FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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 AND EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 33-16453
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)
(Zip Code)
(603) 883-2900
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
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 and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date.
3,767,914 shares of common stock, par value $.01 per share as
of August 5, 1999.
Page 1 of 12. There is no Exhibit Index.
MICRONETICS WIRELESS, INC.
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements.
Condensed Balance Sheets -
June 30, 1999 and March 3-4
31, 1999
Condensed Statements of Operations-
Three Months Ended June 30, 1999
and June 30, 1998 5
Condensed Statement of Cash Flows - 6-7
Three Months Ended June 30, 1999
and June 30, 1998
Notes to Condensed Financial 8
Statements
Item 2. Management's Discussion and Analysis
or Plan of Operation. 9-10
Part II. Other Information:
Item 2. Changes in Securities and Use of Proceeds. 12
Item 6. Exhibits and Reports on Form 8-K. 12
Signature 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MICRONETICS WIRELESS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
Assets
June 30, March 31,
1999 1999
CURRENT ASSETS:
Cash $1,043,940 $1,164,661
Receivables
Trade (net of allowance for
doubtful accounts) 1,052,848 913,272
Inventories (note 2) 1,795,001 1,738,128
Prepaid expenses and other
current assets 15,663 50,144
Deferred tax asset - 18,102
Other current assets 110,795 70,106
TOTAL CURRENT ASSETS 4,018,247 3,954,413
FIXED ASSETS
Land 162,000 162,000
Building & Improvements 855,969 855,969
Furniture, Fixtures, and
Equipment 1,846,858 1,830,908
Capitalized Leases 182,588 182,588
Gross Fixed Assets 3,047,415 3,031,465
Accumulated Depreciation
and Amortization 1,429,841 1,376,840
TOTAL (NET) FIXED ASSETS 1,617,574 1,654,625
OTHER ASSETS
Deposits - 765
Intangibles (Net of
Amortization) 73,497 75,497
Goodwill 335,273 337,380
TOTAL OTHER ASSETS 408,770 413,662
TOTAL ASSETS $6,044,591 $6,022,680
MICRONETICS WIRELESS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
Liabilities and Shareholders' Equity
June 30, March 31,
1999 1999
CURRENT LIABILITIES:
Short-term loans and capitalized
leases $216,898 $225,534
Accounts payable 176,326 196,321
Accrued expenses and taxes, other
than income taxes 233,505 243,930
Income taxes payable 49,051 17,153
TOTAL CURRENT LIABILITIES 675,780 682,938
LONG-TERM DEBT:
Capitalized leases 35,255 52,053
Notes payable - Bank 760,241 782,450
Notes payable - Other 81,328 81,328
TOTAL LONG-TERM DEBT 876,824 915,831
SHAREHOLDER'S EQUITY:
Common stock 37,839 37,628
Additional paid - in capital 3,100,692 3,094,153
Retained earnings 1,392,071 1,292,130
Treasury stock (38,615) -
TOTAL SHAREHOLDERS' EQUITY 4,491,993 4,423,911
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 6,044,591 $ 6,022,680
MICRONETICS WIRELESS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30,
1999 1998
Operating revenues $1,342,916 $1,053,675
Cost of operations 817,236 631,164
Gross profit 525,680 422,511
Selling, general and
administrative expenses 357,151 237,187
Research & development 30,129 53,424
Operating income 138,400 131,900
Other income (expense):
Rental income 16,050 19,583
Interest income 8,980 9,536
Interest (expense) (19,391) (20,129)
Other income (expense) 5,902 ( 1,118)
Total 11,541 7,872
Income before provision
for income taxes 149,941 139,772
Provision for income taxes 50,000 41,932
Net income $ 99,941 $ 97,840
Net income per share $ 0.03 $ 0.03
Weighted average number
of shares outstanding 3,765,640 3,403,688
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
1999 1998
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:
Cash flows from operating
Activities:
Net income $ 99,941 $ 97,840
Adjustments to reconcile net
income to net cash provided
by operating activities:
Decrease in deferred tax asset 18,102 30,752
Depreciation and amortization 57,108 44,997
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable, inventories, prepaid
expenses and other current assets (202,657) 214,219
(Increase) decrease in security
deposits and other assets 765 335
(Decrease) increase in accounts
payable, accrued liabilities,
notes payable and other current
liabilities 1,478 (152,407)
Net cash provided (utilized)
by operating activities $(25,263) $235,736
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS (CONT.)
(UNAUDITED)
Three Months Ended June 30,
1999 1998
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:
Cash Flows from Investment
Activities:
(Additions) to fixed assets $ (15,950) $ (15,665)
Net cash provided (used) by
investment activities $ (15,950) (15,665)
Cash Flows from Financing
Activities:
(Reduction) increase of debt
and capitalized leases (47,643) (20,235)
Purchase of treasury shares (38,615)
Proceeds from stock options
exercised 6,750 1,000
Net cash provided (used)
by financing activities $ (79,508) $ (19,235)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (120,721) $ 200,836
Cash and cash equivalents, at
beginning of year 1,164,661 1,031,625
CASH AND CASH EQUIVALENTS, AT
END OF QUARTER $1,043,940 $1,232,461
<PAGE>
MICRONETICS, WIRELESS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. In the opinion of the Company, the accompany-
ing unaudited consolidated condensed financial
statements contain all adjustments (consisting
of only normal recurring adjustments) which in
the opinion of management are necessary in order
to present fairly the financial position as of
June 30, 1999 and 1998, the results of
operations for the three month period ended June
30, 1999 and 1998 and cash flows for the three
month period ended June 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 month
period ended June 30, 1999 are not necessarily
indicative of the results of the full year.
Note 2. Inventories are summarized below:
June 30, 1999 March 31, 1999
Raw materials and
work-in-process $1,574,839 $1,517,966
Finished goods 220,162 220,162
Total $1,795,001 $1,738,128
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
The Company had revenues of $1,342,916 and $1,053,675 for the
three months ended June 30, 1998 and 1997, respectively, an increase
of $289,241 or 27.5% in the current period. Gross profit as a
percent of net sales declined to 39.1% in the current period from
40.1% during the corresponding period of the prior fiscal year.
Selling, general and administrative expenses as a percent of net
sales for the current period increased to 25.1% from 22.5% during the
corresponding period a year ago. Research and development expenses
declined to 2.2% of net sales during the current period as compared
to 5.1% of net sales a year ago. These changes during the current
period largely are the result of the integration of the operations of
Microwave & Video Systems, Inc. and Vectronics Microwave Corporation,
which were acquired by the Company in the fourth quarter of the prior
fiscal year.
The Company had net income of $99,941, or $.03 per share, as
compared to net income of $97,840, or $.03 per share, for the three
month periods ended June 30, 1999 and 1998, respectively. The
weighted average shares outstanding for the three months ended June
30, 1999 and June 30, 1998, were 3,765,640 and 3,403,688,
respectively.
Financial Condition
The Company's working capital at June 30, 1999 was $3,342,467,
an increase of $70,992 from $3,271,475, the working capital at March
31, 1999. The Company's current ratio was approximately 5.94 to 1.0
at June 30, 1999; it was approximately 5.8 to 1.0 at March 31, 1999.
Net cash of $25,263 was used by operating activities during the
three months ended June 30, 1999 as compared to $235,736 generated
from such activities during the year earlier period. This was
primarily due to increased accounts receivables due to increased
sales. Net cash utilized by investing activities during the three
months ended June 30, 1999 was $15,950 as compared to $15,665 during
the year earlier period. This use of cash was primarily to purchase
equipment. Net cash utilized by financing activities during the
three months ended June 30, 1999 was $79,508 as compared to $19,235
during the year earlier period. The primary uses of cash in the
current period was to reduce debt and acquire treasury shares. As a
result of these activities, the Company's cash position decreased by
$120,721 during the current three months as compared to an increase
of $200,836 in the year ago period.
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 Data 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
processes 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 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities
On May 10, 1999, the Company issued five-year incentive stock
options to purchase an aggregate of 70,500 shares of Common Stock to
an aggregate of 19 employees and consultants. The options are
exercisable at a price equal to $1.625 per share of Common Stock,
that being the fair market value on the date of grant and is
exercisable at a rate of 25% per year commencing May 10, 2000. In
addition, on May 10, 1999, the Company issued a five-year incentive
stock option to purchase 5,000 shares of Common Stock to a consultant
to the Company. The option is exercisable at a price equal to $1.78
per share of Common Stock, that being 110% of the fair market value
on the date of grant and is exercisable at a rate of 25% per year.
On May 10, 1999, the Company issued a five-year non-incentive stock
option to purchase 25,000 shares of Common Stock to a key employee.
The option is immediately exercisable.
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. 33-16453 (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 June 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.
(Registrant)
Dated: August 9, 1999 By:s\ Richard S. Kalin
Richard S. Kalin,
President (Principal Executive
and Financial Officer)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 1,043,940
<SECURITIES> 0
<RECEIVABLES> 1,052,848
<ALLOWANCES> 57,431
<INVENTORY> 1,795,001
<CURRENT-ASSETS> 4,018,247
<PP&E> 3,047,415
<DEPRECIATION> 1,429,841
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<CURRENT-LIABILITIES> 675,780
<BONDS> 0
0
0
<COMMON> 37,839
<OTHER-SE> 4,454,154
<TOTAL-LIABILITY-AND-EQUITY> 6,044,591
<SALES> 1,342,916
<TOTAL-REVENUES> 1,342,916
<CGS> 817,236
<TOTAL-COSTS> 1,204,516
<OTHER-EXPENSES> (30,932)
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<INTEREST-EXPENSE> (19,391)
<INCOME-PRETAX> 149,941
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 99,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,941
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