UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: May 29, 1999
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 012182
CALIFORNIA AMPLIFIER, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3647070
(State or Other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
460 Calle San Pablo
Camarillo, California 93012
(Address of principal executive offices) (Zip Code)
(805) 987-9000
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock Outstanding as of May 29, 1999: 11,798,297
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except par value)
May 29, 1999 Feb. 27, 1999
ASSETS
Current assets:
Cash and cash equivalents $6,280 $9,312
Accounts receivable, net 8,376 5,002
Inventories 4,091 3,974
Deferred tax asset 1,505 1,597
Prepaid expenses and other current assets 544 446
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Total current assets 20,796 20,331
Property and equipment, at cost, net of
accumulated depreciation and amortization 5,649 4,498
Goodwill, net of amortization 3,826 ---
Other assets 481 720
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$30,752 $25,549
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,172 $2,644
Accrued liabilities 2,006 1,613
Current portion of long-term obligations 3,661 597
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Total current liabilities 9,839 4,854
Long-term obligations 403 516
Minority interest share in net assets of
Micro Pulse, Inc. 112 114
Stockholders' equity:
Preferred stock, 3,000 shares authorized;
no shares outstanding --- ---
Common stock, $.01 par value; 30,000 shares authorized;
11,798 shares outstanding in May 1999 and
11,785 shares outstanding in February 1999 118 118
Additional paid-in capital 14,093 14,050
Accumulated other comprehensive income (238) (170)
Retained earnings 6,425 6,067
- -----------------------------------------------------------------------
Total stockholders' equity 20,398 20,065
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$30,752 $25,549
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share data)
Three Months Ended
May 29, May 30,
1999 1998
- ----------------------------------------------------------------------
Sales $13,093 $ 9,060
Cost of sales 9,180 6,267
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Gross profit 3,913 2,793
Research and development 1,199 1,216
Selling 1,120 1,246
General and administrative 1,067 1,071
- -----------------------------------------------------------------------
Income (loss) from operations 527 (740)
Interest and other income (expense), net 31 (6)
Minority interest share in income (loss) of
Micro Pulse 2 (12)
- -----------------------------------------------------------------------
Income (loss) before tax 560 (758)
(Provision for) benefit from income taxes (202) 273
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Net income (loss) $ 358 $ (485)
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Net income (loss) per share Basic $ 0.03 $ (0.04)
Diluted $ 0.03 $ (0.04)
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Shares used in per share
calculations Basic 11,791 11,780
Diluted 12,346 11,780
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Three Months Ended
May 29, May 30,
1999 1998
- ------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 358 $ (485)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 639 787
Minority interest share in net (income)
loss of Micro Pulse (2) 12
(Increase) decrease in:
Accounts receivable (3,374) 582
Inventories (117) 490
Deferred tax asset 92 (27)
Prepaid expenses and other assets 141 151
Goodwill (3,895) ---
Increase (decrease) in:
Accounts payable 1,528 18
Accrued liabilities 393 (290)
- ------------------------------------------------------------------------
Cash provided by (used in)
operating activities: (4,237) 1,238
- ------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (1,791) (272)
Retirements of property and equipment 2 6
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Cash used in investing activities: (1,789) (266)
- ------------------------------------------------------------------------
Cash flows from financing activities:
Debt repayments (149) (292)
Debt borrowings 3,100 ---
Issuances of common stock, net of retirements 43 17
- ------------------------------------------------------------------------
Cash provided by (used in) financing activities: 2,994 (275)
- ------------------------------------------------------------------------
Net increase (decrese) in cash and
cash equivalents (3,032) 697
Cash and cash equivalents at the beginning
of period 9,312 4,422
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Cash and cash equivalents at end of period $6,280 $ 5,119
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CALIFORNIA AMPLIFIER, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION - The accompanying unaudited consolidated financial
statements have been prepared in accordance with the requirements of Form 10-Q
and, therefore, do not include all information and footnotes which would be
presented were such financial statements prepared in accordance with generally
accepted accounting principles. These statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended February 27,
1999. In the opinion of management, these interim financial statements reflect
all adjustments necessary for a fair presentation of the financial position and
results of operations for each of the periods presented. The results of
operations and cash flows for such periods are not necessarily indicative of
results to be expected for the full fiscal year.
2. INVENTORIES - Inventories include the cost of material, labor and
manufacturing overhead and are stated at the lower of cost (first-in, first-out)
or market and consist of the following (in thousands):
May 29, 1999 May 30, 1998
Raw materials $2,439 $3,038
Work in process 49 71
Finished goods 1,603 3,252
------ -----
$4,091 $6,361
====== ======
3. COMPREHENSIVE INCOME (LOSS) - Effective March 1, 1998, the Company adopted
the provisions of SFAS No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as the total of net income and all non-owner changes in
equity. The following table details the components of comprehensive income for
the three months ended May 29, 1999 and May 30, 1998 (in thousands):
Quarter Ended Quarter Ended
May 29, May 30,
1999 1998
----------------------------
Net income (loss) $ 358 $(485)
Foreign currency translation
adjustment, net of tax (68) (24)
--------- --------
Comprehensive income (loss) $ 290 $(509)
========= ========
4. SEGMENTS
In June 1997, the FASB introduced SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." In conjunction with the Company's
reorganization into business units in January 1998, the Company has adopted SFAS
No. 131 in fiscal year 1999, and will be applied on a limited basis to interim
periods thereafter. The adoption of this standard had no effect on the Company's
financial position or results of operations, but did change the presentation of
segment information as presented below (in thousands):
Three Months Ended May 29, 1999
-------------------------------------------------
Satellite Wireless Antenna Corporate Total
-------------------------------------------------
Sales $7,031 $4,969 $1,093 $ --- $13,093
Gross Profit 1,872 1,575 466 --- 3,913
Income (Loss)
from Operations 1,113 348 (5) (929) 527
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Three Months Ended May 30, 1998
-------------------------------------------------
Satellite Wireless Antenna Corporate Total
-------------------------------------------------
Sales $2,202 $5,552 $1,306 $ --- $9,060
Gross Profit 704 1,549 540 --- 2,793
Income (Loss)
from Operations 32 150 (22) (900) (740)
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5. PRO FORMA
On April 19, 1999, the Company acquired the technology and product rights to
substantially all of Gardiner Communications Corp.'s ("Gardiner") products, and
manufacturing and development related equipment and inventory from Gardiner to
support these product lines. The total purchase price, including related costs,
was approximately $9.1 million, of which $3.5 million relates to the acquisition
of product and technology rights. The Company paid approximately $2.8 million in
cash on closing and will pay approximately $3.2 million in cash on or about
August 30, 1999 for additional inventory and equipment. Gardiner received a $3.1
million, 8% one year promissory note due April 19, 2000. A portion of the debt
can be converted into 525,000 shares of the Company's common stock at the lower
per share conversion price equal to $4.25 or the average closing sales price of
the Company's common stock for the immediate twenty trading days prior to
conversion.
The following pro forma combines the operations of the Company and Gardiner as
if the acquisition had occurred at the beginning of each of the respective
periods:
3 Months 3 Months
May 29, 1999 May 30, 1998
As Reported Pro forma As Reported Pro forma
-----------------------------------------------
Sales $13,093 $15,093 $9,060 $13,248
Net Income (Loss) $ 358 $ 518 $ (485) $ (229)
Net Income (Loss) Per Share $ .03 $ .04 $ (.04) $ (.02)
-----------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 29, 1999 AND MAY 30, 1998
SALES
Sales increased by $4.0 million, or 44.5%, to $13.1 million for the three months
ended May 29, 1999 from $9.1 million for the three months ended May 30, 1998.
Sales of Satellite products increased $4.8 million, or 219%, to $7.0 million
from $2.2 million. Sales of Wireless products decreased $583,000, or 10.5%, to
approximately $5.0 million. Sales of Antenna products by Micro Pulse decreased
$213,000, or 16.3%, to $1.1 million.
The increase in Satellite product sales resulted from increased sales of Ku DBS
products as the Company has continued to emphasize its shift from C-band
products, as well as sales of the U.S. DBS products, which were acquired from
Gardiner Communications and included in shipments since April 19, 1999. The
decrease in Wireless product sales resulted primarily from continued softness in
the Worldwide Wireless Cable market, primarily in Latin America. The decrease in
Antenna product sales resulted from continued competition in GPS related
markets.
GROSS PROFITS AND GROSS MARGINS
Gross profits increased by $1.1 million, or 40.1%, to $3.9 million from $2.8
million. Gross margins decreased to 29.9% from 30.8%. The decrease in gross
profits resulted from the 44.5% increase in sales, offset slightly by lower
gross margins. The .9% decline in gross margin resulted primarily from higher
sales of Satellite products at lower gross margins, offset by improvements in
gross margins due to cost reductions since the first quarter of the prior year.
OPERATING EXPENSES
Research and development expenses decreased by $17,000 from $1,216,000 to
$1,199,000.
Selling expenses decreased by $126,000 from $1,246,000 to $1,120,000.
General and administrative expenses decreased by $4,000 from $1,071,000 to
$1,067,000.
During the prior year, the Company focused on reducing operating costs more in
line with the then current sales levels. Accordingly, the organizational
infrastructure was downsized in the later part of fiscal year 1999 resulting in
lower operating costs. Total operating costs in the first quarter of fiscal year
2000 increased approximately $400,000, compared to the aggregate operating costs
in the fourth quarter of fiscal year 1999, which is primarily attributable to
increased operating costs associated with the acquisition of Gardiner in April
1999.
INCOME (LOSS) FROM OPERATIONS
Income from operations, for the reasons noted above, increased by $1.3 million,
to income of $527,000 from a loss of $740,000. See also Note 4. Segments,
included in Notes to unaudited Consolidated Financial Statements included
elsewhere herein.
MINORITY INTEREST SHARE IN INCOME (LOSS) OF MICRO PULSE
The Company consolidates 100% of the sales and expenses of Micro Pulse. The
minority interest share in income of Micro Pulse eliminates the 49.5% of the
income (loss) of Micro Pulse.
(PROVISION FOR) BENEFIT FROM INCOME TAXES
The provision for taxes for the first quarter of fiscal 2000 is based upon an
annualized tax rate of 36%, the same tax rate as fiscal year 1999. This tax rate
assumes savings from benefits allowed for export sales through a foreign sales
corporation and research and development tax credits.
NET INCOME (LOSS)
Net income, for reasons outlined above, increased by $843,000, to net income of
$358,000 from a loss of $485,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $6.0 million credit facility with Santa Monica Bank at the
bank's prime rate (8.0% at July 1, 1999). As of May 29, 1999, there were no
amounts were outstanding under this arrangement.
The Company believes that cash flow from operations, together with the funds
available under its credit facility, are sufficient to support operations and
capital equipment requirements over the next twelve months.
The Company believes that inflation has not had a material effect on its
operations.
YEAR 2000 COMPLIANCE
COMPANY PRODUCTS
The Company's satellite, wireless cable, voice and data, and antenna
microwave reception and transceiver products do not contain time or date code
applications and are therefore, not impacted by the Year 2000 century change.
The Company's wireless cable scrambling and conditional access system,
MultiCipher, does have date and time characteristics in microprocessor embedded
software and in its software interface applications. The Company has identified
programming issues that may impact how certain information must be input by
MultiCipher customers, for example, the scheduling of future pay-per-view
events. Upgrades to address such issues are now available to customers on a fee
basis. All current shipments of MultiCipher system head-ends are year 2000
compliant.
INTERNAL OPERATIONS
GENERAL. The computer system issues relating to dates beyond 1999 are the result
of many computer programs being written to use and store dates with only the
last two digits of the applicable year. As a result, these programs may assume
that all two digit dates are twentieth century dates. This could result in
system failure, anomalous system behavior or incorrect system reporting. System
failure could, in turn, temporarily affect the Company's ability to process
customer transactions, interface with vendors and engage in similar normal
business activities.
The Company has assessed how it may be impacted. The Company has formulated
and begun implementation of a plan to address all known aspects of the issue.
The Company has already completed a substantial portion of this plan and is on
schedule to fully complete the plan by August of 1999, except for some desktop
personal computers which may extend into the last quarter of calendar 1999.
SOFTWARE INFORMATION SYSTEMS. The Company's software information systems consist
primarily of a financial and manufacturing system (Computer Associates KBM), and
other smaller scale software applications, and other programs developed
internally.
In January 1999, the Computer Associates KBM financial and manufacturing
software upgrade was completed and is now year 2000 compliant. Telemagic and
Sales Tracker, two software applications, are not year 2000 compliant and will
be upgraded or discontinued prior to July 1999. In addition, software on
networks and desktop computers are currently being tested for year 2000
compliance. The Company does not expect any major issues related to upgrading
these software applications, at a cost of less than $60,000.
COMPUTER HARDWARE AND OPERATING SYSTEMS. Computer hardware and operating systems
includes all data center equipment (IBM AS400 system) and networks (Novell and
Microsoft NT). In January 1999, the Company purchased a new IBM AS400 in
conjunction with the Computer Associates software upgrades and is now year 2000
compliant. The current NT networks are year 2000 compliant, but the Novell
Network is not. This network will be upgraded or converted to NT by August 1999
with an estimated cost of less than $20,000.
COMMUNICATIONS SYSTEMS. Communications systems includes all data center
equipment (fax machines, telephone systems, and related software systems) used
to support external communications with customers, employees, and suppliers,
business partners and all corporate equipment and software systems used to
support internal business management communications. Each significant component
of these communications systems has been upgraded.
SUPPLIERS AND OTHER BUSINESS PARTNERS. This area of the plan called for all
significant suppliers and other business partners to be surveyed for year 2000
readiness. Most of the significant trade vendors have already been contacted.
The Company anticipates that these activities will continue into the third
quarter of calendar 1999. The Company is not currently aware of any single
vendor or business partner with year 2000 compliance issues that could have a
material impact on the Company. The Company can provide no assurance that year
2000 compliance will be successfully implemented by all of its suppliers.
CONTINGENCY PLANNING. The Company has not yet developed a comprehensive
contingency plan to address the risk of operational problems and costs likely to
result from a failure by the Company or by a supplier or business partner to
address year 2000 readiness. This plan will be developed by the end of August
1999. It will list specific action plans for failure in any of the identified
areas of the year 2000 compliance plan. The Company believes that failure to
complete any of the remaining work to be done will not alone adversely affect
the continuity of the core business. The Company believes its current state of
readiness is on schedule with a conservative plan to be fully year 2000
compliant by August of 1999 and that business risks have been minimized.
However, there can be no guarantee that year 2000 compliance issues not yet
identified or fully addressed will not materially affect the Company's
operations or expose it to third party liability.
SAFE HARBOR STATEMENT
Forward looking statements in this Form 10-Q which include, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, projections and other information regarding future
performance, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance and are subject to
certain risks and uncertainties, including, without limitation, product demand,
competitive market growth, timing and market acceptance of new product
introductions, competition, pricing and other risks and uncertainties that are
detailed from time to time in the Company's periodic reports filed with the
Securities and Exchange Commission, copies of which may be obtained from the
Company upon request. Such risks and uncertainties could cause actual results to
differ materially from historical results or those anticipated. Although the
Company believes the expectations reflected in such forward-looking statements
are based upon reasonable assumptions, it can give no assurance that its
expectations will be attained. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On June 11, 1997, the Company and certain of its directors and officers had two
legal actions filed against them, one in the United States District Court,
Central District of California, entitled Yourish v. California Amplifier, Inc.,
et al., Case No. 97-4293 (BM (Mcx), and the other in the Superior Court for the
State of California, County of Ventura, entitled Yourish v. California
Amplifier, Inc. et al., Case No. CIV 173569. On June 30, 1997, another legal
action was filed against the same defendants in the Superior Court for the State
of California, County of Ventura, entitled Burns, et al., v. California
Amplifier, Inc., et al., Case No. CIV 173981. All three actions are purported
class actions on behalf of purchasers of the common stock of the Company between
September 12, 1995 and August 8, 1996. The actions claim that the defendants
engaged in a scheme to make false and misleading statements and omit to disclose
material adverse facts to the public concerning the Company, allegedly causing
the Company's stock price to artificially rise, and thereby allegedly allowing
the individual defendants to sell stock at inflated prices. Plaintiffs claim
that the purported stockholder class was damaged when the price of the stock
declined upon disclosure of the alleged adverse facts. The Company and its legal
counsel are currently evaluating the claims. Based upon the analysis performed
to date, the Company, its directors and officers, plan to vigorously defend
themselves against these claims.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Current report on Form 8-K dated May 3, 1999 (date of event April 19,
1999) reporting Item 2 "Acquisition or Disposition of Assets" and Item 7 "
Financial Statements, Proforma Financial Information and Exhibits."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
California Amplifier, Inc.
(Registrant)
July 9, 1999 /s/ Michael R. Ferron
----------------------------
Michael R. Ferron
Vice President, Finance and
Chief Accounting Officer