<PAGE>
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 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to_________
Commission File 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: (949) 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, 1998, the number of outstanding shares of Common Stock, par
value $.0001 per share, of the Registrant was 17,133,373.
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 29, 1998 (Unaudited)
and December 28, 1997 3
Consolidated Statements of Income (Unaudited) for the three
months ended March 29, 1998 and March 30, 1997 4
Consolidated Statements of Cash Flows (Unaudited) for the
three months ended March 29, 1998 and March 30, 1997 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-24
Part II. Other Information
Item 2. Change in Securities and Use of Proceeds 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
</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
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, December 28,
ASSETS: 1998 1997
------------- -------------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 57,412,551 $ 67,433,168
Accounts receivable, net of allowance for doubtful
accounts of $877,344 and $769,068 at March 29,
1998 and December 28, 1997, respectively 12,069,268 11,967,327
Inventories, net 9,548,828 8,844,177
Prepaid expenses and other current assets 1,108,192 1,221,426
Deferred tax assets 3,082,977 3,082,977
------------ ------------
Total current assets 83,221,816 92,549,075
Property and equipment 12,617,168 11,019,767
Accumulated depreciation and amortization (3,262,649) (2,643,022)
------------ ------------
Net property and equipment 9,354,519 8,376,745
------------ ------------
Other assets 690,507 757,235
------------ ------------
TOTAL ASSETS $ 93,266,842 $101,683,055
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 6,058,790 $ 9,607,335
Accrued expenses and other liabilities 7,008,981 10,249,125
Current portion of long-term debt 507,140 507,140
Income taxes payable 3,570,318 4,674,027
------------ ------------
Total current liabilities 17,145,229 25,037,627
Deferred tax liabilities 289,426 289,426
Long-term debt 535,618 658,630
Other non-current liabilities 287,326 217,720
------------ ------------
TOTAL LIABILITIES 18,257,599 26,203,403
------------ ------------
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, 17,943,373 shares issued and 17,133,373 shares
outstanding at March 29, 1998 and 17,773,713 shares issued
and 17,263,713 shares outstanding at December 28, 1997 65,863,649 64,800,529
Retained earnings 33,902,324 31,695,283
Less treasury stock at cost (24,756,730) (21,016,160)
------------ ------------
Total shareholders' equity 75,009,243 75,479,652
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 93,266,842 $101,683,055
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 29, March 30,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $22,650,113 $20,242,742
Cost of sales 13,795,141 11,527,916
----------- -----------
Gross profit 8,854,972 8,714,826
Operating expenses:
Sales and marketing 2,030,648 1,580,623
Research and development 2,957,252 2,211,404
General and administrative 1,236,279 942,886
----------- -----------
Total operating expenses 6,224,179 4,734,913
----------- -----------
Operating income 2,630,793 3,979,913
Other income, net 844,863 472,778
----------- -----------
Income before income taxes 3,475,656 4,452,691
Provision for income taxes 1,268,615 1,692,023
----------- -----------
Net income $ 2,207,041 $ 2,760,668
=========== ===========
Basic earnings per share $.13 $.17
Diluted earnings per share $.13 $.17
Weighted average common shares - basic 17,135,817 16,219,051
Weighted average common shares - diluted 17,353,380 16,728,008
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 29, March 30,
1998 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,207,041 $ 2,760,668
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 619,630 313,795
Provision for doubtful accounts 108,275 31,149
Provision for inventory reserves 866,038 191,667
Compensation costs related to stock options 9,877 16,026
Changes in assets and liabilities:
Accounts receivable (210,217) (3,012,372)
Inventories (1,570,689) (1,840,570)
Prepaid expenses and other current assets 113,234 (290,447)
Accounts payable (3,548,545) 2,292,347
Accrued expenses and other liabilities (3,170,538) 695,929
Other assets 66,728 (228,729)
Income taxes payable (717,999) 1,592,022
------------ -----------
Net cash (used in) provided by operating activities (5,227,165) 2,521,485
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,597,402) (2,978,120)
------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (123,012) (75,049)
Proceeds from sale of property and equipment - 235,832
Issuance of Common Stock 272,896 3,884,019
Repurchase of Common Stock (3,740,570) -
Proceeds from exercise of stock options 394,636 46,608
------------ -----------
Net cash (used in) provided by financing activities (3,196,050) 4,091,410
------------ -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (10,020,617) 3,634,775
CASH AND CASH EQUIVALENTS, beginning 67,433,168 32,386,331
------------ -----------
CASH AND CASH EQUIVALENTS, ending $ 57,412,551 $36,021,106
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 52,805 $ 19,267
============ ===========
Income taxes $ 1,835,000 $ 100,000
============ ===========
NON-CASH ITEMS:
Tax benefit related to stock options $ 377,478 $ 151,562
============ ===========
Acquisition of property and equipment
through capital leases $ - $ 235,832
============ ===========
Tax benefit related to sale of shares purchased under
the Employee Stock Purchase Plan $ 8,232
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 29, 1998
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the
Company without audit (except for balance sheet information as of December 28,
1997) 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 consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 28,
1997. 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 28, 1997.
The results of operations for the three months ended March 29, 1998, are not
necessarily indicative of the results to be expected for the entire fiscal year
ended January 3, 1999, (fiscal year 1998). For further information on
additional factors that may affect future results, please refer to 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 28, 1997.
Earnings Per Share
Effective December 28, 1997, the Company has adopted SFAS No. 128, Earnings
per Share, which replaces the presentation of "Primary" earnings per share with
"Basic" earnings per share and the presentation of "Fully Diluted" earnings per
share with "Diluted" earnings per share. Prior periods have been restated to
reflect the change in presentation.
Basic earnings per share are based upon the weighted average number of common
shares outstanding. Diluted earnings per share are based upon the weighted
average number of common and potential common shares for each period presented.
Potential common shares include stock options using the treasury stock method.
New Accounting Pronouncements
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, for the
period ending March 29, 1998. The Company has no reportable differences between
net income and comprehensive income. Therefore, no statement of comprehensive
income has been presented.
For the current fiscal year ending January 3, 1999 the Company will adopt SFAS
No. 131 Disclosures About Segments of an Enterprise and Related Information.
SFAS No. 131, which is based on the management approach to segment reporting,
establishes requirements to report selected segment information quarterly and to
report entity-wide disclosures about products and services, major customers and
the material countries in which the entity holds assets and reports revenue.
The Company is reviewing the impact of such statements on its financial
statements.
6
<PAGE>
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 29, 1998:
<TABLE>
<CAPTION>
Number of
Options
Exercisable
Number of Price per as of
Shares Share March 29, 1998
--------- ------------- --------------
<S> <C> <C> <C>
Balance at December 28, 1997 1,698,614 $ 2.47-$40.56
Granted 887,850 $12.94-$14.88
Exercised (146,204) $ 2.47-$ 4.67
Canceled (232,429) $ 4.67-$40.56
---------
Balance at March 29, 1998 2,207,831 $ 2.47-$31.75 411,920
========= =======
</TABLE>
Effective February 10, 1998, the Company's Board of Directors approved a
proposal allowing the Company's employees to surrender for cancellation any
existing stock option grants and have a new stock option issued for the
equivalent number of shares with a new exercise price of $13.75 per share, which
was the closing sales price of the Company's Common Stock on February 10, 1998,
as reported by Nasdaq. All accrued vesting on such cancelled options was
forfeited and all newly issued options contain the Company's standard four-year
vesting period. A total of 227,150 options were cancelled with exercise prices
ranging from $17.00 to $40.5635 per share.
Employee Stock Purchase Plan
The second offering under the Company's Employee Stock Purchase Plan (the
"Purchase Plan") concluded on January 31, 1998, with the purchase of 23,456
shares of the Company's Common Stock purchased under the Purchase Plan. At
March 29, 1998 there were rights to purchase approximately 11,000 shares of
Common Stock outstanding under the Purchase Plan's third offering, which will
conclude on July 31, 1998.
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 contains forward-
looking statements, the realization of which may be impacted by certain
important factors including, but not limited to, those discussed 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 three months ended March 29, 1998 and March 30,
1997.
<TABLE>
<CAPTION>
Percentage of Total Revenue
Three Months Ended
-----------------------------
March 29, March 30,
1998 1997
------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 60.9 56.9
----- -----
Gross profit 39.1 43.1
Operating expenses:
Sales and marketing 9.0 7.8
Research and development 13.1 10.9
General and administrative 5.4 4.7
----- -----
Total operating expenses 27.5 23.4
----- -----
Operating income 11.6 19.7
Other income, net 3.7 2.3
----- -----
Income before income taxes 15.3 22.0
Provision for income taxes 5.6 8.4
----- -----
Net income 9.7% 13.6%
===== =====
</TABLE>
Three months ended March 29, 1998 and March 30, 1997
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
11.9% to $22.7 million for the quarter ended March 29, 1998 from $20.2 million
for the quarter ended March 30, 1997. The growth in revenue was primarily
attributable to increased sales of the Company's cellular multi-carrier
amplifiers, offset by a slight decrease in sales of the Company's Land Mobile
Radio ("LMR") amplifiers. For the quarter ended March 29, 1998, cellular multi-
carrier amplifiers (including racks) accounted for approximately 87.4% of
revenues or $19.8 million, compared to approximately 84.0% or $17.0 million for
the quarter ended March 30, 1997. PCS products (including racks) accounted for
approximately 8.5% of revenues or $1.9 million for the first quarter of 1998,
compared to 8.8% or $1.8 million for the first quarter in 1997. Sales of LMR
amplifiers accounted for approximately 4.1% of revenues or $0.9 million for the
quarter ended March 29, 1998, compared to approximately 7.2% of revenues or $1.5
million for the quarter ended March 30, 1997.
For 1997 and the first quarter of 1998, the Company's single carrier PCS
amplifiers were being utilized in the deployment of the new PCS networks being
built in South Korea and a majority of the Company's cellular multi-carrier
amplifiers sold during 1997 were also being utilized in the continued deployment
of the digital cellular CDMA networks in South Korea. During the first quarter
of 1998, the percentage of the Company's multi-carrier
8
<PAGE>
amplifiers being utilized in cellular systems of wireless network operators in
both the North American and other international markets outside of Asia
continued to increase. The Company currently estimates that the deployment of
digital cellular CDMA networks in South Korea is approximately 75% completed and
that the originally planned deployment of the PCS networks within South Korea is
approximately 35% completed. Given the current unstable economic environment
within South Korea and Asia in general, the Company is unable to estimate the
level of future deployments of these networks or when such deployments can be
expected to be completed. The reduction and stoppage of these deployments during
the first quarter of 1998 did have an adverse effect on the Company's revenue
and business with its South Korean customers and its results of operations. The
continued delay or cancellation of these deployments will have an adverse effect
on the Company's business, results of operations and financial condition. For
additional information see "Additional Factors That May Affect Future Results -
Customer Concentration; Reliance upon South Korean Market and Growth of Wireless
Services Market and Risks of Doing Business in International Markets."
Total international sales (excluding North American sales), primarily to
three customers in South Korea, accounted for 45.0% of revenues or $10.2 million
for the quarter ended March 29, 1998, compared with 83.1% or $16.8 million for
the quarter ended March 30, 1997. The decrease in sales to customers in South
Korea is a result of the ongoing economic crisis in South Korea and Asia in
general, which has reduced South Korean wireless service operators' demand for
the Company's products. In the first quarter of 1998, the Company experienced
postponed, rescheduled and cancelled orders from its South Korean customers. At
this time, the Company is unable to predict when, if ever, its South Korean
customers will take delivery of their postponed and rescheduled orders. Due to
these issues and the overall economic crisis in Asia, the Company currently
anticipates that its percentage of revenues from South Korean sales will
continue to decline. See "Additional Factors That May Affect Future Results -
Customer Concentration; Reliance upon South Korean Market and Growth of Wireless
Services Market and Risks of Doing Business in International Markets."
Sales to customers in North America and countries outside of South Korea
increased approximately 264.6% to $12.5 million for the quarter ended March 29,
1998 from $3.4 million for the quarter ended March 30, 1997. Sales to three
customers in North America, (in alphabetical order) BellSouth Cellular Corp.,
Metawave Communications Corporation and Northern Telecom Limited, each of which
accounted for more than 10% of the Company's sales, collectively accounted for
$9.2 million or 40.6% of revenues for the first quarter of 1998, compared to
$0.7 million or 3.4% for the same three customers in the first quarter of 1997.
See "Additional Factors That May Affect Future Results - Customer
Concentration."
Gross Profit
Cost of sales consists primarily of raw materials, assembly and test labor,
overhead and warranty costs. Gross profit margins for the first quarter of
fiscal 1998 and 1997 were 39.1% and 43.1%, respectively. The decrease in gross
margins is primarily due to declining average sales prices as well as increased
labor and overhead costs associated with the abrupt reduction in orders from the
Company's South Korean customers. The Company anticipates that in the near-term
it will continue to experience significant labor and overhead costs due to the
reduction in sales to its South Korean customers. These costs are currently
anticipated to have a negative impact on the Company's 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 keep pace with price declines and cost increases. If the Company
is unable to obtain cost reductions, its gross margins and profitability will
continue to 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. In addition, with
expected slowdowns in demand for wireless infrastructure equipment from the
Asian markets, pricing competition among suppliers to the remaining world
markets is expected to intensify. 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
9
<PAGE>
prices which has impacted 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 profit 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, other expenses for sales and marketing personnel, travel expenses,
reserves for credit losses and trade show expenses. Sales and marketing expenses
increased by 28.4% to $2.0 million for the quarter ended March 29, 1998 from
$1.6 million for the quarter ended March 30, 1997. As a percentage of sales,
sales and marketing expenses were 9.0% and 7.8% for the quarters ended March 29,
1998 and March 30, 1997, 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.
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 33.7% to $3.0 million for the quarter
ended March 29, 1998 from $2.2 million for the quarter ended March 30, 1997.
Research and development expenses as a percentage of sales were 13.1% and 10.9%,
respectively. The increase in research and development expenses was primarily
attributable to increased staffing and associated engineering costs related to
continued new product development and existing product enhancement. The Company
intends to continue to emphasize investment in research and development programs
in future periods with current programs covering PCS, cellular and wireless
local loop 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 31.1% to $1.2 million for the
quarter ended March 29, 1998, from $0.9 million for the quarter ended March 30,
1997. General and administrative expenses as a percentage of sales were 5.4%
and 4.7%, respectively. The increase in actual general and administrative
expenses was primarily attributable to increased staffing costs associated with
supporting the Company's increased revenues and personnel. While the Company
currently anticipates that its revenues from South Korea will be significantly
reduced from levels obtained in 1997, the Company has chosen to maintain its
overall workforce to enable it to maintain its overall production capacity.
This decision has caused and is anticipated to cause the Company's operating
expenses to remain increased as a percentage of sales.
Other Income
The Company earned other income, net, of $0.8 million in the first quarter
of 1998 compared to $0.5 million for the first quarter of 1997. Other income
consists primarily of interest income, net of any interest expense. The increase
in other income is attributable to the Company's increased cash position
maintained during the first quarter of 1998 compared to the cash balances
maintained during the first quarter of 1997. The larger cash balances are due to
the Company's secondary Common Stock offering completed in July 1997. The larger
cash balances were invested in short-term, investment-grade money market
instruments.
Provision for Income Taxes
The Company's effective tax rate was 36.5% and 38.0% for the quarters ended
March 29, 1998 and March 30, 1997, 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 29, 1998, the Company had working
capital of $66.1 million,
10
<PAGE>
including $57.4 million in cash and cash equivalents as compared with working
capital of $67.5 million at December 28, 1997. Net accounts receivable remained
relatively constant from December 28, 1997 to March 29, 1998. During the first
quarter, the Company sold a larger percentage of its products to its non-Korean
customers, primarily in North America. These customers typically pay on longer
payment terms than the Company's South Korean customers. The Company anticipates
that its accounts receivable collection periods will increase with the reduction
in revenue from its South Korean customers. Net inventory increased to $9.5
million at March 29, 1998, from $8.8 million at December 28, 1997.
Cash used in operations was approximately $5.2 million for the three months
ended March 29, 1998, compared with cash provided by operations of $2.5 million
for the three months ended March 30, 1997. The negative cash flow from
operations for the first quarter of 1998 is primarily attributable to an
increase in accounts receivable and inventory from December 28, 1997 to March
29, 1998, as well as a decrease in accounts payable and other accrued
liabilities.
Capital expenditures were approximately $1.6 million for the first three
months of 1998 compared with $3.0 million in the first three months of 1997. No
amounts were financed through capital leases in the first quarter of 1998
compared to approximately $.2 million in the first quarter of 1997. The majority
of the capital spending during both periods represents spending on electronic
test equipment utilized in the Company's manufacturing and research and
development areas.
Cash used in financing activities was approximately $3.2 million for the
first three months of 1998 compared with $4.1 million provided by financing
activities for the first three months of 1997. The majority of cash used in
financing activities was for the repurchase of 300,000 shares of the Company's
Common Stock at a total cost of $3.7 million. As of March 29, 1998, the Company
had repurchased a total of 810,000 shares of its Common Stock at a total cost of
approximately $12.5 million. The Company is authorized to repurchase up to one
million shares of its Common Stock. The majority of the cash provided by
financing activities for the first three months of 1997 resulted from the sale
of 360,000 shares of Common Stock in January 1997, which provided the Company
with net proceeds of $3.9 million and was associated with the Company's December
1996 initial public offering of Common Stock.
On August 21, 1997, the Company entered into a $10 million unsecured
revolving credit agreement. This credit agreement contains covenants regarding
certain financial ratios and activities of the Company. The Company is required
to pay a commitment fee equal to .1% per annum on the average daily unused
portion of the facility. The commitment fee is payable quarterly in arrears. The
agreement allows the Company to borrow at the bank's reference rate (8.5% at
March 29, 1998) or the bank's LIBOR rate plus 1.25% per annum, all at the
Company's option. Effective December 11, 1997, the Company amended the credit
agreement to allow for repurchases of the Company's Common Stock by the Company
in amounts up to $25 million. The Company was in compliance with all covenants
at March 29, 1998 and no amounts were outstanding under the facility. The
agreement terminates on July 31, 1998.
The Company had cash and cash equivalents of $57.4 million at March 29,
1998, compared with $67.4 million at December 28, 1997. 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 short-term, investment-grade money market
instruments.
The Company believes that its existing cash balances and funds expected to
be generated from operations 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 capital lease financing for certain equipment used in its
manufacturing and research and development operations and expects to continue to
selectively do so in the future. The Company may in the future 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 in the future or that, if
available, such financing will be obtainable on terms favorable to the Company
or its shareholders when the Company may require it.
11
<PAGE>
Disclosure About Foreign Currency Risk
The majority of the Company's revenues are derived from international
sources, with the Company's customers in South Korea accounting for the
significant majority of such revenues. While the Company currently invoices all
of its customers in U.S. dollars, changes in the value of the U.S. dollar versus
the local currency in which the Company's products are sold, along with the
economic and political conditions of such foreign countries, could adversely
affect the Company's business, results of operations and financial condition. In
addition, the weakening of an international customer's local currency and
banking market may negatively impact such customer's ability to meet their
payment obligations to the Company. While the Company currently believes that
its international customers have the ability to meet all of their obligations to
the Company, there can be no assurance that they will continue to be able meet
such obligations. The Company regularly monitors the credit worthiness of its
international customers and makes credit decisions based on both prior sales
experience with such customers as well as current financial performance and
overall economic conditions. Due to competitive reasons, the Company may decide
in the future to offer certain foreign customers extended payment terms and/or
sell certain products or services in the local currency of such customers.
Certain countries in Asia, including South Korea, continue to experience
weaknesses in their currencies, banking systems and equity markets. These
weaknesses have adversely affected South Korean wireless service operators'
demand for the Company's products. The Company's foreign customers pay for the
Company's products with U.S. dollars. As such, the recent strengthening of the
U.S. dollar as compared to such foreign currencies as the South Korean Won, has
effectively increased the cost of the Company's products by as much as 100% or
more for its South Korean customers. The significant increase in the local
currency based cost of such products makes them less attractive to such
customers. Accordingly, changes in exchange rates, and in particular a
strengthening of the U.S. dollar, may negatively impact the Company's future
sales and gross margins. For further discussion of the risks associated with
the Company's international sales, see "Additional Factors That May Affect
Future Results Risks of Doing Business in International Markets."
Year 2000 Compliance
In the next two years, many companies will face a potentially serious
information systems (computer) problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the Year 2000. This problem could force computers to either
shut down or provide incorrect data or information. The Company has examined
its computer systems and contacted its software providers to determine whether
the Company's software applications are compliant with the Year 2000. The
Company has completed the last upgrade to its computer operating system such
that the Company has now been assured by its software providers that its
computer systems are fully compliant with the Year 2000. It is not possible to
quantify the aggregate cost to the Company of such upgrades since they were part
of the software and hardware providers normal upgrades to the Company's systems.
While the Company believes that its systems are fully Year 2000 compliant, the
Company intends to continue to review its information systems for any possible
problems as well as monitor its key customers and suppliers for any impact that
the Year 2000 may have on their information systems which could then impact the
Company. Software sold with the Company's products is Year 2000 compliant. The
Company does not currently anticipate that the Year 2000 programming issue will
have a material impact on its business, results of operations or financial
condition.
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 and
regional economic and political conditions, industry specific factors, the
Company's ability to add new customers to reduce its dependence on existing
customers, 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 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
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OEMs' base station equipment, the availability and cost of components, the
Company's ability to manage expense levels, and the Company's ability to
accurately anticipate customer demand.
Customer Concentration
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. For the first quarter ended March 29, 1998, the
Company's three South Korean customers, Hyundai, LGIC and Samsung accounted for
approximately 45% of the Company's net sales, which was down significantly from
the fiscal year 1997 level of 83% of net sales for these three customers. Each
of these customers accounted for more than 5% of net revenues for the first
quarter of 1998. As part of the Company's efforts to expand its customer base,
and reflecting the significant reduction in the Company's South Korean revenues,
the Company had three non-Korean customers each accounting for more than 10% of
revenues for the first quarter of 1998. These customers are, in alphabetical
order, BellSouth Cellular Corp., Metawave Communications Corporation and
Northern Telecom Limited. For the quarter ended March 29, 1998, these three
customers in total accounted for approximately 41% of the Company's net sales.
Hyundai, LGIC and Samsung have purchased products for deployment in the
South Korean digital cellular telephone networks and the South Korean PCS
networks. The prolonged period of continued market uncertainty and economic
instability in South Korea and Asia in general, has resulted in postponed,
rescheduled and cancelled orders from the Company's South Korean customers. The
Company currently believes that any additional delay or cancellation of orders
by the Company's South Korean customers would have a material adverse effect on
the Company's business, results of operations and financial condition. The delay
or termination of the implementation of the South Korean digital cellular
telephone and PCS networks would have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the
Company believes that the South Korean digital cellular networks are more than
75% completed and that the build-out of these networks may be completed over the
next year. Due to the current economic issues, the Company currently believes
that the final completion of the build-out of the South Korean wireless networks
is dependent upon a stabilization of economic, currency and banking conditions
within South Korea. It is currently anticipated that the continued deployments
of both the cellular and PCS digital networks will be delayed until such time
that economic conditions become stabilized from a long-term perspective.
Accordingly, at this time the Company is unable to predict when, if ever, these
networks will be completed pursuant to the South Korean wireless network
operators' original projections. In any event, sales related to these networks
are anticipated to decrease significantly.
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, payment and
product delivery schedules, 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. See "--Internal Amplifier Production Capabilities of OEMs." As a
result, the Company's success will depend upon 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.
The Company currently sells products 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 and may
cancel orders, change delivery schedules or change the mix of products ordered
with minimal notice. In spite of these limitations, the Company maintains
significant work-in-progress and raw materials inventory as well as maintaining
increased levels of technical production staff to meet estimated order
forecasts. The recent significant reduction in sales to the Company's South
Korean customers has caused the Company to maintain higher levels of inventory
than it originally planned and
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to maintain employee levels above the level required for current production
requirements. While the Company currently believes that it has managed these
increases effectively, there can be no assurance that it will continue to be
able to do so. To the extent its major customers purchase less than the
forecasted amounts or cancel or delay existing purchase orders, 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 South Korean Market and Growth of Wireless Services Market
Three of the Company's customers, Hyundai, LGIC and Samsung, collectively
accounted for approximately 45.0% of the Company's net sales for the first
quarter of 1998 and approximately 83.0% of net sales for fiscal year 1997.
These customers supply equipment for deployment in the South Korean digital
cellular and PCS networks. During fiscal 1995, 1996, 1997, and the first
quarter of 1998, Hyundai, LGIC and Samsung purchased multi-carrier linear RF
power amplifiers for installation in the build-out of the South Korean digital
cellular networks. The delay or termination of the continued implementation of
the South Korean digital cellular networks 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
networks are more than 75% completed and that the build-out phase of these
networks have currently stopped. Full deployment was originally estimated to be
completed by the end of 1998. The Company is currently unable to predict when,
if ever, the originally scheduled build-out of these networks will be completed.
Accordingly, the Company's sales directly related to the South Korean digital
cellular networks are anticipated to decrease significantly.
In contrast to the South Korean digital cellular networks, the build-out of
the South Korean PCS networks began in the first quarter of 1997. During 1997,
the Company began shipping in volume PCS single carrier amplifiers for use in
the new PCS networks being built in South Korea. Sales to the Company's South
Korean customers for the South Korean PCS networks represented substantially all
of the Company's PCS sales during 1997 and the first quarter of 1998. The
delay, postponement or cancellation of the build-out of the South Korean PCS
networks which occurred during the first quarter of 1998, did have an adverse
effect on the Company's revenues and results of operations. The continued
delay, termination or early completion of the infrastructure build-out of the
South Korean PCS networks would have a material adverse effect on the Company's
business, results of operations and financial condition. Further, even if these
networks are developed as anticipated, there can be no assurance that the
Company's PCS products will achieve market acceptance outside of South Korea, or
be capable of being manufactured at competitive prices in sufficient volumes.
In the event that the Company's PCS 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.
During the fourth quarter of 1997, certain Asian countries, including South
Korea, began to experience weaknesses in their currencies, banking systems and
equity markets. The deteriorating economic and currency conditions throughout
Asia led South Korea, along with several other Asian countries, including
Indonesia and Thailand, to request economic support from the International
Monetary Fund in December 1997. During this time, the Company's South Korean
customers continued to order and take delivery of products from the Company and
continued to make timely payments to the Company for amounts owed. However,
during the first quarter of 1998, economic and currency conditions in Asia and
South Korea have continued to deteriorate which has negatively impacted overall
market conditions within South Korea. As a result, the Company has experienced
postponed, rescheduled and cancelled orders from its South Korean customers for
both the cellular and PCS networks in South Korea.
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The weakness in the South Korean Won has adversely affected South Korean
wireless service operators' demand for the Company's products. The Company's
South Korean customers pay for the Company's products with U.S. dollars. As
such, the strengthening of the U.S. dollar as compared to the South Korean Won,
which began in the fourth quarter of 1997 and has continued in the first quarter
of 1998, has increased the effective cost of the Company's products by as much
as 100% or more for its South Korean customers. This increase in cost to the
Company's South Korean OEM customers is being passed along to the South Korean
wireless service providers in the form of increased costs for infrastructure
equipment. The significant increase in the local currency cost of such products
makes them less attractive to such customers. Additionally, due to the economic
problems facing the South Korean banking network, it has become more difficult
for local operating companies to raise additional financing to support the
increased costs of their infrastructure buildout.
Therefore, the Company currently believes that the completion of the
buildout of the South Korean wireless networks is dependent upon a stabilization
of economic, currency and banking conditions within South Korea. It is currently
anticipated that the continued deployment of both the cellular and PCS digital
networks will be delayed until such time that economic conditions become
stabilized from a long-term perspective. Accordingly, the Company is unable to
predict when, if ever, these networks will be completed pursuant to the South
Korean wireless network operators' original build-out projections. In any event,
sales related to these networks are anticipated to continue to decrease
significantly during the remainder of 1998.
Hyundai, LGIC and Samsung 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.
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 in the United States the Federal
Communications Commission ("FCC") has adopted 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, place moratoriums on building base stations or
terminate or delay construction of such systems for a variety of reasons,
including environmental issues, political unrest, economic downturns, the
availability of favorable pricing for other communications services, the
availability and cost of related equipment or other delays in the implementation
of these systems, in which event demand for the Company's products will be
similarly reduced or delayed, which would materially adversely affect the
Company's business, results of operations and financial condition. See "--Risks
of Doing Business in International Markets."
Risks of Doing Business in International Markets
For the fiscal years 1995, 1996 and 1997, and the first quarter of 1998
international revenues (including non-US North American sales) accounted for
approximately 67%, 77%, 86% and 64% 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 political and
economic instability, the difficulty of administering business globally,
compliance with multiple and potentially conflicting regulatory requirements
such as export requirements, tariffs and other barriers, differences in
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intellectual property protections, health and safety requirements, difficulties
in staffing and managing foreign operations, longer accounts receivable cycles,
currency exchange 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 any of a variety of reasons, including 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 substantial majority of the Company's net sales
resulted from the sale of products to three companies in South Korea, where
future sales are dependent upon favorable business and economic conditions, as
well as trade relations with the United States and a lack of political conflicts
with North Korea.
During the fourth quarter of 1997 and the first quarter of 1998, economic
conditions deteriorated throughout the Asia-Pacific region, causing reductions
in local exchange rates throughout the region and general financial market
uncertainty. Countries in Asia, including South Korea, have experienced
weaknesses in their currencies, banking systems and equity markets. These
weaknesses have adversely affected both the Company's South Korean customers'
demand for the Company's products and their ability to pay for the products in
U.S. dollars. The Company's foreign customers pay for the Company's products
with U.S. dollars. As such, the recent strengthening of the U.S. dollar as
compared to such foreign currencies as the South Korean Won, has effectively
increased the local currency price of the Company's products by as much as 100%
or more for its South Korean customers. The significant increase in the local
currency cost of such products makes them less attractive to such customers.
Additionally, due to the economic problems facing the South Korean banking
system, it has become more difficult for South Korean operating companies to
raise additional US dollar financing to support the increased costs of
purchasing the Company's products. Accordingly, changes in exchange rates, and
in particular a strengthening of the U.S. dollar, may negatively impact the
Company's future sales, gross margins, results of operations and financial
condition.
In addition, during the last nine months, there have been press reports of
deteriorating living conditions within North Korea, which could lead to civil
unrest possibly resulting in potential military conflicts with South Korea.
There have also been press reports of military conflicts between North and South
Korea, which could potentially escalate into a large-scale conflict. Any
conflict, either political or military, between North and South Korea could have
a material adverse effect on the Company's business, results of operations and
financial condition. Any significant change in the South Korean economy or the
deterioration of United States trade relations or the economic or political
stability of other foreign locations in which the Company sells its products
would 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 further expands 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. The increasing value of the U.S. dollar in
comparison of the weakening of an international customer's local currency and
associated weakening of such customer's local banking system, may negatively
impact such customer's ability to meet their payment obligations to the Company.
During a time of uncertain economic and banking conditions, such as the current
situation in South Korea, there can be no assurance that such customers will
continue to be able meet such obligations. The Company regularly monitors the
credit worthiness of its international customers and makes credit decisions
based on both prior sales experience with such customers as well as current
financial performance and overall economic conditions. Due to competitive
reasons, the Company may decide to offer certain foreign
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<PAGE>
customers extended payment terms and or sell certain products or services in the
local currency of such customers. If the Company's international customers
default on payment terms or are unable to make payment to the Company in U.S.
dollars, the resulting payment shortages would have a material adverse effect on
the Company's business, results of operations and financial condition.
Fluctuations in Quarterly Results
The Company has experienced, 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; cancellations or rescheduling of customer orders and
shipments due to economic slowdowns in the Company's customers' operating
regions, such as South Korea; 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 costs; 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 competitor's amplifier
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. See "--Customer
Concentration." Order deferrals and cancellations by the Company's customers,
declining average sales prices, changes in the mix of products sold, 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. See "--Possible Volatility of Stock Price."
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 and
PCS service providers, which in turn has resulted in downward pricing pressure
on the Company's products. In addition, competition 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 would decline, and such decline could
have a material adverse effect on the Company's business, results of operations
and financial condition.
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During the fourth quarter of 1997 and continuing through the first quarter
of 1998, countries in Asia, including South Korea, experienced weaknesses in
their currencies, banking systems and equity markets. This continued market
uncertainty and economic instability in South Korea has significantly impacted
demand for the Company's products within South Korea. As a result, the Company
experienced postponed, rescheduled and cancelled orders from its South Korean
customers during the first quarter of 1998. If the Company's remaining
outstanding orders with its South Korean customers or any other major customers
are significantly reduced, delayed or cancelled, the resulting loss of volume
purchasing could adversely effect the Company's ability to achieve manufacturing
cost reductions in the form of price discounts for large volume purchases of
components. Any reduction in the Company's ability to obtain manufacturing cost
reductions would have a material adverse affect on the Company's business,
results of operations and financial condition.
Due to the economic problems facing Asia, the Company currently anticipates
that demand for wireless infrastructure equipment throughout Asia will continue
to decrease during 1998. Any additional reduction in demand could cause
suppliers of wireless infrastructure equipment, including RF power amplifiers,
to increase their sales and marketing efforts in the remaining markets outside
of Asia. Any possible increase in competition in the sale of RF power
amplifiers could cause increased price competition which could lead to further
declining average sales prices for the Company's products. If the Company is
unable to offset further declining average sales prices of its products through
cost reductions or product improvements, the Company's gross margins would
decline, and such decline could have a material adverse effect on the Company's
business, results of operations and financial condition.
In the fourth quarter of 1996, the Company introduced single carrier
amplifiers for PCS networks, and such products accounted for an increased
percentage of the Company's net sales during 1997. Since that time, sales of
single carrier amplifiers have been subject to intense price competition and
tend to carry lower gross margins than multi-carrier amplifier products.
Although the sale of PCS amplifiers accounted for a smaller percentage of sales
during the first quarter of 1998 compared to the fourth quarter of 1997, the
Company believes that PCS products will account for a measurable portion of the
Company's net sales in 1998. In addition, while the Company has decreased the
production level of its single carrier PCS products, the Company has had
difficulty reducing the cost of materials for such products. In the event that
the Company is unable to reduce the manufacturing costs of its single carrier
amplifiers and such amplifiers continue to account for a measurable percentage
of net sales, the Company's overall gross margins will be materially adversely
affected.
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
and product quality to meet increasing product demand and new product
introductions. Inaccuracies in demand forecasts or abrupt changes in customer
orders in the environment in which the Company operates can quickly result in
either insufficient or excessive inventories and disproportionate overhead
expenses. Any degradation in product quality could adversely impact production
rates, product delivery schedules and overhead expenses associated with product
support. While the Company continues to implement a number of new financial and
management controls, reporting systems and procedures, there can be no assurance
that such actions will prevent the Company from encountering inappropriate
inventory levels, disproportionate overhead expenses and reductions in product
quality and production rates. During the last twelve months, the Company has
hired a significant number of employees, including engineers, production
technicians and sales and marketing employees to meet demand forecasts. In the
event that the Company's new personnel are unable to work effectively as a team
or achieve desired production levels and product quality or if the Company's
demand forecasts are incorrect, or the Company's customers cancel or delay
existing orders, 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, results of operations and financial condition.
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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 technical, marketing and managerial personnel. Competition for
such personnel, particularly qualified engineers, is intense, and the loss of a
significant number of such persons, as well as the failure to recruit 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, and expects to continue to procure, 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, and may in the future experience, shortages of single-sourced
components. In such event, the Company may have to make adjustments to both
product designs and production schedules. If such single-sourced components
were to become unavailable in sufficient quantities or were to become available
only 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 redesign its products to
use other components, either of which could result in delays in production and
delivery. If for any reason the Company could not obtain comparable replacement
components in sufficient volume 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-sourced 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.
Due to the Company's reliance on certain single-sourced customized
components, if the Company experiences an abrupt reduction in customer demand,
the Company may end up with excess inventories of such components due to the
nature of the volume purchasing agreements that the Company enters to obtain
component cost reductions. If the Company is unable to utilize such components
in a timely manner and is unable to sell such components due to their customized
nature, the resulting negative impact on the Company's liquidity and resulting
increased inventory levels could have a material adverse effect on the Company's
business, results of operations and financial condition.
Competition
The wireless 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.
Currently, the Company competes primarily with Avantek (a division of
Hewlett-Packard), AML Communications, Inc., M/A-COM, Inc. (a subsidiary of AMP,
Inc.), Microwave Power Devices, Inc. and Spectrian Corporation, in addition to
the amplifier manufacturing operations captive within certain of the leading
wireless infrastructure OEMs. Certain of the Company's current and potential
competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other resources than the Company and have achieved greater
name recognition for their existing products and technologies than has the
Company.
The Company's success depends in part upon the rate at which wireless
infrastructure OEMs incorporate the Company's products into their systems. The
Company believes that a substantial portion of the present worldwide production
of amplifiers is captive within the internal manufacturing operations of a small
number of wireless infrastructure OEMs and that the amplifiers manufactured by
these OEMs are offered for sale as part of their
19
<PAGE>
wireless systems. These OEMs include, among others, LM Ericsson Telephone
Company ("Ericsson"), Lucent Technologies Incorporated ("Lucent"), Motorola
Corporation ("Motorola"), Nokia Corporation ("Nokia") and Northern Telecom
Limited ("Nortel"). In addition, Samsung, a significant customer of the Company,
manufacturers power amplifiers in addition to purchasing such components from
the Company. The Company believes that these OEMs, as well as other customers of
the Company, continuously evaluate whether to manufacture their own RF power
amplifiers rather than purchase them from third-party vendors such as the
Company. These and other large manufacturers of wireless infrastructure
equipment could also determine to offer and sell their power amplifiers to other
OEMs or customers of the Company and compete directly with the Company. In
addition, these or other OEMs may enter into joint ventures or strategic
relationships with the Company's competitors, in which event the Company's
ability to sell products to such OEMs could be reduced or eliminated. See "--
Internal Amplifier Production Capabilities of OEMs."
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
lower prices or superior 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 market. There can be no assurance that the
Company will be able to compete successfully 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 1998, the Company continued to invest significant resources
in the development and manufacture of RF power amplifiers for PCS networks and
expects to continue to invest significant resources in this area. There can be
no assurance that the deployment of PCS networks will not be delayed or that the
Company's PCS-based products will achieve widespread market acceptance or be
capable of being manufactured at competitive prices in sufficient volumes. In
the event the Company's PCS products are not timely and economically developed
or are not produced in sufficient quantities or do not gain widespread 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 next-generation multi-carrier linear cellular amplifier.
Any delays in commencement of commercial shipments of these 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.
20
<PAGE>
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 and engineers. 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. 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. The Company recently
introduced single carrier RF power amplifiers for PCS networks and anticipates
that it will continue to introduce new-generation RF power amplifiers products
for both cellular and PCS networks. Companies involved in the development and
manufacture of new products which contain complex technologies often encounter
difficulties in performance and reliability and encounter delays in product
introduction and volume shipments. The Company believes that customers will
demand increasingly stringent product performance, quality and reliability. The
Company has in the past experienced, and may from time to time in the future
experience, quality problems with its products. If any of these 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. 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 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. See "--Internal Amplifier Production Capabilities of OEMs."
Internal Amplifier Production Capabilities of OEMs
Many of the leading wireless 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. 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. In addition,
LGIC, one of the Company's customers, has entered into a joint venture
manufacturing arrangement with one of the Company's competitors. In the event
that customers of the Company do manufacture their own amplifiers, such
customers could reduce or eliminate 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.
There can be no assurance that the Company will continue to enter into supply
contracts with OEMs on terms that are acceptable to the Company, if at all, or
that such 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. If, for any reason, the Company's major customers
decide to produce their RF power amplifiers internally or through joint ventures
with other competitors, or require the Company to participate in joint venture
manufacturing with such OEM, the Company's business, results of operations and
financial condition could be materially adversely affected.
The Company's customers and other wireless infrastructure equipment
manufacturers are protective of their intellectual property, which may
contribute to certain manufacturers deciding to not seek RF power amplifiers
from
21
<PAGE>
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 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.
Proprietary Technology; Risk of Third-Party Claims of Infringement
The Company relies primarily upon trade secrets to protect its intellectual
property. The Company generally enters into confidentiality and non-disclosure
agreements with its employees and limits access to and distribution of its
proprietary information. In addition, the Company has applied for a U.S. patent
for its proprietary implementation of feedforward technology and regularly
examines various aspects of its technology for possible patent applications.
The Company believes that its success depends upon the knowledge and experience
of its management and technical personnel and its ability to market its existing
products and to develop new products.
The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others. There can
be no assurance that the Company will be able to successfully protect its
intellectual property or that the Company's intellectual property or proprietary
technology will not otherwise become known or be independently developed by
competitors. In addition, the laws of certain countries in which the Company's
products are or may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. The inability of the Company to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
results of operations and financial condition. As the number of patents,
copyrights and other intellectual property rights in the Company's industry
increases, and as the coverage of these rights and the functionality of the
products in the market further overlap, the Company believes that its products
may increasingly become the subject of infringement claims. The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others. Although the Company has not received
any such notification to date and there are no pending or threatened
intellectual property lawsuits against the Company, there can be no assurance
that such litigation or infringement claims will not occur in the future. Such
litigation or claims could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition. A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company or its customers to
distribute, sell or import into the United States allegedly infringing products.
If it appears necessary or desirable, the Company may seek licenses under
patents or other rights from third parties covering intellectual property that
the Company is allegedly infringing. No assurance can be given, however, that
any such licenses could be obtained on terms acceptable to the Company, if at
all. The failure to obtain the necessary licenses or other rights could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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.
22
<PAGE>
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 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.
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 adopted new
regulations that impose more stringent radio frequency emissions standards on
the communications industry and 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 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 may have fewer
opportunities to participate in the formation of 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 liberalization 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 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.
Possible Volatility of Stock Price
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies, and the market prices for securities of technology
companies have been especially volatile. These broad market fluctuations have
and may continue to adversely affect the market price of the Company's Common
Stock. Factors such as fluctuations in the Company's results of operations,
failure of such results of operations to meet the expectations of stock market
analysts and investors, changes in the economic outlook of the markets into
which the Company sells it products (such as South Korea), change in stock
market analyst recommendations regarding the Company and or its competitors, the
timing and announcements of technological innovations or new products by the
Company, or its competitors, developments with respect to patents and
proprietary rights, timing and announcements of developments related to the
Company's
23
<PAGE>
customers, results of operations of certain of the Company's competitors,
government regulation, political or economic instability in countries in which
the Company sells its products, changes in the wireless communications industry
generally and general market conditions may have a significant adverse effect on
the market price of the Company's Common Stock.
24
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(f) Use of Proceeds
The Company has used approximately $8.5 million of the net proceeds from
its December 6, 1996 Initial Public Offering ("IPO") for capital expenditures,
all of which were paid directly to unrelated third parties. The Company has also
utilized $12.5 million of the proceeds to repurchase shares of its Common Stock
in open market transactions. The remaining net proceeds of $1.2 million have
been invested in short-term, investment-grade money market instruments. The
$20.6 million of net proceeds from the Company's secondary Common Stock offering
on June 30, 1997, have also been invested in short-term, investment-grade money
market instruments.
Item 6. Exhibits and Reports on Form 8-K
(a) Documents filed as a part of this report:
Exhibit
Number Description
- ------ -----------
11.1 Computation of net income per share.
27.1 Financial Data Schedule.
(b) No reports have been filed on Form 8-K for the quarter for which
this report is filed.
25
<PAGE>
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 8, 1998 By: /s/ Kevin T. Michaels
---------------------------------
Kevin T. Michaels
Vice President, Finance and
Chief Financial Officer
26
<PAGE>
EXHIBIT 11.1
POWERWAVE TECHNOLOGIES, INC.
COMPUTATION OF NET INCOME PER SHARE
EPS CALCULATION AS OF March 30, 1997
<TABLE>
<S> <C> <C>
Shares issued and outstanding at December 29, 1996..... 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
-----------
Weighted average common shares - basic................. 16,219,051
Weighted average options issued and outstanding
during the period ending March 30, 1997.............. 1,148,673
Proceeds............................................... $ 5,777,028
Assumed buyback price.................................. $ 17.625
-----------
Shares bought back with proceeds....................... 327,775
Assumed share bought back with non-qualified tax
benefit utilizing 38% tax rate....................... 311,941
Potential common shares................................ 508,957
-----------
Total weighted average common shares - diluted......... 16,728,008
Quarterly net income at March 30, 1997................. $ 2,760,668
-----------
Diluted net income per share........................... $ 0.17
===========
Basic net income per share............................. $ 0.17
===========
EPS CALCULATION AS OF March 29, 1998
Shares issued and outstanding December 28, 1997........ 17,263,713
Shares issued under the Employee Stock Purchase Plan... 23,456 14,950
Options exercised during quarter....................... 146,204 106,848
Shares repurchased during the period................... (300,000) (249,694)
-----------
Weighted average common shares - basic................. 17,135,817
Weighted average options issued and outstanding
during the period ending March 29, 1998.............. 889,664
Proceeds............................................... $ 7,851,012
Assumed buyback price.................................. $ 14.44
-----------
Shares bought back with proceeds....................... 547,045
Assumed shares bought back with non-qualified tax
benefit utilizing 36.5% tax rate..................... 125,056
Potential common shares................................ 217,563
-----------
Total weighted average common shares - diluted......... 17,353,380
Quarterly net income at March 29, 1998................. $ 2,207,041
-----------
Diluted net income per share........................... $ 0.13
===========
Basic net income per share............................. $ 0.13
===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF POWERWAVE TECHNOLOGIES, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 57,412,551
<SECURITIES> 0
<RECEIVABLES> 12,069,268
<ALLOWANCES> 877,344
<INVENTORY> 9,548,828
<CURRENT-ASSETS> 83,221,816
<PP&E> 12,617,168
<DEPRECIATION> 3,262,649
<TOTAL-ASSETS> 93,266,842
<CURRENT-LIABILITIES> 17,145,229
<BONDS> 0
0
0
<COMMON> 65,863,649
<OTHER-SE> 9,145,594
<TOTAL-LIABILITY-AND-EQUITY> 93,266,842
<SALES> 22,650,113
<TOTAL-REVENUES> 22,650,113
<CGS> 13,795,141
<TOTAL-COSTS> 20,019,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,475,656
<INCOME-TAX> 1,268,615
<INCOME-CONTINUING> 2,207,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,207,041
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
