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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996 Commission File No. 0-19944
M~WAVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3809819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
216 Evergreen Street, Bensenville, Illinois 60106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (708) 860-9542
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 and 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 ___
The registrant has 3,020,375 shares of common stock outstanding at May 6, 1996.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
M~WAVE, Inc.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $2,403,747 $222,402
Marketable securities....................................... 1,321,358 1,008,615
Accounts receivable,net of allowance
for doubtful accounts of $10,000.......................... 4,106,494 4,108,655
Inventories................................................. 3,462,200 2,595,591
Refundable income taxes..................................... 639,112 901,924
Deferred income taxes....................................... 154,682 707,373
Prepaid expenses and other.................................. 331,010 219,293
------------ -----------
Total current assets.................................... 12,418,603 9,763,853
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements............................ 2,680,882 6,012,230
Machinery and equipment..................................... 10,043,357 10,991,914
------------ -----------
Total property, plant and equipment..................... 12,724,239 17,004,144
Less accumulated depreciation............................... (2,629,466) (2,973,749)
------------ -----------
Property, plant and equipment-net....................... 10,094,773 14,030,395
GOODWILL........................................................ 873,636 848,190
OTHER ASSETS.................................................... 20,811 23,357
------------ -----------
TOTAL........................................................... $23,407,823 $24,665,795
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $1,734,831 $2,314,096
Accrued expenses............................................ 1,163,692 1,476,976
Current portion of long-term debt........................... 409,338 603,617
------------ -----------
Total current liabilities............................... 3,307,861 4,394,689
DEFERRED INCOME TAXES........................................... 723,130 723,130
LONG-TERM DEBT.................................................. 11,239 2,308,726
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 1,000,000
shares; no shares issued..................................
Common stock, $.01 par value; authorized, 10,000,000
shares; 3,040,375 shares issued and 3,020,375 shares
outstanding at December 31, 1995 and March 31, 1996....... 30,404 30,404
Additional paid-in capital.................................. 7,488,422 7,488,422
Retained earnings .......................................... 11,966,767 9,840,424
Treasury stock: 20,000 shares, at cost..................... (120,000) (120,000)
------------ -----------
Total stockholders' equity ............................. 19,365,593 17,239,250
------------ -----------
TOTAL........................................................... $23,407,823 $24,665,795
============ ===========
</TABLE>
See notes to consolidated financial statements.
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M~WAVE, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net sales................................ $8,034,178 $6,256,558
Cost of goods sold....................... 5,498,377 8,090,779
---------- ----------
Gross profit (loss).................... 2,535,801 (1,834,221)
Operating expenses:
General and administrative............. 559,036 736,692
Selling and marketing.................. 406,940 483,403
Research and development............... 112,264 121,355
---------- ----------
Total operating expenses............. 1,078,240 1,341,450
Operating income (loss) ............... 1,457,561 (3,175,671)
Other income (expense):
Interest income........................ 80,277 29,551
Interest expense....................... (15,999) (58,004)
Loss on disposal of assets............. 0 (149,751)
---------- ----------
Total other income (expense) 64,278 (178,204)
Income (loss) before income taxes... 1,521,839 (3,353,875)
Provision (credit) for income taxes...... 604,788 (1,227,531)
---------- ----------
Net income (loss)........................ $917,051 ($2,126,344)
========== ==========
Net income (loss) per share $0.30 ($0.70)
Weighted average shares 3,067,867 3,020,375
</TABLE>
See notes to consolidated financial statements.
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M~WAVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1995 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).............................................. $917,051 ($2,126,344)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization.............................. 256,946 369,729
Deferred income taxes...................................... 144,264 (552,691)
Changes in assets and liabilities:
Accounts receivable-trade.................................. (1,127,451) (2,161)
Insurance proceeds receivable.............................. 400,000 0
Inventories................................................ (885,990) 866,609
Income taxes............................................... 431,680 (262,812)
Prepaid expenses and other assets.......................... 38,650 109,171
Accounts payable........................................... 533,992 579,266
Accrued expenses........................................... (363,915) 313,284
--------- ---------
Net cash flows from operating activities................ 345,227 (705,949)
--------- ---------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment...................... (1,648,173) (4,279,905)
Redemption of marketable securities............................ 0 312,743
Collection of notes receivable................................. 4,678 0
--------- ---------
Net cash flows from investing activities................ (1,643,495) (3,967,162)
--------- ---------
FINANCING ACTIVITIES:
Common stock issued upon exercise of stock options............. 17,062 0
Mortgage debt incurred......................................... 2,496,007
Payments on capital leases..................................... (8,738) (4,241)
--------- ---------
Net cash flows from financing activities................ 8,324 2,491,766
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................ (1,289,944) (2,181,345)
CASH AND CASH EQUIVALENTS - Beginning of period.................. 6,868,823 2,403,747
--------- ---------
CASH AND CASH EQUIVALENTS - End of period........................ $5,578,879 $222,402
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................... $58,004
</TABLE>
See notes to consolidated financial statements.
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M~WAVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments necessary for a fair presentation
have been included. For further information, refer to the consolidated
financial statements contained in the Annual Report on Form 10-K for the year
ended December 31, 1995 filed March 29, 1996.
2. BUSINESS
M~Wave, through its wholly-owned subsidiaries, Poly Circuits Inc. and P
C Dynamics Corporation (collectively, the "Company"), manufactures microwave
frequency components and high frequency circuit boards on Teflon-based
laminates for commercial and military wireless communication applications. In
1995, the Company established a division that does contract assembly work for
customers.
4. INVENTORIES
Substantially all the Company's inventories are in work in process.
5. DEBT
The Company has borrowed $2,496,000 at March 31, 1996 against a total
financing commitment of $2,954,000 for the construction of the new P C Dynamics
Corporation facility in Frisco, Texas. Interest on this mortgage debt is at
the prime rate. The loan is payable in monthly installments of principal and
interest beginning July 1996 and ending in June 2001.
6. LITIGATION
The Company is a party to various actions and proceedings related to
its normal business operations. The Company believes that the outcome of this
litigation will not have a material adverse effect on the financial position or
results of operations of the Company.
The Company and Joseph Turek have been named as defendants in Lionheart
Partners, Inc., as general partner of Lionheart USA Micro Cap Value, L.P. v.
M~Wave, Inc. and Joseph Turek,
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which was filed on or about November 17, 1995 in the United States District
Court for the Northern District of Illinois. The case was filed as a purported
class action on behalf of all persons who purchased common stock of the
Company between August 8, 1995 and October 18, 1995. The complaint alleges that
the defendants made materially false and misleading statements and failed to
correct public representations which had become materially false and misleading
regarding the Company's revenues and earnings. The complaint asserts claims
under Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder and seeks compensatory damages in an unspecified
amount.
The Company believes that this action is without merit. On January 5,
1996, the Company filed a motion to dismiss the complaint. On April 26, 1996,
this motion to dismiss was denied.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS FOR THE QUARTER ENDED MARCH 31, 1996 COMPARED TO THE QUARTER ENDED
MARCH 31, 1995
NET SALES
Net sales were $6,257,000 for the first quarter ended March 31, 1996, a
decrease of $1,778,000 or 22% below the first quarter of 1995. The decrease
primarily reflects a slowdown in orders from the Company's largest customers as
well as first quarter production problems which resulted in higher than
expected sales returns. The reduction in orders from key accounts began in 1995
and is continuing in 1996.
GROSS PROFIT(LOSS) AND COST OF GOODS SOLD
Gross profit decreased to a loss of ($1,834,000) in the first quarter
of 1996 from $2,536,000 in the first quarter of 1995. This decrease is
primarily attributable to reduced shipments to the Company's largest customers,
a shift in product mix, certain price reductions and production problems. The
decrease in gross profit includes sales adjustments for pricing and returns of
$721,000 and inventory writedowns of $1,295,000 and $665,000 relating to
manufacturing scrap and rework and inventory obsolescence, respectively. The
Company has begun to make operational changes designed to enhance its quality
control and ability to manufacture highly complex products; however, there can
be no assurance as to when, or if, these changes will result in improved
manufacturing processes. Future production problems would continue to
adversely impact the Company's gross margins and profitability, which would
also result in decreased liquidity and adversely affect the Company's financial
position.
OPERATING EXPENSES
General and administrative expenses were $737,000 or 11.8% of net sales
in the first quarter of 1996 compared to $559,000 or 7.0% of net sales in the
first quarter of 1995. The increase is primarily attributable to an increase
in legal expenses of $75,000 relating to litigation and regulatory compliance
and relocation expense of $50,000 for employees relocating from Poly Circuits
to P C Dynamics in Texas. General and administrative expenses consist
primarily of salaries and benefits, professional services, depreciation of
office equipment, computer systems and occupancy expenses.
Selling and marketing expenses were $483,000 or 7.7% of net sales in
the first quarter of 1996 compared to $407,000 or 5.1% of net sales in the
first quarter of 1995. The increase in selling and marketing expenses relates
primarily to a shift in sales from non-commissionable to commissionable.
Selling and marketing expenses
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include the cost of salaries, advertising and promoting the Company's
products, and commissions paid to independent sales organizations.
Research and development expenses were $121,000 or 1.9% of net sales in
the first quarter of 1996 compared to $112,000 or 1.4% of net sales in the
first quarter of 1995. Research and development costs are expensed as they are
incurred.
OPERATING INCOME(LOSS)
Operating loss was ($3,176,000) in the first quarter of 1996 compared
to operating income of $1,458,000 or 18.1% of net sales in the first quarter of
1995, a decrease of $4,633,000. The changes in operating income reflect
primarily the changes in net sales, gross profit and cost of goods sold and
operating expenses as discussed above.
LOSS ON DISPOSAL OF ASSETS
The loss of $149,751 relates to unusable equipment disposed of at the P
C Dynamics location.
INCOME TAXES
In the first quarter of 1995 the Company had an effective tax rate of
39.7%. In the first quarter of 1996, the Company had an effective tax credit of
36.6%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided/(used) from operations was ($706,000) in the first
quarter of 1996 compared to $345,000 in the first quarter of 1995. A reduction
of inventories and increases in accounts payable and accrued expenses partially
offset the first quarter 1996 loss from operations.
Capital expenditures of $4.3 million in the first quarter of 1996,
compared with $1.6 million in the first quarter of 1995, include $3.3 million
for the new P C Dynamics facility in Texas. The estimated cost to complete this
facility is $0.5 million. The construction expenditures were partially
financed through mortgage borrowing's of $2.5 million against a total financing
commitment of $2.95 million. Except for completion of the P C Dynamics facility
and expenditures required to improve its manufacturing processes, the Company
presently has no plans for additional capital expenditures.
On January 10, 1996, the Company obtained a construction loan from
American National Bank and Trust Company of Chicago in the amount of $2,160,000
to finance the rebuilding of the facility in Frisco, Texas. The loan is payable
in monthly installments of principal and interest beginning July 1996 and
ending in June 2001.
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On March 31, 1996, the Company obtained a construction loan from
American National Bank and Trust Company that permits borrowing up to $794,000
to finance the rebuilding of the facility in Frisco, Texas. As of March 31,
1996, $336,000 was outstanding. The loan is payable in monthly installments of
principal and interest beginning July 1996 and ending in June 2001.
As of March 31, 1996, the Company has $2,912,000 of debt and $1,231,000
of cash and investments. Management believes that funds generated from
operations, coupled with the Company's cash and investment balances and its
capacity for debt will be sufficient to fund current business operations. The
Company's ability to fund its activities is directly dependent upon its sales,
its ability to improve its manufacturing processes, the effective utilization
of the Company's manufacturing resources and the Company's ability to access
external sources of financing. The Company anticipates additional debt
financing during 1996. There can be no assurances that such additional debt
financing can be obtained and, if obtained, at reasonable terms.
INFLATION
Management believes inflation has not had a material effect on
the Company's operation or on its financial position.
FOREIGN CURRENCY TRANSACTIONS
All of the Company's foreign transactions are negotiated, invoiced and
paid in United States dollars.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
As a supplier to microwave manufacturers, the Company is dependent upon
the success of its customers in developing and successfully marketing end-user
microwave systems. The Company is currently working on several development
programs for its customers. The development of commercial applications for
microwave systems and the timing and size of production schedules for these
programs is uncertain and beyond the control of the Company. There can be no
assurance that these development programs will have a favorable impact on the
Company's operating results. Although management believes some of these
products and programs may ultimately develop into successful commercial
applications, such developments could result in periodic fluctuations in the
Company's operating results. As a result of these considerations, the Company
has historically found it difficult to project operating results.
The Company expects that a small number of customers will continue to
account for a substantial majority of its sales and that the relative dollar
amount and mix of products sold to any of these customers can change
significantly from year to year.
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There can be no assurance that the Company's major customers will continue to
purchase products from the Company at current levels, or that the mix of
products purchased will be in the same ratio. The loss of one or more of the
Company's major customers or a change in the mix of product sales could have a
material adverse effect on the Company.
In addition, future results may be impacted by a number of other
factors, including the Company's dependence on suppliers and subcontractors for
components; the Company's ability to respond to technical advances; successful
award of contracts under bid; design and production delays; cancellation or
reduction of contract orders; the Company's effective utilization of existing
and new manufacturing resources; and pricing pressures by key customers.
The Company's future success is highly dependent upon its ability to
manufacture products that incorporate new technology and are priced
competitively. The market for the Company's products is characterized by rapid
technology advances and industry-wide competition. This competitive
environment has resulted in downward pressure on gross margins. In addition,
the Company's business has evolved towards the production of relatively smaller
quantities of more complex products, the Company expects that it will at times
encounter difficulty in maintaining its past yield standards. There can be no
assurance that the Company will be able to develop technologically advanced
products or that future pricing actions by the Company and its competitors will
not have a material adverse effect on the Company's results of operations.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company and Joseph Turek have been named as defendants in Lionheart
Partners, Inc., as general partner of Lionheart USA Micro Cap Value, L.P. v.
M~Wave, Inc. and Joseph Turek, which was filed on or about November 17, 1995 in
the United States District Court for the Northern District of Illinois. The
case was filed as a purported class action on behalf of all persons who
purchased common stock of the Company between August 8, 1995 and October 18,
1995. The complaint alleges that the defendants made materially false and
misleading statements and failed to correct public representations which had
become materially false and misleading regarding the Company's revenues and
earnings. The complaint asserts claims under Sections 10(b) and 20 of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks
compensatory damages in an unspecified amount.
The Company believes that this action is without merit. On January 5,
1996, the Company filed a motion to dismiss the complaint. On April 26, 1996,
this motion to dismiss was denied.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(b) The Company was not required to file any reports on Form 8-K during the
quarter ended March 31, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
M~WAVE, INC.
Date: May 13, 1996 /s/ PAUL H. SCHMITT
------------------------
Paul H. Schmitt
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No Description
------- ------------------------------------------------------
10.8 Construction loan Note, dated March 31, 1996,
by and among the Company, P C Dynamics and
American National Bank and Trust Company of Chicago
27 Financial Data Schedule
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Exhibit 10.8
- --------------------------------------------------------------------------------
INSTALLMENT NOTE (SECURED)
- --------------------------------------------------------------------------------
$794,000.00 Chicago, Illinois March 31, 1996
Due June 30, 2001
FOR VALUE RECEIVED, the undersigned (jointly and severally if more than
one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in
Chicago, Illinois or such other place as Bank may designate from time to time
hereafter, the principal sum of Seven Hundred Ninety Four Thousand and 00/100
Dollars, which sum shall be due on June 30, 2001, and shall be payable as
follows: accrued interest shall be payable by Borrower to Bank on the last
Business Day of each month, commencing with the last Business Day of April,1996
and successively thereafter until June, 1996 then monthly installments of
principal in the amount of $4,411.00 plus accrued interest as hereinafter
provided below; with the final installment equal to the balance of all amounts
due hereunder. The first installment shall be due on the 31st day of July,
1996, and successive installments shall be paid on the same day of each month
thereafter until paid. "Business Day" means any day of the year on which Bank
is open for business in Chicago, Illinois.
Borrower's obligations and liabilities to Bank under this Note, and all
other obligations and liabilities of Borrower to Bank (including without
limitation all debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, including those evidenced in rate
hedging agreements designed to protect the Borrower from the fluctuation of
interest rates, heretofore now and/or from time to time hereafter owing, due or
payable, however evidenced, created, incurred, acquired or owing and however
arising, whether under this Note, any agreement, instrument or document
heretofore, now or from time to time hereafter executed and delivered to Bank
by or on behalf of Borrower, or by oral agreement or operation of law or
otherwise shall be defined and referred to herein as "Borrower's Liabilities."
The unpaid principal balance of Borrower's Liabilities due hereunder
shall bear interest from the date of disbursement until paid, computed as
follows: at a daily rate equal to the daily rate equivalent of 0.0% per annum
(computed on the basis of a 360-day year and actual days elapsed) in excess of
the rate of interest announced or published publicly from time to time by Bank
as its prime or base rate of interest (the "Base Rate"); provided however, that
in the event that any of Borrower's Liabilities are not paid when due, the
unpaid amount of Borrower's Liabilities shall bear interest after the due date
until paid at a rate equal to the sum of the rate that would otherwise be in
effect plus 3%.
The rate of interest to be charged by Bank to Borrower shall fluctuate
hereafter from time to time concurrently with, and in an amount equal to, each
increase or decrease in the Base Rate, whichever is applicable.
Borrower warrants and represents to Bank that Borrower shall use the
proceeds represented by this Note solely for proper business purposes and
consistently with all applicable laws and statues.
To secure the prompt payment to Bank of Borrower's Liabilities and the
prompt, full and faithful performance by Borrower of all of the provisions to
be kept, observed or performed by Borrower under this Note and/or any other
agreement, instrument or document heretofore, now and/or from time to time
hereafter delivered by or on behalf of Borrower to Bank, Borrower grants to
Bank a security interest in and to the following property: (a) all of
Borrower's now existing and/or owned and hereafter arising or acquired monies,
reserves, deposits, deposit accounts and interest or dividends thereon,
securities, cash, cash equivalents and other property now or at any time or
times hereafter in the possession or under the control of Bank or its bailee
for any purpose; (b) investment property, more specifically described as the
first one (1) million dollars of the certain municipal bonds pledged to the
Bank, held in Safekeeping Account No. 318856 and any and all renewals,
replacements or substitutions thereof pursuant to Security Agreement Specific
dated 1/2/96; (c) all substitutions, renewals, improvements, accessions or
additions thereto, replacements, offspring, rents, issues, profits, returns,
products and
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proceeds thereof, including without limitation proceeds of insurance policies
insuring the foregoing collateral (all of the foregoing property is referred
to herein individually and collectively as "Collateral").
Regardless of the adequacy of the Collateral, any deposits or other
sums at any time credited by or payable or due from Bank to Borrower, or any
monies, cash, cash equivalents, securities, instruments, documents or other
assets of Borrower in the possession or control of Bank or its Bailee for any
purpose, may be reduced to cash and applied by Bank to or setoff by Bank
against Borrower's Liabilities.
Borrower agrees to deliver to Bank immediately upon Bank's demand, such
additional collateral as Bank may request from time to time should the value of
the Collateral (in Bank's Sole and exclusive opinion) decline, deteriorate,
depreciate or become impaired, or should Bank deem itself insecure for any
reason whatsoever, including without limitation a change in the financial
condition of Borrower or any party liable with respect to Borrower's
Liabilities, and does hereby grant to Bank a continuing security interest in
such other collateral, which shall be deemed to be a part of the Collateral.
Borrower shall execute and deliver to Bank, at any time upon Bank's demand
therefor, all agreements, instruments, documents and other written matter that
Bank may request, in form and substance acceptable to Bank, to perfect and
maintain perfected Bank's security interest in the Collateral or any additonal
collateral. Borrower agrees that a carbon, photographic or photostatic copy,
or other reproduction, of this Note or of any financing statement, shall be
sufficient as a financing statement.
Bank may take, and Borrower hereby waives notice of, any action from
time to time that Bank may deem necessary or appropriate to maintain or protect
the Collateral, and Bank's security interest therein, and in particular Bank
may at any time (i) transfer the whole or any part of the Collateral into the
name of the Bank or its nominee, (ii) collect any amounts due on Collateral
directly from persons obligated thereon, (iii) take control of any proceeds and
products of Collateral, and/or (iv) sue or make any compromise or settlement
with respect to any Collateral Borrower hereby releases Bank from any and all
causes of action or claims which Borrower may now or hereafter have for any
asserted loss or damage to Borrower claimed to be caused by or arising from:
(a) Bank's taking any action permitted by this paragraph; (b) any failure of
Bank to protect, enforce or collect in whole or in part any of the Collateral;
and/or (c) any other act or omission to act on the part of the Bank, its
officers, agents or employees, except for willful misconduct.
The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Note: (a) if Borrower
fails to pay any of Borrower's Liabilities when due and payable or declared due
and payable (whether by scheduled maturity, required payment, acceleration,
demand or otherwise); (b) if Borrower or any guarantor of any of Borrower's
Liabilities fails or neglects to perform, keep or observe any term provision,
condition, covenant, warranty or representation contained in this Note: (c)
occurrence of a default or an event of default under any agreement, instrument
or document heretofore, now or at any time hereafter delivered by or on behalf
of Borrower to Bank; (d) occurrence of a default or an event of default under
any agreement, instrument or document heretofore, now or at any time hereafter
delivered to Bank by any guarantor of Borrower's Liabilities or by any person
or entity which has granted to Bank a security interest or lien in and to some
or all of such person's or entity's real or personal property to secure the
payment of Borrower's Liabilities; (e) if the Collateral or any other of
Borrower's assets are attached, seized, subjected to a writ, or are levied upon
or become subject to any lien or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors; (f) if a notice of
lien, levy or assessment is filed of record or given to Borrower with respect
to all or any of Borrower's assets by any federal, state or local department or
agency; (g) if Borrower or any guarantor of Borrower's Liabilities becomes
insolvent or generally fails to pay or admits in writing its inability to pay
debts as they become due, if a petition under Title ll of the United States
Code or any similar law or regulation is filed by or against Borrower or any
such guarantor, if Borrower or any such guarantor shall make an assignment for
the benefit of creditors, if any case or proceeding is filed by or against
Borrower or any such guarantor for its dissolution or liquidation, or if
Borrower or any such guarantor is enjoined, restrained or in any way prevented
by court order from conducting all or any material part of its business affair;
(h) the death or incompetency of Borrower or any guarantor of Borrower's
Liabilities, or the appointment of a conservator for all or any portion of
Borrower's assets or the Collateral; (i) the revocation, termination or
cancellation of any guaranty of Borrower's Liabilities without written consent
of Bank; (j) if a contribution failure occurs with respect to any pension plan
maintained by Borrower or any corporation, trade or business that is, along
with Borrower, a member of a controlled group of corporations or a controlled
group of trades of businesses (as described in Section 414(b) and
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(c) of the Internal Revenue Code of 1986 or Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended, "ERISA") sufficient to give
rise to a lien under Section 302(f) of ERISA; (k) if Borrower or any guarantor
of Borrower's Liabilities is in default in the payment of any obligations,
indebtedness or other liabilities to any third party and such default is
declared and is not cured within the time, if any, specified therefor in any
agreement governing the same; (l) if any material statement, report or
certificate made or delivered by Borrower, any of Borrower's partners,
officers, employees or agents or any guarantor of Borrower's Liabilities is
not true and correct; or (m) if Bank is reasonably insecure.
Upon the occurrence of an Event of Default, at Bank's option,
without notice by Bank to or demand by Bank of Borrower: (i) all of
Borrower's Liabilities shall be immediately due and payable; (ii) Bank may
exercise any one or more of the rights and remedies accruing to a secured party
under the Uniform Commercial Code of the relevant jurisdiction and any other
applicable law upon default by a debtor: (iii) Bank may enter, with or without
process of law and without breach of the peace, any premises where the
Collateral is or may be located, and may seize or remove the Collateral from
said premises and/or remain upon said premises and use the same for the purpose
of collecting, preparing and disposing of the Collateral; and/or (iv) Bank may
sell or otherwise dispose of the Collateral at public or private sale for cash
or credit, provided, however, that Borrower shall be credited with the net
proceeds of any such sale only when the same are actually received by Bank.
Upon an Event of Default, Borrower, immediately upon demand by Bank,
shall assemble the Collateral and make it available to Bank at a place or places
to be designated by Bank which is reasonably convenient to Bank and Borrower.
All of Bank's rights and remedies under this Note are cumulative and
non-exclusive. The acceptance by Bank of any partial payment made hereunder
after the time when any of Borrower's Liabilities become due and payable will
not establish a custom or waive any rights of Bank to enforce prompt payment
hereof. Bank's failure to require strict performance by Borrower of any
provision of this Note shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any waiver
of an Event of Default hereunder shall not suspend, waive or affect any other
Event of Default hereunder. Borrower and every endorser waive presentment,
demand and protest and notice of presentment, protest, default, non-payment,
maturity, release, compromise settlement, extension or renewal of this Note and
hereby ratify and confirm whenever Bank may do in this regard. Borrower
further waives any and all notice or demand to which Borrower might be entitled
with respect to this Note by virtue of any applicable statute or law (to the
extent permitted by law.)
Borrower agrees to pay, immediately upon demand by Bank, any and all
costs, fees and expenses (including reasonable attorneys' fees, costs and
expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and
(ii) in representing Bank in any litigation, contest, suit or dispute, or to
commence, defend or intervene or to take any action with respect to any
litigation, contest, suit or dispute (whether instituted by Bank, Borrower or
any other person) in any way relating to this Note, Borrower's Liabilities or
the Collateral, and to the extent not paid the same shall become part of
Borrower's Liabilities hereunder;
This Note shall be deemed to have been submitted by Borrower to Bank
and to have been made at Bank's principal place of business. This Note shall
be governed and controlled by the internal laws of the State of Illinois and not
the law of conflicts.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER IRREVOCABLY AGREES THAT,
SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR
IN
3
<PAGE> 4
CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH, OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR
RELATED TO THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT,
AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
215 Park Street PC Dynamics Corporation
- ------------------------------- -------------------------------
Print or Type Name of Borrower
Bensenville, IL 60106
- ------------------------------- -------------------------------
Address Signature
Joseph Turek, President
- ------------------------------- -------------------------------
FEIN OR SSN Title
4
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883842
<NAME> M-WAVE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 222,402
<SECURITIES> 1,008,615
<RECEIVABLES> 4,108,655
<ALLOWANCES> 0
<INVENTORY> 2,595,591
<CURRENT-ASSETS> 9,763,853
<PP&E> 17,004,144
<DEPRECIATION> (2,973,749)
<TOTAL-ASSETS> 24,665,795
<CURRENT-LIABILITIES> 4,394,689
<BONDS> 2,308,726
<COMMON> 30,404
0
0
<OTHER-SE> 17,208,846
<TOTAL-LIABILITY-AND-EQUITY> 24,665,795
<SALES> 6,256,558
<TOTAL-REVENUES> 0
<CGS> 8,090,779
<TOTAL-COSTS> 1,341,450
<OTHER-EXPENSES> (178,204)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,353,875)
<INCOME-TAX> (1,227,531)
<INCOME-CONTINUING> (2,126,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,126,344)
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> 0
</TABLE>
