FORM 10-K
SECURITIES AND EXCHANGE COMMISSION Exhibit Index
Washington, D. C. 20549 on Page 55
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1997
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-8821
GENERAL MICROWAVE CORPORATION
- -----------------------------------------------------------------------------
Exact name of registrant as specified in its charter)
NEW YORK 11-1956350
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 New Horizons Boulevard, Amityville, New York 11701
- -----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 516-226-8900
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- ------------------------------------------
Common Stock, par value American Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e. by persons other than officers and directors of General
Microwave Corporation as reflected in the table incorporated by reference in
Item 12 of this Annual Report on Form 10-K as of April 1, 1997 was
$4,830,794.
As of April 1, 1997, there were 1,205,659 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference
-----------------------------------
Part III: Proxy Statement for Annual Meeting of Stockholders to be held June
25, 1997.
Page 1 of 70
<PAGE>
TABLE OF CONTENTS
-----------------
NOTE: General Microwave Corporation and subsidiaries are sometimes
referred to in this Annual Report on Form 10-K as "the Company",
"General Microwave" or "Registrant".
Item Page
PART I. 1. Business........................................ 3
2. Properties..................................... 8
3. Legal Proceedings.............................. 8
4. Submission of Matters to a Vote of Security
Holders........................................ 8
Executive Officers of the Registrant........... 9
PART II. 5. Market for Registrant's Common Equity and
Related Stockholder Matters.................... 10
6. Selected Financial Data........................ 11
7. Management's Discussion and Analysis of
Financial Condition and Results of Operation... 12
8. Financial Statements and Supplementary Data.... 17
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 48
PART III. 10. Directors and Executive Officers of the
Registrant..................................... 49
11. Executive Compensation......................... 49
12. Security Ownership of Certain Beneficial Owners
and Management................................. 49
13. Certain Relationships and Related Transactions. 49
PART IV. 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................ 50
Signatures.................................................... 53
____________
(1) These items are omitted because the Registrant will file a
definitive Proxy Statement pursuant to Regulation 14A involving the
election of directors with the Securities and Exchange Commission
not later than 120 days after the Registrant's fiscal year end.
Information relating to Executive Officers of the Registrant appears
at pages 9 and 10 of this Annual Report on Form 10-K.
Page 2
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PART I
ITEM 1. BUSINESS.
Description of Business
-----------------------
General Microwave Corporation was incorporated in the State of New
York in 1960. Unless the context otherwise indicates, the terms "General
Microwave" and the "Company" as used herein refer to General Microwave
Corporation and subsidiaries.
The Company is engaged primarily in the design, development,
manufacture and marketing of microwave and electronic systems, equipment and
components. The Company is organized into three operating divisions in three
locations with strong inter-divisional ties. The parent company, General
Microwave Corporation, operates the Company's largest division, its microwave
division located in Amityville, New York. A substantial portion of the
Company's microwave products is sold to manufacturers and users of microwave
systems and equipment for applications in the defense electronics industry.
The Company also sells these components and equipment for use in the
industrial sector as well as in commercial telecommunications industries.
Typical applications for the Company's microwave products include electronic
warfare and countermeasures, airborne and shipboard navigation and
communications, radar systems, missile guidance systems, automatic test
equipment, and satellite communications.
The Company's subsidiaries, General Microwave Israel Corporation and
General Microwave Israel (1987) Ltd. in Jerusalem, Israel, conduct research
and development and manufacturing operations largely devoted to the
production of microwave oscillators. The Company's subsidiary, General
Microcircuits Corporation in Billerica, Massachusetts, engages in the design,
manufacture and sale of hybrid microcircuits largely intended for military
applications.
In February, 1997, the Company decided to concentrate on its core
businesses and adopted a plan to exit the fiber optics business of its Math
Associates subsidiary. (See Note 2 to Consolidated Financial Statements in
this Annual Report on Form 10-K). Accordingly, unless otherwise indicated,
all of the information contained in this Item has been restated to delete
data applicable to Math Associates, Inc.
The Company has traditionally developed new products for sale as
standard catalog items as well as products designed to customer
specifications under fixed price contracts. The Company's catalogs currently
list over 300 products, excluding fiber optics products.
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The following table sets forth, for the periods indicated, unaudited
information with respect to the Company's net sales contributed by each class
of similar products which accounted for 15% or more of consolidated net sales
in any of the last three fiscal years.
Year Ended February 28 or 29
----------------------------
1997 1996 1995
---- ---- ----
Microwave Components............. $14,463,094 $11,833,453 $13,739,840
Power Measuring Instruments...... $ 1,894,491 $ 2,148,258 $ 1,534,178
Hybrid Microcircuits............. $ 3,323,266 $ 2,958,868 $ 3,410,919
Other............................ $ 380,037 $ 487,031 $ 384,427
---------- ---------- ----------
Net Sales......... $20,060,888 $17,427,610 $19,069,364
Marketing
---------
The Company markets its products through an internal marketing
department and through independent domestic and independent foreign sales
organizations.
Research and Development
------------------------
The Company's research and development is conducted both through
internally funded activities and through customer funded research and
development under fixed price and cost plus fixed fee product development
contracts.
Internally funded research and development expenditures aggregated
$495,000, $1,090,000 and $940,000 in fiscal 1997, 1996 and 1995,
respectively. These expenditures are net of reimbursements received under
agreements with the government of Israel and another entity in the amounts of
$104,000 and $245,000 in fiscal 1996 and 1995, respectively.
In addition to Company sponsored development activities, the
Company continues to expand and improve its product line and technology
through performance under certain fixed price and cost plus fixed fee
contracts requiring the development and manufacture of new products.
Development and manufacturing costs incurred in connection with customer
funded prototype development contracts are included in cost of sales. The
estimated amount spent by the Company during each of the last three fiscal
years on customer sponsored research and development activities aggregated
$350,000, $625,000 and $3,502,000 in fiscal 1997, 1996 and 1995,
respectively. The Company is currently engaged in the design and manufacture
of new prototypes in connection with various electronic countermeasures,
electronic warfare, radar, navigation and communications programs of the
United States Government. The Company also understands that many of such
engagements by major industrial corporations are for the design and
manufacture of products for foreign governments and agencies thereof.
Page 4
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Raw Materials
-------------
Manufacturing operations consist of fabrication, assembly and
testing of components, systems and equipment built from fabricated parts as
well as printed circuits, electronic materials and components purchased from
outside sources. Manual and semi-automatic methods are employed in the
manufacturing process, depending principally upon production volumes.
Inspection and testing are critical to the achievement of product reliability
and performance standards demanded by the Company's customers. The Company
utilizes proprietary and other testing equipment in its operations and is
continuously developing new testing techniques to maintain its products'
performance standards.
Electronic components and raw materials used in the Company's
products are generally available from a large number of suppliers. Some
materials are standard items and others are manufactured to the Company's
specifications by subcontractors. The Company is not dependent upon any
single supplier for any component or material and has not experienced
significant interruptions in production due to a shortage of raw materials.
Patents and Trademarks
----------------------
The Company has 11 patents in the United States which cover various
products. The Company considers that its competitive position depends more
upon the technical expertise and creative ability of its engineering and
development personnel than upon its patents, patent applications and
trademarks.
Customers
---------
The Company's customers consist primarily of the United States
Government and major industrial corporations that incorporate the Company's
products into a variety of military, and to a lesser extent, commercial
systems. At present, the Company estimates that it has approximately 2,500
customers. During fiscal 1997, no customers other than Litton Systems, Inc.
accounted for 10% or more of the Company's net sales. Litton accounted for
approximately 26% of net sales.
Although the end-use for the Company's products is not always
identifiable, Management estimates that sales for direct or indirect use by
the United States Government represented approximately 42%, 55% and 56% of
the Company's net sales in fiscal 1997, 1996 and 1995, respectively. The
timing and level of appropriations by the federal government can influence
the Company's operating results significantly. During the past several
years, slowdowns of and reductions in the amounts spent by the United States
Government for electronic defense programs increased the competition for and
generally reduced the profitability of available contracts. No material
portion of the Company's business is subject to renegotiation or limitation
of profits on contracts or subcontracts by the federal government. However,
the federal government, or agencies thereof, may terminate their contracts,
in whole or in part, at their convenience. In such event, the government
agency is obligated generally to pay the costs incurred by the Company under
the contract plus a fee based upon work completed. Substantial curtailment
or termination of the government programs which, directly or indirectly, fund
the Company's contracts could have a material adverse effect upon the
Company's operating results.
Page 5
<PAGE>
Foreign sales, primarily in Israel, Japan, Norway, United Kingdom,
India, France, Australia and Canada accounted for approximately 34%, 25% and
24% of the Company's net sales in fiscal 1997, 1996 and 1995, respectively.
Foreign sales in fiscal 1997 include immaterial amounts of direct sales to 2
foreign governments or agencies thereof.
Competition
-----------
The Company's ability to compete is dependent on several factors,
including product performance, quality and reliability, product development
capabilities, price, and the ability to meet delivery schedules and customer
specifications. The microwave component and equipment markets are highly
competitive and are characterized by rapid advances in technology resulting
in the introduction of new products with improved performance
characteristics, thereby subjecting the Company's products to the risk of
technological obsolescence.
The Company has numerous competitors, including some of its current
customers with captive microwave component design and manufacturing
operations. In addition, the Company competes with certain of its suppliers
of semiconductor devices. The Company also competes with a variety of
companies across its entire product line. Many of the Company's competitors
have greater financial and other resources than does the Company.
In response to increased competitive pressure caused by tighter
government purchasing practices, the Company continues to implement cost
reductions on its current products and expand its selling and marketing
efforts in the United States and abroad and continuously endeavors to expand
its activities in non-military aspects of the electronics industry. The
Company has traditionally emphasized the integrity, reliability and
performance of its products.
Backlog
-------
The Company's backlog was approximately $16,946,000 at February 28,
1997 and $10,853,000 at February 29, 1996. Although the contemplated end-use
for products ordered is not always identifiable, Management estimates that
approximately 35% and 40% of the Company's backlog at February 28, 1997 and
February 29, 1996, respectively, is attributable to products ordered for
direct or indirect use by the United States Government.
The Company manufactures standard components and equipment for
inventory and specialized components, systems and equipment pursuant to
orders from customers. Orders are included in backlog upon the receipt by
the Company of verbal or written purchase orders with firm delivery dates.
Approximately 87% and 99%, respectively, of the backlog at February 28, 1997
and February 29, 1996 is scheduled for shipment within 12 months of such
dates. The amount of backlog expected to be shipped over such periods
represents only a portion of anticipated sales for such periods. Most of the
orders included in the Company's current backlog may be cancelled by
customers without cause or penalty, subject to payment for costs incurred and
normal profit thereon.
Page 6
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Segments and Other Financial Data
---------------------------------
Information concerning business segments and the estimated
geographical allocation of the Company's total sales is contained in Note 13
to the Consolidated Financial Statements in this Annual Report on Form 10-K.
The risks associated with the Company's sales in foreign countries are no
different from those experienced domestically. There is no significant
difference in the estimated profitability of such business.
See the information concerning working capital contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in this Annual Report on Form
10-K which is incorporated herein by reference.
Other Information
-----------------
At February 28, 1997, the Company had approximately 273 full-time
employees including those employed by Math Associates, Inc. None of the
Company's employees is subject to a collective bargaining agreement.
The Company's business is not seasonal.
The Company does not anticipate that compliance with federal, state
and local provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, will have material effects on the earnings or
competitive position of the Company. The Company does not anticipate making
any material capital expenditures for environmental control facilities for
the remainder of its current fiscal year or its succeeding fiscal year.
Page 7
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ITEM 2. PROPERTIES
----------
The Company manufactures microwave components and equipment in an
approximately 60,000 square foot building it constructed on approximately 9.5
acres of land in the New Horizons Business Center in Amityville, New York.
The building provides an integrated plant for the Company's operations
including executive offices and research and manufacturing facilities.
Substantially all of the estimated cost of the acquisition,
construction and equipping of the Amityville building was financed through
variable rate industrial development revenue bonds issued by the Town of
Babylon Industrial Development Agency (New York). General Microwave is
leasing the facility from the issuer of the Bonds at a rental equal to the
amounts due from time to time under the Bonds. At the expiration of the
lease term on October 1, 1999, the Company may buy the facility for nominal
consideration. The indebtedness with respect to the Bonds is secured by a
mortgage of the premises. See Note 8 to Consolidated Financial Statements in
this Annual Report on Form 10-K for additional information concerning the
Bonds.
The Company conducts its Israeli operations from an approximately
12,000 square foot plant in the Talpiot Industrial Zone of Jerusalem. See
Note 8 to Consolidated Financial Statements in this Annual Report on Form
10-K for additional information concerning the Talpiot facility. General
Microcircuits Corporation conducts its operations from an approximately 8,000
square foot leased facility in Billerica, Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of their
property is the subject and no such proceeding was terminated during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted to a vote of security holders
through the solicitation of proxies or otherwise during the fourth quarter of
the fiscal year covered by this Annual Report on Form 10-K.
Page 8
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Executive Officers of the Registrant.
- ------------------------------------
The following is a list of the names, ages, principal occupations
and positions with the Company of its executive officers and the positions
held by such officers during the past five years. All executive officers of
the Company have terms of office which run until the next succeeding meeting
of the Board of Directors following the annual meeting of stockholders or
until their successors are elected and qualified unless they are removed
sooner by the Board.
Principal Occupation; Position
and Office (current and during
past five years with the
Name Age Company unless otherwise stated)
---- --- --------------------------------
Sherman A. Rinkel (1) 71 Chairman of the Board
Mitchell Tuckman (2) 46 President-Chief Executive Officer
Howard Cohen 60 Vice President-Administration and
Assistant Secretary
Robert E. DeBrecht (3) 53 Vice President-Engineering
Arnold H. Levine (4) 58 Vice President-Finance, Treasurer,
Chief Financial Officer and Assistant
Secretary
Rozalie Schachter 50 Vice President-Business Development
_________________
(1) Mr. Rinkel was President of the Company from its inception until his
retirement on March 1, 1995. He became Chairman of the Board in May,
1995.
(2) Mr. Tuckman became President-Chief Executive Officer of the Company in
March, 1995. He was Executive Vice President and Chief Operating
Officer of the Company from August, 1994 until then. From June 1993
until August, 1994, Mr. Tuckman was Vice President-Microwave
Engineering of the Company. He was Chief Microwave Engineer of the
Company before that.
(3) Mr. DeBrecht became Vice President-Engineering in May, 1996. He was a
computer consultant in the securities, financial, insurance benefits
and office productivity areas from 1987 until then. Before that, he
was a product and engineering manager at Narda Microwave Co. and a
chief engineer at the Company.
(4) Mr. Levine became Vice President-Finance, Chief Financial Officer,
Treasurer and Assistant Secretary of the Company in March, 1995. From
1989 until then, he was Vice President, Finance and a director of
Cardion Inc., a subsidiary of Siemens Corporation.
General Microwave is not aware of any family relationship between any
of the executive officers or directors of the Company or any person nominated
or chosen by General Microwave to become a director or executive officer.
Page 9
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PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS.
--------------------
The Company's Common Stock is traded on the American Stock Exchange.
The following table sets forth the high and low sales prices (AMEX) for the
Company's Common Stock for the fiscal quarters indicated.
Sales Price (AMEX)
------------------
High Low
---- ---
Fiscal 1997:
First Quarter................... 8.25 6.00
Second Quarter.................. 8.13 6.25
Third Quarter................... 6.19 4.50
Fourth Quarter.................. 5.38 4.50
Fiscal 1996:
First Quarter................... 9.13 6.88
Second Quarter.................. 9.25 7.63
Third Quarter................... 8.81 7.88
Fourth Quarter.................. 7.88 5.88
General Microwave has not declared or paid any cash dividends during
the past two fiscal years. See Note 8 to Consolidated Financial Statements and
paragraph 5 under Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources in this Annual
Report on Form 10-K for information concerning the financial covenants
contained in the agreements relating to the Company's industrial development
revenue bond financing and their effect on the Company's ability to pay cash
dividends.
As of May 6, 1997, there were 186 record holders of the Common Stock
of the Company.
General Microwave did not sell any equity securities of General
Microwave during the period covered by this report that were not registered
under the Securities Act of 1933.
Page 10
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ITEM 6. SELECTED FINANCIAL DATA.
------------------------
<TABLE>SELECTED FINANCIAL DATA
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended
----------
February 28, February 29, February 28, February 28, February 28,
------------ ------------ ------------ ------------ ------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net sales $20,060,888 $17,427,610 $19,069,364 $18,694,205 $19,400,197
Earnings (loss) from
continuing operations 201,730 (1,142,126) 466,960 993,833 513,784
Net earnings (loss) from
discontinued operations (A) (3,287,466) (634,665) (292,284) 48,857 (355,653)
Net earnings (loss) before
extraordinary item (3,085,736) (1,776,791) 174,676 1,042,690 158,131
Net earnings (loss) (B) (3,085,736) (1,776,791) 174,676 1,042,690 258,131
Per share data:
Net earnings (loss) from
continuing operations 0.17 (0.95) 0.38 0.73 0.37
Net earnings (loss) from
discontinued operations (A) (2.73) (0.53) (0.24) 0.03 (0.26)
Net earnings (loss) before
extraordinary item (2.56) (1.48) 0.14 0.76 0.11
Net earnings (loss) (B) (2.56) (1.48) 0.14 0.76 0.18
Balance sheet data:
Total assets 19,289,511 21,581,608 23,441,828 25,182,150 24,407,886
Working capital 6,843,799 9,949,822 11,902,533 13,336,263 12,993,953
Long-term debt, less
current installments 1,627,144 2,325,589 2,631,250 3,206,250 3,781,250
Stockholders' equity 11,545,010 14,574,516 16,337,373 17,565,712 17,041,387
Weighted average
common shares outstanding 1,204,281 1,196,682 1,234,596 1,366,258 1,396,737
</TABLE>
General Microwave paid a special cash dividend of $0.25 per share on
February 9, 1994. No other dividends were declared or paid during the past
five fiscal years.
(A) See Note 2 to the Consolidated Financial Statements in this Annual
Report on Form 10-K.
(B) Includes extraordinary tax benefit on net operating loss carryforward
of $100,000 (.07 per share) for fiscal year ended February 28, 1993.
Page 11
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATION.
---------------------
Results of Operations
- ---------------------
In fiscal 1997 the Company had net earnings from continuing operations of
$201,730 or $.17 per share, a net loss of $3,287,466 from discontinued
operations resulting in a net loss after discontinued operations of $3,085,736
or $2.56 per share. In fiscal 1996 the Company had a net loss of $1,142,126
or $.95 per share from continuing operations and a net loss after discontinued
operations of $1,776,791 or $1.48 per share. In fiscal 1995, the Company had
net earnings from continuing operations of $466,960 or $.38 per share, and a
net profit after discontinued operations of $174,676 or $.14 per share.
In February 1997, the Company decided to concentrate on its core businesses and
adopted a plan to exit the fiber optics business, which was operated by its
Math Associates subsidiary. (See Note 2 to Consolidated Financial Statements).
Accordingly, unless otherwise indicated, all of the information herein has been
reclassified to present the assets, liabilities and results of operations of
the discontinued fiber optics business as a discontinued operation. The loss
from discontinued operations includes a loss from operations for fiscal year
1997 of approximately $627,000, as well as an estimated loss on disposal
(including management's best estimates of recoverability of assets and
estimated loss during the phase-out period) of approximately $2,660,000.
The current year sales from continuing operations of $20,060,888 increased by
$2,633,278 from the prior year, and was slightly higher than sales of two years
ago ($19,069,364). Sales of microwave components and hybrid microcircuits
increased in fiscal 1997 as compared to fiscal 1996, because of increased
production levels and shipments to a significant customer.
Fiscal 1997's operating earnings from continuing operations improved
substantially in comparison to fiscal 1996 primarily due to increased gross
profit margins, increased sales and reductions in research and development
expenses. Operating losses from discontinued operations in fiscal 1997
resulted from additional inventory valuation reserves, low gross profit margins
and cost overruns on a fiber optic development program. Fiscal 1996's
operating losses from continuing operations resulted principally from technical
problems which delayed shipments, increased production costs on a development
program for hybrid microcircuits products, inventory valuation reserves, as
well as increased selling expenses. In fiscal 1996, the Company recorded
valuation reserves and write offs related to the disposal of obsolete inventory
of approximately $440,000 and incurred one-time severance expenses aggregating
$158,000. The loss from operations of the discontinued business increased due
to technical problems, increased production costs on a fiber optic development
program and increased inventory valuation reserves.
Page 12
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Management's efforts to increase shipments, implement more effective
operations and reduce cost of sales, resulted in significantly improved fiscal
1997 fourth quarter profitability from continuing operations of approximately
$597,000 as compared to approximately $274,000 in fiscal 1996. Management will
continue to focus on further process and quality effectiveness for gross profit
margin improvement in fiscal 1998. As part of its efforts to improve earnings
in fiscal 1998, management decided to focus on the Company's core businesses
and discontinue the lower profit margin fiber-optic systems and components
business.
New orders booked during the current year from continuing operations were
approximately $26.2 million compared to approximately $19.4 million last year.
The backlog of orders at February 28, 1997 was $16.9 million compared to $10.9
million at February 29, 1996. In fiscal 1995, orders booked from continuing
operations were $20.0 million and the backlog was $9.2 million at the year end.
Cost of sales during fiscal 1997, as a percentage of sales, was 68.4% compared
with 71.4% in 1996 and 67.6% in 1995. In fiscal 1997, the cost of sales
percentage decreased primarily due to resolution of technical problems and
production difficulties experienced in 1996 on two large production programs in
microwave components and hybrid microcircuits, as well as improved
efficiencies. In fiscal 1996, the cost of sales percentage increased primarily
due to technical problems and cost overruns on a certain development program
and increased inventory valuation reserves, as well as non-recurring severance
expenses.
In fiscal 1997, while both selling and general and administrative expenses
increased, when compared to the prior year, they both decreased as a percentage
of sales due to budget and cost control efforts. Research and development
expenditures were significantly reduced in 1997 in comparison to 1996 as the
Israeli operation moved from development efforts to increased production. In
fiscal 1996, selling and general and administrative expenses increased, when
compared to 1995, due primarily to increased selling efforts at the Amityville
microwave operations. Research and development expenses increased from the
prior year because of increases at General Microwave Israel, notwithstanding
decreases in the U.S. divisions.
Interest expense increased in fiscal 1997 as compared to 1996 as a result of
increased short term borrowings at the Israeli operation. Although borrowing
and interest thereon increased in fiscal 1996, interest expense decreased
compared to fiscal 1995's interest expense which included interest due on taxes
paid pursuant to a tax audit. Dividend and interest income were lower in
fiscal 1996 compared to the prior year as a result of a reduction in average
investment balances and lower interest rates during the year.
In fiscal 1997 the Company recorded a tax provision related to continuing
operations of $40,000, as compared to a tax benefit of $222,000 for fiscal 1996
and a tax benefit of $266,000 for fiscal 1995. The fiscal 1997 tax provision
principally represents taxes on the earnings of the Company's Israeli
operations. The fiscal 1996 tax benefit resulted primarily from a tax loss
carryback claim to recover Federal taxes paid for a three-year period and the
reduction of net deferred tax liabilities. The fiscal 1995 tax benefit
resulted primarily from the Israeli government's approval to utilize a
corporate tax rate of 10% in Israel instead of the statutory 38% as well as
the reversal of excess liabilities no longer determined to be required given
the completion of tax audits of several years in fiscal 1995.
Page 13
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During the three-year period covered by this discussion, inflation did not have
any significant effect on the Company's business.
Liquidity and Capital Resources
- -------------------------------
At February 28, 1997, after giving effect to discontinued operations, the
Company had working capital of $6.8 million compared to $9.9 million at the end
of fiscal 1996.
Cash flows provided by operating activities amounted to approximately
$1,893,000 and additional cash flows provided by discontinued operations
amounted to approximately $134,000 during fiscal 1997. Funds were used
primarily for the purchase of $409,000 of capital assets and repayments of long
term debt of $698,000 partially offset by proceeds from short term borrowings
of $269,000. Net cash flow resulted in an increase in cash of $1,244,000.
During fiscal 1996, cash flows provided by operating activities amounted to
approximately $703,000, offset by cash flow used in discontinued operations of
$713,000. In addition, funds were received from long-term debt proceeds at
General Microwave Israel of $404,000 and the sale of short-term investments of
$758,000. During fiscal 1996, the Company utilized funds primarily for the
payment of $575,000 of long-term debt, to acquire $550,000 of capital assets,
and to acquire an additional interest in General Microcircuits for $279,000.
During fiscal 1995 cash flows provided by operating activities amounted to
approximately $105,000, while cash flows used in discontinued operations
amounted to $390,000. The Company purchased approximately $1,430,000 of
treasury stock and $84,600 was utilized to purchase General Microcircuits'
common stock. Funds were also utilized for the payment of $575,000 of
long-term debt and to acquire $468,000 of capital assets. These were
funded primarily by the use of cash and marketable investments.
During fiscal 1997, inventories decreased $283,000 due primarily to improved
inventory and purchase controls. During fiscal 1996, inventories decreased
$620,000 due primarily to valuation reserves related to the disposal of
obsolete inventory. Accounts receivable increased slightly during fiscal 1997
due to increased sales. During fiscal 1996, accounts receivable decreased
compared to the prior year due to improved collections.
During fiscal 1997, the Company acquired capital assets of $409,000 compared
with $550,000 and $468,000 during fiscal 1996 and 1995, respectively. During
fiscal 1998, the Company anticipates expenditures of approximately $500,000 for
capital equipment. A major portion of the Company's property, plant and
equipment is encumbered by an Industrial Revenue Bond agreement, as discussed
in Note 8 to the Consolidated Financial Statements. As a result of the
financial statement impact of discontinued operations, the Company required and
received a waiver and amendment of three covenants included in a bond-related
agreement. See Note 8 to the consolidated financial statements. As a result
of one of these covenants as amended, there is approximately $85,000 of
unrestricted funds available for the payment of cash dividends as of
February 28, 1997.
In fiscal 1997 and 1996, the Company's only short-term borrowings
(approximately $592,000 and $324,000, respectively) were at its Israeli
subsidiary at a weighted average interest rate of 7.75% and 8.38%,
respectively. The Company believes that its cash on hand plus anticipated
sources of funds will be sufficient to fund its working capital, capital
expenditures and debt service requirements for fiscal 1998.
Page 14
<PAGE>
As a measure of the Company's ability to meet its short-term obligations, the
Company has the following:
February 28, February 29,
1997 1996
---- ----
Working Capital
(in thousands) $6,844 $9,950
Current Ratio 2.2 to 1 3.4 to 1
Recent Accounting Pronouncements
- --------------------------------
The Financial Accounting Standards Board has issued Statement 128, "Earnings
per Share" (Statement 128). Statement 128 establishes standards for computing
and presenting earnings per share (EPS). The Statement simplifies the
standards for computing EPS and makes them comparable to international EPS
standards. The provisions of Statement 128 are effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. The Statement does not permit early application and requires
restatement of all prior period EPS date presented. In the opinion of
management, adoption of Statement 128 will not have a material effect on the
Company's previously reported EPS.
Page 15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Page 16
<PAGE>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
February 28, 1997 and February 29, 1996
(With Independent Auditors' Report Thereon)
Page 17
<PAGE>
Independent Auditors' Report
----------------------------
To the Stockholders and Board of Directors
General Microwave Corporation:
We have audited the consolidated financial statements of General
Microwave Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as
listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement
schedule based on our audits. We did not audit the consolidated
financial statements of General Microwave Israel Corporation, an
indirect wholly-owned subsidiary, as of and for the year ended February
28, 1997, which statements reflect total assets constituting 26% and
17% and total revenues constituting 15% and 11%, after elimination of
intercompany balances and sales, of the related consolidated totals.
Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for General Microwave Israel Corporation for 1997 and 1996,
is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the 1997 and 1996 reports of
the other auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of General Microwave Corporation and subsidiaries as of February 28,
1997 and February 29, 1996 and the results of their operations and
their cash flows for each of the years in the three-year period ended
February 28, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, based on our audits and the 1997 and
1996 reports of the other auditors, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jericho, New York
May 21, 1997
Page 18
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
GENERAL MICROWAVE (ISRAEL) CORPORATION AND SUBSIDIARY
-----------------------------------------------------
We have audited the accompanying consolidated balance sheet of General
Microwave (Israel) Corporation and subsidiary ("the Company") as of February
28, 1997 and February 29, 1996, and the related consolidated statements of
operations, changes in shareholders' deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's Board of Directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors' Regulations
(Auditor's Mode of Performance) - 1973, which auditing standards are
substantially identical to generally accepted auditing standards in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the Board of Directors and management, as well
as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The aforementioned financial statements have been prepared in U.S. dollars as
described in Note 2A.
As stated in Note 1B, the consolidated financial statements were prepared at
the request of the parent company and for its use only. The financial
statements do not include activities of the Company, if any, that are not
directly reflected in its books and records maintained in Israel.
In our opinion, except for the matter discussed in the preceding paragraph,
the financial statements present fairly, in all material respects, the
consolidated financial position of the Company and subsidiary as of February
28, 1997 and February 29, 1996, and the consolidated results of operations,
changes in shareholders' deficiency and cash flows for the years then ended
in accordance with generally accepted accounting principles in Israel. As
applicable to these financial statements, such accounting principles are
substantially identical in all material respects to generally accepted
accounting principles in the United States.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all the information and explanations which we
requested and that our opinion on the consolidated financial statements is
given based on the best of the information and explanations which we received
and as reflected in the books of the Company.
s/ Igal Brightman & Co.
Certified Public Accountants
Jerusalem, May 20, 1997.
Page 19
<PAGE>
<TABLE>STATEMENT OF CONSOLIDATED BALANCE SHEETS
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, 1997 and February 29, 1996
<S> <C> <C>
Assets 1997 1996
------ ---- ----
Current assets:
Cash and cash equivalents $ 1,745,362 700,876
Restricted cash 200,000 -
Accounts receivable, net of allowance for doubtful accounts
of approximately $27,150 in 1997 and $25,700 in 1996 4,121,809 3,982,222
Current assets of discontinued operations 1,012,050 3,542,580
Inventories 4,535,832 4,819,275
Prepaid expenses and other current assets 250,417 268,327
Income tax receivable - 155,733
Deferred income taxes, net 523,676 560,073
---------- ----------
Total current assets 12,389,146 14,029,086
Property, plant and equipment, net 5,990,992 6,300,667
Debt issuance costs, net 56,497 75,626
Costs in excess of fair value of net assets acquired, net 679,773 757,398
Other intangible assets, net 144,392 141,157
Non-current assets of discontinued operations - 207,576
Other assets 28,711 70,098
---------- ----------
$ 19,289,511 21,581,608
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt 709,670 709,670
Short-term borrowing 591,739 323,463
Accounts payable 945,145 917,352
Current liabilities of discontinued operations 1,195,193 502,472
Accrued payroll and other employee benefits 691,227 713,429
Accrued expenses and other current liabilities 1,117,973 726,655
Accrued commissions 294,400 186,223
---------- ----------
Total current liabilities 5,545,347 4,079,264
Long-term debt, less current installments 1,627,141 2,325,589
Deferred income taxes 547,303 584,068
Minority interest 24,710 18,171
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized and unissued - -
Common stock, $.01 par value; 5,000,000 shares authorized;
issued 1,672,761 in 1997 and 1,664,492 in 1996 16,728 16,645
Additional paid-in capital 9,605,549 9,549,402
Retained earnings 5,111,382 8,197,118
---------- ----------
14,733,659 17,763,165
Less treasury stock, at cost 3,188,649 3,188,649
---------- ----------
11,545,010 14,574,516
---------- ----------
$ 19,289,511 21,581,608
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 20
<PAGE>
<TABLE>CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended February 28, 1997, February 29, 1996 and February 28, 1995
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Net sales $ 20,060,888 17,427,610 19,069,364
---------- ---------- ----------
Costs and expenses:
Cost of sales 13,727,368 12,434,854 12,894,839
Selling 2,414,014 2,259,367 1,975,568
General and administrative 2,973,517 2,820,194 2,832,143
Research and development 496,419 1,093,627 941,460
---------- ---------- ----------
19,611,318 18,608,042 18,644,010
---------- ---------- ----------
Operating earnings (loss) 449,570 (1,180,432) 425,354
---------- ---------- ----------
Other expenses (income):
Interest expense 219,283 148,682 171,902
Dividend and interest income (48,620) (57,060) (80,871)
Minority interest in earnings (loss) of
consolidated subsidiary 6,539 (6,399) 65,519
Other, net 30,638 98,471 67,844
---------- ---------- ----------
207,840 183,694 224,394
---------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes (benefit) 241,730 (1,364,126) 200,960
Income taxes (benefit) 40,000 (222,000) (266,000)
---------- ---------- ----------
Earnings (loss) from continuing operations 201,730 (1,142,126) 466,960
Discontinued operations (note 2):
Loss from operations of discontinued Math Associates,
Inc., net of applicable income tax benefits of
($332,000) in 1996 and ($155,000) in 1995 (627,011) (634,665) (292,284)
Loss on disposal of Math Associates, Inc., including
provision of $319,725 for operating losses
during phase-out period (2,660,455) - -
---------- ---------- ----------
Net earnings (loss) $ (3,085,736) (1,776,791) 174,676
========== ========== ==========
Net earnings (loss) per share:
From continuing operations .17 (.95) .38
From discontinued operations (2.73) (.53) (.24)
---------- ---------- ----------
Net earnings (loss) per share $ (2.56) (1.48) .14
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 21
<PAGE>
<TABLE>CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended February 28, 1997, February 29, 1996 and February 28, 1995
<S> <C> <C> <C> <C> <C>
Common stock Additional Treasury stock Total
------------ paid-in Retained -------------- stockholder's
Shares Amount capital earnings Shares Amount equity
------ ------ ------- -------- ------ ------ ------
Balances, February 28, 1994 1,656,492 $ 16,565 9,503,982 9,799,233 287,662 $ (1,754,068) 17,565,712
Net earnings - - - 174,676 - - 174,676
Exercise of stock options 4,800 48 27,052 - - - 27,100
Purchase of treasury stock - - - - 178,802 (1,430,115) (1,430,115)
--------- ------- --------- --------- ------- ---------- ----------
Balances, February 28, 1995 1,661,292 16,613 9,531,034 9,973,909 466,464 (3,184,183) 16,337,373
Net loss - - - (1,776,791) - - (1,776,791)
Exercise of stock options, net of
shares tendered 3,200 32 18,368 - 638 (4,466) 13,934
--------- ------- --------- --------- ------- ---------- ----------
Balances, February 29, 1996 1,664,492 16,645 9,549,402 8,197,118 467,102 (3,188,649) 14,574,516
Net loss - - - (3,085,736) - - (3,085,736)
Shares purchased from Employee
Stock Purchase Plan 8,269 83 56,147 - - - 56,230
--------- ------- --------- --------- ------- ---------- ----------
Balances, February 28, 1997 1,672,761 $ 16,728 9,605,549 5,111,382 467,101 $(3,188,649) 11,545,010
========= ======= ========= ========= ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 22
<PAGE>
<TABLE>CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended February 28, 1997, February 29, 1996 and February 28, 1995
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities: ---- ---- ----
Net earnings (loss) from continuing operations $ 201,730 (1,142,126) 466,960
Adjustments to reconcile net earnings (loss) to net cash
provided by continuing operations:
Depreciation and amortization 809,265 883,467 882,731
Bad debt recovery 1,450 (14,239) (68,630)
Gain on disposal of equipment 545 (4,867) (22,208)
Loss on sale of securities - - 19,214
Minority interest in earnings (loss) of consolidated
subsidiary 6,539 (6,399) 65,519
Changes in assets and liabilities:
Accounts receivable (141,037) 571,147 (522,884)
Inventories 283,443 620,399 112,858
Income taxes payable and receivable 369,741 (494,650) (81,731)
Prepaid expenses and other current assets 17,910 131,708 (259,490)
Accounts payable and accrued liabilities 302,052 208,961 201,896
Deferred income taxes 389 (102,696) (732,666)
Other assets 41,387 52,670 43,650
--------- --------- ---------
Net cash provided by continuing operations 1,893,414 703,375 105,219
--------- --------- ---------
Net cash provided by (used in) discontinued operations 133,851 (712,647) (390,356)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (409,012) (550,306) (468,076)
Proceeds from sale of fixed assets 19,533 13,511 26,790
Purchase of additional interest in subsidiary - (279,000) (84,600)
Purchases of intangible assets (17,137) (18,480) (34,178)
Sale of short-term investments, net - 757,909 1,737,466
--------- --------- ---------
Net cash provided by (used in)
investing activities (406,616) (76,366) 1,177,402
--------- --------- ---------
Net cash used in investing activities of discontinued operations (2,221) (26,272) (17,069)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (698,448) (575,000) (575,000)
Proceeds from long-term debt - 404,009 -
Net proceeds from short-term borrowings 268,276 78,751 244,712
Proceeds from issuance of common stock 56,230 13,934 27,100
Payments to acquire treasury stock - - (1,430,115)
--------- --------- ---------
Net cash used in financing activities (373,942) (78,306) (1,733,303)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,244,486 (190,216) (858,107)
Cash and cash equivalents at beginning of year 700,876 891,092 1,749,199
--------- --------- ---------
Cash and cash equivalents at end of year $ 1,945,362 700,876 891,092
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 23
<PAGE>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
February 28, 1997 and February 29, 1996
(1) Summary of Significant Accounting Policies and Practices
--------------------------------------------------------
(a) Description of Business
-----------------------
General Microwave Corporation and its subsidiaries (the Company) are
engaged primarily in the design, development, manufacture and marketing
of microwave equipment and components. The Company is organized into
three operating divisions in separate locations. A majority of the
Company's microwave products are sold to manufacturers and users of
microwave systems and equipment for applications in the defense
electronics industry. The Company also sells these components and
equipment for use in the industrial sector, as well as in commercial
telecommunications industries. Typical applications for the Company's
microwave products include electronic warfare and countermeasures;
airborne and shipboard navigation and communications; radar systems;
missile guidance systems; automatic test equipment; and satellite
communications. On February 25, 1997, the Board of Directors of the
Company adopted a plan to discontinue its electronic fiber optic systems
and components business operated by its wholly-owned subsidiary, Math
Associates, Inc. (note 2).
A substantial portion of the Company's revenues is derived from military
sources. The Company manufactures components and instruments for a
number of ongoing military programs and is currently engaged in the
design and manufacture of prototypes in connection with various
electronic countermeasures, electronic warfare, radar, navigation and
communications programs of the United States Government and foreign
governments and agencies thereof. The slowdown in defense spending by
the United States Government and sharpened government purchasing
practices has created significantly greater competitive pressures on
suppliers in the microwave industry.
(b) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of General
Microwave Corporation (GMC), its wholly-owned subsidiaries, General
Microwave Foreign Sales Corporation (FSC), Micro-El Patent Corporation
and Math Associates, Inc. (Math); its indirect wholly-owned
subsidiaries, General Microwave Israel Corporation (GMIC) and General
Microwave Israel (1987) Ltd. (GMIL); and its majority-owned subsidiary,
General Microcircuits Corporation (GMCC). All intercompany accounts and
transactions have been eliminated in consolidation.
(c) Revenue Recognition
-------------------
Sales are recorded as units are delivered with the cost of sales recognized
on each shipment based upon an average estimated final contract unit
cost, including overhead costs. Losses on contracts are recorded when
known.
(Continued)
Page 24
<PAGE>
(d) Cash Equivalents
----------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. There were no cash
equivalents at February 28, 1997 and February 29, 1996.
(e) Inventories
-----------
Work-in-process inventory reflects all accumulated production costs, which
are comprised of direct production costs and overhead, reduced by
amounts attributable to units delivered. Work-in-process inventory is
reduced to its estimated net realizable value by a charge to cost of
sales in the period excess costs are identified. Raw materials and
finished goods inventories are reflected at the lower of cost or market,
computed on the first-in, first-out (FIFO) method.
(f) Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost. Depreciation is
charged to operations over the estimated service lives of the related
assets (ranging from three to twenty-five years) using the straight-line
method. Assets acquired under capital lease and leasehold improvements
are amortized over the life of the lease or the estimated life of the
asset, whichever is less.
(g) Debt Issuance Costs
-------------------
Costs incurred in connection with the issuance of Industrial Development
Revenue Bonds, amounting to $313,000, are being amortized over the life
of the bonds (fifteen years) on a straight-line basis.
(h) Intangible Assets
-----------------
Intangible assets include patents recorded at cost which are amortized on a
straight-line basis over a period not to exceed seventeen years.
Accumulated amortization aggregated $78,311 and $64,409 at February 28,
1997 and February 29, 1996, respectively.
The costs in excess of fair value of net assets acquired relate to the
acquisition of GMCC and are amortized on a straight-line basis over
fifteen years. Additionally, these costs include the cost of additional
ownership of GMCC increasing from 80% to 97% (note 6), which are
amortized on a straight-line basis over the remaining life of the
original asset. Accumulated amortization aggregated $311,578 and
$233,953 at February 28, 1997 and February 29, 1996, respectively.
(i) Pension Expense
---------------
Pension expense for eligible employees is provided under an actuarial cost
method. The Company's policy is to make annual contributions to the
plan in accordance with actuarially determined funding requirements.
(Continued)
Page 25
<PAGE>
(j) Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
(k) Earnings Per Share
------------------
Earnings per share (EPS) is computed based on the weighted average number
of common shares outstanding during the year (including common stock
equivalents of 5,758 in fiscal 1995) of 1,204,281 in fiscal 1997,
1,196,682 in fiscal 1996 and 1,234,596 in fiscal 1995.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS No. 128
establishes standards for computing and presenting EPS. SFAS No. 128
simplifies the standards for computing EPS and makes them comparable to
international EPS standards. The provisions of SFAS No. 128 are
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. SFAS No. 128 does not
permit early application and requires restatement of all prior period
EPS data presented. In the opinion of management, adoption of
SFAS No. 128 will not have a material effect on the Company's previously
reported EPS.
(l) Reconciliation to United States Generally Accepted Accounting Principles
------------------------------------------------------------------------
The financial statements of the Company's Israeli operations, GMIC and
GMIL, were prepared in accordance with generally accepted accounting
principles in Israel. The differences between generally accepted
accounting principles in Israel and generally accepted accounting
principles in the United States as they pertain to GMIC and GMIL are not
considered material to the consolidated financial statements of the
Company.
(m) Foreign Currency Translation
----------------------------
The financial position and the results of operations of the Company's
Israeli operations are measured using the dollar as the functional
currency. Gains or losses resulting from translating transactions
denominated in a foreign currency were immaterial in fiscal 1997, 1996,
and 1995.
(Continued)
Page 26
<PAGE>
(n) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
-----------------------------------------------------------------------
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," on March 1, 1996. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Adoption of SFAS No. 121 did not have a material impact on the Company's
financial position or results of operations.
(o) Stock Option Plan
-----------------
Prior to March 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if and to the extent that the current market price
of the underlying stock exceeded the exercise price. On March 1, 1996,
the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(Continued)
Page 27
<PAGE>
(p) Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. The most significant estimates
include the recoverability of inventory, intangibles and accounts
receivable for continuing operations and the recoverability of assets
and estimated losses during the phase-out periods for discontinued
operations. Actual results could differ from those estimates.
(q) Reclassifications
-----------------
Reclassifications are made whenever necessary to conform with the current
year's presentation.
(2) Discontinued Operations
-----------------------
Pursuant to a Board of Directors resolution on February 25, 1997, the
Company adopted a plan to discontinue its electronic fiber optic systems
and components business. This business was operated by Math. The plan
anticipates that the liquidation of Math will be completed by no later
than February 28, 1998.
At February 28, 1997, a provision for loss on disposal of $2,660,455 has
been recorded in the accompanying consolidated financial statements
principally relating to the anticipated disposal of inventory and other
assets, estimated losses during the phase-out period and estimated costs
of liquidation.
The consolidated financial statements of the Company have been reclassified
to reflect the effects of the Company's decision to account for the
disposal of its Math operations as discontinued operations. Accordingly,
the net sales, costs and expenses, assets and liabilities, and cash
flows associated with Math have been excluded from the respective
captions in the accompanying consolidated balance sheets, statements of
operations and statements of cash flows.
Net sales of the discontinued operations prior to the date of
discontinuance were $4,735,586, $4,908,579, $3,240,628 for fiscal 1997,
1996 and 1995, respectively.
(Continued)
Page 28
<PAGE>
The following summarizes assets and liabilities of the discontinued
operations which have been segregated in the accompanying consolidated
balance sheets:
<TABLE>NOTE 2 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C>
1997 1996
Current assets - discontinued operations: ---- ----
Cash $ 148,583 438,855
Accounts receivable, net 863,467 1,168,339
Inventories - 1,924,928
Prepaid expenses and other current assets - 10,458
--------- ---------
$ 1,012,050 3,542,580
========= =========
Non-current assets - discontinued operations:
Property, plant and equipment, net - 55,385
Other intangible assets, net - 36,858
Costs in excess of fair value of net assets acquired, net - 115,333
--------- ---------
$ - 207,576
========= =========
Current liabilities - discontinued operations:
Accounts payable 186,084 284,423
Accrued expenses 1,009,109 218,049
--------- --------
$ 1,195,193 502,472
========= ========
</TABLE>
Discontinued operations include management's best estimates of the amounts
expected to be realized on the liquidation of the Math business. While
these estimates are based on an analysis of the recoverability of assets
and estimated losses during the phase-out period, actual results may
differ.
(Continued)
Page 29
<PAGE>
(3) Supplemental Cash Flow Information
----------------------------------
Following is supplemental information relating to the consolidated
statements of cash flows:
1997 1996 1995
Cash paid during the year for: ---- ---- ----
Interest $ 205,274 193,668 150,355
======= ======= =======
Income taxes $ 86,253 146,161 425,477
======= ======= =======
(4) Inventories
-----------
Inventories are comprised of the following:
1997 1996
---- ----
Raw materials $ 1,802,020 2,306,816
Work-in-process 2,371,040 2,571,959
Finished goods 568,132 368,003
--------- ---------
4,741,192 5,246,778
Less progress billings (205,360) (427,503)
--------- ---------
$ 4,535,832 4,819,275
========= =========
(Continued)
Page 30
<PAGE>
(5) Property, Plant and Equipment
-----------------------------
A summary of property, plant and equipment is as follows:
1997 1996
---- ----
Land $ 1,169,299 1,169,299
Buildings and improvements 5,832,699 5,826,907
Test equipment 1,406,230 1,319,338
Machinery and equipment 3,273,314 3,160,585
Furniture and office equipment 1,587,777 1,445,985
Leasehold improvements 266,165 259,212
Transportation equipment 229,107 235,863
Tooling 86,596 25,683
Construction-in-process 25,172 80,084
---------- ----------
13,876,359 13,522,956
Less accumulated depreciation
and amortization 7,885,367 7,222,289
---------- ----------
$ 5,990,992 6,300,667
========== ==========
Depreciation expense aggregated $698,609, $774,006 and $802,676 in fiscal
1997, 1996 and 1995, respectively. Repairs and maintenance costs are
expensed as incurred and amounted to approximately $410,000, $362,000
and $424,000 in fiscal 1997, 1996, and 1995, respectively.
The Company's Israeli operations were granted "approved enterprise status"
and are therefore entitled to investment grants from the Israeli
government for investments in production facilities. Such approval is
conditional upon meeting certain export requirements, once
implementation of the investment program has been completed. Investment
grants reflected as an offset against the cost of property and equipment
amounted to $1,063,523 and $1,036,182 at February 28, 1997 and February
29, 1996, respectively. The conditions for receipt of grants in the
amount of $713,097 were fulfilled as of February 28, 1997. Should the
Company not fulfill the conditions applicable to receipt of the
remaining grants, the Israeli government is permitted to demand refund
of the balance of $350,426, plus interest. In management's opinion, the
Company will fulfill the relevant conditions relating to investment
grants received.
(Continued)
Page 31
<PAGE>
(6) Majority-Owned Subsidiary
-------------------------
At February 28, 1997, the Company owns 97% of GMCC's outstanding common
stock (291,000 shares). The agreement associated with the Company's
investment in GMCC states that, at the option of the minority
stockholders, the Company may be required to purchase up to 100% of the
outstanding common stock of GMCC at various dates as defined in the
agreement. If not exercised at the stipulated dates, the option to
require the Company to purchase the GMCC stock is cumulative. The
purchase price is based upon GMCC's net earnings as defined by the
agreement, as amended in September 1990, payable in cash up to a
cumulative aggregate amount of $1,000,000 and, thereafter, with a
combination of cash and common stock of the Company, at the Company's
option, in accordance with the provisions of the option.
During fiscal 1996, the Company acquired 15,000 shares of GMCC common stock
for $279,000, resulting in an aggregate increase in the Company's
ownership to 97%. These transactions are accounted for by the purchase
method of accounting. The purchase price in excess of the additional
ownership acquired is recorded as an addition to costs in excess of fair
value of net assets acquired, which amounted to $238,051 in fiscal 1996.
Additionally, the Company owns all of the outstanding preferred stock of
GMCC. The interest in the investment in GMCC outstanding common stock
not owned by the Company is recorded as minority interest on the
accompanying consolidated balance sheets.
(7) Income Taxes
------------
The components of income tax expense (benefit) are as follows:
1997 1996 1995
---- ---- ----
Current:
Federal $ - (346,000) 153,000
State 8,000 (29,000) 110,000
Foreign 32,000 1,000 (24,000)
------- -------- --------
40,000 (374,000) 239,000
------- -------- --------
Deferred:
Federal and State - 152,000 (505,000)
------- -------- --------
$ 40,000 (222,000) (266,000)
======= ======== ========
(Continued)
Page 32
<PAGE>
A reconciliation of income taxes (benefit) computed at the Federal
statutory rate to reported income taxes (benefit) is as follows:
<TABLE>NOTE 7 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---------------- ------------------ ----------------
Tax at Federal statutory rate $ 82,000 34.0% $ (463,800) (34.0)% $ 68,300 34.0%
Change in beginning of the
year balance of the valua-
tion allowance for deferred
tax assets of continuing
operations allocated to
income tax expense (42,000) (17.4) 322,700 23.7 (28,500) (14.2)
Benefit of lower tax rate
on foreign income (36,000) (14.9) - - (24,300) (12.1)
Earnings of subsidiary not
consolidated for tax
purposes - - 58,600 4.3 - -
State income taxes (benefit),
net 5,000 2.0 (115,000) (8.4) 72,500 36.1
Tax exempt income - - - - (19,300) (9.6)
Amortization of costs in
excess of fair value of
net assets acquired 26,000 10.8 25,700 1.9 18,400 9.2
Reversal of prior years'
over provisions (67,000) (4.9) (368,000) (183.1)
Other, net 5,000 2.0 16,800 1.2 14,900 7.3
-------- ----- -------- ----- --------- ------
Income taxes (benefit) $ 40,000 16.5% $ (222,000) (16.2)% $ (266,000) (132.4)%
======== ===== ======== ===== ========= ======
</TABLE>
(Continued)
Page 33
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
February 28 and February 29 are presented as follows:
<TABLE>NOTE 7 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 and obsolescence reserve $ 318,484 323,727
Net operating loss carryforwards 77,400 246,064
Tax credit carryforwards 248,000 144,200
Discontinued operations 1,380,216 219,797
Allowance for doubtful accounts receivable 9,867 9,374
Warranty reserve 25,135 22,141
Other 72,575 37,377
--------- ---------
Total deferred tax assets 2,131,677 1,002,680
Less valuation allowance (1,518,555) (367,217)
--------- --------
Net deferred tax assets $ 613,122 635,463
========= ========
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and capitalized interest $ 547,303 584,068
Other 89,446 75,390
------- -------
Total deferred tax liabilities 636,749 659,458
------- -------
Net deferred liabilities $ 23,627 23,995
======= =======
</TABLE>
(Continued)
Page 34
<PAGE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considered the scheduled reversal of deferred
tax assets and liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections of future taxable income over
the periods which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the
benefits of the net deferred tax assets. The amount of the deferred tax
assets considered realizable, however, could be reduced in the near term
if estimates of future taxable income are reduced.
At February 28, 1997, the Company has Federal net operating loss
carryforwards of approximately $550,000, state net operating loss
carryforwards of $3,335,000 and state tax credits of $248,000 which are
available to offset future taxable income, if any. These Federal and
state net operating loss carryforwards and state tax credits, which
arose from both continuing and discontinued operations, are available to
offset future taxable income of continuing operations. The Federal and
New York State net operating loss carryforwards expire starting in
fiscal 2009.
During fiscal 1995, the Company paid $115,366 of federal income taxes
related to a foreign subsidiary, which is included in the reduction of
the deferred tax liabilities.
Earnings before provision for (benefit of) income taxes, without giving
effect to intercompany eliminations, include income (losses) from
foreign operations of $515,471, ($541,212) and ($12,728) in fiscal 1997,
1996 and 1995, respectively.
(Continued)
Page 35
<PAGE>
(8) Long-term Debt
--------------
Long-term debt consists of the following:
1997 1996
---- ----
Industrial Development Revenue Bonds $ 1,700,000 2,200,000
Bank loans payable 636,811 835,259
--------- ---------
2,336,811 3,035,259
Less current installments 709,670 709,670
--------- ---------
$ 1,627,141 2,325,589
========= =========
Under the terms of an agreement with the Town of Babylon Industrial
Development Agency and a bank, the Agency issued 1984 Variable Rate
7-Day Demand Industrial Development Revenue Bonds in the amount of
$6,000,000 to provide a substantial portion of the funds for the
construction and equipping of the Company's manufacturing facility in
Amityville, New York. Interest is payable semi-annually at a variable
rate which approximates 65% of the yield on 13-week U.S. Treasury bills.
Such rate was 3.25% and 3.10% at February 28, 1997 and February 29,
1996, respectively. Under the terms of the agreement, the Company
obtained an irrevocable bank letter of credit for the amount of the
bonds plus certain interest. The letter of credit, which amounted to
approximately $1,877,000 and $2,377,000 at February 28, 1997 and
February 29, 1996, respectively, will be drawn on in the event the Town
of Babylon defaults on its obligations to the bondholders. This letter
of credit expires on September 15, 1997 and management is presently
negotiating the letter of credit with the bank. At any time prior to
maturity, the bonds are redeemable at the option of the Company at a
redemption price of 100%. The bonds are due on October 1, 1999 with
annual sinking fund requirements increasing from $500,000 in fiscal 1995
to $600,000 at maturity. All property, plant and equipment acquired or
constructed by the Company with the proceeds of the bonds collateralize
the obligation.
(Continued)
Page 36
<PAGE>
The aforementioned bond agreement includes certain restrictive covenants,
as amended. The Company must, among other things, maintain profitable
operations, a minimum ratio of current assets to current liabilities,
a minimum level of tangible net worth, as defined, and must not exceed
a specified debt to equity ratio. In addition, commencing April 1,
1996, the Company is required to make monthly sinking fund payments
towards its annual $500,000 bond payment. Such amount is reflected as
restricted cash on the accompanying consolidated balance sheet as of
February 28, 1997. In December 1995, the Company and two of its
subsidiaries, Math and GMCC, guaranteed and granted a security interest
in their accounts receivable to the bondholders and the letter of credit
issuer as additional security for the Company's bond related debt. The
balance of such accounts receivable is $4,211,711 at February 28, 1997.
As a result of the financial statement impact of discontinued
operations, the Company required and received a waiver dated May 20,
1997 of three covenants. The waiver also modified the tangible net worth
covenant, as defined, to approximately the February 28, 1997 level,
subject to increases dependent upon future operations. The tangible
net worth covenant limits the ability of the Company to pay cash
dividends. As a result of such covenant as amended, there is
approximately $85,000 of unrestricted funds available for the payment
of cash dividends as of February 28, 1997.
During fiscal 1992 the Company's subsidiary, GMIL, entered into a capital
lease on its operating facility in the Talpiot Industrial Zone of
Jerusalem, Israel at a cost of $841,875. This transaction was primarily
financed with a $750,000 long-term bank loan due in November 2001,
bearing interest at LIBOR plus 1.5% (7.20% at February 28, 1997) and
LIBOR plus 2% (8.03% at February 29, 1996), of which $356,250 and
$431,250 was outstanding at February 28, 1997 and February 29, 1996,
respectively.
During fiscal 1996, GMIL obtained working capital financing. This
long-term bank loan is due December 7, 1998, bearing interest in fiscal
1997 at LIBOR plus 1.5% (7.20% at February 28, 1997) and in fiscal
1996 at LIBOR plus 2.5% (8.70% at February 29, 1996), of which $280,561
and $404,009 was outstanding at February 28, 1997 and February 29, 1996,
respectively.
The loans are secured by the premises, all of GMIL's assets and a guarantee
by the Company of $300,000.
Required principal payments on long-term debt are summarized as follows:
1998 $ 709,670
1999 809,669
2000 686,222
2001 75,000
2002 56,250
---------
$ 2,336,811
=========
(Continued)
Page 37
<PAGE>
(9) Short-term Borrowing
--------------------
The Company's Israeli subsidiary has outstanding short-term borrowings with
a bank aggregating $591,739 and $323,463 at February 28, 1997 and
February 29, 1996, respectively, with interest rates ranging from 6.95%
to 8.40%. The short-term borrowings were refinanced in March 1997 at
similar interest rates with expiration dates through June 1997.
(10) Employee Benefit Plans
----------------------
(a) Pension Benefits
----------------
The Company has a noncontributory defined benefit pension plan covering
all eligible employees of GMC and its Math subsidiary. Pension
expense is accrued in accordance with the projected unit credit
actuarial cost method. Although the Company reserves the right to
terminate the plan at any time, it is obligated to fund the recommended
contribution as long as the plan remains in effect.
The net pension expense includes the following components:
1997 1996 1995
---- ---- ----
Service cost - benefits earned during
the period $ 137,700 128,900 149,300
Interest cost on projected benefit
obligation 278,500 267,000 222,200
Actual return on assets (597,900) (506,200) (177,100)
Net amortization and deferral 360,700 288,300 (16,800)
-------- -------- --------
Net pension expense $ 179,000 178,000 177,600
======== ======== ========
Assumptions used in the accounting for net pension expense in fiscal 1997,
1996 and 1995 were:
1997 1996 1995
---- ---- ----
Weighted average discount rate 7.5% 7.5% 8.5%
Average rate of increase in compensation levels 5.0 5.0 6.0
Expected long-term rate of return on assets 8.5 8.5 8.0
==== ==== ====
(Continued)
Page 38
<PAGE>
The following table sets forth the funded status and the prepaid pension
asset of the Company's defined benefit plan at February 28 and
February 29:
<TABLE>NOTE 10 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Actuarial present value of accumulated benefit obligation,
including vested benefits of $3,178,100 in 1997
and $2,971,300 in 1996 $ (3,249,700) (3,053,900)
========== ==========
Projected benefit obligation for services rendered to date (4,019,200) (3,845,300)
Plan assets at fair value 3,720,100 3,220,800
---------- ----------
Funded status - projected benefit obligation in
excess of plan assets (299,100) (624,500)
Unrecognized net gain from past experience different from
that assumed 142,600 486,700
Unrecognized prior service cost 240,300 267,900
Unrecognized net asset as of March 1, 1987 being
recognized over approximately 20 years (55,400) (60,800)
---------- ----------
Prepaid pension asset included in other assets $ 28,400 69,300
========== ==========
</TABLE>
Pension plan assets consist principally of United States Government
securities and marketable equity securities.
(b) Employee 401(k) Plan
--------------------
The Company maintains an Employee 401(k) Savings Plan. The plan is a
defined contribution plan administered by the Company covering all
eligible employees of GMC and its Math and GMCC subsidiaries. The plan
provides for growth in savings through contributions and income from
investments. It is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA), as amended. Plan participants are
allowed to contribute a specified percentage of their base salary. The
Company does not contribute to the plan.
(Continued)
Page 39
<PAGE>
(11) Stockholders' Equity
--------------------
The 1990 Stock Option Plan (1990 Plan) provides for the issuance of up to
125,000 shares of common stock to key employees including officers and
directors who are employees. Options under the 1990 Plan, which expires
on June 26, 2000, may be either incentive stock options (ISO) or options
not qualified under the Internal Revenue Code. The purchase price of
common stock under each option shall be determined by the Stock Option
Committee of the Board of Directors; provided, however, that the stock
purchase price pursuant to an ISO may not be less than the fair market
value of the common stock subject to the option on the date that the
option was granted, and may in no event be less than the par value of
the stock. Options granted to date under the 1990 Plan were at the fair
market value at the date of grant. The 1990 Plan permits option holders
to pay the option exercise price with previously owned common stock of
the Company or a combination of cash and common stock. During fiscal
1996, 638 shares of common stock held greater than six months were
received as payment for the exercise price of options. If any employee
to whom an ISO is granted owns common stock amounting to more than 10%
of the total voting power of all classes of stock of the Company, the
option exercise price must be at least 110% of the fair market value of
common stock at the time the option is granted and the option must
terminate no later than five years from the date the option is granted.
At February 28, 1997, 34,500 options outstanding are exercisable under
the plan.
In January 1997, the Company adjusted the exercise price of all outstanding
options to an exercise price of $5.00 per share, the then fair market
value of the stock.
A summary of stock option transactions follows:
1990 Plan
------------------
Weighted-
average
Number exercise
of shares price
--------- -----
Outstanding, February 28, 1994 37,250 $ 5.62
Granted 10,500 7.31
Exercised (4,800) (5.81)
------
Outstanding, February 28, 1995 42,950 6.35
Granted 16,000 6.79
Exercised (3,200) (5.75)
Canceled (2,500) (7.50)
------
(Continued)
Page 40
<PAGE>
1990 Plan
-----------------
Weighted-
average
Number exercise
of shares price
--------- -----
Outstanding, February 29, 1996 53,250 $ 6.34
Granted 8,000 6.77
Canceled (9,500) (6.44)
------
Outstanding, February 28, 1997 51,750 $ 5.00
======
The Company has an Employee Stock Purchase Plan which offers eligible
employees options to purchase common stock of the Company at a purchase
price of 85% of the lesser of the average market value of the common
stock on the date of grant or on the exercise date. The exercise date
is the last business day of the 25th month following the date of grant.
Payment for the shares is made through payroll deductions over a
two-year period. The maximum number of shares that may be issued under
this Plan, as amended, is 140,000.
A summary of employee stock purchase transactions follows:
Weighted-
average
Number exercise
of shares price
--------- -----
Outstanding, February 28, 1994 - $ -
Granted 15,899 7.44
Canceled (2,616) 7.44
------
Outstanding, February 28, 1995 13,283 7.44
Canceled (4,839) 7.44
------
Outstanding, February 29, 1996 8,444 7.44
Exercised 8,269 6.80
Granted 6,049 5.74
Canceled (175) 6.80
------
Outstanding, February 28, 1997 6,049 $ 5.75
======
(Continued)
Page 41
<PAGE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock option plans. Accordingly, no compensation cost
has been recognized. The Company's net loss and net loss per share
would have increased to the following pro forma amounts had compensation
cost been recorded for the stock option and stock purchase plans
based on the fair value at the grant dates for awards, as well as the
January 1997 repricing of the outstanding stock options:
1997 1996
---- ----
Net loss:
As reported $ (3,085,736) (1,776,791)
Pro forma $ (3,090,373) (1,810,625)
Net loss per share:
As reported $ (2.56) 1.48
Pro forma $ (2.56) 1.51
The per share weighted average fair value of stock options granted during
fiscal 1997 and 1996 was $3.43 and $3.36, respectively. The fair value
of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1997 and 1996, respectively:
expected volatility of 15% and 20%; risk-free interest rates of 6.41%
and 6.33%; expected lives of 7.1 and 10.0 years; and no dividend yields.
Pro forma net income reflects only options granted in fiscal 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss
amounts presented above because compensation cost is reflected over the
options' vesting period and compensation cost for options granted prior
to March 1, 1995 is not considered.
(Continued)
Page 42
<PAGE>
(12) Financial Instruments
---------------------
SFAS Statement No. 107, Disclosures about Fair Value of Financial
Instruments, defines the fair value of a financial instrument as the
amounts at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of all
financial instruments classified as a current asset or current liability
are deemed to approximate fair value because of the short maturity of
these instruments. In the opinion of management, the carrying value of
the Company's bank loan payable (note 8) approximates fair value as the
interest rate is based on the current LIBOR rate and such rate is
believed to approximate the rates that would be offered to GMIL for debt
of the same remaining maturities.
It was not practicable to estimate the fair value of the Company's
Industrial Development Revenue Bonds of $1,700,000 as of February 28,
1997. The fair value of such bonds would be based upon the rates an
Industrial Development Agency would charge the Company to finance the
construction and/or equipping of a new manufacturing facility. Such
rates are not readily determinable, without incurring excessive cost.
However, because the carrying value of the bonds are based upon a rate
that fluctuates with a U.S. Treasury rate, management is of the opinion
that the difference between the carrying value and fair value would not
be material.
(13) Business and Credit Concentrations
----------------------------------
The Company's operations are in a single industry segment and involve the
manufacture of various types of microwave, electronic equipment and
components. The majority of the Company's business is defense related
and consists of direct and indirect sales to the United States
Government and foreign governments or to other companies that are
manufacturing products for the defense industry.
(Continued)
Page 43
<PAGE>
(a) Foreign and Domestic Operations and Export Sales
------------------------------------------------
Net sales to customers by geographic area are the following:
Year ended February 28 or 29,
<TABLE>NOTE 13 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
United States $ 13,213,276 13,047,519 14,425,734
Other Western Hemisphere 96,664 55,638 46,064
Europe 2,719,076 2,473,485 2,130,917
Asia 3,675,478 1,476,305 2,303,901
Other 356,394 374,663 162,748
---------- ---------- ----------
$ 20,060,888 17,427,610 19,069,364
========== ========== ==========
</TABLE>
Information concerning foreign and domestic continuing operations for
fiscal 1997, 1996 and 1995 is as follows:
<TABLE>NOTE 13 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Net sales:
United States $ 17,019,006 14,935,708 17,067,801
Israel 6,671,661 3,732,718 3,166,642
Transfers between geographic
areas (eliminated in consolidation) (3,629,779) (1,240,816) (1,165,079)
---------- ---------- ----------
$ 20,060,888 17,427,610 19,069,364
========== ========== ==========
Operating earnings (loss):
United States $ (234,641) (744,942) 385,518
Israel 684,211 (435,490) 39,836
---------- ---------- ----------
$ 449,570 (1,180,432) 425,354
========== ========== ==========
Identifiable assets of
continuing operations:
United States 13,525,361 14,058,281 16,417,950
Israel 4,788,497 3,773,171 3,578,745
---------- ---------- ----------
$ 18,313,858 17,831,452 19,996,695
========== ========== ==========
</TABLE>
(Continued)
Page 44
<PAGE>
In determining operating earnings (loss) for each geographic area, sales
and purchases between areas have been accounted for on the basis of
internal prices set by the Company. Identifiable assets are those
tangible and intangible assets used in operations in each geographic
area. Identifiable assets of the Israeli operations include trade
accounts receivable from GMC of $603,125, $116,464 and $125,003 as of
February 28, 1997 and February 29, 1996 and 1995, respectively.
(b) Credit Concentrations
---------------------
During fiscal 1997, 1996 and 1995, after giving effect to discontinued
operations, one customer represented 26%, 10% and 12% of net sales,
respectively, of the Company. In addition, the Company had 5 and 7
customers with individual balances in excess of 5% of accounts
receivable, which aggregated approximately $2,200,000 and $2,600,000,
at February 28, 1997 and February 29, 1996, respectively.
The Company grants credit to customers based upon analysis of their
financial position and other factors. Consequently, an adverse change
in those factors could affect the Company's estimate of its bad debts.
The Company estimates an allowance for doubtful accounts based upon the
creditworthiness of its customers as well as general economic
conditions. As the majority of the Company's sales are made and credit
is granted to the United States Government and customers in the defense
industry, the Company considers the credit risks associated with its
customers to be minimal.
(14) Employment Agreements
---------------------
The Company has two three-year agreements not to compete and consulting
agreements with its former president and one former officer, expiring on
various dates through March 1, 1998. The minimum payments under all of
the above agreements aggregate approximately $162,000 for fiscal 1998.
(15) Unaudited Quarterly Financial Information
-----------------------------------------
The following is a summary of quarterly operating results for fiscal 1997
and 1996 (in thousands, except per share amounts):
(Continued)
Page 45
<PAGE>
1997
--------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Net sales $4,288 4,875 4,868 6,030
Gross profit 1,553 1,322 1,321 2,138
Net earnings (loss):
Continuing operations 50 (254) (191) 597
Discontinued operations 5 (435) (196) (2,661)
----- ----- ----- ------
Total 55 (689) (387) (2,064)
===== ===== ===== ======
Earnings (loss) per share:
Continuing operations .04 (.21) (.16) .50
Discontinued operations .01 (.36) (.16) (2.21)
----- ----- ----- ------
Total .05 (.57) (.32) (1.71)
===== ===== ===== ======
1996
--------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Net sales $3,763 4,020 4,148 5,497
Gross profit 1,038 1,146 929 1,880
Net earnings (loss):
Continuing operations (624) (165) (626) 273
Discontinued operations (257) 66 (429) (14)
----- ----- ----- -----
Total (881) (99) (1,055) 259
===== ===== ===== =====
Earnings (loss) per share:
Continuing operations (.52) (.14) (.52) .23
Discontinued operations (.22) .06 (.36) (.01)
----- ----- ----- -----
Total (.74) (.08) (.88) .22
===== ===== ===== =====
(Continued)
Page 46
<PAGE>
Earnings per share calculations for each of the quarters are based on
weighted average number of shares outstanding in each period, therefore,
the sum of the quarters does not necessarily equal the years' earnings
per share.
As discussed in note 2, in the fourth quarter of fiscal 1997, the Company
adopted a plan to discontinue its electronic fiber optic systems and
components business.
(Continued)
Page 47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
Not applicable.
Page 48
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
Information relating to directors of the Registrant and Section 16(a)
Beneficial Ownership Reporting Compliance will be contained in a definitive
Proxy Statement involving the election of directors which the Registrant will
file with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than 120 days after the
Company's fiscal year end and such information is incorporated herein by
reference. Information relating to Executive Officers of the Registrant
appears at page 9 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
Information relating to executive compensation will be contained in the
Proxy Statement referred to above in "Item 10. Directors and Executive
Officers of the Registrant", and such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT.
-----------
Information relating to security ownership of certain beneficial owners
and management will be contained in the Proxy Statement referred to above in
"Item 10. Directors and Executive Officers of the Registrant", and such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Information relating to certain relationships and related transactions
will be contained in the Proxy Statement referred to above in "Item 10.
Directors and Executive Officers of the Registrant", and such information is
incorporated herein by reference.
Page 49
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
-----------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements Page
. Independent Auditors' Reports 18 & 19
. Consolidated Balance Sheets - February
28, 1997 and February 29, 1996 20
. Consolidated Statements of Operations
years ended February 28, 1997, February
29, 1996 and February 28, 1995 21
. Consolidated Statements of Stockholders'
Equity - years ended February 28, 1997,
February 29, 1996 and February 28, 1995 22
. Consolidated Statements of Cash Flows -
years ended February 28, 1997, February
29, 1996 and February 28, 1995 23
. Notes to Consolidated Financial Statements 24
2. Financial Statement Schedules
The following consolidated financial statement
schedule is filed as part of this report:
Page
II - Valuation and Qualifying Accounts 54
Schedules other than those listed above are omitted because
they are not applicable or the information required is included in
the consolidated financial statements or the notes thereto.
Page 50
<PAGE>
3. Exhibits
(a) See the exhibit index to this Annual Report on
Form 10-K. The following exhibits on the
Exhibit Index are filed with this Annual Report
on Form 10-K.
Exhibit No.
-----------
10(a)(25) Amendment and Waiver of Reimbursement
Agreement dated January 10, 1997
between Fleet Bank, N.A. and General
Microwave Corporation.
10(a)(26) Amendment and Waiver of Reimbursement
Agreement dated May 20, 1997
between Fleet Bank, N.A. and General
Microwave Corporation.
22 Subsidiaries of the Registrant.
23 Independent Auditors' Consents.
27 Financial Data Schedule (filed with
electronically filed copy only)
(b) Reports on Form 8-K
None.
(c) The following management contracts or
compensatory plans, contracts or arrangements
are filed with or incorporated by reference in
this Annual Report on Form 10-K.
Exhibit No.
-----------
10(c) 1990 Stock Option Plan, As Amended -
Incorporated by reference to Quarterly Report
on Form 10-Q for the quarter ended November
30, 1996, filed January 14, 1997.
10(d) General Microwave Corporation Executive
Incentive Bonus Plan adopted May 28, 1996 -
Incorporated by reference to Annual Report on
Form 10-K for the fiscal year ended February
29, 1996, filed May 29, 1996.
10(e)(1) Consulting Agreement dated as of March 1,
1995 between General Microwave Corporation
and Sherman A. Rinkel - Incorporated by
reference to Annual Report on Form 10-K for
the fiscal year ended February 28, 1995,
filed May 26, 1995.
Page 51
<PAGE>
10(e)(2) Noncompetition Agreement dated as of March 1,
1995 between General Microwave Corporation
and Sherman A. Rinkel - Incorporated by
reference to Annual Report on Form 10-K for
the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(f)(1) Consulting Agreement dated as of December 1,
1994 between General Microwave Corporation
and Bernard Grand - Incorporated by reference
to Annual Report on Form 10-K for the fiscal
year ended February 28, 1995, filed May 26,
1995.
10(f)(2) Noncompetition Agreement dated as of December
1, 1994 between General Microwave Corporation
and Bernard Grand - Incorporated by reference
to Annual Report on Form 10-K for the fiscal
year ended February 28, 1995, filed May 26,
1995.
Page 52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securi-
ties Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GENERAL MICROWAVE CORPORATION
By:s/ MITCHELL TUCKMAN
---------------------------
Mitchell Tuckman, President
and Chief Executive Officer
Date: May 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures Title Date
By:s/ MITCHELL TUCKMAN President, Chief Executive May 21, 1997
--------------------- Officer and Director (Prin-
Mitchell Tuckman cipal Executive Officer)
By:s/ ARNOLD H. LEVINE Vice President-Finance, May 21, 1997
--------------------- Treasurer and Chief Financial
Arnold H. Levine Officer (Principal Financial
and Accounting Officer)
By:s/ SHERMAN A. RINKEL Director May 21, 1997
---------------------
Sherman A. Rinkel
By:s/ MOE WIND Director May 21, 1997
---------------------
Moe Wind
By:s/ STANLEY SIMON Director May 21, 1997
---------------------
Stanley Simon
By:s/ EDMOND D. FRANCO Director May 21, 1997
---------------------
Edmond D. Franco
By:s/ MICHAEL I. STOLZAR Director May 21, 1997
---------------------
Michael I. Stolzar
By:s/ MICHAEL I. MAGIDSON Director May 21, 1997
----------------------
Michael I. Magidson
Page 53
<PAGE>
Schedule II
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEAR PERIOD ENDED FEBRUARY 28, 1997
INVENTORY
- ---------
Additions
---------
Balance at charged to Balance at
beginning costs and end of
Year Ended of period expenses Deductions period
- ---------- --------- -------- ---------- ------
Inventory
February 28, 1997 $ 825,000 65,000 --- 890,000
Inventory
February 29, 1996 $ 887,000 438,000 500,000 825,000
Inventory
February 28, 1995 $ 330,000 557,000 --- 887,000
ACCOUNTS RECEIVABLE
- -------------------
Additions
---------
Balance at charged to Balance at
beginning costs and (1) end of
Year Ended of period expenses Deductions period
- ---------- --------- -------- ---------- ------
Accounts
Receivable
February 28, 1997 $ 25,700 1,500 --- 27,200
Accounts
Receivable
February 29, 1996 $ 40,000 --- 14,300 25,700
Accounts
Receivable
February 28, 1995 $ 139,400 --- 99,400 40,000
(1) Represents reduction in required allowance for doubtful accounts
in fiscal 1995 and 1996.
Page 54
<PAGE>
EXHIBIT INDEX
-------------
Page Number
in Sequential
Numbering
Exhibit No. -------------
- -----------
3(i)(a) Certificate of Incorporation of General *
Microwave Corporation dated June 13, 1960 -
Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended
February 28, 1995, filed May 26, 1995.
3(i)(b) Certificate of Amendment of Certificate of *
Incorporation of General Microwave Corpora-
tion dated December 21, 1961 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(i)(c) Certificate of Change of General Microwave *
Corporation dated September 24, 1981 -
Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended
February 28, 1995, filed May 26, 1995.
3(i)(d) Certificate of Amendment of Certificate of *
of Incorporation of General Microwave Cor-
poration dated June 25, 1985 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(i)(e) Certificate of Change of General Microwave *
Corporation dated June 24, 1986 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(i)(f) Certificate of Amendment of Certificate *
of Incorporation of General Microwave
Corporation dated June 28, 1988 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(ii) By-laws of General Microwave Corporation - *
Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended
February 29, 1996, filed May 29, 1996.
_________
* Incorporated by reference
Page 55
<PAGE>
4 Not applicable.
9 Not applicable.
10(a)(1) Indenture of Mortgage and Trust dated as of *
October 1, 1984 by and between Town of Baby-
lon Industrial Development Agency and National
Westminster Bank USA, as Trustee - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(2) Lease Agreement dated as of October 1, 1984 *
by and between Town of Babylon Industrial
Development Agency and General Microwave
Corporation - Incorporated by reference to
Annual Report on Form 10-K for the fiscal
year ended February 28, 1995, filed May 26,
1995.
10(a)(3) Lease Modification Agreement dated as of *
April 1, 1986 between Town of Babylon
Industrial Development Agency and General
Microwave Corporation - Incorporated by
reference to Annual Report on Form 10-K for
the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(4) Reimbursement Agreement dated as of October *
1, 1984 between General Microwave Corporation
and National Westminster Bank USA, as Letter
of Credit Issuer - Incorporated by reference
to Annual Report on Form 10-K for the fiscal
year ended February 28, 1995, filed May 26,
1995.
10(a)(5) Guaranty dated as of October 1, 1984 of *
General Microwave Corporation to National
Westminster Bank USA, as Trustee - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(6) Remarketing Agreement dated as of April *
2, 1990 among Citicorp Securities Markets,
Inc., General Microwave Corporation and
Town of Babylon Industrial Development
Agency - Incorporated by reference to Annual
Report on Form 10-K for the fiscal year
ended February 28, 1995, filed May 26, 1995.
__________
* Incorporated by reference
Page 56
<PAGE>
10(a)(7) Second Mortgage dated as of October 1, 1984 *
from the Town of Babylon Industrial Develop-
ment Agency to National Westminster Bank USA,
as Letter of Credit Issuer - Incorporated by
reference to Annual Report on Form 10-K for
the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(8) Second Pledge and Assignment dated as of *
October 1, 1984 from the Town of Babylon
Industrial Development Agency to National
Westminster Bank USA, as Letter of Credit
Issuer - Incorporated by reference to Annual
Report on Form 10-K for the fiscal year
ended February 28, 1995, filed May 26, 1995.
10(a)(9) Assignment of Mortgage and Pledge and assign- *
ment dated as of October 1, 1984 from National
Westminster Bank USA, as Letter of Credit
Issuer, to National Westminster Bank USA,
as Trustee - Incorporated by reference to
Annual Report on Form 10-K for the fiscal year
ended February 28, 1995, filed May 26, 1995.
10(a)(10) Acknowledgment and Acceptance dated as of *
September 26, 1990 among National Westminster
Bank USA, The Connecticut National Bank, Town
of Babylon Industrial Development Agency and
General Microwave Corporation - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(11) Security Agreement dated as of July 20, 1995 *
between General Microwave Corporation and
Shawmut Bank N.A., as Trustee - Incorporated
by reference to Quarterly Report on Form 10-Q
for the quarter ended September 2, 1995,
filed October 16, 1995.
10(a)(12) Security Agreement dated as of July 20, 1995 *
between General Microwave Corporation and
Natwest Bank N.A. - Incorporated by reference
to Quarterly Report on Form 10-Q for the
quarter ended September 2, 1995, filed
October 16, 1995.
________
* Incorporated by reference
Page 57
<PAGE>
10(a)(13) Amendment and Waiver of Reimbursement Agree- *
ment dated July 17, 1995 between Natwest Bank,
N.A. and General Microwave Corporation -
Incorporated by reference to Quarterly Report
on Form 10-Q for the quarter ended September
2, 1995, filed October 16, 1995.
10(a)(14) Security Agreement dated as of January 16, *
1996 between General Microcircuits Corp. and
Shawmut Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(15) Security Agreement dated as of January 16, *
1996 between Math Associates, Inc. and
Shawmut Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(16) Security Agreement dated as of January 16, *
1996 between General Microcircuits Corp. and
Natwest Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(17) Security Agreement dated as of January 16, *
1996 between Math Associates, Inc. and
Natwest Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(18) Guarantee of General Microcircuits Corp. *
dated January 16, 1996 to Shawmut Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(19) Guarantee of Math Associates, Inc. dated *
January 16, 1996 to Shawmut Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(20) Guarantee of General Microcircuits Corp. *
dated January 16, 1996 to Natwest Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
________
* Incorporated by reference
Page 58
<PAGE>
10(a)(21) Guarantee of Math Associates, Inc. dated *
January 16, 1996 to Natwest Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(22) Cash Collateral Agreement dated as of *
January 16, 1996 between General Microwave
Corporation and NatWest Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(23) Amendment and Waiver of Reimbursement Agree- *
ment dated January 16, 1996 between Natwest
Bank N.A. and General Microwave Corporation -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(24) Amendment and Waiver of Reimbursement Agree- *
ment and Cash Collateral Agreement dated
October 11, 1996 between Fleet Bank, N.A.
and General Microwave Corporation - Incor-
porated by reference to Quarterly Report on
Form 10-Q for the quarter ended November 30,
1996, filed January 14, 1997.
10(a)(25) Amendment and Waiver of Reimbursement 61
Agreement dated January 10, 1997 between
Fleet Bank, N.A. and General Microwave
Corporation.
10(a)(26) Amendment and Waiver of Reimbursement 64
Agreement dated May 20, 1997 between
Fleet Bank, N.A. and General Microwave
Corporation.
10(c) 1990 Stock Option Plan, As Amended - *
Incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended
November 30, 1996, filed January 14, 1997.
10(d) General Microwave Corporation Executive *
Incentive Bonus Plan adopted May 28, 1996 -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(e)(1) Consulting Agreement dated as of March 1, *
1995 between General Microwave Corporation
and Sherman A. Rinkel - Incorporated by
_________
* Incorporated by reference
Page 59
<PAGE>
reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(e)(2) Noncompetition Agreement dated as of March *
1, 1995 between General Microwave Corpora-
tion and Sherman A. Rinkel - Incorporated by
reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(f)(1) Consulting Agreement dated as of December *
1, 1994 between General Microwave Corpora-
tion and Bernard Grand - Incorporated by
reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(f)(2) Noncompetition Agreement dated as of December *
1, 1994 between General Microwave Corporation
and Bernard Grand - Incorporated by
reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
11 Not applicable.
12 Not applicable.
13 Not applicable.
16 Not applicable.
18 Not applicable.
19 Not applicable.
22 Subsidiaries of the Registrant. 67
23 Independent Auditors' Consents. 68 & 69
24 Not applicable.
25 Not applicable.
27 Financial Data Schedule (filed with
electronically filed copy only) 70
28 Not applicable.
99 Not applicable.
____________
* Incorporated by reference
Page 60
<PAGE>
Exhibit 10(a)(25)
-----------------
AMENDMENT AND WAIVER OF
REIMBURSEMENT AGREEMENT
THIS AMENDMENT is dated the 10th day of January, 1997 by and
between FLEET BANK, N.A. (formerly NatWest Bank N.A. formerly known
as National Westminster Bank USA), a national banking association,
having an office at 300 Broad Hollow Road, Melville, New York 11747
(the "Bank") and GENERAL MICROWAVE CORPORATION, a New York
corporation having an office at 550 New Horizons Boulevard,
Amityville, New York 11701 (the "Company").
W I T N E S S E T H :
WHEREAS, the Company and the Bank entered into a
reimbursement agreement dated as of October 1, 1984, as same may
have been amended from time to time (the "Agreement"), in
connection with a letter of credit issued by the Bank in support of
the Town of Babylon Industrial Development Agency $6,000,000.00
Variable Rate 7-Day Demand Industrial Development Revenue Bonds
(General Microwave Corporation Facility) Series 1984 (the "Bonds");
and
WHEREAS, the Company has requested certain modifications and
certain waivers to the Agreement and the Bank has agreed to such
modifications and waivers provided that the Company enters into
this agreement;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
Company and the Bank hereby agree as follows:
1. As used in this agreement, capitalized terms not defined
herein shall have the meaning set forth in the Agreement.
Page 61
<PAGE>
2. As an inducement for the Bank to enter into this
Agreement, the Company represents and warrants as follows:
A. That with respect to the Agreement and any other
documents executed in connection therewith:
(i) There are currently no defenses or offsets to the Company's
obligations under the Agreement or any other documents executed
in connection with the Agreement and if any such defenses or
offsets currently exist without the knowledge of the Company, the
same are hereby waived.
(ii) All of the representations and warranties made by the
Company in the Agreement are true and correct in all material
respects as if made on the date hereof.
3. The Bank hereby waives any Default or Event of Default
resulting from the failure by the Company to maintain a minimum
tangible net worth of $12,945,000.00 as at the fiscal quarter end
November 30, 1996 provided the tangible net worth is at least
$12,597,000.00 until February 28, 1997 and provided further, for
each fiscal year end after February 28, 1997, the Company shall be
required to maintain a minimum tangible net worth in an amount not
less than $12,597,000.00 which shall be increased by an amount
equal to 50% of the net income earned by the Company during the
same fiscal year.
4. The Bank hereby waives any Default or Event of Default
resulting from the failure by the Company to not have a fiscal loss
at fiscal quarter end November 30, 1996.
Page 62
<PAGE>
5. The Company shall pay to the Bank and shall be otherwise
responsible for all reasonable fees, costs, expenses and
disbursements incurred by the Bank of any kind and description
relating to the negotiation, preparation, enforcement or
interpretation of this amendment and any other documents
contemplated hereby, including without limitation, the fees of the
Bank in the amount of $3,000.00 as well as the reasonable fees and
expenses of the Bank's legal counsel.
6. Except as hereby amended, the Agreement and any other
document executed in connection therewith are in all respects
ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have duly executed
this agreement as of the year and date first above written.
GENERAL MICROWAVE CORPORATION
By:s/ ARNOLD LEVINE
--------------------
Name: Arnold Levine
Title: V.P. Finance
FLEET BANK, N.A.
By:s/ PETER G. BRANDEL
--------------------
Peter G. Brandel,
Vice President
Page 63
<PAGE>
Exhibit 10(a)(26)
-----------------
AMENDMENT AND WAIVER OF
REIMBURSEMENT AGREEMENT
THIS AMENDMENT is dated the 20th day of May, 1997 by and between
FLEET BANK, N.A. (formerly NatWest Bank N.A. formerly known as National
Westminster Bank USA), a national banking association, having an office
at 300 Broad Hollow Road, Melville, New York 11747 (the "Bank") and
GENERAL MICROWAVE CORPORATION, a New York corporation having an office
at 550 New Horizons Boulevard, Amityville, New York 11701 (the
"Company").
W I T N E S S E T H :
WHEREAS, the Company and the Bank entered into a reimbursement
agreement dated as of October 1, 1984, as same may have been amended
from time to time (the "Agreement"), in connection with a letter of
credit issued by the Bank in support of the Town of Babylon Industrial
Development Agency $6,000,000.00 Variable Rate 7-Day Demand Industrial
Development Revenue Bonds (General Microwave Corporation Facility)
Series 1984 (the "Bonds"); and
WHEREAS, the Company has requested certain modifications and
certain waivers to the Agreement and the Bank has agreed to such
modifications and waivers provided that the Company enters into this
agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Company and the
Bank hereby agree as follows:
1. As used in this agreement, capitalized terms not defined
herein shall have the meaning set forth in the Agreement.
Page 64
<PAGE>
2. As an inducement for the Bank to enter into this Agreement,
the Company represents and warrants as follows:
A. That with respect to the Agreement and any other documents
executed in connection therewith:
(i) There are currently no defenses or offsets to the Company's
obligations under the Agreement or any other documents executed in
connection with the Agreement and if any such defenses or offsets
currently exist without the knowledge of the Company, the same are
hereby waived.
(ii) All of the representations and warranties made by the Company
in the Agreement are true and correct in all material respects as if
made on the date hereof.
3. The Bank hereby waives any Default or Event of Default
resulting from the failure by the Company to maintain a minimum tangible
net worth of $12,945,000.00 as at the fiscal year end February 28, 1997
provided the tangible net worth is at least $10,597,000.00 as at the
fiscal year end after February 28, 1997 and provided further, for each
fiscal year end after February 28, 1997, the Company shall be required
to maintain a minimum tangible net worth in an amount not less than
$10,597,000.00 which shall be increased by an amount equal to 50% of the
net income earned by the Company during the same fiscal year.
4. The Bank hereby waives any Default or Event of Default
resulting from the failure by the Company to not have a fiscal loss at
fiscal year end February 28, 1997.
5. The Bank hereby waives through February 28, 1997 any Default
or Event of Default resulting from the failure by the Company to
jaintain a ratio of net profit plus depreciation and all non-cash
expenses for such year to principal payments to be madxe on long term
debt during the immediately suceeding fiscal year of not less than 1.5
to 1.0.
Page 65
<PAGE>
6. The Company shall pay to the Bank and shall be otherwise
responsible for all reasonable fees, costs, expenses and disbursements
incurred by the Bank of any kind and description relating to the
negotiation, preparation, enforcement or interpretation of this
amendment and any other documents contemplated hereby, including without
limitation, the fees of the Bank in the amount of $3,000.00 as well as
the reasonable fees and expenses of the Bank's legal counsel.
7. Except as hereby amended, the Agreement and any other document
executed in connection therewith are in all respects ratified and
confirmed.
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the year and date first above written.
GENERAL MICROWAVE CORPORATION
By:s/ ARNOLD LEVINE
--------------------------
Name: Arnold Levine
Title: V.P. Finance
FLEET BANK, N.A.
By:s/ PETER G. BRANDEL
--------------------------
Peter G. Brandel,
Vice President
Page 66
<PAGE>
Exhibit 22
----------
Subsidiaries of the Registrant
------------------------------
State or Other
Jurisdiction of Percentage
Name of Subsidiary Incorporation of Ownership
------------------ --------------- ------------
General Microwave Foreign Sales Corporation Guam 100%
General Microcircuits Corporation Delaware 97%
Micro-El Patent Corporation Delaware 100%
General Microwave Israel Corporation Delaware 100%
General Microwave Israel (1987) Limited Israel 100%
Math Associates, Inc. New York 100%
General Microwave Export Corporation and General Microwave Foreign
Sales Corporation do business under their own names or the name General
Microwave. Micro-El Patent Corporation, General Microwave Israel Corporation,
General Microcircuits Corporation, General Microwave Israel (1987) Limited and
Math Associates, Inc. do business under their own names.
Page 67
<PAGE>
Exhibit 23
----------
Independent Auditors' Consent
-----------------------------
The Stockholders and Board of Directors
General Microwave Corporation:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-15327, 333-08541, 33-35631 and 33-81176) on Form S-8 of General
Microwave Corporation and subsidiaries of our report dated May 21, 1997,
which is based partially upon the report of other auditors, relating
to the consolidated balance sheets of General Microwave Corporation and
subsidiaries as of February 28, 1997 and February 29, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows
and related schedule for each of the years in the three-year period ended
February 28, 1997, which report appears in the February 28, 1997 annual
report on Form 10-K of General Microwave Corporation and subsidiaries.
KPMG PEAT MARWICK LLP
Jericho, New York
May 29, 1997
Page 68
<PAGE>
Exhibit 23
----------
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
We consent to the incorporation by reference in the Registration statements
Nos. 33-15327, 333-08541, 33-35631 and 33-81176 of our report dated May 20,
1997 (relating to the consolidated financial statements of General Microwave
(Israel) Corporation and Subsidiary not included herein) appearing in this
annual report on Form 10-K of General Microwave Corporation and Subsidiaries
for the year ended February 28, 1997.
s\ Igal Brightman & Co.
Certified Public Accounts
May 20, 1997
Page 69
<PAGE>
Exhibit 27
----------
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
Page 70 of 70
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1997
<PERIOD-START> MAR-1-1996 DEC-1-1996
<PERIOD-END> FEB-28-1997 FEB-28-1997
<CASH> 1945 1945
<SECURITIES> 0 0
<RECEIVABLES> 4149 4149
<ALLOWANCES> 27 27
<INVENTORY> 4536 4536
<CURRENT-ASSETS> 12389 12389
<PP&E> 13876 13876
<DEPRECIATION> 7885 7885
<TOTAL-ASSETS> 19290 19290
<CURRENT-LIABILITIES> 5545 5545
<BONDS> 0 0
<COMMON> 17 17
0 0
0 0
<OTHER-SE> 11528 11528
<TOTAL-LIABILITY-AND-EQUITY> 19290 19290
<SALES> 20061 6030
<TOTAL-REVENUES> 20061 6030
<CGS> 13727 3892
<TOTAL-COSTS> 5884 1503
<OTHER-EXPENSES> (11) (19)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 219 56
<INCOME-PRETAX> 242 597
<INCOME-TAX> 40 0
<INCOME-CONTINUING> 202 597
<DISCONTINUED> (3287) (2661)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
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