giga_10q-062511.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934
 
For the quarterly period ended
June 25, 2011

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 incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
4650 Norris Canyon Road, San Ramon, CA 94583
 
(925) 328-4650
(Address of principal executive offices)
 
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes  [ X ]   No  [    ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  [    ]   No  [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   
[     ]
 
Accelerated filer
[     ]
Non-accelerated filer
[     ]
 
Smaller reporting company
[ X ]
(Do not check if a smaller reporting company)
     

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes   [   ]    No  [ X ]

There were a total of 4,997,532 shares of the Registrant’s Common Stock outstanding as of August 3, 2011.

 
1

 
INDEX


PART I - FINANCIAL INFORMATION
Page No.
 
Item 1.
Financial Statements
 
     
Condensed Consolidated Balance Sheets (Unaudited) as of June 25, 2011 and March 26, 2011
3
     
Condensed Consolidated Statements of Operations (Unaudited), Three Months Ended June 25, 2011 and June 26, 2010
4
     
Condensed Consolidated Statements of Cash Flows (Unaudited), Three Months Ended June 25, 2011 and June 26, 2010
5
     
Notes to Unaudited Condensed Consolidated Financial Statements
6
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
13
 
Item 4.
Controls and Procedures
13
         
PART II - OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
13
 
Item 1A.
Risk Factors
13
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
13
 
Item 3.
Defaults Upon Senior Securities
13
 
Item 4.
Submission of Matters to a Vote of Security Holders
13
 
Item 5.
Other information
13
       
SIGNATURES
14
       
 
Item 6.
Exhibits
 
   
31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act.
15
   
31.2 Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act.
16
   
32.1 Certification of CEO pursuant to Section 906 of Sarbanes-Oxley Act.
17
   
32.2 Certification of CFO pursuant to Section 906 of Sarbanes-Oxley Act.
18
         

 
2

 
Part I – Financial Information

Item 1  -  Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
(In thousands except share data)
 
June 25, 2011
   
March 26, 2011
 
Assets
           
Current assets:
           
Cash and cash-equivalents
  $ 3,592     $ 1,408  
Trade accounts receivable, net of allowance of $195 and $248, respectively
    1,932       5,632  
Inventories, net
    5,644       5,386  
Prepaid expenses and other current assets
    341       420  
Deferred income taxes
    2,527       2,320  
Total current assets
    14,036       15,166  
                 
Property and equipment, net
    532       530  
Deferred income taxes - long term
    10,936       10,936  
Other assets
    16       16  
Total assets
  $ 25,520     $ 26,648  
                 
Liabilities and shareholders' equity
               
Current liabilities:
               
Accounts payable
  $ 617     $ 972  
Accrued commission
    203       139  
Accrued payroll and benefits
    564       455  
Accrued warranty
    200       200  
Income taxes payable
    2       30  
Deferred revenue
    62       586  
Deferred rent
    41       36  
Capital lease obligations
    74       93  
Other current liabilities
    245       193  
Total current liabilities
    2,008       2,704  
Long term obligations - deferred rent
    400       413  
Long term obligations - capital leases
    -       10  
Total liabilities
    2,408       3,127  
Commitments
               
Shareholders' equity:
               
Preferred stock of no par value; Authorized - 1,000,000 shares; no shares issued or outstanding at June 25, 2011 and March 26, 2011
    -       -  
Common stock of no par value; Authorized - 40,000,000 shares; issued and outstanding 4,997,532 shares at June 25, 2011 and 4,994,157 shares at March 26, 2011
    14,543       14,485  
Retained earnings
    8,569       9,036  
Total shareholders' equity
    23,112       23,521  
Total liabilities and shareholders' equity
  $ 25,520     $ 26,648  
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
3

 


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
   
Three Months Ended
 
(In thousands except per share data)
 
June 25, 2011
   
June 26, 2010
 
Net sales
  $ 3,497     $ 4,701  
Cost of sales
    2,054       2,768  
Gross margin
    1,443       1,933  
                 
Engineering
    680       485  
Selling, general and administrative
    1,434       1,391  
Total operating expenses
    2,114       1,876  
                 
Operating (loss) income
    (671 )     57  
                 
Interest expense, net
    -       (1 )
(Loss) income before income taxes
    (671 )     56  
Benefit from income taxes
    (204 )     (13,569 )
Net (loss) income
  $ (467 )   $ 13,625  
                 
(Loss) earnings per share - basic
  $ (0.09 )   $ 2.78  
(Loss) earnings per share - diluted
  $ (0.09 )   $ 2.73  
                 
Weighted average shares used in per share calculation:
               
Basic
    4,995       4,901  
Diluted
    4,995       5,000  
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
4

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
   
Three Months Ended
 
(In thousands)
 
June 25, 2011
   
June 26, 2010
 
Cash flows from operating activities:
           
Net (loss) income
  $ (467 )   $ 13,625  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Depreciation and amortization
    34       36  
Deferred income taxes
    (207 )     (13,569 )
Share based compensation
    54       76  
Change in deferred rent
    (8 )     143  
Changes in operating assets and liabilities
    2,839       (96 )
Net cash provided by operating activities
    2,245       215  
                 
Cash flows from investing activities:
               
Purchases of property and equipment
    (36 )     (76 )
Net cash used in investing activities
    (36 )     (76 )
                 
Cash flows from financing activities:
               
Proceeds from exercise of stock options
    4       39  
Principal payments on capital leases
    (29 )     (17 )
Net cash (used in) provided by financing activities
    (25 )     22  
                 
Increase in cash and cash-equivalents
    2,184       161  
                 
Beginning cash and cash-equivalents
    1,408       3,074  
Ending cash and cash-equivalents
  $ 3,592     $ 3,235  
                 
Supplementary disclosure of cash flow information:
               
Cash paid for income taxes
  $ 40     $ 2  
Cash paid for interest
    -       1  
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
5

 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(1)           Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Giga-tronics Incorporated (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated 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 (consisting of normal recurring entries) necessary to make the consolidated results of operations for the interim periods a fair statement of such operations.  For further information, refer to the consolidated 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 26, 2011.

Certain prior period amounts have been reclassified to conform with the current period’s presentation.

(2)           Revenue Recognition

The Company records revenue when there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, and collectability is reasonably assured. This occurs when products are shipped or the customer accepts title transfer.  If the arrangement involves acceptance terms, the Company defers revenue until product acceptance is received.  On certain large development contracts, revenue is recognized upon achievement of substantive milestones.  Determining whether a milestone is substantive is a matter of judgment and that assessment is performed only at the inception of the arrangement. The consideration earned from the achievement of a milestone must meet all of the following for the milestone to be considered substantive:

 
a.
It is commensurate with either of the following:
   
1.
The Company’s performance to achieve the milestone.
   
2.
The enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the Company’s performance to achieve the milestone.
 
b.
It relates solely to past performance.
 
c.
It is reasonable relative to all of the deliverables and payment terms (including other potential
   
milestone consideration) within the arrangement.

Milestones for revenue recognition are agreed upon with the customer prior to the start of the contract and some milestones will be tied to product shipping while others will be tied to design review.

The Company provides for estimated costs that may be incurred for product warranties at the time of shipment.  The Company’s warranty policy generally provides one to three years depending on the product.  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.
 
 
6

 
(3)           Inventories
 
Inventories consist of the following:

(In thousands)
 
June 25, 2011
   
March 26, 2011
 
Raw materials
  $ 3,580     $ 3,518  
Work-in-progress
    1,315       1,349  
Finished goods
    269       134  
Demonstration inventory
    480       385  
Total
  $ 5,644     $ 5,386  

(4)           Earnings Per Share

Basic earnings per share (EPS) is calculated by dividing net income or loss by the weighted average common shares outstanding during the period.  Diluted EPS reflects the net incremental shares that would be issued if unvested restricted shares became vested and dilutive outstanding stock options were exercised, using the treasury stock method.  Certain options are considered antidilutive because the options' exercise prices were above the average market price during the period.  The shares used in per share computations are as follows:

   
Three Months Ended
 
 (In thousands except per share data)
 
June 25, 2011
   
June 26, 2010
 
Net (loss) income
  $ (467 )   $ 13,625  
                 
Weighted average:
               
Common shares outstanding
    4,995       4,901  
Potential common shares
    -       99  
Common shares assuming dilution
    4,995       5,000  
                 
Net (loss) earnings per share - basic
  $ (0.09 )   $ 2.78  
Net (loss) earnings per share - diluted
  $ (0.09 )   $ 2.73  
Stock options not included in computation that could potentially dilute EPS in the future
    852       644  
Restricted stock awards not included in computation that could potentially dilute EPS in the future
    90       60  

The number of stock options not included in the computation of diluted EPS for the three month period ended June 25, 2011 is a result of the Company’s loss from continuing operations and, therefore, the options are antidilutive.  The number of stock options not included in the computation of diluted EPS for the three month period ended June 26, 2010 reflects stock options where the exercise prices and related assumed proceeds were greater than the average market price of the common shares and are, therefore, antidilutive.  The number of restricted stock awards not included in the computation of diluted EPS for the three month periods ended June 25, 2011 and June 26, 2010 reflect contingently issuable shares for which the performance conditions necessary for the awards to vest had not been met as of June 25, 2011 and June 26, 2010.  The weighted average exercise price of excluded options was $1.93 and $2.13 as of June 25, 2011 and June 26, 2010 respectively.

(5)            Share Based Compensation

The Company has established the 2005 Equity Incentive Plan, which provides for the granting of options for up to 1,400,000 shares of Common Stock.  The Company records compensation cost associated with share-based compensation equivalent to the estimated fair value of the awards over the requisite service period.  There were 17,500 options granted in the first quarter of fiscal 2012 and 135,000 options granted in the first quarter of fiscal 2011.  The weighted average grant date fair value was $1.67 and $1.59, respectively.  There were no restricted stock awards granted in the first quarter of fiscal 2012 and 60,000 restricted stock awards granted in the first quarter of fiscal 2011.  The restricted stock awards are considered fixed awards as the number of shares and fair value is known at the grant date and the fair value at the grant date is amortized over the requisite service period net of estimated forfeitures.  The restricted stock awards are performance-based and one-third will vest annually through 2013 only if certain sales and profit goals are achieved by the Company.  No compensation cost was recognized for restricted stock awards during the three months ended June 25, 2011 and June 26, 2010 because management believes it is not more likely than not that the performance criteria will be met.
 
 
7

 
 
Cash flows resulting from the tax benefits derived from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as cash flows from financing activities in the statement of cash flows.  These excess tax benefits were not significant for the Company for each of the three months ended June 25, 2011 and June 26, 2010.
 
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-Merton option-pricing model and the following weighted average assumptions:
 
   
Three Months Ended
 
   
June 25, 2011
   
June 26, 2010
 
Dividend yield
 
None
   
None
 
Expected volatility
    94.00 %     100.00 %
Risk-free interest rate
    1.55 %     1.27 %
Expected term (years)
    5.9       4.0  
 
The computation of expected volatility used in the Black-Scholes-Merton option-pricing model is based on the historical volatility of the Company’s share price.  The expected term is estimated based on a review of historical employee exercise behavior with respect to option grants.  The risk-free interest rate is based on the U.S. Treasury rates with maturity similar to the expected term of the option on the date of grant.
 
A summary of the changes in stock options outstanding for the three month period ended June 25, 2011 and the year ended March 26, 2011 is as follows:
 
         
Weighted
   
Weighted Average
   
Aggregate
 
         
Average
   
Remaining Contractual
   
Intrinsic
 
   
Shares
   
Exercise Price
   
Terms (Years)
   
Value
 
Outstanding at March 27, 2010
    868,027     $ 1.89       3.0     $ 332,127  
Granted
    140,000       2.41                  
Exercised
    102,763       1.90                  
Forfeited / Expired
    20,250       2.18                  
Outstanding at March 26, 2011
    885,014     $ 1.96       2.5     $ 459,708  
Granted
    17,500       2.28                  
Exercised
    3,375       1.39                  
Forfeited / Expired
    47,250       2.63                  
Outstanding at June 25, 2011
    851,889     $ 1.93       2.4     $ 194,656  
                                 
Exercisable at June 25, 2011
    464,139     $ 1.85       1.6     $ 134,370  
                                 
Expected to vest at June 25, 2011    
  283,205
    $ 2.03        3.4     $
44,032
 
 
 
 
8

 
 
As of June 25, 2011, there was $303,166 of total unrecognized compensation cost related to non-vested options granted under the plan.  That cost is expected to be recognized over a weighted average period of 1.09 years.  There were 44,375 options that vested during the quarter ended June 25, 2011.  There were 23,750 options that vested during the quarter ended June 26, 2010.  The total fair value of options vested during each of the quarters ended June 25, 2011 and June 26, 2010 was $62,692 and $26,457, respectively.  Cash received from the exercise of stock options for the three month period ended June 25, 2011 was $4,691.  Cash received from stock option exercises for the three month period ended June 26, 2010 was $39,356.  Share based compensation cost recognized in operating results for the three months ended June 25, 2011 and June 26, 2010 totaled $53,820 and $75,769, respectively.
 
(6)           Industry Segment Information

The Company has two reportable segments: Giga-tronics Division and Microsource.  Giga-tronics 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 and designs, manufactures, and markets a line of switching devices that link together many specific purpose instruments that comprise automatic test systems.  Microsource develops and manufactures a broad line of YIG (Yttrium, Iron, Garnet) tuned oscillators, filters and microwave synthesizers, which are used in a wide variety of microwave instruments and devices.

The tables below present information for the three month periods ended June 25, 2011 and June 26, 2010.

June 25, 2011 (Dollars in thousands)
 
Giga-tronics Division
   
Microsource
   
Total
 
Net sales
  $ 2,423     $ 1,074     $ 3,497  
Net loss
    (218 )     (249 )     (467 )
Total assets
    22,234       3,286       25,520  

June 26, 2010 (Dollars in thousands)
 
Giga-tronics Division
   
Microsource
   
Total
 
Net sales
  $ 2,345     $ 2,356     $ 4,701  
Net income
    13,369       256       13,625  
Total assets
    20,543       6,266       26,809  

(7)           Warranty Obligations

The following provides a reconciliation of changes in the Company’s warranty reserve.  The Company provides no other guarantees.

   
Three Months Ended
 
(In thousands)
 
June 25, 2011
   
June 26, 2010
 
Balance at beginning of period
  $ 200     $ 139  
Provision, net
    65       25  
Warranty costs incurred
    (65 )     (43 )
Balance at end of period
  $ 200     $ 121  

(8)            Income Taxes

The Company accounts for income taxes using the asset and liability method as codified in Topic 740. Under this 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.
 
 
9

 
The Company’s tax benefit for the three months ending June 25, 2011 was $204,000.  The effective tax rate differed from the statutory tax rate primarily as a result of state tax and R&D tax credits.  The Company’s tax benefit for the three months ending June 26, 2010 was 13,569,000 due to the reversal of the valuation allowance against the deferred tax assets in the first quarter of 2011.

As of June 25, 2011, the Company did not record any unrecognized tax benefits related to uncertain tax positions.  The unrecognized tax benefit is netted against the non-current deferred tax asset on the Consolidated Balance Sheet.  The Company has not recorded a liability for any penalties or interest related to the unrecognized tax benefits.  The Company is not currently undergoing any audits by the tax authorities and does not expect the liability for unrecognized tax benefits to change materially within the next 12 months.


Item 2  -  Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 listed in Giga-tronics’ Annual Report on Form 10-K for the fiscal year ended March 26, 2011 Part I, under the heading “Certain Factors Which May Adversely Affect Future Operations or an Investment in Giga-tronics”, and Part II, under the heading “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

Overview

Giga-tronics produces instruments, subsystems and sophisticated microwave components that have broad applications in both defense electronics and wireless telecommunications. In the first quarter of fiscal year 2012, the Company consisted of two operating and reporting segments: Giga-tronics Division and Microsource.

Our business is highly dependent on government spending in the defense electronics sector and on the wireless telecommunications market.  The Company has seen an increase in defense orders for the first quarter of fiscal 2012 versus the first quarter of fiscal 2011.  Commercial orders are slightly down for the quarter ended June 25, 2011 as compared to the quarter ended June 26, 2010.

The Company continues to monitor costs, including reductions in personnel, facilities and other expenses, to more appropriately align costs with revenues.

Results of Operations
 
New orders received by segment are as follows:
 
NEW ORDERS
                   
    Three Months Ended
(Dollars in thousands)    
June 25, 2011
     
June 26, 2010
     
% change
 
Giga-tronics Division
  $ 3,885     $ 2,943       32 %
Microsource
    1,663       136       1123 %
Total
  $ 5,548     $ 3,079       80 %

New orders received in the first quarter of fiscal 2012 increased by 80% to $5,548,000 from the $3,079,000 received in the first quarter of fiscal 2011.  New orders at Giga-tronics Division and at Microsource increased primarily due to an increase in new military orders.
 
 
10

 
The following table shows order backlog and related information at the end of the respective periods:

BACKLOG
                   
      Three Months Ended
(Dollars in thousands)    
June 25, 2011
     
June 26, 2010
     
% change
 
Backlog of unfilled orders
  $ 5,700     $ 6,874       (17 %)
Backlog of unfilled orders shippable within one year
    4,177       6,349       (34 %)
Previous fiscal year end (FYE) long term backlog reclassified during year as shippable within one year
    28       174       (84 %)
Net cancellations during year of previous FYE one-year backlog
    -       -       -  

Backlog at the end of the first quarter of fiscal 2012 decreased 17% as compared to the end of the same period last year.  Even though our orders increased in the first quarter the backlog went down because the period of comparison is over a 12 month period for the backlog and 3 months for the orders entered.

The allocation of net sales was as follows for the periods shown:

ALLOCATION OF NET SALES
                   
    Three Months Ended    
(Dollars in thousands)    
June 25, 2011
     
June 26, 2010
     
% change
 
Giga-tronics Division
  $ 2,423     $ 2,345       3 %
Microsource
    1,074       2,356       (54 %)
Total
  $ 3,497     $ 4,701       (26 %)

Fiscal 2012 first quarter net sales were $3,497,000, a 26% decrease from the $4,701,000 in the first quarter of fiscal 2011.  Sales at Giga-tronics Division increased 3% or $78,000 primarily due to an increase in commercial shipments of its products.  Sales at Microsource decreased 54% or $1,282,000 during the first quarter of fiscal 2012 versus the first quarter of fiscal 2011 largely due to a decrease in military shipments and to a lesser extent a decrease in commercial shipments.

Cost of sales was as follows for the periods shown:

COST OF SALES
                 
    Three Months Ended    
(Dollars in thousands)
 
June 25, 2011
   
June 26, 2010
  % change  
 
Cost of sales
  $ 2,054     $ 2,768       (26 %)
 
Cost of sales as a percentage of sales decreased slightly for the first quarter of fiscal 2012 to 58.7% compared to 58.9% from the first quarter of fiscal 2011 due to a change in product mix.
 
11

 
Operating expenses were as follows for the periods shown:

OPERATING EXPENSES
                     
    Three Months Ended  
(Dollars in thousands)    
June 25, 2011
     
June 26, 2010
     
% change
 
Engineering
  $ 680     $ 485       40 %
Selling, general and administrative
    1,434       1,391       3 %
Total
  $ 2,114     $ 1,876       13 %

Operating expenses increased 13% or $238,000 in the first quarter of fiscal 2012 over fiscal 2011 due to an increase of $195,000 in product development expenses, and an increase of $43,000 in selling, general and administrative expense.  The increase in product development expenses is due to a more aggressive investment in our instrument products.

Giga-tronics recorded a net loss of $467,000 or $0.09 per fully diluted share for the first quarter of fiscal 2012 versus a net profit of $13,625,000 or $2.73 per fully diluted share in the same period last year. A tax benefit of $204,000 was recorded for the first quarter of fiscal 2012 versus a $13,569,000 benefit for income taxes for the first quarter of fiscal 2011.

Deferred Tax Assets

The tax benefit in Q1 FY12 was $204,000 compared to $13,569,000 in Q1 FY11.  The primary reason for the difference was the change in valuation allowance against the Conpany’s deferred tax asset, which was reversed last year.

Financial Condition and Liquidity

As of June 25, 2011, Giga-tronics had $3,592,000 in cash and cash equivalents, compared to $1,408,000 as of March 26, 2011.

Working capital at June 25, 2011 was $12,028,000 compared to $12,462,000 at March 26, 2011.  The decrease in working capital was primarily due to a decrease in accounts receivable partially offset by a decrease in accounts payable plus a decrease in deferred revenue as a result of shipping finished goods to the customer.

The Company’s current ratio (current assets divided by current liabilities) at June 25, 2011 was 6.99 compared to 5.61 on March 26, 2011.

Cash provided by operations amounted to $2,245,000 in the first quarter of fiscal 2012.  Cash provided by operations in the first quarter of fiscal 2011 amounted to $215,000.  Cash provided by operations in the first quarter of fiscal 2012 is primarily attributed to collection of accounts receivable.  Cash provided by operations in the first quarter of fiscal 2011 is primarily attributed to a decrease in rent payments due to credits from the landlord.

Additions to property and equipment were $36,000 in the first quarter of 2012.  There were $76,000 in additions for the same period last year. The capital equipment spending in fiscal 2012 was due to an upgrade of capital equipment enabling the manufacture of new products being released.

On June 15, 2011, the Company obtained a 60-day extension of its secured revolving line of credit for $1,500,000, with interest payable at prime rate plus 1%.  The borrowing capacity under this line of credit is based on the Company’s accounts receivable and is secured by all of the assets of the Company.  The Company was in compliance with all required covenants at June 25, 2011.  At June 25, 2011 and June 26, 2010 there was no balance on the line of credit.
 
 
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Item 3  -  Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4  -  Controls and Procedures

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 of the end of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurances that (i) the information the Company is required to disclose in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period required by the Commission’s rules and forms, and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.  There were no significant changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
 
Part II - Other Information

Item 1  -  Legal Proceedings

As of June 25, 2011, Giga-tronics 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 1a  -  Risk Factors

There has been no material change in the risk factors disclosed in the registrant’s Annual Report of Form 10-K for the fiscal year ended March 26, 2011.

Item 2  -  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3  -  Defaults Upon Senior Securities

None.

Item 4  -  [Reserved]

None.

Item 5  -  Other Information

None.

Item 6  -  Exhibits
 
31.1
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act

 
 
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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)
         
     
By:
 
         
Date:
August 3, 2011
 
/s/ John R. Regazzi
     
John R. Regazzi
 
     
President and Chief Executive Officer
     
(Principal Executive Officer)
         
         
Date:
August 3, 2011
 
/s/ Patrick J. Lawlor
     
Patrick J. Lawlor
     
Vice President Finance/
     
Chief Financial Officer & Secretary
     
(Principal Accounting Officer)
 
 
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