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 June 30, 2001, 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
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State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4650 Norris Canyon Road, San Ramon, CA 94583
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(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 27, 2001: 4,574,194
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GIGA-TRONICS INCORPORATED
INDEX
PART I - FINANCIAL INFORMATION Page No.
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ITEM 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2001
and March 31, 2001 (unaudited)..................................................................3
Condensed Consolidated Statements of Operations, three months
ended June 30, 2001 and June 24, 2000 (unaudited)...............................................4
Condensed Consolidated Statements of Cash Flows, three months
ended June 30, 2001 and June 24, 2000 (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
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ITEM 1 Legal Proceedings
As of July 27, 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
(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)
- -------------------------------------------------------------------------------------------------------------
(In thousands except share data) June 30, 2001 March 31, 2001
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ASSETS
Current assets
Cash and cash equivalents $ 3,197 $ 3,469
Trade accounts receivable, net of allowance 6,566 7,767
of $254 and $262 respectively
Inventories, net 15,048 15,185
Prepaid expenses 954 549
Deferred income taxes 3,590 3,560
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TOTAL CURRENT ASSETS 29,355 30,530
Property and equipment
Leasehold improvements 398 398
Machinery and equipment 16,232 16,123
Office furniture and fixtures 1,153 1,142
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Property and equipment, gross cost 17,783 17,663
Less accumulated depreciation and amortization 12,598 12,357
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PROPERTY AND EQUIPMENT, NET 5,185 5,306
PATENTS AND LICENSES 32 36
GOODWILL, NET 298 339
OTHER ASSETS 1,303 1,232
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TOTAL ASSETS $ 36,173 $ 37,443
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,084 $ 3,347
Accrued commissions 330 435
Accrued payroll and benefits 1,382 1,687
Accrued warranty 793 732
Customer advances 633 690
Obligation under capital lease 146 167
Other current liabilities 495 548
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TOTAL CURRENT LIABILITIES 6,863 7,606
OBLIGATIONS UNDER CAPITAL LEASE, NET OF CURRENT PORTION 94 115
DEFERRED INCOME TAXES 796 796
DEFERRED RENT 443 451
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TOTAL LIABILITIES 8,196 8,968
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SHAREHOLDERS' EQUITY
Preferred stock of no par value
Authorized 1,000,000 shares; no shares outstanding
at June 30, 2001 and March 31, 2001 - -
Common stock of no par value;
Authorized 40,000,000 shares; 4,573,694 shares at
June 30, 2001 and 4,542,694 shares at
March 31, 2001 issued and outstanding 12,414 12,346
Retained earnings 15,563 16,129
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TOTAL SHAREHOLDERS' EQUITY 27,977 28,475
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,173 $ 37,443
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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
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June 30, 2001 June 24, 2000
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NET SALES $ 11,797 $ 13,637
Cost of sales 8,471 8,674
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GROSS PROFIT 3,326 4,963
Product development 1,769 1,166
Selling, general and administrative 2,518 2,546
Amortization of intangibles 45 63
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Operating expenses 4,332 3,775
OPERATING (LOSS) INCOME (1,006) 1,188
Other income 44 32
Interest income, net 19 33
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(LOSS) EARNINGS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (943) 1,253
(Benefit) provision for income taxes (377) 376
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(LOSS) EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (566) 877
Cumulative effect of accounting change --- 520
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NET (LOSS) EARNINGS $ (566) $ 357
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Basic net (loss) earnings per share:
Before cumulative effect of accounting change $ (0.12) $ 0.20
Cumulative effect of accounting change (0.12)
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Basic net (loss) earnings per share $ (0.12) $ 0.08
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Diluted net (loss) earnings per share:
Before cumulative effect of accounting change $ (0.12) $ 0.18
Cumulative effect of accounting change --- (0.11)
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Diluted net (loss) earnings per share $ (0.12) $ 0.07
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Weighted average basic common shares outstanding 4,565 4,437
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Weighted average diluted common shares outstanding 4,565 4,817
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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
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June 30, 2001 June 24, 2000
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Cash flows provided from operations:
Net (loss) earnings $ (566) $ 357
Adjustments to reconcile net (loss) earnings to net cash provided by
operations:
Depreciation and amortization 532 511
Gain on sale of equipment (1) (3)
Deferred income taxes, net (30) (84)
Changes in operating assets and liabilities 220 149
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Net cash provided by operations 155 930
Cash flows from investing activities
Additions to property and equipment (386) (291)
Proceeds from sale of equipment 12 3
Other assets (71) 559
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Net cash (used in) provided by investing activities (445) 271
Cash flows from financing activities:
Issuance of common stock 68 21
Payments on capital lease and other long term obligations (50) (43)
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Net cash provided by (used in) financing activities 18 (22)
(Decrease) increase in cash and cash equivalents (272) 1,179
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Beginning cash and cash equivalents 3,469 3,455
Ending cash and cash equivalents $ 3,197 $ 4,634
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Supplementary disclosure of cash flow information:
(1) No cash was paid for interest in the three month periods ended June 30,
2001 and June 24, 2000.
(2) Cash paid for income taxes in the three month period ended June 30,
2001 was $23. Cash paid for income taxes in the three month period
ended June 24, 2000 was $14.
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
30, 2001 and March 31, 2001 and the condensed consolidated statements
of operations, and cash flows for the three months ended June 30, 2001
and June 24, 2000 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 30, 2001 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
31, 2001.
(2) Inventories
Inventories consist of the following (in thousands):
June 30, 2001 March 31, 2001
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Raw materials $ 8,970 $ 8,432
Work-in-process 4,106 4,833
Finished goods 1,110 1,020
Loaned Inventory 862 900
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Total inventory $15,048 $15,185
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(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 30, 2001 and June 24,
2000 are as follows:
Three Months Ended
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June 30, 2001 June 24, 2000
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Net (loss) earnings $ (566) $ 357
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Weighted average:
Common shares outstanding 4,565 4,437
Dilutive potential common shares --- 380
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Common shares assuming dilution 4,565 4,817
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Number of stock options excluded in the computation 560 ---
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All stock options outstanding were excluded from the computation of
diluted EPS for the three month period ended June 30, 2001 because the
company experienced a loss from continuing operations and the options
are, therefore, antidilutive.
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Stock options excluded from the computation of diluted EPS for the
three month period ended June 24, 2000 reflects stock options where the
exercise prices were greater than the average market price of the
common shares and the options are, therefore, antidilutive.
(4) 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.
Information on reportable segments is as follows (in thousands):
Three Months Ended
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June 30, 2001 June 24, 2000
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Pre-tax Pre-tax
Net Sales Income (loss) Net Sales Income (loss)
-------------- ------------- ------------- ---------------
Giga-tronics Instruments $ 6,734 $ (83) $ 5,224 $ 207
ASCOR 1,080 (18) 1,897 487
Microsource 2,440 (983) 4,033 14
DYMATIX 1,543 (169) 2,483 293
Corporate --- 310 --- 252
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Total $ 11,797 $ (943) $ 13,637 $ 1,253
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(5) Revenue Recognition
Revenues are recognized when there is evidence of an arrangement,
delivery has occurred, the price is fixed and determinable, and
collectibility is reasonably assured. Revenue to customers is recorded
when products are shipped and the risk of loss has passed. Upon
shipment, the Company also provides for the estimated cost that may be
incurred for product warranties. Revenue related to products shipped
subject to customers' evaluation is recognized upon final acceptance.
During the fourth quarter of fiscal 2001, the Company adopted Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements, effective March 26, 2000. Prior to the adoption of SAB 101,
the Company recognized revenue on sales with final customer acceptance
upon delivery and provided for the estimated costs of installation
obligations at the time the revenue was recognized. The Company
recorded a cumulative effect adjustment in the first quarter of fiscal
2001 related to this change in accounting of $520,000, net of income
taxes. The adoption of SAB 101 resulted in the deferral of $2,165,000
in sales as of the beginning of the 2001 fiscal year, and subsequent
recognition of the deferred sales during the year.
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(6) Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations, and Statement No. 142,
Goodwill and Other Intangible Assets. Statement 141 requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. Statement 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead
tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated
prior to July 1, 2001, which it expects to account for using the
pooling-of-interest method and Statement 142 effective January 1, 2002.
The Company has not yet determined the impact the adoption of
Statements 141 and 142 will have on its financial position or results
of operations.
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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 31, 2001 Part I, under the heading "Certain
factors which may adversely affect future operations or an investment in
Giga-tronics", and "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 30, 2001 AND JUNE 24, 2000
Orders for the three month period were $11,839,000 versus $17,176,000 for the
same period a year ago. Due to the softness in the wireless industry, our orders
were 31% lower ($5,337,000) than the comparable period last year. Orders for the
Instruments division were 36% lower ($1,893,000) in the first quarter of 2002
versus the prior year. Orders for ASCOR were 62% ($893,000) lower for the first
quarter versus last year. Orders for Microsource were 35% ($3,158,000) lower
than the comparable quarter last year. DYMATIX orders were 43% higher ($607,000)
in the first three months ended June 30, 2001 versus the same period a year ago.
Backlog at June 30, 2001 was $40,006,000 (about $21.8 million is expected to be
shipped within one year) as compared to $39,832,000 (about $29.6 million
expected to be shipped within one year) on June 24, 2000.
Net sales for the three month period ended June 30, 2001 decreased 14%
($1,840,000) compared with the same period last year. Sales for Microsource
decreased 40% ($1,593,000) primarily due to timing delays in delivery on some of
their products. Giga-tronics Instruments increased sales by 29% ($1,510,000)
primarily due to strong backlog. Sales at ASCOR decreased by 43% ($817,000)
during the quarter due to weak orders. Sales for DYMATIX decreased 38%
($940,000) in the quarter because of the SAB 101 adjustment of an additional
$1,476,000 of sales booked in the same period a year ago. Without the SAB 101
adjustment, sales at DYMATIX would have increased 53% ($536,000) due to strong
order growth.
Cost of Sales decreased slightly in the quarter ended June 30, 2001 from the
similar period a year ago. The decrease in the first quarter of fiscal 2002 was
attributable to the 14% decline in sales and was offset by higher manufacturing
material costs and manufacturing labor for the products shipped during that
quarter.
Operating expenses for the three month period increased 15% ($557,000) compared
with the prior year. Research and development expenses for the three month
period increased 52% ($603,000) compared with the prior year due to increased
new product development at DYMATIX and the Instruments division, as well as
increased YIG product development costs at Microsource. Selling, general and
administrative expenses were down 1% ($28,000) compared with the same period a
year ago due to lower commission expense of $177,000 partially offset by an
increase in marketing expenses of about $149,000. Amortization of intangibles
decreased 29% ($18,000) as compared to the prior year. The decrease in the
amortization of intangibles is a result of lower amortization of patents and
licenses.
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Interest income for the three month period decreased from the prior year due to
less cash available for investment. The lower cash available is primarily due to
additional cash used by operations during the period.
Earnings before income taxes for the three month period decreased $2,196,000
compared to the same period last year. The change was primarily due to lower
revenues and higher research and development costs.
FINANCIAL CONDITION
Giga-tronics had working capital of $22,492,000 and a ratio of current assets to
current liabilities of 4.3 to 1.0 at June 30, 2001. 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 30, 2001, was
$155,000.
Cash and cash equivalents decreased $272,000. Giga-tronics spent $374,000 on new
manufacturing and test equipment and other capital items. Giga-tronics intends
to continue investing in capital items that support growth, new product
development, raise productivity and improve the 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 for $7 million, none of which has been utilized. This line of
credit expires July 31, 2001. The Company is currently negotiating a renewal or
replacement of this line. 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
With the broad softening in the Wireless industry, Giga-tronics' outlook for
2002 is cautious. Giga-tronics is uncertain of the duration of the current
economic downturn in the markets we serve. However, Giga-tronics will continue
to invest in new product development in order to expand our product line and
update our existing line with additional features. While its Microsource segment
is expected to improve in the current year, its short-term growth will be less
than previously anticipated as there are timing delays associated with currently
booked orders.
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 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.
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, develop new products and applications and
in part to develop, manufacture
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and successfully introduce new products and product lines with improved
capabilities and continue enhancing 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.
Giga-tronics may also experience difficulty obtaining critical parts or
components required in the manufacturing of our products, resulting in our
inability to fulfill orders in a timely manner which may have a negative impact
on our earnings. Also, the company may not timely ramp manufacturing capacity to
meet order demand and quickly adapt cost structures to changing market
conditions.
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 form 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 2001 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: 07/27/01 /s/ GEORGE H. BRUNS, JR.
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George H. Bruns, Jr.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: 07/27/01 /s/ MARK H. COSMEZ II
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Mark H. Cosmez II
Vice President, Finance and
Chief Financial Officer
(Principal Accounting Officer)