UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the period ended December 30, 1995, or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ________ to ________ Commission File No. 0-12719 GIGA-TRONICS INCORPORATED (Exact name of Registrant as specified in its charter) California 94-2656341 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4650 Norris Canyon Road, San Ramon, CA (Address of principal executive offices) 94583 (Zip Code) Registrant's telephone number: (510) 328-4650 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 --- --- Common stock outstanding as of December 30, 1995: 2,569,920 PAGE 2 GIGA-TRONICS INCORPORATED INDEX PART I - FINANCIAL INFORMATION Page No. - ------------------------------ -------- ITEM 1 Financial Statements: Balance Sheets as of December 30, 1995 (unaudited) and March 25, 1995............................................................3 Statements of Operations, three months and nine months ended December 30, 1995 and December 24, 1994 (unaudited)...........................4 Statements of Cash Flows, nine months ended December 30, 1995 and December 24, 1994 (unaudited)...........................5 Notes to Unaudited Financial Statements.......................................6 ITEM 2 Management's Discussion and Analysis of Operations and Financial Condition.........................................7 PART II - OTHER INFORMATION - --------------------------- ITEM 1 TO 5 Not Applicable ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits (11) Computation of Net Earnings and Common Share Equivalents...........................................8 (b) Reports on Form 8-K Not Applicable SIGNATURES...............................................................................9 PAGE 3 GIGA-TRONICS INCORPORATED BALANCE SHEETS (In thousands, except share data) ASSETS December 30, 1995 March 25, 1995 (Unaudited) ----------------- -------------- Cash and cash equivalents $ 5,761 $ 2,137 Investments 3,685 3,631 Trade accounts receivable 3,191 3,524 Inventories, net 4,871 6,701 Prepaid expenses 288 588 Deferred income taxes 850 868 ---------- --------- Total current assets 18,646 17,449 Property and Equipment: Machinery and equipment 6,392 6,095 Office furniture and fixtures 413 411 Leasehold improvements 97 93 ---------- --------- Gross cost property and equipment 6,902 6,599 Less accumulated depreciation and amortization (4,861) (4,212) -------- -------- Net property and equipment 2,041 2,387 Patents and licenses 1,730 2,150 Other assets 165 239 ---------- ---------- Total assets $22,582 $22,225 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,397 $ 1,477 Accrued commissions 355 318 Accrued expenses 696 745 Accrued payroll and benefits 593 778 Accrued warranty 459 417 Accrued earnout payable 393 472 Income taxes payable 57 -- --------- --------- Total liabilities 3,950 4,207 Shareholders' Equity: Convertible preferred stock of no par value. Authorized 1,000,000 shares; no shares outstanding at December 30, 1995 and March 25, 1995 -- -- Common stock of no par value. Authorized 40,000,000 shares; issued and outstanding 2,569,920 shares at December 30, 1995 and March 25, 1995 7,748 7,773 Unrealized loss on investments (41) (77) 10,925 10,322 --------- --------- Total shareholders' equity 18,632 18,018 --------- --------- Total liabilities and shareholders' equity $22,582 $22,225 ========= ========= See accompanying notes to financial statements. PAGE 4 GIGA-TRONICS INCORPORATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended ------------------ ----------------- Dec. 30, Dec. 24, Dec. 30, Dec. 24, 1995 1994 1995 1994 -------- -------- -------- -------- Net sales $ 6,171 $ 5,853 $18,644 $17,006 Cost of sales $ 3,907 $ 3,555 $11,781 $10,400 -------- -------- ---------- --------- Gross profit 2,264 2,298 6,863 6,606 Product development 556 681 1,841 1,877 Selling, general and administrative 1,306 1,352 4,169 3,968 --------- -------- --------- --------- Operting expenses 1,862 2,033 6,010 5,845 Net operating income 402 265 853 761 Other income 7 -- 152 -- Amortization of intangibles (140) (140) (420) (419) Interest income, net 91 48 219 135 --------- -------- ---------- ----------- Earnings before income taxes 360 173 804 477 Provision for income taxes 90 44 201 153 --------- --------- ---------- ----------- Net earnings $ 270 $ 129 $ 603 $ 324 ========= ========= ========= ========== Earnings per share of common stock $ 0.10 $ 0.05 $ 0.23 $ 0.13 ========= ========= ========= ========== Weighted average common and common equivalent shares outstanding 2,648 2,570 2,648 2,570 ========= ========= ========= ========== See accompanying notes to financial statements. PAGE 5 GIGA-TRONICS INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended ----------------- Dec. 30, Dec. 24, 1995 1994 -------- -------- Cash flows provided from (used by) operations: Net earnings as reported $ 603 $ 324 Adjustments to reconcile net earnings to net cash provided from (used by) operating activities 3,380 (406) -------- --------- 3,983 (82) Cash flows used by investing activities: Re-purchase of common stock (25) -- Investment sales/(purchases), net (18) 52 Additions to property and equipment (316) (464) --------- -------- Net cash used by investing activities (359) (412) Increase (decrease) in cash and cash equivalents 3,624 (494) Beginning cash and cash equivalents 2,137 2,680 -------- --------- Ending cash and cash equivalents $ 5,761 $ 2,186 ======== ========= Supplementary disclosure of cash flow information: (1) No cash was paid for interest in the periods indicated. (2) Cash paid for income taxes in the nine month period ending December 30 1995 was $145,000. (3) Non-cash investing activities: The Company incurred an unrealized gain of $36,000 (after-tax effect) on investments held available for sale during the nine month period ending December 30, 1995. See accompanying notes to financial statements. PAGE 6 GIGA-TRONICS INCORPORATED NOTES TO FINANCIAL STATEMENTS (1) Basis of Presentation The financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. For further information, refer to the financial statements and footnotes thereto, included in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission for the year ended March 25, 1995. (2) Inventories (unaudited) Inventories consist of the following (in thousands): December 30, 1995 March 25, 1995 ----------------- -------------- Raw materials $ 1,834 $ 2,489 Work-in-process 2,449 3,347 Finished goods 588 865 ---------- ---------- $ 4,871 $ 6,701 ======== ======== PAGE 7 MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OF OPERATIONS AND FINANCIAL CONDITION ------------------------------------- THREE MONTHS AND NINE MONTHS ENDED DEC. 30, 1995 AND DEC. 24, 1994 - ------------------------------------------------------------------- Net sales for the three month and nine month periods ended December 30, 1995 increased 5% ($318,000) and 10% ($1,638,000), respectively, compared to the same periods last year. The change resulted mostly from an increase in shipments of microwave signal generator products. Gross profit for the current three month and nine month periods decreased 1% ($34,000) and increased 4% ($257,000), respectively, compared to the same periods last year. The change was primarily due to higher sales volume, offset somewhat by unfavorable product mix and additional inventory reserves for the current nine month period. For the current three month period, the unfavorable change in product mix more than offset the increase in sales volume. Operating expenses for the three and nine month periods decreased 8% ($171,000) and increased 3% ($165,000), respectively, compared to prior year periods. The changes are due to higher advertising costs, offset somewhat by lower selling, administrative and product development expenses for the current nine month period. For the current three month period, the lower expenses more than offset the advertising costs. Other income for the current nine month period was primarily due to the sale of certain fixed assets, and an insurance claim recovery. Significant other income is not expected in the fourth quarter. Operating income for the current three month and nine month periods were $402,000 and $853,000, respectively, compared to $265,000 and $761,000 for the same periods last year. The favorable change for the quarter was due to increased sales volume and lower operating expenses for the quarter, offset somewhat by unfavorable product mix. The favorable change for the nine month period was due to higher sales volume, offset somewhat by unfavorable product mix and higher operating expenses. Earnings before income taxes for the current three month and nine month periods were $270,000 and $603,000, respectively, compared to $129,000 and $324,000 for the same periods last year. The change was favorably affected by sales volume, other income and interest income, offset somewhat by operating income factors noted above. Orders for the three month period ended December 30, 1995 were higher than the same period last year, while orders for the nine month period were lower than the same period last year. The backlog of unfilled orders as of December 30, 1995 are somewhat higher than the same period last year. FINANCIAL CONDITION - ------------------- The Company maintains a strong financial position, with working capital of $14,696,000 and a ratio of current assets to current liabilities of 4.7 at December 30, 1995. The Company continues to fund all of its working capital needs from cash flow provided from operations. Cash provided from operations for the nine month period ended December 30, 1995 was $3,983,000. Management believes that cash reserves and investments remain adequate to meet anticipated operating needs. During the nine month period, the Company spent $316,000 on new manufacturing and test equipment and other capital items. The Company will continue to invest in capital items that support growth and new product development, raise productivity and improve quality. Historically, the Company has satisfied its cash needs internally for both operating and capital expenses, and management expects to continue to do so. PAGE 8 EXHIBIT II PART II, Item 6 COMPUTATION OF NET EARNINGS PER SHARE AND COMMON SHARE EQUIVALENTS (Unaudited) (In thousands, except per share data) Earnings per share were computed using the weighted average number of shares outstanding plus, when dilutive, incremental shares issuable upon exercise of outstanding options under the treasury stock method. Three Months Ended Nine Months Ended ------------------ ----------------- Dec. 30, Dec. 24, Dec. 30, Dec. 24, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Weighted average number of common shares outstanding: Common stock outstanding 2,570 2,570 2,570 2,570 Common stock equivalents 78 0 78 0 ---------- ---------- --------- --------- 2,648 2,570 2,648 2,570 ========== ========== ========= ========= Net earnings $ 270 $ 129 $ 603 $ 324 ========== ========== ========= ========= Net earnings per share of common stock $ 0.10 $ 0.05 $ 0.23 $ 0.13 ========== ========== ========= ========= PAGE 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GIGA-TRONICS INCORPORATED (Registrant) Date: 1/16/96 GEORGE H. BRUNS, JR. ------- ---------------------------- George H. Bruns, Jr. Chairman and Chief Executive Officer (Principal Executive Officer) Date: 1/16/96 GREGORY L. OVERHOLTZER ------- ---------------------------- Gregory L. Overholtzer Vice President, Finance and Chief Financial Officer (Principal Accounting Officer)