<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 JUNE 30, 1996
[ ] 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 incorporation (IRS Employer Identification No.)
or organization)
3 Civic Plaza, Suite 265, Newport Beach, California 92660
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 720-1766
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(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 August 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: 14
Exhibit Index 11
1
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EIP MICROWAVE, INC.
FORM 10-QSB
Quarter Ended June 30, 1996
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
June 30, 1996 and September 30, 1995 Page 3
Condensed Consolidated Statements of Operations and
Retained Earnings for the three months and nine months
ended June 30, 1996 and 1995 Page 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 1996 and 1995 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 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)
June 30, September 30,
1996 1995
------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 48 $ 126
Short-term investments 338 319
--------------------------------
386 445
Accounts receivable, net 787 1,064
Inventories 1,016 1,133
Prepaid expenses 56 74
--------------------------------
Total current assets 2,245 2,716
--------------------------------
Property and equipment, net 473 271
Other assets 15 30
--------------------------------
$2,733 $3,017
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 611 $ 610
Accrued liabilities 540 691
Credit line debt 185 -
--------------------------------
Total current liabilities 1,336 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 548 867
--------------------------------
Total stockholders' equity 1,397 1,716
--------------------------------
$2,733 $3,017
--------------------------------
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 Nine Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $1,642 $1,679 $4,886 $4,880
Costs and expenses:
Cost of sales 1,090 964 3,075 2,537
Research, development and engineering 258 172 724 544
Selling, general and administrative 496 540 1,548 1,710
Interest and other, net (5) (20) (142) (75)
--------------------------------------
Total costs and expenses 1,839 1,656 5,205 4,716
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Net income (loss) before income tax (197) 23 (319) 164
Income tax provision 0 0 0 1
--------------------------------------
Net income (loss) (197) 23 (319) 163
Retained earnings at beginning of period 745 882 867 742
--------------------------------------
Retained earnings at end of period $ 548 $ 905 $ 548 $ 905
--------------------------------------
Net income (loss) per share $ (.47) $ .05 $ (.75) $ .39
--------------------------------------
Weighted average common shares outstanding 423 423 423 423
--------------------------------------
</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>
Nine Months Ended
June 30, June 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(319) $ 163
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 134 144
(Gain) loss on sale of capital equipment (50) -
Change in assets and liabilities:
Accounts receivable, net 277 (42)
Inventories 117 (146)
Prepaid expenses and other assets 33 (1)
Accounts payable 1 (129)
Accrued liabilities (151) (3)
---------------------
Cash provided by (used in) operating activities 42 (14)
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments (19) 4
Capital expenditures (347) (9)
Proceeds from sale of capital equipment 61 28
--------- ---------
Cash (used in) provided by investing activities (305) 23
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit 185 -
(Decrease) in cash and equivalents (78) 9
Cash and cash equivalents at beginning of period 126 211
--------- ---------
Cash and cash equivalents at end of period $ 48 $ 220
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</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):
June 30, September 30,
1996 1995
--------- ---------------
Inventories:
Raw materials $ 656 $ 633
Work-in-process 352 489
Finished goods 8 11
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$ 1,016 $ 1,133
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Property and equipment:
Cost $ 5,147 $ 5,158
Accumulated depreciation (4,674) (4,887)
--------- ---------
$ 473 $ 271
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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 June 30, 1996, were $1,642,000, a 2%
decrease from net sales of $1,679,000 in the same period last year. Net
sales for the nine months ended June 30, 1996, were $4,886,000, comparable to
net sales of $4,880,000 for the same period last year. The decrease in net
sales for the three month period ended June 30, 1996, was primarily
attributable to a decline in sales of microwave counters to government
contractors and commercial customers. Sales of microwave counters have been
and will be affected by a delay in the expected introduction of a new
microwave counter by the Company.
Gross margin decreased to 34% in the third fiscal quarter of 1996, from 43%
in the third fiscal quarter of 1995. Gross margin was 37% for the nine
months ended June 30, 1996, as compared to 48% for the same period last year.
The decrease for both periods was primarily attributable to a lower average
selling price on product sales for one government program. Due to new
product orders for this government program, the Company expects the lower
average selling price under this program to continue to impact the Company's
overall gross margin.
Incoming orders for the third fiscal quarter were $2,453,000, comparable to
orders of $2,445,000 for the same period a year ago. Incoming orders for the
nine months ended June 30, 1996, were $5,007,000, a 12% decrease from orders
of $5,679,000 for the same period a year ago. Backlog at June 30, 1996, was
$1,292,000, a 19% decrease from a backlog of $1,602,000 at the end of the
third fiscal quarter last year. The decrease in orders for the nine month
period ended June 30, 1996, and backlog, resulted primarily from a decrease
in orders from government contractors for product configured in the VXIbus
format, and a decrease in orders of microwave counters from government
contractors and commercial customers, compared to the same period last year.
Research, development and engineering expenses increased 50% to $258,000 in
the third fiscal quarter of 1996, compared to $172,000 for the same quarter
last year. Research, development and engineering expenses increased 33% to
$724,000 for the nine months ended June 30, 1996, compared to $544,000 for
the same period last year. The increase in research, development and
engineering expenses for both periods was primarily attributable to new
product development expenditures.
Selling, general and administrative expenses decreased 8% to $496,000 during
the third fiscal quarter of 1996, compared to $540,000 for the same quarter
last year. Selling, general and administrative expenses decreased 9% to
$1,548,000 for the nine months ended June 30, 1996, compared to $1,710,000 in
the same period last year. The decrease in selling, general and
administrative expenses for both periods is due primarily to a deferral of
advertising costs until the introduction of the Company's next new product,
and to no accrued bonuses, compared to the same periods last year.
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)
The Company incurred a net loss of $197,000 for the third fiscal quarter of
1996, as compared to net income of $23,000 during the same period last year.
The Company incurred a net loss of $319,000 for the nine months ended June
30, 1996, as compared to net income of $163,000 for the same period last
year. A credit of $111,000 due to the forgiveness by the Company's Board of
Directors of accrued directors' fees as of February 13, 1996, is included in
the nine month net loss ended June 30, 1996. A gain on sale of capital
equipment of $50,000 is also included in the nine month net loss ended June
30, 1996. The decrease in earnings for both periods, compared to the same
periods last year, is primarily due to a decreased gross margin resulting
from product sales to one government program, and to increased research,
development and engineering expenses. In addition, earnings have been and
will be affected by the decrease in microwave counter sales and the delay in
new product introduction.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's cash, cash equivalents and short-term
investment balance was $386,000, as compared with a cash, cash equivalents
and short-term investment balance of $445,000 at September 30, 1995. At June
30, 1996, the Company had no material commitments for capital expenditures.
At June 30, 1996, working capital decreased $506,000, from September 30,
1995, and the Company's current ratio decreased to 1.68:1 from 2.09:1 over
the same time period.
On November 27, 1995, the Company renewed its bank line of credit ("line")
which was modified on June 28, 1996, and which as modified provides for
borrowings up to 60% of eligible accounts receivable, not to exceed $500,000,
which expires November 15, 1996. Interest is charged at the bank's prime
rate plus 3% provided that the interest rate in effect each month shall not
be less than 10% per annum, and is payable monthly. This line is secured by
the Company's accounts receivable, inventory and fixed assets. The
agreement, as modified, contains various restrictive covenants requiring,
among other matters, the maintenance of minimum levels of tangible net worth
and profitability and certain financial ratios, including minimum quick ratio
and maximum debt to net worth ratio. At June 30, 1996, the Company was in
compliance with the restrictive covenants of the line as modified.
Borrowings of $185,000 were outstanding under the line at June 30, 1996.
The Company believes that the cash on hand and funds generated from
operations and borrowings under the Company's line of credit will adequately
finance the Company's operations during the remaining portion of fiscal 1996.
If the Company is unable to maintain compliance with the restrictive
covenants under its line, the Company believes that additional funds
sufficient to adequately finance its operations during fiscal 1996 can be
obtained from the liquidation of its short-term investments and further
reductions in expenses.
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 various restrictive covenants.
The credit agreement is more fully described in Part I/Item 2 - Liquidity and
Capital Resources.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Loan Modification Agreement dated as of June 28, 1996 between the
Company and Silicon Valley Bank.
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 June 30, 1996.
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: August 9, 1996 BY: /s/ J. Bradford Bishop
-------------------------------
J. Bradford Bishop
Chairman of the Board and
Chief Executive Officer
DATE: August 9, 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) Loan Modification Agreement dated
as of June 28, 1996 between the
Company and Silicon Valley Bank 12
27 Financial Data Schedule 14
11
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EXHIBIT 10(A)
FORM 10-QSB (6/30/96)
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of June 28, 1996, by
and between EIP Microwave, Inc. ("Borrower") whose address is 1589 Centre
Pointe Drive, Milpitas, CA 95035, and Silicon Valley Bank ("Silicon") whose
address is 3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Silicon, Borrower is indebted to Silicon pursuant
to, among other documents, a Loan and Security Agreement, dated March 10,
1992 (including the Schedule thereto), as such agreement may be amended from
time to time (the "Loan Agreement"). The Loan Agreement provided for, among
other things, a Credit Limit in the original principal amount of Five Hundred
Thousand and 00/100 Dollars ($500,000.00) (the "A/R Facility"). Defined
terms used but not otherwise defined herein shall have the same meaning as in
the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Silicon shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES: Repayment of the Indebtedness
is secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents." Hereinafter, the Security
Documents, together with all other documents evidencing or securing the
Indebtedness shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO THE SCHEDULE TO LOAN AGREEMENT.
1. The first paragraph of section 1.1 entitled "Credit Limit" is
hereby amended to read, in its entirety:
An amount not to exceed the lesser of: (i) Five Hundred Thousand
and 00/100 Dollars ($500,000.00); or (ii) sixty percent (60%) of
the Net Amount of Borrower's accounts, which Silicon in its
discretion deems eligible for borrowing.
2. The first sentence of section 1.2 entitled "Interest Rate"' is
hereby amended to read, in its entirety:
Effective as of the date hereof, a rate equal to the "Prime
Rate", in effect from time to time, plus three (3.00) percent per
annum, provided that the interest rate in effect in each month
shall not be less than ten (10.00) percent per annum.
3. The Financial Covenants as provided in Section 4.1 entitled
"Financial Covenants" are hereby amended as follows:
QUICK ASSET RATIO. Borrower shall maintain, on a monthly basis,
beginning with the month ended April 30, 1996, a ratio of "Quick
Assets" to current liabilities of not less than .65 to 1.00.
TANGIBLE NET WORTH. Borrower shall maintain, on a monthly basis,
beginning with the month ended April 30, 1996, a tangible net
worth of not less than $1,000,000.00.
12
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EXHIBIT 10(A)
DEBT TO TANGIBLE NET WORTH. Borrower shall maintain, on a
monthly basis, beginning with the month ended April 30, 1996, a
ratio of total liabilities to tangible net worth of not more than
1.25 to 1:00.
PROFITABILITY. Borrower shall be profitable (after taxes) on a
quarterly and annual basis, with an allowance for losses,
provided such losses do not exceed $200,000.00 for the quarter
ending June 30, 1996 and $175,000.00 for the quarter ending
September 30, 1996.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. PAYMENT OF VARIANCE FEE. Borrower shall pay Silicon a fee in the amount
of Five Hundred and 00/100 Dollars ($500.00) (the "Variance Fee") plus all
out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that it has no defenses against the obligations to pay
any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness,
Silicon is relying upon Borrower's representations, warranties, and
agreements, as set forth in the Existing Loan Documents. Except as expressly
modified pursuant to this Loan Modification Agreement, the terms of the
Existing Loan Documents remain unchanged and in full force and effect.
Silicon's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Silicon to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Silicon and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released
by Silicon in writing. No maker, endorser, or guarantor will be released by
virtue of this Loan Modification Agreement. The terms of this paragraph
apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Variance Fee.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: SILICON:
EIP MICROWAVE, INC. SILICON VALLEY BANK
By: /s/ John Ardizzone By: /s/ Christine L. Caywood
------------------------- -----------------------------
Name: John Ardizzone Name: Christine L. Caywood
----------------------- ---------------------------
Title: CFO Title: Vice President
---------------------- --------------------------
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000026782
<NAME> EIP MICROWAVE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 48
<SECURITIES> 338
<RECEIVABLES> 861
<ALLOWANCES> 74
<INVENTORY> 1,016
<CURRENT-ASSETS> 2,245
<PP&E> 5,147
<DEPRECIATION> 4,674
<TOTAL-ASSETS> 2,733
<CURRENT-LIABILITIES> 1,336
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 1,392
<TOTAL-LIABILITY-AND-EQUITY> 2,733
<SALES> 4,886
<TOTAL-REVENUES> 4,886
<CGS> 3,075
<TOTAL-COSTS> 3,075
<OTHER-EXPENSES> 2,130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (319)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
</TABLE>
