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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, 1999.
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 July 31, 1999, there were 10,563,540 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, 1999 and December 31, 1998 .......................... 3
Consolidated Statements of Operations --
Three and six months ended June 30, 1999 and 1998 ............ 4
Consolidated Statements of Cash Flows --
Six months ended June 30, 1999 and 1998 ...................... 5
Notes to Consolidated Financial Statements ................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ... 15
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................ 16
ITEM 4. Submission of Matters to a Vote of Security Holders .......... 16
ITEM 6. Exhibits and Reports on Form 8-K ............................. 16
SIGNATURES ........................................................... 17
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)
June 30, December 31,
1999 1998
----------- ------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 685 $ 667
Accounts receivable, net of allowance
for doubtful accounts of $75 ................. 11,591 12,178
Inventories, net ............................... 21,998 18,861
Prepaid expenses and other
current assets ............................... 642 476
Deferred income taxes .......................... 3,982 3,426
-------- --------
Total current assets ....................... 38,898 35,608
PROPERTY, PLANT AND EQUIPMENT, net ............... 9,749 8,834
INTANGIBLE ASSETS, net ........................... 293 307
OTHER LONG-TERM ASSETS ........................... 543 673
DEFERRED INCOME TAXES ............................ -- 1,453
-------- --------
$ 49,483 $ 46,875
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .............. $ 1,418 $ 1,082
Accounts payable ............................... 8,275 8,970
Accrued liabilities ............................ 3,785 2,959
Customer advance payments ...................... -- 921
-------- --------
Total current liabilities .................. 13,478 13,932
-------- --------
LONG-TERM DEBT ................................... 12,141 12,162
-------- --------
DEFERRED INCOME TAXES ............................ 350 --
-------- --------
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;
10,514,806 and 10,397,520 shares
issued and outstanding, respectively ......... 105 104
Additional paid-in capital ..................... 24,018 23,406
Notes receivable from shareholders ............. (188) (188)
Retained earnings (accumulated deficit) ........ (421) (2,541)
-------- --------
Total shareholders' equity ................. 23,514 20,781
-------- --------
$ 49,483 $ 46,875
======== ========
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,
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
NET SALES ........................ $ 19,148 $ 13,512 $ 36,396 $ 24,951
COST OF SALES .................... 12,915 9,299 24,903 16,979
-------- -------- -------- --------
Gross profit ................... 6,233 4,213 11,493 7,972
-------- -------- -------- --------
OPERATING EXPENSES:
General and administrative ..... 1,008 1,104 2,014 2,078
Selling ........................ 1,151 934 2,188 1,830
Research and development ....... 1,698 1,426 3,308 2,834
-------- -------- -------- --------
3,857 3,464 7,510 6,742
-------- -------- -------- --------
Income from operations ....... 2,376 749 3,983 1,230
INTEREST EXPENSE, net ............ 303 288 597 564
OTHER INCOME, net ................ (2) -- (3) --
-------- -------- -------- --------
Income before income taxes ... 2,075 461 3,389 666
PROVISION FOR INCOME TAXES ....... 787 125 1,269 147
-------- -------- -------- --------
Net income ................... $ 1,288 $ 336 $ 2,120 $ 519
======== ======== ======== ========
PER SHARE INFORMATION:
Net income per common share:
Basic ........................ $ 0.12 $ 0.03 $ 0.20 $ 0.05
======== ======== ======== ========
Diluted ...................... $ 0.12 $ 0.03 $ 0.20 $ 0.05
======== ======== ======== ========
Common shares used in computing
per share amounts:
Basic ........................ 10,497 10,379 10,472 10,379
======== ======== ======== ========
Diluted ...................... 10,904 10,516 10,784 10,491
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
Page 4
<PAGE>
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Six Months Ended
-------------------------
June 30, June 30,
1999 1998
---------- ---------
OPERATING ACTIVITIES:
Net income ..................................... $ 2,120 $ 519
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 758 690
Deferred income taxes ...................... 1,247 122
Gain on sale of property, plant
and equipment ............................ (3) --
Changes in operating assets and
liabilities:
Accounts receivable ........................ 587 1,039
Inventories ................................ (3,137) (2,747)
Prepaid expenses and other assets .......... (36) 9
Accounts payable and accrued liabilities ... 131 902
Customer advance payments .................. (921) 872
------- -------
Net cash provided by operating
activities ............................. 746 1,406
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant
and equipment ............................ (1,628) (1,503)
Proceeds from sale of property,
plant and equipment ...................... 5 10
------- -------
Net cash used in investing
activities ............................. (1,623) (1,493)
------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt ............... 1,659 1,719
Principal payments of long-term
debt ..................................... (633) (397)
Net repayments on revolving
credit loans ............................. (711) (1,344)
Deferred financing costs ................... (33) (22)
Net proceeds from exercise of
common stock options ..................... 613 2
------- -------
Net cash provided by (used in)
financing activities ................... 895 (42)
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................... 18 (129)
CASH AND CASH EQUIVALENTS, beginning of year ..... 667 687
------- -------
CASH AND CASH EQUIVALENTS, end of period ......... $ 685 $ 558
======= =======
SUPPLEMENTAL DATA:
Cash paid for interest ......................... $ 625 $ 591
======= =======
Cash paid for income taxes ..................... $ 50 $ 131
======= =======
The accompanying notes are an integral part of
these consolidated balance sheets.
Page 5
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MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(in thousands, except per share data)
(unaudited)
1. Reference is made to the Notes to Consolidated Financial Statements
contained in the Company's December 31, 1998 audited consolidated financial
statements included in the Company's 1998 Annual Report and the Company's 1998
Annual Report on Form 10-K filed with the SEC on March 19, 1999. 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. The Company accounts for earnings per share pursuant to SFAS No. 128,
"Earnings Per Share." Basic net income per common share ("Basic EPS") is
computed by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted net income per common share ("Diluted
EPS") is computed by dividing net income by the weighted average number of
common shares and dilutive common share equivalents outstanding during the
period. SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS
on the face of the consolidated statement of operations. A reconciliation
between the numerator and denominator of Basic EPS and Diluted EPS is as
follows:
Net Income Per
Net Income Common Shares Common Share
---------- ------------- ------------
For the quarter ended June 30, 1999
-----------------------------------
Basic EPS
Net income attributable to
common stock $ 1,288 10,497 $ 0.12
Effect of dilutive securities:
stock options -- 407 --
------- ------ -------
Diluted EPS
Net income attributable to
common stock and assumed
option exercises $ 1,288 10,904 $ 0.12
======= ====== =======
For the quarter ended June 30, 1998
-----------------------------------
Basic EPS
Net income attributable to
common stock $ 336 10,379 $ 0.03
Effect of dilutive securities:
stock options -- 137 --
------- ------ -------
Diluted EPS
Net income attributable to
common stock and assumed
option exercises $ 336 10,516 $ 0.03
======= ======= =======
For the six months ended June 30, 1999
--------------------------------------
Basic EPS
Net income attributable to
common stock $ 2,120 10,472 $ 0.20
Effect of dilutive securities:
stock options -- 312 --
------- ------ -------
Diluted EPS
Net income attributable to
common stock and assumed
option exercises $ 2,120 10,784 $ 0.20
======= ====== =======
For the six months ended June 30, 1998
--------------------------------------
Basic EPS
Net income attributable to
common stock $ 519 10,379 $ 0.05
Effect of dilutive securities:
stock options -- 112 --
------- ------ -------
Diluted EPS
Net income attributable to
common stock and assumed
option exercises $ 519 10,491 $ 0.05
======= ======= =======
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Diluted EPS, for the three months and six months ended June 30, 1999 and
1998, does not include the impact of other stock options then outstanding as
their inclusion would be anti-dilutive.
3. The following stock options were granted, cancelled or exercised during
the second quarter of 1999 under either the 1995 or 1996 Stock Option Plans:
Granted Cancelled Exercised
------- --------- ---------
3 @ $13.9375 1 @ $10.00 45 @ $2.875 - $10.75
4. Segment Information
Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Reportable operating segments are determined based on the Company's management
approach. The management approach, as defined by SFAS No. 131, is based on the
way that the chief operating decision maker organizes the segments within an
enterprise for making operating decisions and assessing performance. While the
Company's results of operations are primarily reviewed on a consolidated basis,
the chief operating decision maker also manages the enterprise in two segments:
(i) wireless products and (ii) satellite, medical and military products. The
following represents selected consolidated financial information for the
Company's segments for the three and six months ended June 30, 1999 and 1998:
Three Months Satellite, Medical
June 30, 1999 Wireless Products and Military Products Total
------------- ----------------- --------------------- -----
Net sales .................. $ 9,347 $ 9,801 $ 19,148
Gross profit ............... 2,757 3,476 6,233
Net income (loss) .......... (95) 1,383 1,288
Total assets ............... 18,652 30,831 49,483
Three Months Satellite, Medical
June 30, 1998 Wireless Products and Military Products Total
------------- ----------------- --------------------- -----
Net sales .................. $ 4,743 $ 8,769 $ 13,512
Gross profit ............... 1,104 3,109 4,213
Net income (loss) .......... (669) 1,005 336
Total assets ............... 11,343 32,752 44,095
Six Months Satellite, Medical
June 30, 1999 Wireless Products and Military Products Total
------------- ----------------- --------------------- -----
Net sales .................. $ 17,479 $ 18,917 $ 36,396
Gross profit ............... 4,927 6,566 11,493
Net income (loss) .......... (356) 2,476 2,120
Total assets ............... 18,652 30,831 49,483
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Six Months Satellite, Medical
June 30, 1998 Wireless Products and Military Products Total
------------- ----------------- --------------------- -----
Net sales .................. $ 8,653 $ 16,298 $ 24,951
Gross profit ............... 1,928 6,044 7,972
Net income (loss) .......... (1,895) 2,414 519
Total assets ............... 11,343 32,752 44,095
5. Comprehensive Income
In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distribution to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other nonowner changes
in equity (or other comprehensive income) such as unrealized gains/losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of annual financial statements
or in the case of interim reporting, the footnote approach may be utilized. The
Company's operations did not give rise to items includible in comprehensive
income which were not already included in net income for the three and six
months ended June 30, 1999 and 1998. Accordingly, the Company's comprehensive
income is the same as its net income for all periods presented.
6. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).
Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
An Amendment of FASB Statement No. 133", which was issued in June 1999, SFAS No.
133 will be effective for fiscal years beginning after June 15, 2000. A company
may also implement the Statement as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1999 and thereafter). SFAS
No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after either
December 31, 1997 or 1998, at the company's election.
While the Company operates in international markets, it does so presently
without the use of derivatives and therefore these new pronouncements are not
applicable.
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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 32 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 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 leveraged its military technological leadership position and
increased the scope of its business by entering commercial markets, thereby
broadening its product offerings. In 1994, the Company started producing power
amplifiers for the wireless telecommunications market. The Company now develops
precision high-power amplifiers for a variety of commercial uses. As a result of
these efforts, the Company is now well positioned to service the low, medium and
high volume needs of all of its military and commercial customers.
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 1998 Annual Report on Form 10-K, filed
March 19, 1999, 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, 1999 and June 30, 1998
Net Sales. Net sales increased by 42% to $19.1 million in the second
quarter of 1999 from $13.5 million in the second quarter of 1998. This sales
increase was primarily due to higher shipments of the Company's commercial
products and, to a lesser extent, higher shipments of the Company's military
products. Sales of commercial products increased by 74% to $11.1 million in the
second quarter of 1999 from $6.4 million in the second quarter of 1998,
representing 58% and 47%, respectively, of net sales in such periods. The
commercial sales increase was predominantly due to higher shipments to one
domestic and one foreign wireless telecommunications original equipment
manufacturer ("OEM"), partially offset by lower shipments to another domestic
wireless telecommunications OEM. Sales of military products increased by 12% to
$8.0 million in the second quarter of 1999 from $7.1 million in the second
quarter of 1998, representing 42% and 53%, respectively, of net sales in such
periods. The military sales increase was predominantly due to higher shipments
on one domestic military program and one foreign military program, partially
offset by lower deliveries on one U.S. Government military program.
International sales increased by 98% to $3.6 million in the second quarter
of 1999 from $1.8 million in the second quarter of 1998, totaling 19% of net
sales in the second quarter of 1999 compared to 14% in the second quarter of
1998. The increase in international sales was predominantly due to higher market
demand for foreign wireless telecommunications OEM business. In the second
quarter of 1999, sales to a domestic commercial OEM (Customer B) and a domestic
military OEM (Customer F) accounted for 38% and 14%, respectively, of the
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Company's net sales. In the second quarter of 1998, sales to a domestic
commercial OEM (Customer B) and a domestic military OEM (Customer F) accounted
for 22% and 30%, respectively, of the Company's net sales.
The Company has recently begun to enter into arrangements with its major
wireless OEM customers whereby those customers stock the Company's amplifiers on
a consignment basis until they are consumed in the customer's production
process, at which time revenue is recognized by the Company. Under these
arrangements, the Company receives a forecast each week from the customer
reflecting the customer's estimated future product requirements. These forecasts
provide the Company with a one year forward-look which details the weekly
requirements for the first 26 weeks and the monthly requirements for the
remaining six months. The Company's business, financial condition and results of
operations could be materially adversely affected if the customer's actual
product needs ultimately are less than the customer's forecasted expectations
or, conversely, if the customer's actual product needs ultimately substantially
exceed the customer's forecasted expectations such that the Company cannot
fulfill them.
Gross Profit. Gross profit increased by 48% to $6.2 million in the second
quarter of 1999 from $4.2 million in the second quarter of 1998. The Company's
gross profit margin (gross profit as a percentage of net sales) also increased
to 32.6% in the second quarter of 1999 from 31.2% in the second quarter of 1998.
This gross profit margin increase was primarily due to a higher gross profit
margin on Republic military business as compared to the same period in 1998.
Despite the above, the following factors adversely affected the gross profit
margin for the second quarter of 1999: (i) low gross profits the Company is
experiencing on four foreign military OEM contracts (the result of competitive
pricing pressures and/or technical issues), (ii) low gross profits the Company
is experiencing on three wireless telecommunications products (the result of
sluggish demand which has created manufacturing inefficiencies) and (iii) the
Company's slower than anticipated transition from the pre-production phase to
the production phase on a wireless telecommunications product.
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,
1999 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 improve. If the Company
is not able to reduce its production costs to the extent anticipated, or to
introduce new products with greater gross profit 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
decreased by 9% to $1.0 million in the second quarter of 1999 from $1.1 million
in the second quarter of 1998, representing 5.3% and 8.2%, respectively, of net
sales.
Selling Expenses. Selling expenses increased by 23% to $1.2 million in the
second quarter of 1999 from $0.9 million in the second quarter of 1998,
representing 6.0% and 6.9%, respectively, of net sales. The increase in selling
expenses resulted primarily from higher sales representative commissions (the
result of product sales mix variations and the higher overall sales volume) and,
to a lesser extent, increased bid and proposal expenditures.
Research and Development Expenses. Research and development expenses
increased by 19% to $1.7 million in the second quarter of 1999 from $1.4 million
in the second quarter of 1998, representing 8.9% and 10.6%, respectively, of net
sales. This increase resulted primarily from increased wireless
telecommunications product
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development, partially offset by decreased military research and development.
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.
Interest Expense. Interest expense remained relatively stable at $0.3
million in both the second quarters of 1999 and 1998 but represented 1.6% and
2.1%, respectively, of net sales.
Provision for Income Taxes. The Company's effective tax rate increased to
37.9% in the second quarter of 1999 from 27.0% in the second quarter of 1998.
The effective tax rate for both the second quarters of 1999 and 1998 were
favorably impacted by the partial recovery of a previously reserved deferred tax
asset as a result of the Company's improved profitability position as compared
to the same periods in 1998 and 1997. Without the benefit of this change in the
reserve, the effective tax rate for both the second quarters of 1999 and 1998
would have been 40.0%. The Company will continue to assess its reserved deferred
tax asset each reporting quarter.
Six Months Ended June 30, 1999 and June 30, 1998
Net Sales. Net sales increased by 46% to $36.4 million in the first six
months of 1999 from $25.0 million in the first six months of 1998. This sales
increase was primarily due to higher shipments of the Company's commercial and
military products. Sales of commercial products increased by 61% to $21.2
million in the first six months of 1999 from $13.2 million in the first six
months of 1998, representing 58% and 53%, respectively, of net sales in such
periods. The commercial sales increase was predominantly due to higher shipments
to one domestic and one foreign wireless telecommunications OEM, partially
offset by lower shipments to another domestic wireless telecommunications OEM.
Sales of military products increased by 29% to $15.2 million in the first six
months of 1999 from $11.8 million in the first six months of 1998, representing
42% and 47%, respectively, of net sales in such periods. The military sales
increase was predominantly due to higher shipments on one domestic military
program and one foreign military program, partially offset by lower deliveries
on one Republic foreign military program.
International sales increased by 74% to $6.2 million in the first six
months of 1999 from $3.6 million in the first six months of 1998, totaling 17%
of net sales in the first six months of 1999 compared to 14% in the first six
months of 1998. The increase in international sales was predominantly due to
higher market demand for foreign wireless telecommunications OEM business. In
the first six months of 1999, sales to one domestic commercial OEM (Customer B)
and two domestic military OEMs (Customer F and Customer G) accounted for 38%,
16% and 11%, respectively, of the Company's net sales. In the first six months
of 1998, sales to one domestic military OEM (Customer F) and two domestic
commercial OEMs (Customer B and Customer C) accounted for 24%, 22% and 11%,
respectively, of the Company's net sales.
The Company has recently begun to enter into arrangements with its major
wireless OEM customers whereby those customers stock the Company's amplifiers on
a consignment basis until they are consumed in the customer's production
process, at which time revenue is recognized by the Company. Under these
arrangements, the Company receives a forecast each week from the customer
reflecting the customer's estimated future product requirements. These forecasts
provide the Company with a one year forward-look which details the weekly
requirements for the first 26 weeks and the monthly requirements for the
remaining six months. The Company's business, financial condition and results of
operations could be materially adversely affected if the customer's actual
product needs ultimately are less than the customer's forecasted expectations
or, conversely, if the customer's actual product needs ultimately substantially
exceed the customer's forecasted expectations such that the Company cannot
fulfill them.
Gross Profit. Gross profit increased by 44% to $11.5 million in the first
six months of 1999 from $8.0 million in the first six months of 1998. The
Company's gross profit margin (gross profit as a percentage of net sales)
decreased slightly, however, to 31.6% in the first six months of 1999 from 31.9%
in the first six months of 1998. This gross profit margin decrease was primarily
due to a lower gross profit margin on commercial business, partially offset by a
higher gross profit margin on military business as compared to the first six
months of 1998. In addition to the above, the following factors adversely
affected the gross profit margin for the first six months of 1999: (i) low gross
profits the Company is experiencing on four foreign military OEM contracts (the
result of competitive pricing
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pressures and/or technical issues), (ii) low gross profits the Company is
experiencing on three wireless telecommunications products (the result of
sluggish demand which has created manufacturing inefficiencies) and (iii) the
Company's slower than anticipated transition from the pre-production phase to
the production phase on a wireless telecommunications product.
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,
1999 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 improve. If the Company
is not able to reduce its production costs to the extent anticipated, or to
introduce new products with greater gross profit 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
decreased by 3% to $2.0 million in the first six months of 1999 from $2.1
million in the first six months of 1998, representing 5.5% and 8.3%,
respectively, of net sales.
Selling Expenses. Selling expenses increased by 20% to $2.2 million in the
first six months of 1999 from $1.8 million in the first six months of 1998,
representing 6.0% and 7.3%, respectively, of net sales. The increase in selling
expenses resulted primarily from higher sales representative commissions (the
result of product sales mix variations and the higher overall sales volume),
higher bid and proposal activities and increased product demonstration requests
by both wireless telecommunications and other commercial products customers.
Research and Development Expenses. Research and development expenses
increased by 17% to $3.3 million in the first six months of 1999 from $2.8
million in the first six months of 1998, representing 9.1% and 11.4%,
respectively, of net sales. This increase resulted primarily from increased
wireless telecommunications product development and, to a lesser extent,
increased military research and development. 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.
Interest Expense. Interest expense remained relatively stable at $0.6
million in both the first six months of 1999 and 1998 but represented 1.6% and
2.3%, respectively, of net sales.
Provision for Income Taxes. The Company's effective tax rate increased to
37.4% for the first six months of 1999 from 22.0% for the first six months of
1998. The effective tax rate for both the first six months of 1999 and 1998 were
favorably impacted by the partial recovery of a previously reserved deferred tax
asset as a result of the Company's improved profitability position as compared
to the same periods in 1998 and 1997. Without the benefit of this change in the
reserve, the effective tax rate for both the first six months of 1999 and 1998
would have been 40.0%. The Company will continue to assess its reserved deferred
tax asset each reporting quarter.
Page 12
<PAGE>
Liquidity and Capital Resources
Since the successful completion its IPO in 1995, the Company has financed
its operations and met its capital requirements through the following two
sources: (i) a credit facility and/or (ii) cash provided by operating
activities.
In May 1999, the Company amended its loan agreement with IBJ Whitehall
Business Credit Corporation ("IBJ"). The loan agreement now provides for a
$20.68 million credit facility consisting of a revolving line of credit in the
amount of $13.75 million, a term loan in the amount of $1.4 million and two
capital equipment ("Capex") loan facilities, Capex #1 and Capex #2, in the
amounts of $2.53 million and $3.0 million, respectively. The revolving line of
credit and both the term loan and Capex loans bear interest at annual rates
equal to the prime rate and the prime rate plus 0.25%, respectively. The credit
facility matures in February 2002 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 $7.0 million). The term loan requires a
monthly principal payment of $0.05 million. The Capex loans require monthly
principal payments that are recalculated each month based on the prior month's
Capex borrowings, if any, amortized over 60 months. Capex #2 loan borrowings
must occur prior to May 19, 2000. At June 30, 1999, credit facility borrowings
totaled $9.0 million which consisted of a term loan balance of $1.35 million, a
Capex #1 loan balance of $2.5 million, Capex #2 loan borrowings and balance of
$0.8 million and revolving line of credit borrowings of $4.4 million. In
addition, $3.9 million of the revolving line of credit is committed to the
Company's outstanding letters of credit. 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 provided net cash of $0.7 million and $1.4 million in
the first six months of 1999 and 1998, respectively. From December 31, 1998 to
June 30, 1999, inventory increased by $3.1 million, accounts payable and accrued
liabilities increased by $0.1 million, customer advance payments decreased by
$0.9 million and accounts receivable decreased by $0.6 million. The increase in
inventory was primarily due to an increase in work-in-process, raw materials and
finished goods inventories for wireless telecommunications products and, to a
lesser extent, an increase in work-in-process inventory for MPD military
products. The build-up of wireless inventory is directly related to the ramp-up
from pre-production to production quantities (and associated manufacturing
inefficiencies) on a particular wireless program, while the military inventory
increase is the result of build-up on one long-term program partially being
offset by a reduction on another long-term program which is nearing completion.
The decrease in customer advance payments was primarily due to the use of
advance payments received in the fourth quarter of 1997 and in the second
quarter of 1998, from a foreign military OEM. Investing activities, which
consisted primarily of equipment acquisitions, used net cash of $1.6 million and
$1.5 million in the first six months of 1999 and 1998, respectively. Financing
activities, which consisted primarily of proceeds from long-term debt, principal
payments of long-term debt, net repayments made on the revolving line of credit
and net proceeds from the exercise of common stock options, provided net cash of
$0.09 million and used net cash of $0.04 million in the first six months of 1999
and 1998, respectively.
Capital expenditures were $1.6 million and $1.5 million in the first six
months of 1999 and 1998, respectively. These expenditures were funded primarily
through cash provided by the Company's credit facility. Principal expenditures
for the first six months of 1999 included engineering and manufacturing test
equipment (including a discounted buy-out of an off-balance-sheet lease), a
third stencil printer and convection oven to support the Company's automated
assembly efforts and enhancements to the Company's CAD systems. The Company
anticipates making additional capital expenditures of approximately $0.9 million
during the remainder of 1999, including the purchase of additional engineering
and manufacturing test equipment, computer equipment upgrades, continued
enhancements to its CAE/CAD systems and possibly the purchase of a third
automated surface-mount pick-n-place machine. It is anticipated that capital
expenditures for 1999 will be financed by the Company's credit facility, cash
provided by operating activities and/or third party financing sources.
As of June 30, 1999, the Company had working capital of approximately
$25.4 million, compared to approximately $21.7 million as of December 31, 1998.
Working capital as of June 30, 1999 included approximately
Page 13
<PAGE>
$11.6 million and $22.0 million in accounts receivable and inventory,
respectively, compared to December 31, 1998 working capital which included
approximately $12.2 million and $18.9 million in accounts receivable and
inventory, respectively. The Company's current ratio (ratio of current assets to
current liabilities) as of June 30, 1999 was 2.9:1, compared with a current
ratio of 2.6:1 as of December 31, 1998. As of both June 30, 1999 and December
31, 1998, the Company's debt to equity ratio was 0.6:1.
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.
YEAR 2000 - The Company has developed a Year 2000 Readiness Plan. This
plan addresses three main areas: (a) information technology systems (including
the Company's business systems, engineering and test equipment, both hardware
and software related), (b) non-information technology systems (including
embedded technology such as microcontrollers, typically found in such equipment
as telephone systems, fax systems, elevators, security systems, HVAC, etc.) and
(c) supply chain readiness or third party issues (including customers as well as
inventory and non-inventory suppliers). The Company's Chief Operating and
Financial Officer has been tasked with overseeing this process and reports
periodically to the Company's Board of Directors.
The Company has identified potential deficiencies related to Year 2000 in
its information technology systems and is in the process of addressing them
through upgrades or other remediation. For example, in 1997 the Company's
business and computing system was upgraded and is now Year 2000 compliant
(according to the Company's software providers). The Company expects to complete
testing and remediation of its internal systems in the third quarter of 1999. In
terms of non-information technology systems, the Company has identified those
material items which may require remediation or replacement. The Company is in
the process of addressing those items and expects to complete testing and
remediation or replacement of its non-information technology systems in the
third quarter of 1999. As for third parties, the Company is in the process of
identifying and contacting suppliers, both inventory and non-inventory, as well
as customers. This process includes the solicitation of written responses to
questionnaires and/or meetings with certain third parties. The Company expects
to have a better understanding of the Year 2000 readiness of these third parties
in the third quarter of 1999.
Based upon the Company's current estimates, additional out-of-pocket costs
associated with its Year 2000 compliance are not expected to be material. These
costs are anticipated to be incurred primarily in 1999 and include third party
consultants, remediation of existing computer software and replacement or
remediation of embedded chips. Such costs do not include internal management
time and the deferral of other projects, the effects of which are not expected
to be material to the Company's results of operations or financial condition. At
this point in time, the Company believes that it is difficult to specifically
identify the cause of the most reasonable worst case Year 2000 scenario. As with
all engineering and manufacturing companies, a reasonable worst case scenario
would be the result of failures of third parties (including, without limitation,
governmental entities and entities with which the Company has no direct
involvement) that continue for more than several days in various geographic
areas from which the Company's raw materials and components are sourced or to
which the Company's products are sold. In connection with the production of
products and the procurement of raw materials and components, the Company is
considering various contingency plans. Continuing failures in key geographic
areas in the United States and in certain European and Asian countries that
limit procurement or delivery of product would most likely have a material
adverse effect on the Company's results of operations. The extent of such lost
revenue cannot be estimated at this time; however, the Company is considering
contingency plans to limit, to the extent possible, the effect of such lost
revenue on the Company's result of operations. Any such plans would necessarily
be limited to matters over which the Company can reasonably control.
Page 14
<PAGE>
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company anticipates continuity of its
business activities, that continuity will be dependent upon its ability, and the
ability of third parties with whom the Company relies on directly, or
indirectly, to be Year 2000 compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's principal financial instrument is long-term debt under a
credit facility (consisting of a revolving line of credit, term loan and two
Capex loan facilities) that provides for interest at the prime rate or the prime
rate plus 0.25% (depending upon the individual credit facility component). The
Company is affected by market risk exposure primarily through the effect of
changes in interest rates on amounts payable by the Company under this credit
facility. A significant rise in the prime rate could materially adversely affect
the Company's business, financial condition and results of operations. At June
30, 1999, an aggregate principal amount of $9.0 million was outstanding under
the Company's credit facility and represented a weighted average annual interest
rate of 9.6%. If principal amounts outstanding under the Company's credit
facility remained at this level for an entire year and the prime rate increased
or decreased, respectively, by 1.1%, the Company would pay or save,
respectively, an additional $0.1 million in interest in that year. The Company
does not utilize derivative financial instruments to hedge against changes in
interest rates or for any other purpose.
Where appropriate, the Company requires that letters of credit be provided
on foreign sales. In addition, all transactions by the Company are denominated
in U.S. dollars. As such, the Company has shifted foreign currency exposure onto
its foreign customers. As a result, if exchange rates move against foreign
customers, the Company could experience difficulty collecting unsecured accounts
receivable, the cancellation of existing orders or the loss of future orders.
The foregoing could materially adversely affect the Company's business,
financial condition and results of operations.
Page 15
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
Reference is made to Part I, Item 3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1998, as filed March 19, 1999.
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held Thursday, May 6,
1999, 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 10,037,273 0 20,015
Edward J. Shubel 10,039,133 0 18,155
Merril M. Halpern 10,041,473 0 15,815
A. Lawrence Fagan 10,034,273 0 23,015
Alfred Weber 10,039,673 0 17,615
David J. Aldrich 10,039,473 0 17,815
Warren A. Law 10,034,673 0 22,615
James Silver 10,039,473 0 17,815
2. Ratify the appointment
of Arthur Andersen LLP 10,047,483 5,135 4,670
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.21 Amendment No. 2 dated as of May 19, 1999 to a Loan
and Security Agreement dated as of February 13, 1997
among IBJ Whitehall Business Credit Corporation
(formerly known as IBJ Schroder Business Credit
Corporation), as Lender and Agent, and MPD
Technologies, Inc.
Exhibit 27.1 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter ending June
30, 1999.
Page 16
<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 10, 1999 /s/ Edward J. Shubel
-----------------------------------------
By: Edward J. Shubel
President and CEO
Dated: August 10, 1999 /s/ Paul E. Donofrio
-----------------------------------------
By: Paul E. Donofrio
Executive Vice President, COO and CFO
(Principal Financial and Accounting
Officer)
Page 17
EXHIBIT 10.21
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 ("Amendment") is entered into as of May 19,
1999, by and between MPD TECHNOLOGIES, INC., a New York corporation ("Borrower")
having its principal place of business at 49 Wireless Boulevard, Hauppauge, New
York and IBJ WHITEHALL BUSINESS CREDIT CORPORATION (formerly known as IBJ
Schroder Business Credit Corporation) ("IBJ") having its principal place of
business at One State Street, New York, New York and each of the other financial
institutions named in or which hereafter become a party to the Loan Agreement
(as defined below) (IBJ and such other financial institutions, the "Lenders")
and IBJ as agent for the Lenders (IBJ in such capacity, the "Agent").
BACKGROUND
Borrower, Agent and Lenders are parties to a Loan and Security
Agreement dated as of February 13, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Loan Agreement") pursuant to which Lenders
provided Borrower with certain financial accommodations.
Borrower has requested that Lenders and Agent amend the Loan
Agreement to, among other things, (a) increase the amount of the overall credit
facility by providing for an additional $3,000,000 equipment loan facility, (b)
increase the Maximum Revolving Amount, (c) decrease rates of interest and (d)
extend the termination date, and Agent and Lenders are willing to do so on the
terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by Agent
and Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein
shall have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Loan Agreement is hereby
amended as follows:
2.1. Section 1.2 of the Loan Agreement is hereby amended by
inserting the following defined terms in their appropriate alphabetical order:
Additional Capex Loans - the loans made by Lenders as provided in
Section 2.3(C) of this Agreement.
<PAGE>
Additional Capex Note - the secured promissory note to be executed
by Borrower to evidence the Capex Loans, which shall be in the form
of Exhibit 2.3(C) attached to Amendment No. 2.
Amendment No. 2 - means Amendment No. 2 to Loan and Security
Agreement dated as of the Amendment No. 2 Effective Date among
Borrower, Lenders and Agent.
Amendment No. 2 Effective Date - means May 19, 1999.
Maximum Additional Capex Amount -Three Million Dollars
($3,000,000), less principal payments of the Additional Capex
Loans.
2.2. Section 1.2 of the Loan Agreement is hereby amended by amending
the following defined terms in their entirety to provide as follows:
Loans - all loans and advances made by Lenders pursuant to this
Agreement, including, without limitation, all Revolving Credit
Loans, Capex Loans, Additional Capex Loans and the Term Loan.
Maximum Revolving Amount - Thirteen Million Seven Hundred Fifty
Thousand ($13,750,000).
Notes - the Term Note, the Capex Note, the Additional Capex Note and
the Revolving Credit Note.
2.3 Section 1.1 of the Loan Agreement is hereby amended by amending
the definition of "Borrowing Base" by deleting "$6,000,000" in clause (b) (ii)
(a) and inserting "$7,000,000" in its place and stead.
2.4 The preamble of Section 2 of the Loan Agreement is hereby
amended by deleting the phrase "FIFTEEN MILLION FOUR HUNDRED FIFTY THOUSAND AND
XX/100 DOLLARS ($15,450,000)" appearing in the fourth and fifth lines thereof
and replacing it with the phrase "TWENTY MILLION SIX HUNDRED SEVENTY SIX
THOUSAND FOUR HUNDRED AND XX/100 DOLLARS ($20,676,400)" in its place and stead.
2.5 Section 2.3 of the Loan Agreement is hereby amended by inserting a new
subsection "(C)" at the end thereof as follows:
2.5 Section 2.3 of the Loan Agreement is hereby amended by inserting
a new subsection "(C)" at the end of thereof as follows:
"(C) Additional Capex Loans. (i) Subject to the terms and
conditions set forth herein, each Lender, severally and not jointly,
agrees to make Loans (in addition to the Capex Loans) to Borrower to
finance Borrower's purchase of Equipment for use in Borrower's
business ("Additional Capex Loans") in the sum equal to such
Lender's Commitment Percentage of an amount not to exceed eighty
<PAGE>
percent (80%) of the net invoice cost of such Equipment purchased by
Borrower (which shall be exclusive of shipping, handling, taxes,
installation and all other "soft" costs) provided that the total
amount of all outstanding Additional Capex Loans shall not exceed
the Maximum Additional Capex Amount. All Additional Capex Loans must
be in original principal amounts of not less than $100,000.
Additional Capex Loans may only be borrowed prior to the first
anniversary of the Amendment No. 2 Effective Date. Once repaid, an
Additional Capex Loan may not be reborrowed. The Additional Capex
Loan shall be evidenced by and subject to the terms of a secured
promissory note, in substantially the form attached hereto as
Exhibit 2.3(C) (the "Capex Note").
(ii) Loans constituting Additional Capex Loans shall be
accumulated during each of twelve periods (each a "Borrowing
Period") during the Term. Each Additional Borrowing Period shall
consist of one month with the first Additional Borrowing Period
commencing on the Amendment No. 2 Effective Date and ending on June
18, 1999. At the end of each Borrowing Period, the sum of the
principal amount of all Additional Capex Loans made during such
Additional Borrowing Period will be amortized on the basis of a
sixty (60) month amortization schedule (such amount as determined
with respect to any Additional Borrowing Period, the " Additional
Amortization Amount"). Monthly principal payments will be initially
determined for the Additional Capex Loans made during the initial
Additional Borrowing Period and the amount of such monthly principal
payments shall be increased upon the completion of each subsequent
Additional Borrowing Period by the Additional Amortization Amount
for each such subsequent Additional Borrowing Period. Each
Additional Capex Loan shall be, with respect to principal, payable
in equal monthly installments based upon the amortization schedule
set forth above, commencing on the first Business Day of the month
following the month in which such Additional Capex Loan was made and
on the first day of each month thereafter, subject to acceleration
upon the occurrence and continuance of an Event of Default under
this Agreement or termination of this Agreement. Each Lender's
Commitment Percentage of the Additional Capex Loans shall be
evidenced by and subject to the Additional Capex Note."
2.6 Section 2.16(A) of the Loan Agreement is hereby amended by
inserting the following sentence at the end thereof:
"The Additional Capex Loans shall be advanced according to the
Commitment Percentages of Lenders."
2.7 Section 2.16(B) of the Loan Agreement is hereby amended by
adding the following sentence immediately after the third sentence thereof:
"Each payment (including each prepayment) by Borrower on account of
the
<PAGE>
principal of and interest on the Additional Capex Note, shall be
made from or to, or applied to that portion of the Additional Capex
Loans evidenced by the Additional Capex Note pro rata according to
the Commitment Percentages of Lenders."
2.8. Section 3.1(A) of the Loan Agreement is hereby amended by (i)
inserting the phrase "plus the Additional Capex Loans" immediately after the
phrase "the Term Loan" appearing in the third line thereof; (ii) deleting the
reference in clause (a) to "Alternate Base Rate plus three-quarters of one
percent (.75%)" and inserting "Alternate Base Rate plus one-quarter of one
percent (.25%)" in its place and stead and (iii) deleting the reference in
clause (b) to "Alternate Base Rate plus one-half of one percent (.50%)" and
inserting "Alternate Base Rate" in its place and stead.
2.9. Section 3.1(D) of the Loan Agreement is hereby amended by
deleting the first sentence in its entirety and replacing it with the following
in its place and stead:
"Borrower shall pay an unused facility fee at the rate of
one-quarter of one percent (1/4%) per annum on the difference
between (a) (i) the Maximum Revolving Amount plus (ii) the unpaid
balance of the Capex Loans plus (iii) from May 19, 1999 through May
19, 2000, the Maximum Additional Capex Amount or, at any time
thereafter, the unpaid balance of the Additional Capex Loans and (b)
the average daily unpaid balance of the Loans (other than the Term
Loan), payable to Agent for the ratable benefit of Lenders quarterly
in arrears, commencing on the first day of the calendar quarter
following the calendar quarter in which the Closing Date occurs."
2.10. Section 3.2 of the Loan Agreement is hereby amended by
deleting the phrase "February 12, 2001" appearing in the fourth and fifth lines
thereof and replacing it with the phrase "February 12, 2002" in its place and
stead.
2.11. Section 3.3(C) of the Loan Agreement is hereby amended by (i)
inserting the phrase "plus the Maximum Additional Capex Amount" immediately
after the phrase "the Maximum Revolving Amount" appearing in the eighth and
twelfth lines thereof, (ii) deleting the references in clause (a) and (y) to
"Closing Date" and inserting "Amendment No. 1 Effective Date" in their place and
stead.
2.12. Section 3.3(D) of the Loan Agreement is hereby amended by
inserting the phrase "and the Additional Capex Loans" immediately following the
phrase "the Term Loan" appearing in the second sentence thereof.
2.13. Section 3.5 of the Loan Agreement is hereby amended by
inserting the phrase "and/or the Additional Capex Loans" immediately after the
phrase "the Term Loan" appearing in the sixteenth line thereof.
2.14. Section 10 of the Loan Agreement is hereby amended to include
the following new subsection 10.4 at the end thereof:
<PAGE>
"10.4. Conditions to Each Additional Capex Loan. The agreement
of Lenders to make any Additional Capex Loan is subject to
satisfaction of the following conditions precedent: (a) receipt by
Agent of (i) a copy of the invoice relating to the Equipment being
purchased, (ii) evidence that such Equipment has been shipped to
Borrower, (iii) evidence that the requested Additional Capex Loan
does not exceed eighty percent (80%) of the net invoice cost of such
Equipment purchased by Borrower (which shall be exclusive of
shipping, handling, taxes, installation and all other "soft" costs),
and (iv) such other documentation and evidence that Agent may
request; (b) no breach of Section 9.3 of the Loan Agreement shall
exist for the most recent completed fiscal quarter with compliance
tested as if the requested Additional Capex Loan was outstanding on
the first day of such fiscal quarter; and (c) after giving effect
thereto, the aggregate outstanding Additional Capex Loans shall not
exceed the Maximum Additional Capex Amount."
2.15. Section 13.12 of the Loan Agreement is hereby amended to by
inserting the phrase "and the Additional Capex Loans" immediately after the
phrase "Revolving Credit Loan" appearing in the last line thereof.
2.16. Exhibit 2.1 to the Loan Agreement (as amended by Amendment
No. 1) is hereby deleted and replaced in its entirety with Exhibit 2.1
attached to Amendment No. 2.
3. Conditions of Effectiveness. This Amendment shall become
effective upon satisfaction of the following conditions precedent: Agent shall
have received (i) four (4) copies of this Amendment executed by Borrower and
consented and agreed to by Microwave Power Devices, Inc., as guarantor, (ii) an
amendment fee to Agent equal to $27,500, (iii) an executed Second Amended and
Restated Revolving Credit Note, (iv) an executed Additional Capex Note and (v)
evidence in the form of corporate resolutions demonstrating that Borrower shall
have taken all necessary corporate action for the authorization, execution,
delivery and performance of this amendment and (vi) such other certificates,
instruments, documents, agreements and opinions of counsel as may be required by
Agent or its counsel, each of which shall be in form and substance satisfactory
to Agent and its counsel.
4. Representations and Warranties. Borrower hereby represents and
warrants as follows:
(a) This Amendment and the Loan Agreement, as amended hereby,
constitute legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective
terms.
(b) Upon the effectiveness of this Amendment, Borrower hereby
reaffirms all covenants, representations and warranties made in the
Loan Agreement to the extent the same are not amended hereby and
agree that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this
Amendment.
<PAGE>
(c) No Event of Default or Default has occurred and is
continuing or would exist after giving effect to this Amendment.
(d) Borrower has no defense, counterclaim or offset with
respect to the Loan Agreement.
5. Effect on the Loan Agreement.
(a) Upon the effectiveness of this Amendment, each reference in the
Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import shall mean and be a reference to the Loan Agreement as amended
hereby.
(b) Except as specifically amended herein, the Loan Agreement, and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Agent, nor
constitute a waiver of any provision of the Loan Agreement, or any other
documents, instruments or agreements executed and/or delivered under or in
connection therewith.
6. Governing Law. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
and shall be governed by and construed in accordance with the laws of the State
of New York.
7. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
8. Counterparts; Telecopied Signatures. This Amendment may be
executed in any number of and by different parties hereto on separate
counterparts, all of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first written above.
MPD TECHNOLOGIES, INC.
By: /s/ Paul E. Donofrio
--------------------
Name: Paul E. Donofrio
Title: Executive Vice President, Chief
Operating and Financial Officer
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION, as Agent and a Lender
By: /s/ Edward A. Jesser
--------------------
Name: Edward A. Jesser
Title: SVP
CONSENTED AND AGREED TO:
MICROWAVE POWER DEVICES, INC.
By: /s/ Paul E. Donofrio
--------------------
Name: Paul E. Donofrio
Title: Executive Vice President, Chief Operating
and Financial Officer
<PAGE>
EXHIBIT 2.1
SECOND AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$13,750,000.00 New York, New York
as of May 19, 1999
This Second Amended and Restated Revolving Credit Note is executed
and delivered under and pursuant to the terms of that certain Loan and Security
Agreement dated as of February 13, 1997 (as the same has been and may be further
amended, supplemented or modified from time to time, the "Loan Agreement") by
and among MPD TECHNOLOGIES, INC., a New York corporation having its chief
executive office at 49 Wireless Boulevard, Hauppauge, New York 11788
("Borrower"), IBJ WHITEHALL BUSINESS CREDIT CORPORATION (formerly known as IBJ
Schroder Business Credit Corporation) ("IBJ"), each of the other financial
institutions named in or which hereafter become parties to the Loan Agreement
(IBJ and such other financial institutions, the "Lenders") and IBJ as agent for
the Lenders (IBJ in such capacity, "Agent"). Capitalized terms not otherwise
defined herein shall have the meanings as provided in the Loan Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of
Agent for the ratable benefit of Lenders at Agent's offices located at One State
Street, New York, New York 10004 or at such other place as Agent may from time
to time designate in writing to Borrower:
(i) the principal sum of THIRTEEN MILLION SEVEN HUNDRED FIFTY
THOUSAND AND 00/100 DOLLARS ($13,750,000.00) or, if different from such amount,
such amount of Revolving Advances as may be due and owing under the Loan
Agreement, payable in accordance with the provisions of the Loan Agreement and
subject to acceleration upon the occurrence of an Event of Default under the
Loan Agreement, earlier termination of the Loan Agreement or earlier prepayment
as required pursuant to the terms thereof; and
(ii) interest on the principal amount of this Note from time to time
outstanding until such principal amount is paid in full, at such interest rates
and at such times as are provided in the Loan Agreement. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, interest
shall be payable at the Default Rate. In no event, however, shall interest
hereunder exceed the maximum interest rate permitted by law.
This Second Amended and Restated Revolving Credit Note amends and
restates in its entirety and is given in substitution for, but not in
satisfaction of, that certain Amended and Restated Revolving Credit Note dated
as of February 13, 1998 issued by Borrower in favor of Agent for the ratable
benefit of Lenders in the original principal amount of $12,000,000.
This Note is the Revolving Credit Note referred to in the Loan
Agreement and is
<PAGE>
secured, inter alia, by the liens granted pursuant to the Loan Agreement and the
Other Agreements, is entitled to the benefits of the Loan Agreement and the
Other Agreements and is subject to all of the agreements, terms and conditions
therein contained.
This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
If an Event of Default under Sections 11.1(J) or 11.1(K) of the Loan
Agreement shall occur, then this Note shall immediately become due and payable,
without notice, together with reasonable attorneys' fees if the collection
hereof is placed in the hands of an attorney to obtain or enforce payment
hereof. If any other Event of Default shall occur under the Loan Agreement or
any of the Other Agreements which is not cured within any applicable grace
period, then this Note may, as provided in the Loan Agreement, be declared to be
immediately due and payable, without notice, together with reasonable attorneys'
fees, if the collection hereof is placed in the hands of an attorney to obtain
or enforce payment hereof.
This Note is being delivered in the State of New York, and shall be
construed and enforced in accordance with the laws of such State.
Borrower expressly waives any presentment, demand, protest, notice
of protest, or notice of any kind except as expressly provided in the Loan
Agreement.
MPD TECHNOLOGIES, INC.
By: /s/ Paul E. Donofrio
--------------------
Name: Paul E. Donofrio
Title: Executive Vice President, Chief
Operating and Financial Officer
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 20 day of May, 1999, before me personally came Paul E.
Donofrio, to me known, who being by me duly sworn, did depose and say that he is
the Executive Vice President, Chief Operating and Financial Officer of MPD
Technologies, Inc., the corporation described in and which executed the
foregoing instrument; and that he was authorized to sign his name thereto.
/s/ Concetta Ombrellino
-----------------------
Notary Public, State of New York
Suffolk County No. 01OM6015966
Commission Expires November 09, 2000
<PAGE>
EXHIBIT 2.3(C)
ADDITIONAL CAPEX NOTE
$3,000,000.00 New York, New York
as of May 19, 1999
This Additional Capex Note is executed and delivered under and
pursuant to the terms of that certain Loan and Security Agreement dated as of
February 13, 1997 (as the same has been and may be further amended, supplemented
or modified from time to time, the "Loan Agreement") by and among MPD
TECHNOLOGIES, INC., a New York corporation having its chief executive office at
49 Wireless Boulevard, Hauppauge, New York 11788 ("Borrower"), IBJ WHITEHALL
BUSINESS CREDIT CORPORATION (formerly known as IBJ Schroder Business Credit
Corporation) ("IBJ"), each of the other financial institutions named in or which
hereafter become parties to the Loan Agreement (IBJ and such other financial
institutions, the "Lenders") and IBJ as agent for the Lenders (IBJ in such
capacity, "Agent"). Capitalized terms not otherwise defined herein shall have
the meanings as provided in the Loan Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of
Agent for the ratable benefit of Lenders at Agent's offices located at One State
Street, New York, New York 10004 or at such other place as Agent may from time
to time designate to Borrower in writing:
(i) the principal sum of THREE MILLION AND 00/100 DOLLARS
($3,000,000.00) or such lesser amount as shall be advanced by Lender on or
before May 19, 2000, payable in consecutive monthly installments each in an
amount equal to the applicable monthly payment on Additional Capex Loans as set
forth in the Loan Agreement, subject to acceleration upon the occurrence of an
Event of Default under the Loan Agreement, earlier termination of the Loan
Agreement or earlier prepayment as required pursuant to the terms of the Loan
Agreement; and
(ii) interest on the principal amount of this Note from time to time
outstanding until such principal amount is paid in full, at such interest rates
and at such times as are provided in the Loan Agreement. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, interest
shall be payable at the Default Rate. In no event, however, shall interest
hereunder exceed the maximum interest rate permitted by law.
This Note is the Additional Capex Note referred to in the Loan
Agreement and is secured, inter alia, by the liens granted pursuant to the Loan
Agreement and the Other Agreements, is entitled to the benefits of the Loan
Agreement and the Other Agreements and is subject to all of the agreements,
terms and conditions therein contained.
This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
<PAGE>
If an Event of Default under Sections 11.1(J) or 11.1(K) of the Loan
Agreement shall occur, then this Note shall immediately become due and payable,
without notice, together with reasonable attorneys' fees if the collection
hereof is placed in the hands of an attorney to obtain or enforce payment
hereof. If any other Event of Default shall occur under the Loan Agreement or
any of the Other Agreements, which is not cured within any applicable grace
period, then this Note may, as provided in the Loan Agreement, be declared to be
immediately due and payable, without notice, together with reasonable attorneys'
fees, if the collection hereof is placed in the hands of an attorney to obtain
or enforce payment hereof.
This Note is being delivered in the State of New York, and shall be
construed and enforced in accordance with the laws of such State.
Borrower expressly waives any presentment, demand, protest, notice
of protest, or notice of any kind except as expressly provided in the Loan
Agreement.
MPD TECHNOLOGIES, INC.
By: /s/ Paul E. Donofrio
--------------------
Name: Paul E. Donofrio
Title: Executive Vice President, Chief
Operating and Financial Officer
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 20 day of May, 1999, before me personally came Paul E.
Donofrio, to me known, who being by me duly sworn, did depose and say that he is
the Executive Vice President, Chief Operating and Financial Officer of MPD
Technologies, Inc., the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the board
of directors of said corporation.
/s/ Concetta Ombrellino
-----------------------
Notary Public, State of New York
Suffolk County No. 01OM6015966
Commission Expires November 09, 2000
<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, 1999,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 685
<SECURITIES> 0
<RECEIVABLES> 11,666
<ALLOWANCES> 75
<INVENTORY> 21,998
<CURRENT-ASSETS> 38,898
<PP&E> 16,443
<DEPRECIATION> 6,694
<TOTAL-ASSETS> 49,483
<CURRENT-LIABILITIES> 13,478
<BONDS> 12,141
0
0
<COMMON> 105
<OTHER-SE> 23,409
<TOTAL-LIABILITY-AND-EQUITY> 49,483
<SALES> 36,396
<TOTAL-REVENUES> 36,396
<CGS> 24,903
<TOTAL-COSTS> 24,903
<OTHER-EXPENSES> (3)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 597
<INCOME-PRETAX> 3,389
<INCOME-TAX> 1,269
<INCOME-CONTINUING> 2,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,120
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
