1
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 December 30, 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
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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
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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 January 18, 2001: 4,491,962
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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 December 30, 2000
and March 25, 2000 (unaudited) ...............................................3
Condensed Consolidated Statements of Operations, three and nine months
ended December 30, 2000 and December 25, 1999 (unaudited).....................4
Condensed Consolidated Statements of Cash Flows, nine months
ended December 30, 2000 and December 25, 1999 (unaudited).....................5
Notes to Unaudited Condensed Consolidated Financial Statements................6
ITEM 2 Management's Discussion and Analysis of
Operations and Financial Condition............................................9
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
As of January 22, 2001, 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 TO 5 Not applicable
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
SIGNATURES....................................................................................12
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GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share data)
December 30, March 25,
2000 2000
------------ ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,547 $ 3,455
Trade accounts receivable, net of allowance
of $205 and $253, respectively 7,424 9,194
Inventories, net 16,129 14,692
Prepaid expenses 532 444
Deferred income taxes 3,597 3,570
-------- --------
Total current assets 31,229 31,355
Property and Equipment:
Building and leasehold improvements 434 382
Machinery and equipment 15,429 14,673
Office furniture and fixtures 1,131 1,023
-------- --------
Property and equipment, gross cost 16,994 16,078
Less accumulated depreciation and amortization 11,877 10,678
-------- --------
Property and equipment, net cost 5,117 5,400
Patents and licenses 41 112
Goodwill, net 447 564
Other assets 91 95
-------- --------
Total assets $ 36,925 $ 37,526
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 3,147 4,065
Accrued commissions 588 625
Accrued payroll and benefits 1,512 1,638
Accrued warranty 688 553
Customer advances 800 1,536
Current portion of capital lease and other long term obligations 117 118
Other current liabilities 743 1,175
-------- --------
Total current liabilities 7,595 9,710
Capital lease and other long term obligations, net 1,556 1,667
-------- --------
Total liabilities 9,151 11,377
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Shareholders' Equity
Common stock of no par value; 12,118 11,921
Authorized 40,000,000 shares; 4,491,962 shares outstanding at
December 30, 2000 and 4,431,008 shares at March 25, 2000
Retained earnings 15,656 14,228
-------- --------
Total shareholders' equity 27,774 26,149
-------- --------
Total liabilities and shareholders' equity $ 36,925 $ 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 Nine Months Ended
---------------------- ----------------------
Dec. 30, Dec. 25, Dec. 30, Dec. 25,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $ 11,810 $ 11,314 $ 38,029 $ 34,653
Cost of sales 7,544 7,324 24,381 23,264
-------- -------- -------- --------
Gross profit 4,266 3,990 13,648 11,389
Product development 1,128 1,071 3,683 2,979
Selling, general and administrative 2,696 2,392 8,083 7,137
Amortization of intangibles 59 105 190 405
-------- -------- -------- --------
Operating expenses 3,883 3,568 11,956 10,521
Operating income 383 422 1,692 868
Other income 41 16 187 54
Interest income, net 96 22 165 24
-------- -------- -------- --------
Earnings before income taxes 520 460 2,044 946
Provision for income taxes 157 138 616 285
-------- -------- -------- --------
Net earnings $ 363 $ 322 $ 1,428 $ 661
======== ======== ======== ========
Earnings per common share - basic 0.08 0.07 0.32 0.15
======== ======== ======== ========
Earnings per common share - diluted 0.08 0.07 0.30 0.15
======== ======== ======== ========
Weighted average basic common shares
outstanding 4,488 4,383 4,462 4,371
-------- -------- -------- --------
Weighted average diluted common
shares outstanding 4,777 4,611 4,799 4,509
-------- -------- -------- --------
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)
Nine Months Ended
-----------------------
Dec. 30, Dec. 25,
2000 1999
-------- --------
Cash flows provided from operations:
Net earnings $ 1,428 $ 661
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and amortization 1,585 1,601
(Gain) / Loss on sale of fixed assets (20) 20
Deferred income taxes, net (19) (48)
Changes in operating assets and liabilities (1,871) 1,089
-------- --------
Net cash provided by operations 1,103 3,323
Cash flows from investing activities:
Additions to property and equipment (1,118) (864)
Proceeds from sale of equipment 26 --
Other assets 4 25
-------- --------
Net cash used in investing activities (1,088) (839)
Cash flows from financing activities:
Issuance of common stock 197 50
Proceeds on long term debt -- 2
Payments on capital lease and other long term obligations (120) (57)
-------- --------
Net cash provided by (used in) financing activities 77 (5)
Increase in cash and cash equivalents 92 2,479
-------- --------
Beginning cash and cash equivalents 3,455 2,686
Ending cash and cash equivalents $ 3,547 $ 5,165
======== ========
Supplementary disclosure of cash flow information:
(1) No cash was paid for interest in the nine month periods ended December
30, 2000 and December 25, 1999.
(2) Cash paid for income taxes in the nine month period ended December 30,
2000 was $443,400. Cash paid for income taxes in the nine month period
ended December 25, 1999 was $5,500.
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 financial statements included herein have been prepared by
Giga-tronics (the "Company"), pursuant to the rules and regulations of
the Securities and Exchange Commission. The results of operations for
the interim periods shown in this report are not necessarily indicative
of results to be expected for the fiscal year. In the opinion of
management, the information contained herein reflects all adjustments
necessary to make the results of operations for the interim periods a
fair statement of such operations. 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):
Dec. 30, March 25,
2000 2000
-------- ---------
Raw materials $ 8,429 $ 8,095
Work-in-process 6,115 5,746
Finished goods 621 294
Loaned inventory 964 557
-------- --------
Total inventory $ 16,129 $ 14,692
======== ========
(3) Earnings Per Share
Basic earnings per share is calculated by dividing net income by
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 addition, certain options are considered
antidilutive because the options' exercise price is above the average
market price during the period. Antidilutive shares are not included in
the computation of diluted earnings per share, in accordance with the
Statement of Financial Accounting Standards (SFAS) No. 128 Earnings per
Share. The earnings per share and shares used in the computations for
the three and nine month periods ended December 30, 2000 and December
25, 1999 are summarized as follows (in thousands, except per share
data):
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Three Months Ended Nine Months Ended
-------------------- --------------------
Dec. 30, Dec. 25, Dec. 30, Dec. 25,
2000 1999 2000 1999
-------- -------- -------- --------
Net earnings $ 363 $ 322 $1,428 $ 661
====== ====== ====== ======
Weighted average:
Common shares outstanding 4,488 4,383 4,462 4,371
Dilutive potential common shares 289 228 337 138
------ ------ ------ ------
Common shares assuming dilution 4,777 4,611 4,799 4,509
====== ====== ====== ======
Net earnings per share of common stock $ 0.08 $ 0.07 $ 0.32 $ 0.15
====== ====== ====== ======
Net earnings per share of common stock
assuming dilution $ 0.08 $ 0.07 $ 0.30 $ 0.15
====== ====== ====== ======
Number of stock options not included in
the computation 68 25 37 47
====== ====== ====== ======
The number of stock options not included in the computation of diluted
EPS for the three and nine month periods ended December 30, 2000 and
December 25, 1999 reflects stock options where the exercise prices were
greater than the average market price of the common shares and were
therefore antidilutive.
(4) Comprehensive Income
The Company has no components of other comprehensive income. As such,
net income equals comprehensive income for December 30, 2000 and
December 25, 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
Instruments 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.
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Information on reportable segments is as follows (in thousands):
Three Months Ended
-------------------------------------------------------
Dec. 30, 2000 Dec. 25, 1999
------------------------- --------------------------
Pre-tax Pre-tax
Revenue Income (loss) Revenue Income (loss)
------- ------------- ------- -------------
Giga-tronics Instruments $ 6,249 $ 151 $ 4,676 $ 99
ASCOR 2,145 482 1,239 (218)
Microsource 1,801 (556) 3,694 198
DYMATIX 1,615 (21) 1,705 163
Corporate -- 464 -- 218
-------- -------- -------- --------
Total $ 11,810 $ 520 $ 11,314 $ 460
======== ======== ======== ========
Nine Months Ended
-------------------------------------------------------
Dec. 30, 2000 Dec. 25, 1999
------------------------- --------------------------
Pre-tax Pre-tax
Revenue Income (loss) Revenue Income (loss)
------- ------------- ------- -------------
Giga-tronics Instruments $ 17,542 $ 598 $ 13,562 $ 321
ASCOR 5,973 1,345 4,707 (256)
Microsource 9,905 (714) 10,891 19
DYMATIX 4,609 (240) 5,493 152
Corporate -- 1,055 -- 710
-------- -------- -------- --------
Total $ 38,029 $ 2,044 $ 34,653 $ 946
======== ======== ======== ========
(6) Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives)
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. For a
derivative not designated as a hedging instrument, changes in the fair
value of the derivative are recognized in earnings in the period of
change. The Company must adopt SFAS No. 133 in the first quarter of
fiscal 2002. Management does not believe the adoption of SFAS No. 133
will have a material effect on the financial position or operations of
the Company.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101. SAB 101 presents certain of the
SEC's staff views on applying generally accepted accounting principles
for revenue recognition in financial statements. In June 2000, the SEC
issued SAB No. 101B, to defer the date of SAB 101 for registrants until
no later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. The Company is required to adopt SAB 101 in the
fourth quarter of its fiscal year ending March 31, 2001. Accordingly,
any shipments previously reported as revenue, including revenue reported
in the first three fiscal quarters of fiscal 2001, that do not meet SAB
101's guidance will be reported as revenue in future periods. Changes in
the Company's revenue recognition policy resulting from the
interpretation of SAB 101 would not involve restatement of prior fiscal
year statements, but would, to the extent applicable, be reported as a
change in accounting principle in the fiscal year ending March 31, 2001,
with appropriate restatement of interim periods as required by SFAS No.
3 "reporting Accounting Changes in Interim Financial Statements." The
Company anticipates that the adoption of SAB 101 will result in a
cumulative adjustment to reduce net income in the current year by
approximately $845,000, net of tax. Had the Company accounted for
revenue in accordance with SAB 101 in the nine month period ended
December 30, 2000, revenue and net income, net of tax, would have
increased by $942,000 and $377,000, respectively.
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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 "Business"
and "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 AND NINE MONTHS ENDED DECEMBER 30, 2000 AND DECEMBER 25, 1999
Total orders for the three month period were $13,418,000 or 17% higher
($1,953,000) than the comparable period last year. Orders for the Instruments
division were 12% ($950,000) higher in the third quarter versus the prior year.
Orders for ASCOR were 38% ($381,000) higher for the third quarter versus last
year. Orders for Microsource were 22% ($440,000) lower than the comparable
quarter last year. DYMATIX orders were 144% ($1,062,000) higher in the three
months ended December 30, 2000 versus the same period a year ago. For all of the
segments in aggregate, orders for the nine month period were 16% higher
($6,241,000) than the comparable period last year. Backlog at December 30, 2000
was $41,812,000 (of which approximately $31.3 million is expected to be shipped
within one year) compared to $22,511,000 at December 25, 1999.
Net sales for the three and nine month period ended December 30, 2000 increased
4% ($496,000) and 10% ($3,376,000), respectively, compared with the same periods
last year. Giga-tronics Instruments sales increased 34% ($1,573,000) for the
quarter and increased 29% ($3,980,000) for the nine months ended December 30,
2000 in comparison to the prior year. These increases are a result of strong
orders and backlog for the Instruments division. ASCOR increased sales during
the quarter 73% ($906,000) and for the nine months increased 27% ($1,266,000)
from the respective periods of a year ago. Sales for Microsource decreased 51%
($1,893,000) in the quarter and 9% ($986,000) for the nine months ended December
30, 2000. This decline is a result of the contract cancellation from
SpectraPoint without any offsetting shipments from the new business orders
recorded in the first and second quarters. Sales for DYMATIX decreased 5%
($90,000) in the quarter and declined 16% ($884,000) for the nine months.
Cost of Sales increased 3% ($220,000) in the quarter ended December 30, 2000
from the similar period a year ago. For the nine months ended December 30, 2000,
cost of sales increased 5% ($1,117,000). These increases are attributable to
higher sales coupled with higher manufacturing material costs and manufacturing
labor for the products shipped, and the write off of certain inventory related
to the SpectraPoint contract cancellation.
Operating expenses for the three and nine month periods increased 9% ($315,000)
and 14% ($1,435,000), respectively, compared with the prior year. Product
development expenses for the three and nine month periods increased 5% ($57,000)
and 24% ($704,000), respectively, compared with the prior year. The nine month
increase is primarily due to the increased product development at Microsource
($457,000). Selling, general and administrative expenses increased 13%
($304,000) for the three months ended December 30, 2000 compared to the prior
year. For the nine months ended December 30, 2000 selling, general and
administrative expenses increased
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13% ($946,000). These increases are primarily due to higher commission expenses
related to higher sales levels coupled with increased promotional expenses at
the Instruments division. Amortization of intangibles decreased 44% ($46,000)
for the three months and 53% ($215,000) for the nine months as compared to the
prior year. The decrease in the amortization of intangibles is a result of lower
amortization of patents and licenses as a result of fully amortized patents and
licenses.
Interest income for the three and nine month periods improved over the prior
year due to higher levels of cash available for investment.
Earnings before income taxes for the three month and nine month periods
increased $60,000 and $1,098,000 compared to the same period last year. The
change was primarily due to the improvement in gross profit offset by increased
expenses as described above.
FINANCIAL CONDITION
The Company maintains a strong financial position, with working capital of
$23,634,000 and a ratio of current assets to current liabilities of 4.1 to 1.0
at December 30, 2000. The Company continues to fund all of its working capital
needs from cash provided by operations. Cash provided from operations, for the
nine months ended December 30, 2000, was $1,103,000.
Cash and cash equivalents increased $92,000 for the nine months ended December
30, 2000. The Company spent $1,118,000 on new manufacturing and test equipment
and other capital items. The Company will continue to invest in capital items
that support growth and new product development, raise productivity and improve
quality. 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 dollars, none of which has been utilized. 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 to improve along with the
growing broadband wireless market especially with the initial shipments of the
new Microwave Synthesizer (Model 12000). While its Microsource segment is
expected to improve in the upcoming year as the broadband wireless market
continues to grow, its short term growth will be less than previously
anticipated as there are timing delays associated with setup and start up of
recently booked orders in this segment.
FORWARD-LOOKING STATEMENTS
Certain 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
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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. In addition, other risks that Giga-tronics faces in running its
operations include: shortages of critical parts; timely ability to ramp
manufacturing capacity to meet order demand and the ability to quickly adapt
cost structures to changing conditions.
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 applications and in part
to develop, manufacture and successfully introduce new products and product
lines with improved capabilities and to continue 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 10-Q 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 on Form 10-K under "Item 1.
Business" and "Certain Factors Which May Affect Future Operations 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: January 22, 2001 /s/ GEORGE H. BRUNS, JR.
---------------- ------------------------------------
George H. Bruns, Jr.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: January 22, 2001 /s/ MARK H. COSMEZ II
---------------- ------------------------------------
Mark H. Cosmez II
Vice President, Finance and
Chief Financial Officer
(Principal Accounting Officer)