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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended DECEMBER 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
Commission file number 0-25560.
CELERITEK, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0057484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3236 SCOTT BLVD., SANTA CLARA, CA 95054
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(408) 986-5060
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: [X] Yes [ ] No
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE: 7,290,956 SHARES AS OF JANUARY 24, 1998
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CELERITEK, INC.
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C>
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets: 1
December 31, 1998 and March 31, 1998
Condensed Consolidated Statements of Operations: 2
Three and Nine months ended December 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows: 3
Nine months ended December 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 13
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
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CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,139 $ 4,022
Short-term investments 6,000 7,500
Accounts receivable, net 10,632 15,816
Inventories 11,569 10,635
Prepaid expenses and other current assets 2,722 415
Deferred tax assets 1,927 1,927
------- -------
Total current assets 34,989 40,315
Property and equipment, net 7,749 8,042
Other assets 105 91
------- -------
Total assets $42,843 $48,448
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 722 $ 333
Current obligations under capital leases 73 70
Accounts payable 4,370 4,491
Accrued payroll 1,269 1,570
Accrued liabilities 3,238 4,065
------- -------
Total current liabilities 9,672 10,529
Long-term debt, less current portion 1,056 667
Non-current obligations under capital leases 180 239
Shareholders' equity 31,935 37,013
------- -------
Total liabilities and shareholders' equity $42,843 $48,448
======= =======
</TABLE>
Note: The balance sheet at March 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total net sales $ 10,004 $ 14,412 $ 31,029 $ 40,536
Cost of goods sold 8,207 8,635 27,862 25,449
-------- -------- -------- --------
Gross profit 1,797 5,777 3,167 15,087
Operating expenses:
Research and development 1,313 1,549 4,531 4,027
Selling, general and administrative 2,052 2,438 6,590 6,323
-------- -------- -------- --------
Total operating expenses 3,365 3,987 11,121 10,350
Income (loss) from operations (1,568) 1,790 (7,954) 4,737
Interest income (expense) and other, net (26) 97 (63) 366
-------- -------- -------- --------
Income (loss) before income tax (1,594) 1,887 (8,017) 5,103
Provision (benefit) for income taxes 0 717 (2,441) 1,924
-------- -------- -------- --------
Net income (loss) ($ 1,594) $ 1,170 ($ 5,576) $ 3,179
======== ======== ======== ========
Basic earnings (loss) per share ($ 0.22) $ 0.16 ($ 0.77) $ 0.45
======== ======== ======== ========
Diluted earnings (loss) per share ($ 0.22) $ 0.16 ($ 0.77) $ 0.43
======== ======== ======== ========
Weighted average common shares outstanding 7,270 7,129 7,239 7,114
Common shares outstanding, assuming dilution 7,270 7,534 7,239 7,454
</TABLE>
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (5,576) $ 3,179
Adjustment to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, amortization and other 2,358 1,682
Changes in operating assets and liabilities 694 (7,999)
-------- --------
Net cash used in operating activities (2,524) (3,138)
INVESTING ACTIVITIES
Purchase of property and equipment (2,065) (3,027)
Decrease (increase) in other assets (14) (48)
Purchases of short-term investments (5,000) (10,180)
Sales of short-term investments 6,500 10,130
-------- --------
Net cash used in investing activities (579) (3,125)
FINANCING ACTIVITIES
Payments on long-term debt (222) --
Borrowings on long-term debt 1,000 1,000
Payments on obligations under capital leases (56) --
Proceeds from issuance of common stock 498 261
-------- --------
Net cash provided by financing activities 1,220 1,261
Increase (decrease) in cash and cash equivalents (1,883) (5,002)
Cash and cash equivalents at beginning of period 4,022 7,033
-------- --------
Cash and cash equivalents at end of period $ 2,139 $ 2,031
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $ 975 $ 1,575
Interest $ 279 $ 25
</TABLE>
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month period ended
December 31, 1998 are not necessarily indicative of the results that may
be expected for the year ended March 31, 1999. This financial
information should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1998.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ---------
(In Thousands)
<S> <C> <C>
Raw materials ........ $ 3,634 $ 3,405
Work-in-process ...... 7,935 7,230
------- -------
$11,569 $10,635
======= =======
</TABLE>
3. LINES OF CREDIT
The company has available two revolving lines of credit covered by a
Master Loan Agreement (the "Loan Agreement"), as amended, which expires
October 30, 1999. The first available line of credit is for $6,000,000
and will bear interest at the bank's reference rate (7.75% at December
31, 1998). The second line of credit has been converted to a term loan
of thirty-six months. Borrowings under the second line of credit and
term loan bear interest at the bank's reference rate plus 0.5%. As of
December 31, 1998, the Company had borrowings totaling $1,777,778 under
the second line of credit, outstanding as a term loan of thirty-six
months, and no borrowings under the first line of credit. The loan
agreement
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contains certain covenants, including among others, covenants to
maintain certain financial ratios, profitability and liquidity levels, a
minimum tangible net worth of $32,500,000 up to and including December
31, 1998 and $31,500,000 thereafter, and limits the payment of
dividends. Such credit facilities are secured by the Company's assets.
As of the December 31, 1998, the Company was not meeting its minimum
tangible net worth requirement. At this time, the Company does not
believe, based on discussions with its bank, that it is likely that the
loan agreement will be terminated; however, the Company's business,
operating results and financial condition would be materially adversely
affected if the loan agreement were to be terminated.
4. EARNINGS PER SHARE
In accordance with the Statement of Financial Accounting Standards No.
128, "Earnings per Share," basic earnings (loss) per common share is
computed using the weighted average common shares outstanding during the
period. Diluted earnings per common share incorporates the incremental
shares issuable upon the assumed exercise of stock options when
dilutive.
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------- ------------------------
BASIC 1998 1997 1998 1997
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net income (loss) $(1,594) $ 1,170 $(5,576) $3,179
======= ======= ======= ======
Weighted common shares outstanding 7,270 7,129 7,239 7,114
======= ======= ======= ======
Basic earnings (loss) per common share $(0.22) $ 0.16 $ (0.77) $ 0.45
======= ======= ======= ======
DILUTED
Net income $(1,594) $ 1,170 $(5,576) $3,179
======= ======= ======= ======
Weighted common shares outstanding 7,270 7,129 7,239 7,114
Dilutive effect of stock options -- 405 -- 340
------- ------- ------- ------
Weighted common shares outstanding,
assuming dilution 7,270 7,534. 7,239 7,454
======= ======= ======= ======
Diluted earnings per common share $ (0.22) $ 0.16 $ (0.77) $ 0.43
======= ======= ======= ======
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements
represent the Company's expectations or beliefs concerning future events and
include statements, among others, regarding the length and timing of delays, the
potential of the market sales volume and sales to significant customers and the
sufficiency of capital resources. Actual results could differ materially from
those projected in the forward-looking statements as a result of a variety of
factors, including those set forth under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Risks, Trends, and
Uncertainties," and elsewhere in this report.
RESULT OF OPERATIONS - THIRD QUARTER OF FISCAL 1998 COMPARED TO THIRD QUARTER OF
FISCAL 1999:
Total net sales decreased 31% from $14.4 million for the third quarter
of fiscal 1998 to $10.0 million for the third quarter of fiscal 1999. Total net
sales to commercial customers decreased 55% from $9.1 million for the third
quarter of fiscal 1998 to $4.1 million for the third quarter of fiscal 1999,
primarily as a result of delayed contracts by several subsystem customers. As
commented in earlier disclosures the Company has expected that the subsystems
market, particularly the microwave radio segment, would be experiencing slow
business conditions at least through the end of the fiscal year. Total net sales
to defense customers increased 11% from $5.3 million in the third quarter of
fiscal 1998 to $5.9 million for third quarter of fiscal 1999, as the Company had
expected. See "Risks, Trends, and Uncertainties - Potential Fluctuations in
Quarterly Results."
Gross margin decreased from 40% of net sales in the third quarter of
fiscal 1998 to 18% of net sales in the third quarter of fiscal 1999. The
decrease in gross margin was primarily due to over-capacity in labor and
manufacturing overhead to support higher production levels. See "Risks, Trends,
and Uncertainties - Yields and the High Degree of Fixed Costs in the
Manufacturing Operation."
Research and development expenses decreased 15% from $1.5 million, or
11% of net sales, in the third quarter of fiscal 1998 to $1.3 million, or 13% of
net sales, in the third quarter of fiscal 1998. The decrease, in part, reflects
cost reduction actions. The company continues to maintain a high level of
research and development expenditure. See "Risks, Trends, and Uncertainties -
Dependence on Key Personnel."
Selling, general and administrative expenses decreased from $2.4
million, or 17% of net sales, in the third quarter of fiscal 1998 to $2.1
million, or 21% of net sales, in the third quarter of fiscal 1999. The dollar
decrease was primarily due to costs associated with a potential acquisition that
was subsequently terminated in the third quarter fiscal 1998.
Interest income (expense) and other, net decreased 126% from $97,000 of
interest income in the third
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quarter of fiscal 1998 to $26,000 of interest expense in the third quarter of
fiscal 1999. The decreased in interest income was primarily due to lower average
cash balances as a result of cash being used for working capital. The increased
interest expense was due to equipment purchases financed through long-term debt.
RESULT OF OPERATIONS - FIRST NINE MONTHS OF FISCAL 1998 COMPARED TO FIRST NINE
MONTHS OF FISCAL 1999:
Total net sales decreased 23% from $40.5 million for the first nine
months of fiscal 1998 to $31.0 million for the first nine months of fiscal 1999.
Total net sales to commercial customers decreased 35% from $23.0 million for the
first nine months of fiscal 1998 to $15.0 million for the first nine months of
fiscal 1999, as a result of delayed contracts by several subsystem customers,
offset in part by higher semiconductor sales. As commented in earlier
disclosures the Company has expected that the subsystems market, particularly
the microwave radio segment, would be sluggish at least through the end of the
fiscal year. Total net sales to defense customers decreased 9% from $17.5
million in the first nine months of fiscal 1998 to $16.0 million for the first
nine months of fiscal 1999, as the Company had expected. See "Risks, Trends, and
Uncertainties - Potential Fluctuations in Quarterly Results."
Gross margin decreased from 37% of net sales in the first nine months of
fiscal 1998 to 10% of net sales in the first nine months of fiscal 1999. The
decrease in gross margin was due to over-capacity in manufacturing overhead
which resulted from lower that anticipated production levels and inventory
write-downs related to delayed or canceled contracts. See "Risks, Trends, and
Uncertainties - Yields and the High Degree of Fixed Costs in the Manufacturing
Operation."
Research and development expenses increased 13% from $4.0 million, or
10% of net sales, in the first nine months of fiscal 1998 to $4.5 million, or
15% of net sales, in the first nine months of fiscal 1999, reflecting the
Company's continuing investment in commercial product development. The increase
was primarily due to an increase in personnel and related expenses from the new
design center in Ireland. See "Risks, Trends, and Uncertainties - Dependence on
Key Personnel."
Selling, general and administrative expenses increased from $6.3
million, or 16% of net sales, in the first nine months of fiscal 1998 to $6.6
million, or 21.2% of net sales, in the first nine months of fiscal 1999. The
increase was due to higher general management costs.
Interest income (expense) and other, net decreased 117% from $366,000 of
interest income in the first nine months of fiscal 1998 to $63,000 of interest
expense in the first six months of fiscal 1999. The decreased in interest income
was primarily due to lower average cash balances as a result of cash being used
for working capital. The increased interest expense was due to equipment
purchases financed through long-term debt .
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash
flows from operations and sales of equity securities including the initial
public offering of common
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stock completed in December 1995 and January 1996, which generated net proceeds
of approximately $12.1 million.
During the quarter ended December 31, 1998, the Company's cash position
and working capital positions remained essentially unchanged from the prior
quarter.
The company has available two revolving lines of credit covered by a
Master Loan Agreement (the "Loan Agreement"), as amended, which expires October
30, 1999. The first available line of credit is for $6,000,000 and will bear
interest at the bank's reference rate (7.75% at December 31, 1998). The second
line of credit has been converted to a term loan of thirty-six months.
Borrowings under the second line of credit and term loan bear interest at the
bank's reference rate plus 0.5%. As of December 31, 1998 the Company had
borrowings totaling $1,777,778 under the second line of credit, outstanding as a
term loan of thirty-six months, and no borrowings under the first line of
credit. The loan agreement contains certain covenants, including among others,
covenants to maintain certain financial ratios, profitability and liquidity
levels, a minimum tangible net worth of $32,500,000 up to and including December
31, 1998 and $31,500,000 thereafter, and limits the payment of dividends. Such
credit facilities are secured by the Company's assets. As of the December 31,
1998, the Company was not meeting its minimum tangible net worth requirement. At
this time, the Company does not believe, based on discussions with its bank,
that it is likely that the loan agreement will be terminated. The Company's
business, operating results and financial condition would be materially
adversely affected if the loan agreement were to be terminated.
As of December 31, 1998, the Company had $2.1 million of cash and cash
equivalents, $6.0 million of short-term investments and $25.4 million of working
capital. The Company believes that the current capital resources combined with
cash generated from operations and borrowings available from its lines of credit
will be sufficient to meet its liquidity and capital expenditure requirements at
least through calendar 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued a
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income." This statement established requirements for disclosure of
comprehensive income and becomes effective for the company for its fiscal year
1999, with reclassification of earlier financial statements for comparative
purposes. Comprehensive income generally represents all changes in stockholders'
equity except those resulting from investments or contributions by stockholders.
SFAS 130 requires unrealized gains or losses on the Company" available-for-sale
securities, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income. The Company has adopted
SFAS 130, however, the effects of the adoption were immaterial to all periods
presented.
IMPACT OF YEAR 2000
The following statements are a "Year 2000 readiness disclosure" within
the meaning of the Year 2000 Information and Readiness Disclosure Act.
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Many currently installed computer systems and software products are
coded to accept only two-digit entries in date code fields. Beginning in the
year 2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips and have not been upgraded to comply with such "Year 2000" requirements
may recognize a date using "00" as the year 1900 rather that the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on a review of the Company's computer systems, the Company has
determined that it will be required to modify or replace significant portions of
its software so that those systems will properly utilize dates beyond December
31, 1999. The Company presently believes that with modifications or replacements
of existing software through its maintenance contracts with third party vendors,
such Year 2000 issues can be mitigated. However, if such modifications or
replacements are not made, or are not completed timely, or modifications or
replacements to software or hardware of the Company's vendors, suppliers,
financial institutions, and service providers are not made, or are not completed
timely, the Year 2000 issue could have a material adverse impact on the
operations of the Company.
Based on a review of the Company's product lines, the Company has
determined that the products it has sold and will continue to sell do not
require remediation to be Year 2000 compliant. Accordingly, the Company does not
believe that the Year 2000 issue presents a material exposure as it relates to
the Company's products.
To date, the Company has upgraded its major business systems to be Year
2000 compliant. The Company is currently in the process of assessing and testing
the equipment and software used to assemble and test its products to ensure
their Year 2000 compliance. The Company does not have any significant systems
that interface directly with third parties.
In addition, the Company is gathering information about the Year 2000
compliance status of its significant suppliers and subcontractors. To date, the
Company is not aware of any external agent with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that external agents
will be Year 2000 compliant. The inability of external agents to complete their
Year 2000 compliance process in a timely fashion, could materially impact the
Company. The effect of non-compliance by external agents is not determinable.
The Company has determined that the costs associated with its Year 2000
compliance program are not material. The software upgrades are included with the
software maintenance contracts with third party vendors. To date, the Company
has not identified any hardware that needs to be upgraded or replaced to
mitigate the Year 2000 issue.
The Company believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all
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necessary phases of the Year 2000 program. In the event that the Company does
not complete such modifications or replacements are not made, or are not
completed timely, or modifications or replacements to software or hardware of
the Company's vendors, suppliers, financial institutions, and service providers
are not made, or are not completed timely, or in the event that coding errors or
other defects are not discovered in a timely fashion, the Year 2000 issue could
have a material adverse impact on the operations of the Company.
The Company currently has no contingency plans in place in the event it
does not complete such modifications or replacements are not made, or are not
completed timely, or modifications or replacements to software or hardware of
the Company's vendors, suppliers, financial institutions, and service providers
are not made, or are not completed timely. The Company has evaluated the status
of completion of its plans in December 1998 and has determined such a plan is
not necessary at this time. The Company plans to re-evaluated the status of
completion of its plans in March 1999 and determine whether such a plan is
necessary.
RISKS, TRENDS, AND UNCERTAINTIES
The following risk factors should be carefully reviewed in addition to the other
information contained in this Quarterly Report on Form 10-Q.
Potential Fluctuations in Quarterly Results. The Company's quarterly
results have fluctuated in the past, and may continue to fluctuate in the
future, due to a number of factors, including: the timing, cancellation or delay
of customer orders; the mix of products sold; changes in manufacturing capacity
and variations in the utilization of this capacity; the timing of new product
introductions by the Company or its competitors; the long sales cycle associated
with the Company's application-specific products; market acceptance of the
Company's and its customers' products; variations in average selling prices of
semiconductors; variations in manufacturing yields; changes in inventory levels
and other competitive factors. Any unfavorable changes in the factors listed
above or others could have a material adverse effect on the Company's business,
operating results and financial condition. For example, during fiscal 1999, a
number of contracts were either terminated or delayed by both commercial and
defense customers and revenues declined substantially. There can be no assurance
that additional contracts will not be cancelled or delayed or that customers
will ever reinstate orders under contracts which have been delayed. There can be
no assurance that the Company will be able to maintain quarterly profitability
in the future. See "Risks, Trends, and Uncertainties - Dependence on Limited
Number of OEM Customers."
Continued Penetration of Commercial Markets; New Product Introductions.
The Company's ability to grow will depend substantially on its ability to
continue to apply its radio frequency ("RF") and microwave signal processing
expertise and GaAs semiconductor technologies to existing and emerging
commercial wireless communications markets. If the Company is unable to design,
manufacture and market
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new products for existing or emerging commercial markets successfully, its
business, operating results and financial condition will be materially adversely
affected. Furthermore, if the markets for the Company's products in the
commercial wireless communications area fail to grow, or grow more slowly than
anticipated, the Company's business, operating results and financial condition
could be materially adversely affected.
Yields and the High Degree of Fixed Costs in the Manufacturing
Operation. The Company has in the past and may in the future experience
significant delays in product shipments due to lower than expected production
yields, and there can be no assurance that the Company will not experience
problems in maintaining acceptable yields in the future. The Company's
manufacturing yields vary significantly among products, depending on a given
product's complexity and the Company's experience in manufacturing the product.
To the extent that the Company does not maintain acceptable yields, its
business, operating results, and financial condition could be materially
adversely affected. In addition, the Company's fixed costs, which consist
primarily of investments in manufacturing equipment, repair, maintenance, and
depreciation costs of such equipment and fixed labor costs related to
manufacturing and process engineering, are high and during periods of decreased
demand, such as during fiscal 1999, the high fixed costs could have a material
adverse effect on the Company's business, operating results, and financial
condition.
In addition, the Company has completed its new facility to house its
wireless subsystems manufacturing operations and has begun manufacturing
operations in the new facility during the third quarter of fiscal 1998. Even
though the Company has increased overall capacity, there can be no assurance
that the Company will be successful in its efforts to generate orders to utilize
the additional capacity, or that net sales and gross margin will increase.
Dependence on a Limited Number of OEM Customers. A relatively limited
number of OEM customers historically have accounted for a substantial portion of
the Company's sales. In fiscal 1998 and the nine months ended December 31, 1998,
sales to the Company's top ten customers accounted for approximately 63% and 62%
of total net sales, respectively. In the nine months ended December 31, 1998, no
one customer accounted for more than 10% of total net sales. The Company expects
that sales of its products to a limited number of OEM customers will continue to
account for a high percentage of its sales for the foreseeable future, although
sales to any single customer are subject to significant variability from quarter
to quarter. Such fluctuations or a complete loss of one or more of these
customers, could have a material adverse effect on the Company's business,
operating results and financial condition.
No Assurance of Product Performance and Reliability. The Company's
customers establish demanding specifications for performance and reliability.
There can be no assurance that problems will not occur in the future with
respect to performance and reliability of the Company's products. If such
problems occur, the Company could experience increased costs, delays in or
reductions, cancellations or rescheduling of orders and shipments, product
returns and discounts, and product redesigns, any of which would have a material
adverse effect on the Company's business, operating results and financial
condition.
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Rapid Technological Change. The markets in which the Company competes
are characterized by rapidly changing technologies, evolving industry standards
and continuous improvements in products and services. There can be no assurance
that the Company will be able to respond to technological advances, changes in
customer requirements or changes in regulatory requirements or industry
standards, and any significant delays in the development, introduction or
shipment of products could have a material adverse effect on the Company's
business, operating results and financial condition.
Competition. The markets in which the Company competes are intensely
competitive and the Company expects competition to increase. Most of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company and
have achieved market acceptance of their existing technologies. The ability of
the Company to compete successfully depends upon a number of factors, including
the rate at which customers incorporate the Company's products into their
systems, product quality and performance, price, experienced sales and marketing
personnel, rapid development of new products and features, evolving industry
standards and the number and nature of the Company's competitors. There can be
no assurance that the Company will be able to compete successfully in the
future, which would have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Key Suppliers. Certain components used by the Company in
its existing products are only available from single sources, and certain other
components are presently available or acquired only from a limited number of
suppliers. In the event that its single source suppliers are unable to fulfill
the Company's requirements in a timely manner, the Company may experience an
interruption in production until alternative sources of supply can be obtained,
which could damage customer relationships or have a material adverse effect on
the Company's business, operating results and financial condition.
In addition, the Company contracts with a third party vendor in Asia to
assemble certain of its subsystem division components to reduce manufacturing
labor costs. Additionally, the Company contracts with several third party
vendors in Asia to assemble its GaAs chips into integrated circuit packages.
Although the Company strives to maintain more than one vendor for each assembly
process, it is not always possible due to volume and quality issues. To the
extent that any of the assembly vendors are not able to provide a sufficient
level of service with an acceptable quality level, the Company could have
difficulty meeting its delivery commitments which could materially adversely
impact the Company's financial, operating and financial results
Dependence on Key Personnel. The Company's future success depends in
significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. In particular, the Company in the
past has experienced difficulty attracting and retaining qualified engineers and
thin-film microwave technicians. Competition for these kinds of experienced
personnel is intense, and there can be no assurance that the Company can retain
its key technical and managerial employees or that
Page 12
<PAGE> 15
it can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. The failure to attract, assimilate or retain
key personnel could have a material adverse effect on the Company's business,
operating results and financial condition.
Page 13
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
27.1 Financial Data Schedule
</TABLE>
No reports on Form 8-K were filed during the three months ended December 31,
1998.
Page 14
<PAGE> 17
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.
Celeritek, Inc.
(Registrant)
Date: February 12, 1999 /s/ P. MICHAEL HOULIHAN
-----------------------------------------
P. Michael Houlihan, Vice President,
Chief Financial Officer and Assistant
Secretary
Page 15
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,139
<SECURITIES> 6,000
<RECEIVABLES> 10,632
<ALLOWANCES> 636
<INVENTORY> 11,569
<CURRENT-ASSETS> 34,989
<PP&E> 7,749
<DEPRECIATION> 19,993
<TOTAL-ASSETS> 42,843
<CURRENT-LIABILITIES> 9,672
<BONDS> 0
0
0
<COMMON> 24,711
<OTHER-SE> 7,225
<TOTAL-LIABILITY-AND-EQUITY> 42,843
<SALES> 10,004
<TOTAL-REVENUES> 10,004
<CGS> 8,207
<TOTAL-COSTS> 8,207
<OTHER-EXPENSES> 3,365
<LOSS-PROVISION> 636
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (1,594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,594)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,594)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
