UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-QSB/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997 COMMISSION FILE NUMBER 0-3392
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WESTERN MICROWAVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 94-1530593
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(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. (415) 366-9777
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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 MAY 12, 1997 THERE WERE 1,528,491 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING.
WESTERN MICROWAVE, INC.
FORM 10-QSB/A
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet - March 31, 1997.................................1
Statements of Operations - Three and Six Months Ended
March 31, 1997 and 1996....................................2
Statements of Cash Flows - Six Months Ended
March 31, 1997 and 1996....................................3
Notes to Financial Statements..................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................6
SIGNATURES
WESTERN MICROWAVE, INC.
BALANCE SHEET
March 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 17,645
Money market funds 1,154,621
Trading securities - at market 7,515,425
Other assets 14,834
------
Total assets $ 8,702,525
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 30,950
Accrued liabilities 2,197,865
Income taxes payable 670,212
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Total liabilities 2,899,027
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 1,501,668
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Total stockholders' equity 5,803,498
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Total liabilities and stockholders' equity $ 8,702,525
==============
</TABLE>
The accompanying notes are an integral part of these statements.
-1-
WESTERN MICROWAVE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Investment income $ 1,237,092 $ 173,598 $ 1,406,262 $284,951
Gain resulting from change in accounting
principle 806,236 - 806,236 -
Other income - 10,927 - 44,232
--------- ------- --------- -------
2,043,328 184,525 2,212,498 329,183
General and administrative expenses 144,314 237,906 412,976 515,332
--------- ------- --------- -------
Earnings (loss) before income taxes 1,899,014 (53,381) 1,799,522 (186,149)
Provision for income taxes 848,012 - 848,012 -
--------- ------- --------- -------
Net (loss) income $ 1,051,002 $ (53,381) $ 951,510 $(186,149)
============= ============= =============== =========
Net (loss) income per share $ 0.69 $ (0.04) $ 0.62 $ (0.13)
============= ============= =============== =========
Weighted average number of shares
of common stock outstanding 1,528,491 1,378,491 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>
Six Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net (loss) income $ 951,510 $ (186,149)
Adjustment to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation - 998
Money market fund income (11,814) -
Realized gain on sale of securities (430,990) -
Holding gain on trading securities (628,436) -
Changes in assets and liabilities:
Investment securities 482,630 -
Other assets (4,973) 39,093
Prepaid expenses - 1,685
Accounts payable (111,391) 545,327
Accrued liabilities 130,546 (296,859)
Income taxes payable 670,212 -
Margin account liability (1,075,437) -
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Net cash (used in) provided by operating activities (28,143) 104,095
Cash flows from investing activities:
Purchase of investment securities - (800,159)
Payments on margin loan - 517,780
------- --------
Net cash provided by (used in) investing activities - (282,379)
------- --------
Net decrease in cash and cash equivalents (28,143) (178,284)
Cash and cash equivalents at beginning of period 45,788 425,788
------- --------
Cash and cash equivalents at end of period $ 17,645 $ 247,504
=============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
WESTERN MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
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-QSBA, including the financial
statements, should be read in conjunction with the financial statements
referenced above.
NOTE 1 - INVESTMENT SECURITIES
As of March 31, 1997, the Company has reclassified its investment securities
portfolio in accordance with the provisions of FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The
Company has reclassified its entire portfolio as trading securities. The
portfolio had been previously classified as "available for sale." As a
result of this change, the Company has recognzied a gain of $628,436, net of
income taxes of $177,800, during the current quarter representing the net
unrealized holding gains on debt and equity securities as of March 31, 1997,
which had previously been recorded as a component of stockholders' equity.
The following is a summary of the Company's investment securities portfolio
as of March 31, 1997:
Common stocks $ 4,944,234
Preferred stocks 2,408,691
Other 162,500
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$ 7,515,425
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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. The
aggregate obligation on put contracts for which the option price exceeds the
market price is $496,375. 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
March 31, 1997, the Company has recorded a liability for the amounts
received on open put contracts of $790,354. At March 31, 1997, the Company
has net unrealized gains of $8,636 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
-4-
WESTERN MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997 AND 1996
NOTE 1 - INVESTMENT SECURITIES (continued)
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 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. The contract obligation to the Company on
call contracts where the market price exceeds the option price is
insignificant at March 31, 1997. There was one uncovered call contract
outstanding at March 31, 1997, however, the Company was not in a loss
position on this contract. At March 31, 1997, the Company has recorded a
liability for the amounts received on open call contracts of $124,791. At
March 31, 1997, the Company has net unrealized losses of $16,956 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 March 31, 1997:
Payroll and other $ 282,720
Environmental cleanup 1,000,000
Deferred option income 915,145
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$ 2,197,865
=============
-5-
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Assets. Total assets as of March 31, 1997 increased from the beginning of the
fiscal year by approximately $.14 million to a total of $8.70 million.
Investment securities activity accounted for the majority of the increase,
offset by an increase in income taxes payable of $670,000
Total Stockholders' Equity. Total stockholders' equity as of March 31, 1997
increased from approximately $5.27 million (or $3.44 per share) at the beginning
of the fiscal year to approximately $5.80 million (or 3.80 per share). The
increase of approximately $538,000 in total stockholders' equity for the six
months period is the result of the net income of $951,510 reported for the
period offset by unrealized holding gains on investment securities of $413,868
which had been recognized as a component of stockholders' equity at the
beginning of the fiscal year.
Environmental Liability. In the quarter ended March 31, 1997, the Company
expensed approximately $5,050 in costs relating to the environmental cleanup but
has left the $1,000,000 reserve unchanged. The $1,000,000 reserve at March 31,
1997 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 March 31, 1997, 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 March 31, 1997, the portfolio of marketable securities,
including money market funds, were valued at approximately $8.67 million.
RESULTS OF OPERATIONS
Investment Income. Investment income for the quarter ended March 31, 1997,
consisting of interest, dividends, realized gains on sales of investment
securities and gains on put and call options, was $1,237,092, an increase of
$1,063,494 or 613% over the same period last year. The increase is attributable
to increased income generated from the expiration of put and call option
contracts of approximately $688,000, gains on sales of investment securities of
approximately $426,000, offset by lower levels of interest and dividends of
approximately $50,000. For the six months ended March 31, 1997, investment
income increased to $1,406,262, an increase of $1,121,311 or 394% over the same
period last year. The increase was largely due to the same factors impacting the
increase for the current fiscal quarter. The Company recorded a one time gain
resulting from the reclassification of investment securities of $806,236 during
the quarter ended March 31, 1997. A deferred income tax provision of $177,800
offset the gain recorded.
General and Administrative Expenses. General and administrative expenses
aggregated $412,976 for the six months ended March 31, 1997, a decrease of
$102,356 or 20% over the same period last year. The decrease was due to lower
expenses relating to the environmental litigation and cleanup. Included in
current period expenses were environmental consulting fees of $75,000 plus
investment portfolio management fees of $160,309 paid to the Company's president
and CEO. The balance of the expenses relate to legal expenses on environmental
matters ($69,000) and other miscellaneous expenses.
-6-
Income Taxes. During the quarter ended March 31, 1997, the Company reflected an
income tax provision of $848,012. Due to the losses recorded in the 1996 time
periods, no income tax accrual was recorded. The 1997 accrual includes a
deferred provision of $177,800 as a result of the Company's decision to
reclassify its investment securities portfolio. The balance of the accrual,
$670,212 reflects the current income taxes due on income generated during the
quarter. The Company has not reflected any deferred tax asset resulting from the
temporary difference created by the environmental accrual since its is doubtful,
given the Company's current plans to enter into a formal plan of liquidation,
that any benefit from the reversal of temporary difference will be realized at
the corporate level.
-7-
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
/s/ I. Hefni
Dated: June 11, 1997 --------------------------
--------------------- Ibrahim Hefni
President and Treasurer and
Chief Executive Officer
