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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the period ended June 24, 2000, 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 No. 0-12719
GIGA-TRONICS INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 94-2656341
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4650 Norris Canyon Road, San Ramon, CA 94583
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (925) 328-4650
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 [ ]
Common stock outstanding as of July 14, 2000: 4,455,871
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GIGA-TRONICS INCORPORATED
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
ITEM 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 24, 2000
and March 25, 2000 (unaudited) ...............................................3
Condensed Consolidated Statements of Operations, three months
ended June 24, 2000 and June 26, 1999 (unaudited).............................4
Condensed Consolidated Statements of Cash Flows, three months
ended June 24, 2000 and June 26, 1999 (unaudited).............................5
Notes to Unaudited Condensed Consolidated Financial Statements................6
ITEM 2 Management's Discussion and Analysis of
Operations and Financial Condition............................................8
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
As of June 24, 2000, Giga-tronics has no material pending
legal proceedings. From time to time, Giga-tronics is involved
in various disputes and litigation matters that arise in the
ordinary course of business.
ITEM 2 Not applicable
TO 5
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
SIGNATURES....................................................................................11
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GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share data)
June 24, March 25,
2000 2000
-------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,634 $ 3,455
Trade accounts receivable, net of allowance
of $255 and $253, respectively 6,082 9,194
Inventories, net 15,576 14,692
Prepaid expenses 435 444
Deferred income taxes 3,597 3,570
------- -------
Total current assets 30,324 31,355
Property and Equipment:
Building and leasehold improvements 381 382
Machinery and equipment 14,910 14,673
Office furniture and fixtures 1,047 1,023
------- -------
Property and equipment 16,338 16,078
Less accumulated depreciation and amortization 11,095 10,678
------- -------
Property and equipment, net 5,243 5,400
Patents and licenses 87 112
Goodwill, net 526 564
Other assets 115 95
------- -------
Total assets $36,295 $37,526
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 2,491 4,065
Accrued commissions 567 625
Accrued payroll and benefits 1,899 1,638
Accrued warranty 614 553
Customer advances 1,237 1,536
Current portion of capital lease and other long term obligations 121 118
Other current liabilities 1,059 1,175
------- -------
Total current liabilities 7,988 9,710
Capital lease and other long term obligations, net 1,629 1,667
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Total liabilities 9,617 11,377
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Shareholders' Equity
Common stock of no par value;
Authorized 40,000,000 shares; 4,440,871 shares outstanding at
June 24, 2000 and 4,431,008 shares at March 25, 2000 11,942 11,921
Retained earnings 14,736 14,228
------- -------
Total shareholders' equity 26,678 26,149
------- -------
Total liabilities and shareholders' equity $36,295 $37,526
======= =======
See accompanying notes to unaudited condensed consolidated financial statements.
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GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
----------------------
June 24, June 26,
2000 1999
-------- --------
Net sales $ 12,161 $ 11,505
Cost of sales 7,725 8,054
-------- --------
Gross profit 4,436 3,451
Product development 1,166 870
Selling, general and administrative 2,546 2,295
Amortization of intangibles 63 150
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Operating expenses 3,775 3,315
Operating income 661 136
Other income 32 27
Interest income (expense), net 33 (1)
-------- --------
Earnings before income taxes 726 162
Provision for income taxes 218 50
-------- --------
Net earnings $ 508 $ 112
======== ========
Earnings per common share - basic $ 0.11 $ 0.03
======== ========
Earnings per common share - diluted $ 0.11 $ 0.03
======== ========
Weighted average basic common shares outstanding 4,437 4,362
======== ========
Weighted average diluted common shares outstanding 4,817 4,372
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
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GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
-----------------------
June 24, June 26,
2000 1999
-------- --------
Cash flows provided from operations:
Net earnings $ 508 $ 112
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and amortization 511 591
Gain on sale of fixed assets (3) --
Deferred income taxes, net (19) --
Changes in operating assets and liabilities 512 (142)
-------- --------
Net cash provided by operations 1,509 561
Cash flows from investing activities
Additions to property and equipment (291) (256)
Proceeds from sale of equipment 3 --
Other assets (20) 4
-------- --------
Net cash used in investing activities (308) (252)
Cash flows from financing activities:
Issuance of common stock 21 --
Payments on capital lease and other long term obligations (43) (4)
-------- --------
Net cash used in financing activities (22) (4)
Increase (decrease) in cash and cash equivalents 1,179 305
-------- --------
Beginning cash and cash equivalents 3,455 2,686
Ending cash and cash equivalents $ 4,634 $ 2,991
======== ========
Supplementary disclosure of cash flow information:
(1) No cash was paid for interest in the three month periods ended June 24,
2000 and June 26, 1999.
(2) Cash paid for income taxes in the three month period ended June 24,
2000 was $14,000. Cash paid for income taxes in the three month period
ended June 26, 1999 was $800.
See accompanying notes to unaudited condensed consolidated financial statements.
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GIGA-TRONICS INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The condensed consolidated balance sheets of Giga-tronics as of June 24,
2000 and March 25, 2000 and the condensed consolidated statements of
operations, and cash flows for the three months ended June 24, 2000 and
June 26, 1999 are unaudited. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for the fair preparation of the
condensed consolidated financial position and results of operations and
cash flows, have been included in such unaudited condensed consolidated
financial statements. The consolidated results of operations for the
three months ended June 24, 2000 are not necessarily indicative of the
results to be expected for the entire year. For further information,
refer to the financial statements and footnotes thereto, included in the
Annual Report on Form 10-K, filed with the Securities and Exchange
Commission for the year ended March 25, 2000.
(2) Inventories
Inventories consist of the following (in thousands):
June 24, March 25,
2000 2000
-------- ---------
Raw materials $ 8,355 $ 8,095
Work-in-process 5,913 5,746
Finished goods 776 294
Loaned Inventory 532 557
-------- --------
Total inventory $ 15,576 $ 14,692
======== ========
(3) Earnings Per Share
Basic earnings per share is calculated by dividing net income or loss by
the weighted average common shares outstanding during the period.
Diluted earnings per share reflects the net incremental shares that
would be issued if dilutive outstanding stock options were exercised,
using the treasury stock method. In the case of a net loss, it is
assumed that no incremental shares would be issued because they would be
antidilutive. In addition, certain options are considered antidilutive
because the options' exercise price was above the average market price
during the period. The shares used in per share computations for the
fiscal quarters ended June 24, 2000 and June 26, 1999 are as follows:
Three Months Ended
----------------------
June 24, June 26,
2000 1999
-------- --------
Net earnings $ 508 $ 112
======== ========
Weighted average:
Common shares outstanding 4,437 4,362
Dilutive potential common shares 380 10
-------- --------
Common shares assuming dilution 4,817 4,372
======== ========
Net earnings per share of common stock $ 0.11 $ 0.03
======== ========
Net earnings per share of common stock assuming dilution $ 0.11 $ 0.03
======== ========
Number of stock options not included in the computation -- 101
======== ========
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The number of stock options not included in the computation of diluted
EPS for the three month period ended June 26, 1999 reflects stock
options where the exercise prices were greater than the average market
price of the common shares and are therefore antidilutive.
(4) Comprehensive Income
The Company has no components of other comprehensive income. As such,
net income equals comprehensive income for June 24, 2000 and June 26,
1999, respectively.
(5) Significant Customers and Industry Segment Information
The Company has five reportable segments: Giga-tronics Instruments
Division, ASCOR, Microsource, DYMATIX, and Corporate. Giga-tronics
Instrument division produces a broad line of test and measurement
equipment used in the development, test and maintenance of wireless
communications products and systems, flight navigational equipment,
electronic defense systems and automatic testing systems. ASCOR designs,
manufactures, and markets a line of switching devices that link together
many specific purpose instruments that comprise automatic test systems.
Microsource develops and manufactures a broad line of YIG (Yttrium,
Iron, Garnet) tuned oscillators, filters and microwave synthesizers,
which are used in a wide variety of microwave instruments or devices.
DYMATIX, which includes Viking Semiconductor Equipment, Inc. and
Ultracision, Inc., manufactures and markets optical inspection equipment
used to test semiconductor devices and automation equipment for the test
and inspection of silicon wafers. The corporate segment handles the
financing needs of each segment and lends funds to each segment as
required.
Information on reportable segments is as follows (in thousands):
Three Months Ended
---------------------------------------------------
June 24, 2000 June 26, 1999
---------------------- ----------------------
Pre-tax Pre-tax
Income Income
Revenue (loss) Revenue (loss)
-------- -------- -------- --------
Giga-tronics Instruments $ 5,224 $ 207 $ 4,415 $ 88
ASCOR 1,897 487 1,882 90
Microsource 4,033 14 3,268 (238)
DYMATIX 1,007 (234) 1,940 (27)
Corporate -- 252 -- 249
-------- -------- -------- --------
Total $ 12,161 $ 726 $ 11,505 $ 162
======== ======== ======== ========
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
The forward-looking statements included in this report including, without
limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects," "intends" and words of similar import, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
but not limited to those listed in the Giga-tronics' annual report on Form 10-K
for the fiscal year ended March 25, 2000 Part I, under the heading "Certain
factors which may adversely affect future operations or an investment in
Giga-tronics", as well as the discussion of "Management's Discussion and
Analysis of Financial Conditions and Results of Operations".
GENERAL
Giga-tronics designs, manufactures, and markets microwave and radio frequency
signal generation and power measurement instruments, switching devices, and YIG
tuned oscillators. These products are used in the development, test, and
maintenance of wireless communications products and systems, electronic defense
systems, and automatic testing systems (ATE). Giga-tronics also manufactures a
line of inspection and handling devices used in the production of semiconductor
devices.
THREE MONTHS ENDED JUNE 24, 2000 AND JUNE 26, 1999
Orders for the three month period were 55% higher ($6,093,000) than the
comparable period last year. Orders for the Instruments division were flat in
the first quarter of 2000 versus the prior year. Orders for ASCOR were 38%
($392,000) higher for the first quarter versus last year. Orders for Microsource
were 231% ($6,284,000) higher than the comparable quarter last year. DYMATIX
orders were 30% lower ($594,000) in the first three months ended June 24, 2000
versus the same period a year ago. Backlog at June 24, 2000 was $39,143,000
(about $28.9 million is expected to be shipped within one year) as compared to
$17,270,000 at June 26, 1999.
Net sales for the three month period ended June 24, 2000 increased 6% ($656,000)
compared with the same period last year. Sales for Microsource increased 23%
($765,000) primarily due to a strong backlog. Giga-tronics Instruments increased
sales by 18% ($809,000) primarily due to strong orders and backlog. ASCOR sales
were flat during the quarter. Sales for DYMATIX decreased 48% ($933,000) in the
quarter principally due to weak orders for the first quarter coupled with
delayed shipments.
Cost of Sales decreased 4% ($329,000) in the quarter ended June 24, 2000 from
the similar period a year ago. The decrease for the first quarter of fiscal 2000
is attributable to lower manufacturing material costs and manufacturing labor
for the products shipped during that quarter.
Operating expenses for the three month period increased 14% ($460,000) compared
with the prior year. Research and development expenses for the three month
period increased 34% ($296,000) compared with the prior year due to the
continuation of the new microwave synthesizer product development at the
Instruments division coupled with increased product development at Microsource.
Selling, general and administrative expenses increased 11% ($251,000) primarily
due to increased sales commissions. Amortization of intangibles decreased 58%
($87,000) as compared to the prior year. The decrease in the amortization of
intangibles is a result of lower amortization of patents and licenses.
Interest income for the three month period improved over the prior year due to
higher cash available for investment. The higher cash available is primarily due
to operating income during the period.
Earnings before income taxes for the three month period improved $525,000
compared to the same period last year. The change was primarily due to the
improvement in gross profit as described above.
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FINANCIAL CONDITION
Giga-tronics maintains a strong financial position, with working capital of
$22,336,000 and a ratio of current assets to current liabilities of 3.8 to 1.0
at June 24, 2000. Giga-tronics continues to fund all of its working capital
needs from cash provided by operations. Cash provided from operations, for the
three months ended June 24, 2000, was $1,509,000.
Cash and cash equivalents increased $1,179,000. Giga-tronics spent $288,000 on
new manufacturing and test equipment and other capital items. Giga-tronics
intends to continue to invest in capital items that support growth and new
product development, raise productivity and improve quality of its products.
Historically the Company has satisfied its cash needs internally for both
operating and capital expenditures, and management expects to continue to do
so for the foreseeable future.
Management believes that cash reserves and investments remain adequate to meet
anticipated operating needs. In addition, the Company has an unsecured revolving
line of credit loan for $7 million, none of which has been utilized. This line
of credit expires July 31, 2000. Upon expiration, the Company intends to renew
the line of credit. It is also the Company's intention to increase research and
development expenditures for the purpose of broadening its product base. From
time to time, the Company considers a variety of acquisition opportunities to
also broaden its product lines and expand its market. Such acquisition activity
could also increase the Company's operating expenses and require the additional
use of capital resources.
OUTLOOK
Giga-tronics outlook for 2001 is optimistic. Giga-tronics expects sales of
products in its Giga-tronics Instruments segment and it's Microsource segment to
improve in the upcoming year as new products come on line and the broadband
wireless market continues to grow.
FORWARD LOOKING STATEMENTS
Certain of the statements contained in this section of the report, including
statements regarding sales under "OUTLOOK" and statements under "FINANCIAL
CONDITION", are forward looking. While Giga-tronics believes that these
statements are accurate, Giga-tronics' business is dependent upon general
economic conditions and various conditions specific to the test and measurement,
wireless and semiconductor industries. Future trends and these factors could
cause actual results to differ materially from the forward looking statements
that we have made. In particular:
Giga-tronics has a significant number of defense-related orders. If the defense
market should decline, shipments in the current year could be less than
anticipated and cause a decrease in earnings. The Company's commercial product
backlog has a number of risks and uncertainties such as the cancellation or
deferral of orders, dispute over performance and our ability to collect amounts
due. If this occurs, then shipments in the current year could fall short of plan
resulting in a decline in earnings.
Microsource was requested by SpectraPoint Wireless LLC on June 28, 2000 to
suspend further performance on all SpectraPoint purchase orders for equipment
used in their LMDS systems. SpectraPoint informed Microsource that SpectraPoint
is undergoing an evaluation of the material and components required to fulfill
the needs of its current and future commitments to its customers. The purpose of
the suspension of work is to contain costs during that process, and applies to
all SpectraPoint suppliers. The suspended work represents approximately $2.3
million of the original $5.1 million order and is less than 10% of the
Microsource backlog. Failure to a timely resumption of this contract could have
an adverse impact on the Company's earnings during the next two quarters.
The market for electronics equipment is characterized by rapidly changing
technology and evolving industry standards. Giga-tronics believes that its
future success will depend in part upon its ability to develop and commercialize
its existing products and to develop new products and application and in part to
develop, manufacture and successfully introduce new products and product lines
with improved capabilities and to continue
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to enhance existing products. There can be no assurance that Giga-tronics will
successfully complete the development of current or future products or that such
products will achieve market acceptance.
As part of its business strategy, the Company intends to broaden its product
lines and expand its markets, in part through the acquisition of other business
entities. The Company acquired Microsource, Inc. in fiscal 1999 in a transaction
accounted for as a purchase. The Company is subject to various risks in
connection with these and any future acquisitions. Such risks include, among
other things, the difficulty of assimilating the operations and personnel of the
acquired companies, the potential disruption of the Company's business, the
inability of the Company's management to maximize the financial and strategic
position of the Company by the successful incorporation of acquired technology
and rights into the Company's product offerings, the maintenance of uniform
standards, controls, procedures and policies, and the potential loss of key
employees of acquired companies. No assurance can be given that any acquisition
by the Company will or will not occur, that if an acquisition does occur, that
it will not materially and adversely affect the Company or that any such
acquisition will be successful in enhancing the Company's business. The Company
currently contemplates that future acquisitions may involve the issuance of
additional shares of the Company's common stock. Any such issuance may result in
dilution to all shareholders of the Company, and sales of such shares in
significant volume by the shareholders of acquired companies may depress the
price of the Company's common stock.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this 10Q contain forward-looking statements
that involve risks and uncertainties. The actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed herein and in the Company's 2000 Report 10-K under "Item 1. Business"
and "Certain Factors Which May Affect Future Operation Or An Investment In
Giga-tronics" as filed with the Securities and Exchange Commission.
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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.
GIGA-TRONICS INCORPORATED
(Registrant)
Date: 07/18/00 /s/ GEORGE H. BRUNS, JR.
---------------- ---------------------------------------
George H. Bruns, Jr.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: 07/19/00 /s/ MARK H. COSMEZ II
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Mark H. Cosmez II
Vice President, Finance and
Chief Financial Officer
(Principal Accounting Officer)