australian
private company, has distributed IMPCO's gaseous fuel carburetion systems and
related devices for use with internal combustion engines since 1969 through
it Gas Division near Melbourne, Australia.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
2. ACQUISITION, continued
(a) ATECO AUTOMOTIVE PTY. LTD., continued
In order to effectuate the transaction, IMPCO established a wholly owned
subsidiary in Australia, Impco Technologies Pty. Limited (Pty). The
acquisition of Ateco has been accounted for under the purchase method of
accounting and the acquired operations have been included in the consolidated
financial statements since the date of acquisition. The assets acquired by
Impco Pty. primarily consist of receivables, inventory, equipment, a note,
business goodwill, distribution rights in Australia, and a 50% interest in
Ateco's sub-distributor. The amount of the consideration was determined through
negotiations between Ateco and Impco Pty.
The purchase price was financed through approximately $4,000,000 of term
loans provided by Bank of America NT&SA and its Sydney Australia Branch (See
note 3(a)(iii)). The term loans are both three-year loans with a five-year
amortization schedule and interest at market rates. In addition, accounts
receivable due to IMPCO by Ateco, totaling approximately $1,852,000, were
offset against the purchase price. The balance of the purchase price was paid
with proceeds from IMPCO's existing line of credit with Bank of America NT&SA.
The Company recognized approximately $3,601,000 of intangible assets arising
from acquisition which will be amortized over 20 years. The purchase price
allocation is based on management's best estimates at the acquisition date. The
tangible assets and liabilities have been recorded at their estimated fair
values as of the date of acquisition as follows:
Value
---------
Accounts receivable $398,399
Inventory 2,265,589
Equipment 44,879
Notes Receivable 158,200
Other assets 49,930
---------
2,916,997
Accrued payroll and related expenses (17,959)
---------
Net tangible assets $2,899,038
---------
---------
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
2. ACQUISITION, continued
(a) ATECO AUTOMOTIVE PTY. LTD., continued
The following table presents the unaudited pro forma consolidated results
of operations as if the acquisition had occurred at the beginning of each
period.
YEAR ENDED APRIL 30,
--------------------------
1997 1996
----------- ------------
Revenue $62,703,000 $ 56,908,000
Net income applicable to common stock 2,622,000 3,946,000
Net income per share:
Primary .44 .64
The proforma consolidated results of operations are not necessarily
indicative of the actual results of operations that would have occurred had the
purchase actually been made at the beginning of the respective periods or of
results which may occur in the future.
(b) MEDIA
On October 31, 1995, the Company, through its wholly owned subsidiary
IMPCO, acquired 51 percent of the outstanding stock of Media, a private company
in the Netherlands, from Centradas B.V., a private company in the Netherlands,
for cash in the amount of 3,187,500 Dutch Guilders (U.S. $2,023,000). Media has
distributed IMPCO's gaseous fuel carburetion systems and related devices for use
in internal combustion engines since 1972. Media services the European
marketplace from its headquarters in the Netherlands and through its
subsidiaries in Germany, France and the United Kingdom.
The acquisition was financed through a term loan provided by Bank of
America which will be repaid over a five-year period with interest at market
rates [See Note 3(a)(ii)]. The acquisition of Media has been accounted for
under the purchase method of accounting and has been included in the
consolidated financial statements since October 31, 1995, the date of
acquisition. The Company recognized $2,100,000 of intangible assets arising
from acquisition which will be amortized on the straight-line method over 20
years. The tangible
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
2. ACQUISITION, continued
(b) MEDIA, continued
assets and liabilities of Media have been recorded at their estimated fair
market values at the date of the acquisition as follows:
Value
------------
Cash $ 57,747
Accounts receivable 1,808,609
Inventory 3,062,545
Equipment 591,109
Other assets 171,691
------------
5,691,701
(2,021,422)
Accounts payable and accrued expense (2,693,283)
Term loan - DEPA Holding B.V.
Other liability - DEPA Holding B.V. (810,561)
------------
Net tangible assets $ 166,435
------------
------------
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
3. DEBT PAYABLE
(a) BANK OF AMERICA NT&SA
On June 26, 1996 IMPCO amended its credit facility with Bank of America
NT&SA by extending the term of the revolving line of credit for a twelve month
period ending August 31, 1998 and expanding the facility to include a $2,000,000
term loan for the acquisition of Ateco (now Impco Pty.). Including the
$8,000,000 revolving line of credit, the $3,525,000 capital lease facility and
the $2,050,000 term loan for the acquisition of Media, the total Bank of America
credit facility was $15,575,000 at April 30, 1997.
(i) REVOLVING LINE OF CREDIT
The revolving line of credit carries interest, payable monthly, at a
fluctuating per annum rate equal to the Bank of America reference rate (which
was 8.5% on April 30, 1997). The Company may elect to have all or portions of
the line bear interest at an alternative interest rate (Offshore rate which was
7.43% on April 30, 1997) agreed upon by the Bank and IMPCO for periods of not
less than 30 days nor more than one year. At April 30, 1997, $5,000,000 of the
total outstanding line of credit balance of $5,450,000 was subject to the
offshore rate. The remaining $450,000 was subject to the reference rate.
The unused portion of the line of credit is subject to a commitment fee of
.1875% per annum. It is management's intent to renew the amount of its present
long-term obligation under the revolving line of credit for an uninterrupted
period extending beyond one year from the balance sheet date.
The line may be used for financing commercial letters of credit with a
maximum maturity of 180 days and standby letters of credit with a maximum
maturity of five years not to extend beyond April 30, 2001. The amount of
letters of credit outstanding at any one time may not exceed $2,000,000 for
commercial letters of credit and $750,000 for standby letters of credit. At
April 30, 1997, $375,000 was outstanding on the standby letter of credit. The
maximum amount available at any one time on the revolving line of credit and the
commercial letters of credit is $8,000,000.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
3. DEBT PAYABLE, continued
(a) BANK OF AMERICA NT&SA, continued
(ii) TERM LOAN FOR ACQUISITION OF MEDIA
The term loan carries interest, payable on a monthly basis, at the Bank's
reference rate. The Company may elect to have all or portions of the term loan
bear interest at an alternative interest rate agreed upon by the Bank and IMPCO
for periods of not less than 30 days nor more than one year. The alternative
interest rate is based on the Offshore rate plus 1.50%. Each alternative rate
portion must be for an amount not less than $500,000 and may not include any
portion of principal which is scheduled to be repaid before the last day of the
applicable interest period. At April 30, 1997, the total outstanding balance of
$1,435,000 was subject to the offshore rate at 7.18%. The term loan is to be
repaid in eighteen consecutive quarterly installments of $102,500 (principal
only). The term loan may be prepaid, with payments applied in inverse order of
maturity, in whole or in part, at any time.
(iii) TERM LOAN FOR THE ACQUISITION FOR ATECO
The term loan carries interest, payable on a monthly basis, at the Bank's
reference rate. The Company may elect to have all or portions of the term loan
bear interest at an alternative interest rate agreed upon by the Bank and IMPCO
for periods of not less than 30 days nor more than one year. The alternative
interest rate is based on the Offshore rate plus 2.10%. Each alternative rate
portion must be for an amount not less than $500,000 and may not include any
portion of principal which is scheduled to be repaid before the last day of the
applicable interest period. At April 30, 1997, the total outstanding balance of
$1,700,000 was subject to the offshore rate of 7.78%. The term loan is to be
repaid in eleven consecutive quarterly installments of $100,000 (principal only)
through July 31, 1999 at which time the remaining principal balance plus any
outstanding interest is due. The term loan may be prepaid, with payments
applied in inverse order of maturity, in whole or in part, at any time.
(iv) CAPITAL LEASE FACILITY
The capital lease facility is available in incremental draws of $50,000 or
more to finance acquisitions of equipment such as machinery, dies, molds, office
furniture, and motor vehicles. At April 30,
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
3. DEBT PAYABLE, continued
(a) BANK OF AMERICA NT&SA, continued
(iv) CAPITAL LEASE FACILITY, continued
1997, approximately $1,819,000 was outstanding and approximately $1,043,000 was
available under the capital lease facility. Each draw is to be repaid in twenty
consecutive quarterly installments. Each draw bears interest at either a
variable rate or fixed rate of interest. The fixed rate of interest is the U.S.
Treasury note bond-equivalent yield per annum corresponding to the number of
months remaining on the draw, plus 2.899 percentage points. The variable rate
of interest is equal to Bank of America's London Branch 3-month LIBOR rate plus
2.45 percentage points. At April 30, 1997, all draws were subject to the
variable rate of interest. The long-term and short-term portions of the capital
lease facility are included in other long term liabilities and other accrued
expenses, respectively, on the Company's balance sheet.
If the Company exercises an early termination option before the scheduled
expiration date of a capital lease, a termination charge will be assessed. The
termination charge is a sliding percentage (not to exceed 5%) of the balance on
the lease at time of termination.
(v) LOAN COVENANTS AND COLLATERAL
The Bank of America credit facility contains certain restrictions and
financial covenants, including liquidity, tangible net worth and cash flow
coverage thresholds, as well as limitations on other indebtedness, and is
secured by substantially all of the Company's assets. At April 30, 1997, the
Company was in compliance with all covenants.
(b) TERM LOAN - DEPA HOLDING B.V.
At the date of acquisition Media had a term loan payable in the amount of
4,250,000 Dutch Guilders (U.S. $ 2,693,000). On January 29, 1996, Media's
term-loan from DEPA was increased by 1,279,000 Dutch Guilders (U.S. $766,000) to
reflect Media's current year earnings prior to the acquisition. Interest on
the term loan is payable quarterly. Media may elect a rate of interest for a
three, six or twelve month period based on the Amsterdam Interbank Offer Rate
(AIBOR), plus 1%, or a sixty month interest period based on a preferred rate of
interest at a major Netherlands bank, plus 1%. Once an interest period is
elected, it may not be lengthened or shortened. If an interest period is not
elected, the default interest period is three
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
3. DEBT PAYABLE, continued
(b) TERM LOAN - DEPA HOLDING B.V., continued
months. As of April 30, 1997, the outstanding principal balance on the
term-loan was 4,760,000 Dutch Guilders (U.S. $2,442,000) and was subject to the
annual interest rate of 4.11%. The remaining balance is to be repaid in
thirty-four additional quarterly principal installments of 140,000 Dutch
Guilders (U.S. $72,000).
(c) CREDIT FACILITY - MEES PIERSON
In February of 1996, Media secured a 3,000,000 Dutch Guilder (U.S.
$1,829,000) revocable credit facility with Mees Pierson, a financial institution
in the Netherlands. The interest rate is determined weekly based on a weighted
average of several money market indices. Media's borrowings under this facility
may not exceed the combined total of a specified amount of its accounts
receivable (70% of book value) and inventory (50% of book value). At April 30,
1997, the interest rate was 4.625% and there was no outstanding balance on the
credit facility (U.S. $1,538,856 was available at April 30, 1997).
(d) TERM LOAN - BANK OF AMERICA, AUSTRALIA
On June 27, 1996, Impco Technologies, Pty Ltd. obtained a credit facility
from Bank of America NT&SA, Sydney Branch, in the amount of A$2,500,000
(U.S. $1,934,000) to be used to purchase certain assets of Ateco Automotive
Pty Ltd. The loan carries interest, payable on a quarterly basis, at the
Bank Bill Buying Rate plus 2.10% (which was 8.24% on April 30, 1997). The
loan is to be repaid in eleven quarterly installments of A$125,000 (U.S.
$97,000), principal only, commencing on September 30, 1996. On June 30,
1999, Impco Pty will repay the remaining principal balance plus any interest
then due. The term loan may be prepaid provided the Bank is notified at least
30 days in advance of the amount of the prepayment, which must be in minimums
of A$250,000 (U.S. $193,000) and multiples of A$125,000 (U.S. $97,000). The
payments will be applied in reverse order of maturity. At April 30, 1997,
the outstanding balance of the term loan was A$2,125,000 (U.S. $1,657,000).
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
4. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
-----------------------------------------------
1997 1996 1995
Current: -------------- ------------- -------------
<S> <C> <C> <C>
Federal $ 79,065 $ 32,352 $ 91,000
State 23,828 (29,966) 189,000
Foreign 432,422 348,998 -
-------------- ------------- -------------
535,315 351,384 280,000
-------------- ------------- -------------
-------------- ------------- -------------
Deferred:
Federal (272,856) (1,600,000) -
State - (100,000) -
Foreign - - -
-------------- ------------- -------------
(272,856) (1,700,000) 280,000
-------------- ------------- -------------
-------------- ------------- -------------
Total provision (benefit)
for income taxes: $ 262,459 $ (1,348,616) $ 280,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The current provision (benefit) for income taxes for fiscal years 1997,
1996 and 1995 has been reduced by the utilization of approximately $3,953,000,
$1,650,000 and $3,800,000 of federal net operating loss carryforwards,
respectively. During fiscal years 1997, 1996 and 1995, the current provision
for state taxes was reduced by the utilization of approximately $246,000,
$140,000 and $112,000, respectively, of investment and/or research tax credits.
In addition, in fiscal year 1996 a state income tax refund of approximately
$82,000 was applied to the 1996 provision.
During the fourth quarter of fiscal year 1996, the Company reevaluated the
valuation allowance for its deferred tax assets. Based on this reevaluation,
which considered among other items projections as to future taxable income, the
Company determined that the valuation allowance should be reduced by
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
4. INCOME TAXES, continued
$1,700,000 principally due to the presumed future use of federal net operating
loss carryforwards. This reduction in the valuation allowance is reflected in
the deferred tax benefit for fiscal year 1996. During the fourth quarter of
fiscal year 1997, the Company reevaluated the valuation allowance for its
deferred tax assets. Based on this reevaluation, which considered among other
items, projections as to future taxable income, the Company determined that the
valuation allowance should be reduced by $1,559,000 principally due to the
presumed future use of federal net operating loss carryforwards. This reduction
in the valuation allowance is reflected in the deferred tax benefit for fiscal
year 1997.
A reconciliation of income taxes computed at the federal statutory income
tax rate to income taxes reported in the consolidated statements of income is as
follows:
FISCAL YEARS ENDED APRIL 30,
------------------------------
1997 1996 1995
-------- -------- ---------
Federal statutory income tax rate 34.0% 34.0% 34.0%
Permanent differences 4.0% 3.0 3.0
Benefit of net operating loss
carryforward (38.0) (15.4) (35.0)
Federal alternative minimum tax 2.1 .9 2.8
State tax, net .6 (3.7) 3.8
Foreign tax, net 4.9 .5 -
Recognition of Deferred Tax Asset - (56.5) -
-------- -------- ---------
Effective tax rate 7.6% (37.2)% 8.6%
-------- -------- ---------
-------- -------- ---------
The components of the Company's deferred tax liabilities and assets and the
related valuation allowance is as follows:
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
4. INCOME TAXES, continued
YEARS ENDED APRIL 30,
---------------------------
1997 1996
------------ ------------
Deferred tax liabilities:
Tax over book depreciation $ (866,000) $ (336,000)
Other (53,000) (453,000)
------------ ------------
(919,000) (789,000)
------------ ------------
Deferred tax assets:
Net operating loss carryforwards 1,234,000 2,557,000
Tax credit carryforwards 1,564,000 1,158,000
Inventory reserves 224,000 150,000
Other provisions for estimated expenses 380,000 693,000
------------ ------------
3,402,000 4,558,000
------------ ------------
Gross deferred tax asset 2,483,000 3,769,000
Valuation allowance (510,000) (2,069,000)
------------ ------------
Net deferred tax asset recognized $ 1,973,000 $ 1,700,000
------------ ------------
------------ ------------
The valuation allowance decreased during fiscal years 1997 and 1996
principally due to the use of net operating loss carryforwards in the current
fiscal year and the presumed use of net operating loss carryforwards in future
years.
For federal income tax purposes, at April 30, 1997, the Company had net
operating loss carryforwards of approximately $3,600,000 available to offset
future taxable income which will expire in fiscal years 2000 through 2007.
Also, the Company has a general business tax credit carryforward available for
federal income tax purposes of approximately $1,279,000 which, if not utilized,
will expire by fiscal year 2012. Additionally, the Company has an alternative
minimum tax credit carryforward available for federal income tax purposes of
approximately $285,000 which does not expire for tax reporting purposes.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
5. COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company has certain noncancelable operating leases for facilities and
equipment, and noncancelable capital leases for machinery, equipment and motor
vehicles. Future minimum lease commitments under noncancelable leases are as
follows:
Lease Obligations
--------------------------------
Fiscal years ending April 30, Capital Operating
----------------------------- -------------- --------------
1998 $ 660,983 $ 711,734
1999 684,698 668,924
2000 582,572 236,834
2001 324,374 119,338
2002 90,595 4,500
-------------- --------------
Total minimum lease payments 2,343,222 $ 1,741,330
--------------
--------------
Less imputed interest 342,994
--------------
Present value of future minimum
lease payments 2,000,228
Less current portion 506,325
--------------
Long-term capital lease obligation $ 1,493,903
--------------
--------------
Total rental expense under the operating leases for the fiscal years ended
April 30, 1997, 1996 and 1995 was $903,000, $632,000, and $557,000,
respectively. IMPCO currently leases a facility in Cerritos, California at an
annual cost of approximately $460,000. The facility lease is a non-cancelable
operating lease ending May 1999, with two five-year renewable options. Media
leases a facility in Rijswijk, Holland at an annual cost of approximately
$100,000. The facility lease is a non-cancelable operating lease ending October
31, 2000, with a five-year renewal option. Impco Pty leases a facility in
Cheltenham, Australia at an approximate annual cost of $42,000. The lease is a
non-cancelable operating lease ending May 31, 2001 with a four-year renewal
option.
During fiscal year 1996, IMPCO increased its $2,600,000 capital lease
facility to $3,525,000 to finance acquisitions of equipment such as machinery,
dies, molds and patterns, office furniture and fixtures and motor vehicles. At
April 30, 1997 and 1996 respectively, approximately $1,819,000 and $1,387,000
had been borrowed under the capital lease facility.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
5. COMMITMENTS AND CONTINGENCIES, continued
(b) CONTINGENCIES
The Company is currently subject to certain legal proceedings and claims
arising in the ordinary course of business. Based on discussions with legal
counsel, management does not believe that the outcome of any of these matters
will have a materially adverse effect on the Company's consolidated financial
statements.
6. STOCKHOLDERS' EQUITY
(a) 1993 SERIES 1 PREFERRED STOCK
The holders of the Company's' 1993 Series 1 Preferred Stock (1993
Preferred) are entitled to receive annual cumulative dividends of up to $105 per
share and not less than $80 per share ($100 per share at April 30, 1997). The
dividend rate, which is adjusted on the first day of each calendar quarter, is
based on the Seafirst Bank prime rate of interest plus 1.5% (assuming a deemed
principal value of $1,000 per share). Holders of 1993 Preferred are entitled to
vote on all matters brought before the common stockholders and have the number
of votes equal to the number of full shares of common stock into which the 1993
Preferred could then be converted.
The 1993 Preferred is convertible into common stock at the option of the
holders by dividing the then conversion price into its liquidation value of
$1,000 for each share being converted. At April 30, 1997, the conversion price
was $5.30 per share. The conversion price decreases if additional shares of
common stock are issued for a consideration per share less than the then
conversion price.
Each share of 1993 Preferred automatically converts into shares of common
stock upon the Company reporting audited consolidated net earnings of $5,000,000
for a fiscal year, or upon the closing of an underwritten public offering of the
Company's common stock in which the Company realizes gross proceeds of
$10,000,000 or more and the public offering price is at least $12.00 per share,
provided that all dividends in arrears are paid and the obligation of the
underwriters is that all offered shares must be purchased. Commencing
March 31, 1999, the Company has the right to convert the 1993 Preferred to
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
6. STOCKHOLDERS' EQUITY, continued
(a) 1993 SERIES 1 PREFERRED STOCK, continued
common stock if the average market price for the common stock for the
immediately preceding 30 trading days equals or exceeds the conversion price
then in effect and the Company pays all accrued dividends.
(b) WARRANTS TO PURCHASE COMMON STOCK
During fiscal year 1993, 1,725,000 common stock purchase warrants (1993
Warrants) were issued in a public offering. Two 1993 Warrants entitle the
holder to purchase one share of the Company's common stock for $7.50. Effective
November 7, 1996, the Company voluntarily extended the expiration date of the
1993 Warrants from March 7, 1997 to March 7, 1998. The holders of
1993 Warrants are not entitled to vote, to receive dividends or to exercise any
of the rights of stockholders for any purpose. The 1993 Warrants contain
registration rights and antidilutive clauses. The Company has the right, at its
discretion, to call all of the 1993 Warrants for redemption on 45 days' prior
written notice at a redemption price of $0.10 per warrant if (i) the closing bid
price of the Company's common stock exceeds the warrant exercise price by at
least 50% during a period of at least 20 of the 30 trading days immediately
preceding the notice of redemption and (ii) the Company has in effect a current
registration statement covering the common stock issuable upon exercise of the
warrants. If the Company elects to exercise its redemption
right, holders of warrants may either exercise their warrants within 45 days or
tender their warrants to the Company for redemption. At April 30, 1997,
1,678,750, warrants of this type were outstanding.
In connection with the 1993 public offering, the Company issued two types
of warrants to the underwriters. One entitles the holders to purchase up to
150,000 shares of the Company's common stock at a purchase price of $6.25 per
share at any time prior to March 10, 1998. These warrants provide certain
registration rights and contain antidilutive clauses. The other entitles the
holders to purchase up to 150,000 common stock purchase warrants at a purchase
price of $0.001 per warrant. Two of these common stock
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
STOCKHOLDERS' EQUITY, continued
(b) WARRANTS TO PURCHASE COMMON STOCK, continued
purchase warrants entitle the holders to purchase one share of the Company's
common stock for $7.50 any time prior to March 10, 1998. Except for the
expiration date, these warrants have the same rights and restrictions as the
1993 Warrants. At April 30, 1997, all of these warrants were outstanding.
At April 30, 1997, the Company also had the following outstanding warrants
which entitled the holders to purchase the Company's common stock at various
specified prices for each outstanding warrant. The following table sets forth
the expiration dates, number of warrants and the respective exercise prices of
these warrants.
Expiration Number
Date of warrants Exercise price
---------- ----------- --------------
Fiscal 1998 166,667 $4.50
In March 1997, 80,321 warrants with an exercise price of $7.47 expired. The
Company had 246,988 outstanding warrants of this type as of April 30, 1996 and
1995. These warrants have certain antidilutive clauses.
(c) STOCK OPTIONS
As of April 30, 1997, 1996 and 1995, the Company had outstanding stock
options of 902,811, 841,303 and 798,335, respectively, to purchase shares of
common stock.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
6. STOCKHOLDERS' EQUITY, continued
(c) STOCK OPTIONS, continued
1996 INCENTIVE STOCK OPTION PLAN
During fiscal year 1997, the Company adopted the 1996 Incentive Stock
Option Plan. Options for up to 250,000 shares of common stock may be issued to
eligible employees. Options vest at a rate of 40% after the first two years
following the date of grant and 20% each year thereafter so that the employee
is 100% vested in the option after 5 years. Further information relating to
this plan is as follows:
Option price
per share April 30, 1997
--------------- --------------
Granted $6.25 to $8.75 218,118
Relinquished $6.25 to $8.75 (5,535)
-------
Ending balance $6.25 212,583
-------
Exerciseable at April 30 -
-------
-------
Shares available for future grant 37,417
-------
-------
1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
During fiscal year 1994, the Company adopted the 1993 Stock Option Plan for
Nonemployee Directors. Options for up to 350,000 shares of the Company's common
stock may be issued to members of the Company's Board of Directors who are not
and have not been employees of the Company within three years prior to the date
of the grant of an option. Options are not assignable and generally vest
cumulatively at the rate of 25% per year, commencing twelve months following the
date of grant. The option exercise price per share is the higher of (i) the
average of the fair market values for the fifteen trading days immediately
following the date of grant or (ii) the market value on the fifteenth trading
day immediately following the date of grant. Further information relating to
this plan is as follows:
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
6. STOCKHOLDERS' EQUITY, continued
(c) STOCK OPTIONS, continued
Fiscal year ended April 30,
---------------------------
Option price
per share 1997 1996 1995
--------------- ------- ------- -------
Beginning balance $8.64 to $11.78 270,000 220,000 180,000
Granted $8.64 to $11.78 - 70,000 40,000
Relinquished 11.78 - (20,000) -
------- ------- -------
Ending balance $8.64 to $11.78 270,000 270,000 220,000
------- ------- -------
------- ------- -------
Exerciseable at April 30 222,500 200,000 180,000
------- ------- -------
------- ------- -------
During fiscal year 1992, the Company adopted the 1991 Executive Stock
Option Plan, under which three executive officers were granted Series A and
Series B options. These options may be exercised at any time through November
6, 2001, are not assignable, and may be exercised whether or not the optionee is
an employee at the time of exercise. The Series B options were granted in
exchange for the termination of certain executive officers rights in the 1989
phantom stock pool. Further information relating to this Plan is as follows:
Fiscal year ended April 30,
---------------------------
Series A options Option price
---------------- per share 1997 1996 1995
--------------- ---- ---- ----
Beginning balance $3.89 126,668 126,668 141,668
Exercised $3.89 (75,000) - (15,000)
------- ------- -------
Ending balance $3.89 51,668 126,668 126,668
------- ------- -------
------- ------- -------
Exerciseable at April 30 51,668 126,668 126,668
------- ------- -------
------- ------- -------
Series B options
----------------
Outstanding $0.06 53,520 96,900 96,900
------- ------- -------
------- ------- -------
Exerciseable at April 30 53,520 96,900 96,900
------- ------- -------
------- ------- -------
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
6. Stockholders' equity, continued
(c) STOCK OPTIONS, continued
Under the Company's 1989 Incentive Stock Option Plan, up to 500,000 options
may be issued. Options generally vest at the rate of 25% per year,
cumulatively, beginning on the first anniversary of the date of grant. Further
information relating to the 1989 Incentive Stock Option Plan is as follows:
<TABLE>
<CAPTION>
Fiscal year ended April 30,
---------------------------
Option price
per share 1997 1996 1995
--------------- ------ ------- -------
<S> <C> <C> <C> <C>
Beginning balance $5.25 to $15.00 347,735 354,767 299,792
Granted $5.25 to $15.00 - 25,000 133,000
Exercised $6.00 to $ 7.31 (20,864) (13,198) (47,422)
Relinquished $6.00 to $10.38 (11,832) (18,834) (30,603)
------- ------- -------
Ending balance $5.25 to $15.00 315,039 347,735 354,767
------- ------- -------
Exerciseable at April 30 174,039 153,321 97,272
------- ------- -------
------- ------- -------
Shares available for future grant 12,836 1,004 7,170
------- ------- -------
------- ------- -------
</TABLE>
7. FASB 123: COMPENSATORY STOCK OPTION PLAN
The Company has elected to account for its employee stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations in accounting for employee
stock options. No compensation expense is recorded under APB 25 because the
exercise price of the Company's employee common stock options equals the market
price of the underlying common stock on the grant date.
Statement 123 requires "as adjusted" information regarding net income and
net income per share to be disclosed for new options granted after fiscal year
1996. The Company determined this information using the fair value method of
that Statement. The fair value of these options was determined at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
7. FASB 123: COMPENSATORY STOCK OPTION PLAN, continued
YEAR ENDED APRIL 30,
1997 1996 1995
---- ---- ----
Expected dividend yield 0% 0% 0%
Calculated volatility .486 .497 .599
Risk-free interest rate 3% 3% 3%
Expected Life of the option in years 5 5 5
The estimated fair value of the options is amortized to expense over the
options' vesting period for "as adjusted" disclosures. The net income per share
"as adjusted" for the effects of statement No. 123 is not indicative of the
effects on reported net income/loss for future years. The Company's reported
"as adjusted" information at April 30 is as follows: (in thousands, except per
share amounts):
YEAR ENDED APRIL 30,
1997 1996 1995
------ ------- -------
Net Income $2,644 $4,061 $2,420
As Adjusted $2,548 $4,003 $2,414
Net Income Per Share As Reported - Primary $.45 $.65 $.40
Net Income Per Share "As Adjusted" - Primary $.43 $.64 $.40
Net Income Per Share As Reported - Fully Diluted $.45 $.63 $.40
Net Income Per Share "As Adjusted" - Fully Diluted $.43 $.63 $.40
In management's opinion existing stock option valuation models do not
provide a reliable single measure of the fair value of employee stock options
that have vesting provisions and are not transferable. In addition, option
pricing models require the input of highly subjective assumptions, including
expected stock price volatility.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
8. REVENUES
During fiscal year 1997, the Media and IMPCO Pty subsidiaries accounted for
approximately twelve percent and nine percent of total consolidated revenues,
respectively, and contract revenue accounted for approximately five percent (see
Note 9). During fiscal years 1997, 1996 and 1995, no single unaffiliated
customer exceeded 10% of consolidated revenues.
The Company routinely sells products to a broad base of customers, which
includes distributors and original equipment manufacturers. Based on the nature
of these customers, credit is generally granted without collateral being
required. Management does not anticipate that a significant credit risk exists
as a result of these customer relationships.
9. GEOGRAPHIC DATA
The Company has a U.S. based operating subsidiary (IMPCO) and two foreign
based operating subsidiaries in Holland (Media) and Australia (IMPCO Pty).
Transfers between geographic areas include inter-company sales which are
eliminated in consolidation. Operating income is total revenue less operating
expenses, excluding finance charges and taxes. Information concerning the
Company's geographic areas of operation in fiscal year 1997 is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Fiscal year ended April 30, 1997
-------------------------------------------------------------------------
United States Europe Australia Elims Consolidated
------------- ------ --------- ----- ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $44,809 $9,203 $7,816 $ - $61,828
Transfers between geographic areas 4,354 - - (4,354) -
------- ------ ------ ------- -------
Total revenue 49,163 9,203 7,816 (4,354) 61,828
------- ------ ------ ------- -------
------- ------ ------ ------- -------
Operating income 3,656 890 376 (72) 4,850
------- ------ ------ ------- -------
------- ------ ------ ------- -------
Identifiable assets, at April 30, 1997 39,728 5,837 7,800 (6,252) 47,113
------- ------ ------ ------- -------
------- ------ ------ ------- -------
</TABLE>
Export sales from the corporation's United States operations to unaffiliated
customers were as follows (dollars in thousands):
1997 1996 1995
---- ---- ----
Canada $1,499 $1,659 $1,963
Pacific Rim 4,139 4,966 4,635
Europe 5,500 2,529 3,092
Latin America 6,537 3,779 2,844
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
10. CONTRACT REVENUE
In August 1995, the Company extended its original 1993 two year fixed-price
contract with General Motors Corporation (GM) to develop, manufacture and
install compressed natural gas engine management systems (CNG systems). Under
the terms of the contract, IMPCO is engineering, testing and validating CNG
systems for certain 1997 and 1998 model year car and truck platforms in
compliance with GM's specifications. To date, no product sales have occurred
under this contract and GM is not obligated to take delivery or install CNG
systems on a minimum number of vehicles.
Revenues for development efforts are principally recognized by the
percentage of completion method and principally related to contracts with GM.
During fiscal year 1997, 1996, and 1995 GM contract revenues comprised 5%, 4%
and 2% of the Company's total revenues, respectively. Operating income earned
on the GM development contract during fiscal year 1997, 1996 and 1995 was
approximately $400,000, $155,000 and $90,000 after deducting an allocation for
selling, general and administrative costs.
11. PURCHASES
During fiscal years 1997, 1996 and 1995, purchases from one vendor
constituted approximately 17%, 20% and 28% of consolidated net inventory
purchases, respectively. In fiscal year 1997, 10 suppliers accounted for
approximately 46% of consolidated net inventory.
12. SUPPLEMENTARY CASH FLOW INFORMATION
During fiscal years 1997, 1996 and 1995 the following non-cash transactions
were effected and are not reflected in the Consolidated Statements of Cash
Flows:
a) The Company incurred capital lease obligations of $835,000,
$700,000 and $951,000 respectively.
b) Pursuant to the Media acquisition an outstanding debt obligation
of 1,279,000 Dutch Guilders (U.S. $766,000), was converted into a
term loan during fiscal year 1996.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
12. SUPPLEMENTARY CASH FLOW INFORMATION, continued
c) Interest and taxes paid during fiscal year 1997, 1996, and 1995 are as
follows:
Fiscal year ended April 30,
-----------------------------------
1997 1996 1995
---------- --------- --------
Interest paid $1,062,175 $435,553 $194,520
Taxes paid 754,627 110,000 176,140
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal year 1997 July 31 Oct. 31 Jan. 31 Apr. 30
------- ------- ------- -------
<S> <C> <C> <C> <C>
Product sales $14,179 $14,014 $14,765 $15,479
Contract revenue 970 633 294 1,495
Total revenue 15,149 14,647 15,059 16,974
Cost of sales 9,109 8,636 9,183 10,414
Gross Profit 6,040 6,011 5,876 6,560
Research and development expense 2,284 2,087 1,784 2,325
Net income 567 495 623 959
Net income per share:
Primary .10 .09 .11 .16
Fully diluted .10 .09 .10 .16
Fiscal year 1996:
Product sales $11,796 $10,402 $12,116 $14,173
Contract revenue 341 982 1,010 754
Total revenue 12,137 11,384 13,126 14,927
Cost of sales 7,611 7,105 8,302(2) 8,993
Gross Profit 4,526 4,279 4,824 5,934
Research and development expense 1,780 2,016 1,726 1,649
Net income 739 666 543 2,723(1)
Net income per share:
Primary .10 .09 .07 .40(1)
Fully diluted .10 .09 .07 .36(1)
</TABLE>
- --------------------
(1) Includes an income tax benefit of $1,700,000, due to the reduction in
the valuation allowance for deferred tax assets, or $.25 per share.
(2) Includes a net product warranty charge of approximately $217,000.
14. OTHER MATTERS
In late July 1997, the Company became aware that a certain fourth
quarter 1997 transaction could be in violation of certain U.S. Government
export regulations. The Company immediately engaged legal counsel to
investigate and assess whether a violation of such regulations had occurred
and determine what, if any, fines, penalties, or other punishment could be
assessed against the Company. In addition, the Company authorized legal
counsel to notify the appropriate Government authorities of the matter. The
Company has also instituted policies and procedures which are designed to
insure that all export transactions will comply with appliciable Government
regulations.
Currently no charges of wrongdoing have been brought against the Company
or any employee of the Company by any Government authority.
It is the opinion of the Company that its voluntary disclosure of the
facts to the appropriate authorities, and in light of the facts that the
transaction was a one-time sale of non-sensitive products and the Company has
installed policies and procedures to prevent future violations of export
regulations, that the ultimate settlement with the Government should not have
a material adverse effect on the Company's financial position or results of
operations. However, until the matter is settled with the Government, the
amount of fines, if any, or other sanctions that may be imposed cannot be
reasonably estimated.
<PAGE>
AIRSENSORS, INC
SCHEDULE II - VALUATION ACCOUNTS
<TABLE>
<CAPTION>
Additions
charged
Balance at (credited) Write-offs Balance
beginning to costs and and other at end of
of period expenses adjustments period
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
for the years ended:
April 30, 1997 $165,322 $157,288 ($34,499) $288,111
April 30, 1996 153,802 13,000 (1,480) 165,322
April 30, 1995 143,802 10,000 153,802
Inventory valuation reserve
for the years ended:
April 30, 1997 610,515 384,829 (157,626) 837,718
April 30, 1996 1,280,000 237,151 (906,636) 610,515
April 30, 1995 994,489 308,319 (22,808) 1,280,000
Warranty reserve
for the years ended:
April 30, 1997 469,639 222,122 (416,000) 275,761
April 30, 1996 217,123 627,978 (375,462) 469,639
April 30, 1995 173,923 58,000 (14,800) 217,123
Product liability reserve
for the years ended:
April 30, 1997 156,848 10,793 (75,705) 91,936
April 30, 1996 234,489 (77,641) 156,848
April 30, 1995 178,768 131,936 (76,215) 234,489
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made on April 1, 1997 by and among AIRSENSORS,
Inc., a Delaware corporation ("AirSensors"), IMPCO Technologies, Inc., a
Delaware corporation ("IMPCO") (AirSensors and IMPCO are sometimes referred to
collectively as the "Company"), and Robert M. Stemmler ("Employee").
Capitalized terms not otherwise defined in this Agreement shall have the
meanings specified in Section 5 unless the context otherwise requires.
Section 1. EMPLOYMENT.
The Company hereby employs Employee to render services to the Company
in an executive capacity as the President and Chief Executive Officer of both
AirSensors and IMPCO. Employee shall be a Director and member of the Executive
Committee of both AirSensors and IMPCO during the Term.
Employee hereby accepts employment under this Agreement and agrees to
devote his best effort and substantially full time, attention and energy to the
Company's business. Employee's duties shall include all of the duties normally
associated with the position of chief executive officer and shall include such
other activities, responsibilities and duties as may be reasonably assigned from
time to time by the Board of Directors. The Company, through the Board of
Directors, shall retain full direction and control of the manner, means and
methods by which Employee performs the services for which he is employed
hereunder, provided that Employee's duties and responsibilities shall be of
substantially the same character as, or equivalent to, those performed by a
chief executive officer.
Section 2. COMPENSATION.
2.1 BASE SALARY. During the Term, IMPCO will pay Employee a base
salary of not less than $230,000 per year prorated on a daily basis for any
period of the Term which is less than a full calendar year. The base salary may
be modified from time to time as mutually agreed between the parties. The base
salary will be paid to Employee in equal semi-monthly payments, payable on or
about the thirteenth and twenty-eighth day of each calendar month or pursuant to
IMPCO's normal payroll policy, as modified from time to time.
2.2 INCENTIVE COMPENSATION. During the Term, Employee shall be
eligible for an annual cash bonus under a plan approved by the Executive
Committee of the Board of Directors on August 16, 1994 (Attachment A), which
shall be payable each year within 100 days following the end of the Fiscal Year
and shall be prorated on a daily basis for any period of the Term which does not
include all of a Fiscal Year.
<PAGE>
2.3 STOCK OPTIONS Employee is granted stock options in the amount of
150,000 shares in accordance with the 1998 Stock Option Plan as approved by the
AirSensors Board of Directors. In addition, employee shall be granted an
additional 50,000 shares, under the same terms and conditions as outlined in the
1998 Stock Option Plan if the stock price reaches the targeted share price
anytime during FY'98 (May 1, 1997 through April 30, 1998)
2.4 BENEFITS. During the Term, Employee shall be entitled to the
following fringe benefits:
(a) Except as otherwise specified in this Agreement, the fringe
benefits that the Company makes generally available to its executive
officers, which currently include medical insurance and a Section 401(k)
defined contribution employee savings plan;
(b) Term life insurance in the face amount of $750,000;
(c) Long-term disability insurance providing for monthly
disability payments of $5,000 to age 65 after a waiting period not in
excess of ninety (90) days;
(d) A car allowance of $12,000 per year, plus reimbursement of
fuel, maintenance, registration and other expenses, pro rated on a daily
basis for any period of the Term which is less than a full year;
(e) Three (3) weeks of paid vacation each calendar year, pro
rated on a daily basis for any period of the Term which is less than a full
year;
(f) Ten (10) days of sick leave each calendar year, pro rated on
a daily basis for any period of the Term which is less than a full year.
Unused sick leave will not be accumulated or carried over nor paid for upon
termination of this Agreement.
2.5 BUSINESS EXPENSE REIMBURSEMENT. During the Term, the Company
will reimburse Employee for reasonable out-of-pocket expenses incurred by
Employee in performance of service for the Company under this Agreement (E.G.,
transportation, lodging and food expenses incurred while traveling on Company
business), all subject to such policies and other requirements as the Company
may from time to time establish for its employees generally. Employee shall
maintain such records as will enable the Company to deduct such items as
business expenses when computing its taxes.
2.6 WITHHOLDING. Payment of compensation to Employee will be subject
to withholding of such amounts on account of payroll taxes, income taxes and
other withholding as may be required by applicable law, rule or regulation of
any governmental authority or as consented to by Employee.
2
<PAGE>
Section 3. TERM AND TERMINATION PAYMENTS.
3.1 TERM. Subject to approval of this Agreement by the Board of
Directors, the Term will commence on April 1, 1995, and shall automatically
continue for two consecutive twelve (12) month periods commencing, respectively,
on the first and second anniversary of the initial commencement date of the
Term, unless earlier terminated as a result of: (a) Company's termination of
Employee's employment pursuant to Section 3.2; (b) Employee's resignation of
employment pursuant to Section 3.3; (c) death of Employee; or (d) the disability
of Employee resulting from injury, illness or disease, whether of a mental or
physical nature, which substantially impairs or prevents the Employee from
performing his duties and obligations under this Agreement for a period of three
(3) consecutive months as determined in good faith by the Board of Directors.
3.2 TERMINATION BY COMPANY. Company may terminate Employee's
employment with or without cause at any time by giving Employee written notice
at least thirty (30) days prior to the effective date of termination; PROVIDED,
that if such termination of employment is effective:
(a) Prior to the expiration of first twelve (12) months of the
Term, then the Employee shall be paid a lump sum payment equal to the
annual base salary under Section 2.1 plus the additional cash compensation
under Section 2.2 that Employee would have earned for the twelve (12)
months following the effective date of termination of employment, and the
benefits provided pursuant to Section 2.4 shall continue for twelve (12)
months following the effective date of termination of employment; and
(b) After the period specified in clause (a), during the second
and third years of this agreement, the Company shall pay Employee a lump
sum payment equal to seventy-five percent (75%) of the annual base salary
under Section 2.1 plus an amount equal to the additional cash compensation
under Section 2.2 that Employee would have earned for nine (9) months
following the effective date of termination of employment, and the benefits
provided pursuant to Section 2.4 shall continue for nine (9) months
following the effective date of termination of employment.
3.3 TERMINATION BY EMPLOYEE. Employee may resign at any time by
giving the Company written notice at least thirty (30) days prior to the
effective date of such termination. In the event of termination by Employee,
Employee shall not be entitled to any compensation or benefits following the
effective date of termination of employment.
3.4 DEATH OR DISABILITY. If Employee's employment is terminated by
death or disability as provided in Section 3.1(d), Employee shall not be
entitled to any compensation or benefits from the Company except as provided in
Sections 2.4(b) and (c).
3
<PAGE>
Section 4. CONFIDENTIALITY.
4.1 CONFIDENTIAL INFORMATION. Employee shall not at any time during
the period of his employment or thereafter, except as required in the course of
his employment with the Company or as authorized in writing by the Board of
Directors, directly or indirectly use, disclose, disseminate or reproduce any
Confidential Information or use any Confidential Information to compete,
directly or indirectly, with the Company. All notes, notebooks, memoranda,
computer programs and similar repositories of information containing or relating
in any way to Confidential Information shall be the property of the Company.
All such items made or compiled by Employee or made available to Employee during
the Term, including all copies thereof, shall be delivered to the Company by
Employee upon termination of the Term or at any other time upon request of the
Company.
4.2 PROPRIETARY INFORMATION OF OTHERS. Employee will not use in the
course of Employee's employment with the Company, or disclose or otherwise make
available to the Company, any information, documents or other items which
Employee may have received from any prior employer or other person and which
Employee is prohibited from so using, disclosing or making available by reason
of any contract, court order, law or other obligation by which Employee is
bound.
4.3 EQUITABLE RELIEF. Employee acknowledges that: the provisions of
this Section 4 are essential to the Company; the Company would not enter into
this Agreement if it did not include such provisions; the damages sustained by
the Company as a result of any breach of such provisions cannot be adequately
remedied by damages; and, in addition to any other right or remedy that the
Company may have under this Agreement, by law or otherwise, the Company will be
entitled to injunctive and other equitable relief to prevent or curtail any
breach of any such provisions.
Section 5. DEFINITIONS.
Whenever used in this Agreement with initial letters capitalized, the
following terms will have the following meanings:
"BOARD OF DIRECTORS" means, unless otherwise specified, AirSensors' Board
of Directors.
"CONFIDENTIAL INFORMATION" means information not generally known relating
to the business of the Company or any third party that is contributed to,
developed by, disclosed to, or known to Employee in his course of employment by
the Company, including but not limited to customer lists, specifications, data,
research, test procedures and results, know-how, services used, computer
programs, information regarding past, present and prospective plans and methods
of purchasing, accounting, engineering, business, marketing, merchandising,
selling and servicing used by the Company.
4
<PAGE>
"FISCAL YEAR" means the Company's fiscal year for financial accounting
purposes, which is currently a fiscal year ending on April 30.
"TERM" means the period during which Agreement is in effect as provided in
Section 3.1.
Section 6. MISCELLANEOUS.
6.1 COMPLIANCE WITH LAWS. In the performance of this Agreement, each
party will comply with all applicable laws, regulations, rules, orders and other
requirements of governmental authorities having jurisdiction.
6.2 NON-WAIVER. The failure of any party to insist upon or enforce
strict performance by any other of any provision of this Agreement or to
exercise any right, remedy or provision of this Agreement will not be
interpreted or construed as a waiver or relinquishment to any extent of such
party's right to consent or rely upon the same in that or any other instance;
rather, the same will be and remain in full force and effect.
6.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement, and supersedes any and all prior Agreements, between the Company and
Employee. No amendment, modification or waiver of any of the provisions of this
Agreement will be valid unless set forth in a written instrument signed by the
party to be bound thereby.
6.4 APPLICABLE LAW AND VENUE. This Agreement will be interpreted,
construed and enforced in all respects in accordance with the local laws of the
State of California and venue for any action arising out of this Agreement shall
be in Los Angeles County, California.
6.5 SURVIVAL. Section 4, together with all other provisions of this
Agreement that may reasonably be interpreted or construed to survive any
termination of the Term, shall survive termination of the Term.
6.6 ATTORNEYS' FEES. In the event any suit or proceeding is
instituted by any party against another arising out of this Agreement, the
prevailing party shall be entitled to recover its attorneys' fees and expenses
of litigation or arbitration.
6.7 SEVERABILITY. If any term, provision, covenant, or condition of
this Agreement shall be held by a court of competent jurisdiction to be invalid,
unenforceable, or void, the remainder of this Agreement shall remain in full
force and effect.
6.8 HEADINGS. The headings and captions of this Agreement are
provided for convenience only and are not intended to have any effect upon the
interpretation or construction of the Agreement.
5
<PAGE>
6.9 NOTICES. Any notice, request, consent, or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and personally delivered to Employee or by registered
or certified mail to Employee's residence (as noted in the Company's records),
or if personally delivered to the Company's Corporate Secretary at the Company's
principal office.
AIRSENSORS, INC.
By /s/Rawley Taplett
-----------------
Its Chairman
IMPCO TECHNOLOGIES, INC.
By /s/Rawley Taplett
-----------------
Its Chairman
EMPLOYEE
/s/ Robert M. Stemmler
----------------------
Robert M. Stemmler
Dated: 6-6-97
6
<PAGE>
AIRSENSORS, INC.
1996 INCENTIVE STOCK OPTION PLAN
Purpose of the Plan. The purpose of this Incentive Stock Option Plan is to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees of the Company
and to promote the success of the Company's business. It is intended that
options issued pursuant to this Incentive Stock Option Plan constitute
"incentive stock options" within the meaning of Section 422 of the Code.
1. Definitions. As used herein, the following definitions shall apply:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Company's common stock, par value $.001 per
share.
"Company" means AirSensors, Inc., a Delaware corporation.
"Committee" means the Committee appointed by the Board in accordance
with Section 3(a) of the Plan.
"Employee" means any person employed by the Company or any Subsidiary
of the Company which now exists or is hereafter organized or is acquired by the
Company.
"IMPCO" means IMPCO Technologies, Inc., a Delaware corporation.
"Option" means a stock option granted pursuant to the Plan.
"Optioned Stock" means the Common Stock subject to an Option.
"Optionee" means a person who holds an Option.
"Plan" means this 1996 Incentive Stock Option Plan.
"Subsidiary" means a corporation of which more than 50% of the voting
shares are held directly by the Company or directly and indirectly by the
Company and one or more Subsidiaries, whether or not such corporation now exists
or is hereafter organized or acquired by the Company or a Subsidiary.
2. Stock Subject to the Plan. Subject to Section 10, the maximum number
of shares which may be optioned and sold under the Plan is 250,000 shares of
Common Stock.
If an Option should expire or become unexercisable in whole or in part for
any reason, the remaining shares of Common Stock which were subject to the
Option shall, unless the Plan shall have been terminated, become available for
other Options under the Plan.
3. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board or, as
determined by the Board, a Committee appointed by the Board. The Committee
shall consist of not less than three members of the Board and shall administer
the Plan subject to such terms and conditions as the Board may
<PAGE>
prescribe. From time to time the Board may increase the size of the Committee
and appoint additional members, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies however caused, or
remove all members of the Committee and thereafter directly administer the Plan.
The Committee shall select one of its members as chairman and shall hold
meetings at such times and places as it may determine.
Members of the Board who are either eligible for Options or have been
granted Options may vote on any matters affecting the administration of the Plan
or the grant of any Options pursuant to the Plan, except that no such member
shall act upon the granting of an Option to himself, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board or
the Committee during which action is taken with respect to the granting of
Options to him.
As used in the Plan and in any Option, the term "Board" shall refer to the
Board, or the Committee if a Committee has been appointed.
(b) Powers of the Board/Committee. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to determine,
upon review of relevant information, the fair market value of the Common Stock;
(ii) to determine the exercise price per share of Options to be granted, which
price shall in no event be less than the fair market value per share of Common
Stock on the date of grant of the Option, or 110% of such fair market value in
the case of any Option granted to an Employee who, immediately before the grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or of its parent or
Subsidiaries; (iii) to determine the Employees to whom, and the time or times at
which, Options shall be granted and the number of shares to be represented by
each Option; (iv) to interpret the Plan; (v) to prescribe, amend and rescind
rules and regulations relating to the Plan; (vi) except as otherwise provided in
this Plan, to determine the terms and provisions of each Option granted under
the Plan (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option; (vii) to accelerate the exercise date of
any Option; (viii) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option granted by the
Board; and (ix) to make all other determinations deemed necessary or advisable
for the administration of the Plan.
All decisions, determinations and interpretations of the Board shall be
final and binding on all Optionees and any other holders of any Options granted
under the Plan. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option. If the Board has appointed a Committee, the actions of the Committee
shall be reported to the Board.
4. Eligibility. Options may be granted only to Employees. An Employee
who has been granted an Option may, if he or she is otherwise eligible, be
granted an additional Option or Options.
No Option may be granted to an Optionee under the Plan if, as the result of
such grant, the aggregate fair market value (determined as of the time each
Option is granted) of the shares of Common Stock for which such Optionee has
been granted options which are exercisable for the first time by such Optionee
during any calendar year (under all incentive stock option plans of the Company)
would exceed $100,000.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his or her employment
at any time.
5. Term of Plan. Subject to Section 16, the Plan shall become effective
upon its adoption by the Board. It shall continue in effect for a term of ten
(10) years from the effective date unless sooner terminated under Section 12.
<PAGE>
6. Term of Option. Except as otherwise provided in Sections 8 and 10,
the term of each Option shall be for not more than ten (10) years from the date
of grant thereof, except that the term of each Option granted to an employee
who, immediately before such Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or of its parent or Subsidiaries shall be for not more than five (5)
years from the date of grant thereof. Subject to the foregoing, the term of
each Option shall be determined by the Board.
7. Option Price and Consideration.
(a) The price for the shares of Common Stock to be issued pursuant to
an Option shall be such price as is determined by the Board, but shall in no
event be less than the fair market value per share of the Common Stock on the
date of grant of the Option. In the case of an Option granted to an Employee
who, immediately before the grant of such Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or of its parent or Subsidiaries, the price shall be not less than 110%
of the fair market value per share of such Common Stock. The fair market value
shall be determined by the Board in its discretion; provided, that if there is a
public market for the Common Stock, the fair market value shall be (i) the
closing sale price as of the date of grant on the Nasdaq National Market or a
stock exchange if the Common Stock is traded on the Nasdaq National Market or a
stock exchange, and (ii) the mean of the reported closing bid and ask prices for
the Common Stock as of the date of grant if the Common Stock is not traded as
provided in clause (i).
(b) The consideration to be paid for the Common Stock to be issued
upon exercise of an Option, and the method of payment, shall be determined by
the Board and may consist of cash or any other consideration and method of
payment for the issuance of common stock which is permitted under the Delaware
Corporation Law and complies with other applicable laws and regulations
(including but not limited to, applicable federal tax and federal and state
securities laws and regulations).
8. Vesting and Exercise of Options.
(a) Vesting and Exercise of Options While an Employee. Each Option
held by an Optionee shall vest and shall be exercisable at any time so long as
such Optionee continues to be an Employee, cumulatively, (i) as to forty percent
(40%) of the total number of shares subject to such Option, twenty-four (24)
months following the date of grant of such Option, and (ii) as to twenty percent
(20%) of the total number of shares subject to such Option, once during each
twelve (12) month period commencing on the third and each subsequent anniversary
date of the grant of such Option, so that sixty (60) months following the date
of the grant of each Option one hundred percent (100%) of the shares subject to
such Option may be purchased by exercise of the Option.
(b) Vesting of Options Upon Retirement. All Options held by an
Optionee who retires at age 62 or older and was continuously an Employee for
five (5) years immediately preceding retirement which are not vested as provided
in Section 8(a) shall immediately vest upon such Optionee's retirement and be
exercisable as provided in Section 8(c).
(c) Exercise of Options Following Termination of Status as an
Employee. Following termination of employment as an Employee, an Optionee may
exercise an Option to the extent that he or she was entitled to exercise the
Option at the date of such termination as provided in Section 8(a) and (b) as
follows:
(i) Except in the case of death or disability (within the meaning
of Section 22(e)(3) of the Code), within thirty (30) days following the date of
termination of employment, except that the Board may extend the period for such
exercise up to a period not exceeding three (3) months following the date of
termination;
<PAGE>
(ii) If an Optionee dies while an Employee, the period of time
within which the Board may permit exercise of Options after the date of death
may be up to one (1) year, and such Options may be exercised by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance or by reason of the death of an Optionee; and
(iii) If an Optionee becomes disabled while an Employee, the
period of time within which the Board may permit exercise of Options after the
date of termination as an Employee of the Company may be up to one (1) year.
Options which are not vested as provided in Section 8(a) and (b) or which
are vested but not exercised as required by Section 8(c) shall terminate.
(d) Special Limitation on Exercise. Notwithstanding Sections 8(a)
and (b), in no event shall an Option be exercisable (i) during the six (6) month
period immediately following the date of grant except as otherwise provided in
Section 10, or (ii) for the first time during any calendar year for the purchase
of Common Stock with an aggregate fair market value (determined as of the date
of grant) in excess of $100,000.
(e) Procedure for Exercise; Rights as Stockholder. An Option shall
be deemed to be exercised when written notice of such exercise has been given to
the Company in accordance with the terms of the Option by the person entitled to
exercise the Option and full payment for the shares of Common Stock with respect
to which the Option is exercised has been received by the Company. An Option
may not be exercised for a fraction of a share of Common Stock.
Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such shares of Common Stock, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to such
Common Stock, notwithstanding the exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 10.
Exercise of an Option shall result in a decrease in the number of shares of
Common Stock which thereafter may be available, both for purposes of the Plan
and for purchase under the Option, by the number of shares of Common Stock as to
which the Option is exercised.
9. Non-Transferability of Options. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such shares of
Common Stock affected without receipt of consideration by the Company; provided,
that conversion of any convertible securities of the Company shall not be deemed
to have been "affected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
<PAGE>
In the event of (i) the dissolution or liquidation of the Company, (ii) the
sale of substantially all of the assets of the Company or of IMPCO, or (iii) the
merger, consolidation or other reorganization of the Company with or into
another corporation, the Options will terminate unless otherwise provided by the
Board. The Board may, in the exercise of its sole discretion in such instances,
declare that any Option shall terminate as of a date fixed by the Board or may
give all or certain Optionees the right to exercise their Options as to all or
any part of the shares of Common Stock which are subject to such Options,
including shares of Common Stock as to which Options would not otherwise be
exercisable.
In the event of a "change of control" of the Company, the Board may, in the
exercise of its sole discretion, give all or certain Optionees the right to
exercise their Options as to all or any part of the shares of Common Stock which
are subject to such Options, including shares of Common Stock as to which
Options would not otherwise be exercisable. For purposes of this paragraph,
"change of control" shall mean (i) within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, any person or group becomes a beneficial owner,
directly or indirectly, of the Company's securities representing 50% or more of
the total voting power of the Company's then outstanding securities, (ii) the
stockholders of the Company approve the dissolution or liquidation of the
Company, (iii) the stockholders of the Company approve an agreement to merge or
consolidate, or otherwise reorganize, whether into one or more entities, as a
result of which less than 50% of the total voting power of securities of the
surviving or resulting entity are, or are to be, owned by former stockholders of
the Company, or (iv) the stockholders or directors of the Company or IMPCO
approve, respectively, the sale of seventy-five percent (75%) or more of the
Company's or IMPCO's business and/or assets.
No Option granted pursuant to this Plan shall be adjusted by the Board
pursuant to this Section 10 in a manner that causes the Option to fail to
continue to qualify as an incentive stock option within the meaning of Section
422 of the Code.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
11. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee to
whom an Option is so granted within a reasonable time after the date of such
grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable, except
that, without approval of the holders of a majority of the outstanding shares of
the Common Stock, no such revision or amendment shall:
(i) Increase the number of shares of Common Stock subject to the
Plan other than in connection with an adjustment under Section 10 of the Plan;
(ii) materially change the designation of the class of employees
eligible to be granted Options;
(iii) remove the administration of the Plan from the Board; or
(iv) materially increase the benefits accruing to participants
under the Plan.
<PAGE>
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options granted prior to such amendment
or termination and such Options shall remain in full force and effect as if this
Plan had not been amended or terminated.
13. Conditions Upon Issuance of Shares. Shares of Common Stock shall not
be issued with respect to an Option granted under the Plan unless the exercise
of such Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or market upon which the Common Stock may then be listed
or quoted, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the shares of Common Stock are being purchased only for investment
and without any present intention to sell or distribute such Common Stock if, in
the opinion of counsel for the Company, such a representation is required by any
of the aforementioned relevant provisions of law.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain from any regulatory body having
jurisdiction authority deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any shares of Common Stock hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
shares as to which such requisite authority shall not have been obtained.
15. Option Agreements. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Stockholder Approval. Effectiveness of the Plan shall be subject to
approval within twelve (12) months following the Board of Directors' adoption of
this Plan by the holders of the Company's outstanding Common Stock.
Adopted by the Board of Directors on January 11, 1996.
Approved by the stockholders on November 7, 1996.
<PAGE>
Exhibit 11.1
AIRSENSORS, INC.
COMPUTATION OF NET INCOME PER SHARE
Years ended April 30, 1997, 1996, and 1995
-------------------------------------
1997 1996 1995
----------- ----------- -----------
PRIMARY CALCULATION:
Net income $3,486,958 $4,976,443 $2,967,491
Dividends on preferred stock (581,365) (609,875) (547,895)
Minority interest (261,667) (305,568) -
----------- ----------- -----------
Net income applicable to common stock $2,643,926 $4,061,000 $2,419,596
Add: Effect of treasury stock on
repayment of borrowings 386,086 247,265 158,980
Add: Effect of treasury stock on
purchase of investments/securities - - 26,457
----------- ----------- -----------
Net income applicable to common stock
for calculation of net income per share $3,030,012 $4,308,265 $2,605,033
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common
shares outstanding 5,722,382 5,648,290 5,620,317
Dilutive effect of outstanding stock
options and warrants (As determined
by application of the modified
treasury stock method) 1,070,166 999,703 945,705
----------- ----------- -----------
Weighted average number of common
shares, as adjusted for calculation
of net income per share 6,792,548 6,647,993 6,566,022
----------- ----------- -----------
----------- ----------- -----------
Net income per share $0.45 $0.65 $0.40
----------- ----------- -----------
----------- ----------- -----------
FULLY DILUTED CALCULATION:
Net income applicable to common stock
for calculation of net income per
share before effect of treasury stock
on repayment of borrowings $2,643,926 $4,061,000 $2,419,596
Add: Effect of treasury stock on
repayment of borrowings 386,086 247,265 158,980
Add: Effect of treasury stock on
purchase of investments/securities - - 19,843
----------- ----------- -----------
Net income applicable to common stock
for calculation of net income per share $3,030,012 $4,308,265 $2,598,419
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common
shares outstanding 5,722,382 5,648,290 5,620,317
Dilutive effect of outstanding stock
options and warrants (As determined
by application of the modified
treasury stock method) 1,070,166 999,703 945,705
Assuming conversion of preferred stock - 123,489 -
----------- ----------- -----------
Weighted average number of common
shares, as adjusted for calculation
of net income per share 6,792,548 6,771,482 6,566,022
----------- ----------- -----------
----------- ----------- -----------
Net income per share $0.45 $0.63 $0.40
----------- ----------- -----------
----------- ----------- -----------
<PAGE>
Exhibit 22.1
AIRSENSORS, INC.
SUBSIDIARIES OF THE COMPANY
---------------------------
Name Jurisdiction of Incorporation
---------------------------- -----------------------------
IMPCO Technologies, Inc. Delaware
Fuel Injection Centers of
America, Inc. Washington
Canadian AirSensors, Inc. British Columbia, Canada
IMPCO Europe B.V. Holland
IMPCO Media Europe B.V. Holland
IMPCO Technologies Pty Ltd Australia
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in (a) Amendment No. 3 to the
Registration Statement (Form S-3, No. 33-56610) pertaining to shares of
common stock of AirSensors, Inc. and in the related Prospectus, (b) Amendment
No. 1 to the Registration Statement (Form S-8, No. 33-38649) pertaining to
the 1989 Incentive Stock Option Plan of AirSensors, Inc. and in the related
Prospectus, (c) the Registration Statement (Form S-8, No. 33-72008)
pertaining to the 1991 Executive Stock Option Plan of AirSensors, Inc. and in
the related Prospectus, (d) the Registration Statement (Form S-3, No. 33-
37035) pertaining to the 1996 Incentive Stock Option Plan of AirSensors,
Inc., and (e) the Registration Statement (Form S-8, No. 33-62889) pertaining
to the IMPCO Investment and Tax Savings Plan, of our report dated June
27, 1997, except for Note 14, as to which the date is August 11, 1997,
with respect to the consolidated financial statements and financial
statement schedule of AirSensors, Inc. included in this Annual Report (Form
10-K) for the year ended April 30, 1997.
/s/ Ernst & Young LLP
Los Angeles, California
August 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 1,975,903
<SECURITIES> 0
<RECEIVABLES> 11,456,539
<ALLOWANCES> 288,111
<INVENTORY> 14,184,252
<CURRENT-ASSETS> 29,903,638
<PP&E> 15,246,685
<DEPRECIATION> 8,026,594
<TOTAL-ASSETS> 47,113,090
<CURRENT-LIABILITIES> 11,655,620
<BONDS> 0
0
5,650,000
<COMMON> 5,815
<OTHER-SE> 16,407,293
<TOTAL-LIABILITY-AND-EQUITY> 47,113,090
<SALES> 58,436,508
<TOTAL-REVENUES> 61,828,036
<CGS> 37,341,704
<TOTAL-COSTS> 56,978,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,100,449
<INCOME-PRETAX> 3,749,417
<INCOME-TAX> 262,459
<INCOME-CONTINUING> 3,225,291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,643,926
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
