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 September 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
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 October 10, 2000: 4,475,462
PAGE 2
GIGA-TRONICS INCORPORATED
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
ITEM 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2000
and March 25, 2000 (unaudited) ............................................... 3
Condensed Consolidated Statements of Operations, three and six months
ended September 30, 2000 and September 25, 1999 (unaudited)................... 4
Condensed Consolidated Statements of Cash Flows, six months
ended September 30, 2000 and September 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
TO 3 Not applicable
ITEM 4 Submission of Matters to a Vote of Security Holders........................... 12
ITEM 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..................................................................................... 13
PAGE 3
GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share data)
September 30, 2000 March 25, 2000
------------------ --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,718 $ 3,455
Trade accounts receivable, net of allowance 6,273 9,194
of $204 and $253, respectively
Inventories, net 14,960 14,692
Prepaid expenses 660 444
Deferred income taxes 3,597 3,570
------- -------
Total current assets 31,208 31,355
Property and Equipment:
Building and leasehold improvements 700 382
Machinery and equipment 14,806 14,673
Office furniture and fixtures 1,078 1,023
------- -------
Property and equipment, gross cost 16,584 16,078
Less accumulated depreciation and amortization 11,530 10,678
------- -------
Property and equipment, net cost 5,054 5,400
Patents and licenses 60 112
Goodwill, net 485 564
Other assets 92 95
------- -------
Total assets $36,899 $37,526
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 2,608 4,065
Accrued commissions 569 625
Accrued payroll and benefits 1,806 1,638
Accrued warranty 640 553
Customer advances 1,278 1,536
Current portion of capital lease and other long term 124 118
obligations
Other current liabilities 917 1,175
------- -------
Total current liabilities 7,942 9,710
Capital lease and other long term obligations, net 1,583 1,667
------- -------
Total liabilities 9,525 11,377
------- -------
Shareholders' Equity
Common stock of no par value; 12,081 11,921
Authorized 40,000,000 shares; 4,475,462 shares outstanding at
September 30, 2000 and 4,431,008 shares at March 25, 2000
Retained earnings 15,293 14,228
------- -------
Total shareholders' equity 27,374 26,149
------- -------
Total liabilities and shareholders' equity $36,899 $37,526
======= =======
See accompanying notes to unaudited condensed consolidated financial statements.
PAGE 4
GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
------------------ ----------------
Sept. 30, 2000 Sept. 25, 1999 Sept. 30, 2000 Sept. 25, 1999
-------------- -------------- -------------- --------------
Net sales $14,058 $11,834 $26,219 $23,339
Cost of sales 9,112 7,886 16,837 15,940
------- ------- ------- -------
Gross profit 4,946 3,948 9,382 7,399
Product development 1,390 1,038 2,556 1,908
Selling, general and administrative 2,840 2,450 5,386 4,745
Amortization of intangibles 68 150 131 300
------- ------- ------- -------
Operating expenses 4,298 3,638 8,073 6,953
Operating income 648 310 1,309 446
Other income 114 11 146 38
Interest income, net 36 3 69 2
------- ------- ------- -------
Earnings before income taxes 798 324 1,524 486
Provision for income taxes 241 97 459 147
------- ------- ------- -------
Net earnings $ 557 $ 227 $ 1,065 $ 339
======= ======= ======= =======
Earnings per common share - basic 0.12 0.05 0.24 0.08
======= ======= ======= =======
Earnings per common share - diluted 0.12 0.05 0.22 0.08
======= ======= ======= =======
Weighted average basic common shares
outstanding 4,460 4,368 4,449 4,365
------- ------- ------- -------
Weighted average diluted common
shares outstanding 4,796 4,483 4,806 4,436
------- ------- ------- -------
See accompanying notes to unaudited condensed consolidated financial statements.
PAGE 5
GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
Sept. 30,2000 Sept. 25, 1999
------------- --------------
Cash flows provided from operations:
Net earnings $ 1,065 $ 339
Adjustments to reconcile net earnings to net cash provided
by operations:
Depreciation and amortization 1,058 1,157
(Gain) / Loss on sale of fixed assets (21) 20
Deferred income taxes, net (19) (48)
Changes in operating assets and liabilities 663 (515)
------- -------
Net cash provided by operations 2,746 953
Cash flows from investing activities:
Additions to property and equipment (586) (492)
Proceeds from sale of equipment 26 ---
Other assets 3 10
------- -------
Net cash used in investing activities (557) (482)
Cash flows from financing activities:
Issuance of common stock 160 50
Proceeds on long term debt --- 3
Payments on capital lease and other long term obligations (86) (40)
------- -------
Net cash provided by financing activities 74 13
Increase in cash and cash equivalents 2,263 484
------- -------
Beginning cash and cash equivalents 3,455 2,686
Ending cash and cash equivalents $ 5,718 $ 3,170
======= =======
Supplementary disclosure of cash flow information:
(1) No cash was paid for interest in the six month periods ended
September 30, 2000 and September 25, 1999.
(2) Cash paid for income taxes in the six month period ended September
30, 2000 was $10,600. Cash paid for taxes in the six month period
ended September 25, 1999 was $5,500.
See accompanying notes to unaudited condensed consolidated financial statements.
PAGE 6
GIGA-TRONICS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by 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):
Sept. 30, 2000 March 25, 2000
-------------- --------------
Raw materials $ 8,006 $ 8,095
Work-in-process 5,667 5,746
Finished goods 543 294
Loaned Inventory 744 557
------- -------
Total inventory $14,960 $14,692
======= =======
During September 2000, the Company received a $1.6 million settlement in
connection with a contract cancellation by SpectraPoint Wireless, LLC
(SpectraPoint). The Company also wrote off certain SpectraPoint
inventory. The settlement and inventory write off have been included in
net sales and cost of sales, respectively, in the accompanying September
30, 2000 condensed consolidated statement of operation.
(3) Earnings Per Share
Basic earnings per share is calculated by dividing net income or loss 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 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. Antidilutive shares are not included in the computation of
diluted earnings per share, in accordance with SFAS No. 128 Earnings per
Share. The shares used in per share computations for the three and six
month periods ended September 30, 2000 and September 25, 1999 are as
follows (in thousands, except per share data):
PAGE 7
Three Months Ended Six Months Ended
------------------ -----------------
Sept. 30, 2000 Sept. 25, 1999 Sept. 30, 2000 Sept. 25, 1999
-------------- -------------- --------------- --------------
Net earnings $ 557 $ 227 $1,065 $ 339
====== ====== ====== ======
Weighted average:
Common shares outstanding 4,460 4,368 4,449 4,365
Dilutive potential common shares 336 115 357 71
------ ------ ------ ------
Common shares assuming dilution 4,796 4,483 4,806 4,436
====== ====== ====== ======
Net earnings per share of common stock $ 0.12 $ 0.05 $ 0.24 $ 0.08
====== ====== ====== ======
Net earnings per share of common stock
assuming dilution $ 0.12 $ 0.05 $ 0.22 $ 0.08
====== ====== ====== ======
Number of stock options not included in
the computation 48 49 31 78
====== ====== ====== ======
The number of stock options not included in the computation of diluted
EPS for the three and six month periods ended September 30, 2000 and
September 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 September 30, 2000 and
September 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.
PAGE 8
Information on reportable segments is as follows (in thousands):
Three Months Ended
-----------------------------------------------------------
Sept. 30, 2000 Sept. 25, 1999
------------------------ ------------------------
Pre-tax Pre-tax
Revenue Income (loss) Revenue Income (loss)
------- ------------- ------- -------------
Giga-tronics Instruments $ 6,069 $ 240 $ 4,471 $ 134
ASCOR 1,931 376 1,586 (128)
Microsource 4,071 (172) 3,929 59
DYMATIX 1,987 15 1,848 16
Corporate --- 339 --- 243
------- ------- ------- -------
Total $14,058 $ 798 $11,834 $ 324
======= ======= ======= =======
Six Months Ended
-----------------------------------------------------------
Sept. 30, 2000 Sept. 25, 1999
------------------------ ------------------------
Pre-tax Pre-tax
Revenue Income (loss) Revenue Income (loss)
------- ------------- ------- -------------
Giga-tronics Instruments $11,293 $ 447 $ 8,886 $ 222
ASCOR 3,828 863 3,468 (38)
Microsource 8,104 (158) 7,197 (179)
DYMATIX 2,994 (219) 3,788 (11)
Corporate --- 591 --- 492
------- ------- ------- -------
Total $26,219 $ 1,524 $23,339 $ 486
======= ======= ======= =======
PAGE 9
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 AND SIX MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 25, 1999
Total orders for the three month period were $15,119,000 or 11% lower
($1,805,000) than the comparable period last year. Orders for the Instruments
division were 55% ($2,512,000) higher in the second quarter versus the prior
year. Orders for ASCOR were 81% ($4,606,000) lower for the second quarter versus
last year. Orders for Microsource were equivalent to the orders for the
comparable quarter last year. The Semiconductor group orders were 20% higher
($290,000) in the three months ended September 30, 2000 versus the same period a
year ago. For all of the segments in aggregate, orders for the six months were
15% higher ($4,288,000) than the comparable period last year. Backlog at
September 30, 2000 was $40,204,000 (about $26.1 million is expected to be
shipped within one year) compared to $22,360,000 at September 25, 1999.
Net sales for the three and six month period ended September 30, 2000 increased
19% ($2,224,000) and 12% ($2,880,000), respectively, compared with the same
periods last year. Giga-tronics Instruments sales increased 36% ($1,598,000) for
the quarter and increased 27% ($2,407,000) for the six months ended September
30, 2000 in comparison to prior year, these increases are a result of strong
orders and backlog for the Instruments division. ASCOR increased sales during
the quarter 22% ($345,000) and for the six months increased 10% ($360,000) from
the respective periods of a year ago. Sales for Microsource increased 4%
($142,000) in the quarter and 13% ($907,000) for the six months ended September
30, 2000, these sales include the contract cancellation settlement from
SpectraPoint ($1,624,000). Sales for DYMATIX increased 8% ($139,000) in the
quarter and declined 21% ($794,000) for the six months.
Cost of Sales increased 16% ($1,226,000) in the quarter ended September 30, 2000
from the similar period a year ago. For the six months ended September 30, 2000,
cost of sales increased 6% ($897,000). 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 six month periods increased 18% ($660,000)
and 16% ($1,120,000), respectively, compared with the prior year. Product
development expenses for the three and six month periods increased 34%
($352,000) and ($648,000), respectively, compared with the prior year primarily
due to the increased product development at Microsource ($305,000) in the
quarter and ($444,000) for the six month period. Selling, general and
administrative expenses increased 16% ($391,000) for the three months ended
September 30, 2000 compared to the prior year. For the six months ended
September 30, 2000 selling, general and administrative expenses increased 14%
($641,000). These increases are primarily due to higher commission expenses
related to
PAGE 10
higher sales levels coupled with increased promotional expenses at the
Instruments division. Amortization of intangibles decreased 55% ($82,000) for
the three months and 56% ($169,000) for the six months 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 and six month periods improved over the prior year
due to higher levels of 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 and six month periods improved
$474,000 and $1,038,000 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
$23,266,000 and a ratio of current assets to current liabilities of 3.9 to 1.0
at September 30, 2000. The Company continues to fund all of its working capital
needs from cash provided by operations. Cash provided from operations, for the
six months ended September 30, 2000, was $2,746,000.
Cash and cash equivalents increased $2,263,000 for the six months ended
September 30, 2000. The Company spent $586,000 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 it's Microsource segment is
expected to improve in the upcoming year as the broadband wireless market
continues to grow, it's short term growth will be less than anticipated as there
are timing delays associated with setup and start up of recently booked orders
in this segment.
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. In addition, other risks that Giga-tronics
faces in running its
PAGE 11
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 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.
PAGE 12
Part II, Item 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(A.) Annual Meeting of stockholders was held on August 30, 2000.
(1) The vote for the nominated Directors was as follows:
Nominee In Favor Withheld
------- -------- --------
George H. Bruns, Jr. 3,923,239 167,149
James A. Cole 3,923,639 166,749
Robert C. Wilson 3,923,489 166,899
William E. Wilson 3,923,539 166,849
(2) Other matters voted upon at the meeting were as follows:
(a) Adoption of The 2000 Stock Option Plan was approved as follows:
No. of Votes on Proposal Percent of Votes Cast
------------------------ ---------------------
For 2,064,815 79.56%
Against 525,436 20.24%
Abstain 5,010 .20%
Quorum 2,595,261 100.00%
Broker non-voted Shares = 1,495,127
(b) Ratification of the selection of KPMG Peat Marwick LLP as
independent public accountants for the fiscal year 2000 was
approved as follows:
No. of Votes on Proposal Percent of Votes Cast
------------------------ ---------------------
For 4,082,463 99.81%
Against 970 0.02%
Abstain 6,955 0.17%
Quorum 4,090,388 100.00%
Broker non-voted Shares = 0
Outstanding shares on Record Date = 4,455,871
PAGE 13
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: 10/19/00 /s/GEORGE H. BRUNS, JR.
----------------------------------------
George H. Bruns, Jr.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: 10/19/00 /s/MARK H. COSMEZ II
----------------------------------------
Mark H. Cosmez II
Vice President, Finance and
Chief Financial Officer
(Principal Accounting Officer)
PAGE 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule