UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-3392
- --------------------------------------------------------------------------------
WESTERN MICROWAVE, INC.
(EXACT NAME OF REGISTRANT 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
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NO. (408) 745-6679
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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 FEBRUARY 20, 1997 THERE WERE 1,528,491 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
WESTERN MICROWAVE, INC.
FORM 10-QSB
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements:
<S> <C> <C>
Balance Sheet - December 31, 1996........................................................1
Statements of Operations - Three Months Ended
December 31, 1996 and 1995...............................................................2
Statements of Cash Flows - Three Months Ended
December 31, 1996 and 1995...............................................................3
Notes to Financial Statements............................................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................6
</TABLE>
SIGNATURES
WESTERN MICROWAVE, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents $ 8,326
Money market fund 171,359
Securities available for sale 9,227,791
Other assets 8,948
--------------
Total assets $ 9,416,424
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 53,330
Margin account liability 856,767
Accrued liabilities 2,667,921
--------------
Total liabilities 3,578,018
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
Unrealized gain on marketable securities 1,085,910
Retained earnings 450,666
--------------
Total stockholders' equity 5,838,406
Total liabilities and stockholders' equity $ 9,416,424
==============
</TABLE>
The accompanying notes are an integral part of this statement.
-1-
WESTERN MICROWAVE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Investment income $ 169,170 $ 111,353
Other income - 33,305
------------- -------------
169,170 144,658
General and administrative expenses 268,662 277,426
------------- -------------
Net (loss) $ (99,492) $ (132,768)
============= =============
Net (loss) per share $ (0.07) $ (0.10)
============= =============
Weighted average number of shares of common stock outstanding 1,528,491 1,378,491
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
WESTERN MICROWAVE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net (loss) $ (99,492) $ (132,768)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation - 499
Money market fund income (10,690) -
Gain on sale of securities (5,398) (16,215)
Changes in assets and liabilities:
Other assets 913 950
Accounts payable (89,011) 107,671
Margin account liability (218,670) -
Accrued liabilities 600,602 (657,942)
----------- ------------
Net cash (used in) provided by operating activities 178,254 (697,805)
Cash flows from investing activities:
Payments received on note receivable - 19,325
Purchase of investment securities (265,715) (8,989)
Proceeds from sale of investment securities 50,000 454,986
----------- ------------
Net cash provided by (used in) investing activities (215,715) 465,322
----------- ------------
Net (decrease) in cash and cash equivalents (37,461) (232,483)
Cash and cash equivalents at beginning of period 45,787 289,154
----------- ------------
Cash and cash equivalents at end of period $ 8,326 $ 56,671
=========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
WESTERN MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Basis of Presentation
- ---------------------
The accompanying 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, 1996. These
policies have been consistently applied during the periods presented in this
report. The accompanying report on Form 10-QSB, including the 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 December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equity securities $ 7,803,550 $ 1,610,026 $ (348,285) $ 9,065,291
Debt security 160,531 1,969 - 162,500
------------- ------------- ------------- -------------
$ 7,964,081 $ 1,611,995 $ (348,285) $ 9,227,791
============= ============= ============= =============
</TABLE>
The debt security matures in the year 2020.
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 drops below the option price. At
December 31, 1996, the aggregate contract obligation to the Company,
assuming all contracts were put to the Company would be $17,757,500. The
aggregate obligation on put contracts for which the option price exceeds the
market price is $1,179,000. 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
December 31, 1996, the Company has recorded a liability for the amounts
received on open put contracts of $1,255,945. At December 31, 1996, the
Company has net unrealized gains of $531,920 on open put contracts. The
Company has also entered into certain contracts in which the Company
receives a payment and agrees to sell 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
-4-
WESTERN MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 1 - INVESTMENT SECURITIES (continued)
the share prices of the securities subject to the options rises above the
option price and the holder calls the securities from the Company, the
Company would 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
December 31, 1996. At December 31, 1996, the Company has recorded a
liability for the amounts received on open contracts of $59,318. At December
31, 1996, the Company has net unrealized gains of $34,568 on these open
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 the Company or called from the Company.
NOTE 2 - ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1996:
Payroll and other $ 352,659
Environmental cleanup 1,000,000
Deferred option income 1,315,262
-------------
$ 2,667,921
=============
-5-
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
Assets. Total assets as of December 31, 1996 increased from the beginning of the
fiscal year by approximately $.87 million to a total of $9.42 million. The
increase in total assets is the result of the appreciation in the fair value of
investment securities ($671,000), cash generated by operating activities of
$178,000 plus non-cash asset increases of approximately $17,000.
Total Stockholders' Equity. Total stockholders' equity as of December 31, 1996
increased from approximately $5.27 million (or $3.44 per share) at the beginning
of the fiscal year to approximately $5.84 million (or 3.82 per share). The
increase of approximately $570,000 in total stockholders' equity for the current
fiscal quarter is the result of the aforementioned increase in the fair value of
investment securities offset by the net loss incurred for the quarter.
Environmental Liability. In the quarter ended December 31, 1996, the Company
expensed approximately $37,000 in costs relating to the environmental cleanup
but has left the $1,000,000 reserve unchanged. The $1,000,000 reserve at
December 31, 1996 represents management's best estimate of the anticipated costs
and expenses to complete the cleanup of the site in accordance with the
Company's proposed workplan. However, there is no assurance that the cleanup of
the site can be completed for the reserved amount and changes in conditions at
the site as the cleanup is undertaken or other unknown circumstances may result
in significant increased in future cleanup costs which cannot be reasonably
anticipated by the Company at this time. At December 31, 1996, the Company's
total assets exceeded $9.4 million, and, therefore, the Company believes that it
has more than sufficient assets to complete the cleanup in the event the
anticipated costs and expenses exceed the amount of the reserve.
Liquidity and Capital Resources. As a result of the sale of the WMI Business in
fiscal 1995, substantially all of the Company's assets consist of cash and
marketable securities. Pending the resolution of the Company's environmental
liability for the cleanup of the Former Headquarters, the Company has invested
substantially all of its current assets in a diversified portfolio of marketable
securities. As of December 31, 1996, the portfolio of marketable securities were
valued at approximately $9.23 million.
RESULTS OF OPERATIONS
- ---------------------
Investment Income. Investment income for the quarter ended December 31, 1996,
consisting of interest, dividends, capital gains and gains on put and call
options, was $169,170, an increase of $57,817 or 52% over the same period last
year. The increase is attributable to income generated from put and call option
contracts of approximately $42,000 and higher levels of interest and dividends
due to the larger amounts of assets available for investment. In the quarter
ended December 31, 1995, the Company recorded $33,305 in other income relating
to the sale of its microwave component business.
General and Administrative Expenses. General and administrative expenses
aggregated $268,662 for the quarter ended December 31, 1996, a decrease of
$8,764 or 3% over the same period last year. Included in current quarter
expenses were environmental consulting fees of $37,500 plus investment portfolio
management fees of $115,123 paid to the Company's president and CEO. The balance
of the expenses relate to environmental matters ($37,000) and other
miscellaneous expenses. For the quarter ended December 31, 1995, $138,000 in
expenses were attributable to environmental matters while the balance of
approximately $139,000 was attributable to severance pay, portfolio management
fees and legal and audit fees.
-6-
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WESTERN MICROWAVE, INC.
By: Dr. Ibrahim Hefni
Dated: February 20, 1997 /s/ I. Hefni
- ------------------------- -------------------------------
Ibrahim Hefni
President and Treasurer and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 8,326
<SECURITIES> 9,399,150
<RECEIVABLES> 8,940
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,416,424
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,416,424
<CURRENT-LIABILITIES> 3,578,018
<BONDS> 0
0
0
<COMMON> 152,849
<OTHER-SE> 5,865,557
<TOTAL-LIABILITY-AND-EQUITY> 9,416,424
<SALES> 0
<TOTAL-REVENUES> 169,170
<CGS> 0
<TOTAL-COSTS> 268,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (99,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99,492)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
