U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File #0-3392
WESTERN MICROWAVE, INC.
- --------------------------------------------------------------------------------
Exact name of small business issuer as specified in its charter
VIRGINIA 94-1530593
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 64252
Sunnyvale, California 94086
----------------------------------------
(Address of Principal Executive Offices)
(415) 366-9777
---------------------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 August 12, 1996 there were 1,528,491 shares of the issuer's Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes No x
--- ---
WESTERN MICROWAVE, INC.
FORM 10-QSB
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet - June 30, 1996 ............. 3
Consolidated Statements of Earnings
- Three and Nine Months Ended June 30, 1996
and June 30, 1995 ...................................... 4
Consolidated Statements of Cash Flows
- Nine Months Ended June 30, 1996 and
June 30, 1995 .......................................... 5
Notes to Consolidated Financial Statements ............. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 8-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ........................ 9
Signatures ........................................................ 10
2
WESTERN MICROWAVE, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
ASSETS
Current assets:
Cash and cash equivalents $ 86,959
Securities available for sale 7,404,336
Note receivable 27,476
Other Current Assets 2,500
----------
Total assets 7,521,271
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 270,335
Accrued liabilities 1,214,225
Deferred revenue 910,871
----------
Total current liabilities 2,395,431
Stockholders' equity:
Common stock - $.10 par value; 3,000,000 shares authorized;
1,555,233 shares issued, 1,528,491 outstanding 152,849
Capital in excess of par value 4,148,981
Retained earnings 824,010
----------
Total stockholders' equity 5,125,840
----------
Total liabilities and stockholders' equity $7,521,271
==========
The accompanying notes are an integral part of these statements.
3
WESTERN MICROWAVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 0 $ 936,606 $ 0 $2,051,490
Cost of sales 0 446,007 0 1,225,128
------------ ------------ ------------ ------------
Gross profit 0 490,599 0 826,362
Selling, general and administrative expenses 206,567 141,314 721,899 452,338
Investment income (145,292) (158,802) (429,103) (340,005)
Other income (2,135) 0 (47,507) 0
------------ ------------ ------------ ------------
59,140 (17,488) 245,289 112,333
Net income (loss) before
income taxes (59,140) 508,487 (245,289) 714,029
Income tax expense 0 (76,213) 0 (107,104)
------------ ------------ ------------ ------------
Net (loss) income $ (59,140) $ 431,874 $ (245,289) $ 606,925
============ ============ ============ ============
Net (loss) income per share ($0.04) $0.31 ($0.17) $0.44
Weighted average number of shares of ============ ============ ============ ============
common stock outstanding 1,528,491 1,384,002 1,453,491 1,384,002
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
WESTERN MICROWAVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------
1996 1995
-------- --------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net (loss) income $ (245,289) $ 606,925
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation 1,996 49,530
Changes in assets and liabilities:
Trade receivables 0 (114,613)
Other receivables 52,524 6,633
Prepaid expenses (80) 3,139
Accounts payable (18,868) (54,555)
Accrued liabilities and taxes payable (511,999) (33,973)
Deferred revenue 741,229 -
-------- --------
Net cash provided by operating activities 19,513 463,086
Cash flows from investing activities:
Purchase of investment securities (371,708) (93,304)
Payments on margin loan - (195,094)
-------- --------
Net cash provided by (used in) investing activities (371,708) (288,398)
Cash flows from financing activities:
Sale of common stock 150,000 -
Purchase of common stock - (9,150)
-------- --------
Net cash provided by (used in) financing activities 150,000 (9,150)
-------- --------
Net increase (decrease) in cash and cash equivalents (202,195) 165,538
Cash and cash equivalents at beginning of period 289,154 20,552
-------- --------
Cash and cash equivalents at end of period $86,959 $ 186,090
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
WESTERN MICROWAVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basis of Presentation
The accompanying unaudited financial statements reflect, in the opinion of
Management, all adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position and results of operations of and for
the periods indicated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations, although the Company believes the disclosures
which are made are adequate to make the information presented not misleading.
The Company's significant accounting policies are summarized in the Company's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1995. These
policies have been consistently applied during the periods presented in this
report. The accompanying report on Form 10-QSB, including the unaudited
financial statements, should be read in conjunction with the financial
statements referenced above.
NOTE 1 - INVESTMENT SECURITIES
The following is a summary of the Company's investment securities
portfolio as of June 30, 1996:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Gains Fair Value
--------- ---------- ---------- ----------
Equity Securities $6,968,768 $811,040 $211,895 $7,567,913
Mutual Funds 139,156 14,593 - 153,749
Margin Liability (317,326) - - (317,326)
--------- ---------- ---------- ----------
$6,790,598 $825,633 $211,895 $7,404,336
========= ========== ========== ==========
The Company has entered into certain contracts in which the Company receives a
payment and agrees to buy shares of specific securities if the holder puts the
securities to the Company (put contracts). This obligation could occur if the
market price of the securities dropped below the option price. At June 30, 1996,
the aggregate contract obligation to the Company, assuming all contracts were
put to the Company would be $13,743,000. The market risk to the Company is that
if the share prices of the securities subject to the options decline below the
option price, and the holder puts the securities to the Company, the Company
would be required to buy the securities at a price in excess of market. At June
30, 1996, the Company has recorded a liability for the amounts received on open
put contracts of $846,791. At June 30, 1996, the Company has unrealized gains of
$136,353 on open put contracts. The Company has also entered into certain
contracts in which the Company receives a payment and agrees to sell shares
(regardless if the Company owns the shares) of specific securities if the holder
calls the securities from the Company (call contracts). This obligation could
occur if the market price of the securities rises above the option price. The
market risk to the Company is that if the share price of the securities subject
to the options rises above the option price and the holder calls the securities
from the Company, the Company would
6
be required to buy the securities at market price and sell them at a price less
than market. There were no uncovered call contracts at June 30, 1996. At June
30, 1996, the Company has recorded a liability for the amounts received on open
call contracts of $64,080. At June 30, 1996, the Company has unrealized gains of
$38,584 on these contracts. The Company records the premium payments it receives
from these activities as a deferred liability upon receipt. Unrealized gains on
open contracts are deferred and not recognized until the contracts lapse or are
settled. Unrealized losses are not recognized until realized, i.e., when the
contract is either put to or called from the Company
7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
In July, 1995, the Company sold certain of the assets associated with the
design, development, manufacture and sale of a range of microwave devices,
components and subsystems used in both military and commercial microwave
electronic systems (the "WMI Business) to ST Microwave Corp.(the "Buyer") in
exchange for cash and the assumption by the Buyer of certain of the liabilities
of the Company. Between July 21, 1995 and September 15, 1995, when the Company's
lease for its facility at 495 Mercury Drive, Sunnyvale California expired, the
Company disposed of substantially all of its remaining tangible assets. As a
result of such transactions, the Company is no longer engaged in the WMI
Business. The Company's remaining business activity involves the resolution of
the Company's ongoing environmental liability for the cleanup of the Company's
former headquarters on Reamwood Avenue, Sunnyvale, California (the "Former
Headquarters").
The Company's Board of Directors has adopted a Plan of Dissolution and
Liquidation of the Company and has recommended approval of such Plan by the
shareholders. The Company is in the process of preparing proxy solicitation
materials for use at a Special Meeting of Shareholders to be held for the
purpose of acting upon the Plan.
Pending the resolution of the Company's environmental liability and the
liquidation of the Company, the Company has temporarily invested its assets in a
portfolio of marketable securities with a view towards the preservation of such
assets and the generation of investment income from interest, dividends and
capital gains.
Financial Condition
Assets and Total Stockholders' Equity. For the nine months ended June 30, 1996,
net current assets decreased by approximately $8,300 and total stockholders'
equity decreased by approximately $10,300 from the beginning of the fiscal year.
During the third quarter, the Company received $150,000 in capital upon the
exercise of an outstanding stock option. The operating loss of approximately
$245,000 for the first nine months of the current fiscal year was also offset,
in part, by an increase of approximately $60,000 in the net unrealized
appreciation of the Company's investment portfolio since the beginning of the
fiscal year. Book value per share at the end of the third quarter decreased to
$3.35 per share as compared to $3.73 per share at the beginning of the fiscal
year.
Environmental Liability. Under the terms of the settlement agreements entered
into by the Company in connection with the settlement of the environmental
lawsuits, the Company has agreed to undertake certain groundwater remediation
activities at its
8
Former Headquarters. The Company has established a reserve for future
environmental clean-up costs representing management's best estimate of the
anticipated costs and expenses to complete the clean-up of the site in
accordance with the Company's workplan.
At June 30, 1996, the Company's reserve for future environmental cleanup costs
remained at $1,000,000. As set forth above, the Board of Directors is
recommending to the shareholders the adoption of a Plan of Dissolution and
Liquidation of the Company. As a part of such plan, prior to liquidation the
Board of Directors intends to increase the reserve for future environmental
costs from $1.0 million to at least $3.0 million to insure adequate funds to
complete the cleanup and to allow for the distribution of the Company's
remaining assets.
Results of Operations
Investment Income. Investment income for the third quarter of fiscal 1996,
consisting of interest and dividends on the Company's portfolio of marketable
securities, totaled approximately $145,000, a slight decrease from the same
period one year ago. For the first nine months of the current fiscal year, net
investment income totaled approximately $429,000, representing an increase of
approximately 26% from the same period of the prior fiscal year. The increase in
investment income for the first nine months is due to the increase in current
assets available for investment as a result of the sale of the WMI Business.
Selling, General and Administrative Expenses. For the third quarter of fiscal
1996, selling, general and administrative expenses totaled approximately
$206,000, substantially all of which was attributable to environmental matters
and legal and investment management fees. Included in selling, general and
administrative expenses of approximately $722,000 for the nine months ended June
30, 1996 was an environmental consulting and management fee paid to Dr. Ibrahim
Hefni of $112,500 in lieu of any salary as president, treasurer and chief
executive officer of the Company.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Item 27 Financial Data Schedule
9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
WESTERN MICROWAVE, INC.
s/ Ibrahim Hefni
----------------------------
Ibrahim Hefni
President, Treasurer and
Chief Executive Officer
Dated: August 12, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 86,959
<SECURITIES> 7,404,336
<RECEIVABLES> 27,476
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,521,271
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,521,271
<CURRENT-LIABILITIES> 2,395,431
<BONDS> 0
0
0
<COMMON> 152,849
<OTHER-SE> 4,972,991
<TOTAL-LIABILITY-AND-EQUITY> 7,521,271
<SALES> 0
<TOTAL-REVENUES> 147,427
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 206,567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (59,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (59,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,140)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
