FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-17966
MICRONETICS WIRELESS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2063614
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
26 Hampshire Drive, Hudson NH 03051
(Address of principal executive offices)
(603) 883-2900
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of the issuer's common stock
par value $.01 per share, as of November 4, 1999 was 3,763,114.
Transitional Small Business Disclosure Format (check one);
Yes No X
Page 1 of 15
There is no Exhibit Index.
MICRONETICS WIRELESS, INC.
INDEX
Part I. Financial Information: Page No.
Item 1. Financial Statements.
Condensed Balance Sheets - 3-4
September 30, 1999 and March
31, 1999
Condensed Statements of Operations- 5
Three Months Ended September 30, 1999
and 1998
Condensed Statements of Operations - 6
Six Months Ended September 30, 1999
and 1998
Condensed Statements of Cash Flows - 7-8
Six Months Ended September 30, 1999
and 1998
Notes to Condensed Financial 9
Statements
Item 2. Management's Discussion and Analysis 10-13
of Financial Condition and
Result of Operations.
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. 14
Signature 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MICRONETICS WIRELESS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
Assets
September 30, March 31,
1999 1999
Current assets:
Cash $ 913,517 $1,164,661
Receivables
Trade (net of allowance for
doubtful accounts) 1,136,670 913,272
Inventories (note 2) 1,956,063 1,738,128
Prepaid expenses and other
current assets 40,017 50,144
Deferred tax asset - 18,102
Other current assets 117,922 70,106
Total current assets 4,164,189 3,954,413
Fixed assets:
Land 162,000 162,000
Building & improvements 855,969 855,969
Furniture, fixtures and
equipment 1,937,340 1,830,908
Capitalized leases 182,588 182,588
Gross fixed assets 3,137,897 3,031,465
Accumulated depreciation and
amortization 1,486,704 1,376,840
Total (net) fixed assets 1,651,193 1,654,625
Other assets:
Deposits - 765
Intangibles (net of amortization) 72,497 75,497
Goodwill 334,165 337,380
Total other assets 406,662 413,662
Total assets $6,222,044 $6,022,680
MICRONETICS WIRELESS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
Liabilities and Shareholders' Equity
September 30, March 31,
1999 1999
Current liabilities:
Short-term loans and capitalized
leases $ 202,169 $ 225,534
Accounts payable 257,941 196,321
Accrued expenses and taxes, other
than income taxes 232,821 243,930
Income taxes payable 73,051 17,153
Total current liabilities 765,982 682,938
Long term debt:
Capitalized leases 29,539 52,053
Notes payable - bank 736,827 782,450
Notes payable - other 81,328 81,328
Total long-term debt 847,694 915,831
Shareholders' equity:
Common stock 37,631 37,628
Additional paid - in capital 3,024,094 3,094,153
Retained earnings 1,546,643 1,292,130
Treasury stock - -
Total shareholders' equity 4,608,368 4,423,911
Total liabilities and
shareholders' equity $6,222,044 $6,022,680
MICRONETICS WIRELESS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
1999 1998
Operating revenues $1,486,615 $1,149,059
Cost of operations 853,001 683,038
Gross profit 633,614 466,021
Selling, general and
administrative expenses 423,807 284,418
Research & development
expense 43,216 35,254
Operating income 165,591 146,349
Other income (expense):
Rental income 16,050 10,871
Interest income 8,722 9,780
Interest (expense) (19,120) (19,672)
Other income (expense) 6,329 12,882
Total 11,981 13,861
Income before taxes
178,572 160,210
Provision for income taxes 24,000 30,064
Net income
$ 154,572 $ 130,146
Net income per share $ 0.04 $ 0.04
Weighted average number
of shares outstanding 3,744,380 3,403,688
<PAGE>
MICRONETICS WIRELESS, INC.
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended September 30,
1999 1998
Operating revenues $2,829,531 $2,202,734
Cost of operations 1,670,237 1,314,202
Gross profit 1,159,294 888,532
Selling, general and
administrative expenses 780,958 521,605
Research & development expense 73,345 88,678
Operating income 304,991 278,249
Other income (expense):
Rental income 32,100 30,454
Interest income 17,702 19,316
Interest (expense) (38,511) (39,801)
Other income (expense) 12,231 11,764
Total 23,522 21,733
Income before taxes 328,513 299,982
Provision for income taxes 74,000 71,996
Net income $ 254,513 $ 227,986
Net income per share $ 0.07 $ 0.07
Weighted average number
of shares outstanding 3,744,380 3,403,688
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended September 30,
1999 1998
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:
Cash Flows from Operating
Activities:
Net income $254,513 $227,986
Adjustments to reconcile net
income to net cash provided
by operating activities:
Decrease in deferred tax asset 18,102 43,302
Depreciation and amortization 116,079 89,994
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable, inventories, prepaid
expenses and other current assets (479,022) (63,152)
(Increase) decrease in security
deposits 765 1,616
(Decrease) increase in accounts
payable accrued liabilities,
notes payable and other current
liabilities 106,409 (163,973)
Net cash provided (utilized)
by operating activities $ 16,846 $135,773
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS (CONT.)
(UNAUDITED)
Six Months Ended September 30,
1999 1998
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:
Cash Flows from Investment
Activities:
(Additions) to fixed assets $ (106,432) $ (27,337)
Net cash provided (used) by
investment activities (106,432) (27,337)
Cash Flows from Financing
Activities:
(Reduction) increase of debt
and capitalized leases (91,502) $ (61,390)
Proceeds from stock options
exercised 41,562 5,564
Purchase of treasury stock (111,618) -
Net cash provided (used)
by financing activities (161,558) (55,826)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (251,144) 52,610
Cash and cash equivalents, at
beginning of year 1,164,661 1,031,625
CASH AND CASH EQUIVALENTS, AT
END OF QUARTER $ 913,517 $1,084,235
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. In the opinion of the Company, the accompanying
unaudited consolidated condensed financial
statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to
present fairly the financial position as of
September 30, 1999 and 1998, the results of
operations for the three month and six month
periods ended September 30, 1999 and 1998 and cash
flows for the six month periods ended September
30, 1999 and 1998.
While the Company believes that the disclosures
presented are adequate to make the information not
misleading, it is suggested that these
consolidated condensed financial statements be
read in conjunction with the Company's Annual
Report on Form 10-KSB for its fiscal year ended
March 31, 1999.
The results of operations for the three and six
month periods ended September 30, 1999 are not
necessarily indicative of the results of the full
year.
Note 2. Inventories are summarized below:
September 30, 1999 March 31, 1999
Raw materials and
work-in-process $1,762,096 $1,517,966
Finished goods 193,967 220,162
Total $1,956,063 $1,738,128
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The Company had revenues of $1,486,615 and $1,149,059 for the
three months ended September 30, 1999 and 1998, respectively, an
increase of 29% compared to the prior period. This was largely due
to the Company's acquisition of Microwave & Video Systems, Inc. and
Vectronics Microwave Corporation earlier this year. The Company
had net income of $154,572 or $.04 per share, as compared with net
income of $130,146 or $.04 per share, for the three month periods
ended September 30, 1999 and 1998, respectively.
The Company had revenues of $2,829,531 and $2,202,734 for the
six months ended September 30, 1999 and 1998, respectively, an
increase of 28.5% over the prior period. The Company had net
income of $254,513 or $.07 per share, and $227,986 or $.07 per
share, for the six month periods ended September 30, 1999 and 1998,
respectively.
Gross profit as a percent of net sales for the three months
ended September 30, 1999 was 42.6% compared to 40.6% during the
corresponding period of the prior fiscal year. For the six month
periods ended September 30, 1999 and 1998, gross profit as a
percent of net sales was 41.0% and 40.3%, respectively. Selling,
general and administrative expenses ("SGA") as a percent of net
sales for the three months ended September 30, 1999 increased to
28.5% as compared to 24.7% in the prior year. For the six month
period ended September 30, 1999, SGA as a percent of net sales
increased to 27.6% from 23.7% in the year earlier period. SG&A
expenses have increased during the current periods as the Company
has expanded its staff and increased its marketing and advertising
activities to support increased business activity. Research and
development expenses ("R&D") as a percent of net sales decreased to
2.9% during the three month period ended September 30, 1999 as
compared to 3.1% in the year earlier period. R&D expenses as a
percent of net sales decreased to 2.6% during the six month period
ended September 30, 1999 as compared to 4.0% in the prior year
period.
Financial Condition
The Company's working capital at September 30, 1999 was
$3,398,207. It was $3,271,475 at March 31, 1999. The Company's
current ratio was 5.4 to 1.0 at September 30, 1999, as compared to
5.8 to 1.0 at March 31, 1999.
The Company generated cash from operating activities in the
amount of $16,846 during the six months ended September 30, 1999 as
compared to $135,773 in the year earlier period. The Company
purchased $106,432 of new equipment during the six months ended
September 30, 1999, as compared to $27,337 a year ago. The Company
used $161,558 for financing activities during the six months ended
September 30, 1999, as compared to a use of $55,826 related to the
year earlier period. As a result, the Company's cash and cash
equivalents decreased from $1,164,661 at March 31, 1999 to $913,517
at September 30, 1999.
The major differences during the current six month period had
to do with increased accounts receivables and inventory due to
increased business; increased purchases of fixed assets due to
additional investment in the broadband test equipment product line;
increased debt repayment and the repurchase of over 50,000 shares
of Common Stock of the Company.
Year 2000 Compliance
The Company is on schedule with a four step project that
addresses the Year 2000 (Y2K) issue by assessing its information
technology ("IT") and non-IT computer systems and operations to
identify and determine the extent to which any such systems may not
be able to properly recognize and process date-sensitive
information after December 31, 1999. The Y2K problem arose because
many computer systems use only the last two digits of a particular
year rather than four to define the year. Therefore, these systems
will not be able to properly recognize a year that begins with "20"
instead of the familiar "19". Any of the Company's systems
utilizing such a two-digit system to refer to a particular year,
will not be able to distinguish between the year 1900 and the year
2000. This may lead to disruption in the operations of business
including, but not limited to, a temporary inability to process
transactions, billing and customer service or to engage in normal
business activities resulting from miscalculations or system
failures.
The Company is currently in the process of creating an
inventory of all hardware, software and embedded chips in the
Company. Each of these items will be assessed for testing
requirements. Once this first step is completed, the Company will
measure the business criticality for each of the different areas of
the Company including, but not limited to production, distribution,
management functions, operations and material acquisition (i.e.
buying of raw materials). Next, the Company will assign
contingencies for all Y2K threats, if any. Lastly, the Company
will address a remediation plan for all Y2K threats found. Based
upon a preliminary review of the effect of the Y2K problem on the
Company, the Company believes that Y2K will have little or no
impact on its products or services. The Company's product software
does not reference any date fields and therefore would continue to
function correctly, regardless of date. The Company does not
anticipate any Y2K issues relating to third parties with which they
have a material relationship. The Company does not rely on
Electronic Date interchange with any of its vendors. Furthermore,
the Company does not believe that its relationship with any one
vendor or supplier is material to the extent that such party's Y2K
noncompliance would have a material adverse effect on the Company's
business and operations. The Company's manufacturing process are
not computer dependent so that Y2K would have no impact on its
ability to deliver products. This project is designed to ensure
the compliance of all of the Company's applications, operating
systems and hardware platforms, and to address the compliance of
key business partners. Key business partners are those customers
and vendors that have a material impact on the Company's
operations. The total estimated cost of the required modifications
to become Y2K compliant should not be material to the Company's
financial position.
Failure to make all internal business systems Y2K compliant
could result in an interruption in, or failure of, some of the
Company's business activities or operations. The Y2K project is
expected to reduce the Company's level of uncertainty about the Y2K
problem and reduce the possibility of significant interruptions of
normal business operations. The most reasonably likely worst case
Year 2000 scenario would be short term delivery interruption of
less than one week. The Company does not anticipate any material
lost revenue due to Y2K issues. The Company does not currently
have any contingency plans in the event its systems are not Y2K
compliant by December 31, 1999. There can be no assurance that any
effective contingency plans will be developed or implemented.
Safe Harbor Statement
Statements which are not historical facts, including
statements about the Company's confidence and strategies and its
expectations about new and existing products, technologies and
opportunities, market and industry segment growth, demand and
acceptance of new and existing products are forward looking
statements that involve risks and uncertainties. These include,
but are not limited to, product demand and market acceptance risks;
the impact of competitive products and pricing; the results of
financing efforts; the loss of any significant customers of any
business; the effect of the Company's accounting policies; the
effects of economic conditions and trade, legal, social, and
economic risks, such as import, licensing, and trade restrictions;
the results of the Company's business plan and the impact on the
Company of its relationship with its lender.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation of the Company, as amended,
incorporated by reference to Exhibit 3.1 to Registration
Statement No. 83-16453 (the "Registration Statement").
3.2 By-Laws of the Company incorporated by reference to
Exhibit 3.2 of the Registration Statement.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended September 30, 1999, the registrant
did not file any reports on Form 8-K.
<PAGE>
SIGNATURE
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.
MICRONETICS WIRELESS, INC.
Dated: November 5, 1999 s/Richard S. Kalin
Richard S. Kalin,
President and (Principal Executive
and Financial Officer)
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