<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number:
March 31, 1996 0-16227
IMPACT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
California 94-2672923
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1075 East Brokaw Road, San Jose, California 95131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 453-3700
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / x / No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on May 31,
1996 as reported on the NASDAQ National Market System, was approximately
$22,274,015. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of May 31, 1996, registrant had outstanding
10,370,776 shares of Common Stock.
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PART I
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ITEM 1. BUSINESS.
GENERAL
Impact Systems, Inc., founded in 1980, develops, manufactures, sells and
services a wide spectrum of computer-based measurement and control systems to
the paper industry. Impact's cross-direction (CD) measurement and control
systems reduce CD variations in key variables occurring in the production of
virtually all grades of paper. Actuators and sensors primarily improve quality
and reduce operating costs which are important in market-limited situations. The
Spectrum(TM) drying products are primarily used to improve production. Control
of these variables is critical to improving paper quality, increasing production
capacity, and reducing rejects, energy consumption and raw material costs. The
Company's products have been specifically designed for integration with existing
paper machine measurement and control systems.
The Company's paper industry expertise and specialized applications knowledge of
cross-directional controls substantially enhance the development and marketing
of its products. The Company's principal customers are among the larger
worldwide paper companies normally with sales exceeding $1 billion annually.
Additionally, the Company sells its products directly to large paper machine and
coater manufacturers.
The Company is incorporated in California.
PRODUCTS
UnityPlus(TM); AdvantagePlus(TM)
The Company has cross-OEM (Original Equipment Manufacturer) agreements with
Elsag Bailey, Inc., a wholly-owned indirect subsidiary of Elsag Bailey Process
Automation N.V. (NYSE: EBY), Impact's largest shareholder (23.03 percent of
Impact's outstanding common stock at March 31, 1996). Impact OEM's the "Unity"
distributed control system and related software from Bailey. Unity is an
integrated control system, designed for the paper machine floor. It incorporates
the operator console, control processors, I/O (input/output), modules, control
logic and graphic configuration tools into a single, self-contained distributed
control system. Bailey OEM's Impact's complete line of cross-direction actuators
and related software, drying systems, and the "AdvantagePlus" line of scanners
and sensors which is specifically designed for Distributed Control Systems
(DCS). The combination UnityPlus product (Unity and AdvantagePlus) is a
complete, fully expandable DCS system, incorporating the latest technological
advances in cross-direction actuators and sensors -- specifically designed to
eliminate the hardware and software redundancy commonly found in conventional
packaged control systems. Installation of the UnityPlus product results in a
true 'single window' paper machine control system, giving high reliability and
flexibility. See Note 10 of Notes to the Consolidated Financial Statements -
Related Party Transactions.
The Impact Advantage line of scanning paper machine sensors was introduced at a
paper industry trade show (TAPPI Process Control) in 1989, and the Company began
shipping its AdvantagePlus line in December 1991. The line offers a
comprehensive array of on-line sensors for the paper machine, including Basis
Weight, Infrared Moisture, Caliper, Microwave Moisture, Ash, and Direct Coat
Weight. These sensors may be used as standalone measurement systems which may be
easily interfaced to any distributed control system or the customer's existing
packaged control system. Alternatively, the Advantage line supplies weight and
moisture software controls, display and MIS reports in a completely
self-contained process control system configuration.
Infra-Pac(TM)
The Infra-Pac electric infrared actuator for CD moisture control uses a
sectionalized, high intensity infrared drying process to control moisture across
the width of the paper sheet or to provide specialized drying for coated
processes. Now in its third generation frame design and power supply, the
product design allows for long lamp life and the efficient cost due to its Unity
Power Factor. Of the installed electric infrared systems in operation worldwide,
approximately 80 percent are Impact's.
Therma-Jet(TM)
The Therma-Jet variable temperature air-jet actuator for CD caliper control uses
a high velocity variable temperature air jet system which causes a calender roll
to expand or contract at logical intervals, thereby adjusting the compression
between two rolls and thus the thickness of the paper sheet. Ultra-Jet(TM) II, a
higher source, greater zone resolution (1 1/2" control zones) version was
introduced within the last two years and provides the standard for high power,
high resolution CD caliper control systems.
Dyna-Step(TM)
The Dyna-Step stepper motor actuator for CD weight control automatically adjusts
the opening through which the slurry flows out of the paper machine headbox,
permitting greater control of weight across the paper sheet. The unique
SimulStep(TM) feature moves all actuators in parallel for fast response to major
upsets or grade changes.
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<PAGE> 3
Aqua-Pac(TM)
The Aqua-Pac remoisturizing actuator for CD moisture control corrects moisture
profile variations by adding water to the dry areas of the paper sheet. Designed
for high reliability and ease of maintenance, it can reduce CD moisture
variations by up to 80 percent.
Spectrum-IR(TM) II Gas
The Spectrum-IR II Gas Infrared Drying System is specifically designed for
coating, sizing and drying applications. Its virtually instantaneous cooldown
eliminates fire hazards associated with conventional gas systems. Spectrum-IR
can add additional drying without additional space to achieve paper machine
speed increase. Impact also offers the recently introduced Spectrum III Dual IR
System with higher IR and drying output.
The Company's products are also sold as systems consisting of one or more
actuators plus a data network and various options for operator stations. These
complete systems are designed as add-ons to existing paper machines functioning
with existing measurement systems supplied by other measurement system
suppliers. Impact's actuators and measurement systems are also sold
independently, without an operator station, in which case the operator
interface, control system is provided by the user's control measurement system.
BACKLOG
The Company's systems backlog as of March 31, 1996, was approximately $8.8
million, as compared with approximately $6.0 million as of March 31, 1995.
Backlog generally represents orders for systems scheduled for delivery within
six months. The Company typically ships its systems within three to six months
after receipt of an order and the majority of its current backlog is scheduled
for delivery within six months. Customers can reschedule shipping dates to
coordinate with their installation timetables. Due to the possibility of
customer changes in delivery schedules, the Company's backlog as of any
particular date may not be indicative of actual revenues for any future period.
While the Company believes operating results are highly dependent upon the
economic environment, it has not experienced significant seasonal variations in
the demand for its products.
SALES AND SERVICE
The Company markets its products through a direct sales and marketing force or
manufacturers representatives who are supported by Impact's sales and service
organization. Most of the Company's sales personnel are engineers with prior
experience in papermaking or in the sale of specialized capital equipment to the
paper industry. The Company's sales force is supported by field service and
engineering personnel who are responsible for managing the installation and
maintenance of Impact's products.
COMPETITION AND INDUSTRY CONDITIONS
The market for the sale of process control products to paper companies is highly
competitive. Impact's principal competitors in its actuator and process control
systems business are ABB and Measurex. Impact also competes with a small number
of regional companies.
Competition is based primarily on performance, product quality and reliability,
as well as price, service and support capability, and corporate reputation.
Impact believes that a particularly important competitive factor is the degree
of applications engineering provided in the sale of the system.
The paper industry is capital intensive and highly cyclical. Expenditures on
capital equipment by paper manufacturers have tended to vary in cycles that
reflect overall economic conditions. In the event of an economic slowdown,
spending on capital equipment by the paper industry is likely to decrease. As a
result, orders for the Company's products, and therefore its operating results,
may be adversely affected during such periods. From 1989 through 1993, the paper
industry was in a recession, adversely affecting capital spending. The situation
improved in fiscal 1994, particularly in the United States, as demand for paper
products more closely met capacity thereby stimulating capital investment.
Starting in calendar 1996, most paper companies showed symptoms of a weaker
market with lower demand and prices. A number of paper companies have indicated
that certain indicators are present which could signal that conditions in the
industry are improving which could result in other paper price increases.
Capital equipment expenditures could be adversely affected if the lower demand
and prices continue.
WORKING CAPITAL PRACTICES
The Company believes its working capital practices are consistent with those of
its industry. Inventory purchases are generally for current production and
service demand requirements. Cash, in excess of current payment obligations, is
generally invested in secured short-term interest-bearing instruments such as
Treasury bills. Customer payment terms are consistent with industry practices.
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<PAGE> 4
MANUFACTURING
The Company manufactures its products at its headquarters in San Jose,
California. Manufacturing operations consist primarily of final assembly, test
and quality control of materials and components. The Company uses standard parts
and components for its products, and in most cases multiple vendors are
available.
RESEARCH AND PRODUCT DEVELOPMENT
From fiscal 1994 through 1996, the Company reinvested between approximately 10
and 11 percent of its net revenues in research and development. The Company's
research and development expenses are expected to be directed toward
enhancements of its existing product line and expansion of the Company's system
integration capabilities at least through fiscal 1997.
PATENTS AND LICENSES
The Company holds sixteen U.S. patents and also has a number of patents filed or
pending in foreign countries and will continue to seek patent coverage for its
inventions in both the United States and foreign countries. The Company will
continue to seek proprietary protection for its inventions, trademarks and
copyrights where appropriate. The Company has in the past and will continue to
take legal action to uphold its patents.
EMPLOYEES
At March 31, 1996, the Company had 80 full-time employees, including 18 located
outside of the United States.
RISK FACTORS
Paper industry demand
As indicated previously (Competition and Industry Conditions), the Company's
market is the paper industry, and as such, is subject to certain risks inherent
with operating in a highly cyclical and, to some extent, unpredictable
marketplace. The Company's customers are typically large corporations with
lengthy procurement processes. The approval process often involves competing
capital budget considerations making the timing of actual purchase orders
difficult to predict, especially during economic downtimes. The paper industry
has in the past and most likely will be in the future subject to substantial
swings in demand for its products which effect the level of capital expenditures
in any given period, thereby effecting the Company's overall order rate.
Timing of orders/shipments
Given the lengthy and unpredictable nature of the Company's order cycle and the
relatively large percentage of total quarterly revenue which may be represented
by a single system shipment, the timing of shipments could cause substantial
positive or negative fluctuations in the Company's quarter-to-quarter financial
performance. In addition to the uncertainty of purchase order timing, shipment
dates can also be effected by the ability of a paper mill to schedule
installation which often requires the shut down of the paper machine.
International operations/markets
As a significant portion of the Company's revenue has historically been derived
from export sales, it is subject to certain risks associated with international
operations and shipments such as letters of credit, fluctuations in currency
exchange rates, import licenses, regulatory requirements, and economic
conditions of local markets. The Company's operating results could be adversely
effected by the inability to obtain appropriate export documents or by shifts in
the economic conditions effecting local markets or currencies.
ITEM 2. PROPERTIES.
The Company's corporate offices, research and development facilities, and
primary manufacturing facilities are located in San Jose, California and total
approximately 46,640 square feet. The Company also leases several sales offices.
The Company believes that its existing facilities are adequate to meet current
requirements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any legal proceedings which it believes will
materially and adversely affect its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The following table sets forth the range of high and low closing sale prices in
dollars reported on the NASDAQ National Market System under the symbol MPAC for
the periods indicated. There were approximately 2,386 shareholders of record of
Common Stock on May 31, 1996 based on transfer agent's listings and broker
dealer demand for proxy statements on behalf of beneficial owners.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1995 March 31, 1996
- ----------------- ----------------- -----------------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 1 5/8 1 1/4 2 3/16 1 15/16
Second Quarter 1 3/4 1 1/4 3 1/16 2
Third Quarter 2 1 9/16 2 15/16 2 1/16
Fourth Quarter 2 5/16 1 1/2 3 9/16 2 1/2
</TABLE>
On May 31, 1996, the closing trade was priced at $3 5/16 per share.
The Company has not paid cash dividends on its Common Stock, and its Board of
Directors presently intends to continue this policy in order to retain earnings
for the development of the Company's business. Accordingly, it is anticipated
that no cash dividends will be paid to holders of Common Stock in the
foreseeable future.
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<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
- -------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
(in thousands, except per share amounts)
Net revenues $16,851 $14,551 $13,295 $15,709 $17,765
------- ------- ------- ------- -------
Costs and expenses:
Cost of goods sold 8,713 6,907 6,046 7,603 8,627
Research and development 1,974 1,603 1,492 1,758 1,752
Selling, general and administrative 7,017 5,463 5,063 5,217 5,908
Provision for restructuring 6,810 -- -- -- --
------- ------- ------- ------- -------
Total costs and expenses 24,514 13,973 12,601 14,578 16,287
------- ------- ------- ------- -------
Operating income (loss) (7,663) 578 694 1,131 1,478
Interest income (expense), net (355) 8 167 284 333
Foreign currency gain (loss), net 85 (55) (64) (23) (19)
Equity in net income (loss)
of investee 43 (43) 35 50 199
------- ------- ------- ------- -------
Income (loss) before income taxes
and extraordinary credit (7,890) 488 832 1,442 2,029
Income tax -- 195 -- -- --
------- ------- ------- ------- -------
Income (loss) before
extraordinary credit (7,890) 293 832 1,442 2,029
Extraordinary credit from utilization
of net operating loss
carryforwards -- 151 -- -- --
------- ------- ------- ------- -------
Net income (loss) $(7,890) $ 444 $ 832 $ 1,442 $ 2,029
======= ======= ======= ======= =======
Income (loss) per share:
Income (loss) before
extraordinary credit $ (.74) $ .03 $ .07 $ .14 $ .19
Extraordinary credit from utilization
of net operating loss
carryforwards -- .01 -- -- --
------- ------- ------- ------- -------
Net income (loss) $ (.74) $.04 $ .07 $ .14 $ .19
======= ======= ======= ======= =======
Weighted average common and common
equivalent shares 10,711 12,107 11,376 10,677 10,949
======= ======= ======= ======= =======
<CAPTION>
MARCH 31,
- ----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
CONSOLIDATED BALANCE SHEETS DATA:
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 8,387 $ 9,631 $ 8,492 $ 9,897 $12,120
Total assets $18,684 $15,177 $13,597 $15,134 $18,120
Long-term obligations,
less current portion -- -- -- -- --
Stockholders' equity $10,770 $11,020 $10,213 $11,875 $13,975
NOTE: No cash dividends were declared or paid during any of the five years
presented.
</TABLE>
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<PAGE> 7
INTERIM FINANCIAL INFORMATION (unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED
--------------------------------------------
JUNE 30, SEPTEMBER DECEMBER MARCH 31,
1995 30, 1995 31, 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 3,729 $ 3,964 $ 4,441 $ 5,631
Gross margin 1,802 2,051 2,421 2,864
Operating expenses 1,680 1,820 1,971 2,189
Net income 305 502 607 615
Net income per share .03 .05 .06 .06
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995 QUARTER ENDED
--------------------------------------------
JUNE 30, SEPTEMBER DECEMBER MARCH 31,
1994 30, 1994 31, 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 3,941 $ 4,101 $ 3,784 $ 3,883
Gross margin 1,961 2,103 2,059 1,983
Operating expenses 1,745 1,736 1,716 1,778
Net income 275 375 380 412
Net income per share .03 .04 .04 .04
</TABLE>
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<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION
The financial results of the Company for fiscal 1996 reflected the continued
growth of the paper industry market following a five year slowdown from fiscal
1989 through fiscal 1993. Demand for paper products expanded to meet paper
manufacturer's capacity resulting in the reinstatement of capital investment
programs including the Company's products. The Company also benefited from its
continued emergence in the sensor market as system shipments of its Advantage
sensor product line increased nearly 60% from fiscal 1995 levels.
The Company's net revenues increased 18% from fiscal 1994 to fiscal 1995 and 13%
from fiscal 1995 to fiscal 1996. Net income has increased 73% and 41%,
respectively, over the same fiscal periods. With respect to the Company's
liquidity, cash, cash equivalents, and short-term investments increased from
$5.7 million at March 31, 1994 to $6.2 million at March 31, 1995 and $6.5
million at March 31, 1996. The Company's current ratio improved from 3.5 to 1 at
March 31, 1994 to 3.9 to 1 at March 31, 1996.
The Company's results are highly dependent upon economic conditions effecting
the paper industry and, consequently, orders tend to reflect the cyclical demand
for paper products worldwide. Although the Company has benefited from the
relatively recent turnaround of the paper industry there is no certainty that
economic conditions will be sustained in future fiscal periods. Beginning in
calendar 1996, paper demand and prices have begun to weaken. This downturn could
negatively affect future capital equipment purchases by paper manufacturing
companies.
NET REVENUES
Net revenues for the year ended March 31, 1996 were $17.8 million compared to
$15.7 million for the year ended March 31, 1995 and $13.3 million for the year
ended March 31, 1994. The year to year increase from fiscal 1994 to fiscal 1996
is primarily attributable to the paper industry economic recovery which began in
late fiscal 1994. Demand for paper products, particularly in the United States
market, grew to meet paper manufacturer's capacity resulting in improved demand
for the Company's products. The Company's new Advantage sensor product line also
contributed to the increase in revenues from fiscal 1995 to fiscal 1996 as the
geographic market for the product expanded in response to enhanced sales and
marketing coverage.
COST OF GOODS SOLD
Cost of goods sold (systems and spare parts shipments) were relatively
consistent (as a percentage of net revenue) for the past three fiscal years
amounting to 46%, 48% and 49% for fiscal 1994, fiscal 1995, and fiscal 1996
respectively. The increase from fiscal 1994 to fiscal 1996 is principally
attributable to costs associated with new product shipments. Cost of goods sold
reflect the material, labor and overhead expenses related to system and spare
parts shipments and can vary with fluctuations in product mix.
RESEARCH AND DEVELOPMENT
The Company's research and development program has primarily been directed at
system integration and interface enhancements the past three fiscal years and
amounted to $1.5 million, $1.8 million, and $1.8 million in fiscal 1994, fiscal
1995 and fiscal 1996, respectively. As mentioned previously, shipments of
Advantage sensor products increased approximately 60% from fiscal 1995 to fiscal
1996 and a significant portion of research and development resources were
directed toward the newer product line. For fiscal 1997, the Company expects
research and development costs to remain relatively consistent with prior year
levels.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A)
Selling, general and administrative expenses increased from $5.1 million in
fiscal 1994 to $5.2 million in fiscal 1995 and $5.9 million in fiscal 1996. Most
of the year to year increases in SG&A were the result of higher variable costs
associated with the increased shipment levels. Spending in fiscal 1996 included
costs to expand the Company's sales force in primary markets in order to more
effectively promote its broadened product line.
OTHER INCOME AND EXPENSE
Net interest income increased from $167,000 in fiscal 1994 to $284,000 in fiscal
1995 and $333,000 in fiscal 1996 reflecting primarily the gradual increase in
invested cash balances from year to year.
Foreign currency gains and losses have not been material for the three fiscal
years ended March 31, 1996.
The Company realized a significant increase in its 40% investment in Impact
Systems Asia during fiscal 1996, as the recorded net income from its minority
affiliate increased to $199,000 compared to $35,000 and $50,000 in fiscal 1994
and fiscal 1995, respectively. The fiscal 1996 results for Impact Systems Asia
reflect a dramatic increase in shipments from the
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<PAGE> 9
prior two years as the Japanese paper industry emerged from a prolonged
recession. The Company expects fiscal 1997 shipments for the affiliate to
decline over fiscal 1996 levels as the extraordinary order rate is not expected
to be sustained.
INCOME TAXES
At March 31, 1996, the Company had net operating loss carryforwards of
approximately $5.0 million for federal income tax purposes. The Company also had
tax credit carryforwards of approximately $1.0 million and $0.1 million for
federal and state income tax purposes, respectively. The net operating loss
carryforwards and tax credits expire principally between fiscal 2004 and 2007.
Due to the cyclicality and volatility of the paper industry (See Risk Factors in
Item 1. Business), the Company has provided a valuation allowance of
approximately $3.9 million for the uncertainty of realization of certain
deferred tax assets at March 31, 1996, as it is not assured that these deferred
tax assets will be realized.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company continued to build its cash and liquidity
position as cash and short-term investments (treasury bills) increased from $6.2
million at March 31, 1995 to $6.5 million at March 31, 1996. At both March 31,
1995 and March 31, 1996 the Company had no outstanding bank borrowings and its
current ratio was 4.0 to 1 and 3.9 to 1 at the end of fiscal 1995 and fiscal
1996, respectively. The Company also has a short-term credit facility of $6.0
million which is used to issue standby letters of credit to certain customers.
At March 31, 1996 there were no advances and $365,000 in standby letters of
credit outstanding (all of which expired by April 16, 1996). The credit line is
secured by accounts receivable, inventory equipment and intangible rights. The
Company is in compliance with all covenants, including quarterly profitability,
a minimum quick ratio and tangible net worth and a maximum debt to tangible net
worth ratio at March 31, 1996. See Note 5 of Notes to the Consolidated Financial
Statements-Borrowing Arrangements. The short-term credit facility expires in
August, 1996 and the Company is currently investigating its options with respect
to another extension with the current lender or possibly a new line with a
different lender. The Company expects that existing cash balances together with
cash flow from operations and bank borrowings, if necessary, will be adequate to
meet its working capital requirements through fiscal 1997.
Trade receivables increased by approximately $1.8 million during fiscal 1996 as
the result of the increased shipment volume and the timing of fiscal 1996 fourth
quarter shipments. Of the $5.9 million in current trade receivables at March 31,
1996, the Company collected approximately $3.3 million by May 31, 1996.
Inventories increased $662,000 during fiscal 1996 primarily as the result of
increased orders and shipments of the Company's newer sensor product line. The
increase also is partly attributable to a higher year end sales backlog at March
31, 1996 versus March 31, 1995.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement No.
123 (SFAS No. 123), "Accounting for Stock-Based Compensation." This Statement
encourages companies to recognize expense for stock options at an estimated fair
value based on an option pricing model. If expense is not recognized for stock
options, proforma footnote disclosure is required of what net income and
earnings per share would have been under the Statement's approach to valuing and
expensing stock options. Certain other new disclosures will also be required.
The Company is reviewing the alternatives under SFAS 123, but does not expect
there will be any effect on the financial condition and results of operations of
the Company as a result of the adoption of this Statement. The Company is
required to adopt this Statement in fiscal 1997.
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<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
IMPACT SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994, 1995, AND 1996
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<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Impact Systems, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 28 present fairly, in all material
respects, the financial position of Impact Systems, Inc. and its subsidiaries at
March 31, 1995 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Francisco, California
May 15, 1996
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<PAGE> 12
IMPACT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1996
--------- ---------
(In thousands)
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,247 $ 2,736
Short-term investments 2,953 3,752
Trade receivables, net of allowances of $79 and $48 3,958 5,864
Receivables from employees and affiliates 99 339
Inventories 2,858 3,536
Prepaid expenses and other assets 41 38
--------- ---------
Total current assets 13,156 16,265
Property and equipment, net 239 224
Non-current trade receivables 865 810
Minority equity investment in and advances to foreign affiliates 676 608
Other assets 198 213
--------- ---------
$ 15,134 $ 18,120
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 757 $ 1,029
Accrued installation and warranty costs 456 957
Accrued salaries, wages and employee benefits 477 481
Accrued commissions 335 236
Other liabilities 1,234 1,442
--------- ---------
Total current liabilities 3,259 4,145
--------- ---------
Commitments (Note 8)
Stockholders' equity:
Preferred stock, no par;
2,000,000 shares authorized; none outstanding -- --
Common stock, no par: 20,000,000 shares authorized;
10,203,500 and 10,328,976 shares issued and outstanding 24,776 24,850
Accumulated deficit (12,616) (10,587)
Cumulative translation adjustment (285) (288)
--------- ---------
Total stockholders' equity 11,875 13,975
--------- ---------
$ 15,134 $ 18,120
========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
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<PAGE> 13
IMPACT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1994 1995 1996
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net revenues $ 13,295 $ 15,709 $ 17,765
Cost of goods sold 6,046 7,603 8,627
--------- --------- ---------
Gross margin 7,249 8,106 9,138
--------- --------- ---------
Operating expenses:
Research and development 1,492 1,758 1,752
Selling, general and administrative 5,063 5,217 5,908
--------- --------- ---------
Total operating expenses 6,555 6,975 7,660
--------- --------- ---------
Operating income 694 1,131 1,478
Interest income 179 298 344
Interest expense (12) (14) (11)
Foreign currency gain (loss), net (64) (23) 19
Equity in net income of investee 35 50 199
--------- --------- ---------
Income before income taxes 832 1,442 2,029
Income taxes -- -- --
--------- --------- ---------
Net income $ 832 $ 1,442 $ 2,029
========= ========= =========
Net income per share:
Income before income taxes $ .07 $ .14 $ .19
Income taxes -- -- --
--------- --------- ---------
Net income $ .07 $ .14 $ .19
========= ========= =========
Weighted average common and common equivalent shares 11,376 10,677 10,949
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE> 14
IMPACT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
------------ ACCUMULATED TRANSLATION
SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL
------ ------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993 11,746,408 $26,279 $(14,890) $(369) $11,020
Issuance of common stock 50,201 37 37
Repurchase and retirement of (1,754,459) (1,675) (1,675)
common stock
Foreign currency translation
adjustments (1) (1)
Net income 832 832
---------- ------- -------- ----- -------
Balance at March 31, 1994 10,042,150 24,641 (14,058) (370) 10,213
Issuance of common stock 161,350 135 135
Foreign currency translation
adjustments 85 85
Net income 1,442 1,442
---------- ------- -------- ----- -------
Balance at March 31, 1995 10,203,500 24,776 (12,616) (285) 11,875
Issuance of common stock 150,476 130 130
Repurchase and retirement of (25,000) (56) (56)
common stock
Foreign currency translation
adjustments (3) (3)
Net income 2,029 2,029
---------- ------- -------- ----- -------
Balance at March 31, 1996 10,328,976 $24,850 $(10,587) $(288) $13,975
========== ======= ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-14-
<PAGE> 15
IMPACT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1994 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 832 $ 1,442 $ 2,029
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 147 134 177
Equity in net income of investee (35) (50) (199)
Translation (gain) loss 6 27 (28)
Changes in assets and liabilities
Restricted cash time deposits 220 32 --
Trade receivables, net (62) (1,283) (1,810)
Other receivables 36 100 (238)
Inventories (241) 298 (662)
Prepaid expenses and other assets 73 (69) (12)
Accounts payable 122 (70) 271
Accrued installation and warranty costs (133) (499) 488
Accrued salaries, wages and employee benefits 86 184 (19)
Accrued commissions 61 67 (99)
Other liabilities 45 162 208
------- ------- -------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1,157 475 106
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments, net (468) (934) (799)
Capital expenditures, net (4) (156) (158)
Minority equity investment in and net receipts from affiliates 25 18 235
------- ------- -------
CASH USED IN INVESTING ACTIVITIES (447) (1,072) (722)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of capital stock and warrants, net of expenses 37 135 130
Repurchase and retirement of capital stock (1,675) -- (56)
Repayment of borrowings (950) -- --
------- ------- -------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,588) 135 74
------- ------- -------
EFFECT OF EXCHANGE RATE FLUCTUATIONS ON CASH (7) 9 31
------- ------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,885) (453) (511)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,585 3,700 3,247
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,700 $ 3,247 $ 2,736
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 19 $ 12 $ 10
Income taxes $ 6 $ 10 $ 33
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-15-
<PAGE> 16
IMPACT SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Impact Systems, Inc. develops, manufactures, sells and services computer-based
actuator, measurement and control systems to reduce variations which occur in
the production of all major types of paper. Impact's products enable paper
manufacturers to improve paper quality, increase production and reduce waste,
energy consumption and raw material costs.
The Company has adopted accounting practices which are generally accepted in the
industry in which it operates. The following are the Company's significant
accounting policies:
Financial statement presentation
The preparation of financial statements in accordance with generally accepted
accounting principals requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
amounts could differ from those estimates.
Principles of consolidation and accounting for minority-owned investees
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of all significant intercompany
accounts and transactions.
Operations of a company incorporated in Japan in which the Company owns a
minority interest of 40 percent are accounted for using the equity method.
Cash and cash equivalents and short-term investments
Cash and cash equivalents include highly liquid investments with insignificant
interest rate risk and original maturities of three months or less at date of
acquisition. Short-term investments, which consist of government treasury bills
or bank certificates of deposits with original maturities of more than three but
less than twelve months, are considered held-to-maturity investments and are
stated at amortized cost which approximates market value.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory costs include material, labor, and overhead
components.
Property and equipment
Property and equipment are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets ranging from
two to ten years. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the remaining lease term or the
estimated useful lives of the improvements. Maintenance and repair costs are
expensed as incurred.
Revenue recognition
Revenue related to sales of production systems is recognized upon shipment.
Customer acceptance is generally three to nine months after shipment, but may
take longer to accommodate the customer's production schedule in order to allow
for installation. Contractual terms govern the timing with respect to when sales
are billable; such terms vary among contracts.
Net revenues included approximately $4.4 million in fiscal 1994, $4.8 million in
fiscal 1995, and $5.3 million in fiscal 1996 relating to system service revenues
and system spare part sales.
Concentration of credit risk
Financial instruments which potentially subject the Company to significant
concentration of credit risk consist primarily of trade receivables. The
Company's principal customers are large paper companies and paper machine and
coater manufacturers in North America, Europe, the Far East and Brazil. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. During each of fiscal 1994 and fiscal 1996, no one
customer accounted for sales greater than 10 percent of consolidated net
revenues. In fiscal 1995, sales to one customer accounted for approximately 10
percent of consolidated net revenues. The Company provides an allowance for
doubtful accounts based on historical trends and other current factors.
Historically, the Company has not experienced significant losses related to
trade receivables.
Installation and warranty costs
Systems are generally covered by warranties for periods of one or five years,
depending on the product. An accrual is provided for estimated warranty costs
and for estimated installation costs, based upon historical experience, in
conjunction with the recognition of revenue on the related sale.
-16-
<PAGE> 17
With respect to systems sold with performance guarantees, an estimate is made of
the potential cost of complying with such guarantees and a provision is made as
part of the installation and warranty accrual at the time of shipment.
Advertising
Advertising costs are expensed as incurred. Advertising expense amounted to
approximately $214,000, $152,000 and $178,000 for the years ended March 31,
1994, 1995, 1996.
Income taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred taxes are determined by applying current tax rates to the
differences between the financial reporting and tax bases of the Company's
assets and liabilities.
The Company provides U.S. and foreign income taxes on the portion of the
accumulated earnings of the Company's foreign subsidiaries which are intended to
be remitted to the parent company within the foreseeable future.
Foreign currency translation and hedging
The functional currency of each foreign operation is its local currency.
Accordingly, all assets and liabilities are translated at the current exchange
rate at the end of the period and revenues and costs at average exchange rates
in effect during the period. The resulting cumulative translation adjustments
are recorded directly as a separate component of stockholders' equity.
Gains or losses resulting from foreign currency transactions are computed using
current exchange rates and are included in the Consolidated Statements of
Operations in the period incurred.
In certain situations, forward exchange contracts are purchased to hedge certain
foreign denominated assets. Gains and losses on hedge contracts are deferred and
are recognized as adjustments of carrying amounts or in income when the hedged
transaction occurs. At March 31, 1996, the Company was not a party to any
foreign exchange contracts.
Stock based compensation
The Company grants stock options for a fixed number of shares with an exercise
price normally equal to the fair value of the shares at the date of the grant
(see Note 7). The Company accounts for stock option grants in accordance with
APB Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense for stock options granted with an exercise
equal to or above fair value is recognized.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123 (SFAS No. 123), "Accounting for Stock Based Compensation." This Statement ,
which encourages companies to recognize expense for stock options at an
estimated fair value based on an option pricing model, also permits an election
to continue following the provisions of APB No. 25, with proforma footnote
disclosure required of what net income and earnings per share would have been
under SFAS No. 123's approach to valuing and expensing stock options. The
Company is reviewing the alternatives under SFAS 123, but does not expect there
will be any effect on the financial condition and results of operations of the
Company as a result of the adoption of this Statement. The Company is required
to adopt this Statement in fiscal 1997.
Earnings per share
Primary earnings per common and common equivalent share is computed using the
weighted average number of common stock outstanding during the period, and for
incremental shares assumed issued for dilutive common stock equivalents. Fully
diluted earnings per share did not differ materially from primary earnings per
share.
-17-
<PAGE> 18
NOTE 2 - CONSOLIDATED BALANCE SHEETS DETAILS:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
---- ----
(In thousands)
<S> <C> <C>
Cash and cash equivalents
Cash $ 1,034 $ 1,373
Money market deposits 2,098 1,363
Bank certificates of deposit 115 --
------- -------
$ 3,247 $ 2,736
======= =======
Short-term investments
U.S. Treasury bills $ 2,953 $ 3,752
======= =======
Inventories
Raw materials and components $ 2,463 $ 2,964
Work-in-process 353 530
Finished goods 42 42
------- -------
$ 2,858 $ 3,536
======= =======
Property and equipment
Machinery and equipment $ 3,055 $ 3,145
Furniture and fixtures 532 532
Leasehold improvements 509 502
Demonstration equipment 384 418
------- -------
4,480 4,597
Less: Accumulated depreciation (4,241) (4,373)
------- -------
$ 239 $ 224
======= =======
Other liabilities
Accrued liabilities and other $ 839 $ 585
Customer deposits 395 857
------- -------
$ 1,234 $ 1,442
======= =======
</TABLE>
Of the $4,037,000 and $5,912,000 of gross current trade receivables at March
31,1995 and 1996, respectively, $368,000, and $500,000, respectively, represent
the current portion of long-term trade receivables. Contractual customer payment
terms are staggered and can relate to drawings, sign-off's, delivery, startup,
performance trials and warranty periods. Such amounts are contractually tied to
performance trials, passage of time and warranty periods.
NOTE 3 - RECEIVABLES FROM EMPLOYEES AND AFFILIATES:
At March 31, 1995, receivables from employees and affiliates included $76,000 of
trade receivables from Impact Asia and $23,000 of loans or advances to employees
for relocation and travel. An additional $83,000 of long-term promissory notes
due from employees has been included in other assets.
At March 31, 1996, receivables from employees and affiliates included $311,000
of trade receivables from Impact Asia and $28,000 of loans or advances to
employees for relocation and travel. An additional $97,000 of long-term
promissory notes due from employees has been included in other assets.
NOTE 4 - MINORITY EQUITY INVESTMENT IN AND ADVANCES TO FOREIGN AFFILIATES:
Impact Systems Asia KK (Impact Asia) was formed in Japan in 1986 to facilitate
marketing of Impact's products in Japan. Presently, the Company has a 40 percent
interest in Impact Asia and records 40 percent of its equity in the affiliate's
net income or loss. Advances to Impact Systems Asia amounted to $507,000 and
$269,000 at March 31, 1995 and March 31, 1996, respectively.
-18-
<PAGE> 19
NOTE 5 - BORROWING ARRANGEMENTS:
In August 1994, the Company finalized the extension and expansion of its primary
domestic credit facility. The revolving credit line was increased to $6.0
million (from $4.0 million). The interest rate on any outstanding loan balances
under the facility is the prime rate (8.25% at March 31, 1996). The expiration
date of the revolving credit line was extended from August 15, 1995 to August
15, 1996, subject to the terms of the facility agreement. At March 31, 1996,
there were no loan balances outstanding under this line, although the Company
had issued $365,000 in standby letters of credit under the facility. Fees under
the revolving credit line are immaterial and collateral for borrowings consists
of accounts receivable, inventory, equipment and intangible rights. As of March
31, 1996, the Company was in compliance with all covenants under the facility
agreement, including quarterly profitability, a maximum debt to tangible net
worth ratio and a minimum quick ratio and tangible net worth.
NOTE 6 - INCOME TAXES:
Domestic and foreign income before income taxes and extraordinary credit are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1994 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Domestic $ 665 $ 829 $1,162
Foreign 167 613 867
------ ------ ------
$ 832 $1,442 $2,029
====== ====== ======
</TABLE>
The components of the provision for income taxes for the years ended March 31,
1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1994 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 365 $ 572 $ 253
State 50 87 138
Foreign 28 114 161
Benefit from utilization of net operating loss carryforwards (443) (773) (552)
----- ----- -----
-- -- --
----- ----- -----
Deferred:
Federal $ -- $ -- $ 592
State -- -- 137
Foreign -- -- --
----- ----- -----
-- -- 729
Decrease in valuation allowance ( --) ( --) (729)
----- ----- -----
-- -- --
----- ----- -----
Total $ 0 $ 0 $ 0
===== ===== =====
</TABLE>
The components of net deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
--------- ---------
1995 1996
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,016 $ 1,847
Tax credit carryforwards 1,067 1,087
Nondeductible reserves and allowances 1,584 652
Other 368 465
------- -------
Total deferred tax assets 5,035 4,051
Valuation allowance (4,620) (3,891)
------- -------
Net deferred tax assets 415 160
------- -------
</TABLE>
-19-
<PAGE> 20
<TABLE>
<S> <C> <C>
Deferred tax liabilities:
Software and research development costs (140) ( --)
Other (275) (160)
----- -----
Total deferred tax liabilities (415) (160)
----- -----
Total net deferred taxes $ 0 $ 0
===== =====
</TABLE>
Differences between the Company's effective tax rate and the federal statutory
rate are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1994 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit 6.0 6.0 4.4
Adjustment to deferred tax asset valuation allowance (53.2) (53.6) (35.9)
Foreign taxes 3.4 7.9 7.9
Foreign losses with no benefit 18.4 -- --
Permanent differences (5.2) 2.1 (4.4)
Other, net (3.4) 3.6 (6.0)
---- ---- ----
0.0% 0.0% 0.0%
==== ==== ====
</TABLE>
At March 31, 1996, the Company had net operating loss carryforwards of
approximately $5,000,000 for federal tax purposes. The Company also had tax
credit carryforwards of approximately $1,000,000 and $100,000 for federal and
state income tax purposes, respectively. The net operating loss carryforwards
and tax credits expire principally between fiscal 2004 and 2007. If certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of the carryforwards which can be utilized.
The Company has provided a valuation reserve for its net deferred tax assets at
March 31, 1995 and 1996 due to uncertainty as to the realization of such assets.
The valuation reserve decreased from approximately $4,300,000 at March 31, 1995
to $3,900,000 at March 31, 1996 primarily due to utilization of net operating
loss carryforwards.
NOTE 7 - CAPITAL STOCK:
Common Stock
On October 1, 1993 the Company repurchased and retired 1,718,095 shares (or
approximately 15%) of its Common Stock as approved by the Board of Directors.
The shares were purchased directly from Technology Venture Investors, one of the
Company's initial venture capital investors. The stock repurchase was for
approximately $1.6 million in cash or $0.938 per share. In December 1993, the
Company repurchased and retired 36,364 additional shares of its Common Stock
originally issued in connection with an acquisition.
The Company has three incentive stock option plans; the 1985 Incentive Stock
Option Plan (the 1985 Plan), the 1995 Incentive Stock Option Plan (the 1995
Plan), and the 1989 Discount Stock Option Plan (the DSO Plan). The Company's
1982 Incentive Stock Option Plan (the 1982 Plan) expired in fiscal 1993 and its
1985 Incentive Stock Option Plan (the 1985 Plan) expired in fiscal 1996 and
although options previously granted under both of these plans remain eligible
for exercise, no further grants are available.
Options under the 1982 Plan, the 1985 Plan and the 1995 Plan may be granted to
officers and key employees at prices determined by the Board of Directors, but
in no event below the fair market value of the Company's stock on the date of
grant. Under the 1985 Plan, options may also be granted to consultants. Options
under the 1982, 1985 and 1995 Plans become exercisable in four equal annual
installments commencing one year from the date of grant and expire if not
exercised within ten years from date of grant.
Options under the DSO Plan may be granted to outside directors, officers, and
key employees at 10 percent of the fair market value on the date of grant. The
grant of options under the DSO Plan at less than their fair market value results
in compensation expense to the Company for financial accounting purposes equal
to the difference between the fair market value of the shares subject to the
option on the date of grant and the exercise price of such shares which is
recognized by the Company ratably over the period the options vest
(approximately $6,000, $18,000 and $18,000 were charged to operations in fiscal
1994, 1995, and 1996, respectively). Options granted under the DSO Plan to
officers and key employees vest over a four-year period, with 25 percent
becoming exercisable on each anniversary of the date of grant and expire if not
exercised within ten years from date of grant. Options granted to outside
directors vest in full one year from date of grant and expire if not exercised
within five years from date of grant.
-20-
<PAGE> 21
The following table summarizes activity in the 1982, 1985, 1995 and DSO Plans
for the three fiscal years ended March 31, 1996:
<TABLE>
<CAPTION>
OPTION SHARES OUTSTANDING
-------------------------
SHARES EXERCISE
AVAILABLE FOR PRICE PER
GRANT SHARES SHARE
----- ------ -----
<S> <C> <C> <C>
Balance at March 31, 1993 443,650 1,207,650 $0.04-3.13
Options granted (52,050) 52,050 $0.11-1.88
Options exercised (50,201) $0.04-0.88
Options cancelled 32,800 (32,800) $0.56-0.88
Options expired (9,250)
-------- ----------
Balance at March 31, 1994 415,150 1,176,699 $0.11-3.13
Options granted (152,050) 152,050 $0.19-1.88
Options exercised (161,350) $0.11-0.88
Options cancelled 17,099 (17,099) $0.56-1.88
Options expired (2,000)
-------- ----------
Balance at March 31, 1995 278,199 1,150,300 $0.19-3.13
Options granted (222,300) 222,300 $0.25-2.88
Options exercised (150,476) $0.19-2.13
Options cancelled 45,574 (45,574) $0.19-2.88
Options expired (35,723)
Additional shares reserved 500,000
-------- ----------
Balance at March 31, 1996 565,750 1,176,550 $0.19-3.13
======== ==========
Options exercisable at March 31, 1996 850,600 $0.19-3.13
==========
</TABLE>
At March 31, 1996, a total of approximately 1,742,300 shares of Common Stock
have been reserved for issuance under the Company's stock option plans.
NOTE 8 - COMMITMENTS:
The Company leases its primary office and production facility under an operating
lease which expires in January 1997.
The Company is required to pay all property taxes, insurance and normal
maintenance and repairs. The Company also leases facilities used by its foreign
subsidiaries which expire in fiscal 1997. Future minimum rental payments under
all operating leases at March 31, 1996 totalled $454,000 in fiscal 1997. Total
rent and lease expense for the fiscal years ended in 1994, 1995, and 1996 was
approximately $612,000, $556,000 and $593,000, respectively.
-21-
<PAGE> 22
NOTE 9 - FOREIGN OPERATIONS:
The Company operates in one industry segment, the paper industry. The Company
has two wholly-owned foreign subsidiaries which market the Company's products in
the United Kingdom, Western Europe, and Scandinavia. Total assets (primarily
trade receivables, inventories and fixed assets) and liabilities (exclusive of
intercompany accounts and the Company's minority equity investment - Note 4) in
foreign countries were as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1995 1996
---- ----
(In thousands)
<S> <C> <C>
Total assets $1,476 $2,172
Total liabilities $ 936 $ 842
</TABLE>
The following is a summary of operations by geographic entities:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1994 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net revenues from unaffiliated customers and minority investee:
United States $ 11,031 $ 13,537 $ 13,935
Europe 2,264 2,172 3,830
Intercompany transfers 1,300 912 2,202
Eliminations (1,300) (912) (2,202)
-------- -------- --------
Net revenues $ 13,295 $ 15,709 $ 17,765
======== ======== ========
Operating income:
United States $ 572 $ 917 $ 769
Europe 122 214 709
-------- -------- --------
Operating income $ 694 $ 1,131 $ 1,478
======== ======== ========
</TABLE>
Net revenues from intercompany transfers consist of sales of products similar to
those sold to unaffiliated customers. Such sales are recorded at amounts which
exceed manufacturing cost. United States' net revenues include sales of
$605,000, $336,000 and $1,972,000 in the fiscal years ended in 1994, 1995, and
1996, respectively, made to the Company's minority equity investee at prices
exceeding manufacturing cost. European operating results are significantly
influenced by intercompany pricing and commission policies as a large portion of
the product sold in Europe is manufactured by the Company in the United States.
Export sales (including those to the Company's foreign subsidiaries and minority
equity investee) for the fiscal years ended in 1994, 1995 and 1996 were
$6,717,000, $7,476,000 and $9,773,000, respectively, and include shipments to
Canada, Europe, the Far East, Mexico and Brazil.
NOTE 10 - RELATED PARTY TRANSACTIONS
In fiscal 1993, the Company entered into an agreement with Elsag Bailey, Inc.
("Bailey") which serves as the framework for cross-OEM agreements with Bailey, a
wholly-owned subsidiary of Elsag International N.V. ("Elsag International"), the
Company's largest shareholder. Elsag Bailey Process Automation N.V. ("EBPA")
which ultimately owns and controls both Elsag International and Bailey, owns
23.0% of the Company's outstanding common shares at March 31, 1996. The
cross-OEM agreement covers both hardware and software. Impact OEM's the
Unity(TM)" Distributed Control System and related software from Bailey; Bailey
OEM's Impact's complete line of cross-direction actuators and related software,
drying systems, and the "AdvantagePlus(TM)" line of scanners and sensors, which
is specifically designed for Distributed Control Systems (DCS).
During fiscal 1994, the Company recorded revenue of approximately $750,000 on
sales to Bailey and Elsag Bailey (Canada) Inc. ("Bailey Canada"), both of which
are subsidiaries to Elsag International. During fiscal 1996, the Company
recorded revenue of $300,000 to a U.S. division of Bailey. There were no sales
during fiscal 1995 to Bailey or its affiliates.
For fiscal years ended 1994, 1995, and 1996, the Company purchased $185,000,
$190,000, and $213,000, respectively, in hardware and software from Bailey
Controls Company, Bailey Canada, or Bailey Beijing Controls.
At March 31, 1994 the Company had a net outstanding receivable of $361,000 from
divisions of Elsag Bailey, Inc. of the U.S. and Canada. At March 31, 1996 the
Company had a net outstanding receivable of $441,000 from divisions of Elsag
Bailey, Inc. of the U.S. and Canada, and a liability of $42,000 in customer
deposits received from a Bailey subsidiary in Europe.
-22-
<PAGE> 23
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
-23-
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
Kenneth P. Ostrow 54 President, Chief Executive Officer and
Chairman of the Board
Robert M. Gorski 43 Vice President, Finance/Service and Chief
Financial Officer
John F. Lynch, III 54 Vice President, Operations
Mike N. Zaharna 54 Director
Joseph J. Cusimano 56 Director
MR. OSTROW, a founder of the Company, has been an officer and director of the
Company from its inception in 1980. Prior to founding the Company, Mr. Ostrow
was with Measurex in senior sales, service and marketing capacities. Mr. Ostrow
holds a B.A. in Mechanical Engineering from Ohio State University and a M.B.A.
from Northeastern University.
MR. GORSKI joined the Company in April 1988 as Vice President, Finance,
Administration and Service and Chief Financial Officer. Prior to joining the
Company, he was Corporate Controller and Treasurer of Kaypro Corporation, a
manufacturer of microcomputer systems, from April 1985 to April 1988. From 1980
to April 1985, he was with Amdahl Corporation, a manufacturer of mainframe
computer systems, with his last position being Assistant Corporate Controller.
Prior to that, from 1974 to 1980, he was with Price Waterhouse, with his last
position being Audit Manager. Mr.Gorski holds a B.S. in Business Administration
from the University of Illinois and is a Certified Public Accountant.
MR. LYNCH joined the Company in December 1982 as Vice President, Midwestern
Sales and is currently Vice President, Operations. Prior to joining the Company,
he was a Vice President of Measurex and served in various senior sales,
marketing, and service capacities. He holds a B.S. in Chemical Engineering from
the University of Mississippi and a M.B.A. from the Harvard Business School.
MR. CUSIMANO was elected a director of the Company in November 1991. Mr.
Cusimano is President of Honematic Machine Corporation in Boylston,
Massachusetts. Prior to that, he had been a Corporate Vice President of Norton
Company in Worcester, Massachusetts in charge of its Superabrasives and
Abrasives, Asia Operations. Mr. Cusimano joined Norton Company in 1966 and held
several positions within the company prior to his appointment as Marketing Vice
President, Abrasives, Europe, in 1986. In early 1988, Mr. Cusimano was appointed
Divisional Vice President of Seeded-Gel Products, and in early 1989 he was
elected a Corporate Vice President, Chemical Process Products.
MR. ZAHARNA was elected a director of the Company in July 1992. Mr. Zaharna was
appointed to the Board of Directors as a representative of Elsag International
N.V., the parent company of Elsag Bailey Inc. and a wholly-owned subsidiary of
Elsag Bailey Process Automation N.V. (NYSE:EBY). Mr. Zaharna has been the Group
Executive Vice President of Elsag Bailey Process Automation N.V., a Netherlands
company, since November 1994. Between October 1993 and November 1994, Mr.
Zaharna was Senior Group Vice President, Strategic Marketing and Technology.
Between 1981 and October 1993, Mr. Zaharna held the posts of Group Vice
President/Americas, Pacific & Far East of Elsag Bailey, Inc., Vice President of
International Operations, Executive Vice President of Global Operations and
Chief Operating Officer of Bailey Controls Company, now a division of Elsag
Bailey, Inc. Mr. Zaharna joined Bailey Controls Company in 1966. Transactions
with Elsag Bailey, Inc. are detailed in footnote 10.
All directors hold office until the next annual meeting of stockholders of the
Company or until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors.
-24-
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION.
The following tables summarize the compensation of each of the three executive
officers of the Company for the fiscal year ended March 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------- ---------
($'S) COMPENSATION
----- ------------
AWARDS
------
- --------
PRINCIPAL POSITION YEAR SALARY BONUS TOTAL OPTIONS/GRANTS (#)
- ------------------ ---- ------- ------ ----- ------------------
<S> <C> <C> <C> <C> <C>
Kenneth P. Ostrow, 1996 $224,700 $83,590(1) $308,290 15,000
President & Chief 1995 $213,400 $85,860 $299,260 15,000
Executive Officer 1994 $213,400 $ 0 $213,400 0
Robert M. Gorski, 1996 $147,210 $36,506(1) $183,716 15,000
Vice President, 1995 $147,210 $46,598 $193,808 15,000
Operations/Finance/ 1994 $147,210 $ 0 $147,210 0
Service and Chief
Financial Officer
John F. Lynch III, 1996 $136,005 $41,345(1) $177,350 15,000
Vice President, 1995 $135,381 $30,350 $165,731 15,000
International Sales 1994 $131,013 $ 0 $131,013 0
and Service
</TABLE>
(1) Earned in fiscal 1996 but paid in fiscal 1997.
AGGREGATE STOCK OPTION EXERCISES IN FISCAL 1996 AND MARCH 31, 1996 STOCK OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
---------
SHARES
------
ACQUIRED DOLLAR NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
-------- ------ --------------------- ------------------------
ON VALUE STOCK OPTIONS AT THE-MONEY STOCK OPTIONS
-- ----- ---------------- -----------------------
NAME EXERCISE REALIZED MARCH 31, 1996 AT MARCH 31, 1996
- ---- -------- -------- -------------- -----------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth P. Ostrow 0 0 343,750 26,250 $1,011,172 $52,266
Robert M. Gorski 0 0 128,750 31,250 $351,249 $46,875
John F. Lynch III 0 0 88,750 26,250 $244,844 $33,281
</TABLE>
The Company presently does not pay any fees to directors. Pursuant to the
Company's Discount Stock Option Plan, Mr. Cusimano and Mr. Zaharna were each
granted, in fiscal 1996, stock options for 10,000 shares of Common Stock each at
10 percent of the then fair market value (under the Discount Stock Option Plan),
all of which were subject to vesting restrictions and none of which had vested
at March 31, 1996. During fiscal 1996, Mr. Cusimano also exercised stock options
for 5,000 shares which had been granted during fiscal 1995.
-25-
<PAGE> 26
Employee Stock Option Plans
The Company's 1995 Option Plan (the "1995 Option Plan") was adopted by the Board
of Directors on August 28, 1995 and approved by the Company shareholders in
November, 1995. The 1995 Option Plan permits the direct sale of shares and the
grant of both "incentive stock options" (within the meaning of Section 422A of
the Internal Revenue Code of 1986, as amended) and non-statutory stock options
to employees, officers and directors of and consultants to the Company. A total
of 500,000 shares have been reserved for issuance under the 1995 Option Plan of
which options to purchase 175,500 shares were outstanding at March 31, 1996 at a
weighted average exercise price of $2.53 per share. As of March 31, 1996 no
shares had been exercised under the 1995 Plan. The 1995 Option Plan is
administered by the Board of Directors, which determines the terms of options
granted, including the exercise price, number of shares subject to the option,
and the exercisability thereof. The exercise price of all incentive stock
options for Common Stock granted under the 1995 Option Plan must be at least
equal to the fair market value of such shares on the date of grant, and the
maximum term of each incentive stock option is ten years. With respect to any
participant who owns stock possessing more than 10% of the voting rights of the
Company's outstanding capital stock, the exercise price of any incentive stock
option must be at least equal to 110% of fair market value on the date of grant
and the term may be no longer than five years.
The Company's 1985 Incentive Stock Option Plan (the "1985 Option Plan") was
adopted by the Board of Directors in September 1985 and approved by the
Company's stockholders in October 1985. Initially, 496,350 shares were reserved
for issuance under the 1985 Option Plan. In January 1987, the Board of Directors
increased the shares reserved under the 1985 Option Plan by 400,000 shares,
which increase was approved by the Company's stockholders in May 1987. In August
1989, the Board amended the 1985 Option Plan to increase the number of shares
reserved for issuance by an additional 250,000 shares, which increase was
approved by the Company's stockholders in October 1989. The terms of the 1985
Plan are substantially similar to those of the 1995 Plan. A total of 1,146,350
shares have been reserved for issuance under the 1985 Option Plan, of which
options to purchase 844,650 shares were outstanding as of March 31, 1996 at a
weighted average exercise price of $.90 per share. As of March 31, 1996, options
to purchase 266,777 shares had been exercised at a weighted average purchase
price of $1.00 per share. The 1985 Option Plan expired in fiscal 1996.
The Company's 1992 Incentive Stock Option Plan (the "1992 Option Plan") was
adopted in September, 1992 and approved by shareholders in October, 1992. In
August, 1988 the Board of Directors reduced the number of shares reserved for
issuance by 100,000 shares (initially 730,500 shares). The 1982 Option Plan
expired in fiscal 1993. However, as of March 31, 1996, there were options
outstanding to purchase 121,400 shares of Common Stock at a weighted average
exercise price of $.75 per share and options to purchase 468,800 shares had
been exercised at a weighted average purchase price of $1.12 per share.
The Company's Discount Stock Option Plan (The "Discount Option Plan")
was adopted by the Board of Directors in August 1988 and approved by the
shareholders in October 1988, reserving 350,000 shares for issuance under the
Plan. Options under the Discount Option Plan may be granted to outside
directors, officers, and key employees at 10% of the fair market value of such
shares on the date of grant. Of the 350,000 shares reserved at March 31, 1996,
there were options outstanding to purchase 35,000 shares of Common Stock at a
weighted average exercise price of $.22 per share, and options to purchase
73,750 shares had been exercised at a weighted average purchase price of $.17
per share. The grant of options under the Discount Option Plan at less than
their fair market value results in compensation expense to the Company for
financial accounting purposes equal to the difference between the fair market
value of the shares subject to the option on the date of grant and the exercise
price of such options. This accounting charge is recognized by the Company over
the period the shares vest. The Company recognized approximately $6,000,
$18,000, and $18,000 in Discount Option Plan compensation expense in fiscal
1994, 1995, and 1996, respectively, and will recognize an additional $44,000
over the next three fiscal years on the shares outstanding at March 31, 1996
under the Discount Option Plan. The Company presently grants options under the
Discount Option Plan to officers and key employees that vest over a four-year
period, with 25 percent becoming exercisable on each anniversary of the date of
grant and expire if not exercised within ten years from date of grant. Options
granted to outside directors vest in full on the first anniversary from the
date of grant and expire if not exercised within five years from date of grant.
-26-
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock on May 31, 1996, as to (a) each
director, (b) each executive officer, (c) all officers and directors of the
Company as a group, and (d) each person known to the Company who beneficially
owns 5% or more of the outstanding shares of its Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock
--------------------
Name(1) Number of Shares Percent
- ---- ---------------- -------
<S> <C> <C>
Elsag Bailey Process Automation N.V. (2) 2,378,900 22.94
Zylstraat 70-74
2011 T. R. Haarlem, The Netherlands
Kenneth P. Ostrow (3) 1,022,234 9.86
1075 East Brokaw Road, San Jose, CA 95131
Executive Officer
Dimensional Fund Advisors, Inc. 530,700 5.12
1299 Ocean Avenue, Santa Monica, CA 90401
Robert M. Gorski (4) 128,750 1.24
Executive Officer
John F. Lynch III (5) 113,750 1.10
Executive Officer
Joseph J. Cusimano 33,461 *
Director
All officers and directors as a group (5 persons) (6) 1,298,195 12.52
</TABLE>
* Represents less than 1% of outstanding shares.
(1) The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes hereunder.
(2) All 2,378,900 shares are held of record by Elsag International N.V.
which is ultimately owned and controlled by Elsag Bailey Process Automation
N.V..
(3) Includes 343,750 shares issuable upon exercise of options which are
exercisable within sixty (60) days of May 31, 1996.
(4) Includes 128,750 shares issuable upon exercise of options which are
exercisable within sixty (60) days of May 31, 1996.
(5) Includes 88,750 shares issuable upon exercise of options which are
exercisable within sixty (60) days of May 31, 1996.
(6) Includes 561,250 shares issuable upon exercise of options which are
exercisable within sixty (60) days of May 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
-27-
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following consolidated financial
statements of Impact Systems, Inc. and Report of Independent Accountants are
filed as part of this Report:
PAGE
Report of Independent Accountants 11
Consolidated Balance Sheets - March 31, 1995 and 1996 12
Consolidated Statements of Operations
Three Years Ended March 31, 1996 13
Consolidated Statements of Stockholders' Equity
Three Years Ended March 31, 1996 14
Consolidated Statements of Cash Flows
Three Years Ended March 31, 1996 15
Notes to the Consolidated Financial Statements 16
2. Financial Statement Schedules. The following financial
statement schedules of Impact Systems, Inc. for the years ended March 31, 1994,
1995 and 1996 are filed as part of this Report and should be read in conjunction
with the consolidated financial statements of Impact Systems, Inc.
Schedule Page
II Valuation and Qualifying Accounts and Reserves 34
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the consolidated financial statements or notes thereto.
3. Exhibits. The following Exhibits are filed as part of, or
incorporated by reference into, this Report:
3.1* Amended and Restated Articles of Incorporation of
Registrant.
3.2* By-laws of Registrant, as amended.
10.0* 1982 Incentive Stock Option Plan and form of
Incentive Stock Option Agreement.
10.1* 1985 Incentive Stock Option Plan and forms of
Incentive Stock Option Agreement and Non-statutory
Stock Option Agreement.
10.2# Discount Stock Option Plan and forms of Discount
Stock Option Agreement
10.4* Investment Agreement (Impact Asia K.K.) dated
February 14, 1986 among Registrant, Registrant's
Chief Executive Officer, and the Impact Asia K.K.
investors specified therein.
10.18# Form of Indemnification Agreement between the Company
and its officers and directors.
10.19# Common Stock Purchase Agreement between the Company
and Elsag International B.V. dated July 25, 1991 and
the attached Registration Rights Agreement, Bailey
Controls Company Product Supply Agreement, Impact
Product Supply Agreement, License Agreement and form
of amendment to Articles of Incorporation of the
Company.
10.20## Amendments to the Registrant's Articles of
Incorporation executed on September 4, 1991 and
December 12, 1991.
10.21** Extension of building lease agreement dated March 3,
1992 between Registrant and Fox Associates.
10.24### Stock Purchase Agreement between Registrant and
Technology Venture Investors, L.P. dated October 1,
1993.
10.26+ Loan Modification Agreement between Registrant and
Silicon Valley Bank dated August 15, 1994.
22.0* Subsidiaries of Registrant.
-28-
<PAGE> 29
24.0 Consent of Independent Accountants (See Page 32)
25.0 Power of Attorney (See Page 30)
27.0 Financial Data Schedule
- -------------------------------------
* Incorporated by reference to exhibits filed as exhibits to the
Company's Registration Statement on Form S-1 (No. 33-13847), which
became effective June 11, 1987.
** Incorporated by reference to exhibit filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended March 31, 1992.
*** Incorporated by reference to exhibit filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the year ended March 31, 1993.
# Incorporated by reference to exhibit filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1991.
## Incorporated by reference to exhibit filed as Exhibit 10.20 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1991.
### Incorporated by reference to exhibit filed as Exhibit 10.24 and
Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
+ Incorporated by reference to exhibit filed as Exhibit 10.26 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the year ended March 31, 1996.
-29-
<PAGE> 30
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kenneth P. Ostrow and Robert M. Gorski, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
<TABLE>
<S> <C> <C>
/s/KENNETH P. OSTROW President and Chief Executive Officer (Principal June 27, 1996
- -------------------- Executive Officer) and Director
(Kenneth P. Ostrow)
/s/ROBERT M. GORSKI Vice President, Finance/Service June 27, 1996
- ------------------- and Chief Financial Officer (Principal Financial and
(Robert M. Gorski) Accounting Officer)
</TABLE>
-30-
<PAGE> 31
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/KENNETH P. OSTROW President and Chief Executive Officer (Principal June 27, 1996
- -------------------- Executive Officer) and Director
(Kenneth P. Ostrow)
/s/ROBERT M. GORSKI Vice President, Finance/Service and June 27, 1996
- ------------------- Chief Financial Officer (Principal Financial and
(Robert M. Gorski) Accounting Officer)
/s/JOSEPH J. CUSIMANO Director June 27, 1996
- ---------------------
(Joseph J. Cusimano)
/s/MIKE N. ZAHARNA Director June 27, 1996
- ------------------
(Mike N. Zaharna)
</TABLE>
-31-
<PAGE> 32
Exhibit 24.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-17184) of Impact Systems, Inc. of our report dated
May 15, 1996 appearing on page 11 of this Form 10-K.
PRICE WATERHOUSE LLP
San Francisco, California
June 27, 1996
-32-
<PAGE> 33
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.
IMPACT SYSTEMS, INC.
By: /s/ KENNETH P. OSTROW
---------------------
Kenneth P. Ostrow
President and Chief
Executive Officer
Dated: June 27, 1996
-33-
<PAGE> 34
Schedule II
IMPACT SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
-------
BEGINNING BALANCE
--------- -------
DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS (1) END OF YEAR
- ----------- ------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year Ended March 31, 1994 $103 $44 $ 67 $ 80
Year Ended March 31, 1995 $ 80 $24 $ 25 $ 79
Year Ended March 31, 1996 $ 79 -- $ 31 $ 48
</TABLE>
(1) Write-off of doubtful accounts and adjustments against the allowance.
-34-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2736
<SECURITIES> 3752
<RECEIVABLES> 5912
<ALLOWANCES> (48)
<INVENTORY> 3536
<CURRENT-ASSETS> 16265
<PP&E> 4597
<DEPRECIATION> (4373)
<TOTAL-ASSETS> 18120
<CURRENT-LIABILITIES> 4145
<BONDS> 0
0
0
<COMMON> 24850
<OTHER-SE> (10875)
<TOTAL-LIABILITY-AND-EQUITY> 18120
<SALES> 17765
<TOTAL-REVENUES> 17765
<CGS> 8627
<TOTAL-COSTS> 16287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 2029
<INCOME-TAX> 0
<INCOME-CONTINUING> 2029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2029
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
