SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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COMMISSION FILE NUMBER 0-5351
EIP MICROWAVE, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 95-2148645
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
3 Civic Plaza, Suite 265, Newport Beach, California 92660
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(Address of principal executive offices) (Zip Code)
(714) 720-1766
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
OUTSTANDING COMMON STOCK: As of May 2, 1996, Registrant had only one class
of common stock, and had 423,307 shares of this $.01 par value common stock
outstanding.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [ X ]
Total Number of Pages: 17
Exhibit Index 11
EIP MICROWAVE, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1996
Part I FINANCIAL INFORMATION
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Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1996 and September 30, 1995 Page 3
Condensed Consolidated Statements of Operations and
Retained Earnings for the three months and six months
ended March 31, 1996 and 1995 Page 4
Condensed Consolidated Statements of Cash Flows for
the six months ended March 31, 1996 and 1995 Page 5
Notes to condensed consolidated financial statements Page 6
Item 2. Management's Discussion and Analysis of Results of Pages 7 - 8
Operations and Financial Condition
Part II OTHER INFORMATION
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Item 2. Changes in Securities Page 9
Item 6. Exhibits and Reports on Form 8-K Page 9
Signatures Page 10
Index to Exhibits Page 11
2
EIP MICROWAVE, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data, unaudited)
March 31, September 30,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 42 $ 126
Short-term investments 332 319
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374 445
Accounts receivable, net 881 1,064
Inventories 1,225 1,133
Prepaid expenses 46 74
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Total current assets 2,526 2,716
Property and equipment, net 499 271
Other assets 15 30
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$3,040 $3,017
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 770 $ 610
Accrued liabilities 496 691
Credit line debt 180 -
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Total current liabilities 1,446 1,301
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value;
authorized - 10,000,000 shares;
423,307 issued and outstanding 5 5
Additional paid-in capital 844 844
Retained earnings 745 867
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Total stockholders' equity 1,594 1,716
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$3,040 $3,017
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3
EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands except per share data, unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
1996 1995 1996 1995
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Net sales $1,684 $1,750 $3,244 $3,201
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Costs and expenses:
Cost of sales 1,005 773 1,985 1,573
Research, development and engineering 265 196 466 372
Selling, general and administrative 520 661 1,052 1,170
Interest and other, net (119) (55) (137) (54)
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Total costs and expenses 1,671 1,575 3,366 3,061
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Net income (loss) 13 175 (122) 140
Retained earnings at beginning of period 732 707 867 742
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Retained earnings at end of period $ 745 $ 882 $ 745 $ 882
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Net income (loss) per share $ .03 $ .41 $ (.29) $ .33
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Weighted average common shares outstanding 423 423 423 423
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4
EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (decrease) in cash
(Dollars in thousands, unaudited)
Six Months Ended
March 31, March 31,
1996 1995
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Cash flows from operating activities:
Net income (loss) $(122) $ 140
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 88 93
(Gain) loss on sale of capital equipment (50) -
Change in assets and liabilities:
Accounts receivable, net 183 (222)
Inventories (92) (89)
Prepaid expenses and other assets 43 4
Accounts payable, net 160 (86)
Accrued liabilities (195) (2)
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Cash provided by (used in) operating activities 15 (162)
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Cash flows from investing activities:
Purchase of short-term investments (13) -
Capital expenditures (327) (1)
Proceeds from the sale of capital equipment 61 29
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Cash (used in) provided by investing activities (279) 28
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Cash flows from financing activities:
Borrowings under line of credit 180 -
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Decrease in cash and cash equivalents (84) (134)
Cash and cash equivalents at beginning of period 126 211
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Cash and cash equivalents at end of period $ 42 $ 77
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5
EIP MICROWAVE, INC.
PART I/ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) The condensed consolidated financial statements presented in this
Form 10-QSB have been prepared from the accounting records without
audit on a basis consistent with the financial statements included
in the Company's annual report filed with the Securities and Exchange
Commission for the preceding fiscal year. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The information furnished
reflects all adjustments and disclosures which are, in the opinion of
management, of a normal, recurring nature, and necessary for a fair
statement of the results for the interim periods. This report should
be read in conjunction with the Company's 1995 Annual Report on
Form 10-KSB. The results of operations for the interim periods
presented are not necessarily indicative of the results expected for
the entire year.
(b) Composition of certain balance sheet captions (dollars in thousands):
March 31, September 30,
1996 1995
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Inventories:
Raw materials $ 731 $ 633
Work-in-process 480 489
Finished goods 14 11
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$ 1,225 $ 1,133
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Property and equipment:
Cost $ 5,127 $ 5,158
Accumulated depreciation (4,628) (4,887)
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$ 499 $ 271
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6
EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1996, were $1,684,000, a 4%
decrease from sales of $1,750,000 in the same period last year. Net sales for
the six months ended March 31, 1996, were $3,244,000, a 1% increase from
sales of $3,201,000 in the same period last year. The decrease in sales for
the three month period ended March 31, 1996, was primarily attributable to a
decline in sales of microwave counters to government contractors and
commercial customers. The increase in sales for the six months period ended
March 31, 1996, was primarily attributable to sales of product configured in
the VXIbus format to government contractors.
Gross margin decreased to 40% in the second fiscal quarter of 1996, from 56%
in the second fiscal quarter of 1995. Gross margin was 39% for the six months
ended March 31, 1996, as compared to 51% for the same period last year. The
decrease for both periods was primarily attributable to a lower average
selling price on product sales for one government program. The Company
expects the effect of this government program to diminish over the next
fiscal quarter.
Incoming orders for the second fiscal quarter were $1,238,000, a 21% decrease
from orders of $1,573,000 for the same period a year ago. Incoming orders for
the six months ended March 31, 1996, were $2,554,000, a 21% decrease from
orders of $3,234,000 for the same period a year ago. Backlog at March 31,
1996, was $481,000, a 42% decrease from a backlog of $836,000 at the end of
the second fiscal quarter last year. The decrease in orders for both periods,
and backlog, resulted primarily from a decrease in orders for product
configured in the VXI format from government contractors, compared to the
same periods a year ago.
Research, development and engineering expenses increased 35% to $265,000 in
the second fiscal quarter of 1996, compared to $196,000 for the same quarter
last year. Research, development and engineering expenses increased 25% to
$466,000 for the six months ended March 31, 1996, compared to $372,000 for
the same period last year. The increase in research, development and
engineering expenses for both periods was primarily attributable to new
product development expenditures.
Selling, general and administrative expenses decreased 21% to $520,000 during
the second fiscal quarter of 1996, compared to $661,000 for the same quarter
last year. Selling, general and administrative expenses decreased 10% to
$1,052,000 for the six months ended March 31, 1996, compared to $1,170,000
for the same period last year. The decrease in selling, general and
administrative expenses for both periods is due primarily to a deferral of
advertising costs to subsequent quarters of fiscal 1996, and no accrued
bonuses, compared to the same periods last year.
7
EIP MICROWAVE, INC.
PART I/ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
The Company earned net income of $13,000 for the second fiscal quarter of
1996, as compared to net income of $175,000 during the same period last year.
A credit of $111,000 due to the forgiveness by the Company's Board of
Directors of accrued directors' fees as of February 13, 1996, is included in
second quarter net income. A net loss of $122,000 was recorded for the six
months ended March 31, 1996, as compared to net income of $140,000 for the
same period last year. A gain on sale of capital equipment of $50,000 is also
included in the six month net loss ended March 31, 1996. The decrease in
earnings for both periods, compared to the same periods last year, is
primarily due to decreased gross margin resulting from product sales to one
government program, and increased research, development and engineering
expenses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company's cash, cash equivalents and short-term
investment balance was $374,000, as compared with a cash, cash equivalents
and short-term investment balance of $445,000 at September 30, 1995. At March
31, 1996, the Company had no material commitments for capital expenditures.
At March 31, 1996, working capital decreased $185,000 from September 30,
1995, and the Company's current ratio decreased to 1.95:1 from 2.09:1 over
the same time period.
On November 27, 1995, the Company renewed its bank line of credit ("line")
which provides for borrowings up to 70% of eligible accounts receivable, not
to exceed $500,000, which expires November 15, 1996. Interest is charged at
the bank's prime rate plus 2% provided that the interest rate in effect each
month shall not be less than 7.5% per annum, and is payable monthly. This
line is secured by the Company's accounts receivable, inventory and fixed
assets. The agreement, as amended, contains various restrictive covenants
requiring, among other matters, the maintenance of minimum levels of tangible
net worth and certain financial ratios, including debt to net worth. At March
31, 1996, the Company was in compliance with the restrictive covenants of the
line. However, the Company believes that it will not remain in compliance
with such covenants during the remaining portion of fiscal 1996 unless it
obtains a waiver from its lender. Borrowings of $180,000 were outstanding
under the line at March 31, 1996.
The Company believes that the cash on hand, funds generated from operations
and borrowings under the Company's line of credit will adequately finance the
Company's operations during the remaining portion of fiscal 1996. If the
Company is unable to obtain a waiver of noncompliance of the restrictive
covenants under its line, the Company believes that additional funds
sufficient to adequately finance its operations during fiscal 1996 can be
obtained from the liquidation of its short-term investments and further
reductions in expenses.
8
EIP MICROWAVE, INC.
PART II - OTHER INFORMATION
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Item 2. Changes in Securities
The existing credit facility between the Company and its commercial bank
contains restrictions on dividend payments and financial ratios regarding,
among other matters, the maintenance of minimal levels of profitability and
tangible net worth, minimum quick ratio and limits of debt to net worth. The
credit agreement is more fully described in Part I/Item 2 - Liquidity and
Capital Resources.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on February 7,
1996. Two items were voted on by the stockholders.
(1) J. Sidney Webb was re-elected as a Class II member of the Board of
Directors with term expiring at the 1999 Annual Meeting. The votes
cast for or withheld for J. Sidney Webb were as follows:
For - 366,788; Withheld - 12,064. Mr. James J. Shelton did not
seek re-election as a Class II director, and the Board did not
nominate another candidate at or prior to the Annual Meeting to
fill the vacancy. John F. Bishop, and J. Bradford Bishop, each a
Class I director, and Robert D. Johnson a Class III director, were
not up for re-election and continue in office.
(2) The stockholders approved the Company's Amended and Restated 1994
Stock Option Plan, as adopted by the Board of Directors. Vote to
approve as follows: For - 354,004; Against - 24,287;
Abstain - 561.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10(a) Indemnification Agreement dated February 13, 1996, between
the Company and Michael E. Johnson.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company did not file with the Commission any reports on
Form 8-K in the quarter ended March 31, 1996.
9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EIP MICROWAVE, INC.
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(Registrant)
DATE: May 10, 1996 BY: /s/ J. Bradford Bishop
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J. Bradford Bishop
Chairman of the Board and
Chief Executive Officer
DATE: May 10, 1996 BY: /s/ John Ardizzone
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John Ardizzone
Vice President Operations and
Chief Financial Officer
10
EIP MICROWAVE, INC.
INDEX TO EXHIBITS
Sequentially
Exhibit No. Description Numbered Page
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10(a) Indemnification Agreement dated February 13, 1996,
between the Company and Michael E. Johnson 12
27 Financial Data Schedule 17
11