<PAGE> 1
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, 1999
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
------------------------------- ----------------
(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: 7,663,945 SHARES AS OF JANUARY 31, 2000
<PAGE> 2
CELERITEK, INC.
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
----
Item 1: Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets: 1
December 31, 1999 and March 31, 1999
Condensed Consolidated Statements of Operations: 2
Three and nine months ended December 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows: 3
Nine months ended December 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-14
Item 3: Quantitative and Qualitative Disclosures about Market
Risk 14
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE> 3
CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------- -------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,284 $ 1,729
Short-term investments 4,068 5,904
Accounts receivable, net 10,282 10,615
Inventories 12,175 11,376
Prepaid expenses, other current assets,
and Deferred tax assets 1,105 3,241
------- -------
Total current assets 29,914 32,865
Property and equipment, net 7,503 7,201
Other assets 146 144
------- -------
Total assets $37,563 $40,210
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 2,250 $ -
Current portion of long-term debt 778 1,611
Current obligations under capital leases 153 162
Accounts payable 5,611 4,217
Accrued payroll 1,737 1,400
Accrued liabilities 2,782 2,215
------- -------
Total current liabilities 13,311 9,605
Long-term debt, less current portion 278 -
Non-current obligations under capital leases 165 257
Shareholders' equity 23,809 30,348
------- -------
Total liabilities and shareholders' equity $37,563 $40,210
======= =======
</TABLE>
Note: The balance sheet at March 31, 1999 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,
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 11,822 $ 10,004 $ 32,741 $ 31,029
Cost of goods sold 10,806 8,207 28,582 27,862
-------- -------- -------- --------
Gross profit 1,016 1,797 4,159 3,167
Operating expenses:
Research and development 1,644 1,313 4,527 4,531
Selling, general and administrative 2,515 2,052 6,684 6,590
-------- -------- -------- --------
Total operating expenses 4,159 3,365 11,211 11,121
Loss from operations (3,143) (1,568) (7,052) (7,954)
Interest income (expense) and other, net 18 (26) 136 (63)
-------- -------- -------- --------
Loss before income tax (3,125) (1,594) (6,916) (8,017)
Benefit for income taxes 0 0 0 (2,441)
-------- -------- -------- --------
Net Loss ($ 3,125) ($ 1,594) ($ 6,916) ($ 5,576)
======== ======== ======== ========
Basic and diluted loss per share ($ 0.42) ($ 0.22) ($ 0.93) ($ 0.77)
======== ======== ======== ========
Weighted average common shares outstanding 7,464 7,270 7,424 7,239
</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,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($6,916) ($5,576)
Adjustment to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, amortization and other 2,089 2,358
Changes in operating assets and liabilities 3,968 694
------- -------
Net cash used in operating activities (859) (2,524)
INVESTING ACTIVITIES
Purchase of property and equipment (2,391) (2,065)
Decrease (increase) in other assets (2) (14)
Purchases of short-term investments (4,302) (5,000)
Sales of short-term investments 6,138 6,500
------- -------
Net cash used in investing activities (557) (579)
FINANCING ACTIVITIES
Payments under line of credit (750) -
Borrowings under line of credit 3,000 -
Payments on long-term debt (555) (222)
Borrowings on long-term debt - 1,000
Payments on obligations under capital leases (101) (56)
Proceeds from issuance of common stock 377 498
------- -------
Net cash provided by financing activities 1,971 1,220
Increase (decrease) in cash and cash equivalents 555 (1,883)
Cash and cash equivalents at beginning of period 1,729 4,022
------- -------
Cash and cash equivalents at end of period $ 2,284 $ 2,139
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes - $ 975
Interest 151 279
</TABLE>
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1999
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.
The Company's reporting period consisted of a fourteen-week period
ending on the Sunday closest to the calendar month end. The third
quarters of fiscal 2000 and fiscal 1999 ended January 2, 2000 and
December 27, 1998, respectively. For convenience, the accompanying
financial statements have been shown as ending on the last day of the
calendar month.
Operating results for the three months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the
fiscal year ended March 31, 2000. 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, 1999.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
(In Thousands)
<S> <C> <C>
Raw materials ............................. $ 3,045 $ 3,054
Work-in-process ........................... 9,130 8,322
------- -------
$12,175 $11,376
======= =======
</TABLE>
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3. LINES OF CREDIT
On October 25, 1999, the Company renewed its Master Loan Agreement (the
"Loan Agreement"), as amended, which will expire October 31, 2000. Under
the Loan Agreement, the Company has credit facilities, consisting of a
line of credit and letters of credit, of up to $6,000,000 available,
subject to a borrowing base test of the Company's accounts receivable.
As of the quarter ended December 31, 1999, the Company had $2,250,000
outstanding on the line of credit. The Loan Agreement has an interest
rate at the bank's reference rate (8.50% as of December 31, 1999) plus
.50%. Additionally, the Company has $725,000 in outstanding letters of
credit, leaving a balance of up to $3,025,000 available under the credit
facility as of December 31, 1999. On February 10, 2000, the Company
repaid the remaining outstanding balance under the line of credit.
Under the Loan Agreement, the Company has two term loans outstanding,
which expire in March and September 2001. The term loans bear interest
at the bank's reference rate plus 0.5%. As of December 31, 1999, the
Company had borrowings totaling $1,056,000 outstanding against the term
loans. Amounts outstanding under the Loan Agreement are secured by the
Company's assets. As part of the Loan Agreement, the Company is required
to maintain certain covenants. The covenants pertain to the maintenance
of certain financial ratios, liquidity levels, a minimum tangible net
worth and limits on the payment of dividends. On February 7, 2000, the
financial covenants under the Loan Agreement were amended. Absent the
amendments to the financial covenants, the Company would have been in
non-compliance with the financial covenants. Based on the amended
covenants currently in effect, the Company expects to be in compliance
with the amended covenants through March 31, 2001. The covenants will be
subject to renegotiation on the revolving maturity date of October 31,
2000.
4. EARNINGS PER SHARE
In accordance with the Statement of Financial Accounting Standards No.
128, "Earnings per Share," basic earnings (loss) per common share are
computed using the weighted average common shares outstanding during the
period. Diluted earnings per common share incorporates the incremental
shares issuable upon the assumed exercise of stock options when
dilutive.
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
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<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------------- --------------------------
BASIC 1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss) ......................... ($ 3,125) ($ 1,594) ($ 6,916) ($5,576)
======== ======== ======== =======
Weighted common shares outstanding ........ 7,464 7,270 7,424 7,239
======== ======== ======== =======
Basic earnings (loss) per common share .... ($ 0.42) ($ 0.22) ($ 0.93) ($ 0.77)
======== ======== ======== =======
DILUTED
Net income ................................ ($ 3,125) ($ 1,594) ($ 6,916) ($5,576)
======== ======== ======== =======
Weighted common shares outstanding ........ 7,464 7,270 7,424 7,239
Dilutive effect of stock options .......... - - - -
-------- -------- -------- -------
Weighted common shares outstanding,
assuming dilution ....................... 7,464 7,270 7,424 7,239
======== ======== ======== =======
Diluted earnings per common share ......... ($ 0.42) ($ 0.22) ($ 0.93) ($ 0.77)
======== ======== ======== =======
</TABLE>
5. COMPREHENSIVE INCOME
The Company had no Comprehensive Income items for the periods presented.
6. SUBSEQUENT EVENTS
Between February 4, 2000 and February 10, 2000, the Company issued 1.5
million shares of unregistered common stock to institutional investors
at a price of $18 per share, grossing $27 million. After deducting
commissions, fees, and expenses associated with the financing, the
Company's net proceeds from the financing was approximately $25 million.
The Company determined the sales price of $18 per share, based on the
approximate 45 day average closing price of the Company's common stock
prior to the purchase agreement. The Company has agreed to use its best
efforts to file a registration statement on Form S-3 (the "Registration
Statement") with the Securities and Exchange Commission within 15
business days following the Closing Date. In the event that the
Registration Statement is not declared effective within 120 days
following the Closing Date (the "Required Effective Date"), and the
cause of the delay is not related to circumstances beyond the Company's
control, the Company shall compensate the investors for the lack of
liquidity by paying to the investors an aggregate of $200,000 for each
trading day following the Required Effective Date during which the
Registration Statement is not effective, provided, however, that the
total of all such payments shall not exceed $6 million. Of the net
proceeds, $6 million is held in escrow
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pending the effectiveness of a From S-3 Registration Statement to be
filed with the Securities and Exchange Commission.
ITEM 2.
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 of
customer orders, achievement of designs, and 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 1999 COMPARED TO THIRD QUARTER OF
FISCAL 2000:
Total net sales increased 18% from $10.0 million for the third quarter
of fiscal 1999 to $11.8 million for the third quarter of fiscal 2000. Total net
sales to commercial customers increased 100% from $4.1 million for the third
quarter of fiscal 1999 to $8.2 million for the third quarter of fiscal 2000. The
increase in sales was the result of increased unit sales. Total net sales to
defense customers decreased 39% from $5.9 million in the third quarter of fiscal
1999 to $3.6 million for third quarter of fiscal 2000, the result of decreased
unit sales, and was as the Company had expected. See "Risks, Trends, and
Uncertainties - Potential Fluctuations in Quarterly Results."
Gross margin decreased from 18% of net sales in the third quarter of
fiscal 1999 to 9% of net sales in the third quarter of fiscal 2000. The decrease
in gross margin was primarily due to costs associated with the transfer to and
startup of off-shore contract manufacturing for commercial subsystem products,
the relocation of the subsystems products to accommodate the fab expansion, and
a change in product mix. See "Risks, Trends, and Uncertainties - Yields and the
High Degree of Fixed Costs in the Manufacturing Operation."
Research and development expenses increased 25% from $1.3 million, or
13% of net sales, in the third quarter of fiscal 1999 to $1.6 million, or 14% of
net sales, in the third quarter of fiscal 2000. The increase is due to increased
staffing. The company expects to continue a high level of research and
development expenditure. See "Risks, Trends, and Uncertainties - Dependence on
Key Personnel."
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Selling, general and administrative expenses increased from $2.1
million, or 21% of net sales, in the third quarter of fiscal 1999 to $2.5
million, or 21% of net sales, in the third quarter of fiscal 2000. The dollar
increase was primarily due to increased personnel and selling cost.
Interest income (expense) and other, net increased 169% from $26,000 of
interest expense in the third quarter of fiscal 1999 to $18,000 of interest
income in the third quarter of fiscal 2000. The increase in interest income
(expense) and other, net, was primarily due to a decrease in interest expense
from repayments of the Company's thirty-six month term loan.
RESULT OF OPERATIONS - FIRST NINE MONTHS OF FISCAL 1999 COMPARED TO FIRST NINE
MONTHS OF FISCAL 2000:
Total net sales increased 6% from $31.0 million for the first nine
months of fiscal 1999 to $32.7 million for the first nine months of fiscal 2000.
Total net sales to commercial customers increased 41% from $15.0 million for the
first nine months of fiscal 1999 to $21.2 million for the first nine months of
fiscal 2000 as the result of increased unit sales. Total net sales to defense
customers decreased 28% from $16.0 million in the first nine months of fiscal
1999 to $11.5 million for the first nine months of fiscal 2000, as the Company
had expected. See "Risks, Trends, and Uncertainties - Potential Fluctuations in
Quarterly Results."
Gross margin increased from 10% of net sales in the first nine months of
fiscal 1999 to 13% of net sales in the first nine months of fiscal 2000. The
lower gross margin in fiscal 1999 was primarily due to over-capacity in
manufacturing overhead which resulted from lower than 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 expense was consistent at $4.5 million in the
first nine months of both fiscal 1999 and 2000, or 15% and 14% of net sales, in
the first nine months of fiscal 1999 and 2000, respectively. Although research
and development expenses have increased quarter to quarter during fiscal 2000,
there were one time expenses related to setting up the Belfast design center in
Northern Ireland and certain consulting services during the first quarter of
fiscal 1999. See "Risks, Trends, and Uncertainties - Dependence on Key
Personnel."
Selling, general and administrative expenses increased from $6.6
million, or 21% of net sales, in the first nine months of fiscal 1999 to $6.7
million, or 20% of net sales, in the first nine months of fiscal 2000. The
increase was primarily due to increased selling costs.
Interest income (expense) and other, net increased 316% from $63,000 of
interest expense in the first nine months of fiscal 1999 to $136,000 of interest
income in the first six months of fiscal 2000. The increase in interest income
(expense) and other, net, was primarily due to a decrease in interest expense
from repayments of the Company's thirty-six month term loan.
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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 stock completed in December 1995 and January 1996,
which generated net proceeds of approximately $12.1 million.
On October 25, 1999, the Company renewed its Master Loan Agreement (the
"Loan Agreement"), as amended, which will expire October 31, 2000. Under the
Loan Agreement, the Company has credit facilities, consisting of a line of
credit and letters of credit, of up to $6,000,000 available, subject to a
borrowing base test of the Company's accounts receivable. As of the quarter
ended December 31, 1999, the Company had $2,250,000 outstanding on the line of
credit. The Loan Agreement has an interest rate at the bank's reference rate
(8.50% as of December 31, 1999) plus .50%. Additionally, the Company has
$725,000 in outstanding letters of credit, leaving a balance of up to $3,025,000
available under the credit facility as of December 31, 1999. On February 10,
2000, the Company repaid the remaining outstanding balance under the line of
credit.
Under the Loan Agreement, the Company has two term loans outstanding,
which expire in March and September 2001. The term loans bear interest at the
bank's reference rate plus 0.5%. As of December 31, 1999, the Company had
borrowings totaling $1,056,000 outstanding against the term loans. Amounts
outstanding under the Loan Agreement are secured by the Company's assets. As
part of the Loan Agreement, the Company is required to maintain certain
covenants. The covenants pertain to the maintenance of certain financial ratios,
liquidity levels, a minimum tangible net worth and limits on the payment of
dividends. On February 7, 2000, the financial covenants under the Loan Agreement
were amended. Absent the amendments to the financial covenants, the Company
would have been in non-compliance with the financial covenants. Based on the
amended covenants currently in effect, the Company expects to be in compliance
with the amended covenants through March 31, 2001. The covenants will be subject
to renegotiations on the revolving maturity date of October 31, 2000. The
Company's business, operating results and financial condition would be
materially adversely affected if the loan agreement were terminated.
As of December 31 1999, the Company had $2.3 million of cash and cash
equivalents, $4.0 million of short-term investments and $16.3 million of working
capital.
Between February 4, 2000 and February 10, 2000, the Company issued 1.5
million shares of unregistered common stock to institutional investors at a
price of $18 per share, grossing $27 million. After deducting commissions, fees,
and expenses associated with the financing, the Company's net proceeds from the
financing was approximately $25 million. The Company determined the sales price
of $18 per share, based on the approximate 45 day average closing price of the
Company's common stock prior to the purchase agreement. The Company has agreed
to use its best efforts to file a registration statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange
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Commission within 15 business days following the Closing Date. In the event that
the Registration Statement is not declared effective within 120 days following
the Closing Date (the "Required Effective Date"), and the cause of the delay is
not related to circumstances beyond the Company's control, the Company shall
compensate the investors for the lack of liquidity by paying to the investors an
aggregate of $200,000 for each trading day following the Required Effective Date
during which the Registration Statement is not effective, provided, however,
that the total of all such payments shall not exceed $6 million. Of the net
proceeds, $6 million is held in escrow pending the effectiveness of a From S-3
Registration Statement to be filed with the Securities and Exchange Commission.
The Company believes that the current capital resources combined with
cash generated from operations and borrowings available both from its line of
credit and available equipment leasing sources should be sufficient to meet its
liquidity and capital expenditure requirements through the next twelve months.
Should the Company's ability to borrow against its credit line or its ability to
lease capital equipment be limited, the Company's business, operating results
and financial condition would be materially adversely affected.
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.
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 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 product lines, the Company determined
that the products it has sold and will continue to sell do not require
remediation to be Year 2000 compliant. Accordingly, the Company determined that
it has no contingencies related to the Year 2000 issue for the products it has
sold.
The Company tested, modified and upgraded its software so that its
various computer systems would function properly and that the Year 2000 would
not pose significant operational problems for its computer systems. Documents
and internal communications from the Company's ERP system routinely display and
transact with the correct logic on date codes of the year 2000.
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The Company initiated communications with all of its suppliers. Over 500
companies have been surveyed, responses reviewed, and risk levels categorized.
Full assessment of supplier risk is complete. Those vendors that pose
significant risk to the Company's ability to produce and ship products have all
been reviewed and have certified that they are Y2K compliant. As a further
preventive step, the procurement management organization had intensively
reviewed vendor commitments prior to and immediately after January 1, 2000.
To date, the Company has experienced no significant Year 2000 related
problems. The cost of compliance monitoring and mitigation activities have not
been material.
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 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
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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.
Even though the Company has significant production 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 1999 and the nine months ended December 31, 1999
sales to the Company's top ten customers accounted for approximately 56% and 63%
of total net sales, respectively. In the nine months ended December 31, 1999 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.
Rapid Product Life Cycles. The life cycles of certain of the Company's
products are dependent on the life cycle of the end products that utilize the
Company's products. The life cycle of cellular and PCS telephones is expected to
be relatively short. The Company's business, operating results and financial
condition could be materially adversely affected by excess or obsolete inventory
levels if the expected demand for a product does not materialize.
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.
Dependence on Offshore Sub-Contractors. In addition, the Company
contracts with third party vendors in Asia to assemble and test certain of its
products to reduce manufacturing labor costs. Although the Company strives to
maintain more than one vendor for each manufacturing process or product, it is
not always possible due to volume and quality issues. To the extent that any of
the 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
Page 13
<PAGE> 16
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 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.
Government Regulations. The Company is subject to a variety of federal,
state and local laws, rules and regulations related to the discharge and
disposal of toxic, volatile and other hazardous chemicals used in its
manufacturing process. The failure to comply with present or future regulations
could result in fines being imposed on the Company, suspension of production or
a cessation of operations. Such regulations could require the Company to acquire
significant equipment or to incur substantial other expenses in order to comply
with environmental regulations. Any past or future failure by the Company to
control the use of or to restrict adequately the discharge of, hazardous
substances could subject the Company to future liabilities and could have a
material adverse effect on the Company's business, operating results and
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures about Market Risk, in the Registrant's Annual Report Form
10K for the year ended March 31, 1999.
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<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Number
27. Financial Statements included herein
B. No reports on Form 8-K were filed during the three months ended
December 31, 1999.
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<PAGE> 18
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 15, 2000 /s/ MARGARET E. SMITH
--------------------------
Margaret E. Smith, Vice President,
Chief Financial Officer and Assistant
Secretary
Page 16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
27. Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,284
<SECURITIES> 4,068
<RECEIVABLES> 10,282
<ALLOWANCES> 555
<INVENTORY> 12,175
<CURRENT-ASSETS> 29,914
<PP&E> 7,503
<DEPRECIATION> 22,668
<TOTAL-ASSETS> 37,563
<CURRENT-LIABILITIES> 13,311
<BONDS> 0
0
0
<COMMON> 26,026
<OTHER-SE> (3,032)
<TOTAL-LIABILITY-AND-EQUITY> 37,563
<SALES> 11,822
<TOTAL-REVENUES> 11,822
<CGS> 10,806
<TOTAL-COSTS> 10,806
<OTHER-EXPENSES> 4,159
<LOSS-PROVISION> 555
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (3,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,125)
<EPS-BASIC> (.42)
<EPS-DILUTED> (.42)
</TABLE>
