<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________________________
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from _______ to _______
COMMISSION FILE NUMBER 0-5351
EIP MICROWAVE, INC.
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-2148645
- -------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3 Civic Plaza, Suite 265, Newport Beach, California 92660
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 720-1766
----------------------------------
(Issuer's telephone number)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
OUTSTANDING COMMON STOCK: As of February 5, 1996, Registrant had only one
class of common stock, and had 423,307 shares of this $.01 par value common
stock outstanding.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
Total Number of Pages: 16
Exhibit Index 11
1
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EIP MICROWAVE, INC.
FORM 10-QSB
Quarter Ended December 31, 1995
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial
Statements (unaudited) Pages 3 - 6
Condensed Consolidated Balance
Sheets as of December 31, 1995
and September 30, 1995 Page 3
Condensed Consolidated Statements
of Operations and Retained Earnings
for the three months ended
December 31, 1995 and 1994 Page 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
December 31, 1995 and 1994 Page 5
Notes to condensed consolidated financial
statements Page 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition Pages 7 - 8
PART II OTHER INFORMATION
Item 2. Changes in Securities Page 9
Item 4. Submission of Matters to Vote
of Security Holders Page 9
Item 6. Exhibits and Reports on Form 8-K Page 9
Signatures Page 10
Index to Exhibits Page 11
2
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EIP MICROWAVE, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data, unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 98 $ 126
Short-term investments 325 319
--------------------------
423 445
Accounts receivable, net 792 1,064
Inventories 1,116 1,133
Prepaid expenses 32 74
--------------------------
Total current assets 2,363 2,716
Property, and equipment, net 439 271
Other assets 15 30
--------------------------
$2,817 $3,017
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 597 $ 610
Accrued liabilities 639 691
--------------------------
Total current liabilities 1,236 1,301
--------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value;
authorized -10,000,000 shares;
423,307 issued and outstanding 5 5
Additional paid-in capital 844 844
Retained earnings 732 867
--------------------------
Total stockholders' equity 1,581 1,716
--------------------------
$2,817 $3,017
--------------------------
</TABLE>
3
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EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(Dollars in thousands except per share data, unaudited)
<TABLE>
<CAPTION>
Three Months ended
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Net sales $ 1,560 $ 1,451
---------------------------
Costs and expenses:
Cost of sales 980 800
Research, development and engineering 201 176
Selling, general and administrative 532 509
Interest and other, net (18) 1
--------------------------
Total costs and expenses 1,695 1,486
--------------------------
Net loss (135) (35)
--------------------------
Retained earnings at beginning of period 867 742
--------------------------
Retained earnings at end of period $ 732 $ 707
--------------------------
Net loss per share $ (.32) $(.08)
--------------------------
Weighted average common shares outstanding 423 423
--------------------------
</TABLE>
4
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EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (decrease) in cash
(Dollars in thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(135) $ (35)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 43 62
Gain onsale of capital equipment (45) --
Change in assets and liabilities:
Accounts receivable, net 272 (121)
Inventories 17 142
Prepaid expenses and other assets 57 (21)
Accounts payable (13) (109)
Accrued liabilities (52) (28)
--------------------------
Cash (used in) provided by operating activities 144 (110)
--------------------------
Cash flows from investing activities:
Purchase of short-term investments (6) --
Capital expenditures (218) (1)
Proceeds from the sale of capital equipment 52 --
--------------------------
Cash used in investing activities (172) (1)
--------------------------
Decrease in cash and cash equivalents (28) (111)
Cash and cash equivalents at beginning of year 126 211
--------------------------
Cash and cash equivalents at end of first
quarter $ 98 $ 100
--------------------------
</TABLE>
5
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EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) The condensed consolidated financial statements presented in this
Form 10-QSB have been prepared from the accounting records without
audit on a basis consistent with the financial statements included in
the Company's annual report filed with the Securities and Exchange
Commission for the preceding fiscal year. 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 rules and regulations of the
Securities and Exchange Commission. The information furnished reflects
all adjustments and disclosures which are, in the opinion of
management, of a normal, recurring nature, and necessary for a fair
statement of the results for the interim periods. This report should be
read in conjunction with the Company's 1995 Annual Report on Form 10-
KSB. The results of operations for the interim periods presented are
not necessarily indicative of the results expected for the entire year.
(b) Composition of certain balance sheet captions (dollars in
thousands, unaudited):
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
------------ ------------
<S> <C> <C>
Inventories:
Raw materials $ 756 $ 633
Work-in-process 357 489
Finished goods 3 11
------------ ------------
$ 1,116 $ 1,133
------------ ------------
Property and equipment:
Cost $ 5,346 $ 5,158
Accumulated depreciation (4,907) (4,887)
------------ ------------
$ 439 $ 271
------------ ------------
</TABLE>
6
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EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the three months ended December 31, 1995, were $1,560,000, an 8%
increase from sales of $1,451,000 in the same period last year. The increase
in sales for the period was attributable to sales of product configured in the
VXIbus format.
Gross margin decreased to 37% in the first fiscal quarter of 1996, from 45% in
the first fiscal quarter of 1995. This decrease was primarily attributable to
a lower average selling price on product sales for one government program.
The Company expects the effect of this government program to diminish over the
next two fiscal quarters.
Incoming orders for the first fiscal quarter were $1,316,000, a 21% decrease
from the same period a year ago. Backlog at December 31, 1995, was $927,000,
an 8% decrease from the end of the first fiscal quarter last year. The
decrease in orders and backlog resulted primarily from a decrease in large
government and government contractor orders.
Research, development and engineering expenses increased 14% to $201,000 in
the first fiscal quarter of 1996, compared to $176,000 for the same quarter
last year. The increase in research, development and engineering expenses was
primarily attributable to new product development expenditures.
Selling, general and administrative expenses increased 5% to $532,000 during
the first fiscal quarter of 1996, compared to $509,000 for the same quarter
last year. The increase in selling, general and administrative expenses for
the period is due primarily to increased commission expense resulting from
increased sales volume, compared to the same period last year.
The Company recorded a net loss of $135,000 for the first fiscal quarter of
1996, as compared to a net loss of $35,000 recorded during the first fiscal
quarter of the previous year. A gain on sale of capital equipment of $52,000
is included in the first quarter net loss. The increase in the loss for the
period, compared to the same period last year, is primarily attributable to
decreased gross margin resulting from the product sales for one government
program, and increased research, development and engineering expenses.
7
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EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company's cash and short-term investment balance was
$423,000, as compared with a cash and short-term investment balance of
$445,000 at September 30, 1995. At December 31, 1995, the Company had no
material commitments for capital expenditures. At December 31, 1995, working
capital decreased $288,000 from September 30, 1995, and the Company's current
ratio decreased to 1.91:1 from 2.09:1 over the same time period.
On November 27, 1995, the Company renewed a bank line of credit ("line") which
provides for borrowings up to 70% of eligible accounts receivable, not to
exceed $500,000, which expires November 15, 1996. Interest is charged at the
bank's prime rate plus 2% provided that the interest rate in effect each month
shall not be less than 7.5% per annum, and is payable monthly. This line is
secured by the Company's accounts receivable, inventory and fixed assets. The
agreement, as amended, contains various restrictive covenants requiring, among
other matters, the maintenance of minimum levels of tangible net worth and
certain financial ratios, including debt to net worth. At December 31, 1995,
the Company was in compliance with the restrictive covenants of the line. No
borrowings were outstanding under the line at December 31, 1995.
The Company believes that the cash on hand, funds generated from operations
and the Company's line of credit will adequately finance the Company's
operations during fiscal 1996.
8
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EIP MICROWAVE, INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
The existing credit facility between the Company and its commercial bank
contains restrictions on dividend payments and financial ratios regarding,
among other matters, the maintenance of minimal levels of profitability and
tangible net worth, minimum quick ratio and limits of debt to net worth. The
credit agreement is more fully described in Part I/Item 2 - Financial
Condition.
Item 4. Submission of Matters to a Vote of Security Holders
(a) No matter was submitted to a vote of the security holders
during the period covered by this report, through solicitation
of proxies or otherwise.
(b) Subsequent Event Disclosure:
The Company held its Annual Meeting of Stockholders on February
7, 1996. Two items were voted on by the stockholders.
(1) J.Sidney Webb was re-elected as a Class II member of the Board
of Directors with term expiring at the 1999 Annual Meeting. The
votes cast for or withheld for J. Sidney Webb were as follows:
For - 366,788; Withheld - 12,064. Mr. James J. Shelton did not
seek re-election as a Class II director, and the Board has not
nominated another candidate to fill the vacancy. John F.
Bishop, and J. Bradford Bishop, each a Class I director, and
Robert D. Johnson a Class III director, were not up for re-
election and continue in office.
(2) The stockholders approved the Company's Amended and Restated
1994 Stock Option Plan, as adopted by the Board of Directors.
Vote to approve as follows: For - 354,004; Against - 24,287;
Abstain - 561.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Amended and Restated 1994 Stock Option Plan.
27 Financial Data Schedule.
b) Reports on Form 8-K.
The Company did not file with the Commission any reports on
Form 8-K in the quarter ended December 31, 1995.
9
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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.
EIP MICROWAVE, INC.
-------------------
(Registrant)
DATE:February 12, 1996 BY: /s/ J. BRADFORD BISHOP
------------------------
J. Bradford Bishop
Chairman of the Board and
Chief Executive Officer
DATE:February 12, 1996 BY: /s/ JOHN ARDIZZONE
--------------------
John Ardizzone
Vice President Operations and
Chief Financial Officer
10
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EIP MICROWAVE, INC.
INDEX TO EXHIBITS
Sequentially
Exhibit No. Description Numbered Page
----------- ----------- -------------
10(a) Amended and Restated 1994 Stock Option Plan. 12
27 Financial Data Schedule 16
<PAGE>
EXHIBIT 10(a)
EIP MICROWAVE, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
1. PURPOSE. The purpose of the EIP Microwave, Inc. Amended and Restated
1994 Stock Option Plan is to provide a means whereby EIP Microwave, Inc. (the
"Company") may attract and retain persons of ability as directors, employees and
consultants and motivate such persons to exert their best efforts on behalf of
the Company and any of its subsidiaries.
2. BENEFITS AVAILABLE UNDER PLAN. The total number of shares which may
be issued and sold under options granted pursuant to this Stock Option Plan
shall not exceed 100,000 shares of the common stock, $.01 par value per share
(the "Common Stock"), of the Company except to the extent of adjustments
authorized by the last sentence of Paragraph 6 of this Stock Option Plan. Such
shares may be treasury shares of shares of original issue or a combination of
the foregoing. If any option terminates, expires or is cancelled with respect
to any shares of Common Stock, new options may thereafter be granted covering
such shares of Common Stock.
3. ADMINISTRATION. This Stock Option Plan shall be administered by a
committee (the "Committee") of two or more members of the Board of Directors,
appointed by and holding office at the pleasure of the Board. The members of
the Committee shall be "disinterested persons" within the meaning of that term
in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended,
or any successor rule to the same effect ("Rule 16b-3").
The Committee may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to members of the Board
of Directors, to officers, to other key employees and to non-employee
consultants of the Company or any of its subsidiaries (excluding John F. Bishop)
of options to buy from the Company shares of Common Stock and to fix the number
of shares to be covered by each such option. Successive options may be granted
to the same person whether or not the option or options first granted to such
person remain unexercised.
Subject to the express provisions of this Stock Option Plan, the
Committee shall have the authority to construe and interpret this Stock Option
Plan and, to the extent not otherwise defined herein, to define the terms used
in this Stock Option Plan; to prescribe, amend and rescind rules and regulations
relating to the administration of this Stock Option Plan; and to make all other
determinations necessary or advisable for the administration of this Stock
Option Plan. The determinations of the Committee on all matters referred to in
this Paragraph 3 shall be conclusive.
The Committee shall hold meetings at such times and places as it may
determine in accordance with the Bylaws of the Company. A majority of the
members of the committee shall constitute a quorum at any such meeting. All
determinations of the Committee shall be made by a majority of its members at a
meeting or by the unanimous written consent of all members of the Committee. In
the event action by the Committee is taken by unanimous written consent, the
12
<PAGE>
action of the Committee shall be deemed to be at the date the last Committee
member signs the consent.
4. ELIGIBILITY.
(a) All members of the Board of Directors, officers, other key
employees and non-employee consultants of the Company or any of its subsidiaries
(excluding John F. Bishop) shall be eligible to receive Nonstatutory Options (as
defined in Paragraph 5(a) below), and all officers (including officers who are
members of the Board of Directors) and other key employees of the Company or any
of its subsidiaries (excluding John F. Bishop) shall be eligible to receive
Incentive Options (as defined in Paragraph 5(a) below).
(b) Any officer or key employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company or any of its subsidiaries shall not be eligible to receive any
Incentive Option (as defined in Section 5(a) hereof) unless (i) the exercise
price of the shares subject to such option is at least one hundred ten percent
(110%) of the Fair Market Value of such shares on the date of grant and
(ii) such option by its terms is not exercisable after the expiration of five
years from the date of grant.
5. NATURE, TERMS AND CONDITIONS OF OPTIONS.
(a) Options granted under this Stock Option Plan may be
(i) options which are intended to qualify under particular provisions of the
Internal Revenue Code (the "Code"), as in effect from time to time ("Incentive
Options"), (ii) options which are not intended to so qualify under the Code
("Nonstatutory Options"), or (iii) combinations of the foregoing.
(b) No option shall run for more than ten years from the date
granted; provided, however, no Incentive Option granted to an optionee described
in Paragraph 4(b) hereof shall be exercisable after the expiration of five years
from the date granted.
(c) No option shall be transferrable by the optionee otherwise
than (i) by will or the laws of descent and distribution or (ii) pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act or the rules thereunder.
(d) Options shall be exercisable during the optionee's lifetime
only by him or, in the event of his legal incapacity to do so, by his guardian
or legal representative acting in a fiduciary capacity under state law on behalf
of the optionee and under court supervision.
(e) The option price shall be determined by the Committee at or
prior to the time the option is granted; provided, however, that in the case of
an Incentive Option, the option price shall be at least equal to the Fair Market
Value per share at the time the Incentive Option is granted, and in the case of
a Nonstatutory Option, the option price shall be at least equal to eight five
percent (85% ) of the Fair Market Value per share at the time the Nonstatutory
Option is granted. "Fair Market Value" shall mean: (a) if the Common Stock is
traded on an exchange, the closing price at which a share of Common Stock traded
on the date of valuation;
13
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(b) if the Common Stock is traded over-the-counter on the NASDAQ System, the
mean between the bid and asked closing prices of a share of Common Stock on said
System at the close of business on the date of valuation or, if the Common Stock
is designated a National Market System security, the closing price at which a
share of Common Stock traded on the date of valuation; and (c) if neither (a)
nor (b) applies, the fair market value as determined by the Committee in good
faith. Such determination shall be conclusive and binding on all persons.
(f) In order to exercise options, the person or persons entitled to
exercise them shall give written notice to the Company specifying the number of
shares to be purchased pursuant to the exercise of options. This notice shall
be accompanied by payment for the shares as provided in Paragraph 5(g). Options
may be exercised at such time or times as may be determined by the Committee at
the time of grant.
(g) The option price shall be payable (i) in cash or by check
acceptable to the Company, (ii) at the discretion of the Committee, by the
transfer to the Company by the optionee of shares of Common Stock having a Fair
Market Value at the time of exercise equal to the total option price or (iii) by
a combination of such methods of payment. The Committee shall determine, in its
discretion, whether the requirement of payment in cash shall be deemed satisfied
if the optionee shall have made arrangements satisfactory to the Company with a
broker who is a member of the National Association of Securities Dealers, Inc.
to sell a sufficient number of shares being purchased so that the net proceeds
of the sale transaction will at least equal the option exercise price and
pursuant to which the broker undertakes to promptly deliver the full option
exercise price to the Company.
6. ADJUSTMENTS IN EVENT OF CHANGE IN STOCK. The Committee may make or
provide for such adjustments in the option price and in the number or kind of
shares of the Company's Common Stock or other securities covered by outstanding
options as such Committee in its sole discretion, exercised in good faith, may
determine is equitably required to prevent dilution or enlargement of the rights
of optionees that would otherwise result from (a) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company, or (b) any merger, consolidation, reorganization,
separation, partial or complete liquidation, issuance of rights or warrants to
purchase stock, or (c) any other corporate transaction or event having an
effect similar to any of the foregoing. Notwithstanding anything to the
contrary, in the event of a merger or consolidation in which the Company is not
the surviving corporation and the agreement of merger or consolidation provides
for the assumption of options granted (and the Company's obligations) under this
Plan, the shares of common stock or securities of the successor corporation may
be issued under this Plan in lieu of shares of Common Stock, subject to the
aforementioned adjustments which the Committee may determine are equitably
required, and such substitution of securities shall not require the consent of
any person who is granted options pursuant to this Plan. The Committee may also
make or provide for such adjustments in the number or kind of shares of the
Common Stock or other securities (including, but not limited to, shares of a
successor referenced above) which may be sold under this Stock Option Plan as
such Committee in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in the two preceding
sentences (subject, however, in the case of Incentive Options, to the provisions
of the Code).
14
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7. STOCK OPTION AGREEMENT. The form of each Stock Option Agreement shall
be prescribed, and any Stock Option Agreement evidencing an outstanding option
may with the concurrence of the affected optionee be amended, by the Committee,
provided that the terms and conditions of each such Stock Option Agreement and
amendment are not inconsistent with this Stock Option Plan.
8. CANCELLATION OF OPTION. The Committee may, with the concurrence of
the affected optionee, cancel any option granted under this Stock Option Plan.
In the event of any such cancellation, the Committee may authorize the granting
of new options (which may or may not cover the same number of shares which had
been the subject of any prior option) in such manner, at such option price and
subject to the same terms, conditions and discretions as, under this Stock
Option Plan, would have been applicable had the cancelled options not been
granted.
9. AMENDMENT. This Stock Option Plan may be amended from time to time by
the Board of Directors, but without further approval by the shareholders of the
Company no such amendment shall (a) increase the aggregate number of shares of
Common Stock that may be issued and sold under this Stock Option Plan (except
that adjustments authorized by the last sentence of Paragraph 6 shall not be
limited by this provision) or (b) change the designation in Paragraph 4 of the
class of persons eligible to receive options or (c) cause Rule 16b-3 to cease
to be applicable to this Stock Option Plan.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 98
<SECURITIES> 325
<RECEIVABLES> 866
<ALLOWANCES> (74)
<INVENTORY> 1,116
<CURRENT-ASSETS> 2,363
<PP&E> 5,346
<DEPRECIATION> 4,907
<TOTAL-ASSETS> 2,817
<CURRENT-LIABILITIES> 1,236
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 1,576
<TOTAL-LIABILITY-AND-EQUITY> 2,817
<SALES> 1,560
<TOTAL-REVENUES> 1,560
<CGS> 980
<TOTAL-COSTS> 980
<OTHER-EXPENSES> 715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (135)
<INCOME-TAX> 0
<INCOME-CONTINUING> (135)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
