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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 June 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 August 5,
1999.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
M~WAVE, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $3,712,537 $4,504,432
Accounts receivable, net of allowance for doubtful accounts,
1998- $10,000: 1999 $10,000...................................... 1,772,637 1,062,304
Inventories....................................................... 1,583,421 563,697
Refundable income taxes........................................... 0 319,707
Deferred income taxes............................................. 395,987 210,545
Prepaid expenses and other........................................ 99,656 100,858
----------- -----------
Total current assets.......................................... 7,564,238 6,761,543
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements.................................. 2,360,152 4,967,977
Machinery and equipment........................................... 7,355,774 7,515,763
----------- -----------
Total property, plant and equipment........................... 9,715,926 12,483,740
Less accumulated depreciation..................................... (4,750,872) (5,345,524)
----------- -----------
Property, plant and equipment-net............................. 4,965,054 7,138,216
NOTE RECEIVABLE....................................................... 0 988,215
ASSETS TO BE DISPOSED OF, NET......................................... 3,233,405 0
OTHER ASSETS.......................................................... 5,677 970
----------- -----------
TOTAL................................................................. $15,768,374 $14,888,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................. $1,306,348 $1,010,794
Accrued expenses.................................................. 607,628 416,612
Current portion of long-term debt................................. 307,605 307,605
----------- -----------
Total current liabilities..................................... 2,221,581 1,735,011
DEFERRED INCOME TAXES................................................. 388,808 388,808
LONG-TERM DEBT........................................................ 1,990,337 1,813,706
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 June 30, 1999............................. 30,698 30,698
Additional paid-in capital........................................ 8,348,832 8,348,832
Retained earnings ................................................ 4,464,226 4,247,997
Treasury stock: 801,964 shares, at cost.......................... (1,676,108) (1,676,108)
----------- -----------
Total stockholders' equity ................................... 11,167,648 10,951,419
----------- -----------
TOTAL................................................................. $15,768,374 $14,888,944
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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M~WAVE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30,
---------------------------
1998 1999
------------ ------------
Net sales........................................... $3,359,187 $1,896,866
Cost of goods sold.................................. 2,697,651 1,896,882
------------ ------------
Gross profit (loss)............................... 661,536 (16)
Operating expenses:
General and administrative........................ 437,029 311,051
Selling and marketing............................. 147,695 122,844
------------ ------------
Total operating expenses........................ 584,724 433,895
------------ ------------
Operating income (loss)........................... 76,812 (433,911)
Other income (expense):
Interest income................................... 30,428 69,314
Interest expense.................................. (56,251) (59,843)
Rental income..................................... 0 51,000
Gain (loss) on disposal of assets................. 60,206 0
------------ ------------
Total other income (expense) 34,383 60,471
------------ ------------
Income (loss) before income taxes.............. 111,195 (373,440)
Provision (credit) for income taxes................. 42,016 (147,472)
------------ ------------
Net income (loss)................................... $69,179 ($225,968)
============ ============
Net income (loss) per share basic and diluted $0.02 ($0.10)
Weighted average shares 3,049,806 2,267,842
See notes to consolidated financial statements.
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M~WAVE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended June 30,
----------------------------
1998 1999
---------- ----------
Net sales...................................... $6,075,280 $5,579,684
Cost of goods sold............................. 5,087,145 4,803,118
---------- ----------
Gross profit................................. 988,135 776,566
Operating expenses:
General and administrative................... 862,568 748,210
Selling and marketing........................ 308,350 298,128
---------- ----------
Total operating expenses................... 1,170,918 1,046,338
---------- ----------
Operating (loss)............................. (182,783) (269,772)
Other income (expense):
Interest income.............................. 71,993 101,594
Interest expense............................. (113,692) (106,234)
Rental income................................ 0 59,000
Gain (loss) on disposal of assets............ 38,806 (135,084)
---------- ----------
Total other income (expense) (2,893) (80,724)
---------- ----------
Loss before income taxes.................. (185,676) (350,496)
Credit for income taxes........................ (79,790) (134,268)
---------- ----------
Net loss....................................... ($105,886) ($216,228)
========== ==========
Net loss per share basic and diluted ($0.03) ($0.10)
Weighted average shares 3,049,806 2,267,842
See notes to consolidated financial statements.
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M~WAVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
1998 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................................... ($105,886) ($216,228)
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.......................................... $502,633 $498,055
Deferred income taxes.................................................. $192,278 $185,442
Changes in assets and liabilities:
Accounts receivable-trade.............................................. ($249,147) $95,303
Inventories............................................................ ($440,071) $246,245
Income taxes........................................................... ($272,068) ($319,707)
Prepaid expenses and other assets...................................... ($35,711) ($15,063)
Accounts payable....................................................... $426,484 ($306,751)
Accrued expenses....................................................... ($374,385) ($150,601)
---------- ---------
Net cash flows from operating activities............................ ($394,679) $151,779
---------- ---------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment.................................. ($141,126) ($159,480)
Proceeds from sale of property, plant and equipment........................ $176,800 $4,619
Proceeds from notes receivable............................................. $0 $78,289
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............................ $35,674 $816,747
FINANCING ACTIVITIES:
Payments on long term debt................................................. ($151,526) ($176,631)
---------- ---------
Net cash flows from financing activities............................ ($151,526) ($176,631)
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... ($510,531) $791,895
CASH AND CASH EQUIVALENTS - Beginning of period.............................. $3,534,315 $3,712,537
---------- ---------
CASH AND CASH EQUIVALENTS - End of period.................................... $3,023,784 $4,504,432
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest................................. $113,692 $106,234
</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, 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 $100,000
through June 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 the
closing. PIC shall not be required to pay PC Dynamics in
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excess of $500,000 in aggregate royalty payments. The Company has
collected $20,000 through June 30,1999.
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.
3. INVENTORIES
Substantially all the Company's inventories are in work in process.
4. DEBT
The Company has a mortgage loan of $2,121,000 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 (8.00% at June
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 June 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 JUNE 30, 1999 COMPARED TO THE QUARTER
ENDED JUNE 30, 1998
NET SALES
Net sales were $1,897,000 for the second quarter ended June
30, 1999, a decrease of $1,462,000 or 44% below the second quarter of
1998. Part of the decline ($1,139,000) was the result of the Company
selling off substantially all of the assets of P C Dynamics
Corporation. The Company also experienced excessive scrap with recent
Lucent start-up orders, which negatively impacted net sales by
approximately $220,000. Net sales to Lucent increased by $495,000 from
the second quarter of 1998. Net sales to Spectrian decreased by
$1,116,000.
The Company's three largest customers accounted for 72% of the
Company's net sales for the second quarter ended June 30, 1999 compared
to 65% in the second quarter of 1998.
GROSS PROFIT AND COST OF GOODS SOLD
The Company was approximately breakeven at the Gross Profit
level for the second quarter of 1999. This was a decrease of $662,000
from the second quarter of 1998. A portion of the decline ($227,000)
was the result of the Company selling off substantially all of the
assets of P C Dynamics Corporation. Additional decline in gross profit
of $65,000 relates to lower sales volume as result of manufacturing
inefficiencies relating to the Lucent start-up orders. The Company also
experienced excessive scrap costs of $130,000 and rework costs of
approximately $100,000 relating to the Lucent start-up production.
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 June 30,
1999 balance sheet as land, buildings and improvements.
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OPERATING EXPENSES
General and administrative expenses were $311,000 or 16.4% of
net sales in the second quarter of 1999 compared to $437,000 or 13.3%
of net sales in the second quarter 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 $123,000 or 6.5% of net
sales in the second quarter of 1999 compared to $148,000 or 4.4% of net
sales in the second 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 LOSS
Operating loss was $434,000 or 22.9% in the second quarter of
1999 compared to a operating income of $77,000 or 2.3% of net sales in
the second quarter of 1998, an decrease of $511,000. 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 $ (288,000)
Decrease in gross margin (373,000)
Decrease in operating expenses 150,000
-----------
Decrease in operating income $ (511,000)
INTEREST INCOME
Interest income from short-term investments was $43,000 in the
second quarter of 1999 compared to $30,000 in the second quarter of
1998. Interest income in the second quarter of 1999 includes $26,000
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 second quarter of 1999.
INTEREST EXPENSE
Interest expense, primarily related to the Company's mortgage
obligation on its P C Dynamics facility, was $60,000 in the second
quarter of 1999 compared to $30,000 in the second quarter of 1998.
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GAIN (LOSS) ON DISPOSAL OF FIXED ASSETS
The Company recorded a gain of $60,000 on the disposal of
fixed assets in the second quarter of 1998.
INCOME TAXES
In the second quarter of 1999 the Company had an effective tax
credit rate of 39.4%. In the second quarter of 1998 the Company had an
effective tax rate of 37.8%.
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RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1998
NET SALES
Net sales were $5,580,000 for the six months ended June 30,
1999, a decrease of $496,000 or 8% below the first six months of 1998.
Part of the difference ($1,379,000) 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 $558,000. Net sales to Spectrian decreased by $1,546,000. Net
sales to Spectrian have been declining from last year's volume since
the beginning of the fiscal year. However, net sales to Spectrian have
increased by approximately $100,000 from the first quarter of 1999.
The Company's three largest customers accounted for 58% of the
Company's net sales for the six months ended June 30, 1999 compared to
59% for the six months ended June 30, 1998.
GROSS PROFIT (LOSS) AND COST OF GOODS SOLD
Gross profit decreased $212,000 in the first six months of
1999 from $988,000 in the first six months of 1998. Part of the
difference ($295,000) 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 increased approximately $80,000
due to increased sales. The Company did experience 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 June 30,
1999 balance sheet as land, buildings and improvements.
OPERATING EXPENSES
General and administrative expenses were $748,000 or 13.4% of
net sales for the first six months of 1999 compared to $863,000 or
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14.2% of net sales for the first six 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 $298,000 or 5.3% of net
sales for the first six months of 1999 compared to $308,000 or 5.1% of
net sales for the first six 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 ($270,000) for the first six months of 1999
compared to ($183,000) for the first six months of 1998, a increase of
$87,000. 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 $ (81,000)
Decrease in gross margin (131,000)
Decrease in operating expenses 125,000
-----------
Increase in operating loss $ (87,000)
INTEREST INCOME
Interest income from short-term investments was $76,000 for
the six months ended June 30, 1999 compared to $72,000 for the six
months ended June 30, 1998. Interest income for the six months ended
June 30, 1999 includes $26,000 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 $59,000 for the six
months ended June 30, 1999.
INTEREST EXPENSE
Interest expense, primarily related to the Company's mortgage
obligation on its P C Dynamics facility, was $106,000 for the first six
months of 1999 compared to $114,000 for the first six months of 1998.
GAIN ON DISPOSAL OF ASSETS
The Company recorded a loss of $135,000 on the disposal of
fixed assets in the first six months of 1999 compared to a gain of
$39,000 for the first six months of 1998. The loss in the first six
months of 1999 was primarily related to the sale of
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substantially all the machinery and equipment of P C Dynamics to
Performance Interconnect Corporation.
INCOME TAXES
For the first six months of 1999 the Company had an effective
tax credit rate of 38.3%. For the first six months of 1998 the Company
had an effective tax credit rate of 43.0% due to the effects of state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided/(used) from operations was $152,000 for the
first six months of 1999 compared to ($537,000) for the first six
months of 1998. Inventories decreased $246,000. Accounts receivable
decreased $95,000. Accounts payable decreased $307,000.
Capital expenditures to improve manufacturing processes were
$159,000 in the first six months of 1999. Capital expenditures to
improve manufacturing processes were $95,000 in the first six months of
1998.
The Company collected $972,000 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 $2,121,000 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 (8.00% at June 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 June 30, 1999.
As of June 30, 1999, the company has $2,121,000 of debt and
$4,504,000 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.
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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 the third quarter of 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 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 $62,000 to date and expects
to incur approximately $35,000 in the third quarter of 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.
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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.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data
The Company filed a report on Form 8-K dated March 25, 1999
announcing that PC Dynamics Corporation, a wholly owned subsidiary of
the Company, 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.
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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: August 6, 1999 /s/ PAUL H. SCHMITT
------------------------------
Paul H. Schmitt
Chief Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
Exhibit
No Description
------- --------------------------------------------
27 Financial Data
18
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883842
<NAME> M-WAVE INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,504,432
<SECURITIES> 0
<RECEIVABLES> 1,062,304
<ALLOWANCES> 0
<INVENTORY> 563,697
<CURRENT-ASSETS> 6,761,543
<PP&E> 12,483,740
<DEPRECIATION> (5,345,524)
<TOTAL-ASSETS> 14,888,944
<CURRENT-LIABILITIES> 1,735,011
<BONDS> 1,813,706
0
0
<COMMON> 30,698
<OTHER-SE> 10,920,721
<TOTAL-LIABILITY-AND-EQUITY> 14,888,944
<SALES> 5,579,684
<TOTAL-REVENUES> 0
<CGS> 4,803,118
<TOTAL-COSTS> 1,046,338
<OTHER-EXPENSES> (80,724)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (350,496)
<INCOME-TAX> (134,268)
<INCOME-CONTINUING> (216,228)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216,228)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
