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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 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: 0-8574
MICROWAVE POWER DEVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3622306
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
49 Wireless Boulevard
Hauppauge, New York 11788-3935
(Address of principal executive offices, including zip code)
(516) 231-1400
(Registrant's telephone number, including area code)
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 ___
As of August 1, 1997, there were 10,375,000 shares outstanding of the
registrant's Common Stock, $.01 par value.
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<PAGE>
MICROWAVE POWER DEVICES, INC.
INDEX
PART I -- FINANCIAL INFORMATION Page No.
- ------------------------------- --------
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets --
June 30, 1997 and December 31, 1996........................... 3
Consolidated Statements of Operations --
Three and six months ended June 30, 1997 and 1996 ............ 4
Consolidated Statements of Cash Flows -- Six months ended
June 30, 1997 and 1996....................................... 5
Notes to Consolidated Financial Statements ................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 7
PART II -- OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders ......... 13
ITEM 6. Exhibits and Reports on Form 8-K ............................ 13
SIGNATURES ............................................................ 14
Page 2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 543 $ 1,149
Accounts receivable, net of allowance for doubtful accounts of $76 7,868 7,482
Inventories, net ................................................. 16,806 14,362
Prepaid expenses and other current assets ........................ 857 657
Deferred income taxes ............................................ 480 345
-------- --------
Total current assets ........................................ 26,554 23,995
PROPERTY, PLANT AND EQUIPMENT, net .................................... 7,842 8,057
INTANGIBLE ASSETS, net ................................................ 438 369
INVESTMENT IN MARKETABLE SECURITIES AND OTHER
LONG TERM ASSETS ................................................... 1,004 1,015
DEFERRED INCOME TAXES ................................................. 5,277 5,454
-------- --------
$ 41,115 $ 38,890
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ................................ $ 650 $ 45
Accounts payable ................................................. 5,573 5,103
Accrued liabilities .............................................. 3,081 2,696
-------- --------
Total current liabilities ................................... 9,304 7,844
-------- --------
LONG-TERM DEBT ....................................................... 13,394 12,744
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding ............................... -- --
Common stock, $.01 par value; 25,000,000 shares authorized;
10,375,000 shares issued and outstanding ...................... 104 104
Additional paid-in capital ....................................... 23,276 23,276
Notes receivable from shareholders ............................... (225) (225)
Accumulated deficit .............................................. (4,738) (4,853)
-------- --------
Total shareholders' equity .................................. 18,417 18,302
-------- --------
$ 41,115 $ 38,890
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
Page 3
<PAGE>
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES ...................................................... $ 12,230 $ 11,019 $ 22,234 $ 22,278
COST OF SALES .................................................. 8,913 9,099 16,420 17,369
-------- -------- -------- --------
Gross profit ......................................... 3,317 1,920 5,814 4,909
-------- -------- -------- --------
OPERATING EXPENSES:
General and administrative ................................ 905 865 1,762 1,768
Selling ................................................... 863 961 1,573 2,038
Research and development .................................. 1,030 1,998 1,677 3,963
-------- -------- -------- --------
2,798 3,824 5,012 7,769
-------- -------- -------- --------
Income (loss) from operations ........................ 519 (1,904) 802 (2,860)
INTEREST EXPENSE, net .......................................... 335 213 614 379
OTHER INCOME, net .............................................. (3) (1) (3) (1)
-------- -------- -------- --------
Income (loss) before income taxes .................... 187 (2,116) 191 (3,238)
PROVISION (BENEFIT) FOR INCOME TAXES ........................... 75 (936) 76 (1,295)
-------- -------- -------- --------
Net income (loss) .................................... $ 112 $ (1,180) $ 115 $ (1,943)
======== ======== ======== ========
PER SHARE INFORMATION:
Net income (loss) per common share ........................ $ 0.01 $ (0.11) $ 0.01 $ (0.19)
======== ======== ======== ========
Weighted average common shares outstanding ................ 10,423 10,375 10,400 10,375
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
Page 4
<PAGE>
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
---------------------------
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ..................................................................... $ 115 $(1,943)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization .................................................... 584 602
Deferred income taxes ............................................................ 42 (1,314)
Gain on sale of property, plant and equipment .................................... (3) 0
Changes in operating assets and liabilities:
Accounts receivable .............................................................. (386) 2,318
Inventories ...................................................................... (2,443) (4,764)
Prepaid expenses and other assets ................................................ (200) (24)
Accounts payable and accrued liabilities ......................................... 855 1,450
------- -------
Net cash used in operating activities ....................................... (1,436) (3,675)
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment ....................................... (325) (647)
Proceeds from sale of property, plant and equipment .............................. 3 15
Investment in marketable securities .............................................. 10 11
------- -------
Net cash used in investing activities ....................................... (312) (621)
------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt ..................................................... 2,700 0
Principal payments of long-term debt ............................................. (195) (40)
Net proceeds from (repayments on) revolving line of credit ....................... (1,249) 4,255
Deferred financing costs ......................................................... (114) 0
------- -------
Net cash provided by financing activities ................................... 1,142 4,215
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS ...................................................... (606) (81)
CASH AND CASH EQUIVALENTS, beginning of year ............................................... 1,149 388
------- -------
CASH AND CASH EQUIVALENTS, end of period ................................................... $ 543 $ 307
======= =======
SUPPLEMENTAL DATA:
Cash paid for interest ................................................................ $ 652 $ 429
======= =======
Cash paid for income taxes ............................................................ $ 34 $ 13
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
Page 5
<PAGE>
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(in thousands, except share and per share data)
(unaudited)
1. Reference is made to the Notes to Consolidated Financial Statements
contained in the Company's December 31, 1996 audited consolidated financial
statements included in the Company's 1996 Annual Report and the Company's 1996
Annual Report on Form 10-K filed with the SEC on March 28, 1997. In the opinion
of Management, the interim unaudited financial statements included herein
reflect all adjustments necessary, consisting of normal recurring adjustments,
for a fair presentation of such data on a basis consistent with that of the
audited data presented therein. The consolidated results of operations for
interim periods are not necessarily indicative of the results to be expected for
a full year.
2. Earnings per share for the three and six months ended June 30, 1997
includes the dilutive effect of 47,717 and 25,205 weighted average outstanding
options, respectively; they do not include the impact of other outstanding
options as the effect of their inclusion would be anti-dilutive.
Earnings per share for the three and six months ended June 30, 1996 do not
include the impact of outstanding options as the effect of their inclusion would
be anti-dilutive.
3. The following stock options were granted, cancelled or exercised during
the second quarter of 1997 under either the 1995 or 1996 Stock Option Plans:
Granted Cancelled Exercised
------- --------- ---------
None 10,920 @ $2.875 - $10.75 None
4. Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per share
("EPS"), replacing the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of operations. Under this new standard, Basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently required fully diluted EPS. SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.
Page 6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Overview
Microwave Power Devices, Inc. ("Microwave Power Devices" or the "Company")
commenced operations in 1967. During the past 30 years, the Company has
designed, manufactured and marketed high power, solid-state, radio frequency
("RF") and microwave power amplifiers and related subsystems for military,
medical, satellite and, most recently, wireless telecommunications applications.
The Company historically has been dependent upon the military market as its
principal source of revenue. In 1992, as the military market was declining, the
Company increased the scope of its business and entered commercial markets,
thereby broadening its product offerings. The Company now develops precision
high-power amplifiers for a variety of commercial uses.
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation, information appearing under Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Factors set forth in the Company's Annual Report on Form 10-K, filed
March 28, 1997, under Item 1, "Business - Risk Factors," together with other
factors that appear with the forward-looking statements, or in the Company's
other Securities and Exchange Commission filings, including its Registration
Statement on Form S-1 dated September 29, 1995, could affect the Company's
actual results and could cause the Company's actual results to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company in this Quarterly Report on Form 10-Q.
Results of Operations --
Second Quarters Ended June 30, 1997 and June 30, 1996
Net Sales. Net sales increased by 11% to $12.2 million in the second
quarter of 1997 from $11.0 million in the second quarter of 1996. This sales
increase was primarily due to higher shipments of the Company's commercial
products which were partially offset by lower shipments of the Company's
military products. Sales of commercial products increased by 33% to $9.6 million
in the second quarter of 1997 from $7.2 million in the second quarter of 1996,
representing 79% and 65%, respectively, of net sales in such periods. The
commercial sales increase was predominantly due to higher shipments to one
domestic wireless telecommunications original equipment manufacturer ("OEMs")
and one satellite communications OEM which were partially offset by lower
shipments to one foreign wireless telecommunications OEM. Sales of military
products decreased by 31% to $2.6 million in the second quarter of 1997 from
$3.8 million in the second quarter of 1996, representing 21% and 35%,
respectively, of net sales in such periods. The military sales decrease was
predominantly due to lower market demand for various Republic and MPD products.
International sales decreased by 29% to $2.6 million in the second quarter
of 1997 from $3.6 million in the second quarter of 1997, totaling 21% of net
sales in the second quarter of 1997 compared to 33% in the second quarter of
1996. The decrease in international sales was predominantly due to lower foreign
wireless telecommunications OEM business. In the second quarter of 1997, sales
to two domestic commercial OEMs (Customer B and Customer D) and a foreign
commercial OEM (Customer A) accounted for 34%, 16% and 17%, respectively, of the
Company's net sales. In the second quarter of 1996, sales to a foreign
commercial OEM (Customer A) and a domestic commercial OEM (Customer B) accounted
for 30% and 19%, respectively, of the Company's net sales.
Page 7
<PAGE>
Gross Profit. Gross profit increased by 73% to $3.3 million in the second
quarter of 1997 from $1.9 million in the second quarter of 1996. This increase
was primarily due to the non-recurrence of the second quarter 1996 $1.0 million
write-off of wireless multi-channel work-in-process inventory related to the
cancellation of the remainder of the AirNet contract and the gross profit
associated with the increased net sales level in the second quarter of 1997. The
Company's gross profit margin (gross profit as a percentage of net sales)
increased to 27.1% in the second quarter of 1997 from 17.4% in the second
quarter of 1996. This increase was primarily due to the non-recurrence of the
$1.0 million AirNet write-off and the higher gross profit margin which the
Company is experiencing on its satellite communications program (the result of
engineering and manufacturing efficiencies), partially offset by the lower gross
profit margins which the Company is experiencing on its wireless multi-channel
product line (the result of competitive pricing pressures). In addition, the
following factors adversely affected the gross profit margin for the second
quarter of 1997: (i) the overall low gross profit margin obtainable on the
Company's wireless multi-channel product line (the result of competitive pricing
pressures), (ii) low gross profits the Company is experiencing on two military
OEM contracts (the result of production delays and software integration
difficulties) and (iii) a lower than anticipated absorption of overhead
expenses.
Certain of the Company's inventory costing techniques involve developing a
standard cost which estimates the average, or standard, cost per unit over the
extended life cycle of a product. Such costs include labor, material, other
direct costs and related overheads. If the extended life cycle of a product does
not materialize or if there is no reasonable certainty that product maturation
will take place within the near future, write-offs of work-in-process inventory
would be required. Such write-offs could materially adversely affect the
Company's gross profit and results of operations.
Certain of the purchase orders or contracts comprising backlog at June 30,
1997 set forth product specifications not yet achieved by the Company that would
require the Company to complete additional product development. Failure to
develop products meeting such specifications could lead to the cancellation of
the related purchase orders or contracts. The reduction, delay or cancellation
of orders or contracts from one or more significant customers could materially
adversely affect the Company's business, financial condition and results of
operations.
There can be no assurances that gross profit will continue to improve. If
the Company is not able to reduce its production costs to the extent
anticipated, or to introduce new products with greater margins, and if average
selling prices decline beyond current expectations, the Company's gross profit
and results of operations could be materially adversely affected. The Company's
gross profit may also be affected by a variety of other factors, including the
mix of systems and equipment sold; production, reliability or quality problems;
and price competition.
General and Administrative Expenses. General and administrative expenses
remained relatively stable at $0.9 million in both the second quarters of 1997
and 1996, representing 7.4% and 7.9%, respectively, of net sales.
Selling Expenses. Selling expenses decreased by 10% to $0.9 million in the
second quarter of 1997 from $1.0 million in the second quarter of 1996,
representing 7.1% and 8.7%, respectively, of net sales. The decrease in selling
expenses resulted primarily from lower sales representative commissions (the
result of domestic versus foreign sales mix variations) and lower travel
expenses, partially offset by higher bid and proposal expenses.
Research and Development Expenses. Research and development expenses
decreased by 48% to $1.0 million in the second quarter of 1997 from $2.0 million
in the second quarter of 1996, representing 8.4% and 18.1%, respectively, of net
sales. The decrease in research and development expenses resulted primarily from
reduced military product development efforts and, to a lesser extent, reduced
wireless telecommunications product development efforts. Military research and
development expenses decreased predominantly as a result of the Company shipping
initial hardware to a foreign military OEM, late in 1996, for a Republic MRES
2000 simulator product. In the military environment, customer funding of product
development costs is typical. The Republic MRES 2000 program was an exception,
however, as the Company funded a large majority of this product development
effort throughout 1996. The Company believes that the continued introduction of
new products is essential to its competitiveness and is committed to continued
investment in research and development.
Page 8
<PAGE>
Interest Expense. Interest expense increased by 57% to $0.3 million in the
second quarter of 1997 from $0.2 million in the second quarter of 1996,
primarily reflecting increased average borrowings under the Company's credit
facility.
Provision for Income Taxes. The Company's effective tax rate decreased to
40.0% in the second quarter of 1997 from 44.2% in the second quarter of 1996.
The higher rate in the second quarter of 1996 was due to the Company's then
anticipated full year 1996 net loss which required a year-to-date effective tax
rate adjustment in the second quarter of 1996 for the lower effective tax rate
used in the first quarter of 1996.
Page 9
<PAGE>
Six Months Ended June 30, 1997 and June 30, 1996
Net Sales. Net sales decreased slightly to $22.2 million in the first six
months of 1997 from $22.3 million in the first six months of 1996. This sales
decrease was primarily due to lower shipments of the Company's commercial
products which were almost fully offset by higher shipments of the Company's
military products. Sales of commercial products decreased by 6% to $15.9 million
in the first six months of 1997 from $16.9 million in the first six months of
1996, representing 72% and 76%, respectively, of net sales in such periods. The
commercial sales decrease was predominantly due to lower shipments to one
foreign wireless telecommunications OEM, partially offset by higher shipments to
one domestic wireless telecommunications OEM and one satellite communications
OEM. Sales of military products increased by 18% to $6.3 million in the first
six months of 1997 from $5.4 million in the first six months of 1996,
representing 28% and 24%, respectively, of net sales in such periods. The
military sales increase was predominantly due to greater market demand for
various MPD and Republic products.
International sales decreased by 43% to $5.3 million in the first six
months of 1997 from $9.3 million in the first six months of 1996, totaling 24%
of net sales in the first six months of 1997 compared to 42% in the first six
months of 1996. The decrease in international sales was predominantly due to
lower foreign wireless telecommunications OEM business, partially offset by
higher Republic military business. In the first six months of 1997, sales to two
domestic commercial OEMs (Customer B and Customer D) and a foreign commercial
OEM (Customer A) accounted for 31%, 17% and 13%, respectively, of the Company's
net sales. In the first six months of 1996, sales to a foreign commercial OEM
(Customer A) and a domestic commercial OEM (Customer B) accounted for 39% and
17%, respectively, of the Company's net sales.
Gross Profit. Gross profit increased by 18% to $5.8 million in the first
six months of 1997 from $4.9 million in the first six months of 1996. This
increase was primarily due to the non-recurrence of the first six months 1996
$1.0 million write-off of wireless multi-channel work-in-process inventory
related to the cancellation of the remainder of the AirNet contract in the
second quarter of 1996. The Company's gross profit margin (gross profit as a
percentage of net sales) increased to 26.1% in the first six months of 1997 from
22.0% in the first six months of 1996. This increase was primarily due to the
non-recurrence of the $1.0 million AirNet write-off and the higher gross profit
margin which the Company is experiencing on its satellite communications program
(the result of engineering and manufacturing efficiencies), partially offset by
the lower gross profit margins which the Company is experiencing on its wireless
multi-channel product line (the result of competitive pricing pressures). In
addition, the following factors adversely affected the gross profit margin for
the first six months of 1997: (i) the overall low gross profit margin obtainable
on the Company's multi-channel product line (the result of competitive pricing
pressures), (ii) low gross profits the Company is experiencing on two military
OEM contracts (the result of production delays and software integration
difficulties) and (iii) a higher commercial warranty expense (specifically for
the Company's multi-channel, Cellular-CDMA product). However, by the end of the
first quarter of 1997, the majority of the technical problems encountered with
the Company's multi-channel, Cellular-CDMA product had been addressed, product
returns seem to be diminishing, product reliability appears to be improving and,
accordingly, commercial warranty expense seems to be leveling.
Certain of the Company's inventory costing techniques involve developing a
standard cost which estimates the average, or standard, cost per unit over the
extended life cycle of a product. Such costs include labor, material, other
direct costs and related overheads. If the extended life cycle of a product does
not materialize or if there is no reasonable certainty that product maturation
will take place within the near future, write-offs of work-in-process inventory
would be required. Such write-offs could materially adversely affect the
Company's gross profit and results of operations.
Certain of the purchase orders or contracts comprising backlog at June 30,
1997 set forth product specifications not yet achieved by the Company that would
require the Company to complete additional product development. Failure to
develop products meeting such specifications could lead to the cancellation of
the related purchase orders or contracts. The reduction, delay or cancellation
of orders or contracts from one or more significant customers could materially
adversely affect the Company's business, financial condition and results of
operations.
Page 10
<PAGE>
There can be no assurances that gross profit will continue to improve. If
the Company is not able to reduce its production costs to the extent
anticipated, or to introduce new products with greater margins, and if average
selling prices decline beyond current expectations, the Company's gross profit
and results of operations could be materially adversely affected. The Company's
gross profit may also be affected by a variety of other factors, including the
mix of systems and equipment sold; production, reliability or quality problems;
and price competition.
General and Administrative Expenses. General and administrative expenses
remained relatively stable at $1.8 million in both the first six months of 1997
and 1996, representing 7.9% of net sales for both periods.
Selling Expenses. Selling expenses decreased by 23% to $1.6 million in the
first six months of 1997 from $2.0 million in the first six months of 1996,
representing 7.1% and 9.1%, respectively, of net sales. The decrease in selling
expenses resulted primarily from lower sales representative commissions (the
result of domestic versus foreign sales mix variations) and, to a lesser extent,
lower travel, advertising and trade show expenses, partially offset by higher
bid and proposal expenses.
Research and Development Expenses. Research and development expenses
decreased by 58% to $1.7 million in the first six months of 1997 from $4.0
million in the first six months of 1996, representing 7.5% and 17.8%,
respectively, of net sales. The decrease in research and development expenses
resulted primarily from reduced military product development efforts and, to a
lesser extent, reduced wireless telecommunications product development efforts.
Military research and development expenses decreased predominantly as a result
of the Company shipping initial hardware to a foreign military OEM, late in
1996, for a Republic MRES 2000 simulator product. In the military environment,
customer funding of product development costs is typical. The Republic MRES 2000
program was an exception, however, as the Company funded a large majority of
this product development effort throughout 1996. The Company believes that the
continued introduction of new products is essential to its competitiveness,
especially in the wireless telecommunications market, and is committed to
continued investment in research and development. The Company views the decrease
in wireless telecommunications research and development expenses (the majority
of which occurred in the first quarter of 1997) as a short term solution used to
assist in reducing costs to match corresponding reduced wireless revenue.
Fundamental to this effort was a temporary reallocation of some of the Company's
engineering and technology resources to either revenue producing or
customer-funded product development during the first quarter of 1997. This
action enabled the Company to leverage its other commercial and military product
lines while insuring a continued and focused emphasis on critical wireless
telecommunications development projects.
Interest Expense. Interest expense increased by 62% to $0.6 million in the
first six months of 1997 from $0.4 million in the first six months of 1996,
primarily reflecting increased average borrowings under the Company's credit
facility.
Provision for Income Taxes. The Company's effective tax rate for both the
first six months of 1997 and 1996 was 40%. The 1996 rate was due to the then
anticipated full year 1996 net loss, the benefit of which the Company expects to
utilize to offset 1997 and future taxable income, as prescribed by SFAS No. 109.
There can be no assurances that the Company will continue to achieve taxable
income in the future.
Liquidity and Capital Resources
In the fourth quarter of 1995, the Company successfully completed its
initial public offering ("IPO") raising net proceeds to the Company of
approximately $20.4 million from the Company's sale of 2,875,000 shares of
Common Stock, including the underwriters' over-allotment option. Since the IPO,
the Company had financed its operations and met its capital requirements through
the following two sources: (i) a credit facility and (ii) cash provided by
operating activities.
On February 13, 1997, the Company and IBJ Schroder Bank and Trust Company
("IBJ") entered into a $13.0 million credit facility consisting of a revolving
line of credit in the amount of $10.3 million and a term loan in the amount of
$2.7 million. The revolving line of credit and term loan bear interest at annual
rates equal to the prime
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<PAGE>
rate plus 1.0% and the prime rate plus 1.25%, respectively. The credit facility
matures in February 2000 and automatically renews for one-year periods
thereafter, unless terminated by either the Company or IBJ. Aggregate borrowings
under the revolving line of credit are limited by a borrowing base, which is
calculated as the sum of 85% of eligible accounts receivable and 40% of eligible
raw materials and work-in-process inventories (with borrowings based on
aggregate eligible inventory limited to $6.0 million). The term loan requires a
monthly paydown of $0.05 million. Therefore, at June 30, 1997 the term loan
balance was $2.55 million. The credit facility is subject to customary
covenants, including, among other things, limitations with respect to incurring
indebtedness, payment of dividends and affiliate advances, and a provision for
maintaining a certain fixed charge coverage ratio.
Operating activities used net cash of $1.4 million and $3.7 million in the
first six months of 1997 and 1996, respectively. From December 31, 1996 to June
30, 1997, inventory, and accounts payable and accrued liabilities increased by
$2.4 million and $0.9 million, respectively. The increase in inventory was
primarily due to an increase in work-in-process inventory for wireless
telecommunications products (particularly multi-channel) and Republic military
contracts (particularly a long-term RES program). The increase in accounts
payable and accrued liabilities was primarily the result of the implementation
of a new cash management system which created a favorable float situation at
June 30, 1997 (i.e.: checks in vendors hands but not yet cleared) and mid-year
payroll related accruals. Investing activities, which consisted primarily of
equipment acquisitions, used net cash of $0.3 million and $0.6 million in the
first six months of 1997 and 1996, respectively. Financing activities which
consisted primarily of proceeds from long term debt and net proceeds from a
revolving line of credit, provided net cash of $1.1 million and $4.2 million in
the first six months of 1997 and 1996, respectively.
Capital expenditures were $0.3 million and $0.6 million in the first six
months of 1997 and 1996, respectively. These expenditures were funded primarily
through cash provided by beginning of year cash on-hand balances and the
Company's credit facility. Principal expenditures for the first six months of
1997 included upgrades to the Company's business system software and CAE/CAD
systems, and purchases of computer equipment and engineering and manufacturing
test equipment. The Company anticipates making additional capital expenditures
of $1.2 million during the remainder of 1997, including purchases of additional
engineering and manufacturing assembly and test equipment as well as continued
upgrades to its CAE/CAD systems and computer equipment.
As of June 30, 1997, the Company had working capital of approximately $17.3
million, compared to approximately $16.2 million as of December 31, 1996.
Working capital as of June 30, 1997 included approximately $7.9 million and
$16.8 million in accounts receivable and inventory, respectively, compared to
December 31, 1996 working capital which included approximately $7.5 million and
$14.4 million in accounts receivable and inventory, respectively. The Company's
current ratio (ratio of current assets to current liabilities) as of June 30,
1997 was 2.9:1, compared with a current ratio of 3.1.:1 as of December 31, 1996.
As of June 30, 1997, the Company's debt to equity ratio was 0.8:1, compared with
a debt to equity ratio of 0.7:1 as of December 31, 1996.
The Company believes that cash generated from operations, amounts available
under its credit facility, and/or third party financing will be sufficient to
fund necessary capital expenditures and to provide adequate working capital for
at least the next 12 months. There can be no assurance, however, that the
Company will not require additional financing prior to such date to fund its
operations, and, if required, that such financing will be available on
commercially reasonable terms. In addition, the Company may require additional
financing after such date to fund its operations.
Page 12
<PAGE>
PART II -- OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held Thursday, May 8, 1997,
at 11:00 A.M., local time, at the offices of Proskauer Rose LLP, 1585 Broadway,
26th Floor, New York, New York 10036, the following items were voted upon:
For Against Abstain
--- ------- -------
1. Election of Directors:
George J. Sbordone 9,884,314 0 22,780
Edward J. Shubel 9,884,314 0 22,780
Merril M. Halpern 9,886,064 0 21,030
A. Lawrence Fagan 9,886,064 0 21,030
Alfred Weber 9,882,064 0 25,030
David J. Aldrich 9,886,064 0 21,030
Warren A. Law 9,886,064 0 21,030
James Silver 9,882,064 0 25,030
2. Ratify the appointment of
Arthur Andersen LLP 9,889,517 11,845 5,732
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27.1 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROWAVE POWER DEVICES, INC.
(Registrant)
Dated: August 4, 1997 /s/ Edward J. Shubel
---------------------------
By: Edward J. Shubel
President and CEO
Dated: August 4, 1997 /s/ Paul E. Donofrio
---------------------------
By: Paul E. Donofrio
Vice President Finance/CFO
(Principal Financial and Accounting Officer)
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
financial statements found on the Quarterly Report on Form 10-Q, June 30, 1997,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 543
<SECURITIES> 0
<RECEIVABLES> 7,944
<ALLOWANCES> 76
<INVENTORY> 16,806
<CURRENT-ASSETS> 26,554
<PP&E> 12,341
<DEPRECIATION> 4,499
<TOTAL-ASSETS> 41,115
<CURRENT-LIABILITIES> 9,304
<BONDS> 13,394
0
0
<COMMON> 104
<OTHER-SE> 18,313
<TOTAL-LIABILITY-AND-EQUITY> 41,115
<SALES> 22,234
<TOTAL-REVENUES> 22,234
<CGS> 16,420
<TOTAL-COSTS> 16,420
<OTHER-EXPENSES> (3)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 614
<INCOME-PRETAX> 191
<INCOME-TAX> 76
<INCOME-CONTINUING> 115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
