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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
February 12, 1999 January 29, 1999
- ---------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
Maxwell Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-10964 95-2390133
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
9275 Sky Park Court, San Diego, California 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 279-5100
-------------------------
Not applicable
- ----------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
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Item 2: Acquisition of Assets.
On January 29, 1999, Maxwell Technologies, Inc. ("Maxwell") completed
the acquisition of Space Electronics Inc., a Delaware corporation ("SEi"),
headquartered in San Diego, California. SEi designs, manufactures and provides
electronic components and related services for space and other high-reliability
applications.
The acquisition was effected through the merger of a newly-organized
Maxwell subsidiary into SEi, with SEi surviving as a wholly-owned subsidiary of
Maxwell. Pursuant to the merger, each outstanding share of SEi Common Stock was
converted into the right to receive 0.3176 share of Maxwell Common Stock. In
addition, the optionholders of SEi received Maxwell Common Stock in exchange for
their options at an exchange ratio based on the exercise price of their specific
options. Maxwell issued up to 681,243 shares of Maxwell Common Stock, valued at
$38.04 per share, in the acquisition, for an aggregate value of approximately
$25.9 million. No cash was paid by Maxwell (other than with respect to cash in
lieu of fractional shares). The acquisition has been accounted for as a pooling
of interests.
The amount of consideration paid was determined through arms-length
negotiation between Maxwell and SEi. There was no prior material relationship
between SEi (including its officers, directors and stockholders) and Maxwell or
any of its affiliates, directors or officers, or any associate of such officers
or directors. Maxwell intends to continue to devote the assets acquired to SEi's
existing business.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
In accordance with Rule 3-05 of Regulation S-X, audited financial
statements of SEi are filed with this Report.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Space Electronics Inc.:
We have audited the accompanying balance sheets of Space Electronics Inc. (a
Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Space Electronics Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
January 23, 1998
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SPACE ELECTRONICS INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS
1996 1997
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,310,000 $ 160,000
Accounts receivable, less allowance for
doubtful accounts of $150,000 and
$238,000, respectively 1,594,000 2,029,000
Inventories 1,184,000 2,398,000
Other receivables 29,000 620,000
Deferred income taxes 347,000 312,000
Prepaid expenses and other current assets 43,000 235,000
----------- -----------
Total current assets 4,507,000 5,754,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 820,000 1,622,000
Furniture and fixtures 64,000 84,000
Tooling 319,000 441,000
Leasehold improvements 34,000 49,000
Construction-in-progress -- 84,000
----------- -----------
1,237,000 2,280,000
Less: accumulated depreciation and
amortization (397,000) (739,000)
----------- -----------
840,000 1,541,000
----------- -----------
Total assets $ 5,347,000 $ 7,295,000
=========== ===========
The accompanying notes are an integral part of these balance sheets.
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SPACE ELECTRONICS INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1997
----------- -----------
CURRENT LIABILITIES:
Line of credit $ -- $ 500,000
Current portion of notes payable 112,000 289,000
Accounts payable 271,000 600,000
Accrued liabilities 1,681,000 1,325,000
Customer deposits 358,000 105,000
----------- -----------
Total current liabilities 2,422,000 2,819,000
----------- -----------
NOTES PAYABLE, net of current portion 437,000 636,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock; 2,000,000 and 10,000,000
shares authorized, at $.001 par value,
1,573,260 and 1,752,231 shares
outstanding, respectively 1,000 1,000
Additional paid in capital 623,000 959,000
Retained Earnings 1,945,000 2,880,000
Treasury Stock, at cost (81,000) --
----------- -----------
Total shareholders' equity 2,488,000 3,840,000
----------- -----------
Total liabilities and shareholders' equity $ 5,347,000 $ 7,295,000
=========== ===========
The accompanying notes are an integral part of these balance sheets.
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SPACE ELECTRONICS INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
------------ ------------ ------------
Revenues $ 3,750,000 $ 10,598,000 $ 11,121,000
Cost of revenues 2,165,000 4,217,000 4,606,000
------------ ------------ ------------
Gross profit 1,585,000 6,381,000 6,515,000
Selling, general and administrative
expenses 1,052,000 2,777,000 3,452,000
Research and development expenses 166,000 488,000 1,046,000
------------ ------------ ------------
Income from operations 367,000 3,116,000 2,017,000
Other income (expense):
Interest, net (30,000) (8,000) 32,000
Other, net (12,000) (7,000) (41,000)
------------ ------------ ------------
Income before income taxes 325,000 3,101,000 2,008,000
Income tax provision -- 1,144,000 741,000
------------ ------------ ------------
Net income $ 325,000 $ 1,957,000 $ 1,267,000
============ ============ ============
Net income per share:
Basic $ .30 $ 1.35 $ .78
============ ============ ============
Diluted $ .30 $ 1.35 $ .67
============ ============ ============
Shares used in per share calculation:
Basic 1,077,613 1,447,665 1,634,761
============ ============ ============
Diluted 1,077,613 1,447,665 1,902,812
============ ============ ============
The accompanying notes are an integral part of these financial statements.
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SPACE ELECTRONICS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Common Stock Additional Treasury Stock Total
-------------------- Paid in Retained --------------------- Shareholders'
Shares Amount Capital Earnings Shares Amount Equity
--------- -------- ---------- ---------- -------- ---------- ------------
BALANCE, December 31, 1994 927,400 $1,000 $ 309,000 $ (98,000) -- $ -- $ 212,000
Sales of common stock 457,610 -- 161,000 -- -- -- 161,000
Purchases of treasury stock -- -- -- -- (6,970) (3,000) (3,000)
Dividends -- -- -- (166,000) -- -- (166,000)
Net income -- -- -- 325,000 -- -- 325,000
--------- ------ --------- ---------- ------- --------- ----------
BALANCE, December 31, 1995 1,385,010 1,000 470,000 61,000 (6,970) (3,000) 529,000
Sales of common stock 188,250 -- 153,000 -- -- -- 153,000
Purchases of treasury stock -- -- -- -- (49,000) (78,000) (78,000)
Dividends -- -- -- (73,000) -- -- (73,000)
Net income -- -- -- 1,957,000 -- -- 1,957,000
--------- ------ --------- ---------- ------- --------- ----------
BALANCE, December 31, 1996 1,573,260 1,000 623,000 1,945,000 (55,970) (81,000) 2,488,000
Sales of common stock 321,586 -- 577,000 -- -- -- 577,000
Purchases of treasury stock -- -- -- -- (86,645) (492,000) (492,000)
Common stock retired (142,615) -- (241,000) (332,000) 142,615 573,000 --
Net income -- -- -- 1,267,000 -- -- 1,267,000
--------- ------ --------- ---------- ------- --------- ----------
BALANCE, December 31, 1997 1,752,231 $1,000 $ 959,000 $2,880,000 -- $ -- $3,840,000
========= ====== ========= ========== ======= ========= ==========
The accompanying notes are an integral part of these financial statements.
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SPACE ELECTRONICS INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
--------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 325,000 $1,957,000 $ 1,267,000
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 42,000 210,000 342,000
Changes in assets and liabilities:
Accounts receivable (546,000) (722,000) (435,000)
Inventories (252,000) (384,000) (1,214,000)
Other receivables (11,000) 16,000 (591,000)
Deferred taxes -- (347,000) 35,000
Prepaid expenses and other assets -- (43,000) (192,000)
Accounts payable 184,000 (74,000) 329,000
Accrued liabilities 68,000 1,399,000 (356,000)
Customer deposits 162,000 102,000 (253,000)
--------- ---------- -----------
Net cash provided by (used in)
operating activities (28,000) 2,114,000 (1,068,000)
--------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (268,000) (680,000) (1,043,000)
--------- ---------- -----------
Net cash used in investing activities (268,000) (680,000) (1,043,000)
--------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit 104,000 (149,000) 500,000
Net borrowings under notes payable agreements 90,000 162,000 376,000
Repayments of related party notes payable -- (60,000) --
Sales of common stock 161,000 153,000 577,000
Purchases of treasury stock (3,000) (78,000) (492,000)
Dividend payments (52,000) (187,000) --
--------- ---------- -----------
Net cash provided by (used in)
financing activities 300,000 (159,000) 961,000
--------- ---------- -----------
NET (DECREASE) INCREASE IN CASH 4,000 1,275,000 (1,150,000)
CASH AND CASH EQUIVALENTS, Beginning of year 31,000 35,000 1,310,000
--------- ---------- -----------
CASH AND CASH EQUIVALENTS, End of year $ 35,000 $1,310,000 $ 160,000
========= ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE
YEAR FOR:
Interest $ 29,000 $ 27,000 $ 46,000
========= ========== ===========
Taxes $ -- $1,501,000 $ 857,000
========= ========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Inventory acquired through issuance of note $ -- $ 217,000 $ --
========= ========== ===========
The accompanying notes are an integral part of these financial statements.
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SPACE ELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. Organization and Significant Accounting Policies
Space Electronics Incorporated (the "Company") develops and markets
microelectronic components for space flight applications. The Company
manufactures, sells, and distributes such components to companies in the
space/telecommunications industry. Distribution of Company products is
primarily through direct sales.
Revenue Recognition
The Company records revenue from sales of microelectronic components at
the time they are shipped to the customer. A portion of the Company's
revenue is derived from services performed under cost-plus-fixed-fee
contracts. Revenue on cost-plus-fixed-fee contracts is recorded using
the percentage-of-completion method based on costs incurred to date in
relation to total estimated costs. Provisions for estimated losses on
contracts, if any, are recorded as such losses become known.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with
a maturity of three months and less when purchased.
Inventories
Inventories consist of the following at December 31, 1996 and 1997:
1996 1997
---------- ----------
Raw Materials $ 765,000 $1,360,000
Work-in-Progress 248,000 571,000
Finished Goods 171,000 467,000
---------- ----------
$1,184,000 $2,398,000
========== ==========
Inventories which include materials, direct labor and manufacturing
overhead are stated at lower of cost or market. Cost is determined using
the first-in, first-out method.
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Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation and
amortization are provided using the straight-line method based on the
following estimated useful lives:
Years
------
Machinery equipment 3 to 5
Furniture and Fixtures 5 to 7
Tooling 3
Leasehold improvements 4
Repairs and maintenance are charged to expense as incurred.
Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1996 and
1997:
1996 1997
---------- ----------
Payroll and payroll related $ 941,000 $ 852,000
Accrued expenses - other 265,000 57,000
Income taxes payable 2,000 --
Accrued contract reserves 473,000 416,000
---------- ----------
$1,681,000 $1,325,000
========== ==========
Concentration of Risk
Financial instruments that potentially subject the Company to
concentrations of risk consist primarily of accounts receivable
resulting from sales of its product primarily to commercial entities in
the space industry. The Company extends credit to customers based on its
evaluation of the customer's financial condition. Exposure to losses on
receivables is principally dependent on each customer's financial
condition but is reduced by mandatory deposits which are classified as
customer deposits in the accompanying balance sheets. The Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses.
Sales to one customer accounted for approximately 7.5 percent, 14.0
percent and 30.3 percent of the Company's total revenue for the year
ended December 31, 1995, 1996 and 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period, particularly recognition of
revenue and related costs accounted for under the
percentage-of-completion method as described above. Actual results could
differ from those estimates.
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Net Income Per Share
In fiscal year 1997, the Company adopted Statement of Financial
Standards No. 128, "Earnings Per Share" (SFAS 128). Under the provisions
of SFAS 128, basic earnings per share is calculated based on the
weighted average number of common shares outstanding during the period.
Diluted earnings per share also gives effect to the dilutive effect of
stock options (calculated based on the treasury stock method). All prior
periods have been restated. A reconciliation of shares used in the per
share calculation is as follows:
December 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
Basic:
Weighted average
common shares
outstanding 1,077,613 1,447,665 1,634,761
========= ========= =========
Diluted:
Weighted average
common shares 1,077,613 1,447,665 1,634,761
Dilutive effect of
stock options -- -- 268,051
--------- --------- ---------
Weighted average common
shares outstanding 1,077,613 1,447,665 1,902,812
========= ========= =========
Recent Accounting Pronouncements
In December 1997, the Company adopted SFAS No. 129, "Disclosure of
Information about Capital Structure." This Statement establishes
standards for disclosing information about an entity's capital
structure. This Statement is effective for financial statements for
periods ending after December 15, 1997. The adoption of SFAS No. 129
did not have an effect on the Company's results of operations or
financial position.
During July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display
of comprehensive income and its components in a full set of general
purpose financial statements. The objective of the Statement is to
report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners ("comprehensive income"). Comprehensive income
is the total of net income and all other nonowner changes in equity.
SFAS No. 130 is effective for fiscal years beginning after December 15,
1997, with earlier application permitted. The Company's comprehensive
income would not differ from net income for the years ended December 31,
1997 and 1996.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1: "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which will be
effective for fiscal years beginning after December 31, 1998. The
Company has reviewed the statement of position and believes its adoption
will not have a material effect on the Company's financial position or
results of operations.
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2. Line of Credit
Line of credit consisted of the following at December 31, 1997:
Revolving line of credit with a bank, variable interest at the bank's
prime rate plus 0.25% (8.75% at December 31, 1997) maturing May 1,
1998, secured by accounts receivable, inventory and equipment.
Borrowing limit is the lesser of $3,000,000 or 80% of eligible
trade accounts receivable.
$500,000
--------
$500,000
========
As of December 31, 1997, the Company was either in compliance with
covenant requirements of the revolving line of credit agreement or had
obtained appropriate waivers from the bank.
Interest expense under the line of credit was $4,000 and $2,000 in 1995
and 1997, respectively. There were no borrowings under the line of
credit during 1996.
3. Notes Payable
Notes payable consisted of the following at December 31, 1996 and 1997:
1996 1997
-------- --------
Notes payable to a bank, variable interest at the bank's prime rate
plus 1%, 9.5% at December 31, 1997, maturing at various times
from 2001 to 2002 $332,000 $408,000
Equipment note to a bank, variable interest at the bank's prime
rate plus 0.50% (9% at December 31, 1997) maturing May 1, 2002,
secured by the Company's accounts with the bank and assets
purchased with proceeds from the note -- 298,000
Other note payable 217,000 219,000
-------- --------
549,000 925,000
Less: installments due within one year 112,000 289,000
-------- --------
$437,000 $636,000
======== ========
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The other note payable represents amounts due under an asset purchase
agreement entered into in connection with the Company's purchase of its
MAXIUM and ESPRIX product lines. In connection therewith, the Company
also agreed to pay quarterly royalties based on sales of these product
lines. Payments on the note will be reduced by future royalty payments.
Cumulative royalty payments are limited to the maximum amount of the
note payable.
Aggregate installments due over the next five years as follows:
Year Ending December 31:
------------------------
1998 $289,000
1999 248,000
2000 159,000
2001 140,000
2002 89,000
--------
$925,000
========
Interest expense on notes payable was $21,000, $27,200 and $57,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
4. Commitments and Contingencies
Leases
The Company leases its manufacturing facilities and offices under a
non-cancelable operating lease which expires on October 31, 2001. Rent
expense was $76,000, $132,000 and $211,000 in 1995, 1996 and 1997,
respectively. As of December 31, 1997, future minimum lease payments
under this lease are as follows:
Year Ending December 31,
------------------------
1998 $ 290,000
1999 319,000
2000 354,000
2001 307,000
----------
$1,270,000
==========
Litigation
In the ordinary course of business, the Company is subject to claims
and, from time to time, is named in various legal proceedings. In the
opinion of management, the amount of ultimate liability, if any, with
respect to any pending actions will not materially affect the financial
position or results of operations of the Company.
5. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," which requires the use of the liability method of accounting for
deferred income taxes. Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end. If it is more likely than
not that
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some portion or all of the deferred tax asset will not be realized, a
valuation allowance is recognized.
On January 1, 1996, the Company changed its tax status from an
S-Corporation to a C-Corporation for federal and state income tax
purposes. The prospective effect of this change on the financial
statements was for the Company to begin recording a federal and state
income tax provision and related assets and liabilities as these income
taxes were the liability of the shareholders in prior years. In
addition, the Company was required to reinstate deferred taxes for
assets and liabilities from prior periods with an offsetting credit to
earnings.
The components of the provision (benefit) for income taxes for the
period ending December 31, is as follows:
1996 1997
----------- -----------
Current:
Federal $ 1,175,000 $ 533,000
State 316,000 173,000
Deferred:
Federal (295,000) 16,000
State (52,000) 19,000
----------- -----------
Tax provision $ 1,144,000 $ 741,000
=========== ===========
The components of the net deferred tax asset, at December 31, were as
follows:
1996 1997
--------- ---------
State taxes $ 107,000 $ 57,000
Amortization/depreciation (14,000) 21,000
Deferred compensation 93,000 --
Reserves and accrued liabilities 161,000 234,000
--------- ---------
Total $ 347,000 $ 312,000
========= =========
Rate reconciliation for the period ending December 31, is as follows:
1996 1997
----------- -----------
Federal income tax $ 1,054,000 $ 624,000
State income tax 186,000 110,000
R&D (20,000) 6,000
Other (11,000) 1,000
Reinstatement of deferred tax asset (65,000) --
----------- -----------
Tax provision $ 1,144,000 $ 741,000
=========== ===========
The Company was responsible for state taxes of 1.5% of income in 1995.
For the year ended December 31, 1995, approximately $10,000 of state
taxes is included in selling, general and administrative expenses.
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6. Benefit Plans
Retirement and Savings Plan
On January 1, 1996, the Company established a Retirement and Savings
Plan (the "Plan") in accordance with the provisions of Section 401(k) of
the Internal Revenue Code. The Plan provides for the Company to make
matching contributions equal to 25% of participants' contributions, up
to a total of 6% of participants' earnings (a maximum Company
contribution of 1.5%). Annual aggregate Company contributions are
further limited in total to 15% of the Company's after tax profits. The
Plan may be terminated at any time at the option of the Company.
Employee Stock Purchase Plan
The Company maintains an employee stock purchase plan whereunder
employees may purchase shares of the Company through payroll deductions
(not to exceed the lesser of $8,000 or 10% of the employees' base
compensation) to accrue for semi-annual offerings. The price at which
shares are purchased by employees is determined semi-annually by the
Company's Board of Directors based on a formula which considers the fair
market value (FMV) of the stock and financial information of companies
in the same line of business. Total shares purchased by employees under
this plan were approximately 458,000, 188,000 and 322,000 shares in
1995, 1996 and 1997, respectively.
Stock Option Plan
In 1996, the board of directors adopted the "Second 1996 Stock Option
Plan" where up to 500,000 shares of common stock can be granted under
this plan. The selection of recipients of options is within the absolute
discretion of a senior management committee. Generally, all directors,
officers, employees and certain persons rendering services to the
Company relative to its management, operations or development are
eligible to receive options under the Plan. The term of the options is
10 years. However, the granting of options shall not impose any
obligation upon the optionee to exercise such option. The FMV of the
options at the grant date is determined using the same formula as
discussed under the Employee Stock Purchase Plan footnote.
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Stock Option Plan Activity
The following table summarizes stock option plan activity for the year
ended December 31, 1996 and 1997:
Year Ended December 31,
---------------------------------------------------------
1996 1997
------------------------ -------------------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
Activity Price Activity Price
-------- -------- -------- --------
Outstanding at
beginning of year -- $ -- 363,000 $ 1.85
Granted 363,000 1.85 123,250 5.83
Exercised -- -- -- --
Canceled -- -- (15,500) 3.62
-------- --------
Outstanding at end
of year 363,000 $ 1.85 470,750 $ 3.00
======== ======== ======== ========
Weighted average fair
value of options
granted during the
period $ 1.60 $ 1.67
======== ========
Exercise price of options outstanding and options exercisable were as
follows:
Options Outstanding and Exercisable
-------------------------------------------------
Weighted
Number Weighted Average
of Average Remaining Exercise
Options Contractual Life Price
---------- ----------------- ----------
Range of exercise prices
$0.50 - $1.41 192,500 8.00 $ 0.50
$3.62 145,500 8.92 3.62
$5.55 - $6.37 132,500 10.00 6.92
----------
470,500 8.45 $ 1.88
========== ========= ==========
As permitted, the Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation" effective January 1, 1996. Accordingly, no
compensation expense has been recognized for the stock option plan. Had
compensation expense for the Company's stock option plan been
determined based on the fair value at the date of grant for 1996 and
1997 awards, pro-forma net income would reflect an additional charge of
approximately $11,000 and $58,000, respectively.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1997: risk free interest rate of
5.35%, expected option life of 6 years, expected volatility of zero
percent and a dividend rate of zero.
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7. Strategic Alliance
On January 1, 1996 the Company entered into a strategic alliance with
another company. Under the terms of the alliance, the Company committed
to issue 137,800 new shares of common stock in exchange for 12,220
common shares of the other company. These shares will vest at the rate
of 20% of the total commitment over each of the next five years. Other
terms of the agreement provide that the Company may fund certain
research and development project costs incurred by the other company in
exchange for rights to use the technology developed. Any such project
costs will be funded at the sole discretion of the Company's management
and the Company is under no obligation to fund any such projects.
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SPACE ELECTRONICS INC.
BALANCE SHEETS
(Unaudited)
ASSETS
December 31, September 30,
1997 1998
----------- -----------
(Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 160,000 $ 214,000
Accounts receivable, less allowance for
doubtful accounts of $238,000 and
$200,000, respectively 2,029,000 3,103,000
Inventories 2,398,000 2,471,000
Other receivables 620,000 511,000
Deferred income tax 312,000 312,000
Prepaid expenses and other current assets 235,000 172,000
----------- -----------
Total current assets 5,754,000 6,783,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 1,622,000 2,213,000
Furniture and fixtures 84,000 97,000
Tooling 441,000 590,000
Leasehold improvements 49,000 103,000
Construction-in-progress 84,000 14,000
----------- -----------
2,280,000 3,017,000
Less: accumulated depreciation and
amortization (739,000) (1,130,000)
----------- -----------
1,541,000 1,887,000
----------- -----------
Total assets $ 7,295,000 $ 8,670,000
=========== ===========
The accompanying notes are an integral part of these balance sheets.
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SPACE ELECTRONICS INC.
BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, September 30,
1997 1998
---------- ----------
(Audited)
CURRENT LIABILITIES:
Line of credit $ 500,000 $ 880,000
Current portion of notes payable 289,000 300,000
Accounts payable 600,000 355,000
Accrued liabilities 1,325,000 2,305,000
Customer deposits 105,000 1,190,000
---------- ----------
Total current liabilities 2,819,000 5,030,000
---------- ----------
NOTES PAYABLE, net of current portion 636,000 849,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock; 10,000,000 shares authorized,
at $.001 par value, 1,752,231 and
1,735,271 shares outstanding, respectively 1,000 1,000
Additional paid in capital 959,000 1,076,000
Retained Earnings 2,880,000 1,714,000
---------- ----------
Total shareholders' equity 3,840,000 2,791,000
---------- ----------
Total liabilities and shareholders' equity $7,295,000 $8,670,000
========== ==========
The accompanying notes are an integral part of these balance sheets.
19
20
SPACE ELECTRONICS INC.
STATEMENTS OF INCOME
(UNAUDITED)
For the Nine Months
Ended September 30,
-------------------------------
1997 1998
----------- -----------
Revenues $ 8,602,000 $ 8,806,000
Cost of revenues 3,361,000 5,451,000
----------- -----------
Gross profit 5,241,000 3,355,000
Selling, general and administrative expenses 2,565,000 2,772,000
Research and development expenses 700,000 1,379,000
----------- -----------
Income/(Loss) from operations 1,976,000 (796,000)
INTEREST AND OTHER INCOME (EXPENSES), net 9,000 (129,000)
----------- -----------
Income/(Loss) before income taxes 1,985,000 (925,000)
Income tax/(Benefit) provision 834,000 --
----------- -----------
Net income/(Loss) $ 1,151,000 $ (925,000)
=========== ===========
Net income/(Loss) per share:
Basic $ .68 $ (.52)
=========== ===========
Diluted $ .60 $ (.52)
=========== ===========
Shares used in per share calculation:
Basic 1,692,398 1,746,634
=========== ===========
Diluted 1,925,622 1,746,634
=========== ===========
The accompanying notes are an integral part of these financial statements.
20
21
SPACE ELECTRONICS INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
-------------------------------
1997 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ 1,151,000 $ (925,000)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and Amortization 259,000 391,000
Changes in assets and liabilities:
Accounts receivable (599,000) (1,074,000)
Inventories (758,000) (73,000)
Other receivables (301,000) 109,000
Deferred income tax -- --
Prepaid expenses and other assets (8,000) 63,000
Accounts payable 348,000 (245,000)
Accrued liabilities (545,000) 980,000
Customer deposits (79,000) 1,085,000
----------- -----------
Net cash provided by (used in)
operating activities (532,000) 311,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (765,000) (737,000)
----------- -----------
Net cash used in investing activities (765,000) (737,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit -- 380,000
Net borrowings under notes payable agreements 217,000 224,000
Sales of common stock 528,000 393,000
Purchases of treasury stock (352,000) (517,000)
----------- -----------
Net cash provided by
financing activities 393,000 480,000
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (904,000) 54,000
CASH AND CASH EQUIVALENTS, Beginning of period 1,310,000 160,000
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 406,000 $ 214,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING THE
YEAR FOR:
Interest $ 28,000 $ 116,000
=========== ===========
Taxes $ 832,000 $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
21
22
SPACE ELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1998
Basis of Presentation
The information at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is unaudited, but includes all adjustments,
consisting only of normal recurring adjustments, which the management of
Space Electronics, Inc. (the "Company") considers necessary for a fair
presentation of the Company's financial position, results of operations
and cash flows for the periods presented. The results of the interim
periods are not necessarily indicative of results for the full year.
The financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts recorded in the financial
statements and accompanying notes. Actual results may differ from those
recorded using such estimates.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure
about Segments of an Enterprise and Related Information" is effective
for fiscal years beginning after December 15, 1997. SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS
131 also establishes standards for related disclosures about products
and services, major customers, and material countries in which the
entity holds assets and reports revenue. The adoption of SFAS No. 131
will not affect the results of operations or financial position of the
Company, but may require the Company to disclose segment information in
its financial statements for the year ending December 31, 1998.
Statement of Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits" is
effective for fiscal years beginning after December 15, 1997. SFAS No.
132 established standards for employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement
or recognition of those plans. The adoption of SFAS No. 132 had no
material impact on the Company's financial statements or related
disclosures thereto.
22
23
In April 1998, the AcSEC issued AICPA SOP 98-5, "Reporting on the Costs
of Start-Up Activities." This statement provides guidance on the
financial reporting of start-up costs and organization costs and
requires that such costs of start-up activities be expensed as incurred.
SOP 98-5 is effective for fiscal years beginning after December 15,
1998, with earlier application permitted. The Company anticipates that
the adoption of SOP 98-5 will not have a material impact on the
Company's financial position or results of operations.
Net Income Per Share
In fiscal year 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Under the
provisions of SFAS 128, basic earnings per share is calculated based on
the weighted average number of common shares outstanding during the
period. Diluted earnings per share also gives effect to the dilutive
effect of stock options (calculated based on the treasury stock method).
All prior periods have been restated. A reconciliation of shares used in
the per share calculation is as follows:
September 30,
--------------------------
1997 1998
--------- ---------
Basic:
Weighted average common shares
Outstanding 1,692,398 1,746,634
========= =========
Diluted:
Weighted average common shares 1,692,398 1,746,634
Dilutive effect of stock options 233,224 --
--------- ---------
Weighted average shares
outstanding 1,925,622 1,746,634
========= =========
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and related overhead. Inventories
consisted of the following costs not yet charged to contracts (in
thousands):
December 31, September 30,
1997 1998
---------- ----------
Raw materials $1,360,000 $1,469,000
Work-in-progress 571,000 549,000
Finished goods 467,000 453,000
---------- ----------
$2,398,000 $2,471,000
========== ==========
23
24
Taxation
The estimated annual effective tax rate for 1998 is 40%. The difference
between the federal statutory rate and the estimated annual effective
rate is primarily attributable to state taxes and other nondeductible
items.
Merger with Maxwell Technologies, Inc.
On January 29, 1999, the Company was acquired by Maxwell Technologies,
Inc. ("Maxwell"), a public company. Stockholders of the Company will
receive 681,243 shares of Maxwell Common Stock for all outstanding
shares of the Company.
24
25
(b) Pro Forma Financial Information.
In accordance with Article 11 of Regulation S-X, pro forma financial
information is filed with this Report.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Balance Sheet - unaudited
(in thousands)
Maxwell Space Pro Forma
Technologies, Inc. Electronics, Inc. Adjustments(1) Total Pro Forma
------------------ ----------------- -------------- ---------------
July 31, 1998 June 30, 1998
------------- -------------
(Audited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21,224 $ 15 $ 21,239
Accounts Receivable--net 36,062 3,397 39,459
Inventories 15,823 2,676 18,499
Prepaid expenses 2,016 192 2,208
Deferred income taxes 161 312 $ (312) (A) 161
--------- --------- --------- ---------
Total current assets 75,286 6,592 (312) 81,566
--------- --------- --------- ---------
Property, plant and equipment--net 23,276 1,823 25,099
Goodwill and other non-current assets 6,503 -- 6,503
--------- --------- --------- ---------
$ 105,065 $ 8,415 $ (312) $ 113,168
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,680 $ 3,235 $ 800 (B) $ 24,715
Accrued employee compensation 6,353 648 7,001
Current portion of long-term debt 121 858 979
--------- --------- --------- ---------
Total current liabilities 27,154 4,741 800 32,695
Long-term debt 361 725 1,086
Minority interest 1,712 -- 1,712
Stockholders' equity:
Common stock 838 -- 68 (C) 906
Additional paid-in capital 70,926 957 (68) (C) 71,815
Deferred compensation (413) -- (413)
Retained earnings 4,487 1,992 (1,112) (A)(B) 5,367
--------- --------- --------- ---------
Total stockholders' equity 75,838 2,949 (1,112) 77,675
--------- --------- --------- ---------
$ 105,065 $ 8,415 $ (312) $ 113,168
--------- --------- --------- ---------
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26
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Balance Sheet - unaudited
(in thousands)
Maxwell Space
Technologies, Inc. Electronics, Inc.
------------------ ------------------ Pro Forma
October 31, 1998 September 30, 1998 Adjustments(1) Total Pro Forma
---------------- ------------------ -------------- ---------------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,511 $ 214 $ 15,725
Accounts Receivable--net 37,618 3,614 41,232
Inventories 16,903 2,471 19,374
Prepaid expenses 3,003 172 3,175
Deferred income taxes 161 312 (312) (A) 161
--------- --------- --------- ---------
Total current assets 73,196 6,783 (312) 79,667
--------- --------- --------- ---------
Property, plant and equipment--net 24,082 1,887 25,969
Goodwill and other non-current assets 10,587 -- 10,587
--------- --------- --------- ---------
$ 107,865 $ 8,670 $ (312) $ 116,223
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,373 $ 3,305 $ 800 (B) $ 24,478
Accrued employee compensation 6,880 545 7,425
Current portion of long-term debt 103 1,180 1,283
--------- --------- --------- ---------
Total current liabilities 27,356 5,030 800 33,186
Long-term debt 348 849 1,197
Minority interest 1,916 -- 1,916
Stockholders' equity:
Common stock 840 -- 68 (C) 908
Additional paid-in capital 70,570 1,077 (68) (C) 71,579
Deferred compensation (353) -- (353)
Accumulated other comprehensive income 4 -- 4
Retained earnings 7,184 1,714 (1,112) (A) (B) 7,786
--------- --------- --------- ---------
Total stockholders' equity 78,245 2,791 (1,112) 79,924
--------- --------- --------- ---------
$ 107,865 $ 8,670 $ (312) $ 116,223
--------- --------- --------- ---------
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Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Statement of Operations - unaudited
(in thousands, except per share data)
Maxwell Space
Technologies, Inc. Electronics, Inc.
------------------ -----------------
Year Ended Year Ended Pro Forma Total
July 31, 1998 June 30, 1998 Adjustments Pro Forma
------------- ------------- ----------- ---------
(Audited) (Unaudited)
Sales $ 125,308 $ 10,681 $ 135,989
Cost of sales 83,459 6,270 89,729
--------- --------- --------- ---------
Gross profit 41,849 4,411 $ -- 46,260
Operating expenses:
Research and development expenses 8,206 1,498 9,704
Selling general and administrative expenses 26,391 3,316 29,707
Acquired in-process technology and other special
charges 8,942 -- 8,942
--------- --------- --------- ---------
Total operating expenses 43,539 4,814 -- 48,353
--------- --------- --------- ---------
Operating income (loss) (1,690) (403) -- (2,093)
Interest expense 214 107 321
Interest income and other--net (1,441) (12) (1,453)
--------- --------- --------- ---------
Income (loss) before minority interest and income taxes (463) (498) -- (961)
--------- --------- --------- ---------
Minority interest in net income (loss) of subsidiaries 80 -- 80
Income tax expense 226 157 383
--------- --------- --------- ---------
Net income (loss) $ (769) $ (655) $ -- $ (1,424)
========= ========= ========= =========
Basic income (loss) per share $ (0.10) $ (0.17)
========= =========
Diluted income (loss) per share $ (0.10) $ (0.17)
========= =========
Weighted average number of shares used to calculate:
Basic income (loss) per share 7,677 8,358
========= =========
Diluted income (loss) per share 7,677 8,358
========= =========
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28
Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Statement of Operations - unaudited
(in thousands, except per share data)
Maxwell Space
Technologies, Inc. Electronics, Inc.
------------------ -----------------
Year Ended Year Ended Pro Forma Total
July 31, 1997 December 31, 1997 Adjustments Pro Forma
------------- ----------------- ----------- ---------
(Audited) (Audited)
Sales $101,411 $11,121 $112,532
Cost of sales 70,107 4,606 74,713
-------- ------- -------- --------
Gross profit 31,304 6,515 -- 37,819
Operating expenses:
Research and development expenses 5,303 1,046 6,349
Selling general and administrative expenses 21,900 3,452 25,352
-------- ------- -------- --------
Total operating expenses 27,203 4,498 -- 31,701
-------- ------- -------- --------
Operating income 4,101 2,017 -- 6,118
Interest expense 173 57 230
Interest income and other--net (150) (48) (198)
-------- ------- -------- --------
Income before minority interest and income taxes 4,078 2,008 -- 6,086
-------- ------- -------- --------
Minority interest in net income of subsidiaries 54 -- 54
Income tax expense -- 741 741
-------- ------- -------- --------
Net income $ 4,024 $ 1,267 -- $ 5,291
======== ======= ======== ========
Basic income per share $ 0.68 $ 0.80
======== ========
Diluted income per share $ 0.60 $ 0.72
======== ========
Weighted average number of shares used to calculate:
Basic income per share 5,949 6,630
======== ========
Diluted income per share 6,644 7,325
======== ========
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29
Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Statement of Operations - unaudited
(in thousands, except per share data)
Maxwell Space
Technologies, Inc. Electronics, Inc.
------------------ -----------------
Year Ended Year Ended Pro Forma Total
July 31, 1996 December 31, 1996 Adjustments Pro Forma
----------- ----------------- ----------- ---------
(Audited) (Audited)
Sales $ 80,911 $10,598 $ 91,509
Cost of sales 65,893 4,217 70,110
-------- --------- --------- ---------
Gross profit 15,018 6,381 -- 21,399
Operating expenses:
Research and development expenses 5,081 488 5,569
Selling general and administrative expenses 15,564 2,777 18,341
Restructure and asset impairment losses 5,703 -- 5,703
--------- --------- --------- ---------
Total operating expenses 26,348 3,265 -- 29,613
--------- --------- --------- ---------
Operating income (loss) (11,330) 3,116 -- (8,214)
Interest expense 329 27 356
Interest income and other--net (398) (12) (410)
--------- --------- --------- ---------
Income (loss) before minority interest and income taxes (11,261) 3,101 -- (8,160)
--------- --------- --------- ---------
Minority interest in net income of subsidiaries 50 -- 50
Income tax expense 1,296 -- 1,296
Loss from cumulative effect of change in
accounting principle 2,569 1,144 3,713
--------- --------- --------- ---------
Net income (loss) $(15,176) $ 1,957 $ -- $(13,219)
========= ========= ========= =========
Basic income (loss) per share $ (2.76) $ (2.14)
========= =========
Diluted income (loss) per share $ (2.76) $ (2.14)
========= =========
Weighted average number of shares used to calculate:
Basic income (loss) per share 5,494 6,175
========= =========
Diluted income (loss) per share 5,494 6,175
========= =========
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Maxwell Technologies, Inc.
Pro Forma Condensed Consolidated Statement of Operations - unaudited
(in thousands, except per share data)
Maxwell Space
Technologies, Inc. Electronics, Inc.
------------------ ------------------
Three Months Three Months
Ended Ended Pro Forma Total
October 31, 1998 September 30, 1998 Adjustments Pro Forma
---------------- ------------------ ----------- ---------
(Unaudited) (Unaudited)
Sales $ 38,172 3,288 $ 41,460
Cost of sales 25,466 1,826 27,292
--------- -------- --------- ---------
Gross profit 12,706 1,462 -- 14,168
Operating expenses:
Research and development expenses 1,709 532 2,241
Selling general and administrative expenses 8,211 1,165 9,376
--------- -------- --------- ---------
Total operating expenses 9,920 1,697 -- 11,617
--------- -------- --------- ---------
Operating income (loss) 2,786 (235) -- 2,551
Interest expense 73 46 119
Interest income and other--net (285) -- (285)
--------- -------- --------- ---------
Income (loss) before minority interest and income taxes 2,998 (281) -- 2,717
--------- -------- --------- ---------
Minority interest in net income of subsidiaries 195 -- 195
Income tax expense 100 -- 100
--------- -------- --------- ---------
Net income (loss) $ 2,703 $ (281) $ -- $ 2,422
========= ======== ========= =========
Basic income per share $ 0.32 $ 0.27
========= =========
Diluted income per share $ 0.30 $ 0.26
========= =========
Weighted average number of shares used to calculate:
Basic income per share 8,402 9,083
========= =========
Diluted income per share 8,794 9,475
========= =========
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31
DESCRIPTION
These unaudited pro forma condensed consolidated financial statements
may not be indicative of the results that actually would have occurred if the
combination had been in effect on the dates indicated or which may be obtained
in the future. The pro forma adjustments are based upon preliminary estimates,
available information and certain assumptions that management deemed
appropriate. The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the consolidated historical financial
statements and notes thereto, contained in Maxwell Technologies, Inc.'s Annual
Report on Form 10-K for the year ended July 31, 1998.
The unaudited pro forma condensed consolidated statement of operations
for the year ended July 31, 1998, includes the results of operations of SEi for
the twelve months ended June 30, 1998. These statements were prepared by taking
into consideration only those transactions known to be occurring, and having
continuing impact to operations as a result of the acquisition.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Maxwell acquired all of the outstanding shares of common stock of Space
Electronics in exchange for up to 681,243 shares of Maxwell common stock except
for fractional shares which will be acquired for cash. The transaction will be
accounted for as a pooling of interests; accordingly, all of the assets and
liabilities of Space Electronics will be carried forward at their historical
cost basis, and the operating results of Space Electronics will be combined with
those of Maxwell for all periods presented.
(1) Pro Forma Adjustments:
(A) To reflect the decrease in deferred income taxes $312,000 to
conform to amounts which would be appropriate under Statement of
Financial Accounting Standards No. 109 - Accounting for Income
Taxes if the Companies had been combined as of July 31, 1998.
(Maxwell has a valuation allowance against its deferred tax
assets.)
(B) To accrue estimated acquisition costs of $800,000. Such costs are
not reflected in the pro forma statement of operations as they
are not reflective of ongoing operations, but will be included in
Maxwell's consolidated statement of operations for the period in
which the merger is consummated.
(C) To record the issuance of approximately 681,243 shares of Maxwell
common stock in consideration of the acquisition of SEi.
31
32
(c) Exhibits.
2.1 Amended and Restated Agreement and Plan of Reorganization, dated as of
November 25, 1998, as amended, by and among Maxwell, MTAC, SEi, and
certain stockholders of SEi.
2.2 First Amendment to Amended and Restated Agreement and Plan of
Reorganization, effective as of January 25, 1999, by and among Maxwell,
MTAC, SEi and certain stockholders of SEi.
23.1 Consent of Arthur Andersen LLP
99.1 Press Release of the Company dated February 9, 1999.
32
33
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 hereunto duly authorized.
Date: February 12, 1999
-----------------
MAXWELL TECHNOLOGIES, INC.
By: /s/ Gary J. Davidson
--------------------------
Gary J. Davidson
Vice President, Finance &
Administration and
Chief Financial Officer