C O R P O R A T E P R O F I L E
Giga-tronics’ basic technologies are in test, measurement and
control, spanning both RF and Microwave.
Our products include Microwave Synthesizers, Power Meters,
Digital Multimeters, A/D and D/A Converters, Switches and Switching
Systems, Plug-n-Play Software, YIG Oscillators, Amplifiers, Filters and
YIG based Synthesizers for Broad Band Wireless.
These products have broad application in both commercial and
military markets. They are used by engineers in the design of new products,
on the production line for test and calibration of a wide range of manufactured
devices, and in the field for maintenance and re-calibration of electronic systems
and equipment.
Specific applications for these products include: Synthesizers in
5 to 40 gigahertz wireless communications radio links, satellite systems
testing, calibration of aircraft defensive systems, production testing of cell
phones, test and calibration of complex antennae systems,
on-site maintenance of battlefield communications and fire control
equipment, microwave component testing, shipboard maintenance and
calibration of a wide range of radar systems, electronic surveillance
receivers, and electronic warfare and countermeasures.
Among the users of Giga-tronics products are: Lockheed Martin,
Honeywell, Northrop Grumman, Qualcomm, Mantech, Raytheon, Boeing,
FAA, Motorola, Harris, BAE Marconi, Rockwell, Goodrich, Agilent, Cisco,
McKesson, Israel Aircraft Industries, Swiss Defense Procurement, US Navy,
US Air Force, and US Army.
T O O U R S H A R E H O L D E R S
Continuing weakness throughout FY 2003 in the markets we serve,
caused a reduction in our revenue of more than 40% from the prior year,
in spite of some increase in revenue from the defense business.
New orders booked were $18,086,000 in FY 2003, down from
$20,461,000 the prior year. Shipments were $22,281,000, compared with
$39,036,000 the year before. Loss from operations in FY 2003 increased to
$5,214,000, compared with $2,102,000 in the prior year. Restructuring
and termination costs added another $1,450,000 to the loss in FY 2003.
Lastly in FY 2003, we removed $4,844,000 current tax assets
from our balance sheet. This is a non-cash, non-operations related item
and, although taken against net earnings during this period, is fully
available to reduce future income tax liabilities.
In order to improve future operating results, a number of decisive
actions were taken throughout FY 2003 and into the first quarter of FY
2004. Some of these had a one-time incremental negative impact on
profitability in these periods, although they will have a very substantial
positive impact on future results.
During of the first quarter of FY 2004, the decision was made to
discontinue operations of the Dymatix division. Despite the outstanding
efforts of a dedicated staff – and the successful development of
new product – the division was not able to overcome the lethargy
that has plagued the semiconductor market these last two years.
This was a most difficult decision, but losses of approximately
$1,182,000 and $2,594,000 over the last two years and the
need to eliminate such losses in the future forced this decision.
Service support and spare parts availability will continue to be
made available to existing product users, fully supported by the
parent Company.
Facilities and the attendant lease obligations were reduced from
five to three by (a) consolidating Dymatix with the Ascor division
and (b) negotiating settlement of a lease contract on a previously
discontinued R&D facility in England.
We also renegotiated leases at Microsource and the Ascor divisions
which, together with preceding actions, produced lease cost savings
of approximately $625,000 a year.
Reductions in force produced annualized payroll savings of
approximately $2,800,000 in FY 2003 and another approximate
$1,000,000 in FY 2004, Q1.
When Giga-tronics acquired Microsource, Inc. in May of 1998,
we were required to write up the assets of that Company to then
market value. Those assets were subsequently depreciated over
the last five years at a cost of approximately $900,000 a year.
This depreciation was completed at the end of May 2003. Thus,
Microsource division is relieved of that expense in the future.
Andy Perez joined Giga-tronics as Sales and Marketing Manager
of its Instrument Group (Instrument and Ascor divisions.) Andy
came from Agilent, the industry leader in test and measurement
and our major competitor. Andy spent 32 years in front line sales
positions as Sales Engineer, Area Manager and Regional Manager.
We believe he will provide strong leadership and effective direction
in reinvigorating our field sales organization.
It is now clear that our prior commitment to maintain a high level
of investment in engineering for new product development was
well justified. Instrument division recently released the first of a
series of unique Microwave Synthesizers that were extremely well
received by both our own sales force and by many potential users
when introduced at the Microwave Industry MTT Show in
Philadelphia this past June.
Based upon this product’s unique design concepts, reflecting a
significant departure from normal industry practices, Giga-tronics
was subsequently given the Frost & Sullivan Product Differentiation
Innovation award for 2003. We, of course, are extremely pleased
by this recognition and this strong confirmation of our decision to
maintain a high level of commitment to new product development.
Despite the balance sheet adjustment reducing current assets by
$4,844,000, our financial condition remains healthy. Cash at the
end of FY 2003 was $5,005,000, compared to $7,180,000 a year
earlier. We ended FY 2003 with a ratio of current assets to current
liabilities of 3.5:1 and Shareholders equity per share of $3.40.
There has been a marked increase in the numbers of sales leads,
inquiries and requests for proposals in recent weeks. This is attributable
in part, it appears, to the release of the award winning new Model 2400
Microwave Signal Generator. As we pursue these specific opportunities,
we believe that the concomitant effort to strengthen and rejuvenate our
sales and field selling organizations, as well as the early release of additional
new products, should add substantially to these opportunities.
We look forward to the future with enthusiasm and optimism.
Sincerely,
George H. Bruns, Jr.
Chairman and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended March 29, 2003, or
( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period from
to
Commission File No. 0-12719
GIGA-TRONICS INCORPORATED
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of
incorporation or organization)
4650 Norris Canyon Road, San Ramon, CA
(Address of principal executive offices)
Registrant’s telephone number: (925) 328-4650
Securities registered pursuant to Section 12(b) of the Act:
94-2656341
(I.R.S. Employer Identification No.)
94583
(Zip Code)
Title of each class
None
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par value
(Title of class)
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.
Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Act).
Yes [ ] No [X]
The aggregate market value of voting stock held by non-affiliates of the Registrant calculated on the closing
average bid and asked prices as of May 21, 2003 was $5,180,254. For purposes of this determination only,
directors and officers of the Registrant have been assumed to be affiliates. There were a total of 4,693,080 shares of
the Registrant’s Common Stock outstanding as of May 21, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into the parts indicated:
PART OF FORM 10-K
DOCUMENT
PART III
Items 10, 11, 12 and 13
Registrant’s PROXY STATEMENT for
its 2003 annual meeting of shareholders to
be filed no later than 120 days after the close
of the fiscal year ended March 29, 2003.
2
PART I
The forward-looking statements included in this report including, without limitation, statements containing
the words "believes," "anticipates," "estimates," "expects," "intends" and words of similar import, which reflect
management’s best judgment based on factors currently known, involve risks and uncertainties. Actual results
could differ materially from those anticipated in these forward-looking statements as a result of a number of factors,
including but not limited to those discussed under “Certain Factors Which May Adversely Affect Future Operations
Or An Investment In Giga-tronics” in Item 1 below and in Item 7, “Management’s Discussion and Analysis”.
ITEM 1. BUSINESS
General
Giga-tronics Incorporated (Giga-tronics) includes operations of Giga-tronics Instrument Division, ASCOR,
Inc. (ASCOR), DYMATiX, which is a joint venture of Viking Semiconductor Equipment, Inc. (Viking) and
Ultracision, Inc. (Ultracision), and Microsource, Inc. (Microsource).
Giga-tronics designs, manufactures and markets through its Giga-tronics Instrument Division, a broad line
of test and measurement equipment used in the development, test and maintenance of wireless communications
products and systems, flight navigational equipment, electronic defense systems and automatic testing systems.
These products are used primarily in the design, production, repair and maintenance of commercial
telecommunications, radar, and electronic warfare.
Giga-tronics was incorporated on March 5, 1980, and its principal executive offices are located at 4650
Norris Canyon Road, San Ramon, California, and its telephone number at that location is (925) 328-4650.
Effective July 23, 1996, Giga-tronics acquired ASCOR. ASCOR, located in Fremont, California, designs,
manufactures, and markets a line of switching and connecting devices that link together many specific purpose
instruments that comprise a portion of automatic test systems. ASCOR offers a family of switching and interface
test adapters as standard VXI configured products, as well as complete system integration services to the Automatic
Test Equipment market.
Effective June 27, 1997, Giga-tronics completed a merger with Viking by issuing approximately 420,000
shares of the Company’s common stock in exchange for all of the common stock of Viking. Viking, which is now
located in Fremont, California, manufactures and markets a line of optical inspection equipment used to
manufacture and test semiconductor devices. Products include die attachments, automatic die sorters, tape and reel
equipment, and wafer inspection equipment.
Effective December 2, 1997, Giga-tronics completed a merger with Ultracision by issuing approximately
517,000 shares of the Company’s common stock in exchange for all of the common stock of Ultracision.
Ultracision was a manufacturer of automation equipment for the test and inspection of silicon wafers. Ultracision
also produced a line of probers for the testing and inspection of silicon devices.
Effective May 18, 1998, Giga-tronics acquired Microsource. All the outstanding shares of Microsource
were exchanged for $1,500,000 plus contingent payments based on earnings from Microsource from 1998 to 2000,
which amounts were nominal. Microsource located in Santa Rosa, California develops and manufactures a broad
line of YIG (Yttrium, Iron, Garnet) tuned oscillators, filters and microwave synthesizers, which are used by its
customers in manufacturing a wide variety of microwave instruments or devices.
Giga-tronics intends to broaden its product lines and expand its market, both by internal development of
new products and through the acquisition of other business entities. From time to time, the Company considers a
variety of acquisition opportunities.
3
Industry Segments
The Company manufactures products used in test, measurement and handling. The Company operates
primarily in four operating segments, Giga-tronics Instrument Division, ASCOR Inc., Microsource Inc. and
DYMATiX (formerly the Semiconductor Equipment Group).
Products and Markets
Giga-tronics Instrument Division
The Giga-tronics Instrument Division segment produces signal sources, generators and sweepers, and
power measurement instruments for use in the microwave and RF frequency range (10 kHz to 75 GHz). Within
each product line are a number of different models and options allowing customers to select frequency range and
specialized capabilities, features and functions. The end-user markets for these products can be divided into three
broad segments: commercial telecommunications, radar and electronic warfare. This segment’s instruments are
used in the design, production, repair and maintenance and calibration of other manufacturers’ products, from
discrete components to complex systems.
ASCOR Inc.
The ASCOR Inc. segment produces switch modules, and interface adapters that operate with a bandwidth
from direct current (DC) to 18 GHz. This segment’s switch modules may be incorporated within its customer’s
automated test equipment. The end-user markets for these products are primarily related to electronic warfare,
though the VXI architecture may become more accepted by the telecommunications market.
DYMATiX (formerly the Semiconductor Equipment Group)
The DYMATiX segment manufactures and markets a line of optical inspection equipment used in the
testing of semiconductor devices. Products include die attachments, automatic die sorters, tape and reel equipment,
and wafer inspection equipment. Until recently, DYMATiX manufactured automation equipment for the test
inspection and robotic handling of silicon wafers in addition to a line of probers for the testing and inspection of
silicon devices.
Microsource Inc.
The Microsource segment develops and manufactures a broad line of YIG (Yttrium, Iron, Garnet) tuned
oscillators, filters and microwave synthesizers, which are used by its customers in manufacturing a wide variety of
microwave instruments or devices.
Sources and Availability of Raw Materials and Components
Substantially all of the components required by Giga-tronics to make its assemblies are available from
more than one source. The Company occasionally uses sole source arrangements to obtain leading-edge
technology, favorable pricing or supply terms, but not in any material volume. In the Company’s opinion, the loss
of any sole source arrangement it has would not be material to its operations.
Although extended delays in receipt of components from its suppliers could result in longer product
delivery schedules for the Company, the Company believes that its protection against this possibility stems from its
practice of dealing with well-established suppliers and maintaining good relationships with such suppliers.
4
Patents and Licenses
The Company’s competitive position is largely dependent upon its ability to provide performance
specifications for its instruments and systems that (a) easily, effectively and reliably meet customers’ needs and (b)
selectively surpass competitors’ specifications in competing products. Patents may occasionally provide some
short-term protection of proprietary designs. However, because of the rapid progress of technological development
in the Company’s industry, such protection is most often, although not always, short-lived. Therefore, although we
occasionally pursue patent coverage, we place major emphasis on the development of new products with superior
performance specifications and the upgrading of existing products toward this same end. This is reflected in a
substantial allocation of budget to project development costs.
The Company’s products are based on its own designs, which in turn derive from its own engineering
abilities. If the Company’s new product engineering efforts fall behind, its competitive position weakens.
Conversely, effective product development greatly enhances its competitive status.
The Company presently holds 22 patents. None of these is critical to the Company’s ongoing business, and
the Company does not actively maintain them.
The Company is not dependent on trademarks, licenses or franchises. We do utilize certain software
licenses in some functional aspects to some of our products. Such licenses are readily available, non-exclusive and
are obtained at either no cost or for a relatively small fee.
Seasonal Nature of Business
The business of the Company is not seasonal.
Working Capital Practices
The Company generally strives to maintain at least 60 days worth of inventory and generally sells to
customers on 30 day payment terms. Typically, the Company receives payment terms of 30 days. The Company
believes that these practices are consistent with typical industry practices.
Importance of Limited Number of Customers
Commercial business accounted for 61% of net sales in fiscal 2003, 83% in fiscal 2002, and 89% in fiscal
2001. The Company is a leading supplier of microwave and radio frequency (RF) test instruments to various U.S.
Government defense agencies, as well as to their prime contractors. Management anticipates sales to U.S.
Government agencies will remain significant in fiscal 2004. Defense-related agencies accounted for 39% of net
sales in fiscal 2003, 17% in fiscal 2002, and 11% in fiscal 2001. Prior to the current year, where the defense
business has improved, sales to the defense industry in general and direct sales to the United States and foreign
government agencies in particular had declined. Any decline of defense orders could have a negative effect on the
business, operating results, financial condition and cash flows of Giga-tronics.
During fiscal 2003, a Japanese distributor of the Company, Midoriya, accounted for less than 10% of the
Company’s revenues and a negligible amount outstanding in accounts receivable. During 2002 and 2001, Midoriya
accounted for 16% and 10% of the Company’s consolidated sales, respectively. At fiscal 2002 year end, Midoriya
had a negligible amount outstanding in accounts receivable while they composed about 11% of receivables at the
fiscal year end of 2001.
5
During fiscal 2003, the U.S. Government defense agencies and their prime contractors made up 25% of the
Giga-tronics Instrument Division’s 2003 revenue. During fiscal 2002 the Instrument Division had two major
customer concentrations. Midoriya, the Division’s Japanese distributor, accounted for 30% of the Instrument
Division’s fiscal 2002 revenue. The U.S. Government defense agencies and their prime contractors made up 10%
of the Giga-tronics Instrument Division’s 2002 revenue.
In fiscal 2003, ASCOR derived 41% of its revenues from U.S. Government defense agencies and their
prime contractors and another 34% from an automated test equipment manufacturer. During fiscal 2002 ASCOR
had three major customer concentrations. The U.S. Government defense agencies and their prime contractors
made up 18%, an automated test equipment manufacturer comprised 30% and an international communications
equipment company comprised 11% of ASCOR’s fiscal 2002 revenue, respectively.
In fiscal 2003, DYMATiX derived 21% of its revenues from a major semiconductor device manufacturer
and another 11% from a manufacturer of mobile electronics and transportation components. During fiscal 2002,
the same manufacturer of mobile electronics and transportation components accounted for 56% of DYMATiX’s
revenue.
During fiscal 2003 and 2002, Microsource had two major customer concentrations. An electronic
instrument manufacturer accounted for 14% and 35% of Microsource’s fiscal 2003 and fiscal 2002 revenue,
respectively. U.S. Government defense agencies and their prime contractors made up 62% and 35% of
Microsource’s 2003 and 2002 revenue, respectively.
Other than U.S. government agencies and their defense contractors, no customer accounted for 10% or
more of consolidated revenues of the Company in fiscal 2003 and no customer who accounted for 10% or more of
revenues of any one segment accounted for 10% or more of any other segment. Other than U.S. Government
agencies and their defense contractors, the Company has no customer the loss of which would, in management’s
opinion, have a material adverse effect on the Company and its subsidiaries as a whole.
The Company’s products are largely capital investments for its customers, and the Company’s belief is that
its customers have economic cycles in which capital investment budgets for the kinds of products that the Company
produces expand and contract. The Company, therefore, expects that a major customer in one year will often not be
a major customer in the following year. Accordingly, the Company’s revenues and earnings will decline if the
Company is unable to find new customers or increase its business with other existing customers to replace declining
revenues from the previous year’s major customers. A substantial decline in revenues from U.S. Government
defense agencies and their prime contractors would also have a material adverse effect on the Company’s revenues
and results of operations unless replaced by revenues from the commercial sector.
Backlog of Orders
On March 29, 2003, the Company’s backlog of unfilled orders was $17,192,000 compared to $21,387,000
at March 30, 2002. As of March 29, 2003, there were approximately $9,077,000 in unfilled orders that were
scheduled for shipment beyond a year, as compared to approximately $13,912,000 at March 30, 2002. Orders for
the Company’s products include program orders from both the U.S. Government and defense contractors, with
extended delivery dates. Accordingly, the backlog of orders may vary substantially from quarter to quarter and the
backlog entering any single quarter may not be indicative of sales for any period.
Backlog includes only those customer orders for which a delivery schedule has been agreed upon between
the Company and the customer and, in the case of U.S. Government orders, for which funding has been
appropriated.
6
Competition
Giga-tronics serves the broad market for electronic instrumentation with applications ranging from the
design, test, calibration and maintenance of other electronic devices to providing sophisticated components for
complex electronic systems to sub-systems capable of sorting and identifying high frequency communication
signals. These applications cut across the commercial, industrial and military segments of the broad market. The
Company has a variety of competitors. Several of its competitors are much larger than the Company and have
greater resources and substantially broader product lines. Others are of comparable size with more limited product
lines.
Competition from numerous existing companies is intense and potential new entrants are expected to
increase. The Company’s instrument, switch, oscillator and synthesizer products compete with Agilent, Anritsu,
Racal, IFR and Rohde & Schwarz while the semiconductor equipment products compete with various other
competitors. Many of these companies have substantially greater research and development, manufacturing,
marketing, financial, technological, personnel and managerial resources than Giga-tronics. There can be no
assurance that any products developed by these competitors will not gain greater market acceptance than any
developed by Giga-tronics.
To compete effectively in this circumstance, the Company (a) places strong emphasis on maintaining a
high degree of technical competence as it relates to the development of new products and the upgrading of existing
products and (b) is highly selective in establishing technological objectives. The Company does not attempt to
compete ‘across the board’, but selectively based upon its particular strengths and the competitors’ perceived
limitations.
Specification requirements of customers in this market vary widely. The Company is able to compete by
offering products that meet a customer’s particular specification requirements; by being able to offer certain
product specifications at lower cost resulting from the Company’s past production of products with those
specifications; and by being able to offer certain product specifications at a higher quality level. All of these
advantages are attributable to the Company’s continuing investment in research and development and in a highly
trained engineering staff.
The customer’s decision is most often based on the best match of its particular requirements and the
supplier’s operating specifications. In most cases, attracting and retaining customers does not require the Company
to offer the best product with respect to each of the customer’s requirements but rather to those few specifications
that are most important to the customer.
Occasionally price is a competitive consideration. In that circumstance, the Company believes it has more
flexibility in making pricing decisions than its larger and more structured competitors.
Sales and Marketing
Giga-tronics Instrument Division, ASCOR Inc., DYMATiX and Microsource Inc. market their products
through various distributors and representatives to commercial and government customers, although not necessarily
through the same distributors and representatives.
Product Development
Products of the type manufactured by Giga-tronics historically have had relatively long product life cycles.
However, the electronics industry is subject to rapid technological changes at the component level. The future
success of the Company is dependent on its ability to steadily incorporate advancements in component technologies
into its new products.
7
Product development expense was approximately $5,644,000 in fiscal 2003, $7,001,000 in fiscal 2002, and
$5,087,000 in fiscal 2001. Activities included the development of new products and the improvement of existing
products. It is management’s intention to maintain or increase expenditures for product development at levels
required to sustain its competitive position. All of the Company’s product development activities are internally
funded and expensed as incurred.
Giga-tronics expects to continue to make significant investments in research and development. There can
be no assurance that future technologies, processes or product developments will not render Giga-tronics’ current
product offerings obsolete or that Giga-tronics will be able to develop and introduce new products or enhancements
to existing products, which satisfy customer needs, in a timely manner or achieve market acceptance. The failure to
do so could adversely affect Giga-tronics’ business.
Manufacturing
The assembly and testing of Giga-tronics Instrument Division microwave, RF and power measurement
products are done at its San Ramon facility. The assembly and testing of ASCOR’s switching and connecting
devices and the assembly and testing of DYMATiX semiconductor equipment products are done at its Fremont
facility. The assembly and testing of Microsource’s line of YIG (Yttrium, Iron, Garnet) tuned oscillators, filters
and microwave synthesizers are done at its Santa Rosa facility.
Environment
To the best of its knowledge, the Company is in compliance with all federal, state and local laws and
regulations involving the protection of the environment.
Employees
As of March 29, 2003, Giga-tronics employed 174 individuals on a full time basis. Management believes
that the future success of the Company depends on its ability to attract and retain skilled personnel. None of the
Company’s employees are represented by a labor union, and the Company considers its employee relations to be
good.
Information about Foreign Operations
The Company sells to its international customers through a network of foreign technical sales
representative organizations. Sales to foreign customers were approximately $5,111,000 in fiscal 2003,
$17,105,000 in fiscal 2002, and $22,072,000 in fiscal 2001.
The Company closed its United Kingdom (UK) research & development facility as of March 30, 2002.
The Company has no other foreign-based operations or material amounts of identifiable assets in foreign countries.
Its gross margins on foreign and domestic sales are similar.
Certain Factors Which May Adversely Affect Future Operations Or An Investment In Giga-tronics
Business climate is volatile
Giga-tronics has a significant number of defense-related orders. If the defense market should soften,
shipments in the current year could decrease more than current projected shipments with a concurrent decline in
earnings. The Company’s commercial product backlog has a number of risks and uncertainties such as the
cancellation or deferral of orders, dispute over performance and our ability to collect amounts due under these
orders. If this occurs, then shipments in the current year could decrease more than current projected shipments
resulting in a decline in earnings.
8
Giga-tronics sales are substantially dependent on the wireless industry
Giga-tronics sells directly or indirectly to customers and equipment manufacturers in the wireless industry.
Currently, this industry is undergoing dramatic and rapid change. As such, the business that Giga-tronics records
could decrease or existing recorded backlog could be stretched or deferred resulting in less than projected
shipments. These reduced shipments may have a material adverse effect on operations.
Giga-tronics’ markets involve rapidly changing technology and standards
The market for electronics equipment is characterized by rapidly changing technology and evolving
industry standards. Giga-tronics believes that its future success will depend in part upon its ability to develop and
commercialize its existing products, develop new products and applications, and in part to develop, manufacture
and successfully introduce new products and product lines with improved capabilities and to continue to enhance
existing products. There can be no assurance that Giga-tronics will successfully complete the development of
current or future products or that such products will achieve market acceptance.
Giga-tronics acquisitions may not be effectively integrated and their integration may be costly
As part of its business strategy, Giga-tronics intends to broaden its product lines and expand its markets, in
part through the acquisition of other business entities. Giga-tronics is subject to various risks in connection with
any future acquisitions. Such risks include, among other things, the difficulty of assimilating the operations and
personnel of the acquired companies, the potential disruption of the Company’s business, the inability of
management to maximize the financial and strategic position of the Company by the successful incorporation of
acquired technology and rights into its product offerings, the maintenance of uniform standards, controls,
procedures and policies, and the potential loss of key employees of acquired companies. No assurance can be given
that any acquisition by Giga-tronics will or will not occur, that if an acquisition does occur, that it will not
materially harm the Company or that any such acquisition will be successful in enhancing the Company’s business.
The Company currently contemplates that future acquisitions may involve the issuance of additional shares of
common stock. Any such issuance may result in dilution to all Giga-tronics shareholders, and sales of such shares
in significant volume by the shareholders of acquired companies may depress the price of its common stock.
Giga-tronics’ common stock price is volatile
The market price of the Company’s common stock could be subject to significant fluctuations in response
to variations in quarterly operating results, shortfalls in revenues or earning from levels expected by securities
analysts and other factors such as announcements of technological innovations or new products by Giga-tronics or
by competitors, government regulations or developments in patent or other proprietary rights. In addition, the
NASDAQ National Market and other stock markets have experienced significant price fluctuations in recent
periods. These fluctuations often have seemingly been unrelated to the operating performance of the specific
companies whose stocks are traded. Broad market fluctuations, as well as general foreign and domestic economic
conditions, may adversely affect the market price of the common stock.
Giga-tronics stock at any time has historically traded on thin volume on NASDAQ. Sales of a significant
volume of stock could result in a depression of Giga-tronics share prices.
ITEM 2. PROPERTIES
As of March 29, 2003, Giga-tronics’ principal executive office and the Instrument Division marketing, sales
and engineering offices and manufacturing facilities for its microwave and RF signal generator and power
measurement products are located in approximately 47,300 square feet in San Ramon, California, which the
Company occupies under a lease agreement expiring December 31, 2006.
ASCOR’s marketing, sales and engineering offices and manufacturing facilities for its switching and
connecting devices and the DYMATiX marketing, sales and engineering offices and manufacturing facilities for its
9
automation equipment for the inspection of silicon wafers, prober line and optical inspection equipment for the
manufacture and test of semiconductor devices are both located in approximately 18,756 square feet in Fremont,
California, under a lease that expires on June 30, 2006.
Microsource’s marketing, sales and engineering offices and manufacturing facilities for its YIG tuned
oscillators, filters and microwave synthesizers are located in an approximately 33,439 square foot facility in Santa
Rosa, California, which the Company occupies under a lease expiring May 25, 2013.
The Company believes that its facilities are adequate for its business activities.
ITEM 3. LEGAL PROCEEDINGS
As of March 29, 2003, the Company has no material pending legal proceedings. From time to time, Giga-
tronics is involved in various disputes and litigation matters that arise in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended
March 29, 2003.
Executive Officers of the Company are listed in Part III, Item 10 of this Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Common Stock Market Prices
Giga-tronics’ common stock is traded over the counter on NASDAQ National Market System using the
symbol “GIGA”. The number of record holders of the Company’s common stock as of March 29, 2003 was
approximately 1,400. The table below shows the high and low closing bid quotations for the common stock during
the indicated fiscal periods. These quotations reflect inter-dealer prices without retail mark-ups, mark-downs, or
commission and may not reflect actual transactions.
2003
High
Low
2002
High
Low
First quarter
Second quarter
Third quarter
Fourth quarter
(3/31-6/29)
(6/30-9/28)
(9/29-12/28)
(12/29-3/29)
$ 3.700
2.220
1.660
1.510
$ 2.330
1.000
0.910
1.210
(4/1-6/30)
(7/1-9/29)
(9/30-12/29)
(12/30-3/30)
$ 5.810
3.760
4.160
4.630
$ 3.200
2.170
2.320
3.450
Giga-tronics has not paid cash dividends in the past and has no plans to do so in the future, based upon its
belief that the best use of its available capital is in the enhancement of its product position.
ITEM 6. SELECTED FINANCIAL DATA
Effective March 26, 2000, the Company changed its method of accounting for revenue recognition to
conform with the guidance provided by SAB 101 (see Note 1 to the consolidated financial statements). The impact
of adopting SAB 101 was to increase earnings (loss) before the cumulative effect of the accounting change in the
year ended March 31, 2001 by $520,000, net of income taxes.
10
(In thousands except per share data)
Summary of Operations: Year Ended
March 31,
2001
March 30,
2002
March 29,
2003
March 25,
2000
March 27,
1999
SELECTED FINANCIAL DATA
Net sales
Gross profit
Operating expenses
Interest income, net
Earnings (loss) before cumulative effect
of accounting change and income taxes
Earnings (loss) before cumulative effect
of accounting change
Cumulative effect of accounting change
Net earnings (loss)
Basic earnings (loss) per share:
Before cumulative effect of accounting change
Cumulative effect of accounting change
Net earnings (loss) per share – basic
Diluted earning (loss) per share:
Before cumulative effect of accounting change
Cumulative effect of accounting change
Net earnings (loss) per share – diluted
Shares of common stock – basic
Shares of common stock – diluted
$ 22,281
5,903
12,464
60
$ 39,036
11,535
16,085
63
$ 54,159
19,056
16,032
205
$ 47,577
15,810
14,315
59
$ 37,636
11,534
15,293
121
(6,664)
(4,462)
3,461
1,633
(3,006)
(10,762)
-
$ (10,762)
(2,102)
-
$ (2,102)
2,421
(520)
$ 1,901
1,139
-
$ 1,139
(1,858)
-
$ (1,858)
$ (2.31)
-
(2.31)
(2.31)
-
$ (2.31)
4,663
4,663
$ (0.46)
-
(0.46)
(0.46)
-
$ (0.46)
4,604
4,604
$ 0.54
(0.12)
0.42
0.51
(0.11)
$ 0.40
4,474
4,803
$ 0.26
-
0.26
0.24
-
$ 0.24
4,379
4,693
$ (0.43)
-
(0.43)
(0.43)
-
$ (0.43)
4,338
4,338
Financial Position:
(In thousands except ratio)
Current ratio
Working capital
Total assets
Shareholders’ equity
Percentage Data:
March 29,
2003
March 30,
2002
March 31,
2001
March 25,
2000
March 27,
1999
3.49
$ 13,622
$ 21,789
$ 15,960
5.49
$ 23,135
$ 32,880
$ 26,661
4.06
$ 22,924
$ 37,318
$ 28,475
3.17
$ 21,066
$ 37,526
$ 26,149
3.32
$ 18,021
$ 33,259
$ 24,710
March 29,
2003
March 30,
2002
March 31,
2001
March 25,
2000
March 27,
1999
Percent of net sales
Gross profit
Operating expenses
Interest income, net
Earnings (loss) before cumulative effect
of accounting change and income taxes
26.5 % 29.6 % 35.2 % 33.2 %
30.6 %
55.9
0.3
41.2
0.2
29.6
0.4
30.1
0.1
40.6
0.3
(29.9)
(11.4)
6.4
3.4
(8.0)
Cumulative effect of accounting change
-
-
1.0
-
-
Net earnings (loss)
(48.3)
(5.4)
3.5
2.4
(4.9)
11
SELECTED FINANCIAL DATA
Quarterly Financial Information (Unaudited)
(In thousands except per share data)
Net sales
Gross profit
Operating expenses
Interest income, net
Loss before cumulative effect of accounting
change and income taxes
Loss before cumulative effect of accounting
change
Net loss
Net loss per share – basic
Net loss per share – diluted
Shares of common stock - basic
Shares of common stock - diluted
$
$
$
Quarterly Financial Information (Unaudited)
(In thousands except per share data)
Net sales
Gross profit
Operating expenses
Interest income, net
Loss before cumulative effect of accounting
change and income taxes
Loss before cumulative effect of accounting
change
Net loss
Net loss per share – basic
Net loss per share – diluted
Shares of common stock - basic
Shares of common stock - diluted
$
$
$
$
First
6,008
1,959
3,644
12
1,699
Second
5,539
1,888
3,159
18
1,298
1,599
1,298
$
$
$
1,599
(0.34)
(0.34)
4,656
4,656
First
11,797
3,326
4,332
19
(934)
1,298
(0.28)
(0.28)
4,666
4,666
Second
9,892
3,612
4,060
15
(435)
$
$
$
$
$
$
$
$
2003
Third
5,506
1,577
2,719
16
1,180
5,478
5,478
(1.17)
(1.17)
4,677
4,677
2002
Third
9,720
3,405
3,824
13
(402)
$
Fourth
5,228
479
2,942
14
2,487
Year
22,281
5,903
12,464
60
6,664
2,387
10,762
$
$
$
2,387
(0.51)
(0.51)
4,682
4,682
Fourth
7,627
1,192
3,869
16
(2,682)
10,762
(2.31)
(2.31)
4,663
4,663
Year
39,036
11,535
16,085
63
(4,462)
(566)
(275)
(191)
(1,070)
(2,102)
(566)
(0.12)
(0.12)
4,565
4,565
$
$
(275)
(0.06)
(0.06)
4,591
4,591
$
$
(191)
(0.04)
(0.04)
4,626
4,626
$
$
(1,070)
(0.23)
(0.23)
4,635
4,635
$
$
(2,102)
(0.46)
(0.46)
4,604
4,604
12
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
MANAGEMENT’S DISCUSSION AND ANALYSIS
Results of Operations for Fiscal 2003 as compared to 2002
New orders received in fiscal 2003 were $18,086,000, a decrease of 12% from the $20,461,000 received in
fiscal 2002. New orders declined primarily due to the weakness in the commercial wireless market and major
customer order cancellations during fiscal 2003 partially offset by increases in new military orders. New orders at
Giga-tronics Instrument Division declined 17% to $8,590,000 for the year. Orders at ASCOR increased 48% to
$4,866,000 primarily due to increased military orders. DYMATiX experienced a decline of 41% on new orders to
$1,738,000 for the fiscal year 2003. Orders at Microsource decreased 25% to $2,892,000, which includes an order
reversal of approximately $750,000 due to a contract re-negotiation with a long-term customer. Backlog on March
29, 2003 was $17,192,000 (about $8,115,000 is expected to be shipped within one year) compared to $21,387,000
(about $7,475,000 was expected to be shipped within one year) on March 30, 2002. The decrease in backlog is
primarily due to weak order levels at the Giga-tronics Instrument Division and Microsource offset by stronger order
levels at ASCOR. Of the $7,475,000 in orders considered shippable within one year at March 30, 2002, Giga-
tronics subsequently rescheduled (and reclassified as not shippable within one year) shipments for orders of
$782,000 net and recorded cancellations of orders for $605,000 throughout the year that ended March 29, 2003.
Net sales for fiscal 2003 were $22,281,000, a 43% decrease from the $39,036,000 in 2002. The reduction in
sales was primarily due to fewer orders booked because of the general slowdown in the commercial wireless
market. In fiscal 2003, Microsource revenues decreased 23% or $2,349,000, on weak orders and customer stretch-
outs. The Instrument Division sales decreased 57% or $12,254,000 primarily due to weak orders. ASCOR sales
increased 2% or $62,000 primarily due to increased orders and higher backlog. Sales at DYMATiX decreased 60%
or $2,214,000 on weak orders primarily due to the reduction in capital equipment spending affecting the
semiconductor manufacturing market.
Cost of sales decreased 40% in fiscal 2003 to $16,378,000 from the $27,501,000 in 2002. The decrease is
primarily attributable to the 43% decline in sales offset with the write-off of inventory related to discontinued
products.
Operating expenses decreased 23% or $3,621,000 in fiscal 2003 over 2002 due to decreases of $1,929,000
in selling, general and administrative, $335,000 in total amortization and $1,357,000 in product development
expenses. Product development costs decreased 19% or $1,357,000 in fiscal 2003 primarily due to decreased
product development expenses at the Instrument Division and Microsource offset by higher product development
costs at DYMATiX related to the newest line of automation equipment. Selling, general and administrative
expenses decreased 22% or $1,929,000 for the fiscal year 2003 compared to the prior year. The decrease is a result
of lower commission expense of $581,000 on lower sales for the year coupled with $602,000 less in administrative
expenses and $746,000 less in marketing expenses. These expense reductions were primarily personnel reductions
and less rent expense on renegotiated lease terms. For fiscal year 2003 amortization of intangibles decreased 94%
or $335,000 as compared to last fiscal year. The decrease in the amortization of intangibles is primarily a result of
reduced amortization of patents and licenses as well as the goodwill write-off at Microsource that occurred last year
related to an impairment of this asset. Interest income in 2003 decreased from 2002 due to lower interest rates.
Giga-tronics recorded a net loss of $10,762,000 or $2.31 per fully diluted share for the fiscal year 2003
versus a net loss of $2,102,000 or $0.46 per fully diluted share in 2002. The loss for 2003 includes a one-time
charge of approximately $4,098,000 related to an increase in the allowance against the deferred tax benefit, in
addition to approximately $1,450,000 in restructuring and inventory write-offs related to discontinued products.
13
Results of Operations for Fiscal 2002 as compared to 2001
New orders received in fiscal 2002 were $20,461,000, a decrease of 65% from the $57,830,000 received in
2001. New orders declined primarily due to the weakness in the overall wireless market and major customer order
cancellations during fiscal 2002 partially offset by increases in new military orders. New orders at Giga-tronics
Instrument Division declined 65% to $10,357,000 for fiscal year 2002 after a net order cancellation of $2,900,000.
In fiscal 2002, a significant customer of the Instrument Division reduced ordering from the Company, primarily due
to lower demand. The company expects the lower levels of business from this customer to continue. Orders at
ASCOR declined 28% to $3,296,000. DYMATiX experienced a decline of 55% on new orders to $2,969,000 for
the fiscal year 2002. Orders at Microsource decreased 77% to $3,839,000, which includes $5,120,000 order reversal
for a customer that commenced liquidation proceedings. At year-end 2002, the Company’s backlog of unfilled
orders was $21,387,000, compared to $39,964,000 at the end of 2001. The decrease in backlog is primarily due to
weak order levels at the Giga-tronics Instrument Division and Microsource. As of year-end 2002, there were
approximately $13,912,000 unfilled orders that were scheduled for shipment beyond a year and as of year end 2001
there were $7,245,000 unfilled orders scheduled for shipment beyond a year. The increase in unfilled orders
scheduled for shipment beyond a year is attributable primarily to Microsource’s customers delaying shipments of
their orders.
Net sales for 2002 were $39,036,000, a 28% decrease from the $54,159,000 in 2001. The reduction in sales
was primarily due to fewer orders booked because of the slowdown in the commercial wireless market and stretch
outs on existing orders in backlog. In fiscal 2002, Microsource revenues decreased 24% or $3,172,000, on weak
orders and customer stretch outs. Giga-tronics Instrument Division sales decreased 14% or $3,442,000 and ASCOR
sales decreased 50% or $3,735,000 primarily due to weak orders at both of these segments. Sales at DYMATiX
decreased 57% or $4,774,000 on weak orders primarily due to customers delaying orders until their new product is
released.
Cost of sales decreased 22% in fiscal 2002 to $27,501,000 from the $35,103,000 in 2001. The decrease is
primarily attributable to the 28% decline in sales offset with higher costs for labor and material on the products
shipped coupled with the write down of inventory and pre-production costs associated with the liquidation of a
Microsource customer. Subsequent to year end, a telecommunications equipment customer of the Microsource
Division commenced liquidation proceedings. As a result, the orders under the long term production contract with
this customer were cancelled and Giga-tronics recorded a write-off of $1,100,000 of inventory and pre-production
costs.
Operating expenses increased less than 1% or $50,000 in fiscal 2002 over 2001 due to decreases of
$1,984,000 in selling, general and administrative and $50,000 in total amortization offset by an increase of
$1,914,000 in product development expenses. Product development costs increased 38% or $1,914,000 in fiscal
2002 primarily due to increased product development at DYMATiX and increased YIG product development costs
at Microsource. Selling, general and administrative expenses decreased 19% or $1,984,000 for the fiscal year 2002
compared to the prior year. The decrease was a result of lower commission expense of $959,000 on lower sales for
the year coupled with $752,000 less in administrative expenses and $322,000 less in marketing expenses primarily
due to expense reduction measures taken during the year. These expense reductions were primarily personnel
related. For fiscal year 2002 amortization of intangibles decreased 22% or $50,000 as compared to last fiscal year.
The decrease in the amortization of intangibles is primarily a result of reduced amortization of patents and licenses.
The Company wrote off $173,000 of remaining goodwill related to the Microsource acquisition as such goodwill
was determined to be impaired. Interest income in 2002 decreased from 2001 due to lower interest rates.
Giga-tronics recorded a net loss of $2,102,000, or $0.46 per diluted share, in 2002 versus net earnings
before cumulative effect of accounting change of $2,421,000, or $0.51 per diluted share, in 2001. The Company
recorded $520,000 for the cumulative effect of accounting change in fiscal 2001 as a result of the implementation
of SAB 101. As a result, Giga-tronics recorded net earnings of $1,901,000, or $0.40 per diluted share, in 2001.
14
Critical Accounting Policies
Management of Giga-tronics has identified the following as the Company’s critical accounting policies:
Revenue
Revenues are recognized when there is evidence of an arrangement, delivery has occurred, the price is
fixed or determinable, and collectability is reasonably assured. This generally occurs when products are shipped
and the risk of loss has passed. Upon shipment, the Company also provides for the estimated cost that may be
incurred for product warranties. Revenue related to products shipped subject to customers' evaluation is recognized
upon final acceptance.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The
Company periodically reviews inventory on hand to identify and write down excess and obsolete inventory based
on estimated product demand.
Accounts Receivable
Accounts receivable are stated at the net realizable value. The Company has estimated an allowance for
uncollectible accounts based on analysis of outstanding receivables, consideration of the age of those receivables,
and the Company's historical collection experience.
Deferred Tax Assets
The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets,
which may not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this assessment. Based on the historical
taxable income and projections for future taxable income over the periods in which the deferred tax assets become
deductible, management believes it more likely than not that the Company will not realize benefits of these
deductible differences as of March 29, 2003. Management has, therefore, established a valuation allowance against
its net deferred tax assets as of March 29, 2003.
Product Development Costs
The Company incurs pre-production costs on certain long-term supply arrangements. The costs, which
represent non-recurring engineering and tooling costs, are capitalized as other assets and amortized over their useful
life when reimbursable by the customer. Otherwise, they are expensed as incurred.
Financial Condition and Liquidity
As of March 29, 2003, Giga-tronics had $5,005,000 in cash and cash equivalents, compared to $7,180,000
as of March 30, 2002. Cash used by operations amounted to $1,996,000 in 2003 and cash provided by operations
amounted to $3,795,000 in 2002 and $1,951,000 in 2001. Cash used by operations in 2003 is primarily attributed to
the operating loss in the year offset by non-cash depreciation and amortization expenses, an increase in the deferred
tax asset valuation allowance, and by the net change in operating assets and liabilities. Cash provided by operations
in 2002 is attributed to accounts receivable collections, reduced inventory purchases and non-cash depreciation and
amortization expenses offset by the operating loss in the year, and the net change in operating assets and liabilities.
Cash provided by operations in 2001 is attributed to the operating income in the year and non-cash depreciation and
amortization expenses, offset by a net change in operating assets and liabilities.
Giga-tronics had working capital at year-end of $13,622,000 compared to $23,135,000 in 2002 and
$22,924,000 in 2001. The Company’s current ratio at March 29, 2003 was 3.5 compared to 5.5 in 2002 and 4.1 in
2001. The decrease in working capital is primarily a result of the increased allowance against the deferred income
tax benefit and its operating loss in the current year.
15
Additions to property and equipment were $160,000 in 2003, compared to $811,000 in 2002 and
$1,800,000 in 2001. Fiscal 2003 spending reflects continuing investments to support new product development,
increased productivity, and improved product quality. Other cash inflows in 2003, 2002 and 2001 consist of
$61,000, $239,000 and $367,000, respectively, from the sale of common stock in connection with the exercise of
stock options and purchases under the employee stock purchase plan.
The Company leases various facilities under various operating leases that expire through May 2013. Total
future minimum lease payments under these leases amount to approximately $6,958,000 as follows:
Fiscal years
(In thousands)
2004
2005
2006
2007
2008
Thereafter
$
$
1,286
1,312
1,325
932
341
1,762
6,958
The Company is committed to purchase certain inventory under non-cancelable purchase orders. As of
March 29, 2003, total non-cancelable purchase orders were approximately $1,142,000 through fiscal 2004 and
$187,000 beyond fiscal 2004 that are scheduled to be delivered to the Company at various dates through July 2004.
Management believes that the Company has adequate resources to meet its anticipated operating and
capital expenditure needs for the foreseeable future. Giga-tronics intends to increase research and development
expenditures for the purpose of broadening its product base. From time to time, Giga-tronics considers a variety of
acquisition opportunities to also broaden its product lines and expand its markets. Such acquisition activity could
also increase the Company’s operating expenses and require the additional use of capital resources.
Outlook
The commercial wireless telecommunications market continues to be weak. All of our business segments
have been impacted by the economic downturn currently affecting the test and measurement and semiconductor
industries. Giga-tronics is uncertain of the duration and severity of this downturn in the markets we serve and the
ultimate impact this will have on the Company. New orders in the military sector are showing strength, however
new orders in many of our commercial markets have been severely impacted. In response to the current market
conditions, Giga-tronics has implemented cost reductions, which include personnel reductions, pay cuts across all
of the divisions for existing employees and reductions in monthly lease payments for our facilities. Giga-tronics
will continue monitoring its cost structure in order to take the appropriate actions to reduce expenses and achieve
profitability. Giga-tronics remains fully committed to the investment in new product development to expand our
product lines and update our existing lines with additional features. While the Microsource management hopes that
prospects for new orders will improve results for the new fiscal year, its short-term growth will be less than
previously anticipated as there are timing delays associated with currently booked orders.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 143,
“Accounting Obligations associated with the Retirement of Long-Lived Assets.” SFAS No. 143 addresses financial
accounting and reporting for the retirement obligation of an asset. SFAS No. 143 states that companies should
recognize the asset retirement cost, at its fair value, as part of the asset cost and classify the accrued amount as a
liability in the balance sheet. The asset retirement liability is then accreted to the ultimate payout as interest
expense. The initial measurement of the liability would be subsequently updated for revised estimates of the
discounted cash outflows. SFAS No. 143 was effective for fiscal years beginning after June 15, 2002. The
Company does not expect the adoption of SFAS No. 143 will have a material effect on the Company’s financial
position or results of operations.
16
In August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets." Statement No. 144 addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. Statement No. 144 retains the fundamental provisions in Statement No. 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while
also resolving significant implementation issues associated with Statement No. 121. Statement No. 144 also retains
the basic provisions of APB Opinion No. 30 on how to present discontinued operations in the statement of
operations, but broadens that presentation to include a component of an entity (rather than a segment of a business).
The Company adopted the provisions of Statement No. 144 effective March 31, 2002. The impact of adopting
Statement No. 144 did not have a material effect on the Company's financial position or results of operations.
SFAS No. 145, “Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS Statement No.
13, and Technical Corrections” (“SFAS 145”), updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt.”
SFAS 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. The provisions of SFAS 145 related to SFAS No. 4
and SFAS No. 13 are effective for fiscal years beginning and transactions occurring after May 15, 2002,
respectively. The Company does not expect the adoption of SFAS No. 145 will have a material effect on its
financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities,” (“SFAS 146”), requires companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 replaces Emerging
Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of SFAS 146
are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of
SFAS No. 146 did not have a material effect on the Company’s financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45
requires a guarantor to (i) include disclosure of certain obligations and (ii) if applicable, at the inception of the
guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The
disclosure provisions of the Interpretation are effective for financial statements of interim or annual reports that end
after December 15, 2002. The adoption of FIN 45 required additional warranty activity disclosures for the
Company. The recognition and measurement provisions of FIN 45 are effective for guarantees issued or modified
after December 29, 2002. The adoption of FIN 45 did not have a material effect on the Company’s financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-
Transition and Disclosure-An Amendment of FASB Statement No. 123.” SFAS No. 148 amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that
chooses to change to the fair-value-based method of accounting for stock-based employee compensation. It also
amends the disclosure provisions of that statement to require prominent disclosure about the effects that accounting
for stock-based employee compensation using the fair-value based method would have on reported net income and
earnings per share and to require prominent disclosure about the entity’s accounting policy decisions with respect to
stock-based employee compensation. Certain of the disclosure requirements are required for all companies,
regardless of whether the fair value method or intrinsic value method is used to account for stock-based employee
compensation arrangements. The Company accounts for its stock option plan in accordance with the recognition
and measurement principles of Accounting Principles Opinion No. 25, Accounting for Stock Issued to Employees.
The amendments to SFAS No. 123 are effective for financial statements for fiscal years ended after December 15,
2002 and for interim periods beginning after December 15, 2002. The adoption of the disclosure requirements of
SFAS No. 148 did not have a material effect on the Company’s financial position or results of operations.
17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments that expose the company to market risk are cash and cash equivalents. The
investments are held in recognized financial instruments and have limited market risk due to the short-term
maturities of the instruments.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
Assets
Current assets
Cash and cash equivalents
Trade accounts receivable, net of allowance
of $353 and $358, respectively
Inventories
Income tax refund receivable
Prepaid expenses
Deferred income taxes
Total current assets
Property and equipment
Leasehold improvements
Machinery and equipment
Office furniture and fixtures
Property and equipment
Less accumulated depreciation and amortization
Property and equipment, net
Patents and licenses
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable
Accrued commissions
Accrued payroll and benefits
Accrued warranty
Customer advances
Obligations under capital lease
Other current liabilities
Total current liabilities
Obligations under capital lease, net of current portion
Deferred income taxes
Deferred rent
Total liabilities
Commitments
Shareholders’ equity
Preferred stock of no par value
Authorized 1,000,000 shares; no shares outstanding
at March 29, 2003 and March 30, 2002
Common stock of no par value;
Authorized 40,000,000 shares; 4,693,080 shares at
March 29, 2003 and 4,648,944 shares at
March 30, 2002 issued and outstanding
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Accompanying Notes to Consolidated Financial Statements
March 29, 2003
March 30, 2002
$
$
$
5,005
3,245
10,244
100
488
-
19,082
674
16,353
1,162
18,189
15,915
2,274
-
433
21,789
1,723
249
1,038
859
796
76
719
5,460
10
-
359
5,829
-
$
$
$
7,180
3,881
11,369
701
320
4,841
28,292
408
16,590
1,162
18,160
14,098
4,062
20
506
32,880
1,426
224
1,249
779
780
89
610
5,157
94
546
422
6,219
-
-
-
12,695
3,265
15,960
21,789
$
12,634
14,027
26,661
32,880
$
19
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
(In thousands except share data)
Net sales
Cost of sales
Gross profit
Product development
Selling, general and administrative
Amortization of intangibles
Goodwill impairment
Operating expenses
Operating income (loss)
March 29, 2003
March 30, 2002
March 31, 2001
$
22,281
16,378
5,903
5,644
6,800
20
-
12,464
$
39,036
27,501
11,535
7,001
8,729
182
173
16,085
(6,561)
(4,550)
25
63
(4,462)
(2,360)
(2,102)
-
(2,102)
(0.46)
-
(0.46)
(0.46)
-
(0.46)
4,604
4,604
$
$
$
$
$
Other income (expense)
Interest income, net
Earnings (loss) before provision (benefit) for income taxes
and cumulative effect of accounting change
Provision (benefit) for income taxes
Earnings (loss) before cumulative effect of accounting change
Cumulative effect of accounting change
Net earnings (loss)
(163)
60
(6,664)
4,098
(10,762)
-
$
(10,762)
Basic earnings (loss) per share:
Before cumulative effect of accounting change
Cumulative effect of accounting change
Basic earnings (loss) per share
Diluted earnings (loss) per share:
Before cumulative effect of accounting change
Cumulative effect of accounting change
Diluted earnings (loss) per share
Weighted average basic common shares outstanding
Weighted average diluted common shares outstanding
See Accompanying Notes to Consolidated Financial Statements
(2.31)
-
(2.31)
(2.31)
-
(2.31)
4,663
4,663
$
$
$
$
20
$
$
$
$
$
$
54,159
35,103
19,056
5,087
10,713
232
-
16,032
3,024
232
205
3,461
1,040
2,421
(520)
1,901
0.54
(0.12)
0.42
0.51
(0.11)
0.40
4,474
4,803
(In thousands except share data)
Balance at March 25, 2000
Comprehensive Income – net
Net earnings
Stock issuance under stock
option plans
Tax benefit associated with exercise
of stock options
Balance at March 31, 2001
Comprehensive Income – net
Net earnings
Stock issuance under stock
option plans
Tax benefit associated with exercise
of stock options
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY AND COMPREHENSIVE INCOME (LOSS)
Common Stock
Shares
Amount
Comprehensive
Income (Loss)
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
4,431,008
$
11,921
$
-
$ -
$
14,228
$
26,149
-
111,686
-
-
367
58
4,542,694
$
12,346
$
-
106,250
-
-
239
49
1,901
-
-
-
(2,102)
-
-
-
(10,762)
-
-
-
-
-
1,901
1,901
-
-
367
58
$ -
$
16,129
$
28,475
-
-
-
(2,102)
(2,102)
-
-
239
49
$ -
$
14,027
$
26,661
-
-
(10,76)
(10,76)
-
61
$ -
$
3,265
$
15,960
Balance at March 30, 2002
Comprehensive Income – net
Net earnings
Stock issuance under stock
option plans
4,648,944
$
12,634
-
44,136
-
61
Balance at March 29, 2003
4,693,080
$
12,695
$
$
See Accompanying Notes to Consolidated Financial Statements
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
(In thousands)
Cash flows provided from operations:
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to
net cash (used in) provided by operations:
Provision for bad debt
Depreciation and amortization
Impairment of Goodwill
Tax benefit from employee stock options
(Gain) Loss on sales of fixed assets
Deferred income taxes
Changes in operating assets and liabilities:
Trade accounts receivable
Inventories
Prepaid expenses
Accounts payable
Accrued commissions
Accrued payroll and benefits
Accrued warranty
Accrued other expenses
Customer advances
Income taxes receivable/payable
Net cash (used in) provided by operations
Cash flows from investing activities:
Proceeds from sale of property and equipment
Purchases of property and equipment
Other assets
Net cash used in investing activities
Cash flows from financing activities:
Issuance of common stock
Payment on notes payable and other long term liabilities
Payments on capital leases
Net cash (used in) provided by financing activities
(Decrease) increase in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
Supplementary disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest
Non-cash investing and financing activities:
Purchases under capital lease obligations
See Accompanying Notes to Consolidated Financial Statements
March 29, 2003
March 30, 2002
March 31, 2001
$
(10,762)
$
(2,102)
$
1,901
(5)
1,954
-
-
7
4,295
641
1,125
(168)
297
25
(211)
80
109
16
601
(1,996)
7
(160)
73
(80)
61
(63)
(97)
(99)
(2,175)
7,180
5,005
6
1
-
$
96
2,216
173
49
(1)
(1,531)
3,799
3,939
229
(1,921)
(211)
(438)
47
62
90
(701)
3,795
13
(708)
603
(92)
239
(29)
(202)
8
3,711
3,469
7,180
56
21
103
$
8
2,120
-
58
(20)
(205)
1,419
(1,072)
20
(718)
(190)
49
179
(613)
(846)
(139)
1,951
26
(1,645)
(489)
(2,108)
367
(78)
(118)
171
14
3,455
3,469
988
4
155
$
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
The Company The accompanying consolidated financial statements include the accounts of Giga-tronics and its
wholly owned subsidiaries. Giga-tronics and its subsidiary companies design, manufacture and market a broad line
of test and measurement equipment used in the development, test, and maintenance of wireless communications
products and systems, flight navigational equipment, electronic defense systems, and automatic testing systems.
The Company also manufactures and markets a line of test, measurement, and handling equipment used in the
manufacturing of semiconductor devices. The Company’s products are sold worldwide to customers in the test and
measurement and semiconductor industries. During March 2002 the Company closed its United Kingdom (UK)
research & development facility. The Company currently has no other foreign-based operations or material
amounts of identifiable assets in foreign countries. Its gross margins on foreign and domestic sales are similar, and
all non-U.S. sales are made in U.S. dollars.
Principles of Consolidation The consolidated financial statements include the accounts of Giga-tronics and its
wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that effect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fiscal Year The Company’s financial reporting year consists of either a 52 week or 53 week period ending on the
last Saturday of the month of March. Fiscal year 2003 and 2002 contained 52 weeks, while fiscal year 2001
contained 53 weeks.
Reclassifications Certain reclassifications, none of which affected net income (loss), have been made to prior
year balances in order to conform to the current year presentation.
Revenue Recognition The Company records revenue in accordance with SAB 101, Revenue Recognition in
Financial Statements. As such, revenue is recorded when there is evidence of an arrangement, delivery has
occurred, the price is fixed and determinable, and collectability reasonably assured. This occurs when products are
shipped, unless the arrangement involves acceptance terms. If the arrangement involves acceptance terms, the
Company defers revenue until product acceptance is received. The Company has not entered into any long-term
contracts that would require revenue recognition in accordance with Statement of Position 81-1. Further, sales
made to distributors do not include price protection or product return rights, except for product defects covered
under warranty arrangements. The Company has no other post-shipment obligations.
The Company’s warranty policy generally provides three years for Fast Switching Microwave Synthesizers
and Universal Power Meters and one year for all other products. The Company’s policy is to accrue the estimated
cost of warranty coverage at the time the sale is recorded. The estimated cost of warranty coverage is based on the
Company’s actual historical experience with its current products or similar products. For new products, the
required reserve is based on historical experience of similar products until such time as sufficient historical data has
been collected on the new product. The Company adopted the provisions of FASB Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others”, in December 2002. For the required disclosures regarding a reconciliation of changes in
the Company’s product warranty liabilities, see Note 10 to the consolidated financial statements.
23
During the fourth quarter of fiscal 2001, the Company adopted Staff Accounting Bulletin (SAB) 101,
Revenue Recognition in Financial Statements, effective March 26, 2000. Prior to the adoption of SAB 101, the
Company recognized revenue on sales with final customer acceptance upon delivery and provided for the estimated
costs of installation obligations at the time the revenue was recognized. The Company recorded a cumulative effect
adjustment related to this change in accounting of $520,000, net of income taxes at the beginning of fiscal year
2001. The adoption of SAB 101 resulted in the deferral of $2,165,000 in revenue as of the beginning of the 2001
fiscal year, and subsequent recognition of the deferred sales during the year.
Cash Equivalents The Company considers all highly liquid debt instruments with remaining maturity dates of 90
days or less from date of purchase to be cash equivalents.
Inventories Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis.
Property and Equipment Property and equipment are stated at cost. Depreciation is calculated using the straight-
line method over the estimated useful lives of the respective assets, which range from three to ten years for
machinery and equipment and office fixtures. Leasehold improvements and assets acquired under capital leases are
amortized using the straight-line method over the shorter of the estimated useful lives of the respective assets or the
lease term. Recoverability of property and equipment is measured by comparison of its carrying amount to future
cash flows the property and equipment are expected to generate. The Company assesses the recoverability of
enterprise level goodwill by determining whether the unamortized goodwill balance can be recovered through
undiscounted future cash flows of the acquired operation.
Deferred Rent Rent expense is recognized in an amount equal to the minimum guaranteed base rent plus future
rental increases amortized on the straight-line basis over the terms of the leases, including free rent periods.
Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. Future tax benefits are subject to a valuation allowance when management is unable to conclude
that its deferred tax assets will more likely than not be realized from the results of operations.
Patents and Licenses Patents and licenses are being amortized using the straight-line method over periods of five
to seven years. As of March 29, 2003 and March 30, 2002 accumulated amortization on patents and licenses was
$2,196,000 and $2,176,000, respectively.
Goodwill The Company amortized goodwill using the straight-line method over a period of five years. In March
2002, the Company determined that the remaining goodwill balance was impaired and recorded an impairment
charge on the remaining balance of $173,000.
Pre-production costs The Company incurs pre-production costs on certain long-term supply arrangements. The
costs, which represent non-recurring engineering and tooling costs, are capitalized as other assets and amortized
over their useful life when reimbursable by the customer. Otherwise, they are expensed as incurred. Subsequent to
fiscal 2002 year end, a telecommunications equipment customer of the Microsource division commenced
liquidation proceedings. As a result, the orders under the long-term production contract with this customer were
cancelled and Giga-tronics recorded a write-off of $1,100,000 of inventory and pre-production costs in the fourth
quarter of fiscal 2002. Included in other assets as of March 29, 2003 and March 30, 2002 were capitalized pre-
production costs of $341,000, and $431,000, respectively.
Product Development Costs Product development costs are charged to operations in the year incurred.
24
Software Development Costs Development costs included in the research and development of new products and
enhancements to existing products are expensed as incurred until technological feasibility in the form of a working
model has been established. To date, completion of software development has been concurrent with the
establishment of technological feasibility, and accordingly, no costs have been capitalized.
Stock-based Compensation The Company uses the intrinsic value method to account for employee stock-based
compensation. In accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”, the Company is
required to disclose the effects on net earnings and earnings per share as if it had elected to use the fair value
method to account for employee stock-based compensation plans. Had the Company recorded a charge for the fair
value of options granted consistent with SFAS No. 123, net earnings (loss) and net earnings (loss) per share would
have been changed to the pro-forma (unaudited) amounts shown below:
Years ended
(In thousands except per share data) March 29, 2003 March 30, 2002 March 31, 2001
Net earnings (loss)
As reported
Pro-forma
Net earnings (loss) per share – basic
As reported
Pro-forma
Net earnings (loss) per share – diluted
As reported
Pro-forma
$
(10,762)
(10,965)
$
(2,102)
(2,373)
$
1,901
1,537
(2.31)
(2.35)
(2.31)
(2.35)
(0.46)
(0.52)
(0.46)
(0.52)
0.42
0.34
0.40
0.32
For purposes of computing pro-forma (unaudited) consolidated net earnings (loss), the fair value of each
option grant and Employee Stock Purchase Plan purchase right is estimated on the date of grant using the Black
Scholes option pricing model. The assumptions used to value the option grants and purchase rights are stated
below:
Years ended March 29, 2003 March 30, 2002 March 31, 2001
Expected life of options
Expected life of purchase rights
Annualized volatility
Risk-free interest rate
Dividend yield
4 years
6 mos
60%
2.90 to 4.49
Zero
4 years
6 mos
60%
4.39 to 4.93
Zero
4 years
6 mos
60%
4.64 to 6.30
Zero
Earnings (Loss) Per Share Basic earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share incorporate the incremental shares
issuable upon the assumed exercise of stock options using the treasury method. Antidilutive options are not
included in the computation of diluted earnings per share.
Financial Instruments and Concentration of Credit Risk Financial instruments, which potentially subject the
Company to credit risk consist principally of cash, cash equivalents and trade accounts receivable. The Company’s
cash equivalents consist principally of overnight deposits and money market funds. Cash and cash equivalents are
held in recognized depository institutions. Concentration of credit risk in trade accounts receivable results
primarily from sales to major customers. The Company individually evaluates the creditworthiness of its customers
and generally does not require collateral or other security.
Fair Market Value of Financial Instruments The carrying amount for the Company’s cash equivalents, trade
accounts receivable and accounts payable approximates fair market value because of the short maturity of these
financial instruments.
Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143, “Accounting Obligations associated with the Retirement of Long-Lived Assets.” SFAS No.
143 addresses financial accounting and reporting for the retirement obligation of an asset. SFAS No. 143 states that
companies should recognize the asset retirement cost, at its fair value, as part of the asset cost and classify the
25
accrued amount as a liability in the balance sheet. The asset retirement liability is then accreted to the ultimate
payout as interest expense. The initial measurement of the liability would be subsequently updated for revised
estimates of the discounted cash outflows. SFAS No. 143 was effective for fiscal years beginning after June 15,
2002. The Company does not expect the adoption of SFAS No. 143 will have a material effect on the Company’s
financial position or results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets." Statement No. 144 addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. Statement No. 144 retains the fundamental provisions in Statement No. 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while
also resolving significant implementation issues associated with Statement No. 121. Statement No. 144 also retains
the basic provisions of APB Opinion No. 30 on how to present discontinued operations in the statement of
operations, but broadens that presentation to include a component of an entity (rather than a segment of a business).
The Company adopted the provisions of Statement No. 144 effective March 31, 2002. The impact of adopting
Statement No. 144 did not have a material effect on the Company's financial position or results of operations.
SFAS No. 145, “Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS Statement No.
13, and Technical Corrections” (“SFAS 145”), updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt.”
SFAS 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. The provisions of SFAS 145 related to SFAS No.4
and SFAS No. 13 are effective for fiscal years beginning and transactions occurring after May 15, 2002,
respectively. The Company does not expect the adoption of SFAS No. 145 will have a material effect on its
financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities,” (“SFAS 146”), requires companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 replaces Emerging
Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of SFAS 146
are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of
SFAS No. 146 did not have a material effect on the Company’s financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45
requires a guarantor to (i) include disclosure of certain obligations and (ii) if applicable, at the inception of the
guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The
disclosure provisions of the Interpretation are effective for financial statements of interim or annual reports that end
after December 15, 2002. The adoption of FIN 45 required additional warranty activity disclosures for the
Company. The recognition and measurement provisions of FIN 45 are effective for guarantees issued or modified
after December 29, 2002. The adoption of FIN 45 did not have a material effect on the Company’s financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-
Transition and Disclosure-An Amendment of FASB Statement No. 123.” SFAS No. 148 amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that
chooses to change to the fair-value-based method of accounting for stock-based employee compensation. It also
amends the disclosure provisions of that statement to require prominent disclosure about the effects that accounting
for stock-based employee compensation using the fair-value based method would have on reported net income and
earnings per share and to require prominent disclosure about the entity’s accounting policy decisions with respect to
stock-based employee compensation. Certain of the disclosure requirements are required for all companies,
regardless of whether the fair value method or intrinsic value method is used to account for stock-based employee
compensation arrangements. The Company accounts for its stock option plan in accordance with the recognition
and measurement principles of Accounting Principles Opinion No. 25, Accounting for Stock Issued to Employees.
26
The amendments to SFAS No. 123 are effective for financial statements for fiscal years ended after December 15,
2002 and for interim periods beginning after December 15, 2002. The adoption of the disclosure requirements of
SFAS No. 148 did not have a material effect on the Company’s financial position or results of operations.
2 Cash and Cash Equivalents
Cash and cash equivalents consisted of the following at March 29, 2003 and March 30, 2002:
M a r c h 2 9 , 2 0 0 3
( I n t h o u s a n d s )
C a s h a n d C a s h E q u i v a l e n t s
F a i r
A m o r t i z e d
V a l u e
C o s t
C a s h
M o n e y m a r k e t f u n d s
Ca s h a n d c a s h e q u i v a l e n t s
$
$
9 4 3
4 , 0 6 2
5 , 0 0 5
$
9 4 3
4 , 0 6 2
$ 5 , 0 0 5
M a r c h 3 0 , 2 0 0 2
( I n t h o u s a n d s )
C a s h a n d C a s h E q u i v a l e n t s
F a i r
A m o r t i z e d
V a l u e
C o s t
C a s h
M o n e y m a r k e t f u n d s
Ca s h a n d c a s h e q u i v a l e n t s
$
$
1 , 2 4 5
5 , 9 3 5
7 , 1 8 0
$ 1 , 2 4 5
5 , 9 3 5
$ 7 , 1 8 0
3 Inventories
Years ended
(In thousands)
Raw materials
Work-in-progress
Finished goods
Demonstration inventory
4 Selling Expenses
March 29, 2003
March 30, 2002
$
$
4,669
3,427
1,096
1,052
10,244
$
$
6,157
3,852
683
677
11,369
Selling expenses consist primarily of commissions paid to various marketing agencies. Commission expense
totaled $1,039,000, $1,620,000, and $2,579,000 in fiscal 2003, 2002, and 2001, respectively. Advertising costs
which are expensed as incurred totaled $144,000, $362,000, and $579,000 for fiscal 2003, 2002, and 2001,
respectively.
5 Significant Customers and Industry Segment Information
The Company has five reportable segments: Giga-tronics Instrument Division, ASCOR, Microsource,
DYMATiX, and Corporate. Giga-tronics Instrument division produces a broad line of test and measurement
equipment used in the development, test and maintenance of wireless communications products and systems, flight
navigational equipment, electronic defense systems and automatic testing systems. ASCOR designs, manufactures,
and markets a line of switching devices that link together many specific purpose instruments that comprise
automatic test systems. Microsource develops and manufactures a broad line of YIG (Yttrium, Iron, Garnet) tuned
oscillators, filters and microwave synthesizers, which are used in a wide variety of microwave instruments or
devices. DYMATiX, which includes Viking Semiconductor Equipment, Inc. and Ultracision, Inc., manufactures
27
and markets optical inspection equipment used to test semiconductor devices. Corporate handles the financing
needs of each segment and lends funds to each segment as required.
The accounting policies for the segments are the same as those described in the "Summary of Significant
Accounting Policies." The Company evaluates the performance of its segments and allocates resources to them
based on earnings before income taxes. Segment net sales includes sales to external customers. Segment pre-tax
loss includes an allocation for corporate expenses, amortization of goodwill, and interest expense on borrowings
from Corporate. Corporate expenses are allocated to the reportable segments based principally on full time
equivalent headcount. Interest expense is charged at approximately prime which is currently 5% for cash required
by each segment. Goodwill associated with acquisitions are recorded as assets of the individual segments. Assets
include accounts receivable, inventories, equipment, cash, deferred income taxes, prepaid expenses and other long-
term assets. The Company accounts for inter-segment sales and transfers at terms that allow a reasonable profit to
the seller. During the periods reported there were no significant inter-segment sales or transfers.
The Company's reportable operating segments are strategic business units that offer different products and
services. They are managed separately because each business utilizes different technology and requires different
marketing strategies. All of the businesses except for Giga-tronics Instrument Division were acquired. The
Company’s chief operating decision maker is considered to be the Company’s Chief Executive Officer (“CEO”).
The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated
information about revenues and pre-tax income by operating segment. The tables below present information for the
fiscal years ended in 2003, 2002 and 2001:
March 29, 2003 (In thousands):
Revenue
Interest income
Interest expense
Depreciation and amortization
Pre-tax income (loss)
Assets
March 30, 2002 (In thousands):
Revenue
Interest income
Interest expense
Depreciation and amortization
Income before taxes and accounting change
Assets
March 31, 2001 (In thousands):
Instrument Division
$ 9,305
17
(36)
556
(3,477)
9,492
ASCOR
$ 3,830
28
-
108
(473)
4,559
Microsource
$ 7,687
2
(460)
1,250
(999)
7,480
DYMATiX
$ 1,459
-
(258)
40
(2,594)
3,596
Corporate
$ -
61
706
-
879
(3,338)
Total
$ 22,281
108
(48)
1,954
(6,664)
21,789
Instrument Division
$ 21,559
28
(130)
593
(548)
12,122
ASCOR
$ 3,768
74
-
138
(655)
3,479
Microsource
$ 10,036
-
(561)
1,408
(3,011)
9,661
DYMATiX
$ 3,673
4
(234)
77
(1,182)
4,037
Corporate
$ -
69
813
-
934
3,581
Total
$ 39,036
175
(112)
2,216
(4,462)
32,880
Revenue
Interest income
Interest expense
Depreciation and amortization
Income before taxes and accounting change
Assets
Instrument Division
$ 25,001
25
(196)
604
1,193
15,518
ASCOR
$ 7,503
93
(4)
148
1,436
4,172
Microsource
$ 13,208
6
(744)
1,270
(985)
11,937
DYMATiX
$ 8,447
3
(354)
98
434
5,236
Corporate
$ -
109
1,267
-
1,383
455
Total
$ 54,159
236
(31)
2,120
3,461
37,318
The Company’s Giga-tronics Instrument Division, ASCOR, and Microsource segments sell to agencies of the U.S.
Government and U.S. defense-related customers. In fiscal 2003, 2002, and 2001 U.S. Government and U.S. defense-
related customers accounted for 39%, 17%, and 11%, of sales, respectively. During fiscal 2003, a Japanese distributor of
the Company, Midoriya, accounted for less than 10% of the Company’s revenues and a negligible amount outstanding in
accounts receivable. During 2002 and 2001, Midoriya accounted for 16% and 10% of the Company’s consolidated sales,
respectively. At fiscal 2002 year end, Midoriya had a negligible amount outstanding in accounts receivable while they
composed about 11% of receivables at the fiscal year end of 2001.
28
Export sales accounted for 23%, 44%, and 41% of the Company’s sales in fiscal 2003, 2002, and 2001, respectively.
Export sales by geographical area are shown below:
Years ended
(In thousands) March 29, 2003 March 30, 2002 March 31, 2001
Americas
Europe
Asia
Rest of world
$
$
306
2,075
1,766
964
5,111
$
$
1,112
4,860
9,412
1,721
17,105
$
$
4,256
6,831
9,512
1,473
22,072
6 Earnings (loss) per Share
Net earnings (loss) and shares used in per share computations for the years ended March 29, 2003, March 30, 2002
and March 31, 2001 are as follows:
Years ended
(In thousands except per share data) March 29, 2003 March 30, 2002 March 31, 2001
Net earnings (loss)
Weighted average:
Common shares outstanding
Potential common shares
Common shares assuming dilution
Net earnings (loss) per share of common stock
Net earnings (loss) per share of common stock
assuming dilution
Stock options not included in computation
$ (10,762)
$
(2,102)
$
1,901
4,663
-
4,663
(2.31)
(2.31)
528
$
$
4,604
-
4,604
(0.46)
(0.46)
550
$
$
4,474
329
4,803
0.42
0.40
57
$
$
The number of stock options not included in the computation of diluted earnings per share (EPS) for the period
ended March 29, 2003 and March 30, 2002 is a result of the Company’s loss from continuing operations and therefore
the options are antidilutive. The number of stock options not included in the computation of diluted EPS for the period
ending March 31, 2001 reflects stock options where the exercise prices were greater than the average market price of the
common shares and are therefore antidilutive.
29
7 Income Taxes
Following are the components of the provision (benefit) for income taxes:
Years ended
(In thousands) March 29, 2003 March 30, 2002 March 31, 2001
Current:
Federal
State
Deferred:
Federal
State
Charge in lieu of taxes attributable to
employer stock option plans
Goodwill, for initial recognition of acquired
tax benefits that previously were included in
the valuation allowance
$
$
-
4
4
(760)
4
(756)
$
1,063
66
1,129
2,885
1,200
4,085
9
-
(1,143)
(510)
(1,653)
49
-
58
(263)
(205)
58
58
Provision (benefit) for income taxes
$
4,098
$
(2,360)
$
1,040
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities
are as follows:
Years ended
(In thousands) March 29, 2003 March 30, 2002
Current tax assets, net
Noncurrent tax asset (liabilities)
Net deferred taxes
Future state tax effect
Allowance for doubtful accounts
Fixed asset depreciation
Inventory reserves and additional costs capitalized
Accrued vacation
Accrued warranty
Other accrued liabilities
Net operating loss carryforward
Income tax credits
Valuation allowances
$
$
$
-
-
-
$
$
4,841
(546)
4,295
(417)
151
(203)
3,272
152
368
256
7,469
1,894
(12,942)
-
(274)
154
(586)
3,309
191
334
217
5,964
1,317
(6,331)
4,295
$
30
Years ended
(In thousands except percentages) March 29, 2003 March 30, 2002 March 31, 2001
Statutory federal income tax (benefit)
Beginning of year change in deferred
Tax asset valuation allowance
State income tax, net of federal benefit
Nontax deductible expenses
Tax credits
Goodwill and patent amortization
Interest income exempt from federal tax
Other
Effective income tax expense (benefit)
$ (2,266)
(34.0) %
$ (1,517)
(34.0) %
$ 1,176
34.0 %
7,176
(253)
9
(577)
-
-
9
$ 4,098
107.8
(3.8)
0.1
(8.7)
-
-
.1
61.5 %
117
(143)
9
(894)
142
(82)
8
$ (2,360)
2.6
(3.2)
0.2
(20.0)
3.2
(1.8)
.3
(52.7) %
-
200
6
(297)
60
(58)
(47)
$ 1,040
-
5.8
0.2
(8.6)
1.7
(1.7)
(1.4)
30.0 %
The change in valuation allowance from March 30, 2002 to March 29, 2003 an increase of was $6,611,000.
The change in valuation allowance from March 31, 2001 to March 30, 2002 was a decrease of $161,000. The
change in valuation allowance from March 25, 2000 to March 31, 2001 was a decrease of $395,000.
The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets,
which may not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future
taxable income during the periods in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies in making this assessment. The Company is
presently unable to conclude that its deferred tax assets will more likely than not be realized from the results of
operations. Accordingly, the Company has provided a valuation allowance on its net deferred tax assets for the
year ended March 29, 2003.
During the year ended March 27, 1999, the Company acquired approximately $7,600,000 of deferred tax
assets in the acquisition of Microsource, which was fully offset by a valuation allowance. Subsequent recognition
of tax benefits relating to the valuation allowance for deferred tax assets of Microsource are allocated to goodwill
and the remainder to income tax benefit. As of March 31, 2002, goodwill had been reduced by $452,000 for the tax
benefits realized from the Microsource deferred tax assets.
During the year ended March 30, 2002 and March 31, 2001, disqualifying employee stock option
dispositions resulted in an income tax deduction to the Company of approximately $122,000 and $145,000
respectively, and a tax benefit of approximately $49,000 and $58,000 respectively. The tax benefit has been
reflected as an increase to the Company’s paid-in capital in the accompanying financial statements.
8 Stock Options and Employee Benefit Plans
Stock Option Plan The Company established a 1990 Stock Option Plan which provided for the granting of
options for up to 700,000 shares of common stock. The 1990 Plan expired during the 2001 fiscal year. The
Company subsequently established the 2000 Stock Option Plan, which provides for the granting of options for up to
700,000 shares of common stock at 100% of fair market value at the date of grant, with each grant requiring
approval by the Board of Directors of the Company. Options granted vest in one or more installments as set forth
in the relevant option agreements and must be exercised while the grantee is employed by the Company or within a
certain period after termination of employment. Options granted to employees shall not have terms in excess of 10
years from the grant date. Holders of options may be granted stock appreciation rights (SAR’s), which entitle them
to surrender outstanding options for a cash distribution under certain changes in ownership of the Company, as
defined in the stock option plan. As of March 29, 2003, no SAR’s have been granted under the option plan. As of
March 29, 2003, the total number of shares of common stock available for issuance is 385,350 under the 2000 stock
option plan. All outstanding options have a term of five years.
31
Following is a summary of stock option activity:
Weighted Average
Of Options Granted Exercisable Outstanding Fair Value
Total Options
Options
Per Share Weighted
Average Fair Value
Outstanding as of March 25, 2000
131,424
Exercised
Forfeited
Granted
$6.407
Outstanding as of March 31, 2001
143,988
Exercised
Forfeited
Granted
$4.290
Outstanding as of March 30, 2002
194,437
Exercised
Forfeited
Granted
$2.605
Outstanding as of March 29, 2003
269,874
553,985
(84,212)
(89,737)
214,700
594,736
(67,275)
(145,437)
168,150
550,174
(12,188)
(113,750)
104,000
528,236
$ 2.514
2.247
4.786
6.407
$ 3.610
2.163
3.783
4.290
$ 3.838
2.094
4.097
2.605
$ 3.580
Options Outstanding and Exercisable as of March 29, 2003, by Price Range
Weighted
Average
Weighted
Average
Weighted Average
Remaining
Contractual Life
1.31
2.99
2.38
2.38
$
$
Exercise Price
1.968
3.895
7.140
3.580
Number
of Options
Exercisable
148,036 $
96,088
25,750
269,874 $
Exercise Price
2.094
3.865
7.140
3.206
Range of
Exercise Prices
From $1.22 to $2.09
From $2.12 to $5.75
From $6.13 to $8.88
From $1.22 to $8.88
Total
Options
Outstanding
173,036
303,700
51,500
528,236
Employee Stock Purchase Plan Under the Company’s Employee Stock Purchase Plan (the Purchase Plan),
employees meeting specific employment qualifications are eligible to participate and can purchase shares semi-
annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement
or end of the offering period. The Purchase Plan permits eligible employees to purchase common stock through
payroll deductions for up to 10% of qualified compensation. As of March 29, 2003, 67,337 shares remain available
for issuance under the Purchase Plan. The weighted average fair value of the purchase rights granted in fiscal 2003
was $1.100.
401(k) Plan The Company has established 401(k) plans which cover substantially all employees. Participants
may make voluntary contributions to the plans up to 20% of their defined compensation. The Company is required
to match a percentage of the participants’ contributions in accordance with the plan. Participants vest ratably in
Company contributions over a four-year period. Company contributions to the plans for fiscal 2003, 2002, and
2001 were approximately $159,000, $185,000, and $208,000, respectively.
9 Commitments
The Company leases a 47,300 square foot facility located in San Ramon, California, under a twelve-year
lease (as amended) that commenced in April 1994. The Company leases a 18,756 square foot facility located in
Fremont, California, under a seven-year lease that commenced in July 1999. The Company leases a 33,439 square
foot facility located in Santa Rosa, California, under a twenty-year lease that commenced in July 1993 and amended
in April 2003. These facilities accommodate all of the Company’s present operations. The Company also has
acquired equipment under capital and leases other equipment under operating leases. The future minimum lease
payments for operating equipment and facility leases are shown below:
32
Fiscal years
(In thousands)
2004
2005
2006
2007
2008
Thereafter
$
$
1,286
1,312
1,325
932
341
1,762
6,958
The aggregate rental expense was $2,063,000, $1,951,000, and $1,816,000 in fiscal 2003, 2002, and 2001,
respectively.
As of March 29, 2003, Property and Equipment includes equipment under capital lease of $241,000 and related
accumulated amortization of $95,000. As of March 30, 2002, Property and Equipment includes equipment under
capital lease of $491,000 and related accumulated amortization of $223,000. The future minimum lease payments
for capital leases are shown below:
Fiscal years
(In thousands)
2004
2005
Total
Less interest costs
Present value of minimum lease payments
Less current portion
Long term portion of capital lease obligations
$
$
81
10
91
5
86
76
10
The Company is committed to purchase certain inventory under non-cancelable purchase orders. As of March
29, 2003, total non-cancelable purchase orders were approximately $1,142,000 through fiscal 2004 and $187,000
beyond fiscal 2004 and were scheduled to be delivered to the Company at various dates through March 2004.
10 Warranty Obligations
The Company records a liability for estimated warranty obligations at the date products are sold.
Adjustments are made as new information becomes available. The provisions of FASB Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others”, which the Company adopted in December 2002, require disclosures about the guarantees
that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The
following provides a reconciliation of changes in the Company’s warranty reserve. The Company provides no
other guarantees.
Years ended
(In thousands) March 29, 2003 March 30, 2002 March 31, 2001
Balance at beginning of year
Provision for current year sales
Warranty costs incurred
Balance at end of year
$
$
779
750
(670)
859
$
$
731
875
(827)
779
$
$
553
794
(616)
731
33
I N D E P E N D E N T A U D I T O R S’ R E P O R T
The Board of Directors and Shareholders
Giga-tronics Incorporated:
We have audited the accompanying consolidated balance sheets of Giga-tronics Incorporated and
subsidiaries as of March 29, 2003 and March 30, 2002, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three year period ended March 29, 2003. These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Giga-tronics Incorporated and subsidiaries as of March 29, 2003 and March 30,
2002, and the results of their operations and their cash flows for each of the years in the three year period ended
March 29, 2003, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective March 26, 2000, the Company
changed its method of accounting for certain equipment sales.
/s/
KPMG LLP
Mountain View, California
May 2, 2003
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth under the heading “Election of Directors” of the
Company’s Proxy Statement for its 2003 Annual Meeting of Shareholders, incorporated herein by reference. This
Proxy Statement is to be filed no later than 120 days after the close of the fiscal year ended March 29, 2003.
Name
Age
George H. Bruns, Jr.
84
Mark H. Cosmez II
51
GIGA-TRONICS INCORPORATED
EXECUTIVE OFFICERS
Position
Chief Executive Officer since January, 1995, Chairman of the Board and a
Director of the Company. He provided seed financing for the Company in 1980
and has been a Director since inception. Mr. Bruns is General Partner of The
Bruns Company, a private venture investment and management consulting firm.
Mr. Bruns is Director of Testronics, Inc. of McKinney, Texas.
Vice President, Finance/Chief Financial Officer, Giga-tronics since October
1997. Before joining Giga-tronics, Mr. Cosmez was the Chief Financial Officer
for Pacific Bell Public Communications. Prior to 1997, he was the Vice
President of Finance and Chief Financial Officer for International
Microcomputer Software Inc., a NASDAQ-traded software company.
Jeffrey T. Lum
57
President, ASCOR, Inc. since November 1987. Mr. Lum founded ASCOR in
1987 and has been President since inception. Before founding ASCOR, Mr.
Lum was Vice President and founder of Autek Systems Corporation.
Daniel S. Markowitz
52
William E. Wilson
63
President, DYMATiX, a joint venture between Ultracision, Inc. and Viking
Semiconductor Equipment, Inc. since January 2000. Also, President of
Ultracision, Inc. and Viking Semiconductor Equipment, Inc. since April 1999.
Assistant to the Chairman of Giga-tronics, Inc. from September 1998 to March
1999. Vice President, Automation Products, Ultracision, Inc. from February
1996 to August 1998. Mr. Markowitz was the General Manager of Mar
Engineering from September 1993 to January 1996. Mar Engineering is a
manufacturer of precision machined components for the aerospace industry.
President of Microsource, Inc. since April 2001. Mr. Wilson has been a
Director of the Company since December 1998. Before joining the Company
as the President of Microsource, Inc., Mr. Wilson was the Chairman and CEO
of Microwave Technology Incorporated of Fremont, CA, a producer of
Microwave Devices and Amplifiers with broad application to defense
electronics, telecommunications and the test and measurement industries.
35
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the Company’s compensation of its executive officers is set forth under the heading
“Executive Compensation” of the Company's Proxy Statement for its 2003 Annual Meeting of Shareholders,
incorporated herein by reference. This Proxy Statement is to be filed no later than 120 days after the close of the
fiscal year ended March 29, 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is set forth under
the heading “Stock Ownership of Certain Beneficial Owners and Management” of its Proxy Statement for the 2003
Annual Meeting of Shareholders, incorporated herein by reference. Information about securities authorized for
issuance under equity compensation plans is set forth under the heading “Equity Compensation Plan Information”
of its Proxy Statement for the 2003 Annual Meeting of Shareholders, incorporated herein by reference. This Proxy
Statement is to be filed no later than 120 days after the close of the fiscal year ended March 29, 2003.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth in the Proxy Statement under the section captioned “Transactions with Management and
Others” is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the
supervision and with the participation of the Company’s management, including the Company’s Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective
in ensuring that all material information required to be included in this annual report have been made known to
them in a timely fashion. There were no significant changes in the Company’s internal controls or in other factors
that could significantly affect these controls subsequent to the date of their evaluation.
36
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)
Financial Statements
PART IV
The following financial statements and schedules are filed or incorporated by reference as a part of this report.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
Consolidated Balance Sheets -
As of March 29, 2003 and
March 30, 2002
Consolidated Statements of Operations -
Years Ended March 29, 2003,
March 30, 2002 and March 31, 2001
Consolidated Statements of Shareholders’ Equity and
Comprehensive Income (Loss) -
Years Ended March 29, 2003,
March 30, 2002 and March 31, 2001
Consolidated Statements of Cash Flows -
Years Ended March 29, 2003,
March 30, 2002 and March 31, 2001
Notes to Consolidated Financial Statements
Independent Auditors’ Report
(a)(2) Schedules
Report on Financial Statement Schedule and
Consent of Independent Auditors
Schedule II - Valuation and Qualifying Accounts
Form 10K
(Page No.)
19
20
21
22
23 - 33
34
Form 10-K
(Page No.)
43
44
All other schedules are not submitted because they are not applicable or not required or because the required
information is included in the financial statements or notes thereto.
Except for those portions thereof incorporated by reference in this Form 10-K, the 2003 Annual Report and the
Proxy Statement are not to be deemed filed as part of this report.
(a)(3) Exhibits
Reference is made to the Exhibit Index which is found on page 41 of this Annual Report on Form 10-K.
(b)
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 29, 2003.
37
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
GIGA-TRONICS INCORPORATED
By /s/ GEORGE H. BRUNS JR.
George H. Bruns, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ GEORGE H. BRUNS JR Chairman of the Board
George H. Bruns, Jr.
and Chief Executive Officer
(Principal Executive Officer)
5/27/2003
(Date)
/s/ MARK H.COSMEZ II Vice President, Finance, Chief
Financial Officer and Secretary
Mark H. Cosmez II
(Principal Accounting Officer)
5/27/2003
(Date)
/s/ JAMES A. COLE Director
James A. Cole
5/20/2003
(Date)
/s/ KENNETH A HARVEY
Kenneth A. Harvey
/s/ ROBERT C. WILSON
Robert C. Wilson
/s/ WILLIAM E. WILSON
William E. Wilson
Director
5/22/2003
(Date)
Director
5/23/2003
(Date)
Director
5/22/2003
(Date)
38
GIGA-TRONICS INCORPORATED
INDEX TO EXHIBITS
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.8
Articles of Incorporation of the Registrant, as amended, previously filed as Exhibit 3.1 to Form 10-K for
the fiscal year ended March 27, 1999 and incorporated herein by reference.
By-laws of Registrant, as amended, previously filed as Exhibit 3.2 to Form 10-K for the fiscal year
ended March 28, 1998, and incorporated herein by reference.
Rights Agreement dated as of November 6, 1998 between Giga-tronics Incorporated and ChaseMellon
Shareholder Services LLC, as previously filed on November 9, 1998 as Exhibit 4.1 to Form 8-K and
incorporated herein by reference.
1990 Restated Stock Option Plan and form of Incentive Stock Option Agreement, previously filed on
November 3, 1997 as Exhibit 99.1 to Form S-8 (33-39403) and incorporated herein by reference.**
Standard form Indemnification Agreement for Directors and Officers, previously filed on June 21, 1999,
as Exhibit 10.2 to Form 10-K for the fiscal year ended March 27, 1999 and incorporated herein by
reference.**
Lease between Giga-tronics Incorporated and Calfront Associates for 4650 Norris Canyon Road, San
Ramon, CA, dated December 6, 1993, previously filed as Exhibit 10.12 to Form 10-K for the fiscal year
ended March 26, 1994 and incorporated herein by reference.
Employee Stock Purchase Plan, previously filed on August 29, 1997, as Exhibit 99.1 to Form S-8 (33-
34719), and incorporated herein by reference.**
2000 Stock Option Plan and form of Incentive Stock Option Agreement, previously filed on September
8, 2000 as Exhibit 99.1 to Form S-8 (33-45476) and incorporated herein by reference.**
21*
Significant Subsidiaries.
23.1*
Report on Financial Statement Schedule and Consent of Independent Auditors. (See page 43 of this
Annual Report on Form 10-K.)
99.1*
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
99.2*
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
* Attached as exhibits to this Form 10-K.
** Management contract or compensatory plan or arrangement.
39
C O R P O R A T E I N F O R M A T I O N
L E G A L C O U N S E L
Bingham McCutchen
Three Embarcadero Center
18th Floor
San Francisco, CA 94111
www.bingham.com
T R A N S F E R A G E N T
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10038
www.amstock.com
I N D E P E N D E N T A U D I T O R S
KPMG LLP
500 East Middlefield Road
Mountain View, CA 94043
www.kpmg.com
A N N U A L M E E T I N G
The Company’s Annual Meeting of Shareholders will be
held at 9:30 a.m. on September 9, 2003 at Giga-tronics’
offices located at 4650 Norris Canyon Road, San Ramon,
CA 94583.
F O R M 1 0 – K
A copy of the Company’s Complete Annual Report on Form 10-K
for 2003, filed with the Securities and Exchange Commission, may
be obtained by shareholders without charge by a written request to:
Company Secretary
4650 Norris Canyon Road
San Ramon, CA 94583
C O R P O R A T E I N F O R M A T I O N
D I R E C T O R S
George H. Bruns, Jr.
Chairman and
Chief Executive Officer
James A. Cole 1, 2, 3
General Partner, Windward Ventures
General Partner, Spectra Enterprises
Kenneth A. Harvey 1, 2
President
Peak Consulting Group
Robert C. Wilson 1, 2, 3
Chairman
Wilson & Chambers
William E. Wilson
President
Microsource, Inc.
1 Member, Compensation Committee
2 Member, Audit Committee
3 Member, Nominating Committee
E X E C U T I V E O F F I C E R S
George H. Bruns, Jr.
Chairman and
Chief Executive Officer
Mark H. Cosmez II
Vice President, Finance/
Chief Financial Officer & Secretary
Jeffrey T. Lum
President, ASCOR, Inc.
H E A D Q U A R T E R S
Giga-tronics Incorporated
George H. Bruns, Jr.
Chairman and Chief Executive Officer
4650 Norris Canyon Road
San Ramon, CA 94583
(925) 328-4650
(925) 328-4700 (FAX)
www.gigatronics.com
S U B S I D I A R I E S
ASCOR, Inc.
4384 Enterprise Place
Fremont, CA 94538
(510) 490-2300
(510) 490-8493 (FAX)
www.ascor.com
Microsource, Inc.
1269 Corporate Center Parkway
Santa Rosa, CA 95407
(707) 527-7010
(707) 527-7176 (FAX)
www.microsource-inc.com
DYMATiX
Ultracision, Inc.
Viking Semiconductor Equipment, Inc.
4390 Enterprise Place
Fremont, CA 94538
(510) 353-6000
(510) 353-6006 (FAX)
Daniel S. Markowitz
President, DYMATIX
(Ultracision, Inc. and Viking Semiconductor Equipment, Inc.)
www.dymatix.com
William E. Wilson
President, Microsource, Inc.
Blank Inside Cover
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, CA 94583
(925) 328-4650 (Telephone)
(925) 328-4700 (FAX)
www.gigatronics.com