<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 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
(State of Incorporation) IRS Employer I.D. No.
16804 Gridley Place, Cerritos, CA 90703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (562) 860-6666
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
--- ---
Number of shares outstanding of each of the issuer's classes of common
stock, as of August 31, 1997:
5,814,587 shares of Common Stock, $.001 par value per share
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
AIRSENSORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1997 and April 30, 1997
ASSETS
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 2,851,311 $ 1,975,903
Accounts receivable............................................................... 10,025,086 11,456,539
Less allowance for doubtful accounts............................................. 245,764 288,111
------------- -------------
Net accounts receivable......................................................... 9,779,322 11,168,428
Inventories:
Raw materials and parts........................................................... 8,513,781 7,717,710
Work-in-process................................................................... 926,007 754,576
Finished goods.................................................................... 5,619,309 5,711,966
------------- -------------
Total inventories................................................................ 15,059,097 14,184,252
Other current assets............................................................... 2,449,642 2,575,055
------------- -------------
Total current assets............................................................ 30,139,372 29,903,638
Equipment and leasehold improvements:
Dies, molds and patterns.......................................................... 4,824,289 4,272,220
Machinery and equipment........................................................... 5,221,025 4,846,940
Office furnishings and equipment.................................................. 4,355,535 4,130,351
Leasehold improvements............................................................ 2,012,155 1,997,174
------------- -------------
16,413,004 15,246,685
Less accumulated depreciation and amortization..................................... 8,763,824 8,026,594
------------- -------------
Net equipment and leasehold improvements......................................... 7,649,180 7,220,091
Intangibles arising from acquisitions.............................................. 11,269,067 11,351,802
Less accumulated amortization..................................................... 3,184,721 2,950,805
------------- -------------
Net intangibles arising from acquisition.......................................... 8,084,346 8,400,997
Other assets....................................................................... 1,483,065 1,588,364
------------- -------------
$ 47,355,963 $ 47,113,090
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1997 and April 30, 1997
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Notes payable................................ $188,376 $328,839
Accounts payable............................. 4,338,492 4,538,243
Accrued payroll
obligations................................. 1,422,406 1,564,028
Accrued warranty
obligations................................. 220,000 275,760
Income taxes payable......................... 756,433 563,947
Other accrued expenses....................... 2,633,850 2,869,218
Current portion of term
loans....................................... 1,534,849 1,515,585
----------- ------------
Total current liabilities................... 11,094,406 11,655,620
Line of credit................................ 6,250,000 5,450,000
Term loans--Bank of America
NT&SA....................................... 3,240,750 3,592,013
Term loan--DEPA Holding
B.V......................................... 2,065,632 2,154,399
Other long term
liabilities................................. 1,467,756 1,524,906
Minority interest............................. 726,286 673,044
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 July 31, 1997 (5,814,587
at April 30, 1997)........................... 5,815 5,815
Additional paid-in capital
relating to common
stock....................................... 29,342,121 29,342,121
Shares held in trust......................... (20,681) (8,814)
Accumulated deficit........................... (11,776,332) (12,467,953)
Foreign currency translation
adjustment.................................. (689,790) (458,061)
----------- ------------
Total stockholders'
equity..................................... 22,511,133 22,063,108
----------- ------------
$47,355,963 $47,113,090
----------- ------------
----------- ------------
</TABLE>
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended July 31, 1997 and 1996
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1997 1996
------------- -------------
<S> <C> <C>
Revenue:
Product sales..................................................................... $ 14,151,086 $ 14,179,291
Contract revenue.................................................................. 2,138,237 969,341
------------- -------------
Net revenue...................................................................... 16,289,323 15,148,632
Costs and expenses:
Cost of sales..................................................................... 8,819,156 9,109,120
Research and development expense.................................................. 3,065,614 2,283,755
Selling, general and administrative expense....................................... 3,089,849 2,662,911
------------- -------------
Total costs and expenses......................................................... 14,974,619 14,055,786
------------- -------------
Operating income................................................................... 1,314,704 1,092,846
Financing charges.................................................................. 279,648 224,179
Income before income taxes and minority interest in income of consolidated
subsidiaries..................................................................... 1,035,056 868,667
Provision for income taxes......................................................... 139,430 117,833
Minority interest in income of consolidated subsidiaries........................... 55,255 38,420
------------- -------------
Net income before dividends........................................................ 840,371 712,414
Dividends on preferred stock....................................................... 148,750 145,032
------------- -------------
Net income applicable to common stock.............................................. $ 691,621 $ 567,382
------------- -------------
------------- -------------
Net income per share............................................................... $ 0.11 $ 0.10
------------- -------------
------------- -------------
Number of shares used in per share calculation:.................................... 6,807,765 6,757,139
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended July 31, 1997 and 1996
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1997 1996
------------ -----------
<S> <C> <C>
Net cash provided by operating activities............................................. $ 1,713,103 $ 206,482
Cash flows from investing activities:
Payment for purchase of certain assets acquired from Ateco........................... -- (4,655,142)
Purchase of equipment and leasehold improvements..................................... (847,879) (505,601)
Other, net........................................................................... 87,531 294,462
------------ -----------
Net cash (used in) investing activities............................................. (760,348) (4,866,281)
Cash flows from financing activities:
Net borrowings on line of credit..................................................... 800,000 2,100,000
Payments on notes payable............................................................ (140,463) (258,551)
Proceeds from issuance of bank term loans............................................ -- 3,951,375
Proceeds from issuance of common stock............................................... -- 23,278
Payments on term loans............................................................... (327,553) (184,422)
Payments of other long-term liabilities.............................................. (232,533) (72,903)
Dividends on preferred stock......................................................... (148,750) (145,032)
------------ -----------
Net cash (used in) provided by financing activities................................. (49,299) 5,413,745
------------ -----------
Translation adjustment............................................................... (28,048) --
------------ -----------
Net increase in cash.................................................................. 875,408 753,946
Cash beginning of year................................................................ 1,975,903 811,148
------------ -----------
Cash, end of quarter.................................................................. $ 2,851,311 $ 1,565,094
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
<PAGE>
AIRSENSORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997 and 1996
---------------
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for the fair
presentation of the financial position and operating results for the interim
periods. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
the results of operations, contained in the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 1997. The condensed consolidated
balance sheet of AirSensors, Inc. as of July 31, 1997 includes the accounts
of the Company, its wholly-owned subsidiary, IMPCO Technologies, Inc.,
(IMPCO), IMPCO's wholly-owned subsidiary IMPCO Technologies, Pty. Ltd. and
IMPCO's majority-owned subsidiary IMPCO Europe Media B.V. The results of
operations for the three months ended July 31, 1997 are not necessarily
indicative of the results that may be expected for the entire year ending
April 30, 1998.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operation 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" in the 10-K filed August 28, 1997 and
other factors identified from time to time in the Company's reports filed
with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
- ---------------------
NET REVENUE
- -----------
Revenues for the first quarter of fiscal year 1998 increased 8% over
revenues for the first quarter of fiscal year 1997. Contract revenues
increased 121% whereas product sales remained comparable for the three month
period ended July 31, 1997 compared to the same period in the previous year.
The following table sets forth the Company's product sales by application
(all dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Motor vehicle products...................................................................... $ 5,219 $ 5,150
Forklifts and other material handling equipment............................................. 6,012 6,271
Small portable to large stationary engines.................................................. 2,920 2,758
Total product sales......................................................................... $ 14,151 $ 14,179
--------- ---------
--------- ---------
</TABLE>
<PAGE>
During the three months ended July 31, 1997 net revenue attributable to
the Company's motor vehicle products increased by 1% as compared to the same
period in the prior fiscal year. The following table sets forth the Company's
worldwide motor vehicle product sales by component parts and upfitting
systems, (all dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Component parts................................................................................ $ 5,022 $ 3,987
Upfitting systems.............................................................................. 197 1,163
--------- ---------
Total product sales........................................................................... $ 5,219 $ 5,150
--------- ---------
--------- ---------
</TABLE>
During the three months ended July 31, 1997, sales for the Company's
motor vehicle component parts increased by 26% as compared to the same period
in the prior fiscal year. This increase primarily resulted from growing
demand for aftermarket conversions in Latin America and from higher sales to
United States and Canadian based customers for medium duty truck conversions.
Management anticipates that revenues generated from component parts in the
current fiscal year will be higher than realized during fiscal year 1997 due
to growing aftermarket sales in North America and market penetration in
Australia. This is a forward-looking statement. Revenue attributable to
upfitting vehicles with the Company's systems decreased by approximately
$966,000. This decrease resulted primarily from completing deliveries of the
F150 and F250 pick-up trucks under the Ford Motor Company program in the
first quarter of fiscal year 1997. The upfitting revenue in the current
fiscal year represents initial sales of mid-1997 GM pick-ups, as part of the
General Motors program, upfit with the Company's alternative fuel system.
Management anticipates additional upfitting revenues from the General Motors
program in future quarters with significant increases realized toward the end
of the current fiscal year. This is a forward-looking statement.
During the three months ended July 31, 1997, sales for the Company's
forklifts and other material handling equipment decreased by 4% as compared
to the same period in the prior fiscal year. This decrease is primarily
attributable to a decrease in the material handling industry demand for new
forklifts in the United States. Management anticipates that the revenues
provided by forklift and other material handling equipment market for fiscal
year 1998 will be comparable to fiscal year 1997. This is a forward-looking
statement.
During the three months ended July 31, 1997, sales for the Company's
small portable to large stationary engines increased 6% as compared to the
same period in the prior fiscal year. This increase was primarily
attributable to an increased demand for large and small power generator units
used in power replacement and recreational applications. Although there was
an increase in the quarterly results as compared to the same period in the
previous fiscal year, management anticipates that the market for the
Company's small
<PAGE>
portable to large stationary engines in fiscal year 1998 will be comparable
to fiscal year 1997. This is a forward-looking statement.
During the three months ended July 31, 1997, General Motors contract
revenue increased by $1,061,000 as compared to the same period in the prior
fiscal year. For the period ended July 31, 1997, contract revenue comprised
13% of total revenue compared to 6% for the same period in the previous year.
This increase was due to the addition of several vehicle platforms under the
development contract with General Motors Corporation. Future contract revenue
will be contingent upon the Company's success in securing new development
contracts. Management anticipates that contract revenue during the remainder
of the current fiscal year will be substantially higher than levels
experienced during the previous fiscal year. This is a forward-looking
statement.
During the three months ended July 31, 1997, the Company's product sales
were generated in the following geographic regions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
------------------
1997 1996
----- -----
<S> <C> <C>
United States and Canada............................................................................ 70% 63%
Pacific Rim......................................................................................... 10% 16%
Europe.............................................................................................. 11% 14%
Latin America....................................................................................... 9% 7%
</TABLE>
GROSS PROFIT MARGIN
- -------------------
During the three months ended July 31, 1997 gross profit margin as a
percent of product sales was 38% compared to 36% realized during the same
period in the prior fiscal year. During the current quarter the Company's
gross profit margin on product sales was favorably impacted by component
sales in the United States and Australia. This increase in product
contribution margin was partially offset by lower profit margins on component
sales in Europe and lower margins on upfitter sales. Management anticipates
that overall percent profit margin will decrease as upfitter sales become a
larger segment of the Company's business. However, as the upfitter business
increases, overall gross profit amounts will increase. This is a
forward-looking statement.
<PAGE>
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense for the three months ended July
31, 1997, increased $782,000 (34%) as compared to the same period in the
prior fiscal year. This increase was primarily for application and
development of the Company's products under the funded General Motors
contract, and for 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. Management
anticipates that R&D expense during fiscal year 1998 will be significantly
higher than the levels experienced during fiscal year 1997 due to new product
development under the GM contract. This is a forward-looking statement.
SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------
Selling, general and administrative (SG&A) expense for the three months
ended July 31, 1997, increased $427,000 (16%) as compared to the same period
in the prior fiscal year. The increase in SG&A expense was primarily due to
the inclusion of IMPCO Pty's SG&A expenses for a full quarter in the current
fiscal year versus only one month during the same period in the previous
fiscal year. The remaining increase in SG&A expense for the current quarter
resulted from additional administrative expenses from the U.S. operations.
These expenses included administrative salaries, incentive compensation, and
legal expenses. Management anticipates that SG&A expense for fiscal year 1998
will be higher than fiscal year 1997 primarily as a result of including a
full year of the Company's Australian operation and additional expenses to
support anticipated growth in revenues. However, as a percentage of net
revenues, SG&A expense is expected to be lower for the current fiscal year as
compared to fiscal year 1997. This is a forward-looking statement.
FINANCING CHARGES
- -----------------
Financing charges for the three months ended July 31, 1997, increased
$55,000 or 25% as compared to the same period in the prior fiscal year. This
increase is primarily the result of loans associated with the acquisition of
the Company's Australian operation and the increased use in the line of
credit. Management anticipates that financing charges for fiscal year 1998
will increase as compared to fiscal year 1997 as a result of a full year of
interest on the loans used to acquire Ateco and increased use of the
Company's line of credit. This is a forward-looking statement.
PROVISION FOR INCOME TAXES
- --------------------------
The estimated effective annual tax rate for fiscal year 1998 has been
reduced by the presumed utilization of approximately $3,631,000 of federal
net operating loss carryforwards and estimated research and development
credits of $285,000. For federal income tax purposes, at July 31, 1997, the
Company had net operating loss carryforwards of approximately $2,400,000
available to offset future taxable income. At July 31, 1997,
<PAGE>
the deferred tax asset account was $1,973,000. Management has determined,
based on the Company's history of prior operating earnings and its
expectations for the future, that operating income of the Company will more
likely than not be sufficient to recognize fully these net deferred tax
assets.
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.
The Company's financial condition remains strong. The ratio of current
assets to current liabilities was 2.72 and 2.57 at July 31, 1997 and April
30, 1997, respectively. During the current quarter, the total amount of
working capital increased by $797,000 to $19,045,000 at July 31, 1997. Net
cash provided by operating activities was $1,713,000 during the current
quarter, compared to $206,000 for the same period in the previous year. The
increase in cash provided by operating activities during the current period
resulted from a $1,389,000 decrease in accounts receivable.
Net cash used in investing activities in the first quarter was
approximately $760,000, a decrease of approximately $4,106,000 from the same
period in the previous year. This decrease is primarily from the purchase of
the Company's Australian subsidiary during the first quarter of the previous
year, 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 $848,000 during the current period, compared to $506,000 for the
first quarter in the previous year. Management projects this increase in
capital expenditures to continue 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.
Net cash used in financing activities during the current quarter was
approximately $49,000. For the three month period ending July 31, 1997, the
Company increased its borrowing under the operating line of credit by
$800,000 primarily for current operations and material purchases. Payments
made on term loans and notes payable were approximately $468,000.
The Company has an $8,000,000 revolving line of credit and a $3,525,000
capital lease facility with Bank of America. At July 31, 1997, approximately
$6,250,000 and $1,710,000 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. $1,526,000) credit facility with Mees Pierson, a
financial institution in the Netherlands. At July 31, 1997, there was no
outstanding balance on the Dutch credit facility.
<PAGE>
PART II--OTHER INFORMATION
Items 1-5 Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11.1--Computation of net income per share.
(b) Reports on Form 8-K:
There were on reports on Form 8-K filed during the quarter ended July
31, 1997.
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: September 15, 1997 By /s/Thomas M. Costales
-------------------------
Thomas M. Costales
Chief Financial Officer
and Treasurer
[Authorized Signatory]
<PAGE>
AIRSENSORS, INC.
COMPUTATION OF NET INCOME PER SHARE
Three months ended July 31, 1997 and 1996
-----------
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
PRIMARY CALCULATION:
Net income............................................................................. $ 895,626 $ 750,834
Minority interest...................................................................... (55,255) (38,420)
Dividends on preferred stock........................................................... (148,750) (145,032)
---------- ----------
Net income applicable to common stock.................................................. 691,621 567,382
Add: Effect of treasury stock on repayment of borrowings............................... 47,244 75,590
---------- ----------
Net income applicable to common stock for calculation of net income per share.......... 738,865 642,972
Weighted average number of common shares outstanding................................... 5,814,587 5,680,061
Dilutive effect of outstanding stock options and warrants (As determined by application
of the modified treasury stock method)................................................ 993,178 1,077,078
---------- ----------
Weighted average number of common shares, as adjusted for calculation of net income per
share................................................................................. 6,807,765 6,757,139
---------- ----------
---------- ----------
Net income per share.................................................................... $ 0.11 $ 0.10
---------- ----------
---------- ----------
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................................... 691,621 567,382
Add: Effect of treasury stock on repayment of borrowings................................ 33,231 75,590
Net income applicable to common stock for calculation of net income per share........... 724,852 642,972
Weighted average number of common shares outstanding.................................... 5,814,587 5,680,061
Dilutive effect of outstanding stock options and warrants (As determined by application
of the modified treasury stock method)................................................ 993.178 1,077,078
---------- ----------
Weighted average number of common shares, as adjusted for calculation of net income per
share................................................................................. 6,807,765 6,757,139
---------- ----------
---------- ----------
Net income per share.................................................................... $ 0.11 $ 0.10
---------- ----------
---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1997
<CASH> 2,851,311
<SECURITIES> 0
<RECEIVABLES> 10,025,086
<ALLOWANCES> 245,764
<INVENTORY> 15,059,097
<CURRENT-ASSETS> 30,139,372
<PP&E> 16,413,004
<DEPRECIATION> 8,763,824
<TOTAL-ASSETS> 47,355,963
<CURRENT-LIABILITIES> 11,094,406
<BONDS> 0
0
5,650,000
<COMMON> 5,815
<OTHER-SE> 16,855,318
<TOTAL-LIABILITY-AND-EQUITY> 47,355,963
<SALES> 14,151,086
<TOTAL-REVENUES> 16,289,323
<CGS> 8,819,156
<TOTAL-COSTS> 14,974,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,648
<INCOME-PRETAX> 1,035,056
<INCOME-TAX> 139,430
<INCOME-CONTINUING> 840,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 691,621
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
