-----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, IBibfAR++am0dGg4riutypoBKbiDaYA7RC/8W6Bk+Zs9R+C5EU4eLp1v70hpUwS8 w6F2dpeI1gvSX9EZ9tgk5A== 0000950137-00-002140.txt : 20000508 0000950137-00-002140.hdr.sgml : 20000508 ACCESSION NUMBER: 0000950137-00-002140 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000505 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: SEC FILE NUMBER: 000-19944 FILM NUMBER: 620931 BUSINESS ADDRESS: STREET 1: 216 EVERGREEN ST CITY: BENSENVILLE ILLINOIS STATE: IL ZIP: 60106 BUSINESS PHONE: 6308609542 MAIL ADDRESS: STREET 1: 216 EVERGREEN STREET CITY: BENSENVILLE STATE: IL ZIP: 60106 10-Q 1 QUARTERLY REPORT 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 March 31, 2000 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 2,280,842 shares of common stock outstanding at May 4, 2000. 1 2
PART I - FINANCIAL INFORMATION Item 1: Financial Statements M-WAVE, Inc. CONSOLIDATED BALANCE SHEETS (Unaudited) December 31, March 31 1999 2000 ------------ ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................................ $ 2,586,885 $ 2,783,379 Accounts receivable, net of allowance for doubtful accounts, 1999- $10,000: 2000 $10,000......................................... 2,520,070 2,530,298 Inventories.......................................................... 2,030,417 3,270,740 Deferred income taxes 1,080,940 793,475 Prepaid expenses and other........................................... 71,957 76,883 ----------- ----------- Total current assets............................................. 8,290,269 9,454,775 PROPERTY, PLANT AND EQUIPMENT: Land, buildings and improvements..................................... 4,863,247 4,863,247 Machinery and equipment.............................................. 7,934,816 7,966,379 ----------- ----------- Total property, plant and equipment.............................. 12,798,063 12,829,626 Less accumulated depreciation (5,855,688) (6,112,188) ----------- ----------- Property, plant and equipment-net................................ 6,942,375 6,717,438 NOTE RECEIVABLE.......................................................... 645,391 645,391 OTHER ASSETS............................................................. 4,700 4,995 ----------- ----------- TOTAL.................................................................... $15,882,735 $16,822,599 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable..................................................... $ 1,974,067 $ 2,915,420 Accrued expenses..................................................... 508,456 560,662 Accrued income taxes................................................. 0 8,116 Current portion of long-term debt.................................... 361,563 361,563 ----------- ----------- Total current liabilities........................................ 2,844,086 3,845,761 DEFERRED INCOME TAXES.................................................... 676,273 490,208 LONG-TERM DEBT........................................................... 1,886,799 1,796,409 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, 1999, 3,084,306 shares issued and 2,280,842 shares outstanding at March 31, 2000............................... 30,698 30,843 Additional paid-in capital........................................... 8,348,832 8,395,812 Retained earnings ................................................... 3,775,321 3,942,840 Treasury stock: 803,464 shares, at cost............................. (1,679,274) (1,679,274) ----------- ----------- Total stockholders' equity ...................................... 10,475,577 10,690,221 ----------- ----------- TOTAL.................................................................... $15,882,735 $16,822,599 =========== =========== See notes to consolidated financial statements
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M-WAVE, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, ---------------------------- 1999 2000 ---------- ---------- Net sales................................................................ $3,682,818 $5,372,185 Cost of goods sold....................................................... 2,906,236 4,598,236 ---------- ---------- Gross profit........................................................... 776,582 773,949 Operating expenses: General and administrative............................................. 437,159 335,324 Selling and marketing.................................................. 175,284 181,359 ---------- ---------- Total operating expenses............................................. 612,443 516,683 ---------- ---------- Operating income....................................................... 164,139 257,266 Other income (expense): Interest income........................................................ 32,280 19,839 Interest expense....................................................... (46,391) (51,068) Rental income.......................................................... 8,000 51,000 Gain (loss) on disposal of assets...................................... (135,084) 0 ---------- ---------- Total other income (expense)......................................... (141,195) 19,771 ---------- ---------- Income before income taxes........................................... 22,944 277,037 Provision for income taxes............................................... 13,204 109,518 ---------- ---------- Net income............................................................... $ 9,740 $ 167,519 ========== ========== Net income per share basic and diluted................................... $0.00 $0.07 Weighted average shares 2,267,842 2,272,994 See notes to consolidated financial statements.
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M-WAVE, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended March 31, --------------------------------- 1999 2000 ---------- ----------- OPERATING ACTIVITIES: Net income............................................................. $9,740 $167,519 Adjustments to reconcile net income to net cash flows from operating activities: Gain on disposal of property, plant and equipment.................. $135,084 $0 Depreciation and amortization...................................... $249,460 $256,500 Deferred income taxes.............................................. $87,168 $101,400 Changes in assets and liabilities: Accounts receivable-trade.......................................... ($209,705) ($10,228) Inventories........................................................ $296,091 ($1,240,323) Income taxes....................................................... ($73,962) $8,116 Prepaid expenses and other assets.................................. ($47,623) ($5,221) Accounts payable................................................... $155,349 $941,353 Accrued expenses................................................... ($31,495) $52,206 ---------- ---------- Net cash flows from operating activities........................ $570,107 $271,322 ----------- ---------- INVESTING ACTIVITIES: Purchase of property, plant and equipment.............................. ($163,921) ($31,563) Purchase marketable securities......................................... $4,619 $0 Proceeds from sale of PC Dynamics property, plant and equipment ....... $581,965 $0 Proceeds from sale of PC Dynamics net working capital and other ....... $311,354 $0 ---------- ---------- Net cash flows used in investing activities..................... $734,017 ($31,563) FINANCING ACTIVITIES: Common stock issued upon exercise of stock options..................... $0 $47,125 Payments on long term debt............................................. ($100,932) ($90,390) ---------- ---------- Net cash flows from financing activities........................ ($100,932) ($43,265) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... $1,203,192 $196,494 CASH AND CASH EQUIVALENTS - Beginning of period.......................... $3,712,537 $2,586,885 ---------- ---------- CASH AND CASH EQUIVALENTS - End of period................................ $4,915,729 $2,783,379 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest............................. ($46,391) ($51,068) See notes to consolidated financial statements.
4 5 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, consisting only of normal recurring adjustments, 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, 1999 filed March 24, 2000. 2. BUSINESS M-Wave, through its wholly-owned subsidiary Poly Circuits Inc. (the "Company"), manufactures high performance 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 $293,025 through March 31, 2000. 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 5 6 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 $128,915 through March 31,2000. The royalty agreement was also revised to $500,000 payable in equal monthly installments of $25,000 until paid. The Company has collected $145,000 through March 31,2000. No payments were received in the first quarter of 2000 as scheduled above. The payments were abated for 90 days per a verbal agreement between the parties. The Company has received $10,000 in April 2000. The Company is again reviewing the possibility of selling the facility in Texas to Performance Interconnect. 3. INVENTORIES Substantially all the Company's inventories are in work in process. 4. DEBT The Company has a mortgage loan of $1,889,000 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 an installment loan of $269,000 collateralized by certain fixed assets of the Company. Interest on this loan is at the prime rate. The loan is payable in monthly installments of principal and interest and is due in October 2004. 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 (9.00% at March 31, 2000) 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 March 31, 2000. 6 7 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. 7 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS FOR THE QUARTER ENDED MARCH 31, 2000 COMPARED TO THE QUARTER ENDED MARCH 31, 1999 NET SALES Net sales were $5,372,000 for the first quarter ended March 31, 2000, an increase of $1,689,000 or 46% above the first quarter of 1999. The first quarter of 1999 included a final shipment of a matured product line of $1,300,000. The first quarter of 1999 also included the results of PC Dynamics Corporation. The assets of PC Dynamics Corporation were disposed of in the first quarter of 1999. PC Dynamics reported sales of approximately $988,000 in the first quarter of 1999. Thus the adjusted net sales of the Company for the first quarter of 1999 were $1,394,000. Net sales increased approximately $3,978,000 in the first quarter of 2000 when compared to the adjusted first quarter net sales of 1999 for the Company to the reported net sales of the Company for the first quarter of 2000. Net sales to Lucent were $4,412,000 in the first quarter of 2000 compared to $307,000 in the first quarter of 1999. Net sales to Motorola were $42,000 in the first quarter of 2000 compared to $1,359,000 in the first quarter of 1999. The sales to Motorola in the first quarter of 1999 included a final shipment of a matured product line of $1,300,000. Net sales to Spectrian were $322,000 in the first quarter of 2000 compared to $312,000 in the first quarter of 1999. The Company's three largest customers accounted for 91% of the Company's net sales for the first quarter ended March 31, 2000 compared to 55% in the first quarter of 1999. GROSS PROFIT (LOSS) AND COST OF GOODS SOLD The Company's gross profit for the first quarter of 2000 was $774,000 compared to $777,000 for the first quarter of 1999. The first quarter of 1999 included a final shipment of a maturing product line to Motorola generating approximately $480,000 in gross profit. The first quarter of 1999 also included the results of PC Dynamics Corporation. The assets of PC Dynamics Corporation were disposed of in the first quarter of 1999. PC Dynamics reported a gross profit of approximately $222,000 in the first quarter of 1999. Thus the adjusted gross profit of the Company for the first quarter of 1999 was $75,000. Gross profit increased approximately $700,000 in the first quarter of 2000 when compared to the adjusted first quarter results of 1999 for the Company to the reported gross profit of the Company for the first quarter of 2000. The increase is a result of increased sales and improved efficiencies. 8 9 OPERATING EXPENSES General and administrative expenses were $335,000 or 6.2% of net sales in the first quarter of 2000 compared to $437,000 or 11.9% of net sales in the first quarter of 1999. The first quarter of 1999 also included the results of PC Dynamics Corporation. The assets of PC Dynamics Corporation were disposed of in the first quarter of 1999. PC Dynamics reported general and administrative expenses of approximately $103,000 in the first quarter of 1999. 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 $181,000 or 3.4% of net sales in the first quarter of 2000 compared to $175,000 or 4.8% of net sales in the first quarter of 1999. Selling and marketing expenses include the cost of salaries, advertising and promoting the Company's products, and commissions paid to independent sales organizations. OPERATING INCOME (LOSS) Operating income was $257,000 or 4.8% in the first quarter of 2000 compared to an operating income of $164,000 or 4.5% of net sales in the first quarter of 1999, an increase of $93,000. 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: Increase in net sales $ 356,000 Decrease in gross margin (359,000) Decrease in operating expenses (96,000) --------- Increase in operating income $ 93,000 INTEREST INCOME Interest income from short-term investments was $20,000 in the first quarter of 2000 compared to $32,000 in the first quarter of 1999. Rental income from the P C Dynamics facility was $51,000 in the first quarter of 2000 compared to $8,000 in the first quarter of 1999. INTEREST EXPENSE Interest expense, primarily related to the Company's mortgage obligation on its P C Dynamics facility, was $51,000 in the first quarter of 2000 compared to $46,000 in the first quarter of 1999. 9 10 INCOME TAXES In the first quarter of 2000 the Company had an effective tax credit rate of 39.5%. In the first quarter of 1999 the Company had an effective tax rate of 57.5%. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operations was $271,000 for the first three months of 2000 compared to $570,000 for the first three months of 1999. Inventories increased ($1,240,000). The increase in inventory relates to increased sales and the inventory consignment agreement with Lucent. Accounts payable increased $941,000. Depreciation and amortization was $257,000. Capital expenditures to improve manufacturing processes were $32,000 in the first three months of 2000. Capital expenditures to improve manufacturing processes were $164,000 in the first three months of 1999. The Company has a mortgage loan of $1,889,000 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 an installment loan of $269,000 collateralized by certain fixed assets of the Company. Interest on this loan is at the prime rate. The loan is payable in monthly installments of principal and interest and is due in October 2004. 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 (9.00% at March 31, 2000) 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 March 31, 2000. As of March 31, 2000, the Company has $2,158,000 of debt and $2,783,000 of cash and cash equivalents. Management believes that funds generated from operations, coupled with the Company's cash and investment balances and its capacity for debt will be sufficient to fund current business operations. INFLATION Management believes inflation has not had a material effect on the Company's operation or on its financial position. YEAR 2000 COMPLIANCE The Company has reviewed its computer and other hardware and software systems and has upgraded those systems that it has 10 11 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 will be free of defects. If any operational impediments 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 has contacted its significant suppliers and customers in an attempt to identify any potential year 2000 compliance issues with them. The Company did not find any compliance issues. The Company incurred approximately $86,000 through fiscal 1999 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. 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 11 12 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. 12 13 PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS None ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27) Financial Data Schedule 13 14 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. M-WAVE,INC. Date: May 4, 2000 /s/ PAUL H. SCHMITT ---------------------- Paul H. Schmitt Chief Financial Officer 14 15 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------- 27 Financial Data 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 2,783,379 0 2,530,298 0 3,270,740 9,454,775 12,829,626 (6,112,188) 16,822,599 3,845,761 1,796,409 0 0 30,843 10,690,221 16,822,599 5,372,185 0 4,598,236 516,683 19,771 0 0 277,097 109,518 167,519 0 0 0 167,519 0.07 0.07
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