<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 000-21507
POWERWAVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2723423
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2026 McGaw Avenue
Irvine, California 92614
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (714) 757-0530
--------------
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 [_]
As of May 5, 1997, the number of outstanding shares of Common Stock, par
value $.0001 per share, of the Registrant was 16,241,324.
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POWERWAVE TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 30, 1997 (Unaudited)
and December 29, 1996..................................................... 3
Consolidated Statements of Income (Unaudited) for the three months ended
March 30, 1997 and March 31, 1996......................................... 4
Consolidated Statements of Cash Flows (Unaudited) for the three months ended
March 30, 1997 and March 31, 1996......................................... 5
Notes to Consolidated Financial Statements (Unaudited)...................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 8-18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 19
SIGNATURES.................................................................................... 19
Exhibit 11.1 Computation of Pro Forma Net Income and Net Income per Share.................... 20
</TABLE>
This Quarterly Report on Form 10-Q includes certain forward-looking statements
as defined within the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from those projected or implied. The
realization of such forward-looking statements may be impacted by certain
important factors which are discussed in "Additional Factors That May Affect
Future Results" under Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
2
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POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
ASSETS: 1997 1996
------------- -------------
<S> <C> <C>
Current Assets: (Unaudited)
Cash and cash equivalents $ 36,021,106 $ 32,386,331
Accounts receivable, net of allowance for doubtful
accounts of $610,842 and $485,368 at March 30,
1997 and December 29, 1996, respectively............ 6,305,922 3,324,699
Inventories, net......................................... 6,356,448 4,707,545
Prepaid expenses and other current assets................ 618,262 327,816
Deferred tax assets...................................... 1,875,572 1,875,572
------------ ------------
Total current assets................................ 51,177,310 42,621,963
Property and equipment........................................ 8,189,886 5,211,764
Accumulated depreciation and amortization..................... (1,324,929) (1,011,132)
------------ ------------
Net property and equipment.............................. 6,864,957 4,200,632
------------ ------------
Other assets.................................................. 338,335 109,606
------------ ------------
TOTAL ASSETS.................................................. $ 58,380,602 $ 46,932,201
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable......................................... $ 5,881,233 $ 3,588,885
Accrued expenses and other liabilities................... 4,552,391 3,878,396
Current portion of long-term debt........................ 304,042 253,747
Income taxes payable..................................... 3,098,479 1,658,019
------------ ------------
Total current liabilities........................... 13,836,145 9,379,047
Deferred tax liabilities...................................... 189,432 189,432
Other non-current liabilities................................. 21,934 -
Long-term debt................................................ 630,887 520,399
------------ ------------
TOTAL LIABILITIES............................................. 14,678,398 10,088,878
------------ ------------
Commitments and contingency
Shareholders' Equity:
Preferred Stock, $.0001 par value, 5,000,000 shares
authorized and no shares outstanding..................... - -
Common Stock, $.0001 par value, 40,000,000 shares
authorized and 16,241,324 and 15,862,500 shares issued
and outstanding at March 30, 1997 and December 29, 1996.. 37,668,788 33,570,573
Retained earnings............................................. 18,264,796 15,504,130
Less treasury stock at cost................................... (12,231,380) (12,231,380)
------------ ------------
Total shareholders' equity............................... 43,702,204 36,843,323
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... $ 58,380,602 $ 46,932,201
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 30, MARCH 31,
1997 1996
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<S> <C> <C>
Net sales.......................................... $20,242,742 $13,807,400
Cost of sales...................................... 11,527,916 8,229,251
----------- -----------
Gross profit....................................... 8,714,826 5,578,149
Operating expenses:
Sales and marketing........................... 1,580,623 1,055,601
Research and development...................... 2,211,404 1,074,662
General and administrative.................... 942,886 611,552
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Total operating expenses........................... 4,734,913 2,741,815
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Operating income................................... 3,979,913 2,836,334
Other income, net.................................. 472,778 58,544
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Income before income taxes......................... 4,452,691 2,894,878
Provision for income taxes......................... 1,692,023 1,186,900
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Net income......................................... $ 2,760,668 $ 1,707,978
=========== ===========
Net income and pro forma net income per share...... $.17 $.12
Weighted average and pro forma
weighted average common shares................ 16,728,008 14,475,481
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 2,760,668 $ 1,707,978
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......................... 313,795 126,072
Changes in assets and liabilities:
Accounts receivable.................................. (2,981,223) (3,348,242)
Inventories.......................................... (1,648,903) (152,579)
Income tax refund receivable......................... - 609,550
Prepaid expenses and other current assets............ (290,447) (11,825)
Accounts payable..................................... 2,292,347 (487,833)
Accrued expenses and other liabilities............... 695,929 1,349,433
Compensation costs related to stock options.......... 16,026 -
Other assets......................................... (228,729) -
Income taxes payable................................. 1,592,022 502,350
----------- -----------
Net cash provided by operating activities............. 2,521,485 294,904
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................... (2,978,120) (53,175)
Sale of short-term investments........................ - 13,165
----------- -----------
Net cash used in investing activities................. (2,978,120) (40,010)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.................. (75,049) (67,699)
Proceeds from sale of assets.......................... 235,832 -
Issuance of Common Stock.............................. 3,884,019 -
Proceeds from exercise of stock options............... 46,608 -
----------- -----------
Net cash provided by (used in) financing activities... 4,091,410 (67,699)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS..................................... 3,634,775 187,195
CASH AND CASH EQUIVALENTS, beginning.................... 32,386,331 5,841,456
----------- -----------
CASH AND CASH EQUIVALENTS, ending....................... $36,021,106 $ 6,028,651
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest............................................. $ 19,267 $ 4,664
=========== ===========
Income taxes......................................... $ 100,000 $ 75,000
=========== ===========
NON CASH ITEMS:
Tax benefit related to stock options................. $ 151,562 $ -
=========== ===========
Acquisition of property through capital leases....... $ 235,832 $ -
=========== ===========
Preferred dividends payable.......................... $ - $ 450,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 30, 1997
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the
Company without audit (except for balance sheet information as of December 29,
1996) in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying consolidated financial statements do not
include certain footnotes and financial presentations normally required under
generally accepted accounting principles and, therefore, should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 1996. The
accounting policies followed by the Company are set forth in Note 2 of the Notes
to Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the fiscal year ended December 29, 1996.
The results of operations for the three-month period ended March 30, 1997, are
not necessarily indicative of the results to be expected for the entire fiscal
year ended December 28, 1997 (fiscal year 1997). For further information on
additional factors that may affect future results, please refer to both the
"Management Discussion and Analysis of Financial Condition and Results of
Operations" under Item 2, and the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1996.
Net Income and Pro Forma Net Income Per Share and Shareholders' Equity
Net income and pro forma net income per share amounts are based upon the
weighted average number of common shares and dilutive common equivalent shares
for each period presented and the pro forma conversion of preferred stock into
common stock up to the date of such conversion. Weighted average and pro forma
weighted average common and common equivalent shares include Common Stock, Stock
Options using the treasury stock method and the conversion of outstanding shares
of Series A Preferred Stock into shares of Common Stock. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin Topic 4D, stock options
granted during the twelve months prior to the date of the initial filing of the
Company's Form S-1 Registration Statement have been included in the calculation
of common equivalent shares using the treasury stock method.
On January 3, 1997, the underwriter's of the Company's initial public offering
of Common Stock exercised their option to purchase an additional 360,000 shares
of Common Stock directly from the Company at a price of $11.50 per share, less
underwriting discounts and commissions of $.805 per share. The Company received
net proceeds of $3.9 million.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share, which is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. Early adoption of the statement is not permitted. The
Company has applied this statement to the 1996 first quarter and annual results
and to the 1997 first quarter results and determined that the adoption of this
statement would not have had a material impact on the earnings per share
calculations for these periods.
6
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Stock Option Plans
The following is a summary of stock option transactions under the Company's
stock option plans, including the 1995 Stock Option Plan, the 1996 Stock
Incentive Plan, and the 1996 Director Stock Option Plan, for the three months
ended March 30, 1997:
<TABLE>
<CAPTION>
Number of
Options
Exercisable
Number of Price per as of
Shares Share March 30, 1997
---------- ------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996 1,919,252 $ 2.47-11.50 382,404
Granted 90,000 $16.25-17.00
Exercised (18,827) $ 2.47- 4.67
Canceled (1,050) $ 4.00- 4.67
--------- -------
Balance at March 30, 1997 1,989,375 382,404
========= =======
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto. This discussion may contain forward-
looking statements, the realization of which may be impacted by certain
important factors which are discussed but not limited to in "Additional Factors
That May Affect Future Results".
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of net sales for the fiscal three months ended March 30, 1997 and
March 31, 1996.
<TABLE>
<CAPTION>
Percentage of Total Revenue
Three Months Ended
-----------------------------
MARCH 30, MARCH 31,
1997 1996
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<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 56.9 59.6
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Gross profit 43.1 40.4
Operating expenses:
Sales and marketing 7.8 7.6
Research and development 10.9 7.8
General and administrative 4.7 4.4
----- -----
Total operating expenses 23.4 19.8
----- -----
Operating income 19.7 20.6
Other Income (expense) 2.3 0.4
----- -----
Income before income taxes 22.0 21.0
Provision for income taxes 8.4 8.6
----- -----
Net income 13.6% 12.4%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
Net Sales
The Company's net sales are derived primarily from the sale of RF power
amplifiers for use in wireless communications networks. Sales increased by
46.6% to $20.3 million for the quarter ended March 30, 1997 from $13.8 million
for the quarter ended March 31, 1996. The growth in revenue was primarily
attributable to increased sales of cellular multi-carrier linear amplifiers, as
well as initial sales of single carrier PCS amplifiers, offset by a decrease in
sales of SMR amplifiers along with no sales of air/ground amplifiers. The first
quarter of fiscal 1997 experienced continued demand for cellular multi-carrier
amplifiers by the Company's South Korean customers as they continued deployment
of the digital cellular CDMA system in South Korea. The Company currently
expects sales of cellular multi-carrier amplifiers for deployment in South Korea
to decline during 1997 with full deployment estimated to be completed during
1998.
For the quarter ended March 30, 1997, cellular multi-carrier amplifiers
(including racks) accounted for approximately 84.0% of revenues or $17.0
million, compared to approximately 63.9% or $8.8 million for the first quarter
of fiscal 1996. SMR (including paging) amplifiers accounted for approximately
7.2% or $1.5 million of revenues for the quarter ended March 30, 1997, compared
to approximately 19.4% or $2.7 million of revenues for the quarter ended March
31, 1996. There were no sales of air-to-ground amplifiers for the first quarter
of 1997 compared to approximately $2.3 million or 16.7% of sales for the quarter
ended March 31, 1996. In January 1997, In-Flight Phone Corporation, one of the
Company's major customers for air-to-ground amplifiers, filed for Chapter 11
Bankruptcy protection. The Company had previously fully reserved its accounts
receivable exposure to this
8
<PAGE>
customer and does not expect this bankruptcy filing to have any material impact
on the Company's financial condition. The first quarter of 1997 saw an increase
in the demand for PCS single carrier products with initial volume shipments of
such products. PCS products accounted for approximately 8.8% of revenues or $1.8
million for the first quarter of 1997 compared to none for the first quarter in
1996. International sales, primarily to customers in South Korea, accounted for
84.7% of revenues for the quarter ended March 30, 1997, compared with 60.0% for
the quarter ended March 31, 1996.
Gross Profit
Cost of sales consists primarily of raw materials, assembly and test labor,
overhead, warranty costs and royalties. Gross profit margins for the first
quarter of fiscal 1997 and 1996 were 43.1% and 40.4%, respectively. The
increase in gross margins was primarily attributable to reductions in
manufacturing costs and a shift in sales mix to cellular, multi-carrier linear
RF amplifiers which achieved a higher percentage of sales, generating improved
gross margins. The Company anticipates increasing its sales of single carrier
PCS amplifiers, which have lower sales prices and potentially lower gross
margins, which will impact the Company's future gross margins. While the
Company continues to strive for manufacturing cost reductions to offset pricing
pressures on its products, there can be no assurance that these cost reduction
efforts will continue to keep pace with price declines. If the Company is
unable to continue to obtain cost reductions, its gross margins and
profitability will be adversely affected. For a discussion of the effects of
declining average sales prices on the Company's business, see "Additional
Factors That May Affect Future Results - Declining Average Sales Prices."
The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. Due to these competitive
pressures, the Company expects that the average sales prices of its products
will continue to decrease. The Company has introduced new products at lower
sales prices which could impact the average sales prices of the Company's
products. Future pricing actions by the Company and its competitors may also
adversely impact the Company's gross margins and profitability, which could also
result in decreased liquidity and adversely affect the Company's business,
results of operations and financial condition. For a discussion of the impact of
new products on the Company's business, see "Additional Factors That May Affect
Future Results - Rapid Technological Change; Dependence on New Products."
Operating Expenses
Sales and marketing expenses consist primarily of sales commissions, salaries
and other expenses for sales and marketing personnel, travel expenses, reserves
for credit losses and trade show expenses. Sales and marketing expenses
increased by 49.7% to $1.6 million for the quarter ended March 30, 1997 from
$1.1 million for the quarter ended March 31, 1996. As a percentage of sales,
sales and marketing expenses were 7.8% and 7.6%, respectively. The increase in
sales and marketing expenses was primarily attributable to increases in the
sales and marketing staff and sales commissions related to increased product
sales. The Company intends to continue increasing its actual investment in
sales and marketing in future periods.
Research and development expenses include ongoing amplifier design and
development expenses, as well as those design expenses associated with reducing
the cost and improving the manufacturability of existing amplifiers. Research
and development expenses increased by 105.7% to $2.2 million for the quarter
ended March 30, 1997 from $1.1 million for the quarter ended March 31, 1996.
Research and development expenses as a percentage of sales were 10.9% and 7.8%,
respectively. The increase in research and development expenses was primarily
attributable to increased staffing and associated engineering costs related to
continued new and existing product development, including the continued
development of amplifiers for PCS networks which began during the third quarter
of 1996. There was no PCS development during the first quarter of 1996. The
Company intends to continue to emphasize investment in research and development
programs in future periods with current programs covering both PCS and cellular
products.
General and administrative expenses consist primarily of salaries and other
expenses for management, finance, facilities maintenance and human resources.
General and administrative expenses increased by 54.2% to $.9 million for the
quarter ended March 30, 1997, from $.6 million for the quarter ended March 31,
1996. General and
9
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administrative expenses as a percentage of sales were 4.7% and 4.4%,
respectively. The increase in actual general and administrative expenses was
primarily attributable to increased staffing costs associated with supporting
the Company's increased revenues.
Other Income
The Company earned other income, net of $472,778 in the first quarter of 1997
compared to $58,544 for the first quarter of 1996. Other income consists
primarily of interest income, net of any interest expense. The increase in net
interest income is attributed to the Company's increased cash position
maintained during the first quarter of 1997 compared to the cash balances
maintained during the first quarter of 1996. The larger cash balances are due
to both the Company's initial public offering, as well as cash flow generated
from operations. The larger cash balances were invested in short-term money
market instruments.
Provision for Income Taxes
The Company's effective tax rate was 38.0% and 41.0% for the periods ending
March 30, 1997 and March 31, 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations primarily through a
combination of cash on hand, cash provided from operations, equipment lease
financings, available borrowings under its bank line of credit and both private
and public equity offerings. As of March 30, 1997, the Company had working
capital of $37.3 million, including $36.0 million in cash and cash equivalents
as compared with working capital of $33.2 million at December 29, 1996. The
increase in cash balances for the first quarter of 1997 compared to the prior
period was primarily attributed to the Company's initial public offering which
was completed in December 1996 and provided the Company with additional cash of
$18.3 million (net of expenses), and the sale of the over-allotment common
shares which added an additional $3.9 million in January 1997.
Cash provided by operations was approximately $2.5 million for the quarter
ended March 30, 1997, compared to $.3 million for the quarter ended March 31,
1996. The increase in cash provided by operations for the first quarter of 1997
compared to the prior year period is primarily attributable to increased
profitability and an increase in income taxes payable. From a cash flow
standpoint, the increase in inventory for the first quarter of 1997 was offset
by increased accounts payable. Cash provided by financing activities was
approximately $4.1 million for the first quarter of 1997 compared with $67,699
used in financing activities for the prior year period. The majority of the
increase in cash provided by financing activities resulted from the $3.9 million
provided by the sale of the over-allotment of common shares associated with the
Company's December 1996 initial public offering of Common Stock.
Capital expenditures were approximately $3.0 million for the first quarter of
1997 compared with $53,175 in the same quarter of the previous year.
Approximately $.2 million of the first quarter of 1997 acquisition's were
financed through capital leases. The majority of the capital spending during the
first quarter of 1997 represents spending on electronic test equipment utilized
in both the Company's manufacturing and research and development areas. This
reflects the increased investment the Company has made in its research and
development efforts as well as increasing its production capacity.
With regards to working capital items, net accounts receivable were
approximately $6.3 million at March 30, 1997 compared with $3.3 million at
December 29, 1996. The increase in accounts receivable is primarily due to
increased revenues from the fourth quarter of 1996 to the first quarter of 1997,
and an increase in days sales outstanding to 28 days for the first quarter of
1997 from 18 days for the fourth quarter of 1996. Net inventory increased to
$6.4 million at March 30, 1997, from $4.7 million at December 29, 1996. This
increase is largely attributed to the continued ramp-up for the new PCS product
line and increased production of multi-carrier cellular amplifiers. Accounts
payable increased to $5.9 million at March 30, 1997, from $3.6 million at
December 29, 1996. The increase in accounts payable is primarily due to
increased inventory levels and increased capital spending.
10
<PAGE>
On May 30, 1996, the Company entered into a $5 million unsecured committed
revolving credit agreement with a maturity date of May 31, 1997. The agreement
allows the Company to borrow at the bank's reference rate. The Company is
required to pay a commitment fee equal to .125% per annum based on the average
daily unused portion of the facility. The fee is payable quarterly in arrears.
Under the terms of this credit facility, the Company is required to maintain
certain minimum working capital, net worth and financial ratios. As of March
30, 1997, the full amount of the facility was available to the Company and the
Company has not utilized this facility.
The Company had cash and cash equivalents of $36.0 million at March 30, 1997,
compared with $32.4 million at December 29, 1996. The Company regularly reviews
its cash funding requirements and attempts to meet those requirements through a
combination of cash on hand, cash provided by operations, available borrowings
under any credit facilities, financing through equipment lease transactions, and
possible future public or private debt and/or equity offerings. The Company
invests its excess cash in investment grade short-term money market instruments.
The Company believes that existing cash balances, funds expected to be
generated from operations and borrowings under its bank line of credit will
provide the Company with sufficient funds to finance its operations for at least
the next 12 months. The Company has utilized both operating and finance lease
financing for equipment used in its manufacturing and research and development
operations and expects to continue to do so in the future. In the future, the
Company may require additional funds to support its working capital requirements
or for other purposes, and may seek to raise such additional funds through the
sale of public or private equity and/or debt financings or from other sources.
No assurance can be given that additional financing will be available or that,
if available, such financing will be obtainable on terms favorable to the
Company or its shareholders when the Company may require it.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include worldwide
economic and political conditions, industry specific factors, the Company's
ability to finance its activities and maintain its financial liquidity, the
Company's ability to timely develop and produce commercially viable products at
competitive prices, the availability and cost of components, the Company's
ability to produce products which meet the quality standards of both existing
and potential new customers, the ability of the Company's products to operate
and be compatible with various OEMs base station equipment, the Company's
ability to manage expense levels, and the Company's ability to accurately
anticipate customer demand.
Customer Concentration; Reliance Upon South Korean Market
A small number of customers account for a substantial majority of the
Company's net sales. Although the Company is attempting to expand its customer
base, the Company expects that a limited number of customers will continue to
represent a substantial portion of the Company's net sales for the foreseeable
future. The Company believes that its future success depends upon its ability
to broaden its customer base. The Company's three largest customers include, in
alphabetical order, Hyundai Electronics Industries Co. ("Hyundai"), LG
Information and Communications, Ltd. ("LGIC") and Samsung Electronics Co. Ltd.
("Samsung"). For the quarter ended March 30, 1997, these customers, each of
which accounted for more than 20% of the Company's net sales for such period,
accounted for approximately 83% of the Company's net sales in the aggregate.
Hyundai, LGIC and Samsung currently purchase cellular products for
implementation in the South Korean digital cellular telephone network. During
the fourth quarter of 1996, they began purchasing PCS products for the planned
implementation in South Korea of a new digital PCS network with initial
operation targeted for January 1998. The delay or termination of the
implementation of the South Korean digital cellular telephone network or the
planned PCS network would have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the
Company currently believes that the South Korean digital cellular network is
more than 50% completed and that the build-out phase of this network will begin
declining during 1997 with full deployment estimated to be completed during
1998. Accordingly, the Company's sales related to the Korean cellular network
are anticipated to decrease significantly over the same time period.
11
<PAGE>
During fiscal 1995, 1996 and the first quarter of 1997, Hyundai, LGIC and
Samsung purchased multi-carrier linear RF power amplifiers for installation in
the buildout of the South Korean digital cellular network. These customers also
have begun marketing wireless infrastructure equipment for installation in
networks outside of the South Korean market. There can be no assurance that
such customers will be successful in obtaining new business outside of South
Korea or that, if successful, they will continue to purchase amplifiers from the
Company. Any significant decrease in the Company's sale of amplifiers to these
customers, without an offsetting increase in sales to other customers, would
have a material adverse effect on the Company's business, results of operations
and financial condition. During the first quarter of 1997, the Company began
shipping in volume PCS single carrier amplifiers for use in a new PCS network to
be built in South Korea. There can be no assurance that the Company's PCS-based
products will achieve market acceptance, or be capable of being manufactured at
competitive prices in sufficient volumes. In the event the Company's PCS-based
products are not timely developed or do not gain market acceptance or are not
capable of being manufactured at competitive costs, the Company's business,
results of operations and financial condition would be materially adversely
affected.
Sales of power amplifiers to wireless infrastructure equipment suppliers are
expected to continue to account for a substantial majority of the Company's
product sales. A limited number of large OEMs account for a majority of RF
power amplifier purchasers in the wireless infrastructure market, and the
Company's success will be dependent upon its ability to establish and maintain
relationships with these types of customers. There can be no assurance that a
major customer will not reduce, delay or eliminate its purchases from the
Company, which could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, major customers
also have significant leverage and may attempt to change the terms, including
pricing or delaying delivery of products, upon which the Company and such
customers do business, thereby adversely affecting the Company's business,
results of operations and financial condition. Further, one or more of these
customers may determine to manufacture amplifiers internally thus reducing or
eliminating its purchases from the Company and possibly becoming a direct
competitor of the Company. Certain customers of the Company have produced
internally designed amplifiers in an attempt to replace products manufactured by
the Company. The Company expects that this practice will continue. As a
result, the Company's success will depend on its ability to expand its customer
base and, in particular, to successfully market its products to OEMs for
wireless networks and have its products chosen over any internally designed or
manufactured products. There can be no assurance that the Company will be
successful in these efforts and if it is not successful, it would have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company currently sells to its major customers under purchase orders which
are usually placed with short-term delivery requirements. As such, while the
Company receives periodic order forecasts from its major customers, such
customers have no obligation to purchase the forecasted amounts. Nonetheless,
the Company maintains significant work-in-progress and raw materials inventory
as well as maintaining increased levels of technical production staff to meet
order forecasts. To the extent its major customers purchase less than the
forecasted amounts, the Company will have higher levels of inventory than
otherwise needed, increasing the risk of obsolescence and the Company will have
increased levels of production staff to support such forecasted orders. Such
higher levels of inventory and increased employee levels would reduce the
Company's liquidity and could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, in the
event the Company's major customers desire to purchase products in excess of the
forecasted amounts, the Company may not have sufficient inventory or
manufacturing capacity to fill such increased orders, which could have a
material adverse effect on the Company's relationships and future business with
its customers.
Reliance Upon Continued Growth of Wireless Services Market
A substantial majority of the Company's revenues are derived from the sale of
RF power amplifiers for wireless communications networks, and the future success
of the Company depends to a considerable extent upon the continued growth and
increased availability of cellular and other wireless communications services,
including PCS, in the United States and internationally. There can be no
assurance that either subscriber use or the implementation of wireless
communications services will continue to grow, or that such factors will create
demand for the Company's products. The Company believes that continued growth
in the use of wireless communications services depends on significant reductions
in infrastructure capital equipment cost per subscriber and corresponding
reductions in wireless service pricing. While the Federal Communications
Commission ("FCC") has adopted
12
<PAGE>
regulations requiring local phone companies to reduce the rates charged to
cellular carriers for connection to their wireline networks, it is anticipated
that wireless service rates will remain higher than rates charged by traditional
wireline companies. The growth in the implementation of wireless communications
services is dependent upon both developed countries, such as the United States,
allowing continued deployment of new networks, and less developed foreign
countries deploying wireless communications networks as opposed to constructing
wireline infrastructures. Foreign countries or local government authorities may
decline to construct wireless communications systems for a variety of reasons
including environmental issues, political unrest, economic downturns, the
availability of favorable pricing for other communications services or the
availability and cost of related equipment, in which event demand for the
Company's business would be similarly reduced or delayed, which would adversely
affect the Company's business, results of operations and financial condition.
Fluctuations in Quarterly Results
The Company experiences and expects to continue to experience, significant
fluctuations in sales and operating results from quarter to quarter. Quarterly
results fluctuate due to a number of factors, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. In particular, the Company's quarterly results of operations can
vary due to the timing, cancellation, or rescheduling of customer orders and
shipments; variations in manufacturing capacities, efficiencies and costs; the
availability and cost of components; capacity and production constraints
associated with single source component suppliers; the timing, availability and
sale of new products by the Company; product failures and associated in-field
service support; changes in the mix of products having differing gross margins;
warranty expenses; changes in average sales prices; long sales cycles associated
with the Company's products; and variations in product development and other
operating expenses. The Company's quarterly revenues are also affected by
volume discounts given to certain customers for large volume purchases over a
given period of time. In addition, the Company's quarterly results of
operations are influenced by competitive factors, including pricing,
availability and demand for the Company's and competing amplification products.
A large portion of the Company's expenses are fixed and difficult to reduce in
a short period of time. If net sales do not meet the Company's expectations,
the Company's fixed expenses would exacerbate the effect of such net sales
shortfall. Furthermore, announcements by the Company or its competitors
regarding new products and technologies could cause customers to defer purchases
of the Company's products. In addition, while the Company receives periodic
order forecasts from its major customers, such customers have no binding
obligation to purchase the forecasted amounts. Order deferrals and
cancellations by the Company's customers, declining average sales prices, delays
in the Company's introduction of new products and longer than anticipated sales
cycles for the Company's products have in the past adversely affected the
Company's quarterly results of operations. There can be no assurance that the
Company's quarterly results of operations will not be similarly adversely
affected in the future.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that the Company will maintain its current
profitability in the future or that future revenues and operating results will
not be below the expectations of public market analysts and investors. In
either case, the price of the Company's Common Stock could be materially
adversely affected.
Competition
The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development, product obsolescence, evolving industry standards and significant
price erosion over the life of a product. The principal elements of competition
in the Company's market include performance, functionality, reliability,
pricing, quality, the ability to design products which can be efficiently
manufactured in volume production, time-to-market delivery capabilities and
standards compliance. While the Company believes that overall it competes
favorably with respect to the foregoing elements, there can be no assurance that
it will be able to continue to do so.
The Company has experienced significant price competition and expects price
competition in the sale of RF power amplifiers to increase. No assurance can be
given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or
13
<PAGE>
performance features. The Company expects its competitors to offer new and
existing products at prices necessary to gain or retain market share. Several of
the Company's competitors have substantial financial resources, which may enable
them to withstand sustained price competition or a downturn in the pricing of
its products, or otherwise, in the future.
Rapid Technological Change; Dependence on New Products
The markets in which the Company and its customers compete are characterized
by rapidly changing technology, evolving industry standards and communications
protocols, and continuous improvements in products and services. The Company's
future success depends on its ability to enhance its current products and to
develop and introduce in a timely manner new products that keep pace with
technological developments, industry standards and communications protocols,
compete effectively on the basis of price, performance and quality, adequately
address OEM customer and end-user customer requirements and achieve market
acceptance. The Company believes that to remain competitive in the future it
will need to continue to develop new products, which will require the investment
of significant financial resources in new product development. During the first
quarter of 1997, the Company continued to invest significant resources in the
continued development of RF power amplifiers for PCS networks. There can be no
assurance that the Company's PCS-based products will achieve market acceptance,
or be capable of being manufactured at competitive prices in sufficient volumes.
In the event the Company's PCS-based products are not timely and economically
developed and are not produced in sufficient quantities or do not gain market
acceptance, the Company's business, results of operations and financial
condition would be materially adversely affected.
In addition to its PCS development efforts, the Company continues to develop
improvements and additions to its cellular line of amplifier products, including
the Company's second generation multi-carrier cellular amplifier. Any delays in
commencement of commercial shipments of these new products may result in
customer dissatisfaction and delay or loss of product revenues, which could have
a material adverse effect on the Company's business, results of operations and
financial condition. No assurance can be given that the Company's product
development efforts will be successful, or that its new products will achieve
customer acceptance or that its customers' products and services will achieve
market acceptance. If a significant number of development projects do not
result in manufacturable new products or product enhancements within anticipated
time-frames the Company's business, results of operations and financial
condition could be materially adversely affected. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development, introduction or
deliveries, could result in a loss of competitiveness and reduced net sales.
While the Company maintains an active development program to attempt to improve
its product offerings, there can be no assurance that such efforts will be
successful or that other companies or institutions will not develop and
commercialize products based on new technologies that are superior in
performance or cost-effectiveness to the Company's products. There can also be
no assurance that the Company's products will not be rendered obsolete by the
introduction and acceptance of new communications protocols.
Risks of Doing Business in International Markets
For the fiscal years 1995 ,1996 and the quarter ended March 30, 1997,
international revenues accounted for approximately 67%, 77% and 85%,
respectively, of the Company's net sales. The Company expects that
international revenues will continue to account for a significant percentage of
the Company's net sales for the foreseeable future. As a result, the Company is
subject to various risks, including a greater difficulty of administering
business globally, compliance with multiple and potentially conflicting
regulatory requirements such as export requirements, tariffs and other barriers,
differences in intellectual property projections, health and safety
requirements, difficulties in staffing and managing foreign operations, longer
accounts receivable cycles, currency fluctuations, restrictions against the
repatriation of earnings, export control restrictions, overlapping or differing
tax structures, political and economic instability and general trade
restrictions. If any of these risks materializes, it could have a material
adverse effect on the Company's business, results of operations and financial
condition. In particular, a large portion of the Company's existing customers
and potential new customers are servicing new markets in developing countries
that the Company's customers expect will deploy wireless communications networks
as an alternative to the construction of a wireline infrastructure. If such
countries decline to construct wireless communication systems, or construction
of such systems are delayed for a variety of reasons, including
14
<PAGE>
business and economic conditions and changes in economic stability due to
factors such as increased inflation and political turmoil, such delays could
have a material adverse effect on the Company's business, results of operations
and financial condition. In recent years, a majority of the Company's net sales
resulted from the sale of products to a small number of companies in South
Korea, where future sales may be dependent upon continuing favorable trade
relations with the United States and a lack of political conflicts with North
Korea. There have been recent press reports of deteriorating living conditions
within North Korea, which could lead to civil unrest possibly resulting in
potential military conflicts with South Korea. Any conflict, either political or
military, between North and South Korea could have a material adverse impact on
the Company's business, results of operations and financial condition. Any
significant change in United States trade relations or the economic or political
stability of foreign locations in which the Company sells its products could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company's foreign sales are generally invoiced in U.S. dollars.
Accordingly, the Company does not currently engage in foreign currency hedging
transactions. However, as the Company continues to expand its international
operations, the Company may be paid in foreign currencies and exposure to losses
in foreign currency transactions may increase. The Company may choose to limit
such exposure by the purchase of forward foreign exchange contracts or similar
hedging strategies. There can be no assurance that a currency hedging strategy
would be successful in avoiding exchange-related losses. In addition, if the
relative value of the U.S. dollar in comparison to the currency of the Company's
foreign customers should increase, the resulting effective price increase of the
Company's products to such foreign customers could result in decreased sales
which could have a material adverse impact on the Company's business, results of
operations and financial condition.
Internal Amplifier Production Capabilities of OEMs
Many of the leading wireless telecommunications infrastructure equipment
manufacturers internally manufacture their own RF power amplifiers, and the
Company believes that its existing customers continuously evaluate whether to
manufacture their own amplifiers. In the event that such customers do
manufacture their own amplifiers, such customers could eliminate or reduce their
purchases of the Company's products. There can be no assurance that the
Company's current customers will continue to rely, or expand their reliance, on
the Company as an external source of supply for their RF power amplifiers, or
that other wireless telecommunications OEMs such as Lucent, Ericsson, Motorola,
Nokia and Nortel will become and remain customers of the Company. OEMs with
internal manufacturing capabilities could also sell amplifiers externally to
other OEMs, thereby competing directly with the Company. In addition, even if
the Company were successful in selling its products to these OEMs, it is
anticipated that such OEMs would demand price and other concessions based on
their ability to manufacture amplifiers internally. While the Company attempts
to negotiate long-term supply contracts with its customers, there can be no
assurance that it will be able to enter into such contracts on terms that are
acceptable to the Company, if at all, or that contracts will not be terminated
on short notice. Any significant loss of sales to current customers, not offset
by sales to other customers, would have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company's customers and other wireless telecommunications infrastructure
equipment manufacturers are protective of their intellectual property, which may
contribute to certain manufacturers deciding to not seek RF power amplifiers
from external sources. While the Company takes measures to ensure the
confidentiality of intellectual property disclosed to the Company by its
customers or developed by the Company for such customers, the appearance of a
close working relationship with a particular customer may adversely affect the
Company's ability to establish or maintain a relationship with, or sell products
to, competitors of the particular customer. If, for any reason, the Company's
major customers decide not to purchase products from the Company due to the
Company's relationship to other customers, the Company's business, results of
operations and financial condition could be materially adversely affected.
Declining Average Sales Prices
The Company has experienced, and expects to continue to experience, declining
average sales prices for its products. Wireless infrastructure OEMs have come
under increasing price pressure from cellular service providers, which in turn
has resulted in downward pricing pressure on the Company's products. In
addition, competition
15
<PAGE>
among third-party suppliers has increased the downward pricing pressure on the
Company's products. Since wireless infrastructure OEMs frequently negotiate
supply arrangements far in advance of delivery dates, the Company must often
commit to price reductions for its products before it knows how, or if, cost
reductions can be obtained. In addition, average sales prices are affected by
price discounts negotiated for large volume purchases by certain customers over
a given period of time. To offset declining average sales prices, the Company
believes that in the near term it must achieve manufacturing cost reductions,
and in the longer term the Company must develop new products that incorporate
advanced features and that can be manufactured at lower cost or sold at higher
average sales prices. If, however, the Company is unable to achieve such cost
reductions or product improvements, the Company's gross margins could decline,
and such decline could have a material adverse effect on the Company's business,
results of operations and financial condition.
No Assurance of Product Manufacturability, Quality or Reliability
Manufacturing the Company's products is an extremely complex process and
requires significant time and expertise to tune the products to meet customers'
specifications. The ability of the Company to cost-effectively manufacture its
RF power amplifier products in volume is substantially dependent upon the
Company's ability to tune these products to meet specifications in an efficient
manner. In this regard, the Company is dependent upon its staff of trained
technicians. If the Company is unable to design its products to minimize the
manual tuning process or if the Company were unable to attract additional
trained technicians, or were to lose the services of a number of its trained
technicians, the Company's business, results of operations and financial
condition would be materially adversely affected. In addition, the Company has
in the past and may from time to time in the future experience quality problems
with its products. The Company has been required to replace certain components
in some of its products in accordance with warranty provisions under which the
products were sold. If such problems were to occur on a significant level, the
Company could experience increased costs, delays in or cancellations of, or
rescheduling of orders or deliveries and product returns, any of which could
damage relationships with current customers and have a material adverse effect
on the Company's business, results of operations and financial condition.
Moreover, there can be no assurance that the Company's product designs will
continue to be successful or will keep pace with technological developments,
evolving industry standards and communications protocols, and allow for
continuous improvements in product quality and meet the quality standards of
customers. Any potential design problems could damage relationships with both
existing and prospective new customers and, in particular, could limit the
Company's ability to market its products to large OEMs, many of which
manufacture power amplifiers internally and have stringent quality control
standards.
Management of Growth; Dependence Upon Key Personnel
The growth in the Company's business has placed, and is expected to continue
to place, a significant strain on the Company's management and operations. The
Company's ability to compete effectively and to manage future expansion of its
operations, if any, will require the Company to continue to improve its
financial and management controls, reporting systems and procedures on a timely
basis and effectively expand, train and manage its work force. In particular,
the Company must carefully manage production and inventory levels to meet
increasing product demand and new product introductions. Inaccuracies in demand
forecasts in the environment in which the Company operates can quickly result in
either insufficient or excessive inventories and disproportionate overhead
expenses. The Company plans to expand the geographic scope of its customer base
and operations. The Company continues to implement a number of new financial
and management controls, reporting systems and procedures. The Company has
recently hired a significant number of employees, including engineers,
production technicians and sales and marketing employees, and plans to further
increase its total employee base to meet demand forecasts. In the event that
the Company's new personnel are unable to work effectively as a team or achieve
desired levels of production or if the Company's demand forecasts are incorrect,
the Company's business, results of operations and financial condition could be
materially adversely affected. There can be no assurance that the Company will
be able to continue to attract and retain qualified personnel necessary for the
development of its business. The Company's failure to manage growth effectively
would have a material adverse effect on the Company's business, operating
results and financial condition.
Due to the specialized nature of the Company's business, the Company is highly
dependent on the continued services of, and on its ability to attract and
retain, qualified engineering, technical, marketing and managerial
16
<PAGE>
personnel. Competition for such personnel is intense, and the loss of a
significant number of such persons, as well as the failure to recruit qualified
engineers and train additional technical personnel in a timely manner, could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Dependence on Single Sources for Key Components
The Company currently procures certain components from single source
manufacturers due to unique component designs as well as certain quality and
performance requirements. In addition, in order to take advantage of volume
pricing discounts, the Company purchases certain customized components for its
products from single sources. The Company has experienced shortages of single-
sourced components and has had to make adjustments to both product designs and
production schedules. If such single-sourced components were to become
unavailable or were to become available on terms unsatisfactory to the Company,
the Company would be required to purchase comparable components from other
sources and "retune" its products to function properly with the replacement
components or to redesign its products to use other components, either of which
could result in a disruption to the Company's production facility and delays in
production and delivery. If for any reason the Company could not obtain
comparable replacement components from other sources or could not expeditiously
retune its products to operate with the replacement components, or redesign its
products to use other components, the Company's business, results of operations
and financial condition could be adversely affected. In addition, if the
Company were unable to obtain sufficient quantities of single source components
used in the manufacture of its RF power amplifiers, resulting delays or
reductions in product shipments could occur and could have a material adverse
affect on the Company's business, results of operations and financial condition,
including a material adverse effect on the Company's relationships with its
customers as well as potential customers.
Risks Associated with Developing Technologies; Product Liability
If wireless telecommunications systems or other systems or devices that rely
on or incorporate the Company's products are determined, perceived or alleged to
create a health risk, the Company could be named as a defendant, and held
liable, in product liability lawsuits commenced by individuals alleging that the
Company's products harmed them. The occurrence of any such event could have a
material adverse effect on the Company's business, results of operations and
financial condition. Any alleged health or environmental risk could also lead
to a delay or prohibition against the installation of wireless networks which
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, an inability to maintain
insurance at an acceptable cost or to otherwise protect against potential
product liability could inhibit the commercialization of the Company's products
and have a material adverse effect on the Company's business, results of
operations and financial condition. Further, the installation of base stations
for wireless networks may be delayed or prohibited by various environmental
regulations. Any such delay or prohibition would have a material adverse effect
on the Company's business, results of operations and financial condition.
Environmental Regulations
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture the Company's products. Certain of the Company's products are also
subject to regulation of emissions by the FCC and similar government agencies.
The Company believes that it is currently in compliance in all material respects
with such regulations and that it has obtained all necessary environmental
permits and licenses to conduct its business. The failure to comply with
current or future regulations could result in the imposition of substantial
fines on the Company, suspension of production, alteration of its manufacturing
processes or cessation of operations. Corrective action may require the Company
to acquire expensive remediation equipment or to incur substantial alteration
expenses. Any failure by the Company to control the use, disposal, removal or
storage of, or to adequately restrict the discharge of, or assist in the cleanup
up, hazardous or toxic substances, could subject the Company to significant
liabilities including joint and several liability under certain statutes. The
imposition of such liabilities could materially adversely affect the Company's
business, results of operations and financial condition. In addition, the
installation of base stations by wireless service providers may be delayed or
restricted by various environmental regulations, land use restrictions and
zoning ordinances. Any such delay or restriction could have a material adverse
effect on the Company's business, results of operations and financial condition.
17
<PAGE>
Government Regulation of Communications Industry
Radio frequency transmissions and emissions, and certain equipment used in
connection therewith, are regulated in the United States, Canada and
internationally. Regulatory approvals generally must be obtained by the Company
in connection with the manufacture and sale of its products, and by the
Company's customers to operate the Company's products. The FCC has proposed new
regulations that would impose more stringent radio frequency emissions standards
on the communications industry. If such proposed regulations are adopted, there
can be no assurance that the Company and its customers will not be required to
alter the manner in which radio signals are transmitted or to otherwise alter
the equipment transmitting such signals, which could materially adversely affect
the Company's products and markets. The Company is also subject to regulatory
requirements in international markets where the Company is less prominent than
local competitors and has less opportunity to influence regulatory and standards
policies. The enactment by federal, state, local or international governments
of new laws or regulations or a change in the interpretation of existing
regulations could adversely affect the market for the Company's products.
Although recent deregulation of international communications industries along
with recent radio frequency spectrum allocations made by the FCC have increased
the potential demand for the Company's products by providing users of those
products with opportunities to establish new PCS networks, there can be no
assurance that the trend toward deregulation and current regulatory developments
favorable to the promotion of new and expanded wireless services will continue
or that other future regulatory developments favorable to the promotion of new
and expanded wireless services will continue or that other future regulatory
changes will have a positive impact on the Company. The increasing demand for
wireless communications has exerted pressure on regulatory bodies worldwide to
adopt new standards for such products, generally following extensive
investigation and deliberation over competing technologies. The delays inherent
in this governmental approval process have in the past caused, and may in the
future cause, the cancellation, postponement or rescheduling of the installation
of communications systems by the Company's customers. These delays could have a
material adverse effect on the Company's business, results of operations and
financial condition.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11.1 Computation of pro forma net income and net income per share.
27.1 Financial Data Schedule.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWERWAVE TECHNOLOGIES, INC.
Date: May 6, 1997 By: /s/ Kevin T. Michaels
------------------------------
Kevin T. Michaels
Vice President, Finance and Chief
Financial Officer
19
<PAGE>
EXHIBIT 11.1
POWERWAVE TECHNOLOGIES, INC.
COMPUTATION OF PRO FORMA NET INCOME AND NET INCOME PER SHARE
<TABLE>
<S> <C> <C>
EPS CALCULATION AS OF 3/31/96
Shares issued and outstanding...................... 8,998,650
Preferred shares converted upon IPO................ 5,063,850
-----------
Pro forma shares outstanding....................... 14,062,500
Options issued within one year of IPO.............. 982,500
Proceeds........................................... $3,249,128
Assumed buyback price.............................. $ 11.50
----------
Shares bought back................................. 282,533
Non-qualified tax benefit utilizing 41% tax rate... 286,986
Common equivalent shares........................... 412,981
-----------
Total weighted average Common Shares............... 14,475,481
Net income at March 31, 1996....................... $ 1,707,978
-----------
Pro forma net income per share..................... $ 0.12
===========
EPS CALCULATION AS OF 3/30/97
Shares issued and outstanding...................... 15,862,497
Over-allotment Shares issued in IPO on 1/3/97...... 360,000 344,176
Options exercised during quarter................... 18,827 12,378
-----------
Shares outstanding................................. 16,219,051
Options issued as of 3/30/97....................... 1,148,673
Proceeds........................................... $5,777,028
Assumed buyback price.............................. $ 17.625
----------
Shares bought back................................. 327,775
Non-qualified tax benefit utilizing 38% tax rate... 311,941
Common equivalent shares........................... 508,957
-----------
Total weighted average common shares............... 16,728,008
Quarterly net income at March 30, 1997............. $ 2,760,668
-----------
Net income per share............................... $ 0.17
===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET OF POWERWAVE TECHNOLOGIES, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM
10Q FOR THE THREE MONTH PERIOD ENDED MARCH 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 36,021,106
<SECURITIES> 0
<RECEIVABLES> 6,916,764
<ALLOWANCES> 610,842
<INVENTORY> 6,356,448
<CURRENT-ASSETS> 51,177,310
<PP&E> 8,189,886
<DEPRECIATION> 1,324,929
<TOTAL-ASSETS> 58,380,602
<CURRENT-LIABILITIES> 13,836,145
<BONDS> 0
0
0
<COMMON> 37,668,788
<OTHER-SE> 6,033,416
<TOTAL-LIABILITY-AND-EQUITY> 58,380,602
<SALES> 20,242,742
<TOTAL-REVENUES> 20,242,742
<CGS> 11,527,916
<TOTAL-COSTS> 16,262,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,452,691
<INCOME-TAX> 1,692,033
<INCOME-CONTINUING> 2,760,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,760,668
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
