-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B4plfAoqb0AAYadpGDKEhvnf/c8LNxO9l5UK6EPFIAsaXp5m5vnNEQWyBIfTpyle Pa5CLc/XdueXsUdlIR39OA== 0000950137-96-001435.txt : 19960816 0000950137-96-001435.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950137-96-001435 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: M WAVE INC CENTRAL INDEX KEY: 0000883842 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 363809819 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19944 FILM NUMBER: 96612345 BUSINESS ADDRESS: STREET 1: 216 EVERGREEN ST CITY: BENSENVILLE ILLINOIS STATE: IL ZIP: 60106 BUSINESS PHONE: 7088603560 MAIL ADDRESS: STREET 1: 216 EVERGREEN STREET CITY: BENSENVILLE STATE: IL ZIP: 60106 10-Q 1 FORM 10-Q DATED 6/30/96 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 June 30, 1996 Commission File No. 0-19944 - ----------------------------------- ----------------------------- M~WAVE, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-3809819 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 216 Evergreen Street, Bensenville, Illinois 60106 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (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 3,021,625 shares of common stock outstanding at August 6, 1996. 2 PART I - FINANCIAL INFORMATION Item 1: FINANCIAL STATEMENTS M~WAVE, Inc. CONSOLIDATED BALANCE SHEETS (unaudited)
DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents...................................... $2,403,747 $374,026 Marketable securities.......................................... 1,321,358 1,072,791 Accounts receivable,net of allowance for doubtful accounts of $10,000............................. 4,106,494 4,016,950 Inventories.................................................... 3,462,200 2,902,814 Refundable income taxes........................................ 639,112 1,170,528 Deferred income taxes.......................................... 154,682 604,790 Prepaid expenses and other..................................... 331,010 185,434 ------------ ------------ Total current assets....................................... 12,418,603 10,327,333 PROPERTY, PLANT AND EQUIPMENT: Land, buildings and improvements............................... 2,680,882 5,997,670 Machinery and equipment........................................ 10,043,357 11,076,371 ------------ ------------ Total property, plant and equipment........................ 12,724,239 17,074,041 Less accumulated depreciation.................................. (2,629,466) (3,331,572) ------------ ------------ Property, plant and equipment-net.......................... 10,094,773 13,742,469 GOODWILL........................................................... 873,636 822,744 OTHER ASSETS....................................................... 20,811 24,010 ------------ ------------ TOTAL.............................................................. $23,407,823 $24,916,556 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit borrowings...................................... $ 0 $ 500,000 Accounts payable............................................... 1,734,831 2,394,827 Accrued expenses............................................... 1,163,692 1,538,557 Current portion of long-term debt.............................. 409,338 601,742 ------------ ------------ Total current liabilities.................................. 3,307,861 5,035,126 DEFERRED INCOME TAXES.............................................. 723,130 723,130 LONG-TERM DEBT..................................................... 11,239 2,249,797 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 3,041,625 shares issued and 3,020,375 shares outstanding at December 31, 1995 and 3,021,625 shares outstanding at June 30, 1996.......................................... 30,404 30,416 Additional paid-in capital..................................... 7,488,422 7,492,472 Retained earnings ............................................. 11,966,767 9,505,615 Treasury stock: 20,000 shares, at cost........................ (120,000) (120,000) ------------ ------------ Total stockholders' equity ................................ 19,365,593 16,908,503 ------------ ------------ TOTAL.............................................................. $23,407,823 $24,916,556 ============ ============
See notes to consolidated financial statements. 2 3 M~WAVE, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended June 30, -------------------------------- 1995 1996 ---------- ----------- Net sales................................... $8,676,978 $6,340,968 Cost of goods sold.......................... 6,484,036 5,554,127 ---------- ----------- Gross profit.............................. 2,192,942 786,841 Operating expenses: General and administrative................ 569,429 632,324 Selling and marketing..................... 438,167 439,782 Research and development.................. 136,374 184,572 ---------- ----------- Total operating expenses................ 1,143,970 1,256,678 Operating income (loss) .................. 1,048,972 (469,837) Other income (expense): Interest income........................... 174,190 17,957 Interest expense.......................... (15,999) (55,130) ---------- ----------- Total other income (expense) 158,191 (37,173) Income (loss) before income taxes...... 1,207,163 (507,010) Provision (credit) for income taxes......... 478,314 (172,201) ---------- ----------- Net income (loss)........................... $728,849 ($334,809) ========== =========== Net income (loss) per share $0.24 ($0.11) Weighted average shares 3,080,176 3,020,526
See notes to consolidated financial statements. 3 4 M~WAVE, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six months ended June 3 -------------------------------- 1995 1996 ----------- ------------ Net sales................................... $16,711,156 $12,597,526 Cost of goods sold.......................... 11,982,413 13,644,906 ----------- ------------ Gross profit (loss)....................... 4,728,743 (1,047,380) Operating expenses: General and administrative................ 1,128,465 1,369,016 Selling and marketing..................... 845,107 923,185 Research and development.................. 248,638 305,927 ----------- ------------ Total operating expenses................ 2,222,210 2,598,128 Operating income (loss) .................. 2,506,533 (3,645,508) Other income (expense): Interest income........................... 254,467 47,508 Interest expense.......................... (31,998) (113,134) Loss on disposal of assets................ 0 (149,751) ----------- ------------ Total other income (expense) 222,469 (215,377) Income (loss) before income taxes...... 2,729,002 (3,860,885) Provision (credit) for income taxes......... 1,083,102 (1,399,732) ----------- ------------ Net income (loss)........................... $1,645,900 ($2,461,153) =========== ============ Net income (loss) per share $0.54 ($0.81) Weighted average shares 3,069,102 3,020,451
See notes to consolidated financial statements. 4 5 M~WAVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended June 30, --------------------------- 1995 1996 ---------- ------------ OPERATING ACTIVITIES: Net income (loss).............................................. $1,645,900 ($2,461,153) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization.............................. 528,201 752,998 Deferred income taxes...................................... 130,717 (450,108) Changes in assets and liabilities: Accounts receivable-trade.................................. (1,039,389) 89,544 Insurance proceeds receivable.............................. 1,065,021 0 Inventories................................................ (577,084) 559,386 Income taxes............................................... (123,374) (531,416) Prepaid expenses and other assets.......................... (89,348) 142,378 Accounts payable........................................... (273,252) 659,996 Accrued expenses........................................... (472,270) 374,865 ---------- ------------ Net cash flows from operating activities................ 795,122 (863,510) ---------- ------------ INVESTING ACTIVITIES: Purchase of property, plant and equipment...................... (2,673,142) (4,349,802) Redemption of marketable securities, net....................... 0 248,567 Collection of notes receivable................................. 9,430 0 ---------- ------------ Net cash flows from investing activities................ (2,663,712) (4,101,235) ---------- ------------ FINANCING ACTIVITIES: Common stock issued upon exercise of stock options............. 122,275 4,062 Line of credit borrowings...................................... 500,000 Mortgage debt incurred......................................... 2,439,323 Payments on capital leases..................................... (16,123) (8,361) ---------- ------------ Net cash flows from financing activities................ 106,152 2,935,024 ---------- ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS........................ (1,762,438) (2,029,721) CASH AND CASH EQUIVALENTS - Beginning of period.................. 6,868,823 2,403,747 ---------- ------------ CASH AND CASH EQUIVALENTS - End of period........................ $5,106,385 $ 374,026 ========== =========== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest..................... $ 113,134 Cash paid during the period for income taxes................. $ 983,500
See notes to consolidated financial statements. 5 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, 1995 filed March 29, 1996. 2. BUSINESS M~WAVE, through its wholly-owned subsidiaries, Poly Circuits Inc. and P C Dynamics Corporation (collectively, the "Company"), manufactures microwave frequency components and high frequency circuit boards on Teflon-based laminates for commercial and military wireless communication applications. In 1995, the Company established a division that does contract assembly work for customers. 4. INVENTORIES Substantially all the Company's inventories are in work in process. 5. DEBT The Company has borrowed $2,439,000 at June 30, 1996 against a total financing commitment of $2,954,000 for the construction of the new P C Dynamics Corporation facility in Frisco, Texas. Interest on this mortgage debt is at the prime rate. The loan is payable in monthly installments of principal and interest beginning September 1996 and ending in August 2001. The Company has borrowed $500,000 at June 30, 1996 against a secured promissory note of $2,000,000 to fund the working capital needs of the Company. The note is due May 31, 1997. 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. 6 7 The Company and Joseph Turek have been named as defendants in Lionheart Partners, Inc., as general partner of Lionheart USA Micro Cap Value, L.P. v. M~WAVE, Inc. and Joseph Turek, which was filed on or about November 17, 1995 in the United States District Court for the Northern District of Illinois. The case was filed as a purported class action on behalf of all persons who purchased common stock of the Company between August 8, 1995 and October 18, 1995. The complaint alleges that the defendants made materially false and misleading statements and failed to correct public representations which had become materially false and misleading regarding the Company's revenues and earnings. The complaint asserts claims under Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks compensatory damages in an unspecified amount. The Company believes that this action is without merit. On January 5, 1996, the Company filed a motion to dismiss the complaint. On April 26, 1996, this motion to dismiss was denied. In June 1996, the Plaintiff moved for class certification. 7 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS FOR THE QUARTER ENDED JUNE 30, 1996 COMPARED TO THE QUARTER ENDED JUNE 30, 1995 NET SALES Net sales were $6,341,000 for the second quarter ended June 30, 1996, a decrease of $2,336,000 or 27% below the second quarter of 1995. The decrease primarily reflects a slowdown in orders from the Company's largest customers. The reduction in orders from key accounts began in 1995 and is continuing in 1996. GROSS PROFIT AND COST OF GOODS SOLD Gross profit decreased to $787,000 in the second quarter of 1996 from $2,193,000 in the second quarter of 1995. This decrease is primarily attributable to reduced shipments to the Company's largest customers, a shift in product mix, and production problems. The decrease in gross profit includes sales adjustments for pricing and returns of $228,000 and manufacturing scrap and rework of $127,000. The Company has made operational changes designed to enhance its quality control and ability to manufacture highly complex products; however, there can be no assurance as to when, or if, these changes will result in improved manufacturing processes. Future production problems would continue to adversely impact the Company's gross margins and profitability, which would also result in decreased liquidity and adversely affect the Company's financial position. OPERATING EXPENSES General and administrative expenses were $632,000 or 10.0% of net sales in the second quarter of 1996 compared to $569,000 or 6.6% of net sales in the second quarter of 1995. 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 $214,000 in the second quarter of 1996. General and administrative expenses consist primarily of salaries and benefits, professional services, depreciation of office equipment, computer systems and occupancy expenses. Selling and marketing expenses were $440,000 or 6.9% of net sales in the second quarter of 1996 compared to $438,000 or 5.0% of net sales in the second quarter of 1995. Sales commission expense was 3.5% of net sales in the second quarter of 1996 compared to 1.7% of net sales in the second quarter of 1995 due to a change in sales mix to more commissionable sales. Selling and marketing expenses include the cost of salaries, advertising and promoting the Company's products, and commissions paid to independent sales organizations. 8 9 Research and development expenses which relate primarily to the assembly operations were $185,000 or 2.9% of net sales in the second quarter of 1996 compared to $136,000 or 1.6% of net sales in the second quarter of 1995. Research and development costs are expensed as they are incurred. OPERATING INCOME(LOSS) Operating loss was ($470,000) in the second quarter of 1996 compared to operating income of $1,049,000 or 12.1% of net sales in the second quarter of 1995, a decrease of $1,519,000. 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 $(591,000) Decrease in gross margin (815,000) Increase in operating expenses (113,000) ------------ Decrease in operating income $(1,519,000)
OTHER INCOME (EXPENSE) Interest income declined to $18,000 in the second quarter of 1996 from $174,000 in the second quarter of 1995 because a substantial portion of the Company's investments have been liquidated over the past year. Interest expense increased to $55,000 in the second quarter of 1996 from $16,000 in the second quarter of 1995 because of the mortgage debt and the line of credit borrowings during 1996. INCOME TAXES In the second quarter of 1995 the Company had an effective tax rate of 39.6%. In the second quarter of 1996, the Company had an effective tax credit of 34.0%. 9 10 RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995 NET SALES Net sales were $12,598,000 for the six months ended June 30, 1996, a decrease of $4,114,000 or 25% below the first six months of 1995. The decrease primarily reflects a slowdown in orders from the Company's largest customers as well as production problems which resulted in higher than expected sales returns. The reduction in orders from key accounts began in 1995 and is continuing in 1996. GROSS PROFIT(LOSS) AND COST OF GOODS SOLD Gross profit decreased to a loss of ($1,047,000) in the first six months of 1996 from $2,193,000 in the first six months of 1995. This decrease is primarily attributable to reduced shipments to the Company's largest customers, a shift in product mix, and production problems. The decrease in gross profit includes sales adjustments for pricing and returns of $949,000 and inventory writedowns of $1,295,000 and $792,000 relating to manufacturing scrap and rework and inventory obsolescence, respectively. The Company has made operational changes designed to enhance its quality control and ability to manufacture highly complex products; however, there can be no assurance as to when, or if, these changes will result in improved manufacturing processes. Future production problems would continue to adversely impact the Company's gross margins and profitability, which would also result in decreased liquidity and adversely affect the Company's financial position. OPERATING EXPENSES General and administrative expenses were $1,369,000 or 10.9% of net sales for the first six months of 1996 compared to $1,128,000 or 6.8% of net sales for the first six months of 1995. 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 $214,000 for the first six months of 1996. General and administrative expenses consist primarily of salaries and benefits, professional services, depreciation of office equipment, computer systems and occupancy expenses. Selling and marketing expenses were $923,000 or 7.3% of net sales for the first six months of 1996 compared to $845,000 or 5.1% of net sales for the first six months of 1995. Sales commission expense was 3.2% of net sales for the first six months of 1996 compared to 2.0% of net sales for the first six months of 1995 due to a change in sales mix to more commissionable sales. Selling and marketing expenses include the cost of salaries, advertising and promoting the Company's products, and commissions paid to independent sales organizations. 10 11 Research and development expenses relating primarily to the assembly operations were $306,000 or 2.4% of net sales for the first six months of 1996 compared to $249,000 or 1.5% of net sales for the first six months of 1995. Research and development costs are expensed as they are incurred. OPERATING INCOME(LOSS) Operating loss was ($3,645,000) for the first six months of 1996 compared to operating income of $2,507,000 or 15.0% of net sales for the first six months of 1995, a decrease of $6,152,000. 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 $(1,164,000) Decrease in gross margin (4,612,000) Increase in operating expenses (376,000) ------------ Decrease in operating income $(6,152,000)
OTHER INCOME (EXPENSE) Interest income declined to $48,000 for the first six months of 1996 from $254,000 for the first six months of 1995 because a substantial portion of the Company's investments have been liquidated over the past year. Interest expense increased to $113,000 for the first six months of 1996 from $32,000 for the first six months of 1995 because of the mortgage debt and the line of credit borrowings during 1996. LOSS ON DISPOSAL OF ASSETS The loss of $149,751 relates to unusable equipment disposed of at the P C Dynamics location. INCOME TAXES For the first six months of 1995 the Company had an effective tax rate of 39.6%. For the first six months of 1996, the Company had an effective tax credit of 36.3%. LIQUIDITY AND CAPITAL RESOURCES Net cash provided/(used) from operations was ($864,000) for the first six months of 1996 compared to $795,000 for the first six months of 1995. A reduction of inventories and increases in accounts payable and accrued expenses partially offset the first six months of 1996 loss from operations. Capital expenditures of $4.3 million in the first six months of 1996, compared with $2.7 million in the first six months of 1995, include $3.3 million for the new P C Dynamics facility in 11 12 Texas. The estimated cost to complete this facility is $0.5 million. The construction expenditures were partially financed through mortgage borrowings of $2.4 million against a total financing commitment of $2.95 million. Except for completion of the P C Dynamics facility and expenditures required to improve its manufacturing processes, the Company presently has no plans for additional capital expenditures. On January 10, 1996, the Company obtained a construction loan from American National Bank and Trust Company of Chicago in the amount of $2,160,000 to finance the rebuilding of the facility in Frisco, Texas. The loan is payable in monthly installments of principal and interest beginning September 1996 and ending in August 2001. On March 31, 1996, the Company obtained a construction loan from American National Bank and Trust Company that permits borrowings up to $794,000 to finance the rebuilding of the facility in Frisco, Texas. As of June 30, 1996, $279,000 was outstanding. The loan is payable in monthly installments of principal and interest beginning September 1996 and ending in August 2001. As of June 30, 1996, the Company has $3,352,000 of debt and $1,447,000 of cash and investments. The Company has a $2,000,000 line of credit and has borrowed $500,000 as of June 30, 1996. Management believes that funds generated from operations, coupled with the Company's cash and investment balances and its capacity for debt will be sufficient to fund current business operations. The Company's ability to fund its activities is directly dependent upon its sales, its ability to improve its manufacturing processes, the effective utilization of the Company's manufacturing resources and the Company's ability to access external sources of financing. The Company anticipates additional debt financing during 1996. There can be no assurances that such additional debt financing can be obtained and, if obtained, at reasonable terms. INFLATION Management believes Company's operation or on its financial position. inflation has not had a material effect on the Company's operation or on its financial position. FOREIGN CURRENCY TRANSACTIONS All of the Company's foreign transactions are negotiated, invoiced and paid in United States dollars. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS As a supplier to microwave manufacturers, the Company is dependent upon the success of its customers in developing and 12 13 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. 13 14 PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The Company and Joseph Turek have been named as defendants in Lionheart Partners, Inc., as general partner of Lionheart USA Micro Cap Value, L.P. v. M-Wave, Inc. and Joseph Turek, which was filed on or about November 17, 1995 in the United States District Court for the Northern District of Illinois. The case was filed as a purported class action on behalf of all persons who purchased common stock of the Company between August 8, 1995 and October 18, 1995. The complaint alleges that the defendants made materially false and misleading statements and failed to correct public representations which had become materially false and misleading regarding the Company's revenues and earnings. The complaint asserts claims under Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks compensatory damages in an unspecified amount. The Company believes that this action is without merit. On January 5, 1996, the Company filed a motion to dismiss the complaint. On April 26, 1996, this motion to dismiss was denied. In June 1996, the plaintiff moved for class certification. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (b) The Company filed a report on Form 8-K dated May 7, 1996 announcing expected first quarter 1996 results. 14 15 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 13, 1996 /s/ PAUL H. SCHMITT -------------------------------- Paul H. Schmitt Chief Financial Officer 15 16 EXHIBIT INDEX
Exhibit No Description - ------- ---------------------------------------------- 10.9 $2,000,000 Secured Promissory Note dated May 31, 1996 issued to American National Bank and Trust of Chicago 27 Financial Data Schedule
16 EX-10.9 2 PROMISSORY NOTE 1 EXHIBIT 10.9 PROMISSORY NOTE (SECURED) $2,000,000.00 CHICAGO, ILLINOIS MAY 31, 1996 ------------ DUE MAY 31, 1997 ------------ FOR VALUE RECEIVED, the undersigned (jointly and severally if more than one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in Chicago, Illinois or such other place as Bank may designate from time to time hereafter, the principal sum of TWO MILLION AND 00/100 Dollars, or such lesser principal sum as may then be owed by Borrower to Bank hereunder, which sum shall be due and payable on MAY 31, 1997. Borrower's obligations and liabilities to Bank under this Note, and all other obligations and liabilities of Borrower to Bank (including without limitation all debts, claims and indebtedness) whether primary, secondary, direct, contingent, fixed or otherwise, including those evidenced in rate hedging agreements designed to protect the Borrower from the fluctuation of interest rates, heretofore, now and/or from time to time hereafter owing, due or payable, however evidenced, created, incurred, acquired or owing and however arising, whether under this Note, any agreement, instrument or document heretofore, now or from time to time hereafter executed and delivered to Bank by or on behalf of Borrower, or by oral agreement or operation of law or otherwise shall be defined and referred to herein as "Borrower's Liabilities." The unpaid principal balance of Borrower's Liabilities due hereunder shall bear interest from the DATE OF DISBURSEMENT until paid, computed as follows: AT A DAILY RATE EQUAL TO THE DAILY RATE EQUIVALENT OF 0.0% PER ANNUM (computed on the basis of a 360-day year and actual days elapsed) IN EXCESS OF the rate of interest announced or published publicly from time to time by Bank as its prime or base rate of interest (THE "BASE RATE"); provided, however, that in the event that any of Borrower's Liabilities are not paid when due, the unpaid amount of Borrower's Liabilities shall bear interest after the due date until paid at a rate equal to the sum of the rate that would otherwise be in effect plus 3%. The rate of interest to be charged by Bank to Borrower shall fluctuate hereafter from time to time concurrently with, and in an amount equal to, each increase or decrease in the Base Rate, whichever is applicable. Accrued interest shall be payable by Borrower to Bank on the same day of each month, and at maturity, commencing with the 30TH day of JUNE, 1996, or as billed by Bank to Borrower, at Bank's principal place of business, or at such other place as Bank may designate from time to time hereafter. After maturity, accrued interest on all of Borrower's Liabilities shall be payable on demand. Borrower warrants and represents to Bank that Borrower shall use the proceeds represented by this Note solely for proper business purposes and consistently with all applicable laws and statutes. 2 To secure the prompt payment to Bank of Borrower's Liabilities and the prompt, full and faithful performance by Borrower of all of the provisions to be kept, observed or performed by Borrower under this Note and/or any other agreement, instrument or document heretofore, now and/or from time to time hereafter delivered by or on behalf of Borrower to Bank, Borrower grants to Bank a security interest in and to the following property: (a) all of Borrower's now existing and/or owned and hereafter arising or acquired monies, reserves, deposits, deposit accounts and interest or dividends thereon, securities, cash, cash equivalents and other property now or at any time or times hereafter in the possession or under the control of Bank or its bailee for any purpose; (b) ALL BUSINESS ASSETS OF BORROWER PURSUANT TO LOAN AND SECURITY AGREEMENT DATED MAY 31, 1996; and (c) all substitutions, renewals, improvements, accessions or additions thereto, replacements, offspring, rents, issues, profits, returns, products and proceeds thereof, including without limitation proceeds of insurance policies insuring the foregoing collateral (all of the foregoing property is referred to herein individually and collectively as "Collateral"). Regardless of the adequacy of the Collateral, any deposits or other sums at any time credited by or payable or due from Bank to Borrower, or any monies, cash, cash equivalents, securities, instruments, documents or other assets of Borrower in the possession or control of Bank or its bailee for any purpose, may be reduced to cash and applied by Bank to or setoff by Bank against Borrower's Liabilities. Borrower agrees to deliver to Bank immediately upon Bank's demand, such additional collateral as Bank may request from time to time should the value of the Collateral (in Bank's sole and exclusive opinion) decline, deteriorate, depreciate or become impaired, or should Bank deem itself insecure for any reason whatsoever, including without limitation a change in the financial condition of Borrower or any party liable with respect to Borrower's Liabilities, and does hereby grant to Bank a continuing security interest in such other collateral, which shall be deemed to be a part of the Collateral. Borrower shall execute and deliver to Bank, at any time upon Bank's demand, all agreements, instruments, documents and other written matter that Bank may request, in form and substance acceptable to Bank, to perfect and maintain perfected Bank's security interest in the Collateral or any additional collateral. Borrower agrees that a carbon, photographic or photostatic copy, or other reproduction, of this Note or of any financing statement, shall be sufficient as a financing statement. Bank may take, and Borrower hereby waives notice of, any action from time to time that Bank may deem necessary or appropriate to maintain or protect the Collateral, and Bank's security interest therein, and in particular Bank may at any time (i) transfer the whole or any part of the Collateral into the name of the Bank or its nominee, (ii) collect any amounts due on Collateral directly from persons obligated thereon, (iii) take control of any proceeds and products of Collateral, and/or (iv) sue or make any compromise or settlement with respect to any Collateral. Borrower hereby releases Bank from any and all causes of action or claims which Borrower may now or hereafter have for any asserted loss or damage to Borrower claimed to be caused by or arising from: (a) Bank's taking any action permitted by this paragraph; (b) any failure of Bank to protect, enforce or collect in whole or in part any of the Collateral; and/or (c) any other act or omission to act on the part of Bank, its officers, agents or employees, except for willful misconduct. 2 3 The occurrence of any one of the following events shall constitute a default by the Borrower ("Event of Default") under this Note: (a) if Borrower fails to pay any of Borrower's Liabilities when due and payable or declared due and payable (whether by scheduled maturity, required payment, acceleration, demand or otherwise); (b) if Borrower or any guarantor of any of Borrower's Liabilities fails or neglects to perform, keep or observe any term, provision, condition, covenant, warranty or representation contained in this Note; (c) occurrence of a default or event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered by or on behalf of Borrower to Bank; (d) occurrence of a default or an event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered to Bank by any guarantor of Borrower's Liabilities or by any person or entity which has granted to Bank a security interest or lien in and to some or all of such person's or entity's real or personal property to secure the payment of Borrower's Liabilities; (e) if the Collateral or any other of Borrower's assets are attached, seized, subjected to a writ, or are levied upon or become subject to any lien or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors; (f) if a notice of lien, levy or assessment is filed of record or given to Borrower with respect to all or any of Borrower's assets by any federal, state or local department or agency; (g) if Borrower or any guarantor of Borrower's Liabilities becomes insolvent or generally fails to pay or admits in writing its inability to pay debts as they become due, if a petition under Title 11 of the United States Code or any similar law or regulation is filed by or against Borrower or any such guarantor, if Borrower or any such guarantor shall make an assignment for the benefit of creditors, if any case or proceeding is filed by or against Borrower or any such guarantor for its dissolution or liquidation, or if Borrower or any such guarantor is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs; (h) the death or incompetency of Borrower or any guarantor of Borrower's Liabilities, or the appointment of a conservator for all or any portion of Borrower's assets or the Collateral; (i) the revocation, termination or cancellation of any guaranty of Borrower's Liabilities without written consent of Bank; (j) if a contribution failure occurs with respect to any pension plan maintained by Borrower or any corporation, trade or business that is, along with Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses (as described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or Section 4001 of the Employee Retirement Income Security Act of 1974, as amended, "ERISA") sufficient to give rise to a lien under Section 302(f) of ERISA; (k) if Borrower or any guarantor of Borrower's Liabilities is in default in the payment of any obligations, indebtedness or other liabilities to any third party and such default is declared and is not cured within the time, if any, specified therefor in any agreement governing the same; (l) if any material statement, report or certificate made or delivered by Borrower, any of Borrower's partners, officers, employees or agents or any guarantor of Borrower's Liabilities is not true and correct; or (m) if Bank is reasonably insecure. Upon the occurrence of an Event of Default, at Bank's option, without notice by Bank to or demand by Bank of Borrower: (i) all of Borrower's Liabilities shall be immediately due and payable; (ii) Bank may exercise any one or more of the rights and remedies accruing to a secured party under the Uniform Commercial Code of the relevant jurisdiction and any other applicable law upon default by a debtor; (iii) Bank may enter, with or without process of law and without breach of the peace, any premises where the Collateral is or may be located, and may seize or remove the Collateral from said premises and/or remain upon said premises and use the same for the purpose of collecting, preparing and disposing of the Collateral; and/or (iv) Bank may sell or 3 4 otherwise dispose of the Collateral at public or private sale for cash or credit, provided, however, that Borrower shall be credited with the net proceeds of any such sale only when the same are actually received by Bank. Upon an Event of Default, Borrower, immediately upon demand by Bank, shall assemble the Collateral and make it available to Bank at a place or places to be designated by Bank which is reasonably convenient to Bank and Borrower. All of Bank's rights and remedies under this Note are cumulative and non-exclusive. The acceptance by Bank of any partial payment made hereunder after the time when any of Borrower's Liabilities become due and payable will not establish a custom or waive any rights of Bank to enforce prompt payment hereof. Bank's failure to require strict performance by Borrower of any provision of this Note shall not waive, affect or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Any waiver of an Event of Default hereunder shall not suspend, waive or affect any other Event of Default hereunder. Borrower and every endorser waive presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of this Note, and hereby ratify and confirm whatever Bank may do in this regard. Borrower further waives any and all notice or demand to which Borrower might be entitled with respect to this Note by virtue of any applicable statute or law (to the extent permitted by law). Borrower agrees to pay, immediately upon demand by Bank, any and all costs, fees and expenses (including reasonable attorneys' fees, costs and expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and (ii) in representing Bank in any litigation, contest, suit or dispute, or to commence, defend or intervene or to take any action with respect to any litigation, contest, suit or dispute (whether instituted by Bank, Borrower or any other person) in any way relating to this Note, Borrower's Liabilities or the Collateral, and to the extent not paid the same shall become part of Borrower's Liabilities. This Note shall be deemed to have been submitted by Borrower to Bank and to have been made at Bank's principal place of business. This Note shall be governed and controlled by the internal laws of the State of Illinois and not the law of conflicts. Advances under this Note may be made by Bank upon oral or written request of any person authorized to make such requests on behalf of Borrower ("Authorized Person"). Borrower agrees that Bank may act on requests which Bank in good faith believes to be made by an Authorized Person, regardless of whether such requests are in fact made by an Authorized Person. Any such advance shall be conclusively presumed to have been made by Bank to or for the benefit of Borrower. Borrower does hereby irrevocably confirm, ratify and approve all such advances by Bank and agrees to indemnify Bank against any and all losses and expenses (including reasonable attorneys' fees) and shall hold Bank harmless with respect thereto. TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY 4 5 CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH. BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. PC DYNAMICS CORPORATION ----------------------- "BORROWER" Address: 216 Evergreen Street By: /S/ Joseph A. Turek - --------------------- -------------------------------- Bensenville, IL 60106 Joseph A. Turek, President - ---------------------- Address: M~WAVE, INC. ----------------------------------- 216 Evergreen Street "BORROWER" - ---------------------- Bensenville, IL 60106 - ---------------------- By: /S/ Joseph A. Turek -------------------------------- Joseph A. Turek, President POLY CIRCUITS, INC. ----------------------------------- "BORROWER" Address: 216 Evergreen Street By: /S/ Joseph A. Turek - ---------------------- -------------------------------- Bensenville, IL 60106 Joseph A. Turek, President - ---------------------- 5 EX-27 3 FDS
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 374,026 1,072,791 4,016,950 0 2,902,814 10,327,333 17,074,041 (3,331,572) 24,916,556 5,035,126 2,249,797 30,416 0 0 16,878,087 24,916,556 12,597,526 0 13,664,906 2,598,128 (215,377) 0 0 (3,860,885) (1,399,732) (2,461,153) 0 0 0 (2,461,153) (0.81) 0
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