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, 1998
[ ] 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 (IRS Employer
of incorporation or organization) Identification No.)
6950 SW Hampton Street Suite 200, Portland, OR 97223
(Address of principal executive offices) (Zip Code)
(503) 598-2605
(Issuer's telephone number)
(Former name, Former address and former fiscal year,
if changed since last report)
4500 Campus Drive, Suite 219, Newport Beach, CA 92660
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 June 30, 1998, Registrant had only one class of
common stock, and had 7,234,152 shares of this $.01 par value common stock
outstanding.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [ X ]
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EIP MICROWAVE, INC.
FORM 10-QSB
Quarter Ended June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Part I Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1998 (unaudited) and September 30, 1997 Page 3
Condensed Consolidated Statements of Operations and
Retained Earnings for the three months and nine months
Ended June 30, 1998 and 1997 (unaudited) Page 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 1998 and
1997 (unaudited) Page 5
Notes to Unaudited Condensed Consolidated Financial Statements Page 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition Pages 7 - 12
Part II Other Information
Item 2. Changes in Securities Page 13
Item 4. Submission of Matters to Vote of Security Holders Page 13
Item 6. Exhibits and Reports on Form 8-K Page 13
Signatures Page 14
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2
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EIP MICROWAVE, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)
ASSETS
June 30, September 30,
1998 1997
(Unaudited)
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 57 $ 280
Accounts receivable, net 201 405
Inventories 944 1,023
Prepaid expenses 61 62
------------- -------------
Total current assets 1,263 1,770
Property and equipment, net 395 590
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Other assets 6 0
------------- -------------
Total Assets $ 1,664 $ 2,360
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 472 $ 401
Accrued liabilities 508 629
Bank borrowings - 296
Notes payable to affiliates 100 400
Current portion of obligations under capital leases 34 34
------------- -------------
Total current liabilities 1,114 1,760
Long term notes payable to affiliates 0 600
Long term obligations under capital leases 41 63
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Total liabilities 1,155 2,423
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Commitments and contingencies
Stockholders' equity (deficiency):
Common stock, $.01 par value;
authorized -10,000,000 shares;
7,234,152 issued and outstanding, 424,907 on 9/30/97 72 5
Additional paid-in capital 3,928 848
Retained earnings (accumulated deficit) (3,491) (916)
------------- -------------
Total stockholders' equity (deficiency) 509 (63)
------------- -------------
Total liabilities and stockholders equity $ 1,664 $ 2,360
============= =============
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3
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EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(Dollars in thousands except per share data, unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 647 $ 1,013 $ 2,532 $ 3,560
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 536 575 2,585 2,170
Research, development and engineering 253 228 766 722
Selling, general and administrative 413 453 1,501 1,416
Interest and other, net 3 35 255 45
---------- ---------- ---------- ----------
Total costs and expenses 1,205 1,291 5,107 4,353
---------- ---------- ---------- ----------
Net (loss) (558) (278) (2,575) (793)
Accumulated retained earnings
(deficit) at beginning of period (2,933) (141) (916) 374
---------- ---------- ---------- ----------
Accumulated deficit at end of period $ (3,491) $ (419) $ (3,491) $ (419)
========== ========== ========== ==========
Net (loss) per share $ (0.08) $ (0.65) $ (0.88) $ (1.87)
========== ========== ========== ==========
Weighted average common shares outstanding 7,178 425 2,928 425
========== ========== ========== ==========
</TABLE>
4
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EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, unaudited)
Nine Months Ended
June 30, June 30,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,575) $ (793)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 165 190
Write down of inventory 600 --
(Gain) loss on sale of capital equipment (6) (98)
Change in assets and liabilities:
Accounts receivable 204 378
Inventories (521) (58)
Prepaid expenses (5) (12)
Accounts payable 71 (392)
Accrued liabilities (121) (27)
Advanced payments from customers -- (190)
------------ ------------
Cash used in operating activities (2,188) (1,002)
------------ ------------
Cash flows from investing activities:
Sale of short-term investments -- 297
Capital expenditures -- (192)
Proceeds from the sale of capital equipment 36 101
------------ ------------
Cash provided by investing activities 36 206
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable to affiliates 1,250 750
Repayment of notes payable to affiliates (2,150) ----
Repayment of bank borrowings (296) 111
Repayment of obligations under capital leases (22) (24)
Proceeds from issuance of common stock 3,147 --
------------ ------------
Cash provided by financing activities 1,929 837
------------ ------------
Increase (decrease) in cash and cash equivalents (223) 41
Cash and cash equivalents at beginning of period 280 216
------------ ------------
Cash and cash equivalents at end of period $ 57 $ 257
============ ============
</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 1997 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,
1998 1997
------------ ------------
(unaudited)
Accounts receivable:
Trade $ 251 $ 455
Less allowance for doubtful accounts (50) (50)
---------- ----------
$ 201 $ 405
---------- ----------
Inventories:
Raw materials $ 405 $ 531
Work-in-process 520 452
Finished goods 19 40
---------- ----------
$ 944 $ 1,023
---------- ----------
Property and equipment:
Cost $ 5,263 $ 5,311
Accumulated depreciation (4,868) (4,721)
---------- ----------
$ 395 $ 590
---------- ----------
(c) The calculation of net income (loss) per share is based upon the weighted
average number of common and common equivalent shares outstanding during
the year. As a result of the losses incurred during the three months and
nine months ended June 30, 1998 and 1997, the common and common
equivalent shares were antidilutive and, accordingly, were excluded from
the computation of loss per share for those periods.
6
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EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
Company's actual results could differ materially from the Company's historical
results of operations and those discussed in the forward-looking statements.
Factors that could cause actual results to differ materially include, but are
not limited to, those identified under the heading "Certain Factors" below. Due
to such risk factors and other factors, past results are not a reliable
predictor of future results.
In addition, the following discussion and analysis should be read in
conjunction with the Financial Statements and the accompanying Notes herein, and
is qualified entirely by the foregoing and by other more detailed financial
information appearing elsewhere.
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 1998, were $647,000, a 36%
decrease from sales of $1,013,000 in the same period last year. Net sales for
the nine months ended June 30, 1998, were $2,532,000, a 29% decrease from sales
of $3,560,000 in the same period last year. The decline for both periods was
attributable to a soft market for its products, reduced export sales as a result
of unfavorable fluctuations in foreign currency exchange rates and softness in
Asian markets and lower sales to the Company's largest OEM customer during the
third quarter.
Gross margin decreased to 17% in the third fiscal quarter of 1998, from 43%
in the third fiscal quarter of 1997. Gross margin was (2)% for the nine months
ended June 30, 1998, as compared to 39% for the same period last year. The
decrease in gross margin for both periods was largely due to lower sales levels
without corresponding reductions in fixed manufacturing overhead. In addition,
the decrease in gross margin for the nine months ended June 30, 1998, was also
affected by a write-down of inventory by $600,000 to reserve for potential
obsolescence related to the discontinuance of selected products.
Incoming orders for the third fiscal quarter were $1,985,000 a 145%
increase from orders of $809,000 for the same period a year ago. Incoming orders
for the nine months ended June 30, 1998, were $3,787,000 an 18% increase from
orders of $3,213,000 for the same period a year ago. Backlog at June 30, 1998,
was $1,689,000, a 318% increase from a backlog of $404,000 at the end of the
third fiscal quarter last year. The increase in orders for both periods and
backlog was the result of a large order ($1,429,000) from ManTech Systems
Engineering Corporation for RF down converters and RF synthesized signal
generators, which are scheduled for delivery between September and December of
1998.
Research, development and engineering expenses increased 11% to $253,000 in
the third fiscal quarter of 1998, compared to $228,000 for the same quarter last
year. Research, development and engineering expenses increased 6% to $766,000
for the nine months ended June 30, 1998, compared to $722,000 for the same
period last year. The increase in research, development and engineering expenses
for both periods was primarily attributable to increased new product development
expenditures.
Selling, general and administrative expenses decreased 9% to $413,000
during the third fiscal quarter of 1998, compared to $453,000 for the same
quarter last year. Selling, general and administrative expenses increased 6% to
$1,501,000 for the nine months ended June 30, 1998 compared to $1,416,000 for
the same period last year. The increase in selling, general and administrative
expenses for the nine month period was due primarily to professional fees and
expenses related to the Rights Offering which was completed in March 1998.
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)
Interest and other expense was $3,000 during the third quarter of 1998,
compared to $35,000 for the same quarter last year. Interest and other expense
was $255,000 during the nine months ended June 30, 1998, compared to $45,000 for
the same period last year The decrease in the third quarter was a result of the
completion of the Rights Offering which reduced debt. The increase for the nine
month period was due to a higher level of outstanding debt and a higher
effective interest rate on such debt during the first six months of fiscal year
1998 compared to the same period in fiscal year 1997.
The Company recorded a net loss of $558,000 for the third fiscal quarter of
1998, as compared to a net loss of $278,000 during the same period last year. A
net loss of $2,575,000 was recorded for the nine months ended June 30, 1998, as
compared to a net loss of $793,000 for the same period last year. The increased
loss for the third fiscal quarter of 1998 is primarily due to lower sales levels
without corresponding reduction in fixed manufacturing overhead. The increase in
the loss for the nine months ended June 30, 1998, compared to the same period
last year, is primarily attributable to the inventory write-off in the second
quarter, lower sales and increased operating expenses.
FINANCIAL CONDITION
On March 20, 1998 the Company issued approximately 5,802,000 shares of
common stock pursuant to a rights offering (the "Rights Offering") to its
stockholders. Gross proceeds from the Rights Offering were approximately
$742,000 paid in cash and approximately $2,159,000 paid in cancellation of
Company indebtedness. Subsequent to the Rights Offering, the Company issued
stock grants (the "Stock Grants"), exercisable for an aggregate of 725,000
shares of Common Stock of the Company, to its directors pursuant to the terms of
the 1998 Stock Option Plan. The directors exercised the Stock Grants in full and
paid to the Company a cumulative exercise price of $105,250. Upon exercise of
the Stock Grants, the Company issued the 725,000 shares of Common Stock to the
directors on April 8, 1998.
At June 30, 1998, the Company's cash, and cash equivalents balance was
$57,000, compared to $280,000 at September 30, 1997. Cash generated from the
Rights Offering and subsequent stock sale noted above along with an advance of
$100,000 from J. Bradford Bishop under a demand note were used to support the
Company's operations and its new product research and development efforts. At
June 30, 1998, the Company had commitments for capital expenditures of
approximately $200,000 for computer equipment and software needed for its
systems to become year 2000 compliant. At June 30, 1998, working capital
increased $139,000 from September 30, 1997, and the Company's current ratio
increased to 1.13:1 from 1.01:1 over the same time period, primarily due to
lower debt levels as a result of cash generated from the Rights Offering noted
above.
In addition to cash on hand and funds generated from operations, the
Company believes that borrowings under existing debt facilities described below
will be sufficient to satisfy the Company's cash requirements for implementing
its business plan during the remainder of this fiscal year and its fiscal year
ending September 30, 1999. See "Certain Factors--Future Cash Requirements"
below.
8
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EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
CERTAIN FACTORS
In addition to the factors discussed elsewhere in this Quarterly Report on
Form 10-QSB, the following are important factors which could cause actual
results or events to differ materially from those contained in any
forward-looking statement made by or on behalf of the Company.
Recurring Material Losses and Accumulated Deficit
The Company made a profit of $125,000 in the fiscal year ended September
30, 1995, operated at a loss of $493,000 in the fiscal year ended September 30,
1996, operated at a loss of $1,290,000 in the fiscal year ended September 30,
1997 and operated at a loss of $2,575, 000 for the nine months ended June 30,
1998. Net cash used in operations and investing activities by the Company in the
fiscal years ended September 30, 1995, 1996 and 1997, and in the nine months
ending June 30, 1998, was $85,000, $89,000, $1,045,000 and $2,152,000,
respectively. At the end of fiscal year 1996, the Company's retained earnings
were $374,000, and stockholders' equity was $1,227,000. At the end of fiscal
year 1997, the Company's accumulated deficit was $916,000, and stockholders'
deficiency was $63,000. At June 30, 1998, the Company's accumulated deficit was
$3,491,000, and stockholders' equity was $509,000. At September 30, 1996,
September 30, 1997, and June 30, 1998, the Company's ratio of interest-bearing
indebtedness to total interest-bearing indebtedness and stockholders' equity was
20%, 105%, and 25%, respectively. There can be, and is, no assurance that
profitable operations and positive cash flow can be achieved or maintained or
that any funds obtained from equity issuances or debt facilities will be
sufficient to carry the Company to a time when profitable operations and
positive cash flow would sustain the Company. Continued losses would negatively
impact the Company's working capital and the extension of credit by any existing
or future lenders. See "Future Cash Requirements."
The report of Meredith, Cardozo, Lanz & Chiu LLP on the Company's financial
statements for the year ended September 30, 1997, and issued as of November 20,
1997, includes an explanatory paragraph to express substantial doubt regarding
the Company's ability to continue as a going concern. The report of Price
Waterhouse LLP on the Company's financial statements for the year ended
September 30, 1996 has been reissued with dual dates of December 23, 1996 and
October 23, 1997. The reissued report includes an explanatory paragraph to
express substantial doubt regarding the Company's ability to continue as a going
concern. There can be no assurance that the Company will not continue to incur
significant operating losses or that required additional financing will be
available to meet the Company's business plan in fiscal 1998 and beyond.
Future Cash Requirements
The Company believes that borrowings under existing debt facilities
described below will be sufficient to satisfy the Company's cash requirements
for implementing its business plan during the remainder of this fiscal year and
its fiscal year ending September 30, 1999. The actual cash resources required
will depend upon numerous factors, including those described under "Certain
Factors--Dependence on New OEM Relationship," "--Dependence on Government
Contractors," "--Uncertainty of Product Development and Introduction," and
"--Uncertainty of External Strategic Opportunities" and the cash requirements
could be materially greater than the amount available under such facilities.
9
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EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Subsequent to June 30, 1998, the Company obtained three credit facilities
totaling $2,200,000. On August 7, 1998 the Company entered into a combined
credit facility with a third party lender, which provides for a term loan of
$500,000 and a revolving line of credit in the amount of $1,000,000 (the "Bank
Credit Facility"). Interest on the term loan and revolving line of credit will
be the lender's reference rate (currently 8.5%) plus 3.5%. Maximum borrowing
under the revolving line of credit will be limited to the lesser of $1,000,000
or 85% of eligible accounts receivable. Maturity of the Bank Credit Facility is
August 7, 2001. On July 20, 1998 the Company completed the placement of a
$200,000 convertible subordinated note (the "Convertible Note"). Interest on the
note will be 8% and it matures on June 30, 2000. The note is subordinated to the
Bank Credit Facility and will be subordinated to any future extension of credit
by a financial institution or any seller financing in connection with a
strategic acquisition by the Company. The note is convertible into shares of the
Company's common stock at $1.00 per share. After October 1, 1998, either the
Company or the note holder may require the note to be converted into common
stock of the Company. In addition to the Bank Credit Facility and Convertible
Note, the Company entered into a credit facility with one of its directors,
James N. Cutler, Jr. (the "Cutler Loan Facility") on July 20, 1998. This credit
facility provides for a revolving line of credit in the amount of $500,000.
Interest on the line will be the prime rate as published in the Wall Street
Journal (currently 8.5%) plus 2% and the line will mature on July 1, 1999. The
line is subordinated to the Bank Credit Facility and will be subordinated to any
future extension of credit by a financial institution or any seller financing in
connection with a strategic acquisition by the Company. In addition, Mr. Cutler
was issued warrants (the "Warrants") to purchase up to 100,000 shares of Common
Stock of the Company at $0.52 per share. The Warrants will expire on July 20,
2000.
The Bank Credit Facility and the Cutler Loan Facility are secured by
substantially all assets of the Company, and preclude or limit the Company's
ability to take certain actions, such as paying dividends, making loans, making
acquisitions or incurring indebtedness, without each of the respective lender's
prior written consent.
Although the Company believes the above credit facilities combined with
cash expected to be generated from operations should enable it to successfully
implement its business plan, to date the Company has not achieved business
volume sufficient to restore profitability and a positive cash flow. In the
event the Company's business plan is not successful and its results of
operations fail to demonstrate improvement (due to unanticipated expenses,
delays, problems, difficulties or otherwise) available cash and credit
facilities may not prove to be sufficient to fund operations. The Company would
then be required to seek additional debt or equity financing or obtain relief
from its creditors. There can be no assurance that additional financing or
accommodations from creditors, if required, will be available to the Company on
commercially reasonable terms, or at all. Even if the Company is able to obtain
additional debt facilities, there can be no assurance as to the terms thereof.
If the Company is unable to obtain additional debt facilities, the Company and
its business will likely be materially adversely affected.
If the Company is unable to obtain such capital on a timely basis, the Company
will be required to consider, among other actions, a substantial reduction in
its research and development expenses which will impact the introduction of new
products, a substantial reduction in other operating expenses and the sale of
one or more product lines of the Company. Such actions to significantly curtail
its planned operations will likely have a materially adverse affect on the
Company's business, financial condition and results of operations.
10
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EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Inventory Reserve
The Company recorded a write-down of inventory by $600,000 in the first
fiscal quarter of 1998 to reserve for potential obsolescence related to
discontinuance of selected products. While management believes the amount of the
inventory reserve is appropriate under current circumstances, there can be no
assurance that the amount of the reserves will be sufficient to account for the
discontinuance of such products. See "Results of Operations."
Dependence on New OEM Relationship
The Company recently introduced a new line of microwave frequency counters,
which it began distributing in October 1997, on a private label basis worldwide
through an OEM relationship with Hewlett-Packard Company ("Hewlett-Packard").
The Company expects that this OEM relationship will account for approximately
25% of its revenues in fiscal year 1998. However, Hewlett-Packard is not
obligated to purchase a minimum quantity of products, and the failure of
Hewlett-Packard to purchase the product quantity expected by the Company would
have a material, negative impact upon the Company's business. There can be no
assurance that the Company will be able to maintain a successful relationship
with Hewlett-Packard and generate revenues or profits from the relationship.
Dependence on Government Contractors
Approximately 37% of the Company's revenues in the last two fiscal years
have been derived from the sale of products to government contractors. The
Company recently received a five-year indefinite quantity, fixed price supply
subcontract from ManTech Systems Engineering Corporation, a government
contractor ("ManTech"), for the supply of RF synthesized signal generators and
RF down converters, with total sales value to the Company that could range from
approximately $3.5 to $20 million. In June 1998, the Company received the first
regular production order under the subcontract in the amount of $1,429,000.
ManTech has advised the company further production purchase order releases under
the subcontract are expected in the Company's fiscal year 1999. The Company will
incur substantial expenses in preparing to satisfy its obligations under this
subcontract. However, despite the incurrence of such expenses, this and other
subcontracts with government contractors are subject to cancellation provisions
in favor of the government contractor. The subcontract with ManTech is subject
to termination by ManTech in the event that the government terminates its
contract with ManTech. Further, this subcontract can be terminated if the
Company's components do not satisfy ManTech's requirements or the Company
otherwise defaults under the subcontract. There can be no assurance that the
Company will receive additional subcontracts from ManTech or other government
contractors.
Dependence on Key Suppliers
A number of the Company's products require specialized components currently
available only through single sources of supply. The loss of any of these
sources, or the inability of any such source to meet the Company's production
and quality control requirements, could be detrimental to the Company with
respect
11
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EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
to the specific products involved. If any of the Company's single source
suppliers is not able to deliver these specialized components, the Company would
be required to implement alternative supply strategies (such as changing to one
or more other suppliers, which could require product design or specification
changes and would likely cause delays in shipment of the Company's products) or
discontinue sales of the affected products.
Uncertainty of Product Development and Introduction
The Company's success depends to a large degree on its ability to develop
and introduce in a timely manner new or updated products which are affordable,
functional in purpose, distinctive in quality and design and tailored to the
purchasing patterns of the Company's customers and potential customers.
Misjudgments as to customer interest in new or updated products could lead
to excess inventories and markdowns and could have a material adverse effect on
the Company's financial condition and results of operations. There can be no
assurance that new products under development will be successfully developed and
introduced. Further, due to the uncertainty associated with any product
development and introduction (such as delays in development and lack of market
acceptance of a new product) there can be no assurances that the Company's
development and introduction efforts will be successful. If products under
development are not successfully introduced, the Company's business, financial
condition and results of operations would be materially adversely effected.
Uncertainty of External Strategic Opportunities
The Company is pursuing strategic opportunities to acquire other companies
or their technology or products. The Company believes that opportunities are
available that will have strategic benefit to the Company; however, there can be
no assurance that the Company will be able to successfully identify, negotiate
and consummate such acquisition opportunities. Such acquisitions could enable
the Company to generate additional revenues and to increase its gross profit by
an amount that exceeds any increase in operating expenses; however, there can be
no assurance that the Company would be able to obtain such financial benefits.
Further, the Company's current financial condition does not enable it to make
such acquisitions without incurring debt or issuing equity to finance such
acquisitions.
Competition
The markets in which the Company's products are sold have become
increasingly competitive. Most of the Company's principal competitors have
substantially greater financial resources. The Company's results of operations
can be significantly affected by pricing pressures arising from customer demand
and pricing strategies by the Company's competitors, and the timing and market
acceptance of new product introductions by competitors of the Company. There can
be no assurance that pricing pressures will not have a material adverse effect
on the Company, or that the Company's competitors will not succeed in developing
products that would render the Company's technology and products obsolete and
noncompetitive.
Due to the foregoing and other factors, past results are not reliable
predictors of future results. In addition, the securities of many technology and
developmental companies, such as the Company, have historically been subject to
extensive price and volume fluctuations that may adversely affect the market
price of their common stock.
12
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EIP MICROWAVE, INC.
PART II -- OTHER INFORMATION
Item 2. Changes in Securities
Subsequent to June 30, 1998, the Company entered into the Bank Credit
Facility and the Cutler Loan Facility which contain restrictions on dividend
payments and other restrictive covenants. The Bank Credit Facility and the
Cutler Loan Facility are more fully described in Part I/Item 2--"Future Cash
Requirements."
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended June 30, 1998, the Company filed one
report on Form 8-K. On April 3, 1998, the Company filed a report on
Form 8-K reporting the completion and results of its Rights
Offering.
13
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EIP MICROWAVE, INC.
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, thereunto duly authorized.
DATE: August 12, 1998 BY: /s/ J. BRADFORD BISHOP
-------------------------
J. Bradford Bishop
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
DATE: August 12, 1998 BY: /s/ WILLIAM J. STANNERS, JR.
-------------------------------
William J. Stanners, Jr.
Chief Financial Officer, Treasurer, and
Assistant Secretary
(Principal Financial Officer)
14
<PAGE>
EIP MICROWAVE, INC.
INDEX TO EXHIBITS
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 251
<ALLOWANCES> 50
<INVENTORY> 944
<CURRENT-ASSETS> 1,263
<PP&E> 5,263
<DEPRECIATION> 4,868
<TOTAL-ASSETS> 1,664
<CURRENT-LIABILITIES> 1,114
<BONDS> 41
0
0
<COMMON> 72
<OTHER-SE> 3,491
<TOTAL-LIABILITY-AND-EQUITY> 1,664
<SALES> 2,532
<TOTAL-REVENUES> 2,532
<CGS> 2,585
<TOTAL-COSTS> 2,585
<OTHER-EXPENSES> 2,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> (2,575)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,575)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
