<PAGE> 1
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 September 30, 1998 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: (630) 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 3,049,806 shares of common stock outstanding at November 6,
1998.
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
M~WAVE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30
1997 1998
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 3,534,315 $ 4,240,941
Accounts receivable, net of allowance for doubtful accounts,
1997- $10,233: 1998 $10,233 .............................................. 1,734,959 1,879,416
Inventories ............................................................... 894,665 1,401,492
Refundable income taxes ................................................... 1,289,027 557,074
Deferred income taxes ..................................................... 371,026 118,977
Prepaid expenses and other ................................................ 30,591 61,859
------------ ------------
Total current assets .................................................. 7,854,583 8,259,759
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements .......................................... 2,360,152 2,360,152
Machinery and equipment ................................................... 7,249,005 7,216,573
------------ ------------
Total property, plant and equipment ................................... 9,609,157 9,576,725
Less accumulated depreciation ............................................. (4,014,265) (4,529,526)
------------ ------------
Property, plant and equipment-net ..................................... 5,594,892 5,047,199
ASSETS TO BE DISPOSED OF, NET ................................................. 3,235,000 3,233,405
OTHER ASSETS .................................................................. 7,862 6,575
------------ ------------
TOTAL ......................................................................... $ 16,692,337 $ 16,546,938
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................... $ 838,610 $ 1,301,128
Accrued expenses .......................................................... 1,029,038 716,796
Current portion of long-term debt ......................................... 307,605 307,605
------------ ------------
Total current liabilities ............................................. 2,175,253 2,325,529
DEFERRED INCOME TAXES ......................................................... 317,947 317,947
LONG-TERM DEBT ................................................................ 2,268,028 2,040,803
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 3,069,806 shares
issued and 3,049,806 shares outstanding at December 31, 1997, 3,069,806
shares issued and 3,049,806 shares outstanding at September 30, 1998 .... 30,698 30,698
Additional paid-in capital ................................................ 7,574,688 7,574,688
Retained earnings ......................................................... 4,445,723 4,377,273
Treasury stock: 20,000 shares, at cost ................................... (120,000) (120,000)
------------ ------------
Total stockholders' equity ............................................ 11,931,109 11,862,659
------------ ------------
TOTAL ......................................................................... $ 16,692,337 $ 16,546,938
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
M~WAVE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net sales ................................ $ 4,579,624 $ 3,550,212
Cost of goods sold ....................... 3,558,755 2,926,299
----------- -----------
Gross profit ........................... 1,020,869 623,913
Operating expenses:
General and administrative ............. 535,256 385,942
Selling and marketing .................. 257,788 153,065
----------- -----------
Total operating expenses ............. 793,044 539,007
----------- -----------
Operating income ....................... 227,825 84,906
Other income (expense):
Interest income ........................ 52,477 44,593
Interest expense ....................... (62,730) (55,448)
Gain (loss) on disposal of assets ...... 5,000 0
----------- -----------
Total other income (expense) (5,253) (10,855)
----------- -----------
Income before income taxes ........... 222,572 74,051
Provision for income taxes ............... 96,300 36,615
----------- -----------
Net income ............................... $ 126,272 $ 37,436
=========== ===========
Net income per share basic and diluted $ 0.04 $ 0.01
Weighted average shares 3,049,806 3,049,806
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
M~WAVE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1998
------------ -------------
<S> <C> <C>
Net sales ....................... $ 13,374,680 $ 9,625,492
Cost of goods sold .............. 10,854,672 8,013,444
------------ -------------
Gross profit .................. 2,520,008 1,612,048
Operating expenses:
General and administrative .... 1,921,527 1,248,510
Selling and marketing ......... 850,894 461,415
------------ -------------
Total operating expenses .... 2,772,421 1,709,925
------------ -------------
Operating loss ................ (252,413) (97,877)
Other income (expense):
Interest income ............... 117,537 116,586
Interest expense .............. (189,623) (169,140)
Gain on disposal of assets .... 39,089 38,806
------------ -------------
Total other (expense) ...... (32,997) (13,748)
------------ -------------
Loss before income taxes ... (285,410) (111,625)
Credit for income taxes ......... (68,580) (43,175)
------------ -------------
Net loss ........................ ($216,830) ($68,450)
============ =============
Net loss per share ($0.07) ($0.02)
Weighted average shares 3,042,430 3,049,806
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
M~WAVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) .............................................. ($216,830) ($68,450)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Gain on disposal of property, plant and equipment ... (39,089) (38,806)
Depreciation and amortization ....................... 1,201,963 659,416
Deferred income taxes ............................... 328,037 252,049
Changes in assets and liabilities:
Accounts receivable-trade ........................... (634,727) (144,457)
Inventories ......................................... 53,793 (506,827)
Income taxes ........................................ 1,489,747 731,953
Prepaid expenses and other assets ................... 142,006 (29,980)
Accounts payable .................................... (365,441) 462,518
Accrued expenses .................................... (225,244) (312,242)
----------- -----------
Net cash flows from operating activities ......... 1,734,215 1,005,174
----------- -----------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ............... (384,844) (248,123)
Proceeds from sale of property, plant and equipment ..... 67,100 176,800
----------- -----------
Net cash flows from investing activities ......... (317,744) (71,323)
FINANCING ACTIVITIES:
Common stock issued upon exercise of stock options ...... 32,500 0
Common stock issued for cash ............................ 49,998 0
Payments on long term debt .............................. (258,473) (227,225)
----------- -----------
Net cash flows from financing activities ......... (175,975) (227,225)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...... 1,240,496 706,626
CASH AND CASH EQUIVALENTS - Beginning of period ........... 1,216,859 3,534,315
----------- -----------
CASH AND CASH EQUIVALENTS - End of period ................. $ 2,457,355 $ 4,240,941
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest .............. $ 189,623 $ 169,140
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
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, 1997 filed March 30, 1998 and Form 10-K/A
filed April 29, 1998.
2. BUSINESS
M~Wave, through its wholly-owned subsidiaries, Poly Circuits Inc. and P
C Dynamics Corporation (collectively, the "Company"), manufactures printed
circuit boards using Teflon-based laminates to customers' specifications. In
addition, the Company produces customer specified bonded assemblies consisting
of a printed circuit board bonded in some manner to a metal carrier of pallet.
One bonding technique used by the Company is Flexlink(TM), a patented process
granted to the Company in 1993.
3. RECLASSIFICATIONS
Certain reclassifications of 1997 amounts have been made to conform to
the presentation in the current year.
4. INVENTORIES
Substantially all the Company's inventories are in work in process.
5. DEBT
The Company has a mortgage loan of $2,348,000 for the facility at P C
Dynamics Corporation in Frisco, Texas. Interest on this mortgage loan is at
1/2 % over the prime rate. The loan is payable in monthly installments of
principal and interest and is due in October 2001.
The Company has a $2,000,000 line of credit available based on 80% of
the eligible accounts receivable to fund the working capital needs of the
Company. The agreement expires May 31, 1999 and is renewable annually at the
mutual consent of the Company
6
<PAGE> 7
and the lender. No balance was outstanding under the line at September 30,
1998.
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.
7
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE
QUARTER ENDED SEPTEMBER 30, 1997
NET SALES
Net sales were $3,550,000 for the third quarter ended
September 30, 1998, a decrease of $1,029,000 or 23% below the third
quarter of 1997. The decline was the result of a combination of factors
including a Company decision to exit the low margin commodity business;
shifts by customers to alternate materials and suppliers; and lower
volumes associated with certain customers products entering later
stages in their life cycles. Net sales to Motorola decreased by
$712,000. The products produced for Motorola are maturing and their
requirements have been shrinking. Net sales to Hewlett Packard
decreased by $175,000. Net sales to Spectrian increased by $191,000.
Net sales to Lucent were up $56,000. Net sales in general were reduced
due to lower demands in the third quarter.
The Company's three largest customers accounted for 65% of the
Company's net sales for the third quarter ended September 30, 1998
compared to 55% in the third quarter of 1997.
GROSS PROFIT AND COST OF GOODS SOLD
Gross profit decreased to $624,000 in the third quarter of
1998 from $1,021,000 in the third quarter of 1997. The decrease in
gross profit was the result of a decrease in Net sales of 23%. Gross
Margin decreased to approximately 18% in the third quarter of 1998 from
22% in the third quarter of 1997. Variable manufacturing costs were
down $309,000 and fixed manufacturing costs were down $297,000. Direct
and Indirect labor was down $97,000 due mainly to lower volume in the
third quarter of 1998.
During the fourth quarter of 1997, the Company decided to
reposition the P C Dynamics subsidiary located in Frisco, Texas.
Management decided the P C Dynamics subsidiary may not have a future
place in the Company's strategic plans. As such, management is
considering strategic options for P C Dynamics including its sale. In
accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, the Company recorded a goodwill impairment
charge of $670,000 in 1997. In 1997, the Company also recorded a
$2,604,448 impairment of building and equipment for the write down the
P C Dynamics building and equipment to an estimate of market value. The
building and equipment are recorded in the September 30, 1998 balance
sheet as building and equipment to be disposed of at market value less
an estimate of selling costs. The market value
8
<PAGE> 9
was determined based on appraisals. As a result of this decision,
Depreciation and Amortization expense was $64,000 less than the third
quarter of 1997.
OPERATING EXPENSES
General and administrative expenses were $386,000 or 10.9% of
net sales in the third quarter of 1998 compared to $535,000 or 11.7% of
net sales in the third quarter of 1997. General and administrative
expenses consist primarily of salaries and benefits, professional
services, depreciation of office equipment, computer systems and
occupancy expenses. Payroll related expenses were down $88,000 due
mainly to the resignation of Michael Bayles, the Company's former
President. Depreciation and Amortization relating mainly to P C
Dynamics was $62,000 less than the third quarter of 1997.
Selling and marketing expenses were $153,000 or 4.3% of net
sales in the third quarter of 1998 compared to $258,000 or 5.6% of net
sales in the third quarter of 1997. Selling and marketing expenses
include the cost of salaries, advertising and promoting the Company's
products, and commissions paid to independent sales organizations.
Commissions and expenses relating to independent sales organizations
were down $100,000 as a result of lower sales.
OPERATING INCOME
Operating income was $85,000 or 2.4% in the third quarter of
1998 compared to $228,000 or 5.0% of net sales in the third quarter of
1997, an decrease of $143,000. 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. The change in operating
income can be summarized as follows:
Decrease in net sales $ (229,000)
Decrease in gross margin (168,000)
Decrease in operating expenses 254,000
-----------
Decrease in operating income $ (143,000)
INTEREST INCOME
Interest income from short-term investments was $45,000 in the
third quarter of 1998 compared to $52,000 in the third quarter of 1997.
INTEREST EXPENSE
Interest expense, primarily related to the Company's mortgage
obligation on its P C Dynamics facility, was $55,000 in the third
quarter of 1998 compared to $63,000 in the third quarter of 1997.
9
<PAGE> 10
GAIN (LOSS) ON DISPOSAL OF FIXED ASSETS
The Company recorded a gain of $5,000 on the disposal of fixed
assets in the third quarter of 1997.
INCOME TAXES
In the third quarter of 1998 the Company had an effective tax
rate of 49.4% due to the effects of state income taxes. In the third
quarter of 1997, the Company had an effective tax credit rate of 43.3%.
10
<PAGE> 11
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1997
NET SALES
Net sales were $9,625,000 for the nine months ended September 30, 1998,
a decrease of $3,749,000 or 28% below the first nine months of 1997. The
decrease in sales was due to several factors including a Company decision to
exit the low margin commodity business; shifts by customers to alternate
materials and suppliers; and the tapering off of specific customer program
business as it enters the later stages in its life cycle. Net sales to Motorola
decreased by $2,273,000. The products produced for Motorola are maturing and
their requirements have been shrinking. Net sales to LK Products decreased by
$879,000. LK Products has shifted its product to an alternate material. Net
sales to Spectrian increased by $495,000. Net sales in general were reduced due
to low requirements.
The Company's three largest customers accounted for 61% of the
Company's net sales for the nine months ended September 30, 1998 compared to 51%
for the nine months ended September 30, 1997.
GROSS PROFIT (LOSS) AND COST OF GOODS SOLD
Gross profit decreased to $1,612,000 in the first nine months of 1998
from $2,520,000 in the first nine months of 1997. The decrease in gross profit
was a result of a decrease in net sales of 28%. Gross margin decreased from
18.8% to 16.7% for the first nine months of 1998. Variable manufacturing costs
were down $1,817,000 and fixed manufacturing costs were down $904,000. Direct
labor and indirect labor was down approximately $559,000 due mainly to a
reduction in employees as a result of lower volume for the first nine months of
1998.
During the fourth quarter of 1997, the Company decided to reposition
the P C Dynamics subsidiary located in Frisco, Texas. Management decided the P C
Dynamics subsidiary may not have a future place in the Company's strategic
plans. As such, management is considering strategic options for P C Dynamics
including its sale. In accordance with Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, the Company recorded a goodwill impairment
charge of $670,000 in 1997. In 1997, the Company also recorded a $2,604,448
impairment of building and equipment for the write down the P C Dynamics
building and equipment to an estimate of market value. The building and
equipment are recorded in the September 30, 1998 balance sheet as building and
equipment to be disposed of at market value less an estimate of selling costs.
The market value was determined based on appraisals. As a result of this
decision,
11
<PAGE> 12
Depreciation and Amortization expense was $184,000 less than the third
quarter of 1997.
OPERATING EXPENSES
General and administrative expenses were $1,249,000 or 13.0% of net
sales for the first nine months of 1998 compared to $1,922,000 or 14.4% of net
sales for the first nine months of 1997. General and administrative expenses
consist primarily of salaries and benefits, professional services, depreciation
of office equipment, computer systems and occupancy expenses. On April 15, 1996
the Company engaged a consulting firm to provide consulting services with
respect to the Company's operations, which services resulted in additional
expenses of $110,000 for the first nine months of 1997. The consultants
completed their work with the Company in February 1997. Payroll related expenses
were down $189,000 due to staff reductions and the resignation of Michael
Bayles, the Company's former President. Depreciation and Amortization mainly
relating to P C Dynamics was $144,000 less than the first nine months of 1997.
Selling and marketing expenses were $461,000 or 4.8% of net sales for
the first nine months of 1998 compared to $851,000 or 6.4% of net sales for the
first nine months of 1997. Selling and marketing expenses include the cost of
salaries, advertising and promoting the Company's products, and commissions paid
to independent sales organizations. Commissions and expenses relating to
independent sales organizations were down $298,000 as a result of lower sales.
Payroll related expenses were down $70,000 due to staff reductions.
OPERATING (LOSS)
Operating loss was ($98,000) for the first nine months of 1998 compared
to ($252,000) for the first nine months of 1997, an improvement of $154,000. 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. The
change in operating income can be summarized as follows:
<TABLE>
<S> <C>
Decrease in net sales $ (706,000)
Decrease in gross margin (202,000)
Decrease in operating expenses 1,062,000
-----------
Decrease in operating loss $ 154,000
</TABLE>
INTEREST INCOME
Interest income from short-term investments was $110,000 for the nine
months ended September 30, 1998 compared to $105,000 for the nine months ended
September 30, 1997. Interest income for the
12
<PAGE> 13
nine months ended September 30, 1997 includes $37,000 from the notes receivable,
obtained in the sale of the Assembly Division in 1996. Royalty income was
$7,000 for the nine months ended September 30, 1998 compared to $12,000 for
the nine months ended September 30, 1997.
INTEREST EXPENSE
Interest expense, primarily related to the Company's mortgage
obligation on its P C Dynamics facility, was $169,000 for the first nine months
of 1998 compared to $190,000 for the first nine months of 1997.
GAIN ON DISPOSAL OF ASSETS
The Company recorded a gain of $39,000 on the disposal of fixed assets
for the first nine months of 1998 and 1997.
INCOME TAXES
For the first nine months of 1998 the Company had an effective tax
credit rate of 38.6%. For the first nine months of 1997 the Company had an
effective tax credit rate of 24.0% due to the effects of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided/(used) from operations was $1,005,000 for the first
nine months of 1998 compared to 1,734,000 for the first nine months of 1997.
Inventories increased $507,000 due mainly to Lucent ($61,000) and the additional
investment in the Bonding Process ($104,000). Depreciation and amortization was
$659,000, down $543,000 due to the write-down of the P C Dynamics assets in
December 1997. Accrued expenses were down $312,000 due mainly to payments made
for Litigation settlements. The Company collected Income tax refunds of
$1,027,000 that offset losses of ($68,000) for the first nine months of 1998.
The Company collected $1,886,000 of Income tax refunds in 1997.
Capital expenditures to improve manufacturing processes were $248,000
in the first nine months of 1998. Capital expenditures were $385,000 in the
first nine months of 1997, $105,000 to upgrade the network system at the
Bensenville facility.
The Company has a mortgage loan of $2,424,000 for the facility at P C
Dynamics Corporation in Frisco, Texas. Interest on this mortgage loan is at 1/2
% over the prime rate. The loan is payable in monthly installments of principal
and interest and is due in October 2001.
13
<PAGE> 14
The Company has a $2,000,000 line of credit available based on 80% of
the eligible accounts receivable to fund the working capital needs of the
Company. The agreement expires May 31, 1999 and is renewable annually at the
mutual consent of the Company and the lender. No balance was outstanding under
the line at September 30, 1998.
As of September 30, 1998, the company has $2,348,000 of debt and
$4,241,000 of cash and cash equivalents. 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.
INFLATION
Management believes inflation has not had a material effect on the
Company's operation or on its financial position.
YEAR 2000 COMPLIANCE
Many computer and other software and hardware systems currently are
not, or will or may not be, able to read, calculate or output correctly using
dates after 1999 and such systems will require significant modifications in
order to be "Year 2000 compliant." This issue may have a material adverse affect
on the Company's business, financial condition and results of operations because
its computer and other systems are integral parts of the Company's distribution
activities as well as its accounting and other information systems and because
the Company will have to divert financial resources and personnel to address
this issue.
The Company has reviewed its computer and other hardware and software
systems and has recently begun upgrading those systems that it has identified as
not being year 2000 compliant. The existing systems will be upgraded either
through modification or replacement. The Company currently anticipates that it
will complete testing of these upgrades by the end of fiscal 1999.
Although the Company is not aware of any material operational
impediments associated with upgrading its computer and other hardware and
software systems to be year 2000 compliant, the Company cannot make any
assurances that the upgrade or the Company's computer systems will be completed
on schedule or, that the upgraded systems will be free of defects. If any such
risks materialize, the Company could experience material adverse consequences to
its business, financial condition and results of operations.
Year 2000 compliance may also adversely affect the Company's business
financial conditions and results of operations indirectly by causing
complications of, or otherwise affecting, the operations of any one or more of
its suppliers and customers.
14
<PAGE> 15
The Company is contacting its significant suppliers and customers in an
attempt to identify any potential year 2000 compliance issues with them. The
Company is currently unable to anticipate the magnitude of the operational or
financial impact of year 2000 compliance issues with its suppliers or customers.
The Company incurred approximately $55,000 through fiscal 1998 and
expects to incur approximately $100,000 through fiscal 1999 to resolve and test
the Company's year 2000 compliance issues. All expenses incurred in connection
with year 2000 compliance will be expensed as incurred, other than acquisitions
of new software or hardware, which will be capitalized.
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. 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
15
<PAGE> 16
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.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data
17
<PAGE> 18
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: November 6, 1998 /S/ PAUL H. SCHMITT
------------------------------
Paul H. Schmitt
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883842
<NAME> M-WAVE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,240,941
<SECURITIES> 0
<RECEIVABLES> 1,879,416
<ALLOWANCES> 0
<INVENTORY> 1,401,492
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0
0
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</TABLE>
