<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: July 3, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 1-4817
WHITE ELECTRONIC DESIGNS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
INDIANA 35-0905052
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3601 EAST UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 602/437-1520
</TABLE>
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 / /
At August 16, 1999, 15,909,611 shares of the Registrant's Common Stock were
outstanding.
<PAGE> 2
WHITE ELECTRONIC DESIGNS CORPORATION
AND
SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION.......................................... 2-11
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 3, 1999 (Unaudited) and
September 30, 1998.................................. 2
Condensed Consolidated Statements of Operations
Third quarter and nine months ended
July 3, 1999 and June 28, 1998 (Unaudited).......... 3
Condensed Statement of Shareholders' Equity
Nine months ended July 3, 1999 (Unaudited).......... 4
Condensed Consolidated Statements of Cash Flow
Nine months ended July 3, 1999 and
June 28, 1998 (Unaudited)........................... 5
Notes to Consolidated Financial
Statements (Unaudited).............................. 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................... 8
Item 3. Quantitative and Qualitative Disclosures about Risks.. 11
PART II OTHER INFORMATION.............................................. 11
Item 6. Exhibits and Reports on Form 8-K...................... 11
1
<PAGE> 3
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
{In thousands of dollars)
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
July 3, September 30,
1999 1998
(Unaudited) (Note 1)
- - - --------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash $ -- $ 2,756
Accounts receivable, less allowance for
doubtful accounts of $140 and $320 10,115 3,584
Inventories 11,404 6,191
Prepaid expenses 916 109
Deferred income taxes 1,369 1,200
- - - --------------------------------------------------------------------------------
Total Current Assets 23,804 13,840
Property, plant and equipment, net 7,422 2,066
Deferred income taxes 3,317 --
Goodwill and intangibles 1,634 929
Other assets, net 245 1,100
- - - --------------------------------------------------------------------------------
Total Assets $36,422 $17,935
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $ 4,289 $ 2,332
Accounts payable 5,193 3,503
Accrued salaries and benefits 2,016 503
Accrued expenses 2,653 2,295
- - - --------------------------------------------------------------------------------
Total Current Liabilities 14,151 8,633
Long term debt 2,377 --
Other long term liabilities 411 --
- - - --------------------------------------------------------------------------------
Total Liabilities 16,939 8,633
- - - --------------------------------------------------------------------------------
Shareholders' Equity 19,483 9,302
- - - --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $36,422 $17,935
================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
Note 1 - As a result of the merger on October 26, 1998 of White Electronic
Designs Corporation (formerly Bowmar Instrument Corporation) and Electronic
Designs, Inc. (EDI), which was accounted for as a purchase by EDI of Bowmar, the
financials for the fiscal year ending September 30, 1998 include only the
results of EDI.
2
<PAGE> 4
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
{In thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
July 3, June 28, July 3, June 28,
1999 1998 1999 1998
(Note 1) (Note 1)
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 15,172 $ 8,054 $ 40,434 $ 25,364
Cost of revenues 10,580 6,354 30,683 19,311
- - - -----------------------------------------------------------------------------------------------------------------------------------
Gross margin 4,592 1,700 9,751 6,053
- - - -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 888 575 2,751 1,863
Selling, general and administrative 2,561 1,597 7,435 5,634
Merger expenses - 336 850 -
Amortization of intangible assets 189 117 543 350
Interest expense 126 31 333 91
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,764 2,656 11,912 7,938
- - - -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 828 (956) (2,161) (1,885)
Income tax expense (benefit) 335 - (860) -
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) from operations $ 493 $ (956) $ (1,301) $ (1,885)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations
net of income tax benefit of $28 - - (342) -
- - - -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 493 $ (956) $ (1,643) $ (1,885)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share-basic, $ (0.11) $ (0.27)
continuing operations $ 0.03 $ (0.14)
Loss per share-basic, - - -
discontinued operations (0.02)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share $ 0.03 $ (0.14) $ (0.13) $ (0.27)
Basic weighted average common shares (Note 2) 15,808,401 7,048,000 15,189,362 7,063,000
===================================================================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
Note 1 - As a result of the merger on October 26, 1998 of White Electronic
Designs Corporation (formerly Bowmar Instrument Corporation) and Electronic
Designs, Inc. (EDI), which was accounted for as a purchase by EDI of Bowmar, the
financials for the third quarter and first nine months of fiscal 1998 include
only the results of Electronic Designs, Inc.
Note 2 - For fiscal 1999 and 1998 earnings per share, assuming dilution is the
same as earnings per share basic and thus is not shown separately.
3
<PAGE> 5
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
JULY 3, 1999
(UNAUDITED)
{In thousands of dollars)
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Additional Total
Preferred Common Treasury Paid-in Retained Shareholders'
Stock Stock Stock Capital Earnings Equity
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 $ -- $ 72 $ (186) $ 26,998 $(17,582) $ 9,302
Net loss (1,643) (1,643)
Exercise of Stock Options 2 1 3
Issuance of Stock Warrants 18 18
Merger (Note 1) 120 1,511 182 10,260 12,073
Payment of preferred dividends (270) (270)
- - - -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 3, 1999 $ 120 $ 1,585 $ (4) $ 37,277 $(19,495) $ 19,483
===================================================================================================================================
</TABLE>
See notes to Consolidated Financial Statements
Note 1 - As a result of the merger on October 26, 1998 of White Electronic
Designs Corporation (formerly Bowmar Instrument Corporation) and Electronic
Designs, Inc. (EDI) which was accounted for as a purchase by EDI of Bowmar, the
financials for the first nine months of fiscal 1998 include only the results of
EDI.
4
<PAGE> 6
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
{In thousands of dollars)
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
JULY 3, JUNE 28,
1999 1998
- - - -----------------------------------------------------------------------------------------------------------------------------------
(NOTE 1)
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (2,290) $ 3
- - - -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,722) (625)
Cash acquired in acquisition 224 --
Proceeds from sales of property, plant and equipment -- 500
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,498) (125)
- - - -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings under line of credit, net 3,848 --
Borrowings of long-term debt 22
Issuance of long-term debt -- 150
Retirement of long-term debt (2,571) (817)
Issuance of common stock 3 50
Repurchase of common stock -- (310)
Payment of preferred stock dividends (270) --
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,032 (927)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net change in cash (2,756) (1,049)
Cash at beginning of year 2,756 4,212
- - - -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ -- $ 3,163
- - - -----------------------------------------------------------------------------------------------------------------------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
Details of Acquisition
Fair value of assets acquired $ 18,074 $ --
Fair value of liabilities assumed $ (5,351) --
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net assets acquired $ 12,723 $ --
Acquisition costs (650) --
- - - -----------------------------------------------------------------------------------------------------------------------------------
Stock issued in connection with the merger $ 12,073 $ --
===================================================================================================================================
</TABLE>
See notes to Consolidated Financial Statements
Note 1 - As a result of the merger on October 26, 1998 of White Electronic
Designs Corporation (formerly Bowmar Instrument Corporation) and Electronic
Designs, Inc. (EDI), which was accounted for as a purchase by EDI of Bowmar, the
financials for the first nine months of fiscal 1998 include only the results of
EDI.
5
<PAGE> 7
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of July 3, 1999, the consolidated statements
of operations for the third quarter ended July 3, 1999 and June 28, 1998, and
the consolidated statements of cash flows for the nine months ended July 3, 1999
and June 28, 1998, have been prepared by the Registrant without audit. In the
opinion of management all adjustments which are of a normal recurring nature
necessary to present fairly such financial statements have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. The results of operations for the above noted periods ended
July 3, 1999, are not necessarily indicative of the operating results for the
full year. For further information, refer to White Electronic Designs
Corporation's (formerly Bowmar Instrument Corporation) Annual Report on Form
10-K for the year ended October 3, 1998 and Electronic Designs, Inc.'s 1998
consolidated financial statements and footnotes thereto in White Electronic
Designs Corporation's Form 8-K/A filed on January 11, 1999.
2. ACQUISITION
On October 26, 1998, Bowmar Instrument Corporation ("Bowmar") merged with
Electronic Designs, Inc. ("EDI"). In connection with the merger, Bowmar changed
its name to White Electronic Designs Corporation (the "Company"). While Bowmar
was the legal acquirer, the merger was accounted for as a reverse acquisition
purchase whereby EDI was deemed to have acquired Bowmar for financial reporting
purposes. Consistent with the reverse acquisition purchase accounting treatment,
the historical financial statements presented for periods prior to the merger
date are the financial statements of EDI, not the previously reported
consolidated financial statements of Bowmar. The operations of Bowmar have been
included in the financial statements from the date of the merger.
The average market value of the Bowmar Common Stock and Preferred Stock for a
reasonable period of time before and after the announcement of the merger
determined the purchase price for accounting purposes. The average market value
of Bowmar stocks used to record the purchase was $1.26 per share for common
stock with 6,674,992 shares outstanding and $26.94 per share for preferred stock
with 119,906 shares outstanding at the merger date. The aggregate value of the
stocks and stock options outstanding used to record the purchase were
$11,633,000 and $440,000 respectively. In addition, direct expenses of the
purchase of $650,000 consisting of legal, accounting and other fees were
included in the purchase price recorded.
The Company allocated costs in excess of net assets acquired of $4,075,000, to
inventory, fixed assets, and intangible assets, which are being amortized over
various periods ranging from 3 months to 15 years on a straight line basis.
6
<PAGE> 8
The following unaudited pro forma information shows the results of operations of
EDI and Bowmar for the quarter and nine months ended July 3, 1999 and June 28,
1998, assuming the companies had combined as of October 1, 1997.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 3, JUNE 28, JULY 3, JUNE 28,
(dollars in thousands except per share data) 1999 1998 1999 1998
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 15,172 $ 15,252 $ 40,434 $ 48,359
Net income (loss), continuing operations $ 493 $ (1,140) $ (931) $ (1,760)
Basic income (loss) per share, continuing operations $ 0.03 $ (0.08) $ (0.08) $ (0.12)
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This pro forma information does not purport to be indicative of the results that
actually would have been obtained if the companies had been combined during the
periods presented and is not intended to be a projection of future results.
3. EARNINGS (LOSS) PER SHARE
The Company has adopted the provisions of the Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective January 3, 1998.
SFAS 128 requires the presentation of basic and diluted earnings per share.
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
is computed giving effect to all potential dilutive common shares that were
outstanding during the period. Potential dilutive common shares consist of the
incremental common shares issuable upon exercise of stock options.
The computation of net earnings (loss) per share is based on the weighted
average number of shares of common stock outstanding during the periods
presented. The weighted average shares outstanding for the periods presented
were adjusted to reflect the 1.275 exchange ratio in the conversion of EDI
common stock in connection with the merger.
In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic EPS is provided as follows:
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER ENDED
JULY 3, 1999 JUNE 28, 1998
- - - ------------------------------------------------------------------------------------------------------------------------------------
Income Shares Per Share Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations net of tax $ 493,000 $ (956,000)
Less: preferred stock dividends (90,000)
- - - ------------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Income (loss) from continuing
operations, net of tax $ 403,000 15,808,401 $ 0.03 $ (956,000) 7,048,000 $ (0.14)
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
JULY 3, 1999 JUNE 28, 1998
- - - ------------------------------------------------------------------------------------------------------------------------------------
Loss Shares Per Share Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing operations
net of tax $(1,301,000) $(1,885,000)
Less: preferred stock dividends (270,000)
- - - ------------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Loss from continuing operations,
net of tax $(1,571,000) 15,189,362 $ (0.11) $(1,885,000) 7,063,000 $(0.27)
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. INVENTORIES
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
JULY 3, 1999 SEPTEMBER 30, 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 5,710 $ 4,193
Work-in-process 4,153 265
Finished goods 1,541 1,733
- - - --------------------------------------------------------------------------------
Total Inventories $ 11,404 $ 6,191
- - - --------------------------------------------------------------------------------
</TABLE>
5. DISCONTINUED OPERATIONS
The net loss represents a final settlement of claims made by the buyer in
connection with the October 1997 sale of Crystallume. See Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Discontinued Operations below.
6. DEBT AGREEMENT
During the first quarter of 1999 the Company executed a modification to its
credit facility with Bank One. These modifications increased the revolving line
of credit and modified certain restrictive covenants. In the third quarter, the
Company and the bank have modified the credit facility to revise those
restrictive covenants. At the end of the third quarter of 1999 the Company was
in compliance with the revised covenants.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On October 26, 1998, Bowmar Instrument Corporation ("Bowmar") merged with
Electronic Designs, Inc. ("EDI"). In connection with the merger, Bowmar changed
its name to White Electronic Designs Corporation (the "Company"). While Bowmar
was the legal acquirer, the merger was accounted for as a reverse acquisition
purchase whereby EDI was deemed to have acquired Bowmar for financial reporting
purposes. Consistent with the reverse acquisition purchase accounting treatment,
the historical financial statements presented for periods prior to the merger
date are the financial statements of EDI, not the previously reported
consolidated financial statements of Bowmar. The operations of Bowmar have been
included in the financial statements from the date of the merger.
8
<PAGE> 10
RESULTS OF OPERATION
NET SALES
Sales for the third quarter ended July 3, 1999 were $15,172,000, an increase of
88% compared to prior year sales for the third quarter of $8,054,000. Sales for
the first nine months of fiscal 1999 were $40,434,000, an increase of 59%, as
compared to $25,364,000 for the same period of fiscal 1998. These increases are
due to inclusion in the financial presentation for the 1999 third quarter and
nine months of the combined results of the former Bowmar and EDI. If the sales
of Bowmar had been included in the third quarter and nine months of 1998,
combined sales for those periods would have been $15,252,000 and $48,359,000
respectively. The primary reasons for the decrease in combined sales are the
lower average sales prices and the lower demand in the military memory market
brought on by the conversion to commercial-off-the-shelf (COTS) parts.
GROSS MARGIN
Gross margins for the quarter and nine months ended July 3, 1999 increased by
$2,892,000 and $3,698,000 respectively from the same periods of fiscal 1998 for
EDI. If Bowmar's sales and cost of goods sold in the third quarter and nine
months of fiscal 1998 were included, there would be an increase in gross margin
of $1,342,000 for the third quarter and a decrease of $3,231,000 for the nine
months of fiscal 1999 compared to the same periods of fiscal 1998. The gross
margin increase in the third quarter of fiscal 1999 compared to the same period
of the prior year is mainly due to the lower cost of sales and improved
efficiencies in the production, in the 1999 third quarter, mainly because of
lower material cost and headcount decreases. During the third quarter of fiscal
1998, Bowmar's cost of sales included an inventory reserve of $500,000 because
of slow moving parts related to the lower than anticipated business in Asia and
continuing slow down in military memory sales. The gross margin decline for the
nine months is mainly attributable to the decline in sales combined with the
nonrecurring inventory revaluations taken after the merger as a result of the
merger and merger related expenses of $1,823,000 incurred during fiscal 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the third quarter and nine months ended
July 3, 1999 were up $313,000 and $888,000 respectively as compared to EDI's
research and development expenses for the same periods in the prior year. The
inclusion of Bowmar's research and development expense in the third quarter and
nine months of fiscal 1998 would have resulted in overall increases of $200,000
and $357,000 respectively in the third quarter and nine months of fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the 1999 third quarter
increased $964,000 versus the same period in fiscal 1998 and increased
$1,801,000 for the nine months of fiscal 1999 compared to the same period of
fiscal 1998. The inclusion of Bowmar's selling, general and administrative
expenses in the third quarter and first nine months of fiscal 1998 would have
resulted in a decrease of $759,000 and $3,533,000 for the third quarter and
first nine months of fiscal 1999 respectively. The decrease is a result of the
savings realized from the closure of Bowmar's corporate office at the end of the
fiscal 1998 first quarter. In addition, sales costs and commissions are lower as
a result of reorganization in the sales departments. Finally, the Company is
realizing savings in selling, general and administrative expenses due to
efficiencies resulting from the merger.
INTEREST EXPENSE
Interest expense in the third quarter and first nine months of fiscal 1999
increased $95,000 and $242,000, respectively compared to interest expense for
the same periods in fiscal 1998. The increase is due to the inclusion of
Bowmar's debt in the 1999 results.
9
<PAGE> 11
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased by $72,000 for the third quarter and
$193,000 for the first nine months of fiscal 1999 as compared to the same
periods in fiscal 1998. Gross intangible assets increased $1,247,000 as a result
of the merger. These assets are being amortized over four and five years using
the straight line method.
DISCONTINUED OPERATIONS
In connection with the October 1997 sale by EDI of Crystallume, Inc., the
Company had recorded a receivable in the amount of $625,000. As previously
disclosed, the buyer asserted an indemnity claim against the Company and refused
to pay the $625,000 balance due including the initial installment of $250,000
which was due on October 1, 1998. See Form 8-K/A filed January 11, 1999. The
Company and the buyer have resolved this matter. In exchange for executing
mutual releases the Company has reduced the receivable to $325,000, which is due
April 1, 2000, and agreed to forego future royalties.
YEAR 2000
Many computer systems experience problems handling dates beyond the year 1999.
Many existing computer programs only use two digits to identify a year in the
date field. As a result, computer systems and/or software used by many computers
may need to be upgraded to comply with such "Year 2000" requirements. Such
systems and programs must be modified or replaced prior to January 1, 2000 in
order to remain functional. Significant uncertainty exists in the hardware and
software industry concerning the potential effects associated with such
compliance. The Company has undertaken a company-wide review of its Year 2000
exposure. The Company has surveyed its supporting systems and has implemented a
plan to make its systems Year 2000 compliant by October 1999. As of July 3, 1999
approximately $220,000 has been spent toward systems upgrades. A total cost of
$500,000 is estimated to complete the total systems implementation. All current
products are now Year 2000 compliant. The Company has also been in contact with
its major suppliers and vendors, each of which is either Year 2000 compliant or
is completing system upgrades to become compliant. The Company is currently
responding to customer inquiries with respect to the Year 2000 issue. If
modifications and conversions to address the Year 2000 issue are not completed
on a timely basis or are not fully effective, the Year 2000 problem may have a
material adverse effect on the Company. The Company expects to implement
successfully the systems and programming changes necessary to address the Year
2000 issue and does not believe the cost of such actions will have a material
adverse effect on the Company, its results of operations or financial
conditions. The Company also relies, directly and indirectly, on the external
systems of business enterprises such as customers, suppliers, creditors, and
financial organizations for accurate exchange of data. Even if the Company's
products or its internal systems are not materially affected by the Year 2000
issue, the Company could be affected through disruptions in the operations of
its internal systems and business operations, and there can be no assurance that
such will not result in a material disruption of its business, financial
condition or result of operations.
FINANCIAL CONDITION AND LIQUIDITY
As of July 3, 1999, working capital increased to $9,653,000 from $5,207,000,
principally as a result of the increase in current assets due to the merger.
The Company's operations used approximately $2,290,000 cash in the first nine
months of fiscal 1999. This mainly represents the net loss for the period. The
Company incurred approximately $1,547,000 in depreciation and amortization in
the first nine months of fiscal 1999. The increase in cash used was principally
a result of payments for inventory to meet increased production requirements.
Cash flows provided from financing activities primarily resulted from the
increase in the line of credit by $3,848,000 which was mainly offset by
retirement of long term debt of $2,571,000.
10
<PAGE> 12
During the first quarter of 1999 the Company executed a modification to its
credit facility with Bank One. The modifications increased the revolving line of
credit to $6,000,000 and modified certain restrictive covenants. During the
third quarter the Company and the bank have modified the credit facility to
revise those restrictive covenants. At the end of the third quarter, the Company
was in compliance with the revised covenants. The Company is considering
increasing its available lines of credit to meet increased production
requirements.
Management believes that cash generated by operations, in addition to the
Company's borrowing capability, should be sufficient to fund the Company's cash
needs for the foreseeable future.
Certain matters discussed in this document contain forward-looking statements.
The words "believe," "expect" and "anticipate" identify forward-looking
statements that speak only as of the date the statement is made. These
forward-looking statements are based largely on Management's expectations and
are subject to a number of risks and uncertainties, including, but not limited
to the Company's ability to implement cost savings initiatives while maintaining
production levels, the Company's ability to price its products competitively and
obtain new orders, trends in customer outsourcing and competition from suppliers
with greater resources than those of the Company. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this document will prove to be accurate. Actual results may differ
materially from those in the forward-looking statements.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK
None
PART II
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
3.1 Amended and Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1 to Annual Report on Form 10-K filed December 24, 1998).
3.2 Amended and Restated Code of By-laws (incorporated herein by reference
to Exhibit 3.2 to Annual Report on Form 10-K filed December 24, 1998).
4.1 Rights Agreement, dated as of December 6, 1996 between the Registrant
and American Stock Transfer and Trust Corporation (incorporated herein by
reference to Exhibit 5C to the Current Report on Form 8-K filed December 19,
1996).
4.1A Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration Statement
on Form S-4, Registration No. 333-56565).
10.1 Sixth Modification Agreement, dated April 5, 1999 to loan agreement
between BankOne, Arizona N.A. and White Electronic Designs Corporation.
27 Financial Data Schedule
11
<PAGE> 13
B. REPORTS ON FORM 8-K.
None.
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 thereto duly authorized.
WHITE ELECTRONIC DESIGNS CORPORATION
/S/ Hamid R. Shokrgozar
---------------------------------------
Hamid R. Shokrgozar
President and Chief Executive Officer
/S/ William J. Rodes
---------------------------------------
William J. Rodes
Corporate Controller, Principal
Accounting Officer
Dated: August 17, 1999
12
<PAGE> 14
EXHIBIT INDEX
Exhibit
No. Description
- - - ------- -----------
3.1 Amended and Restated Articles of Incorporation (incorporated herein
by reference to Exhibit 3.1 to Annual Report on Form 10-K filed
December 24, 1998).
3.2 Amended and Restated Code of By-laws (incorporated herein by
reference to Exhibit 3.2 to Annual Report on Form 10-K filed
December 24, 1998).
4.1 Rights Agreement, dated as of December 6, 1996 between the Registrant
and American Stock Transfer and Trust Corporation (incorporated
herein by reference to Exhibit 5C to the Current Report on Form 8-K
filed December 19, 1996).
4.1A Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration
Statement on Form S-4, Registration No. 333-56565).
10.1 Sixth Modification Agreement, dated April 5, 1999 to loan agreement
between BankOne, Arizona N.A. and White Electronic Designs
Corporation.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
SIXTH MODIFICATION AGREEMENT
DATE: April 5, 1999
PARTIES: Borrower: WHITE ELECTRONIC DESIGNS CORPORATION,
an Indiana corporation, formerly known as Bowmar
Instrument Corporation
Lender: BANK ONE, ARIZONA, NA,
a national banking association
RECITALS:
A. Pursuant to that Loan Agreement dated August 28, 1995 (the "Loan
Agreement"), as amended by the modification documents described below, Lender
has extended to Borrower the following credit facilities (the "Loans"):
1. A revolving line of credit (the "RLC") in the principal
amount of $4,000,000.00, evidenced by the Revolving Promissory Note,
dated August 28, 1995, as amended, and subsequently increased to
$6,000,000.00 ("RLC Note"). The unpaid principal of the RLC as of April
5, 1999 was $1,729,361.24.
2. A term loan (the "Term Loan") in the principal amount of
$4,200,000.00, evidenced by the Promissory Note (Term Note), dated
August 28, 1995 ("Term Note"), as amended. The unpaid principal of the
Term Note as of the date hereof is $2,807,065.54.
B. The Loans are secured by, among other things, the following:
1. Mortgage, Security Agreement, Assignment of Rents and
Fixture Filing, dated August 28, 1995 (the "Indiana Mortgage"), by
Borrower, as debtor, in favor of Lender, as secured party, covering
real property located in Wayne County, Indiana.
2. Security Agreement dated August 28, 1995 (the "Security
Agreement"), by Borrower, as debtor, in favor of Lender, as secured
party, covering the personal property described therein.
The agreements, documents, and instruments securing the Loans are referred to
individually and collectively as the "Security Documents."
C. Lender and Borrower have previously executed a Modification
Agreement dated April 26, 1996, a Second Modification dated August 9, 1996, a
Third Modification Agreement dated March 28, 1997, a Modification of Mortgage
(Indiana) dated March 28, 1997, a Fourth Amendment
<PAGE> 2
to Credit Agreement dated March 16, 1998, and a Promissory Note Modification
dated March 16, 1998, a Fifth Amendment to Credit Agreement dated November 1,
1998 (collectively, the "Modifications"), modifying the terms of the Loans, the
RLC Note, the Term Note, the RLT Note, the Loan Agreement and/or the Security
Documents. The RLC Note, and the Term Note are sometimes referred to
individually and collectively as the "Note." The Note, the Loan Agreement, the
Security Documents, any arbitration resolution, any environmental certification
and indemnity agreement, and all other agreements, documents, and instruments
evidencing, securing, or otherwise relating to the Loans, as modified by the
Modifications, are sometimes referred to individually and collectively as the
"Loan Documents." Hereinafter, "Note," "Loan Agreement," and each "Security
Document," shall mean such document as modified in the Modifications.
D. Borrower has requested that Lender modify certain provisions in the
Loan Documents as provided herein. Lender is willing to extend to Borrower such
additional loan and so modify the Loan Documents, subject to the terms and
conditions herein.
AGREEMENT:
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and Lender agree as follows:
SECTION 1. ACCURACY OF RECITALS.
Borrower acknowledges the accuracy of the Recitals.
SECTION 2. MODIFICATION OF LOAN DOCUMENTS; OTHER AGREEMENTS.
2.1 As used in this Note:
"Maturity Date" means February 28, 2000.
2.1 The following definitions are set forth in Section 1.1 of the Loan
Agreement and are hereby amended in their entirety to read as follows:
"CMLTD" means current maturities of long term debt (excluding
the RLC) plus capital lease payments, Distributions, interest, and
payments to former employees.
"Debt Coverage Ratio" means the ratio of EBITDA to the sum of
CMLTD.
"Distributions" means all preferred dividends and other
distributions made by Borrower to its shareholders, partners, owners or
members, as the case may be, other than salary, bonuses, and other
compensation for services expended in the current accounting period.
-2-
<PAGE> 3
"EBITDA" means the sum of Borrower's aggregate pretax income
or loss for a period, plus interest expense, depreciation expense,
amortization expense, and a non-cash allowance of $2,173,000.00
(non-cash allowance to expire October 3, 1999) recognized in the
computation of Borrower's aggregate net income or loss for such period,
as determined in accordance with GAAP.
2.2 Section 10.8 of the Loan Agreement is hereby amended in its
entirety to read as follows:
10.8 Financial Covenants. It will not permit:
(a) Its Current Ratio to be less than 1.3 to 1.0 at
the end of any quarterly accounting period of Borrower.
(b) The ratio of Total Funded Debt to EBITDA to be
greater than 3.0 to 1.0 at the end of any fiscal year end of
Borrower, commencing with the fiscal year ending October 3,
1999.
(c) Its Tangible Net Worth to be less than
$16,000,000.00 at the end of any quarterly accounting period
of Borrower.
(d) Its Owner's Equity Percentage to be less than
forty percent (40%) at the end of any quarterly accounting
period of Borrower.
(e) Its Debt Coverage Ratio to be greater than 1.25
to 1.0 at the end of any quarterly accounting period of
Borrower commencing with the fiscal year ending October 3,
1999. The Debt Coverage Ratio shall be calculated on a rolling
four-quarter basis.
2.3 Each of the Loan Documents is modified to provide that it shall be
a default or an event of default thereunder if Borrower shall fail to comply
with any of the covenants of Borrower herein or if any representation or
warranty by Borrower herein is materially incomplete, incorrect, or misleading
as of the date hereof.
2.4 Each reference in the Loan Documents to any of the Loan Documents
is hereby amended to be a reference to such document as modified herein and in
any modification of mortgage executed in connection herewith.
SECTION 3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
The Loan Documents are ratified and affirmed by Borrower and shall
remain in full force and effect as modified herein. Any property or rights to or
interests in property granted as security in the
-3-
<PAGE> 4
Loan Documents shall remain as security for the Loans and the obligations of
Borrower in the Loan Documents.
SECTION 4. BORROWER REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lender:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial
condition of Borrower or any other person whose financial statement has been
delivered to Lender in connection with the Loans from the most recent financial
statement received by Lender.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loans or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
their terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this Agreement and the performance of the Loan
Documents as modified herein have been duly authorized by all requisite action
by or on behalf of Borrower. This Agreement has been duly executed and delivered
on behalf of Borrower.
SECTION 5. BORROWER COVENANTS.
Borrower covenants with Lender:
5.1 Borrower shall execute, deliver, and provide to Lender such
additional agreements, documents, and instruments as reasonably required by
Lender to effectuate the intent of this Agreement.
-4-
<PAGE> 5
5.2 Borrower fully, finally, and absolutely and forever releases and
discharges Lender and its present and former directors, shareholders, officers,
employees, agents, representatives, successors and assigns, and their separate
and respective heirs, personal representatives, successors and assigns, from any
and all actions, causes of action, claims, debts, damages, demands, liabilities,
obligations, and suits, of whatever kind or nature, in law or equity of
Borrower, whether now known or unknown to Borrower, and whether contingent or
matured, (i) in respect of the Loans, the Loan Documents, or the actions or
omissions of Lender in respect of the Loans or the Loan Documents and (ii)
arising from events occurring prior to the date of this Agreement.
5.3 A documentation fee of $500.00.
SECTION 6. CONDITIONS PRECEDENT.
The agreements of Lender and the modifications contained herein shall
not be binding upon Lender until Lender has executed and delivered this
Agreement and Lender has received, at Borrower's expense, all of the following,
all of which shall be in form and content satisfactory to Lender and shall be
subject to approval by Lender:
6.1 An original of this Agreement fully executed by the Borrower
6.2 If Borrower or EDI a corporation, limited liability company,
partnership or trust, such resolutions or authorizations and such other
documents as Lender may require relating to the existence and good standing of
that corporation, partnership or trust, and the authority of any person
executing this Agreement or other documents on behalf of that corporation,
limited liability company, partnership or trust; and
6.3 Payment of all the internal and external costs and expenses
incurred by Lender in connection with this Agreement (including, without
limitation, a documentation fee in the amount of $300.00 and outside attorneys,
appraisal, appraisal review, processing, title, filing and recording costs,
expenses, and fees).
SECTION 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION,
OR WAIVER.
The Loan Documents as modified herein contain the complete
understanding and agreement of Borrower and Lender in respect of the Loans and
supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision of the Loan Documents as modified
herein may be changed, discharged, supplemented, terminated, or waived except in
a writing signed by the parties thereto.
SECTION 8. BINDING EFFECT.
The Loan Documents as modified herein shall be binding upon and shall
inure to the benefit of Borrower and Lender and their successors and assigns and
the executors, legal administrators, personal representatives, heirs, devisees,
and beneficiaries of Borrower, provided, however,
-5-
<PAGE> 6
Borrower may not assign any of its right or delegate any of its obligation under
the Loan Documents and any purported assignment or delegation shall be void.
SECTION 9. CHOICE OF LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Arizona, without giving effect to conflicts of law
principles.
SECTION 10. COUNTERPART EXECUTION.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
WHITE ELECTRONIC DESIGNS
CORPORATION, an Indiana corporation, formerly
known as Bowmar Instrument Corporation
By: /s/ Joseph G. Warren Jr.
Name: Joseph G. Warren Jr.
Title: Vice President
BORROWER
BANK ONE, ARIZONA, NA, a national banking
association
By: /s/ Chad Christian
Name: Chad Christian
Title: V.P.
LENDER
-6-
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