<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, 1999 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 2,267,842 shares of common stock outstanding at November 4,
1999.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
M~WAVE, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 3,712,537 $ 4,379,930
Accounts receivable, net of allowance for doubtful accounts,
1998- $10,000: 1999 $10,000.................................... 1,772,637 1,180,150
Inventories..................................................... 1,583,421 487,930
Refundable income taxes......................................... 0 774,033
Deferred income taxes........................................... 395,987 112,272
Prepaid expenses and other...................................... 99,656 117,754
----------- -----------
Total current assets.......................................... 7,564,238 7,052,069
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements................................ 2,360,152 4,907,977
Machinery and equipment......................................... 7,355,774 7,616,427
----------- -----------
Total property, plant and equipment........................... 9,715,926 12,524,404
Less accumulated depreciation................................... (4,750,872) (5,594,119)
----------- -----------
Property, plant and equipment-net............................. 4,965,054 6,930,285
NOTE RECEIVABLE................................................... 0 738,328
ASSETS TO BE DISPOSED OF, NET..................................... 3,233,405 0
OTHER ASSETS...................................................... 5,677 2,600
----------- -----------
TOTAL............................................................. $15,768,374 $14,723,282
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 1,306,348 $ 1,200,782
Accrued expenses................................................ 607,628 631,538
Current portion of long-term debt............................... 307,605 307,605
----------- -----------
Total current liabilities..................................... 2,221,581 2,139,925
DEFERRED INCOME TAXES............................................. 388,808 388,808
LONG-TERM DEBT.................................................... 1,990,337 1,738,007
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 1,000,000
shares; no shares issued........................................ 0 0
Common stock, $.01 par value; authorized, 10,000,000 shares
3,069,806 shares issued and 2,267,842 shares outstanding
at December 31, 1998, 3,069,806 shares issued and 2,267,842
shares outstanding at September 30, 1999........................ 30,698 30,698
Additional paid-in capital....................................... 8,348,832 8,348,832
Retained earnings ............................................... 4,464,226 3,753,120
Treasury stock: 801,964 shares, at cost......................... (1,676,108) (1,676,108)
----------- -----------
Total stockholders' equity .................................... 11,167,648 10,456,542
----------- -----------
TOTAL.............................................................. $15,768,374 $14,723,282
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
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M~WAVE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1998 1999
---------- ----------
<S> <C> <C>
Net sales.................................... $3,550,212 $2,169,003
Cost of goods sold........................... 2,926,299 2,477,025
---------- ----------
Gross profit (loss)......................... 623,913 (308,022)
Operating expenses:
General and administrative.................. 385,942 445,709
Selling and marketing....................... 153,065 140,550
---------- ----------
Total operating expenses................... 539,007 586,259
---------- ----------
Operating income (loss)..................... 84,906 (894,281)
Other income (expense):
Interest income............................. 44,593 53,563
Interest expense............................ (55,448) (61,212)
Rental income............................... 0 51,000
Gain (loss) on disposal of assets........... 0 0
---------- ----------
Total other income (expense) (10,855) 43,351
---------- ----------
Income (loss) before income taxes......... 74,051 (850,930)
Provision (credit) for income taxes.......... 36,615 (356,052)
---------- ----------
Net income (loss)............................ $37,436 ($494,878)
========== ==========
Net income (loss) per share basic and diluted $0.01 ($0.22)
Weighted average shares 3,049,806 2,267,842
</TABLE>
See notes to consolidated financial statements.
3
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M~WAVE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1999
-------------- -------------
<S> <C> <C>
Net sales.................................. $9,625,492 $7,748,687
Cost of goods sold......................... 8,013,444 7,280,143
---------- -----------
Gross profit............................. 1,612,048 468,544
Operating expenses:
General and administrative............... 1,248,510 1,193,919
Selling and marketing.................... 461,415 438,678
---------- -----------
Total operating expenses............... 1,709,925 1,632,597
---------- -----------
Operating (loss)......................... (97,877) (1,164,053)
Other income (expense):
Interest income.......................... 116,586 155,157
Interest expense......................... (169,140) (167,446)
Rental income............................ 0 110,000
Gain (loss) on disposal of assets........ 38,806 (135,084)
---------- ----------
Total other income (expense) (13,748) (37,373)
---------- ----------
Loss before income taxes............... (111,625) (1,201,426)
Credit for income taxes.................... (43,175) (490,320)
--------- ----------
Net loss................................... ($68,450) ($711,106)
========= ==========
Net loss per share basic and diluted ($0.02) ($0.31)
Weighted average shares 3,049,806 2,267,842
</TABLE>
See notes to consolidated financial statements.
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M~WAVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................. ($68,450) ($711,106)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Gain (loss) on disposal of property, plant and equipment........... ($38,806) $135,084
Depreciation and amortization...................................... $659,416 $746,650
Deferred income taxes.............................................. $252,049 $283,715
Changes in assets and liabilities:
Accounts receivable-trade.......................................... ($144,457) ($22,543)
Inventories........................................................ ($506,827) $322,012
Income taxes....................................................... $731,953 ($774,033)
Prepaid expenses and other assets.................................. ($29,980) ($33,587)
Accounts payable................................................... $462,518 ($116,763)
Accrued expenses................................................... ($312,242) $64,325
---------- ----------
Net cash flows from operating activities.......................... $1,005,174 ($106,246)
---------- ----------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............................ ($248,123) ($200,145)
Proceeds from sale of property, plant and equipment.................. $176,800 $4,619
Proceeds from notes receivable....................................... $0 $328,176
Proceeds from sale of PC Dynamics property, plant and equipment ..... $0 $581,965
Proceeds from sale of PC Dynamics net working capital and other ..... $0 $311,354
---------- ----------
Net cash flows from investing activities.......................... ($71,323) $1,025,969
FINANCING ACTIVITIES:
Payments on long term debt........................................... ($227,225) ($252,330)
---------- ----------
Net cash flows from financing activities.......................... ($227,225) ($252,330)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. $706,626 $667,393
CASH AND CASH EQUIVALENTS - Beginning of period....................... $3,534,315 $3,712,537
---------- ----------
CASH AND CASH EQUIVALENTS - End of period............................. $4,240,941 $4,379,930
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest............................ $169,140 $167,446
</TABLE>
See notes to consolidated financial statements.
5
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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, 1998 filed March 30, 1999.
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 or pallet.
One bonding technique used by the Company is Flexlink(TM), a patented process
granted to the Company in 1993. The Company developed an enhanced version of
Flexlink(TM) in 1996.
On March 25, 1999, PC Dynamics Corporation, sold substantially all of its
machinery and equipment, inventory and accounts receivable and assigned all of
its outstanding contracts and orders to Performance Interconnect Corporation,
a Texas Corporation. (PIC) The purchase price paid by PIC consisted of:
(i) $893,319 in cash;
(ii) a promissory note in the principal amount of $773,479, which is
payable in nine (9) equal monthly installments commencing on July
1, 1999; and
(iii) a promissory note in the principal amount of $293,025, which is
payable in monthly installments of $50,000 commencing on May 1,1999
until paid. The Company has collected $250,000 through September
30, 1999.
PC Dynamics and PIC also entered into a royalty agreement which provides
for PIC to pay PC Dynamics a royalty equal to 8.5% of the net invoice value of
certain microwave frequency components and circuit boards sold by PIC for
eighteen months following
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the closing. PIC shall not be required to pay PC Dynamics in excess of
$500,000 in aggregate royalty payments.
In addition, PC Dynamics has leased its facility in Texas to PIC for $17,000
per month for three years. PIC has the right under the lease to purchase the
facility from PC Dynamics for $2,000,000 at anytime during the term of the
lease. If PIC exercises its right to purchase the facility, the remaining
balance due on the royalty agreement is payable in monthly installments of
$25,000 until a minimum of $500,000 is paid.
This agreement was amended in the third quarter of 1999 whereas the Company
agreed to revise the payment schedule for Promissory Note I from 9 equal
monthly installments to 30 equal monthly installments in return for not
pursuing the purchase of the facility in Texas. The Company has collected
$79,830 through September 30,1999. The royalty agreement was also revised to
$500,000 payable in equal monthly installments of $25,000 until paid. The
Company has collected $95,000 through September 30,1999.
3. INVENTORIES
Substantially all the Company's inventories are in work in process.
4. DEBT
The Company has a mortgage loan of $2,046,000 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.
Interest is at the prime rate (8.25% at September 30, 1999) plus 1/2%. The
agreement expires May 31, 2000 and is renewable annually at the mutual consent
of the Company and the lender. No balance was outstanding under the line at
September 30, 1999.
5. 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.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO THE QUARTER ENDED
SEPTEMBER 30, 1998
NET SALES
Net sales were $2,169,000 for the third quarter ended September 30, 1999,
a decrease of $1,381,000 or 39% below the third quarter of 1998. Part of the
decline ($995,000) was the result of the Company selling off substantially all
of the assets of P C Dynamics Corporation. The Company also experienced a
slowdown in sales and excessive scrap with recent start-up orders of a major
customer. Net sales to Lucent increased by $593,000 from the third quarter of
1998. Net sales to Spectrian decreased by $1,061,000.
The Company's three largest customers accounted for 81% of the Company's
net sales for the third quarter ended September 30, 1999 compared to 65% in the
third quarter of 1998.
GROSS PROFIT (LOSS) AND COST OF GOODS SOLD
The Company lost $308,000 at the Gross Profit level for the third quarter
of 1999. This was a decrease of $932,000 from the third quarter of 1998. A
portion of the decline ($52,000) was the result of the Company selling off
substantially all of the assets of P C Dynamics Corporation. Additional decline
relates to a slowdown in sales, manufacturing inefficiencies caused by start-up
orders with a major customer and rework of products scrapped in the
manufacturing process. The Company also incurred additional payroll related
expenses of approximately $300,000 compared to the third quarter of 1998. Most
of the additional expenses were temporary help.
During the fourth quarter of 1997, the Company decided to reposition the
PC Dynamics subsidiary located in Frisco, Texas. Management decided the P C
Dynamics subsidiary did not have a future place in the Company's strategic
plans. On March 25, 1999, PC Dynamics sold substantially all of its machinery
and equipment, inventory and accounts receivable and assigned all of its
outstanding contracts and orders to Performance Interconnect Corporation, a
Texas Corporation. The Company also leased its Texas facility to Performance
Interconnect Corporation.
The building and equipment of PC Dynamics Corporation are recorded in the
December 31, 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. The building value of PC Dynamics Corporation is recorded
in the September 30, 1999 balance sheet as land, buildings and improvements.
8
<PAGE> 9
OPERATING EXPENSES
General and administrative expenses were $446,000 or 20.5% of net sales in
the third quarter of 1999 compared to $386,000 or 10.9% of net sales in the
third quarter of 1998. General and administrative expenses consist primarily of
salaries and benefits, professional services, depreciation of office equipment,
computer systems and occupancy expenses. The Company incurred expenses of
$110,000 due to a return of products relating to the PC Dynamics Corporation
divestiture in March 1999.
Selling and marketing expenses were $141,000 or 6.5% of net sales in the
third quarter of 1999 compared to $153,000 or 4.3% of net sales in the third
quarter of 1998. Selling and marketing expenses include the cost of salaries,
advertising and promoting the Company's products, and commissions paid to
independent sales organizations. Selling and marketing expenses declined as a
result of the Company selling off substantially all of the assets of P C
Dynamics Corporation.
OPERATING INCOME (LOSS)
Operating loss was $894,000 or 41.2% in the third quarter of 1999 compared
to a operating income of $85,000 or 2.4% of net sales in the third quarter of
1998, an decrease of $979,000. 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 $ (243,000)
Decrease in gross margin (689,000)
Decrease in operating expenses (47,000)
------------
Decrease in operating income $ (979,000)
INTEREST INCOME
Interest income from short-term investments was $54,000 in the third
quarter of 1999 compared to $45,000 in the third quarter of 1998. Interest
income in the third quarter of 1999 includes $20,000 from notes receivable,
generated in the sale of the assets of P C Dynamics. Rental income from the P C
Dynamics facility was $51,000 in the third quarter of 1999.
INTEREST EXPENSE
Interest expense, primarily related to the Company's mortgage obligation
on its P C Dynamics facility, was $61,000 in the third quarter of 1999 compared
to $55,000 in the third quarter of 1998.
9
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INCOME TAXES
In the third quarter of 1999 the Company had an effective tax credit rate
of 41.8%. In the second quarter of 1998 the Company had an effective tax rate of
49.4%.
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RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998
NET SALES
Net sales were $7,749,000 for the nine months ended September 30, 1999, a
decrease of $1,877,000 or 20% below the first nine months of 1998. Part of the
difference ($2,366,000) was the result of the Company selling off substantially
all the assets of P C Dynamics Corporation. This was offset by a final shipment
to Motorola of a matured product line of $1,300,000 in the first quarter of
1999. Net sales to Lucent increased $1,150,000. Net sales to Spectrian decreased
by $2,607,000. Although net sales to Spectrian have declined from last years
volume, net sales to Spectrian have continued to increase since the first
quarter of 1999.
The Company's three largest customers accounted for 61% of the Company's
net sales for the nine months ended September 30, 1999 and for the nine months
ended September 30, 1998.
GROSS PROFIT (LOSS) AND COST OF GOODS SOLD
Gross profit decreased $1,144,000 in the first nine months of 1999 from
$1,612,000 in the first nine months of 1998. Part of the difference ($569,000)
was the result of the Company selling off substantially all of the assets of P C
Dynamics Corporation. Gross margin for the remainder of the Company decreased
approximately $575,000 due to a slowdown in sales, manufacturing inefficiencies
caused by start-up orders with a major customer and rework of products scrapped
in the manufacturing process. The Company experienced excessive scrap and rework
costs of $230,000 in the second quarter of 1999 relating to the Lucent start-up
orders.
During the fourth quarter of 1997, the Company decided to reposition the
PC Dynamics subsidiary located in Frisco, Texas. Management decided the P C
Dynamics subsidiary did not have a future place in the Company's strategic
plans. On March 25, 1999, PC Dynamics sold substantially all of its machinery
and equipment, inventory and accounts receivable and assigned all of its
outstanding contracts and orders to Performance Interconnect Corporation, a
Texas Corporation. The Company also leased its Texas facility to Performance
Interconnect Corporation.
The building and equipment of PC Dynamics Corporation are recorded in the
December 31, 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. The building value of PC Dynamics Corporation is recorded
in the September 30, 1999 balance sheet as land, buildings and improvements.
11
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OPERATING EXPENSES
General and administrative expenses were $1,194,000 or 15.4% of net sales
for the first nine months of 1999 compared to $1,249,000 or 13.0% of net sales
for the first nine months of 1998. General and administrative expenses consist
primarily of salaries and benefits, professional services, depreciation of
office equipment, computer systems and occupancy expenses. Most of the decline
was the result of the Company selling off substantially all of the assets of P C
Dynamics Corporation.
Selling and marketing expenses were $439,000 or 5.7% of net sales for the
first nine months of 1999 compared to $461,000 or 4.8% of net sales for the
first nine months of 1998. Selling and marketing expenses include the cost of
salaries, advertising and promoting the Company's products, and commissions paid
to independent sales organizations. Selling and marketing expenses declined as a
result of the Company selling off substantially all of the assets of P C
Dynamics Corporation.
OPERATING (LOSS)
Operating loss was ($1,164,000) for the first nine months of 1999 compared
to ($98,000) for the first nine months of 1998, a decrease of $1,066,000. The
changes in operating loss reflect primarily the changes in net sales, gross
profit and cost of goods sold and operating expenses as discussed above. The
change in operating loss can be summarized as follows:
Decrease in net sales $ (677,000)
Decrease in gross margin (466,000)
Decrease in operating expenses 77,000
-----------
Increase in operating loss $(1.066,000)
INTEREST INCOME
Interest income from short-term investments was $155,000 for the nine
months ended September 30, 1999 compared to $117,000 for the nine months ended
September 30, 1998. Interest income for the nine months ended September 30, 1999
includes $46,000 from notes receivable, generated in the sale of substantially
all of the assets of P C Dynamics Corporation. Rental income from the P C
Dynamics facility was $110,000 for the nine months ended September 30, 1999.
INTEREST EXPENSE
Interest expense, primarily related to the Company's mortgage obligation
on its P C Dynamics facility, was $167,000 for the first nine months of 1999
compared to $169,000 for the first nine months of 1998.
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GAIN ON DISPOSAL OF ASSETS
The Company recorded a loss of $135,000 on the disposal of fixed assets in
the first nine months of 1999 compared to a gain of $39,000 for the first nine
months of 1998. The loss in the first nine months of 1999 was primarily related
to the sale of substantially all the machinery and equipment of P C Dynamics to
Performance Interconnect Corporation.
INCOME TAXES
For the first nine months of 1999 the Company had an effective tax credit
rate of 40.8%. For the first nine months of 1998 the Company had an effective
tax credit rate of 38.7% due to the effects of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided/(used) from operations was ($106,000) for the
first nine months of 1999 compared to $1,005,000 for the first nine months
of 1998. Inventories decreased $322,000. Accounts receivable increased
$23,000. Accounts payable increased $117,000.
Capital expenditures to improve manufacturing processes were $200,000
in the first nine months of 1999. Capital expenditures to improve
manufacturing processes were $248,000 in the first nine months of 1998.
The Company collected $1,221,000 relating to the sale of substantially all
the machinery and equipment, inventory and accounts receivable of P C Dynamics
to Performance Interconnect Corporation.
The Company has a mortgage loan of $2,046,000 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.
Interest is at the prime rate (8.25% at September 30, 1999) plus 1/2%. The
agreement expires May 31, 2000 and is renewable annually at the mutual consent
of the Company and the lender. No balance was outstanding under the line at
September 30, 1999.
As of September 30, 1999, the company has $2,046,000 of debt and
$4,380,000 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.
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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 upgraded those systems that it has identified as not being year
2000 compliant. These systems were upgraded either through modification or
replacement.
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 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 to, or otherwise affecting, the operations of any one or more of
its suppliers and customers. 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 $86,000 to date to resolve and test the
Company's year 2000 compliance issues. All expenses incurred in connection with
year 2000 compliance were expensed as incurred, other than acquisitions of new
software or hardware, which was capitalized.
FOREIGN CURRENCY TRANSACTIONS
All of the Company's foreign transactions are negotiated, invoiced and
paid in United States dollars.
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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
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.
15
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on July 28, 1999.
(b) At the Company's Annual Meeting of Stockholders, the stockholders
reelected to the Company's Board of Directors Messrs. Lavern D. Kramer,
Rick Mathes, Michael Bayles and Steve Grzywna. Messrs. Kramer and
Mathes are class III Directors and will serve a term ending upon the
election of Class III Directors at the 2001 annual meeting of
stockholders. Messrs. Bayles and Grzywna are class I Directors and will
serve a term ending upon the election of Class I Directors at the
2002 annual meeting of stockholders. The aggregate number of votes
cast for, against or withheld, for the election of Mr. Kramer was as
follows: 2,059,387 for, 0 against and 18,325 withheld. The aggregate
number of votes cast for, against or withheld, for the election of Mr.
Mathes was as follows: 2,056,287 for, 0 against and 21,425 withheld.
The aggregate number of votes cast for, against or withheld, for the
election of Mr. Bayles was as follows: 2,059,387 for, 0 against and
18,325 withheld. The aggregate number of votes cast for, against or
withheld, for the election of Mr. Grzywna was as follows: 2,056,287 for,
0 against and 21,425 withheld.
The Board of Directors is divided into three classes, each of whose
members serve for a staggered three-year term. The Board is comprised of
two Class I Directors (Michael Bayles and Steve Grzywna) whose term
expires at the 2002 annual meeting of stockholders, one Class II Director
(Joseph A. Turek) whose term expires at the 2000 annual meeting of
stockholders and two Class III Directors (Lavern D. Kramer and Rick
Mathes) whose term expires at the 2001 annual meeting of stockholders.
On November 3, 1999, the Company announced that Michael Bayles and Rick
Mathes resigned from the Board of Directors.
(c) At the Company's Annual Meeting of Stockholders, the stockholders ratified
the appointment of Grant Thornton LLP as auditors of the Company for the
1999 calendar year. The aggregate number of votes cast for, against or
withheld, for the ratification of Grant Thornton LLP as auditors was
2,072,362, 4,250 and 1,100, respectively.
16
<PAGE> 17
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 4, 1999 /s/ PAUL H. SCHMITT
------------------------------
Paul H. Schmitt
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
Exhibit
No Description
- ------- --------------------------------------------------------------------
27 Financial Data
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,379,930
<SECURITIES> 0
<RECEIVABLES> 1,180,150
<ALLOWANCES> 0
<INVENTORY> 487,930
<CURRENT-ASSETS> 7,052,069
<PP&E> 12,524,404
<DEPRECIATION> (5,594,119)
<TOTAL-ASSETS> 14,723,282
<CURRENT-LIABILITIES> 2,139,925
<BONDS> 1,738,007
0
0
<COMMON> 30,698
<OTHER-SE> 10,425,844
<TOTAL-LIABILITY-AND-EQUITY> 14,723,282
<SALES> 7,748,687
<TOTAL-REVENUES> 0
<CGS> 7,280,143
<TOTAL-COSTS> 1,632,597
<OTHER-EXPENSES> (37,373)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,201,426)
<INCOME-TAX> (490,320)
<INCOME-CONTINUING> (711,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (711,106)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
