Consolidated Focus
2007
a n n u a l r e p o r t
J o h n R . R e g a z z i
C h i e f E x e c u t i v e O f f i c e r
Fis c al year 20 07 w as a time of great c hange at Giga -t ro nic s.
Management of the Company’s three independent operating divisions undertook
the effort to plan and implement a consolidation of operations, along with a
restructuring of the organization into a single leadership team. We continued
our strategy to pursue comprehensive representation within the sales territories
and aggressively focus their attention on our targeted markets. In addition,
several Company officers were changed, the workforce was reduced 20%, and
we abandoned our facility in Fremont, California, which we are now actively
seeking to sublet. We also introduced several new products during the year.
Throughout this period, we remained committed to implementing these changes
transparently to our customers and with minimum disruption to our people.
In fiscal 2007, we selected our new ERP system and currently have it running at
two of our divisions. We expect to have it fully implemented by the end of the
third quarter in fiscal 2008. Not only will this system help us run the business
more efficiently, but it will also improve our internal control and help us meet
our Sarbanes-Oxley goals.
Orders improved 6% to $16,158,000 as compared to $15,157,000 for the prior year.
However, expenses were up slightly over the prior year to $9,548,000, and sales
declined 12% to $18,048,000 resulting in a net loss of $(1,867,000) or $0.39 per
fully diluted share. The Company incurred approximately $441,000 in restructur-
ing charges, approximately 80% of which was taken as expense in fiscal year 2007.
Although many of the changes we’ve implemented have been painful, I’m pleased
to report that the first quarter of fiscal year 2008 produced shipments of $4,628,000
and net earnings of $92,000. This compares with shipments of $3,386,000 and a
net loss of $(1,027,000) for the same quarter in the prior year.
Going forward, we are now in an excellent position to approach our customers
with more complete solutions due to the co-location of sales, marketing and
engineering from all divisions in our San Ramon, California facility. Previously,
Giga-tronics products have generally been marketed separately; however, as an
G i g a - t r o n i c s 2 0 07 A n n u a l R e p o r t
“ It is essential that Giga-tronics operate profitably and
to do that we had to become more focused on our core
competencies, then pursue new growth strategies. We
accomplished that greater focus during fiscal 2007 and
I look forward to pursuing new directions for growth
during fiscal 2008.”
example of our new approach, we’ve recently introduced a new calibration solu-
tion using a combination of our synthesizers and power meters. This solution has
received enthusiastic customer acceptance because it accomplishes the calibra-
tion task in seconds compared to the available alternatives that typically require
more than half an hour to perform the same function. As another example, our
switching products are now marketed together with our instruments to highlight
the Company’s signal routing capability as well as its signal generation expertise.
And our component design teams now have greater visibility into the technology
requirements of our future instruments, permitting more rapid introduction of
new products. Overall, I’m very excited about the impact these synergies are
having on our new product programs.
It is essential that Giga-tronics operate profitably and to do that we had to
become more focused on our core competencies, then pursue new growth
strategies. We accomplished that greater focus during fiscal 2007 and I look
forward to pursuing new directions for growth during fiscal 2008. We will
continue to review our performance and strive to improve our workforce, our
product plans, the effectiveness of our sales channel and the leadership team
on an ongoing basis.
Sincerely,
John R. Regazzi
Chief Executive Officer
G i g a - t r o n i c s 2 0 07 A n n u a l R e p o r t
“ We will continue to review our per formance and
strive to improve our workforce, our product plans, the
effectiveness of our sales channel and the leadership
team on an ongoing basis.”
Cor p or ate Profile
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.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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 31, 2007,
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
(Name of small business issuer in its charter)
California
(State or other jurisdiction of incorporation
or organization)
4650 Norris Canyon Road, San Ramon, CA
(Address of principal executive offices)
Issuer’s telephone number: (925) 328-4650
94-2656341
(I.R.S. Employer Identification No.)
94583
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, No par value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
Check 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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B not contained herein, and no
disclosure will 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-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State issuer’s revenues for its most recent fiscal year: $18,048,000.
The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant
computed by reference to the price at which the common equity was sold or the average bid and asked prices as of
June 11, 2007 was $7,483,188. There were a total of 4,809,021 shares of the Registrant’s Common Stock
outstanding as of June 11, 2007.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into the parts indicated:
PART OF FORM 10-KSB
PART III
DOCUMENT
Registrant’s PROXY STATEMENT for its 2007 Annual Meeting of
Shareholders to be filed no later than 120 days after the close of the fiscal
year ended March 31, 2007.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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. DESCRIPTION OF BUSINESS
General
Giga-tronics Incorporated (Giga-tronics, or the Company) includes operations of Giga-tronics Instrument Division,
ASCOR Inc. (ASCOR), 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 equipment.
Giga-tronics was incorporated on March 5, 1980, 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 April 1, 2007 all ASCOR operations are conducted out of its San Ramon,
California facility. Its Fremont, California facility of approximately 18,700 square feet is available for sub-lease.
Effective May 18, 1998, Giga-tronics acquired Microsource. All the outstanding shares of Microsource were
acquired 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.
Industry Segments
The Company manufactures products used in test, measurement and handling. The Company operates primarily in
four operating and reporting segments, Giga-tronics Instrument Division, ASCOR Inc., Microsource Inc. and
Corporate.
3
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 radio frequency (RF) range (10 kilohertz (kHz) to 75
gigahertz (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 customers’
automated test equipment. The end-user markets for these products are primarily related to defense, aeronautics,
communications, satellite and electronic warfare.
Microsource Inc.
The Microsource segment develops and manufactures a broad line of YIG 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 or
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.
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. Capitalized costs relating to these patents were both incurred and fully
amortized prior to March 1, 2003. Accordingly, these patents have no recorded value included in the Company’s
fiscal 2007 and 2006 consolidated financial statements.
4
The Company is not dependent on trademarks, licenses or franchises. We do utilize certain software licenses in
certain functional aspects for 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
The Company is a leading supplier of microwave and RF test instruments to various United States (U.S.)
government defense agencies, as well as to their prime contractors. Management anticipates sales to U.S.
government agencies and their prime contractors will remain significant in fiscal 2008. U.S. and international
defense-related agencies accounted for 61% and 43% of net sales in fiscal 2007 and 2006, respectively.
Commercial business accounted for the remaining 39% and 57% of net sales in fiscal 2007 and 2006, respectively.
Prior to the last five years, in which the defense business has improved, sales to the defense industry in general and
direct sales to the U.S. 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 2007 and 2006, the U.S. government defense agencies and their prime contractors made up 39% and
19%, respectively, of the Giga-tronics Instrument Division’s revenues.
During fiscal 2007, ASCOR derived 84% of its revenues from the U.S. government defense agencies and their
prime contractors. During fiscal 2006, ASCOR derived 41% of its revenues from the U.S. government defense
agencies and their prime contractors, and 45% from foreign defense agencies and their prime contractors.
During fiscal 2007, Microsource derived 24% of its revenue from an electronic instrument manufacturer and 69%
of its revenues from the U.S. government defense agencies and their prime contractors. During fiscal 2006,
Microsource derived 51% of its revenue from an electronic instrument manufacturer, 31% of its revenues from the
U.S. government defense agencies and their prime contractors, and another 12% from foreign defense agencies and
their prime contractors.
Other than U.S. government agencies and their defense contractors, no other customer accounted for 10% or more
of consolidated revenues of the Company in fiscal 2007.
Other than U.S. government agencies and their defense contractors, one other customer accounted for 10% or more
of consolidated revenues of the Company in fiscal 2006. The Company did 16% of its fiscal 2006 consolidated
revenue with an electronic instrument manufacturer. In prior years, the Company did less than 10% of its business
with this customer.
Other than U.S. government agencies and their prime 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
5
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 31, 2007, the Company’s backlog of unfilled orders was approximately $8,439,000 compared to
approximately $10,329,000 at March 25, 2006. As of March 31, 2007, there were approximately $3,145,000 in
unfilled orders that were scheduled for shipment beyond one year, as compared to approximately $4,466,000 at
March 25, 2006. 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.
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. 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 of similar
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 overall product with respect to each of the customer’s requirements, but rather the best product relative to
the 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.
6
Sales and Marketing
Giga-tronics Instrument Division, ASCOR, and Microsource 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. Product development expenses totaled approximately $3,731,000 and $3,760,000 in fiscal
2007 and 2006, respectively.
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’s microwave, RF and power measurement products
are done at its San Ramon facility. The assembly and testing of ASCOR’s switching and connecting devices was
done at its Fremont facility. Effective April 1, 2007 these devices will be assembled and tested at the San Ramon
facility. The assembly and testing of Microsource’s line of YIG 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 31, 2007, Giga-tronics employed 117 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.
Geographic Distribution of Sales
(Dollars in thousands)
Domestic
International
2007
$14,218
3,830
Percent
79.0%
21.0%
2006
$11,549
9,071
Percent
56.0%
44.0%
See footnote 5 of the financial statements for further breakdown of international sales for the last two years.
7
The Company has no 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 demand decreases,
shipments in the current year could decrease more than current projected shipments with a resulting decline in
sales. 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 the Company’s ability to collect amounts due under these
orders. If any of these events occurs, then shipments in the current year could fall below currently projected
shipments and earnings could decline.
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. 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.
Liquidity
Based on current levels of sales and expenses, management believes that cash and cash equivalents remain adequate
to meet anticipated operating needs for the next two years. However, this estimate is based on projections that may
or may not be realized, and therefore actual cash usage could be greater than projected. To operate beyond that term
would require the Company to earn additional cash from operations, renew or obtain a line of credit or obtain
additional funds from other sources. The Company maintains a line of credit for $2,500,000. The Company has
negotiated a new line of credit effective June 18, 2007 which expires on June 17, 2008, however, the Company
does not believe that it needs the line of credit for operating purposes.
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 earnings 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 Capital 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.
8
Performance problems in our products or problems arising from the use of our products together with other
vendors’ products may harm our business and reputation
Products as complex as ours may contain unknown and undetected defects or performance problems. For example,
it is possible that a product might not comply with stipulated specifications under all circumstances. In addition,
our customers generally use our products together with their own products and products from other vendors. As a
result, when problems occur in a combined environment, it may be difficult to identify the source of the problem.
A defect or performance problem could result in lost revenues, increased warranty costs, diversion of engineering
and management time and effort, impaired customer relationships and injury to our reputation generally. To date,
performance problems in our products or in other products used together with ours have not had a material adverse
effect on our business. However, we cannot be certain that a material adverse impact will not occur in the future.
Competition
The Company’s instrument, switch, oscillator and synthesizer products compete with Agilent, Anritsu, Racal, IFR
and Rohde & Schwarz. Many of these companies have substantially greater research and development,
manufacturing, marketing, financial, technological, personnel and managerial resources than Giga-tronics. These
resources also make these competitors better able to withstand difficult market conditions than the Company.
There can be no assurance that any products developed by these competitors will not gain greater market
acceptance than any developed by Giga-tronics.
Giga-tronics acquisitions may not be effectively integrated and their integration may be costly
As part of its business strategy, Giga-tronics may 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. The Company has not made any
acquisitions in the past eight years. 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.
ITEM 2. DESCRIPTION OF PROPERTY
As of March 31, 2007, 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, 2011.
ASCOR’s marketing, sales and engineering offices and manufacturing facilities for its switching and connecting
devices, were located in approximately 18,700 square feet in Fremont, California under a lease that expires on June
30, 2009. The Company effectively abandoned this property as part of its restructuring plan as of March 31, 2007.
The Company has an accrued loss of approximately $346,000 for future lease expense, net of estimated future sub-
lease rental income. All of the above activities are conducted in the San Ramon, California facility effective April
1, 2007. As of March 31, 2007, the Company has not sub-leased the available space.
Microsource’s manufacturing facilities for its YIG tuned oscillators, filters and microwave synthesizers are located
in an approximately 33,400 square foot facility in Santa Rosa, California, which it occupies under a lease expiring
May 31, 2013.
9
The Company believes that its facilities are adequate for its business activities.
ITEM 3. LEGAL PROCEEDINGS
As of March 31, 2007, 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 31,
2007.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Common Stock Market Prices
Giga-tronics’ common stock is traded on the NASDAQ Capital Market (formerly the NASDAQ Small Cap Market)
using the symbol “GIGA”. The Company’s common stock had been quoted on the NASDAQ National Market
until July 22, 2004. NASDAQ informed the Company that it no longer met the National Market listing requirement
of $10,000,000 in minimum shareholders’ equity. Because the Company did not expect to be able to increase its
shareholders’ equity to this amount in the near term, it applied for and was accepted for quotation of its common
stock on the NASDAQ Capital Market under the same ticker symbol “GIGA”. The number of record holders of the
Company’s common stock as of March 31, 2007 was approximately 1,600. 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.
First quarter
Second quarter
Third quarter
Fourth quarter
2007
(3/26-6/24)
(6/25-9/30)
(10/1-12/30)
(12/31-3/31)
High
$ 2.89
1.94
2.45
2.97
Low
$ 1.78
1.29
1.39
1.83
2006
(3/27-6/25)
(6/26-9/24)
(9/25-12/24)
(12/25-3/25)
High
$ 4.73
7.87
5.34
3.57
Low
$ 3.20
3.59
2.26
2.49
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.
Giga-tronics has not issued any unregistered securities or repurchased any of its securities during the past fiscal
year.
10
Equity Compensation Plan Information
The following table provides information on options and other equity rights outstanding and available at March 31,
2007.
Equity Compensation Plan Information
No. of securities to be
Weighted average
issued upon exercise of
exercise price of
outstanding option,
outstanding option,
warrants and rights
warrants and rights
(b)
(a)
No. of securities remaining available
for future issuance under equity
compensation plans (excluding
securities reflected in column (a))
(c)
840,900
n/a
840,900
$ 2.0558
n/a
$ 2.0558
474,975
n/a
474,975
Plan category
Equity compensation plans approved
by securities holders
Equity compensation plans not
approved by securities holders
Total
Selected Financial Data
The following table sets forth selected financial data for the Company’s last five fiscal years. This information is
derived from the Company’s audited consolidated financial statements, unless otherwise stated. This data should
be read in conjunction with the consolidated financial statements, related notes, and other financial information
included elsewhere in this report.
11
SELECTED CONSOLIDATED FINANCIAL DATA
Summary of Operations: Years Ended
(In thousands except per share data)
Net sales
Gross profit
Operating expenses
Interest income, net
Pre-tax (loss) income from continuing
operations before income taxes
March 31, 2007
$ 18,048
7,546
9,548
108
March 25, 2006 March 26, 2005 March 27, 2004
$ 20,620
8,300
9,316
32
$ 17,491
4,736
9,179
7
$ 21,477
9,598
8,760
-
March 29, 2003
$ 20,822
6,187
10,412
60
(1,894)
(984)
849
(4,440)
(4,328)
Provision for income taxes
1
4
4
4
4,098
(Loss) income from continuing operations
(1,895)
(988)
845
(4,444)
(8,426)
Income (loss) on discontinued operations,
net of income taxes
Net (loss) income
Basic (loss) earnings per share:
From continuing operations
On discontinued operations
Net (loss) earnings per share – basic
Diluted (loss) earnings per share:
From continuing operations
On discontinued operations
Net (loss) earnings per share – diluted
Shares of common stock – basic
Shares of common stock – diluted
28
$ (1,867)
27
$ (961)
(233)
$ 612
(2,377)
$ ( 6,821)
(2,336)
$ (10,762)
$ (0.40)
0.01
$ (0.39)
$ (0.21)
0.01
$ (0.20)
$ 0.18
(0.05)
$ 0.13
$ (0.94)
(0.51)
$ (1.45)
$ (1.81)
(0.50)
$ (2.31)
$ (0.40)
0.01
$ (0.39)
4,809
4,809
$ (0.21)
0.01
$ (0.20)
4,782
4,782
$ 0.18
(0.05)
$ 0.13
4,725
4,741
$ (0.94)
(0.51)
$ (1.45)
4,704
4,704
$ (1.81)
(0.50)
$ (2.31)
4,663
4,663
Financial Position:
(In thousands except ratio)
Current ratio
Working capital
Total assets
Shareholders’ equity
March 31, 2007
3.09
$ 7,280
$ 11,161
$ 7,393
March 25, 2006 March 26, 2005 March 27, 2004
2.92
$ 7,997
$ 13,733
$ 9,196
3.93
$ 8,856
$ 12,346
$ 9,098
4.29
$ 9,337
$ 12,961
$ 9,812
March 29, 2003
3.50
$ 13,697
$ 21,875
$ 15,960
Percentage Data:
Percent of net sales
Gross profit
Operating expenses
Interest income, net
Pre-tax (loss) income from continuing
operations
Income (loss) on discontinued operations, net
of income taxes
Net (loss) income
March 31, 2007
41.8 %
52.9
0.6
March 25, 2006 March 26, 2005 March 27, 2004
27.1 %
44.7 %
40.3 %
52.5
40.8
45.2
0.0
0.0
0.1
March 29, 2003
29.7 %
50.0
0.3
(10.5)
(4.8)
4.0
(25.4)
(20.8)
0.2
0.1
(1.1)
(13.6)
(10.3)
(4.7)
2.8
(39.0)
(11.2)
(51.7)
12
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of unaudited results of operations for the fiscal years ended March 31, 2007 and March
25, 2006:
Quarterly Financial Information (Unaudited)
(In thousands except per share data)
Net sales
Gross profit
Operating expenses
Interest income, net
Pre-tax (loss) income from continuing operations
Provision for income taxes
(Loss) income from continuing operations
Income (loss) on discontinued operations, net of
income tax
Net (loss) income
Basic (loss) earnings per share:
From continuing operations
On discontinued operations
Net (loss) earnings per share – basic
Diluted (loss) earnings per share:
From continuing operations
On discontinued operations
Net (loss) earnings per share – diluted
Shares of common stock – basic
Shares of common stock – diluted
2007
$
$
First
3,386
1,199
2,258
29
(1,030)
-
(1,030)
$
Second
3,934
1,857
2,306
37
(412)
1
(413)
$
Third
5,564
2,394
2,378
25
41
-
41
Fourth
$ 5,164
2,096
2,606
17
(493)
-
(493)
Year
18,048
7,546
9,548
108
(1,894)
1
(1,895)
10
3
(1,027) $ (403)
$
$
17
58
(2)
(495)
$
$
28
(1,867)
$ (0.21) $ (0.08)
0.00
$ (0.21) $ (0.08)
0.00
$ 0.01
0.00
$ 0.01
$
(0.10)
( 0.00)
$ (0.40)
0.01
$ (0.10) $ (0.39)
0.00
$ (0.21) $ (0.08)
0.00
$ (0.21) $ (0.08)
4,809
4,809
4,809
4,809
$ 0.01
0.00
$ 0.01
4,809
4,884
$
$
(0.10)
(0.00)
(0.10)
4,809
4,809
$ (0.40)
0.01
$ (0.39)
4,809
4,809
13
Quarterly Financial Information (Unaudited)
(In thousands except per share data)
Net sales
Gross profit
Operating expenses
Interest income, net
Pre-tax income (loss) from continuing operations
Provision for income taxes
Income (loss) from continuing operations
Income on discontinued operations, net of income
tax
Net income (loss)
Basic earnings (loss) per share:
From continuing operations
On discontinued operations
Net earnings (loss) per share – basic
Diluted earnings (loss) per share:
From continuing operations
On discontinued operations
Net earnings (loss) per share – diluted
Shares of common stock – basic
Shares of common stock – diluted
2006
$
$
First
5,783
2,645
2,419
5
231
4
227
Second
$ 3,614
1,223
2,374
9
(1,142)
-
(1,142)
Third
5,537
2,334
2,317
10
27
-
27
Fourth
$ 5,686
2,098
2,206
8
(100)
-
(100)
$
Year
20,620
8,300
9,316
32
(984)
4
(988)
6
$ 233
$
$
$
$
0.05
0.00
0.05
0.05
0.00
0.05
4,731
4,912
$
$
$
$
$
5
(1,137)
3
30
$
(0.24)
0.00
(0.24)
$ 0.01
0.00
$ 0.01
(0.24)
0.00
(0.24)
4,778
4,778
$ 0.01
0.00
$ 0.01
4,809
4,917
$
$
$
$
$
13
(87)
27
$ (961)
(0.02)
0.00
(0.02)
$ (0.21)
0.01
$ (0.20)
(0.02)
0.00
(0.02)
4,809
4,809
$ (0.21)
0.01
$ (0.20)
4,782
4,782
14
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
Overview
Giga-tronics produces instruments, subsystems and sophisticated microwave components that have broad
applications in both defense electronics and wireless telecommunications. In 2007, our business consisted of four
operating and reporting segments: Giga-tronics Instrument Division, ASCOR, Microsource and Corporate.
Our business is highly dependent on government spending in the defense electronics sector and on the wireless
telecommunications market. While the Company has seen some improvement in its domestic defense orders, the
international defense business remains sporadic. The commercial business environment has shown slight
improvement.
The Company continues to monitor costs, including reductions in personnel, facilities and other expenses, to more
appropriately align costs with revenues. The Company’s employees have been on salary reductions over the last
four years. In April 2007, the Company reversed the prior salary reductions. In March 2007, the Company moved
ASCOR’s engineering, sales and marketing, and administration activities to the San Ramon, California facility,
effectively abandoning its Fremont, California facility. As a result, the Company has accrued its future lease
obligations, net of estimated sub-lease income, through June 2009. In addition, the Company incurred moving and
severance expenses. The total restructuring charge was $361,000. The Company is pursuing subleasing of this
facility.
The Company released the 2500 synthesizer (part of the 2500 family of products) during the 2007 fiscal year.
These products are being accepted by the market and management believes there is significant room for growth.
This release demonstrates the Company’s commitment to new product development. The three operating divisions
of Giga-tronics will now take an integrated approach to research and development in key growth areas in order to
expand product lines and update existing ones with new features.
While the management at Microsource estimates that prospects for new orders will improve in this new fiscal year,
its short-term growth will be limited as to customer delivery schedules associated with this new business.
Likewise, Microsource’s engineering and sales and marketing has been folded into the San Ramon facility.
Results of Operations
New orders by segment are as follows for the fiscal years ended:
(Dollars in thousands)
Instrument Division
ASCOR
Microsource
Total
New Orders
2007
$ 8,677
4,390
3,091
$16,158
% change
(3%)
30%
9%
7%
2006
$ 8,943
3,389
2,825
$15,157
% change
(23%)
(25%)
(42%)
(28%)
2005
$11,545
4,536
4,833
$20,914
New orders received in fiscal 2007 increased 7% to $16,158,000 from the $15,157,000 received in fiscal 2006.
New orders increased primarily due to an increase in military orders.
New orders received in fiscal 2006 decreased 28% to $15,157,000 from the $20,914,000 received in fiscal 2005.
New orders decreased primarily due to weakness in our commercial wireless market.
In fiscal 2007, orders at the Instrument Division decreased primarily due to a decrease in commercial wireless
market demand for our products. Orders at ASCOR increased primarily due to an increase in military demand for
its products. Orders at Microsource increased primarily due to increased orders from commercial customers.
15
In fiscal 2006, orders at the Instrument Division decreased primarily due to a decrease in commercial wireless
demand for its products. Orders at ASCOR decreased primarily due to a decrease in commercial demand for its
products. Orders at Microsource decreased primarily as a result of the recording of a $7.6 million long-term
contract from Boeing in fiscal 2005, while during fiscal 2006, Microsource recorded only $500,000 in orders from
Boeing. The $7.6 million contract from Boeing was partially offset by a contract renegotiation. During July 2004,
Microsource renegotiated a long-term contract with an existing customer. As a result, during the second fiscal
quarter, the customer’s firm purchase commitment quantities were significantly reduced and management reversed
its recorded backlog for deliveries beyond 12 months by approximately $4,854,000.
The following table shows order backlog and related information at fiscal year end:
(Dollars in thousands)
Backlog of unfilled orders
Backlog of unfilled orders shippable within
one year
Previous fiscal year end (FYE) one-year
backlog reclassified during year as
shippable later than one year
Net cancellations during year of previous
FYE one-year backlog
2007
$8,439
% change
(18%)
2006
$10,329
% change
(35%)
2005
$15,792
5,294
(10%)
5,863
(28%)
8,161
303
(88%)
2,439
79%
1,364
904
-
-
-
25
The decrease in backlog at year-end 2007 of 18% was primarily due to revenue exceeding orders and a de-booking
of $904,000 from an existing customer.
The decrease in backlog at year-end 2006 of 35% was primarily due to weak order levels.
The allocation of net sales was as follows for fiscal years shown:
(Dollars in thousands)
Commercial
Government/defense
Allocation of Net Sales
2007 % change
(40%)
23%
$7,054
10,994
2006 % change
(13%)
10%
$11,657
8,963
2005
$13,336
8,141
The allocation of net sales by segment was as follows for fiscal years shown:
(Dollars in thousands)
Instrument Division
Commercial
Government/defense
ASCOR
Commercial
Government/defense
Microsource
Commercial
Government/defense
Allocation of Net Sales by Segment
2007
% change
2006 % change
2005
$4,870
4,096
(33%)
77%
$7,319
2,309
(10%)
(46%)
$8,170
4,279
485
3,087
(26%)
(21%)
659
3,900
(73%)
186%
1,699
3,811
(54%)
38%
3,679
2,754
36%
10%
2,455
1,366
2,711
2,496
Fiscal 2007 net sales were $18,048,000, a 12% decrease from the $20,620,000 of net sales in 2006. The decrease in
sales was primarily due to weakness in our commercial wireless market, partially offset by improved military
deliveries. Sales at the Giga-tronics Instrument Division decreased 7% or $662,000. ASCOR sales decreased 22%
or $987,000. Sales at Microsource decreased 14% or $923,000. The decrease in export sales in fiscal 2007 is
primarily based on the cyclical buying patterns of our international customers.
16
Fiscal 2006 net sales were $20,620,000, a 4% decrease from the $21,477,000 of net sales in 2005. The decrease in
sales was primarily due to weakness in our commercial wireless market, partially offset by improved military
deliveries. Sales at the Giga-tronics Instrument Division decreased 23% or $2,821,000. ASCOR sales increased
19% or $738,000. Sales at Microsource increased 24% or $1,226,000.
Cost of sales was as follows for the fiscal years shown:
(Dollars in thousands)
Cost of sales
Cost of Sales
2007
$10,502
% change
(15%)
2006
$12,320
% change
4%
2005
$11,879
For fiscal 2007, cost of sales decreased 14.8% to $10,502,000 from $12,320,000 in fiscal 2006. The decrease is
primarily attributable to a volume decrease of 10.1% and a 4.4% decrease in mix cost of sales.
For fiscal 2006, cost of sales increased 3.7% to $12,320,000 from $11,879,000 in fiscal 2005. The increase is
primarily attributable to higher material content of 7.6% for products delivered, partially offset by 4.3% lower
shipments.
Operating expenses were as follows for the fiscal years shown:
(Dollars in thousands)
Product development
Selling, general and administrative
Restructuring
Total operating expenses
Operating Expenses
2007
$3,731
5,456
361
$9,548
% change
(1%)
(2%)
-
3%
2006
$3,760
5,556
-
$9,316
% change
12%
3%
-
6%
2005
$3,370
5,390
-
$8,760
Operating expenses increased 3% or $232,000 in fiscal 2007 over 2006 due to a one time restructuring charge of
$361,000 in fiscal 2007, offset in part by decreases of $29,000 in product development expenses and decreases of
$100,000 in selling, general and administrative expenses. The decrease in selling, general and administrative
expenses is a result of lower commission expenses of $347,000, offset by higher marketing expenses of $208,000
and higher administrative expenses of $39,000. As a result of adopting SFAS 123(R) in fiscal 2007, the Company
recorded $162,000 of expense. A restructuring charge of $361,000 was made in the fourth quarter of fiscal 2007
due to the integration of all ASCOR and Instrument Division engineering and manufacturing activities at the San
Ramon, California facility.
Operating expenses increased 6% or $556,000 in fiscal 2006 over 2005 due to increases of $390,000 in product
development expenses and increases of $166,000 in selling, general and administrative expenses. Product
development costs increased 12% or $390,000 in fiscal 2006 primarily due to increased research and development
designed to expand product lines and update existing lines company-wide. Selling, general and administrative
expenses increased 3% or $166,000 in fiscal year 2006 compared to the prior year. The increase is a result of
higher administrative expenses of $207,000, offset by lower marketing expenses of $25,000, coupled with lower
commission expenses of $16,000.
Interest income in 2007 increased from 2006 due to improved cash management.
Interest income in 2006 increased from 2005 due to more cash available for investment and higher interest rates.
Giga-tronics recorded a net loss of $1,867,000 or $0.39 per fully diluted share for fiscal 2007 versus a net loss of
$961,000 or $0.20 per fully diluted share in fiscal 2006. The loss in fiscal 2007 versus the loss in fiscal 2006 was
attributable to lower revenue.
Giga-tronics recorded a net loss of $961,000 or $0.20 per fully diluted share for fiscal 2006 versus a net profit of
$612,000 or $0.13 per fully diluted share in fiscal 2005. The loss in fiscal 2006 versus the profit in fiscal 2005 was
attributable to lower revenue and increased material content and product development in fiscal 2006.
17
Inventories consist of the following:
(In thousands)
Raw materials
Work-in-progress
Finished goods
Demonstration inventory
Net Inventories
March 31, 2007
3,163
2,128
209
341
5,841
$
$
% change
5%
63%
15%
46%
21%
March 25, 2006
3,025
1,309
246
233
4,813
$
$
Inventories increased by $1,208,000 during fiscal year 2007. The primary area of increase was in work-in-process,
which accounted for $819,000 or 79.7% of the increase.
Critical Accounting Policies
The Company’s discussion and analysis of its financial condition and the results of operations are based upon the
consolidated financial statements included in this report and the data used to prepare them. The consolidated
financial statements have been prepared in accordance with the accounting principles generally accepted in the
United States of America and we are required to make judgments, estimates, and assumptions in the course of such
preparation. The Summary of Significant Accounting Policies included with the consolidated financial statements
describes the significant accounting policies and methods used in the preparation of the consolidated financial
statements. On an ongoing basis, the Company reevaluates its judgments, estimates, and assumptions, including
those related to revenue recognition, product warranties, allowance for doubtful accounts, valuation of inventories,
and valuation allowance on deferred tax assets. The Company bases its judgment and estimates on historical
experience, knowledge of current conditions, and its beliefs of what could occur in the future considering available
information. Actual results may differ from these estimates under different assumptions or conditions.
Management of Giga-tronics has identified the following as the Company’s critical accounting policies:
Revenues
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. Revenue related to products shipped subject to customers' evaluation is recognized upon final
acceptance.
Product Warranties
The Company’s warranty policy generally provides two to four years for the 2400 and 2500 families of Microwave
Synthesizers and one year for all other products. The Company records a liability for estimated warranty
obligations at the date products are sold. 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. Adjustments are made as new information becomes available.
Accounts Receivable
Accounts receivable are stated at their net realizable value. The Company has estimated an allowance for
uncollectible accounts based on analysis of specifically identified problem accounts, outstanding receivables,
consideration of the age of those receivables, and the Company's historical collection experience.
18
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.
Deferred 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. The Company has
recorded a valuation allowance to reflect the estimated amount of deferred tax assets that 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 has taken a
conservative approach that the Company will not realize benefits of these deductible differences as of March 31,
2007 and March 25, 2006. Management has, therefore, established a valuation allowance against its net deferred
tax assets as of March 31, 2007 and March 25, 2006.
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. All other pre-production and product development costs are expensed as
incurred.
Share-Based Compensation
The Company has a stock incentive plan that provides for the issuance of stock options to employees. The
Company calculates compensation expense under SFAS 123(R) using a Black-Scholes option pricing model. In so
doing, the Company makes certain key assumptions in making estimates used in the model. The Company believes
the estimates used, which are presented in Note 1 of Notes to the Consolidated Financial Statements, are
appropriate and reasonable.
Financial Condition and Liquidity
As of March 31, 2007 Giga-tronics had $1,804,000 in cash and cash equivalents, compared to $3,412,000 as of
March 25, 2006.
Working capital for the 2007 fiscal year end was $7,280,000 compared to $8,856,000 in 2006 and $9,337,000 in
2005. The decrease in working capital at 2007 from 2006 was primarily due to the operating loss in the year,
increased customer deposits of $160,000 and other fiscal year end liabilities. The decrease in working capital in
fiscal 2006 from 2005 was primarily due to the operating loss in the year partially offset by depreciation expense
that is included in the net loss.
The Company’s current ratio (current assets divided by current liabilities) at March 31, 2007 was 3.1 compared to
3.9 on March 25, 2006 and 4.3 on March 26, 2005. At March 31, 2007, the reduction in this ratio was primarily the
result of an increase in net inventories and partially offset by the decreases in cash and accounts receivable. At
19
March 25, 2006, the reduction in this ratio was primarily the result of decreases in net inventories and partially
offset by the increases in cash and accounts receivable.
Cash used by operations amounted to $1,406,000 in 2007. Cash provided by operations was $740,000 in 2006.
Cash used by operations amounted to $237,000 in 2005. Cash used by operations in 2007 was primarily attributed
to the operating loss in the year. Cash provided by operations in 2006 was primarily attributed to an increase in
customer advances and the decrease in inventories, partially offset by the operating loss in the year. Cash used by
operations in 2005 was primarily attributed to the increase in trade accounts receivable and the decrease in accounts
payable, partially offset by the decrease in inventories.
Additions to property and equipment were $204,000 in 2007 compared to $115,000 in 2006 and $185,000 in 2005.
The increase in capital equipment spending in fiscal 2007 was due to an upgrade of capital equipment enabling the
manufacture of new products being released. The reduction in capital equipment spending in fiscal 2006 reflected
the overall decline in business activity.
Other cash inflows in 2006 consisted of $247,000 from the sale of common stock in connection with the exercise of
stock options.
Contractual Obligations
The Company leases various facilities under operating leases that expire through May 2013. Total future minimum
lease payments under these leases amount to approximately $5,322,000.
The Company is committed to purchase certain inventory under non-cancelable purchase orders. As of March 31,
2007, total non-cancelable purchase orders were approximately $1,062,000 through fiscal 2008.
The following table discloses the amounts of payments due under certain contractual obligations in the specified
time periods.
(In thousands)
Operating leases
Purchase obligations
Total contractual obligations
Under one year
One to three years
Three to five years More than five years
$1,217
1,062
$2,279
$2,263
-
$2,263
$1,785
-
$1,785
$57
-
$57
Off-Balance-Sheet Arrangements
The Company has no other off-balance-sheet arrangements (including standby letters of credit, guaranties,
contingent interests in transferred assets, contingent obligations indexed to its own stock or any obligation arising
out of a variable interest in an unconsolidated entity that provides credit or other support to the Company), that
have or are likely to have a material effect on its financial condition, changes in financial condition, revenue,
expenses, results of operations, liquidity, capital expenditures or capital resources.
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 maintain 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.
Recently Issued Accounting Pronouncements
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An
Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting
for Income Taxes”. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in
a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, statement of operations classification of
20
interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for
fiscal years beginning after December 15, 2006. The Company adopted FIN 48 as of March 31, 2007, as required.
The Company has not determined the impact that adopting FIN 48 will have on its consolidated financial positions,
results of operations or cash flows.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (SAB 108), “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which addresses
how uncorrected errors in previous years should be considered when quantifying errors in current-year financial
statements. SAB 108 requires companies to consider the effect of all carry over and reversing effects of prior-year
misstatements when quantifying errors in current-year financial statements and the related financial statement
disclosures. SAB 108 must be applied to annual financial statements for the first fiscal year ending after November
15, 2006. The adoption of SAB 108 did not have a material impact on the Company’s consolidated financial
position, results of operations or cash flow.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurement” (FAS 157). This Standard defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Company has not determined the effect that the adoption of FAS 157 will have on its
consolidated financial position, results of operations or cash flows.
21
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
Consolidated Balance Sheets -
As of March 31, 2007 and
March 25, 2006
Consolidated Statements of Operations -
Years Ended March 31, 2007 and
March 25, 2006
Consolidated Statements of Shareholders’ Equity -
Years Ended March 31, 2007 and
March 25, 2006
Consolidated Statements of Cash Flows -
Years Ended March 31, 2007 and
March 25, 2006
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Form 10-KSB
(Page No.)
23
24
25
26
27 - 36
37
22
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
Assets
Current assets
Cash and cash equivalents
Notes receivable, net of allowance of $250 and $250,
respectively
Trade accounts receivable, net of allowance
of $62 and $63, respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment
Leasehold improvements
Machinery and equipment
Office furniture and fixtures
Total property and equipment
Less accumulated depreciation and amortization
Property and equipment, net
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable
Accrued commissions
Accrued payroll and benefits
Accrued warranty
Customer advances
Other current liabilities
Total current liabilities
Deferred rent
Total liabilities
Committments
Shareholders’ equity
Preferred stock of no par value;
Authorized 1,000,000 shares; no shares outstanding
at March 31, 2007 and March 25, 2006
Common stock of no par value;
Authorized 40,000,000 shares; 4,809,021 shares
at March 31, 2007 and March 25, 2006
issued and outstanding
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
March 31, 2007
March 25, 2006
$
1,804
$
3,412
-
2,750
5,841
360
10,755
373
15,426
736
16,535
16,211
324
82
11,161
1,106
192
666
207
681
623
3,475
293
3,768
$
$
3
3,435
4,813
219
11,882
373
15,592
723
16,688
16,351
337
127
12,346
870
171
781
250
521
433
3,026
222
3,248
$
$
-
-
13,165
(5,772)
7,393
11,161
$
13,003
(3,905)
9,098
12,346
$
See Accompanying Notes to Consolidated Financial Statements
23
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Net sales
Cost of sales
Gross profit
Product development
Selling, general and administrative
Restructuring
Operating expenses
Years Ended
March 31, 2007
18,048
$
10,502
7,546
$
March 25, 2006
20,620
12,320
8,300
3,731
5,456
361
9,548
3,760
5,556
-
9,316
Operating loss from continuing operations
(2,002)
(1,016)
Interest income, net
Loss from continuing operations before income taxes
Provision for income taxes
Loss from continuing operations
Income on discontinued operations, net of income taxes of nil for 2007
and 2006
Net loss
Basic and diluted net (loss) earnings per share:
From continuing operations
On discontinued operations
Basic net loss per share
Shares used in per share calculation:
Basic
Diluted
108
(1,894)
1
(1,895)
32
(984)
4
(988)
28
(1,867)
27
(961)
$
$
(0.40)
0.01
(0.39)
$
(0.21)
0.01
(0.20)
$
$
$
4,809
4,809
4,782
4,782
See Accompanying Notes to Consolidated Financial Statements
24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands except share data)
Balance at March 26, 2005
Comprehensive loss – net
Net loss
Stock issuance under stock option
and employee stock purchase plans
Balance at March 25, 2006
Comprehensive loss – net
Net loss
Share based compensation
Common Stock
Shares
4,728,646
Amount
12,756
$
Accumulated
Deficit
$
(2,944)
$
Total
9,812
-
80,375
-
247
(961)
(961)
-
4,809,021
13,003
(3,905)
-
-
-
162
(1,867)
-
247
9,098
(1,867)
162
Balance at March 31, 2007
4,809,021
$
13,165
$
(5,772)
$
7,393
See Accompanying Notes to Consolidated Financial Statements
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operations:
Net loss
Adjustments to reconcile net loss to net cash
(used in) provided by operations:
Net provision for doubtful accounts and note receivable
Depreciation and amortization
Share based compensation
Deferred rent
Changes in operating assets and liabilities:
Notes receivable
Trade accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued commissions
Accrued payroll and benefits
Accrued warranty
Customer advances
Other current liabilities
Net cash (used in) provided by operations
Cash flows from investing activities:
Proceeds from sales of equipment
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Issuance of common stock
Net cash 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
Years Ended
March 31, 2007
March 25, 2006
$
(1,867)
$
(961)
(1)
215
162
71
3
686
(1,028)
(96)
236
21
(115)
(43)
160
190
(1,406)
2
(204)
(202)
-
-
(1,608)
3,412
1,804
1
-
(14)
452
-
(88)
4
(276)
1,444
(8)
(205)
(29)
61
(128)
519
(31)
740
-
(115)
(115)
247
247
872
2,540
3,412
4
-
$
$
$
$
See Accompanying Notes to Consolidated Financial Statements
26
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. The Company’s corporate office and manufacturing facilities are located in Northern
California. 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. The Company currently has no 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 2007 contained 53 weeks and fiscal year 2006 contained 52
weeks.
Reclassifications Certain reclassifications, none of which affected net loss, have been made to prior year balances
in order to conform to the current year presentation.
Revenue Recognition Revenue is recorded when there is evidence of an arrangement, delivery has occurred, the
price is fixed or determinable, and collectability is 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. 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 reports freight costs paid for shipments to customers as cost
of sales.
The Company has estimated an allowance for uncollectable accounts based on analysis of specifically identified
problem accounts, outstanding receivables, consideration of the age of those receivables and the Company’s
historical collection experience. The activity in the reserve account is as follows:
(In thousands)
Beginning balance
Provision for doubtful accounts
Recoveries of doubtful accounts
Write-off of doubtful accounts
Ending balance
27
$
March 31, 2007
63
5
-
(6)
62
$
$
March 25, 2006
77
20
-
(34)
63
$
Accrued Warranty The Company’s warranty policy generally provides two to four years for the 2400 and 2500
families of Microwave Synthesizers and one year for all other products. The company records a liability for
estimated warranty obligations at the date products are sold. 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. Adjustments are made as new information becomes available.
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.
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If such review indicates that the carrying amount of
an asset exceeds the sum of its expected future cash flows on an undiscounted basis, the asset’s carrying amount
would be written down to fair value. Additionally, the Company reports long-lived assets to be disposed of at the
lower of carrying amount or fair value less cost to sell. As of March 31, 2007 and March 25, 2006, management
believes that there has been no impairment of the Company’s long-lived assets.
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 income tax assets and liabilities are measured using enacted tax rates that apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. Future tax
benefits are subject to a valuation allowance when management is unable to conclude that its deferred income tax
assets will more likely than not be realized from the results of operations.
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. All other product development
costs are charged to operations as incurred. There were no capitalized pre-production costs included in other assets
as of March 31, 2007. Included in other assets as of March 25, 2006 were capitalized pre-production costs of
$5,000.
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.
Share-based Compensation The Company established a 2005 Equity Incentive Plan which provides for the
granting of options for up to 700,000 shares of Common Stock. Effective March 26, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R), Share Based Payment (“SFAS 123(R)”), using the
modified prospective application transition method, which requires recognizing expense for options granted prior to
the adoption date equal to the fair value of the unvested amounts over their remaining vesting period, based on the
grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock
Based Compensation, and compensation cost for all share based payments granted subsequent to January 1, 2006,
based on the grant date fair values estimated in accordance with the provisions of SFAS 123(R). There were
541,400 option grants made in the fiscal year ended March 31, 2007 and no grants were made in the prior year.
28
Results for prior periods have not been restated. Prior to March 26, 2006, the Company accounted for these plans
under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations (“APB 25”). No stock-based compensation cost is reflected in net income
prior to March 26, 2006, as all options granted under these plans had an exercise price equal to the market value of
the underlying common stock on the date of grant.
As a result of adopting SFAS 123(R), the Company’s loss before provision for income taxes and net loss for the
fiscal year ended March 31, 2007 was $162,000 higher than if the Company had continued to account for share-
based compensation under APB 25. Basic and diluted loss per share for the fiscal year ended March 31, 2007 would
have been $0.36 without the adoption of SFAS 123(R) compared to $0.39 as reported.
SFAS 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the
compensation cost recognized for those options (excess tax benefits) to be classified as a cash flow from financing
in the statement of cash flows. These excess tax benefits were not significant for the Company for the fiscal year
ended March 31, 2007.
The following table illustrates the pro forma effect on net income and earnings per share if the fair value
recognition provisions of SFAS 123 had been applied to the Company’s stock option plans for the year ended
March 31, 2006.
(In thousands except per share data)
Net loss, as reported
Deduct:
Stock-based compensation expense included in reported net loss
Add:
Total stock-based employee compensation determined under fair value based
method for all awards, net of related tax effect
Pro forma net loss
Loss per share – basic and diluted:
As reported
Pro forma
Year Ended
March 25, 2006
(961)
-
(123)
(1,084)
(0.20)
(0.23)
$
$
$
In calculating compensation related to stock option grants, the fair value of each stock option is estimated on the
date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions:
Years Ended
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (years)
March 31, 2007
Zero
51% to 88%
4.50% to 4.97%
3.75
March 25, 2006
Zero
79%
3.77% to 4.72%
5
The computation of expected volatility used in the Black-Scholes option-pricing model is based on the historical
volatility of our share price. The expected term is estimated based on a review of historical employee exercise
behavior with respect to option grants.
Discontinued Operations In the first quarter of 2004, Giga-tronics discontinued the operations at its Dymatix
Division due to the substantial losses incurred over the previous two years. In the fourth quarter of fiscal 2004,
Giga-tronics consummated the sale of its Dymatix Division and recognized a gain of $53,000 in connection with
the sale. The sales price was $300,000. The Company received a $50,000 cash payment from the buyer and a
$250,000 note receivable with $50,000 due in May 2004 and quarterly installments of $25,000 due beginning in
July 2004. The Company agreed to reschedule the payment due in May 2004 to August 2004 and, to date, has not
received payments due. The note was secured by collateral and in management’s opinion this collateral
29
deteriorated during the year. Accordingly, the Company considers the note receivable to be impaired and has
recorded a provision of loss of $250,000 through discontinued operations in the 2005 fiscal year. During 2005, the
Company recorded additional $60,000 in expenses for discontinued operations associated with the partial
abandonment of the leased Fremont facilities. Included in this lease is 7,727 square feet the use of which the
Company effectively abandoned upon sale of Dymatix on March 26, 2004. The Company has increased the
estimated time to market these facilities to a sub-tenant. As of March 31, 2007 and March 25, 2006, the Company
has an accrued loss of $142,000 and $161,000, respectively, net of future estimated sub-lease rental income, for
future lease expense.
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.
Comprehensive Loss There are no items of other comprehensive loss, other than net loss.
Financial Instruments and Concentration of Credit Risk Financial instruments that 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. At March 31, 2007 and March 25, 2006, the Company had deposits in
excess of federally insured limits. The Company has not incurred losses on these deposits to date and does not
expect to incur any losses based on the credit ratings of the financial 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 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.
Recently Issued Accounting Pronouncements In June 2006, the FASB issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”, (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with
FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 also prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition,
statement of operations classification of interest and penalties, accounting in interim periods, disclosure, and
transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company will
adopt FIN 48 as of March 31, 2007, as required. The Company has not determined the impact that adopting FIN 48
will have on its consolidated financial positions, results of operations or cash flows.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (SAB 108), “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which addresses
how uncorrected errors in previous years should be considered when quantifying errors in current-year financial
statements. SAB 108 requires companies to consider the effect of all carry over and reversing effects of prior-year
misstatements when quantifying errors in current-year financial statements and the related financial statement
disclosures. SAB 108 must be applied to annual financial statements for the first fiscal year ending after November
15, 2006. The adoption of SAB 108 did not have a material impact on the Company’s consolidated financial
position, results of operations or cash flow.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurement” (FAS 157). This Standard defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Company has not determined the effect that the adoption of FAS 157 will have on its
consolidated financial position, results of operations or cash flows.
30
2 Cash Equivalents
Cash equivalents of $683,000 and $2,092,000 at March 31, 2007 and March 25, 2006 respectively, consist of
overnight deposits and money market funds.
3
Inventories
Inventories consist of the following:
(In thousands)
Raw materials
Work-in-progress
Finished goods
Demonstration inventory
4
Selling Expenses
March 31, 2007
3,163
$
2,128
209
341
5,841
$
March 25, 2006
3,025
$
1,309
246
233
4,813
$
Selling expenses consist primarily of commissions paid to various marketing agencies. Commission expense
totaled $881,000 and $1,228,000 for fiscal 2007 and 2006, respectively. Advertising costs, which are expensed as
incurred, totaled $50,000 and $38,000 for fiscal 2007 and 2006, respectively.
5
Significant Customers and Industry Segment Information
The Company has four reportable segments: Instrument Division, ASCOR, Microsource, and Corporate. The
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 Yittrium, Iron and Garnet (YIG) tuned oscillators, filters and microwave
synthesizers, which are used in a wide variety of microwave instruments or devices. Corporate handles the
financing needs of each segment and lends funds to each segment as required; the loans are eliminated in
consolidation.
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 include sales to external customers. Segment pre-tax
income (loss) includes an allocation for corporate expenses, 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 8.25%. Inter-segment activities are
eliminated in consolidation. 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 and Corporate 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 2007 and 2006.
31
MARCH 31, 2007 (In thousands):
Revenue
Interest income
Interest expense
Depreciation and amortization
(Loss) income from continuing operations before
income taxes
Assets
Instrument Division
$ 8,966
6
(349)
153
ASCOR
$ 3,572
17
(71)
30
Microsource
$ 5,510
75
(945)
32
Corporate
$ -
1,375
-
-
Total
$ 18,048
1,473
(1,365)
215
(1,975)
4,948
(734)
1,968
(345)
3,922
1,160
323
(1,894)
11,161
MARCH 25, 2006 (In thousands):
Revenue
Interest income
Interest expense
Depreciation and amortization
(Loss) income from continuing operations before
income taxes
Assets
Instrument Division
$ 9,628
8
(258)
280
ASCOR
$ 4,559
3
(40)
38
Microsource
$ 6,433
11
(806)
134
Corporate
$ -
1,116
(2)
-
Total
$ 20,620
1,138
(1,106)
452
(1,092)
4,417
(350)
2,262
(639)
4,950
1,097
717
(984)
12,346
The Company’s Instrument Division, ASCOR, and Microsource segments sell to agencies of the U.S. government
and U.S. defense-related customers. In fiscal 2007 and 2006, U.S. government and U.S. defense-related customers
accounted for 57% and 27% of sales, respectively. During fiscal 2007, no customer other than U.S. government
agencies and their defense contractors accounted for 10% of the Company’s consolidated revenues and accounts
receivable at March 31, 2007. During fiscal 2006, an electronic instrument manufacturer accounted for 16% of the
Company’s consolidated revenues and 15% of accounts receivable at March 25, 2006.
Export sales accounted for 21% and 44% of the Company’s sales in fiscal 2007 and 2006, respectively. Export
sales by geographical area are shown below:
(In thousands)
Americas
Europe
Asia
Rest of the world
6
Earnings (loss) per Share
$
March 31, 2007
360
2,233
748
489
3,830
$
$
March 25, 2006
104
4,191
1,950
2,826
9,071
$
Net loss and shares used in per share computations for the years ended March 31, 2007 and March 25, 2006 are as
follows:
(In thousands except per share data)
Net loss
Weighted average:
Common shares outstanding
Potential common shares
Common shares assuming dilution
Net loss per share of common stock
Net loss per share of common stock assuming dilution
Stock options not included in computation
March 31, 2007
$ (1,867)
March 25, 2006
(961)
$
4,809
-
4,809
(0.39)
(0.39)
841
4,782
-
4,782
(0.20)
(0.20)
439
32
The number of stock options not included in the computation of diluted earnings per share (EPS) for the periods
ended March 31, 2007 and March 25, 2006 are a result of the Company’s loss from continuing operations and,
therefore, the options are antidilutive.
7
Income Taxes
Following are the components of the provision for income taxes:
Years ended (in thousands)
Current
Federal
State
Deferred
Federal
State
Provision for income taxes
March 31, 2007
March 25, 2006
$
$
$
-
1
1
-
-
-
1
$
-
4
4
-
-
-
4
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities
are as follows:
(in thousands)
Net operating loss carryforwards
Income tax credits
Inventory reserves and additional costs capitalized
Fixed assets depreciation
Accrued vacation
Accrued warranty
Deferred rent
Other accrued liabilities
Future state tax effect
Allowance for doubtful accounts
Subtotal
Valuation allowances
Years ended
March 31, 2007
March 25, 2006
$
$
13,625
2,196
2,486
163
122
88
98
235
(220)
27
18,820
(18,820)
-
$
$
14,083
2,293
2,515
151
133
107
159
155
(597)
27
19,026
(19,026)
-
The effective income tax expense differs from the amount computed by multiplying the statutory federal income
tax by the loss before income tax expense due to the following:
Years ended
(In thousands except percentages)
March 31, 2007
March 25, 2006
Statutory federal income tax expense (benefit)
Valuation allowance
Net operating loss generated from dissolution of
subsidiaries
Expiration of net operating losses
State income tax, net of federal benefit
Other, net
Effective income tax expense
$ (635)
(206)
(34.0)%
(11.0)
$ (335)
149
(34.0)%
15.2
-
805
(109)
146
$ 1
-
43.1
(5.8)
7.8
.1%
-
437
(57)
(190)
$ 4
-
44.5
(5.8)
(19.8)
.4%
33
The decrease in valuation allowance from March 25, 2006 to March 31, 2007 was $206,000. The increase in
valuation allowance from March 26, 2005 to March 25, 2006 was $149,000.
As of March 31, 2007 and March 25, 2006, the Company had pre-tax federal and state net operating loss
carryforwards of $36,753,000 and $19,347,000 and $38,182,000 and $18,863,000 respectively, available to reduce
future taxable income. The federal and state net operating loss carryforwards begin to expire from fiscal 2008
through 2027 and from 2008 through 2017, respectively. Federal net operating loss carryforwards of $11,334,000
are subject to an annual IRC 382 limitation of approximately $100,000. At March 31, 2007, the accumulated IRC
382 losses available for use are approximately $699,000. The federal and state income tax credits begin to expire
from 2020 through 2025 and from 2009 through 2010, respectively. Utilization of net operating loss carryforwards
may be subject to annual limitations due to certain ownership change limitations as required by Internal Revenue
Code Section 382.
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, net of valuation allowances as of March 31, 2007.
8 Stock Options and Employee Benefit Plans
Stock Option Plans The Company established the 2000 Stock Option Plan and the 2005 Employee Incentive Plan,
each of which provide 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, ranging from 2003 to 2011 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) 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 31, 2007, no SAR’s have
been granted under the option plan. As of March 31, 2007, the total number of shares of common stock available
for issuance is 474,975 under the 2000 and 2005 stock option plans. All outstanding options have a term of five
years.
A summary of the changes in stock options outstanding for the years ended March 31, 2007 and March 25, 2006 is
presented below:
Outstanding at March 26, 2005
Granted
Exercised
Forfeited/Expired
Outstanding at March 25, 2006
Granted
Exercised
Forfeited/Expired
Outstanding at March 31, 2007
Shares
648,100
-
80,375
128,750
438,975
541,400
-
139,475
840,900
Exercisable at March 31, 2007
214,750
Weighted
Average
Exercise Price
3.09
-
3.07
4.88
2.57
1.85
-
2.85
2.06
2.35
$
$
$
$
Weighted Average
Remaining Contractual
Term (Years)
3.11
Aggregate
Intrinsic
Value
$ 1,202,209
2.7
$
122,173
3.6
1.9
$
$
149,624
8,128
As of March 31, 2007, there was $512,000 of total unrecognized compensation cost related to nonvested options
granted under the plans. That cost is expected to be recognized over a weighted average period of 1.86 years.
34
There were 90,500 options vested during the year ended March 31, 2007. The total fair value of options vested
during the year ended March 31, 2007 was $164,000. No cash was received from stock option exercises for the
year ended March 31, 2007.
Following is a summary of stock option activity:
Outstanding as of March 26, 2005
Exercised
Forfeited
Granted
Options
Exercisable
239,013
Outstanding as of March 25, 2006
203,475
Exercised
Forfeited
Granted
Outstanding as of March 31, 2007
214,750
Total Options
Outstanding
648,100
(80,375)
(128,750)
-
438,975
-
(139,475)
541,400
840,900
Weighted Average Fair
Value
$ 3.089
3.074
4.884
-
$ 2.565
-
2.845
1.846
$ 2.056
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 31, 2007, 56,631 shares remain available for
issuance under the Purchase Plan. There were no purchase rights granted in fiscal 2007 and 2006.
401(k) Plans 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 2007 and 2006 were
approximately $20,000 and $24,000, respectively.
9
Commitments
The Company leases a 47,300 square foot facility located in San Ramon, California, under a twelve-year lease that
commenced in April 1994, which was amended in July 2005 and now expires December 31, 2011. The Company
leases a 33,400 square foot facility located in Santa Rosa, California, under a twenty-year lease that commenced in
July 1993 and was amended in April 2003, to now expire May 31, 2013. The amendment resulted in a reduction of
lease space and monthly lease costs.
ASCOR’s switching and connecting devices, are located in approximately 18,700 square feet in Fremont, California,
under a lease that expires on June 30, 2009. The Company effectively abandoned this property as part of its
restructuring plan as of March 31, 2007. The Company has an accrued loss of approximately $346,000 for future
lease expense, net of estimated future sub-lease rental income. All of the above activities are conducted in the San
Ramon facility effective April 1, 2007. As of March 31, 2007, the Company has not sub-leased the available space.
These facilities accommodate all of the Company’s present operations. The Company also leases other equipment
under operating leases.
35
Total future minimum lease payments under these leases amount to approximately $5,322,000.
Fiscal years (in thousands)
2008
2009
2010
2011
2012
Thereafter
$
$
1,217
1,227
1,036
971
814
57
5,322
The aggregate rental expense was $1,324,000 and $1,335,000 in fiscal 2007 and 2006, respectively.
The Company is committed to purchase certain inventory under non-cancelable purchase orders. As of March 31,
2007, total non-cancelable purchase orders were $1,062,000 through fiscal 2008.
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 following provides a reconciliation of changes in the Company’s
warranty reserve. The Company provides no other guarantees.
(In thousands)
Balance at beginning of year
Provision for current year sales
Warranty costs incurred
Balance at end of year
11
Restructuring
$
March 31, 2007
250
130
(173)
207
$
March 25, 2006
378
$
159
(287)
250
$
In an effort to improve results and make optimal use of its resources, Giga-tronics decided to integrate all ASCOR
and Instrument Division engineering and manufacturing activities at the San Ramon, California facility. The
Microsource subsidiary, located in Santa Rosa, California, remains strictly a manufacturing operation, with all
product development work being performed in San Ramon. The impact on operations in the fourth quarter of fiscal
2007 was $361,000, which was comprised of one-time restructuring charges of $204,000 for the sublease accrual,
$139,000 in severance costs and $18,000 for moving expenses.
12
Line of Credit
On June 20, 2005, the Company executed a commitment letter with a financial institution for a secured revolving
line of credit for $2,500,000. The maximum amount that can be borrowed is limited to 80% of trade receivables,
plus 25% of raw material and finished goods inventory up to $500,000. Interest is payable at prime plus 1%. The
Company is required to comply with certain financial covenants under the arrangement. As of March 31, 2007, this
credit line has not been utilized by the Company. The Company has re-negotiated a new line of credit effective
June 18, 2007 which expires on June 17, 2008. The Company is in compliance with the covenants relating to the
line of credit.
36
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
The Board of Directors and Shareholders
Giga-tronics Incorporated
We have audited the accompanying consolidated balance sheets of Giga-tronics Incorporated and subsidiaries (the
“Company”) as of March 31, 2007 and March 25, 2006 and the related consolidated statements of operations,
shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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
consolidated financial position of Giga-tronics Incorporated and subsidiaries as of March 31, 2007 and March 25,
2006, and the results of their operations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ Perry-Smith LLP
Sacramento, California
June 11, 2007
37
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES .
None.
ITEM 8A. 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 as defined in Exchange Act Rule 13a-15(e) and 13d-15(e). 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.
ITEM 8B. OTHER INFORMATION
The Company is not aware of any information required to be reported on Form 8-K that has not been previously
reported.
PART III
ITEM 9. DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding directors of the Company is set forth under the heading “Election of Directors” of the
Company’s Proxy Statement for its 2007 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 31, 2007.
38
GIGA-TRONICS INCORPORATED
EXECUTIVE OFFICERS
Name
Age
Position
George H. Bruns, Jr.
88
John R. Regazzi
52
Patrick J. Lawlor
56
Jeffrey T. Lum
61
Chairman of the Board of Directors. Mr. Bruns was the Chief Executive
Officer from January 1995 to April 2006. 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 a Director of Testronics, Inc. of
McKinney, Texas.
Chief Executive Officer and a Director of the Company since April 2006. Mr.
Regazzi had been President and General Manager of Instrument Division since
September 2005, and prior to that, was Vice President of Operations for
Instrument Division from October 2004 through September 2005. Prior to that,
he was Vice President of Engineering for Instrument Division from June 2001
through October 2004. Previous experience includes 22 years at Hewlett
Packard and Agilent Technologies in various design and management positions
associated with their microwave sweeper and synthesizer product lines. His
final position at Agilent Technologies was as a senior engineering manager.
Vice President, Finance, Chief Financial Officer and Secretary of Giga-tronics,
Inc. since February 2007. Mr. Lawlor was previously a Consultant to PDL
BioPharma, Inc, and before that was the Vice President, Chief Financial
Officer at SaRonix, LLC, a $90 million private company with international
facilities. Prior to that he was the Chief Financial Officer with Aerojet Fine
Chemicals, LLC, a $65 million subsidiary of GenCorp, and Vice President of
Finance with Systems Chemistry, Inc. Mr. Lawlor spent 23 years with
Westinghouse Electric Corporation, where he rose through numerous positions
among various divisions, with his final position as Vice President of Finance
and Controller.
President and a Director of the Board of ASCOR, Inc. since November 1987.
Mr. Lum founded ASCOR in 1987 and has been President since inception. He
was a founder and Vice President of Autek Systems Corporation, a
manufacturer of precision waveform analyzers. Mr. Lum serves as Treasurer
and a member of the Board of Directors for the Santa Clara Aquamaids, a non-
profit organization dedicated to advancing athletes in synchronized swimming
to the Olympics games.
39
ITEM 10. 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 2007 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 31, 2007.
ITEM 11. 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 2007
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 2007 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 31, 2007.
ITEM 12.
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
Information set forth in the Proxy Statement under the section captioned “Transactions with Management and
Others” is 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 31, 2007.
ITEM 13. EXHIBITS
Reference is made to the Exhibit Index which is found on page 42 of this Annual Report on Form 10-KSB.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Perry-Smith LLP served as Giga-tronics’ independent auditors for the fiscal year ended March 31, 2007.
Audit Fees
Perry-Smith LLP’s fee for audit services for fiscal 2007 were $153,000 and for fiscal 2006 were $151,000.
Audit-Related Fees
There were no Perry-Smith LLP fees for audit-related services in fiscal 2007 or 2006.
Tax Fees
There were no Perry-Smith LLP fees for tax services for fiscal 2007 or 2006.
All Other Fees
We did not incur any fees payable to Perry-Smith LLP for other professional services in fiscal 2007 or 2006.
Audit Committee Pre-Approval Policy
Our Audit Committee has not pre-approved any type or amount of non-audit services by the independent accountants.
40
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GIGA-TRONICS INCORPORATED
By /s/ JOHN R. REGAZZI
John R. Regazzi
Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act, 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.
George H. Bruns, Jr.
Chairman of the Board
of Directors
/s/ JOHN R. REGAZZI
John R. Regazzi
Chief Executive Officer
(Principal Executive Officer)
and Director
/s/ PATRICK J. LAWLOR
Patrick J. Lawlor
Vice President, Finance/Chief
Financial Officer and Secretary
(Principal Accounting Officer)
/s/ JAMES A. COLE
James A. Cole
Director
/s/ KENNETH A. HARVEY
Kenneth A. Harvey
/s/ ROBERT C. WILSON
Robert C. Wilson
Director
Director
/s/ GARRETT A. GARRETTSON
Garrett A. Garretson
Director
6/14/07
(Date)
6/14/07
(Date)
6/14/07
(Date)
6/14/07
(Date)
6/15/07
(Date)
6/15/07
(Date)
6/14/07
(Date)
41
GIGA-TRONICS INCORPORATED
INDEX TO EXHIBITS
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
21
23.1
31.1
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.
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.*
Amendment No. 1 to Employee Stock Purchase Plan, previously filed on September 24, 2001, as
Exhibit 99.1 to Form S-8 (33-69688), and incorporated herein by reference.*
2005 Equity Incentive Plan incorporated herein by reference to Attachment A of the Registrant’s Proxy
Statement filed July 21, 2005.*
Significant Subsidiaries. (See page 43 of this Annual Report on Form 10-KSB.)
Consent of Independent Registered Public Accounting Firm Perry-Smith LLP. (See page 44 of this
Annual Report on Form 10-KSB.)
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act. (See page 45
of this Annual Report on Form 10-KSB.)
31.2
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act. (See page 46
of this Annual Report on Form 10-KSB.)
32.1
32.2
Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act. (See page 47
of this Annual Report on Form 10-KSB.)
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act. (See page 48
of this Annual Report on Form 10-KSB.)
* Management contract or compensatory plan or arrangement.
42
Exhibit 21
SIGNIFICANT SUBSIDIARIES
Name
ASCOR, Inc.
Microsource, Inc.
Jurisdiction of incorporation
California
California
43
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Giga-tronics Incorporated
San Ramon, California
We consent to the incorporation by reference in the registration statements (Nos. 333-45476, 333-34719, 333-39403,
333-69688 and 333-135578) on Form S-8 of Giga-tronics Incorporated of our report dated June 11, 2007, relating to
the consolidated balance sheet of Giga-tronics Incorporated and subsidiaries as of March 31, 2007 and March 25,
2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then
ended, which report appears elsewhere in this Form 10-KSB.
Sacramento, California
June 18, 2007
/s/ Perry-Smith LLP
Perry-Smith, LLP
44
Exhibit 31.1
CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John R. Regazzi, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Giga-tronics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: 6/14/07
/s/ JOHN R. REGAZZI
John R. Regazzi
Chief Executive Officer
45
Exhibit 31.2
CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Patrick J. Lawlor, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Giga-tronics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date:
6/14/07
/s/ Patrick J. Lawlor
Patrick J. Lawlor
VP Finance, CFO and Secretary
46
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Giga-tronics Incorporated (the "Company") on Form 10-KSB for the
period ending March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, John R. Regazzi, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ JOHN R. REGAZZI
John R. Regazzi
Chief Executive Officer
6/14/07
Date
47
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Giga-tronics Incorporated (the "Company") on Form 10-KSB for the
period ending March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Patrick J. Lawlor, Vice President, Finance, Chief Financial Officer and Secretary of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Patrick J. Lawlor
Patrick J. Lawlor
VP Finance, CFO and Secretary
6/14/07
Date
48
G i g a - t r o n i c s 2 0 07 A n n u a l R e p o r t
C or p or ate Infor matio n
D I R E C T O R S
George H. Bruns, Jr.
Chairman of the Board
E X E C U T I V E O F F I C E R S
John R. Regazzi
Chief Executive Officer
James A. Cole 2, 3
General Partner, Windward Ventures
General Partner, Spectra Enterprises
Patrick J. Lawlor
Vice President, Finance/
Chief Financial Officer & Secretary
Garrett A. Garrettson 1
President, Garrettson Consulting
Jeffrey T. Lum
President, ASCOR, Inc.
Kenneth A. Harvey 1, 2
President, Peak Consulting Group
John R. Regazzi
Chief Executive Officer
Robert C. Wilson 1, 2, 3
Chairman, Wilson & Chambers
1 Member, Compensation Committee
2 Member, Audit Committee
3 Member, Nominating Committee
H E A D Q U A R T E R S
Giga-tronics Incorporated
John R. Regazzi
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.
4650 Norris Canyon Road
San Ramon, CA 94583
(925) 328-4650
(925) 328-4700 (FAX)
Microsource, Inc.
1269 Corporate Center Parkway
Santa Rosa, CA 95407
(707) 527-7010
(707) 527-7176 (FAX)
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
Perry-Smith LLP
400 Capitol Mall, Suite 1200
Sacramento, CA 95814
www.perry-smith.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 25, 2007 at Giga-tronics’
offices located at 4650 Norris Canyon
Road, San Ramon, CA 94583.
F O R M 1 0 – K S B
A copy of the Company’s complete
Annual Report on Form 10-KSB
for fiscal year 2007, 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
designed by curran & connors, inc. / www.curran-connors.com
4650 Norris Canyon Road
San Ramon, CA 94583
(925) 328-4650
(925) 328-4700 (fax)
www.gigatronics.com