Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
GIG > SEC Filings for GIG > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for GIGOPTIX, INC.

Form 10-Q for GIGOPTIX, INC.


13-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes included elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2011. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2011 and this Quarterly Report on Form 10-Q. We assume no obligation to update the forward-looking statements or such risk factors.

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference include forward-looking statements within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are also made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Overview

We are a leading supplier of high performance semiconductor and electro-optical component products that enable end-to-end high-speed data information streaming over the global communications networks using optical fiber, wireless telecommunications and the data-communications infrastructure. Our products convert signals between electrical and optical formats for transmitting and receiving data over fiber optic networks and between electrical and high speed radio frequencies to enable transmitting and receiving of data over wireless networks for short range through long haul distances. Our strategy is to apply our core technical expertise in optical, electro-optical and high speed analog technology to develop products that address high growth product and market opportunities.

We are creating innovations in both optical telecommunications and data-communications applications for fast growing markets in 10Gbps, 40Gbps, 100Gbps and 400Gbps drivers, receivers, and electro-optic modulator components and multi-chip-modules (MCM) as well as E-Band wireless components and MCMs for high speed mobile backhaul point-to-point systems. We believe that our expertise in high speed and high frequency analog and mixed-signal semiconductor design and electro-optical technologies has helped us create a broad portfolio of products that addresses customer demand for performance at higher speeds, over wider temperature ranges, in smaller sizes, with lower power consumption and lower cost compared to other products currently available in the market.

The following sets forth our significant corporate and product milestones:

In April 2007 Newco LLC was formed and received funding in May 2007.

In July, 2007, Newco was named "GigOptix LLC" and acquired the assets of iTerra Communications LLC, a privately held company headquartered in Palo Alto, CA, USA.

In January 2008, GigOptix LLC acquired Helix Semiconductors AG, a privately held company headquartered in Zurich, Switzerland.

In March 2008, GigOptix, Inc. was formed to facilitate the acquisition of Lumera Corporation, a NASDAQ listed company headquartered in Bothell, WA, USA. The combined company began trading on the OTCBB under the symbol "GGOX" in December 2008, upon completion of the merger.

In November 2009 GigOptix, Inc. acquired ChipX, a privately held company headquartered in Santa Clara, CA, USA.

In June 2011, GigOptix, Inc. acquired Endwave Corporation, a NASDAQ listed company headquartered in San Jose, CA, USA.

On April 25, 2012, GigOptix, Inc. began trading on the NYSE MKT exchange under the symbol "GIG."

In June 2012, GigOptix, Inc. acquired the SiGe-based E-Band product licenses from IBM, Inc.

We have incurred net losses since inception. For the three months ended September 30, 2012, we had positive cash flow from operations. For the nine months ended September 30, 2012 and the year ended December 31, 2011 we incurred net losses of $4.9 million and $14.1 million, respectively, and cash outflows from operations of $1.3 million and $4.9 million, respectively. As of September 30, 2012 and December 31, 2011, we had an accumulated deficit of $92.4 million and $87.5 million, respectively.


Table of Contents

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board ("FASB") issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. We adopted this standard in the first quarter of 2012 and it did not have a material impact on our condensed consolidated financial statements.

In June 2011, the FASB issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. We adopted this standard in the first quarter of 2012 and it did not have a material impact on our condensed consolidated financial statements.

In September 2011, the FASB issued a revised accounting standard, which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this standard in the first quarter of 2012 and it did not have a material impact on our condensed consolidated financial statements.

In July 2012, the FASB issued an accounting standards update which allows an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. An entity is not required to determine the fair value of the indefinite-lived intangible unless the entity determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. This standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements.

Results of Operations

Revenue

Revenue for the periods reported was as follows (in thousands, except
percentages):

                                                            Three months ended                               Nine months ended
                                                 September 30, 2012        October 2, 2011        September 30, 2012        October 2, 2011
Total revenue                                   $              10,054     $           8,363     $               28,793     $          23,644
Increase period over period                     $               1,691                           $                5,149
Percentage increase, period over period                            20 %                                             22 %

Total revenue primarily consists of product revenue from the sale of our optical, wireless components and application specific integrated circuits
("ASIC") products. Product revenue includes non-recurring engineering ("NRE")
revenue for engineering and design work for certain customers as well as government contracts. NRE revenue for customers is generally recorded on a percentage of completion basis, using project hours as the basis to measure progress toward completing the engagement and recognizing revenue. The costs incurred under these development projects are expensed as incurred and generally are included in research and development expense.

Revenue for the three months ended September 30, 2012 was $10.1 million, an increase of $1.7 million, or 20%, compared with $8.4 million for the three months ended October 2, 2011. The increase in revenue was primarily due to increased sales of our high speed 40Gbps and 100Gbps optical components and RF/MMIC product lines.

Revenue for the nine months ended September 30, 2012 was $28.8 million, an increase of $5.1 million, or 22%, compared with $23.6 million for the nine months ended October 2, 2011. The increase in revenue was primarily due to increased sales of our high speed 40Gbps and 100Gbps optical components partially offset by a decrease in revenue from the legacy Endwave products.


Table of Contents

Gross Profit and Cost of Revenue

Cost of revenue and gross profit for the periods presented was as follows (in
thousands, except percentages):

                                                                Three months ended
                              September 30, 2012                   October 2, 2011
                           Amount                              Amount                            Change
                            (in                % of             (in              % of             (in               %
                         thousands)          Revenue         thousands)        Revenue         thousands)         Change

Total cost of revenue   $      4,853                 48 %   $      3,709               44 %   $      1,144               31 %
Gross profit            $      5,201                 52 %   $      4,654               56 %   $        547               12 %

                                                                 Nine months ended
                              September 30, 2012                   October 2, 2011
                           Amount                              Amount                            Change
                            (in                % of             (in              % of             (in
                         thousands)          Revenue         thousands)        Revenue         thousands)        % Change

Total cost of revenue   $     13,568                 47 %   $     11,338               48 %   $      2,230               20 %
Gross profit            $     15,225                 53 %   $     12,306               52 %   $      2,919               24 %

Gross profit consists of revenue less cost of revenue. Cost of revenue consists primarily of the costs to manufacture saleable chips, including outsourced wafer fabrication and testing; costs of direct materials; equipment depreciation; costs associated with procurement, production control, quality assurance and manufacturing engineering; fees paid to our offshore manufacturing vendors; reserves for potential excess or obsolete material; costs related to stock-based compensation; accrued costs associated with potential warranty returns; impairment of long-lived assets and amortization of certain identified intangible assets. Amortization expense of identified intangible assets, namely existing technology, is presented within cost of revenue, as the intangible assets were determined to be directly attributable to revenue generating activities.

Gross profit for the three months ended September 30, 2012 was $5.2 million, or 52% of revenue, compared to $4.7 million, or 56% of revenue for the three months ended October 2, 2011. The decrease in gross margin is primarily due to a change in product mix to lower margin ASIC products. We expect our gross margin as a percentage of revenue to be similar in the fourth quarter of 2012 compared to what we experienced in the third quarter of 2012.

Gross profit for the nine months ended September 30, 2012 was $15.2 million compared to $12.3 million for the nine months ended October 2, 2011. The moderate increase in gross margin is primarily due to increased absorption of our costs resulting from increased revenue.

Research and Development Expense

Research and development expense for the periods presented was as follows (in
thousands, except percentages):

                                                                 Three months ended                               Nine months ended
                                                      September 30, 2012        October 2, 2011       September 30, 2012        October 2, 2011
Research and development expense                     $              3,395      $           3,633     $              10,223     $           9,097
Percentage of revenue                                                  34 %                   43 %                      36 %                  38 %
Increase (decrease), period over period              $               (238 )                          $               1,126
Percentage (decrease) increase, period over period                     -7 %                                             12 %

Research and development expense consists primarily of salaries and related expenses for research and development personnel, consulting and engineering design, non-capitalized tools and equipment, engineering related semiconductor masks, depreciation for equipment, engineering expenses paid to outside technology development suppliers, allocated facilities costs and expenses related to stock based compensation.


Table of Contents

Research and development expense for the three months ended September 30, 2012 was $3.4 million compared to $3.6 million for the three months ended October 2, 2011, a decrease of $238,000 or 7%. The decrease was primarily due to a $253,000 decrease in project related expenses which were partially offset by a $32,000 increase in stock-based compensation. We expect research and development expense to be flat from the third quarter of 2012 to the fourth quarter of 2012.

Research and development expense for the nine months ended September 30, 2012 was $10.2 million compared to $9.1 million for the nine months ended October 2, 2011, an increase of $1.1 million or 12%. The nine month increase was primarily due to a $1.0 million increase in personnel related expenses and a $420,000 increase in stock-based compensation related expenses which were partially offset by a $608,000 decrease in project related expenses.

Selling, General and Administrative Expense

Selling, general and administrative expense for the periods presented was as
follows (in thousands, except percentages):

                                                             Three months ended                              Nine months ended
                                                  September 30, 2012        October 2, 2011       September 30, 2012       October 2, 2011
Selling, general and administrative expense      $              2,816      $           2,769     $              8,775     $           8,091
Percentage of revenue                                              28 %                   33 %                     30 %                  34 %
Increase period over period                      $                 47                            $                684
Percentage increase, period over period                             2 %                                             8 %

Selling, general and administrative expense consists primarily of salaries and related expenses for executive, accounting, finance and administration personnel, professional fees, allocated facilities costs and expenses related to stock-based compensation.

Selling, general and administrative expense for the three months ended September 30, 2012 was comparable to the three months ended October 2, 2011. Selling, general and administrative expense increased in absolute dollars compared to the third quarter of 2011 primarily due to a $330,000 increase in stock-based compensation expenses which were offset by a $293,000 decrease in professional fees. We expect selling, general and administrative expense in the fourth quarter of 2012 to be consistent in absolute dollars with the third quarter of 2012.

Selling, general and administrative expense for the nine months ended September 30, 2012 was $8.8 million compared to $8.1 million for the nine months ended October 2, 2011, an increase of $684,000 or 8%. The nine month increase was primarily due to an $802,000 increase in stock-based compensation related expenses.

Restructuring Expense, Net

During the three months ended September 30, 2012, we did not incur any restructuring expense.

For the nine months ended September 30, 2012, we recorded restructuring expense of $93,000 that was the result of a $207,000 restructuring charge incurred during the three months ended April 1, 2012 to reduce our expenses offset by a benefit of $114,000 incurred during the three months ended July 1, 2012. The components of the restructuring charge included severance, benefits, payroll taxes, expenses associated with the acceleration of stock options and other costs associated with employee terminations. The components of the restructuring income included a $74,000 benefit from the sublet of our Palo Alto facility, as we were able to sublet the property at a higher lease rate than we originally estimated, and a $40,000 benefit due to lower than anticipated restructuring charges related to the Endwave merger.

During the three months ended October 2, 2011, we recorded restructuring expense of $769,000 which was primarily due to costs associated with vacating previous headquarters facilities in Palo Alto, California, for which we have facilities lease obligations through December 2013.

For the nine months ended October 2, 2011, we recorded restructuring expense of $3.8 million that was the result of the $769,000 noted above, as well as $3.1 million which represented certain restructuring expenses incurred and booked by Endwave in anticipation of the acquisition and prior to the close of the transaction. Of the total $3.1 million of restructuring expense incurred by Endwave prior to the close of the transaction, $2.1 million remained in restructuring liabilities at the close of the merger and $1.0 million had been paid out prior to the close of the transaction. Of the total $3.1 million, $2.8 million included severance, benefits, payroll taxes, expenses associated with the acceleration of stock options and other costs associated with employee terminations and $290,000 included facilities related expenses.

Merger-related Expense

During the three and nine months ended October 2, 2011, we incurred $74,000 and $2.0 million of expenses in connection with our June 2011 acquisition of Endwave Corporation. The amounts primarily include employee retention compensation in connection with the completion of the merger and attorney, accounting and investment banking fees.


Table of Contents

Special Litigation-Related Expense

During the three and nine months ended September 30, 2012, we recorded special litigation-related expense of $576,000 and $929,000, respectively. During the three and nine months ended October 2, 2011, we recorded special litigation-related expense of $255,000 and $275,000, respectively. The litigation was related to costs associated primarily with the litigation against M/A-Com Technology Solution, Inc. (Optomai).

Shareholder Settlement Expense

On April 8, 2011, GigOptix and the trustees for the DBSI Estate Litigation Trust and the DBSI Liquidating Trust (together "DBSI") reached agreement to settle a claim by DBSI against GigOptix. As part of the settlement, GigOptix issued warrants to DBSI for 1 million shares of common stock. During the three months ended October 2, 2011, we recognized $1.1 million of expense in connection with the issuance of these warrants.

Interest Expense, Net and Other Income (Expense), Net

                                                    Three months ended                                Nine months ended
                                        September 30, 2012          October 2, 2011       September 30, 2012         October 2, 2011
Interest expense, net                  $                 (38 )     $             (97 )   $                (231 )     $           (240 )
Other income (expense), net                              183                    (131 )                     240                    (61 )
Total                                  $                 145       $            (228 )   $                   9       $           (301 )

Interest expense, net and other income (expense), net consist primarily of gains and losses related to foreign currency transactions, gains and gains related for property and equipment disposals, interest on capital leases and amortization of loan fees in connection with our Silicon Valley Bank line of credit and loan.

Interest expense, net for the three months ended September 30, 2012 was $38,000 compared to $97,000 for the three months ended October 2, 2011. The decrease in interest expense, net was primarily due to a $50,000 decrease of the amortization of the loan discount.

Interest expense, net for the nine months ended September 30, 2012 was comparable to the nine months ended October 2, 2011.

Other income (expense), net for the three months ended September 30, 2012 was income of $183,000 compared to expense of $131,000 for the three months ended October 2, 2011. The three month increase in other income was primarily due to an $118,000 increase in gain on sale of property and equipment and a $116,000 decrease in foreign currency transaction losses.

Other income (expense), net for the nine months ended September 30, 2012 was income of $240,000 which primarily consisted of $163,000 gain on the sale of property and equipment and $43,000 for foreign exchange transaction gains. Other income (expense), net for the nine months ended October 2, 2011 was an expense of $61,000 which primarily consisted of $105,000 for foreign transaction losses which were partially offset by a $44,000 gain on sale of property and equipment.

Provision for Income Taxes

We recorded a provision for income taxes of $65,000 and $99,000 for the three and nine months ended September 30, 2012, respectively, and $12,000 for the nine months ended October 2, 2011. Our effective tax rate was (4.5%) for the three months ended September 30, 2012 and less than (2.1%) for the nine months ended September 30, 2012 and October 2, 2011. We did not record a provision for income taxes for the three months ended October 2, 2011.

The income tax provision for the three months and nine months ended September 30, 2012 and October 2, 2011 was due primarily to state taxes, United States withholding taxes and foreign taxes due. We have incurred book losses in all tax jurisdictions and have a full valuation allowance against such losses.

Liquidity and Capital Resources

On December 9, 2011, we entered into an amended and restated loan and security agreement (the "Loan Agreement") with Silicon Valley Bank ("SVB"). Pursuant to the Loan Agreement, we are entitled to borrow from SVB up to $6.0 million, based on 80% of eligible accounts receivable subject to limits based on the our eligible accounts as determined by SVB. Interest on extensions of credit is equal to the prime rate of Wall Street Journal ("WSJ") Prime, plus 0.75%, with a minimum interest rate of 4.00%. The Loan Agreement will expire on December 9, 2013.


Table of Contents

The Loan Agreement with SVB is secured by all of our assets, including all accounts, equipment, inventory, receivables, and general intangibles. The Loan Agreement contains certain restrictive covenants that will impose significant operating and financial restrictions on our operations, including, but not limited to restrictions that limit our ability to:

- Sell lease, or otherwise transfer, or permit any of our subsidiaries to sell, lease or otherwise transfer, all or any part of our business or property, except in the ordinary course of business or in connection with certain indebtedness or investments permitted under the amended and restated loan agreement;

- Merge or consolidate, or permit any of our subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of our subsidiaries to acquire, all or substantially all of the capital stock or property of another person;

- Create, incur, assume or be liable for any indebtedness, other than certain indebtedness permitted under the amended and restated loan and security agreement;

- Pay any dividends or make any distribution or payment on, or redeem, retire, or repurchase, any capital stock; and

- Make any investment, other than certain investments permitted under the amended and restated loan and security agreement.

The Loan Agreement contained a covenant that required that on the last day of every month, the ratio of our cash, cash equivalents and accounts receivable (together, "Quick Assets") to our current liabilities which matured within the following year (including obligations to SVB) ("Current Liabilities"), be 1.5 to
1.00. As of July 1, 2012, we were in violation of this covenant. This violation was cured by the July 3, 2012 repayment of the amount borrowed from SVB, and on August 23, 2012, we entered into a Default Waiver and First Amendment to the Loan Agreement with SVB in which SVB agreed to waive the July 1, 2012, default by us for violation of the covenant for the measurement period ended June 30, 2012 and which amended the Loan Agreement as follows: For measuring periods from July 1, 2012, to December 31, 2012, the covenant for the Adjusted Quick Ratio (defined as the ratio of Quick Assets to Current Liabilities, but excluding up to $1,200,000 of accrued liabilities) is lowered to 1.35 to 1.00 (from the previous 1.50 to 1.00 prior to the amendment with no exclusion for accrued liabilities). For measuring periods after January 1, 2013, the Adjusted Quick Ratio is 1.50 to 1.00. As of September 30, 2012, we were in compliance with our covenants.

The amount outstanding on the line of credit as of September 30, 2012 was $4.9 million. On October 1, 2012, we repaid the entire $4.9 million to SVB.

. . .

  Add GIG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for GIG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.