10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 26, 2016

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
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (925) 328-4650

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, No par value	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

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 Website, 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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

Indicate by check mark whether the registrant is 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 Non-accelerated filer	[ ] [ ]	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]

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 September 24, 2015 was $6,455,711.

There were a total of 9,549,703 shares of the Registrant’s Common Stock outstanding as of June 2, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents have been incorporated by reference into the parts indicated:

PART OF FORM 10-K	DOCUMENT
PART III	Registrant’s PROXY STATEMENT for its 2016 Annual Meeting of Shareholders to be filed no later than 120 days after the close of the fiscal year ended March 26, 2016.

TABLE OF CONTENTS

Page

	PART I
ITEM 1.	Business	3
ITEM 1A.	Risk Factors	7
ITEM 1B.	Unresolved Staff Comments	9
ITEM 2.	Properties	9
ITEM 3.	Legal Proceedings	9
ITEM 4.	Mine Safety Disclosures	9
PART II
ITEM 5.	Market for Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities	10
ITEM 6.	Selected Financial Data	11
ITEM 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
ITEM 8.	Financial Statements and Supplementary Data	22
	Consolidated Balance Sheets as of March 26, 2016 and March 28, 2015	23
	Consolidated Statements of Operations for the years ended March 26, 2016 and March 28, 2015	24
	Consolidated Statements of Shareholders' Equity for the years ended March 26, 2016 and March 28, 2015	25
	Consolidated Statements of Cash Flows for the years ended March 26, 2016 and March 28, 2015	26
	Notes to Consolidated Financial Statements	27
	Report of Independent Registered Public Accounting Firm	46
ITEM 9.	Changes In and Disagreements With Accountants On Accounting and Financial Disclosure	47
ITEM 9A.	Controls and Procedures	47
ITEM 9B.	Other Information	48
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	49
ITEM 11.	Executive Compensation	49
ITEM 12.	Security Ownership Of Certain Beneficial Owners and Management and Related Shareholder Matters	49
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	49
ITEM 14.	Principal Accountant Fees and Services	49
PART IV
ITEM 15.	Exhibits and Financial Statements Schedules	50
SIGNATURES		51

i 

Unless the context otherwise requires, we use the terms “Giga-tronics Incorporated,” “Giga-tronics,” “we,” “us,” “the Company” and “our” in this Annual Report on Form 10-K to refer to Giga-tronics Inc. and its wholly owned subsidiary.

FOWARD-LOOKING INFORMATION

This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to certain disclosures contained in Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by the use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws.

PART 1

ITEM 1. BUSINESS

General

Giga-tronics Incorporated (Giga-tronics, or the Company) includes the operations of the Giga-tronics Division and Microsource Inc. (Microsource), a wholly owned subsidiary. Giga-tronics Division designs, manufactures and markets the new Advanced Signal Generator (ASG) for the electronic warfare market, and switching systems that are used in automatic testing systems primarily in aerospace, defense and telecommunications.

Microsource develops and manufactures a broad line of YIG (Yttrium, Iron, Garnet) tuned oscillators, filters and microwave synthesizers, which are used by its customers in operational applications and in manufacturing a wide variety of microwave instruments and devices. Microsource’s two largest customers are prime contractors for which it develops and manufactures YIG RADAR filters used in fighter jet aircraft.

In an effort to improve long term sales growth and profitability, Giga-tronics has embarked on a strategy of concentrating our efforts on the Giga-tronics Division’s newly developed ASG, and Microsource YIG RADAR filters. Giga-tronics has started to move away from the Giga-tronics legacy products. These products were developed ten to twenty five years ago, and have been steadily decreasing in both sales and gross margins. For example, we sold our SCPM line to Teradyne in 2013, and in December 15, 2015 we entered into an agreement for the sale of much of our power meter, amplifier and legacy signal generator business to Spanawave Corporation. Both of these transactions will allow us to increase our focus on the ASG and Microsource YIG RADAR filters.

Giga-tronics was incorporated on March 5, 1980, and Microsource was acquired by Giga-tronics on May 18, 1998.

The combined Company principal executive offices are located at 4650 Norris Canyon Road, San Ramon, California, and our telephone number at that location is (925) 328-4650.

Operating Segments

The Company has two reporting segments: Giga-tronics Division and Microsource.

For more information regarding the Company’s two reporting segments, see “Part II-Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements-Significant Customers and Industry Segment Information.”

3

Products and Markets

Giga-tronics

Our Giga-tronics Division produces modular signal sources, up-converters, receivers and down-converters in the AXIe format covering a radio frequency (RF) range of 100 megahertz (MHz) to 18 gigahertz (GHz). The Company also produces a 5-slot and a 9-slot AXIe chassis and a high-performance AXIe frequency reference module for use with its signal sources. Available within each product family are a number of options allowing customers to select specialized capabilities, features and functions. The end-user markets for these products can be divided into three segments: RADAR Target Generation, Threat simulation and Surveillance. These instruments are used in the design, evaluation and calibration of RADAR, Electronic Countermeasures (ECM) and Direction Finding (DF) systems.

The Giga-tronics Division also produces switching systems that operate with a bandwidth from direct current (DC) to optical frequencies. These switch systems may be incorporated within customers’ automated test equipment. The end-user markets for these products are primarily related to defense, aeronautics, communications, satellite and electronic warfare, commercial aviation and semiconductors.

Microsource

Our Microsource segment develops and manufactures a broad line of YIG tuned oscillators, filters, filter components, and microwave synthesizers, which are used by its customers in operational applications and in manufacturing a wide variety of microwave instruments or devices. Microsource’s two largest customers are prime contractors for which it develops and manufactures YIG RADAR filters used in fighter jet aircraft.

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. We occasionally use sole source arrangements to obtain leading-edge technology or favorable pricing or supply terms, but not in any material volume. In our opinion, the loss of any sole source arrangement we have would not be material to our operations. Some suppliers are also competitors of Giga-tronics. In the event a competitor-supplier chooses not sell its products to us, production delays could occur as we seek new suppliers or re-design components to our products.

Although extended delays in receipt of components from our suppliers could result in longer product delivery schedules for us, we believe that our protection against this possibility stems from our practices of dealing with well-established suppliers and maintaining good relationships with such suppliers.

Patents and Licenses

Our competitive position is largely dependent upon our ability to provide performance specifications for our instruments and systems that (a) are easy to use and 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 our 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.

Our products are based on our own designs, which are derived from our own engineering abilities. If our new product engineering efforts fall behind, our competitive position weakens. Conversely, effective product development greatly enhances our competitive status.

We presently hold 31 patents. Capitalized costs relating to these patents were both incurred and fully amortized prior to March 27, 2011. Accordingly, these patents have no recorded value included in our consolidated financial statements for the fiscal years ended March 26, 2016 (“fiscal 2016”) and March 28, 2015 (“fiscal 2015”).

We are not dependent on trademarks, licenses or franchises. We 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.

In September 2015, we entered into a software development agreement with a major aerospace and defense company whereby the aerospace company would develop and license its simulation software to us. The simulation software (also called Open Loop Simulator or OLS technology) is currently the aerospace company’s intellectual property. The OLS technology generates threat simulations and enables various hardware to generate signals for performing threat analysis on systems under test. We intend to license the OLS software as a bundled or integrated solution with our ASG system.

4

Seasonal Nature of Business

Our business is not seasonal.

Working Capital Practices

We generally strive to maintain adequate levels of inventory and we generally sell to customers on 30-day payment terms in the U.S. and generally allow more time for overseas payments. Typically, we receive payment terms of 30 days from our suppliers. We believe that these practices are consistent with typical industry practices.

Importance of Limited Number of Customers

We are a 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 2017. U.S. and international defense-related agencies accounted for 73% of net sales in both fiscal 2016 and 2015. Commercial business accounted for the remaining 27% of net sales in both fiscal 2016 and fiscal 2015.

At the Giga-tronics Division, U.S. defense agencies and their prime contractors accounted for 56% and 40% of net sales in fiscal 2016 and fiscal 2015, respectively. Microsource reported 98% of net sales to prime contractors of U.S. defense agencies in both fiscal 2016 and fiscal 2015.

During fiscal 2016, the Boeing Company accounted for 32% of our consolidated revenues and was included in the Microsource reporting segment. A second customer, Defense Finance and Accounting Services (DFAS) accounted for 11% of our consolidated revenues during fiscal 2016 and was included in the Giga-tronics Division reporting segment.

During fiscal 2015, Lockheed Martin accounted for 28% of our consolidated revenues. A second customer, the Boeing Company accounted for 23% of our consolidated revenues. Both were included in the Microsource reporting segment. A third customer, DFAS accounted for 14% of our consolidated revenues during fiscal 2015 and was included in the Giga-tronics Division reporting segment.

In management’s opinion, we could experience a material adverse effect on our financial stability if there was a significant loss of either our defense or commercial customers.

Our Giga-tronics Division products are largely capital investments for our customers, and our belief is that our customers have economic cycles in which capital investment budgets for the kinds of products that we produce expand and contract. We therefore, expect that a major Giga-tronics Division customer in one year will often not be a major customer in the following year. Accordingly, our net sales and earnings will decline if we are unable to find new customers or increase our business with other existing customers to replace declining net sales from the previous year’s major customers. A substantial decline in net sales to the U.S. government defense agencies and their prime contractors would also have a material adverse effect on our net sales and results of operations unless replaced by net sales in the commercial sector.

Backlog of Orders

On March 26, 2016, our backlog of unfilled orders was approximately $14.6 million compared to approximately

$5.7 million at March 28, 2015. As of March 26, 2016, there were approximately $8.6 million of orders scheduled for shipment beyond one year, compared to $521,000 at March 28, 2015. Orders for our products include program orders from prime contractors with extended delivery dates. Accordingly, the backlog of orders may vary substantially from year to year and the backlog entering any single quarter may not be indicative of sales for any period. In April of 2016, Microsource received a $4.5 million YIG RADAR filter order that is not reflected in the backlog numbers above. In June 2016, the Gigatronics Division received a $3.3 million order from the United States Navy for our Real-Time Threat Emulation System (Real-Time TEmS) which is a combination of our new ASG Hardware Platform, along with software developed and licensed to us from a major aerospace and defense company. We expect to ship both orders throughout fiscal 2017.

Backlog includes only those customer orders for which binding agreement exists, a delivery schedule has been agreed upon between us and our customer and, in the case of U.S. government orders, for which funding has been appropriated.

5

Competition

Giga-tronics serves two very different markets.

The first is the electronic test equipment market with applications ranging from complex RF signal simulation used in the evaluation of military RADAR and Electronic Warfare systems to high performance signal switching used in the automated testing of commercial avionics. These applications represent niche segments within the broader test equipment market and their unique requirements allow Giga-tronics to win against a variety of larger competitors, such as Agilent/Keysight, Rohde & Schwarz and Anritsu, by focusing our limited resources squarely on the specific features needed. We do not attempt to compete ‘across the board’, but selectively based upon our particular strengths, the competitors’ perceived limitations, the customer’s needs and market opportunities. To maintain our position against competitors that have greater resources in research, development and manufacturing with substantially broader product lines and channels, we (a) place strong emphasis on maintaining a high degree of technical competence as it relates to the development of new products, (b) are highly selective in establishing technological objectives and (c) focus sales and marketing activities in the selected niche areas that are weakly served or underserved. Others competitors are of comparable size or have small product divisions with more limited product lines, such as Racal Instrument (a division of Astronics), VTI Instruments (a division of AMETEK), ELCOM (a division of Frequency Electronics Inc.), COMSTRON (a division of Cobham Plc) and EWST (a division of Ultra Electronics Plc).

The second is the aftermarket for operational hardware associated with the US Government’s RADAR Modernization Program (RMP) for prior generation fighter aircraft. The F/A-18E, the F-15D and F-16 jets are receiving new RADARs to extend their useful lives. Giga-tronics’ Microsource business unit supplies YIG filters specifically designed for military aircraft to solve interference problems. The prime contractors responsible for integrating the new RADARs have flight qualified our filters at considerable expense. Only a few companies possess the technical know-how to design and manufacture filters of this nature, such as Teledyne and Micro-Lambda Wireless, but the expense of requalifying a new component is prohibitive to the point where the integrator would only undertake such an effort when insurmountable technical deficiencies arose, which do not exist in this case. Microsource is the sole-source supplier of these filters and presently does not have any competition for this business. Microsource routinely maintains a “gold supplier” rating from its customers and received the Supplier of the Year award from one of the integrators. Microsource must maintain the Aerospace Industry’s AS9100C certification for its Quality Management System which it currently does. In October 2015, we announced a lapse in our AS9100C certification for our Supplier Quality Management System. In May 2016, our Microsource segment regained its AS9100C certification, during the lapse in certification we worked with one of the major customers to allow continued shipping and orders and we were pursuing a similar solution with the second customer, but this is no longer required since we regained certification.

Sales and Marketing

Giga-tronics and Microsource sell their products primarily direct to end customers and prime contractors.

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. Our future success is dependent on our ability to steadily incorporate advancements in component technologies into our new products. In fiscal 2016 and fiscal 2015, product development expenses totaled approximately $2.8 million and $3.2 million respectively.

Recent activities have focused primarily on the development of the new ASG product and the improvement of existing products. It is our intention to maintain product development at levels required to sustain our competitive position. Our product development activities are funded internally, through product line sales, or through outside equity investment and debt financing. Product development activities are expensed as incurred, except software development costs associated with the ASG.

We expect 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 our current product offerings obsolete or that we will be able to develop and introduce new products or enhancements to existing products that satisfy customer needs in a timely manner or achieve market acceptance. Failure to do so could adversely affect our business.

6

Manufacturing

The assembly and testing of Giga-tronics Division and Microsource’s products are done at our San Ramon facility.

Environment

To the best of our knowledge, we are in compliance with all Federal, state and local laws and regulations involving the protection of the environment.

Employees

As of March 26, 2016 and March 28, 2015, we employed 63 and 71 individuals on a full-time basis, respectively. We believe that our future success depends on our ability to attract and retain skilled personnel. None of our employees are represented by a labor union, and we consider our employee relations to be good.

Information about Foreign Operations

We sell to our international customers through a network of foreign technical sales representative organizations. All transactions between us and our international customers are in U.S. dollars.

Geographic Distribution of Net Sales
(Dollars in thousands)	2016		2015		2016			2015
Domestic	$	13,998	$	16,985		96	%		92	%
International		598		1,467		4	%		8	%
Total	$	14,596	$	18,452		100	%		100	%

See Item 8, (Note 12, Significant Customers and Industry Segment Information) of the consolidated financial statements for further breakdown of international sales for the last two years.

ITEM 1A. RISK FACTORS

Future liquidity is uncertain

We incurred net losses of $4.1 million in fiscal 2016, and $1.7 million in fiscal 2015. These losses have contributed to an accumulated deficit of $24.0 million as of March 26, 2016.

Beginning in fiscal 2012, we invested substantially in the research and development of our new product line, ASG. We anticipate long-term revenue growth and improved gross margins from the ASG platform, but delays in completing it have contributed to our losses. We also experienced delays in the development of features, orders, and shipments for the new ASG. These delays have significantly contributed to a decrease in working capital from $3.0 million at March 28, 2015, to $1.8 million at March 26, 2016. The new Advanced Signal Generator product has now shipped to several customers, but potential delays in the development of features, longer than anticipated sales cycles, or the ability to continue shipments in volume quantities, could significantly contribute to additional future losses. The losses in fiscal 2016 caused working capital restraints, resulting in delayed payments to suppliers.

These matters raise substantial doubt as to our ability to continue as a going concern.

To address these matters, our management has taken several actions to provide additional liquidity and reduce costs and expenses going forward. These actions are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the “Notes to the Consolidated Financial Statements” (Note 2, Going Concern and Management’s Plan).

Customer orders and production of new product platform

We invested heavily in the development of our new ASG product platform but delays in completing it have contributed to our losses. Longer than anticipated sales cycles in future fiscal years, or delays in production and shipping volume quantities, could significantly contribute to additional losses.  

7

Ability to stay listed for trading on The NASDAQ Capital Market

Our Common Stock is current listed on the NASDAQ Capital Market. NASDAQ has minimum requirements that a Company must meet in order to remain listed on the NASDAQ Capital Market. These requirements include maintaining a minimum shareholders’ equity of $2.5 million. If our shareholders’ equity falls below $2.5 million, NASDAQ could delist us from the NASDAQ Capital Market. If our Common Stock were to be delisted, the liquidity of our Common Stock would be adversely affected and the market price of our Common Stock could decrease. If our Common Stock ceases to be listed for trading on the NASDAQ Capital Market, we expect that our Common Stock would be traded on the Over-the-Counter Bulletin Board on or about the same day.

Giga-tronics’ sales are substantially dependent on the defense industry

We have a significant number of defense-related orders. If the defense market demand decreases, actual shipments could be less than projected shipments with a resulting decline in sales. Our product backlog has a number of risks and uncertainties such as the cancellation or deferral of orders, dispute over performance and our ability to collect amounts due under these orders. If any of these events occur, actual shipments could be lower than projected shipments and revenues could decline which would have an adverse effect on our operating results and liquidity.

Giga-tronics’ markets involve rapidly changing technology and standards

The market for electronics equipment is characterized by rapidly changing technology and evolving industry standards. We believe that our future success will depend in part upon our ability to develop and commercialize our existing products, and in part on our ability 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 we will successfully complete the development of current or future products, or that such products will achieve market acceptance. The inability to develop new products in a timely manner could have a material adverse impact on our operating performance and liquidity.

Giga-tronics’ common stock price is volatile

The market price of our common stock could be subject to significant fluctuations in response to variations in quarterly operating results, reduction in revenues or lower earnings or increased losses and reduced levels of liquidity when compared to previous quarterly periods, and other factors such as announcements of technological innovations or new products by us or by our competitors, government regulations or developments in patent or other proprietary rights. In addition, NASDAQ and other stock markets have experienced significant price fluctuations in recent years. Some of these fluctuations often have been unrelated to the reported 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 our common stock.

Our stock at any time has historically traded on low volume on the NASDAQ Capital Market. Sales of a significant volume of stock could result in a decline of our share price.

Performance problems in Giga-tronics’ products or problems arising from the use of its products together with other vendors’ products may harm its business and reputation

Products as complex as those we produce 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 our products have not had a material adverse effect on our business. However, management cannot be certain that a material adverse impact will not occur in the future.

8

Giga-tronics’ competition has greater resources

Our instrument, switch, oscillator and synthesizer products compete with Agilent/Keysight, Anritsu, and Rohde & Schwarz. All of these companies have substantially greater research and development, manufacturing, marketing, financial, and technological personnel and managerial resources than us. These resources also make these competitors better able to withstand difficult market conditions than us. There can be no assurance that any products developed by the competitors will not gain greater market acceptance than any developed by us.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Our principal executive office and the marketing, sales and engineering offices and manufacturing facilities are located in a 47,300 square feet facility in San Ramon, California, which we occupy under a lease agreement expiring December 31, 2016. We believe that our facilities are adequate for our business activities.

We are currently evaluating staying at our existing facility or moving to a smaller facility in the San Ramon area at the expiration of our current lease.

ITEM 3. LEGAL PROCEEDINGS

As of March 26, 2016, we have no material pending legal proceedings. From time to time, we are involved in various disputes and litigation matters that arise in the ordinary course of business.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

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PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Common Stock Market Prices

Our common stock is traded on the Nasdaq Capital Market using the symbol ‘GIGA’. The number of record holders of our common stock as of March 26, 2016 was approximately 124. A significantly larger number of stockholders may be "street name" or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions. 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 mark-ups, mark-downs, or commission and may not reflect actual transactions.

	Fiscal Quarter					Fiscal Quarter
	2016	High		Low		2015	High		Low
First Quarter	(3/29 - 6/27)	$	3.15	$	1.43	(3/30 - 6/28)	$	3.45	$	1.16
Second Quarter	(6/28 - 9/26)		1.89		1.04	(6/29 - 9/27)		3.21		1.84
Third Quarter	(9/27 - 12/26)		3.85		0.86	(9/28 - 12/27)		2.00		1.40
Fourth Quarter	(12/27 - 3/26)		1.85		1.11	(12/28 - 3/28)		1.95		1.43

We have not paid cash dividends in the past and have no current plans to do so in the future, believing the best use of our available capital is in the enhancement of our product position. In addition, in the absence of positive retained earnings, California law permits payment of cash dividends only to the extent total assets exceed the sum of total liabilities and the liquidation preference amounts of preferred securities. At March 26, 2016, the Company’s assets were less than this sum by $560,000.

On January 29, 2016, we consummated the sale of 2,787,872 Units, each consisting of one share of common stock and a warrant to purchase 0.75 shares of common stock, to approximately 20 private investors pursuant to a Securities Purchase Agreement dated as of January 19, 2016. The purchase price for each Unit was $1.24375. Gross proceeds were approximately $3.5 million. Net proceeds to the Company after fees were approximately $3.1 million. The portion of the purchase price attributable to the common shares included in each Unit was $1.15, the consolidated closing bid price for our common stock on January 15, 2016. The warrant price was $.09375 per Unit (equivalent to $0.125 per whole warrant share), with an exercise price of $1.15 per share. The term of the warrants is five years from the date of completion of the transaction. Emerging Growth Equities, Ltd also received warrants to purchase 292,727 shares of common stock as part of its consideration for serving as placement agent in connection with the private placement. All such transactions were previously reported in current reports on Form 8-K.

10

Equity Compensation Plan Information

The following table provides information on options and other equity rights outstanding and available at March 26, 2016.

Equity Compensation Plan Information
					No. of
					securities
					remaining
					available for
					future issuance
					under equity
	No. of				compensation
	securities to be		Weighted		plans
	issued upon		average		(excluding
	exercise of		exercise price		securities
	outstanding		of outstanding		reflected in
	options		options		column (a))
Plan Category	(a)		(b)		(c)
Equity compensation plans approved by security holders (1)		1,592,200	$	1.52		955,427
Equity compensation plans not approved by security holders		—		—		n/a
Total		1,592,200	$	1.52		955,427

(1) Excludes warrants issued to purchasers of units consisting of stock and warrants in private placements, to a placement agent for services in connection with the private placement and to lenders in connection with debt financing.

Issuer Repurchases

We did not repurchase any of our equity securities during the fiscal year ended March 26, 2016.

ITEM 6. SELECTED FINANCIAL DATA

Pursuant to Item 301(c) of Regulation S-K., the Company, as a smaller reporting company, is not required to provide the information required by this item.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Overview and Refocusing Giga-tronics

We produce sophisticated test and measurement equipment primarily used in the aerospace and defense markets. We also produce YIG (Yttrium, Iron, Garnet) RADAR filters used in fighter jet aircraft. We have two reporting segments: Giga-tronics Division and Microsource.

● The Giga-tronics Division historically produces a broad line of test and measurement equipment used primarily for the design, production, repair and maintenance of products in aerospace, telecommunications, RADAR, and electronic warfare. 

● Microsource primarily develops and manufactures YIG RADAR filters used in fighter jet aircraft for two prime contractors.

In an effort to improve long term sales growth and profitability, Giga-tronics has embarked on a strategy of concentrating our efforts on the Giga-tronics Division’s newly developed Advanced Signal Generator (ASG) and Microsource YIG RADAR filters. The ASG addresses a technology gap within the RADAR and electronic warfare market segment, and has prospects for greater growth in sales and margins than our legacy Giga-tronics division product lines. In fiscal 2016 Giga-tronics moved the ASG from development to manufacturing, and received $2.5 million in customer orders. The Microsource YIG RADAR filters provide us with long term production and development contracts with strong gross margins. In recent years we have produced these RADAR filters for two fighter jet platforms, and will start production for a third platform in fiscal year 2017.

Giga-tronics has started to move away from the Giga-tronics legacy products. These products were developed ten to twenty- five years ago, and have been steadily decreasing in both sales and gross margins. We sold our SCPM line to Teradyne in 2013, and in December 15, 2015 we entered into an agreement for the sale of much of our power meter, amplifier and legacy signal generator business to Spanawave Corporation (see Note 10, Sale of Product Lines). We expect these transactions will allow us to focus on the ASG and Microsource YIG RADAR filters, while providing additional cash for operations and reducing related personnel expenses. We will continue to aggressively look for other opportunities to sell product lines for additional cash.

The ASG has the potential to significantly grow sales and achieve strong gross margins. However, Giga-tronics has experienced significant delays developing, manufacturing and receiving ASG customer orders. The ASG is the most technically complex and advanced product Giga-tronics has developed and manufactured, and we have experienced delays in bringing the product to market. It is also priced significantly higher than any other Giga-tronics product, and we have experienced longer than anticipated procurement cycles in the electronic warfare market it services. The delays in the development and manufacturing of the ASG, along with the longer than anticipated procurement cycles, have contributed to the increased losses in fiscal 2016. Giga-tronics could experience similar losses in fiscal 2017 if there are further delays in ASG features currently being developed, manufacturing efficiencies are not achieved, and customer orders are delayed. To bring the ASG to its full potential, Giga-tronics may be required to seek additional working capital from product line sales, however, there are no assurances that such sales will be available, or on terms acceptable to the Company.

Significant Orders

Both the Giga-tronics Division and Microsource receive large customer orders each year. The timing of orders, and any associated milestones achievement, causes significant differences in orders received, backlog, sales, deferred revenue, inventory and cash flow when comparing one fiscal period to another. Below is a review of recently received significant orders:

Our Giga-tronics Division received orders of $1.5 million and $2.4 million in fiscal 2016 and 2015, respectively, from the United States Navy for our Model 8003 Precision Scalar Analyzers and associated accessories (“8003”). We shipped all of the $1.5 million order in fiscal 2016 and the $2.4 million order in fiscal 2015. The 8003 was designed about 25 years ago, and Giga-tronics is no longer able to purchase key components and materials used to manufacture the 8003. The Navy orders mark the end of life of the 8003.

Through fiscal 2016 we received $3.3 million of orders for the ASG, of which, $2.3 million shipped to several customers. Orders and shipments for the ASG may not be consistent when comparing one fiscal period to another due to delays in the development of features, longer than anticipated sales cycles, or the ability to ship volume quantities.

In June 2016, the Gigatronics Division received a $3.3 million order from the United States Navy for our Real-Time TemS which is a combination of the ASG hardware platform, along with software developed and licensed to the Company from a major aerospace and defense company. The complete order includes engineering services to integrate the Real-Time TEmS product with additional third party hardware and software for the customer. The Company expects to fulfill the order in the second half of the current fiscal year.

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In May of 2015, Microsource received a $3.0 million order YIG RADAR filter order (Ongoing Production Order) associated with a fighter jet platform we have been manufacturing since fiscal 2014. We shipped all of the $3.0 million order in fiscal 2016. In April of 2016, Microsource received a $4.5 million YIG RADAR filter for the same fighter jet platform. We expect to ship this order throughout fiscal 2017.

In fiscal 2015 Microsource received a $6.5 million order (“NRE Order”) for non-recurring engineering and for delivery of a limited number of flight-qualified prototype hardware from a second prime defense contractor to develop a variant of our high performance fast tuning YIG RADAR filters for an aircraft platform. In fiscal 2016 our Microsource business unit also finalized an associated multiyear $10.0 million YIG production order (“YIG Production Order”). We expect to start shipping the YIG Production Order in the summer of 2016, and to continue shipping it through fiscal 2020.

The Microsource NRE Order received in fiscal 2015 resulted in significant improvements to sales and results from operations in fiscal 2015, compared to fiscal 2016. With a majority of the associated services from the NRE Order being completed in fiscal 2015, and the YIG Production Order not scheduled to ship until fiscal 2017, the Company experienced a decrease in sales and results from operations in fiscal 2016.

Results of Operations

New orders by reporting segment are as follows for the fiscal years ended: 

Orders						% change
(Dollars in thousands)	2016		2015		2016 vs. 2015			2015 vs. 2014
Giga-tronics Division	$	9,688	$	9,095		7	%		5	%
Microsource		13,739		8,416		63	%		70	%
Total	$	23,427	$	17,511		34	%		28	%

New orders received in fiscal 2016 increased 34% to $23.4 million from the $17.5 million received in fiscal 2015. The increase in orders was primarily due to Microsource’s receipt of the $10.0 million YIG Production Order and the $3.0 million Ongoing Production Order in fiscal 2016, compared to the $6.5 million NRE order in fiscal 2015. The increase in the Giga-tronics Division was primarily due to the $2.3 million increase of orders for the ASG, partially offset by the decrease in the Navy 8003 order, and by decreasing orders for legacy products being sold to Spanawave Corporation (See Note 10, Sale of Product Lines).

New orders received in fiscal 2015 increased 28% to $17.5 million from the $13.6 million received in fiscal 2014. The increase was primarily due to Microsource’s receipt in fiscal 2015 of the $6.5 million NRE order.

The following table shows order backlog and related information at fiscal year-end:

Backlog					% change
(Dollars in thousands)	2016		2015		2016 vs. 2015			2015 vs. 2014
Backlog of unfilled orders	$	14,560	$	5,729		154	%		(14%	)
Backlog of unfilled orders shippable within one year		5,984		5,208		15	%		(4%	)
Backlog of unfilled orders shippable after one year		8,576		521		1546	%		(44%	)

Backlog at the end of fiscal 2016 increased 154% compared to the end of fiscal 2015. The increase in backlog is primarily due to the $10.0 million YIG Production Order our Microsource business unit received in fiscal 2016. In April of 2016, Microsource received a $4.5 million YIG radar filter; in June 2016 Gigatronics received a $3.3 million order for Real-Time TEmS, both new orders are not reflected in the backlog numbers above. We expect to ship both orders throughout fiscal 2017.

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The allocation of net sales by reporting segment was as follows for the fiscal years shown:

Allocation of Net Sales					% change
(Dollars in thousands)	2016		2015		2016 vs. 2015			2015 vs. 2014
Giga-tronics Division	$	8,679	$	9,123		(5%	)		25	%
Microsource		5,917		9,329		(37%	)		55	%
Total	$	14,596	$	18,452		(21%	)		39	%

Net sales in fiscal 2016 were $14.6 million, a 21% decrease from $18.5 million in fiscal 2015. Sales for the Giga-tronics Division decreased 5%, or $444,000, primarily due to the $1.2 million decrease in the legacy products sold to Spanawave Corporation (See Note 10, Sale of Product Lines), the $905,000 decrease in the size of the Navy 8003 order in fiscal 2016, partially offset by a $1.3 million increase in ASG shipments and a $383,000 increase in 4600 Switch product shipments. Net sales for Microsource decreased 37% primarily due to the winding down of the NRE Order.

Net sales in fiscal 2015 were $18.5 million, a 39% increase from $13.3 million in fiscal 2014. Sales for the Giga-tronics Division increased 25%, or $1.8 million, primarily due to the fulfillment of the $2.4 million Navy 8003 order. Sales for the Microsource business unit increased 55%, or $3.3 million, largely due to recognizing $4.7 million of sales associated with the $6.5 million NRE Order received during the year. This was partially offset by a $1.4 million decrease in the delivery of YIG filter production units associated with the contractual timing of shipments to a prime defense contractor.

The allocation of gross margins by reporting segment was as follows for the fiscal years shown:

Gross Margin					% change
(Dollars in thousands)	2016		2015		2016 vs. 2015			2015 vs. 2014
Giga-tronics Division	$	2,360	$	3,523		(33%	)		63	%
Microsource		2,261		4,484		(50%	)		95	%
Total	$	4,621	$	8,007		(42%	)		79	%

Gross margin decreased in fiscal 2016 to $4.6 million from $8.0 million for fiscal 2015. The decrease in Giga-tronics gross margin was due to rework associated with the initial pilot manufacturing run of the ASG, and overhead being absorbed by fewer shipments. The decrease in Microsource was primarily due to the decrease in net sales associated the NRE Order, which had a lower cost of sales compared to product sales and overhead being absorbed by fewer shipments.

Gross margin increased in fiscal 2015 to $8.0 million from $4.5 million for fiscal 2014. The increase in fiscal 2015 was primarily due to the fulfillment of the Microsource NRE Order, which had a lower cost of sales compared to product sales.

Operating expenses were as follows for the fiscal years shown:

Operating Expenses					% change
(Dollars in thousands)	2016		2015		2016 vs. 2015			2015 vs. 2014
Engineering	$	2,806	$	3,210		(13%	)		(18%	)
Selling, general and administrative		5,522		4,783		15	%		(1%	)
Total	$	8,328	$	7,993		4	%		(12%	)

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Operating expenses increased 4%, or $335,000 in fiscal 2016 compared to fiscal 2015. Engineering expenses decreased $404,000 during fiscal 2016 when compared to fiscal 2015 primarily due to development costs incurred in fiscal 2015 associated with our Switch product which we are now shipping. Selling, general and administrative expenses increased 15% or $739,000 primarily due to a $200,000 increase in outside services related to financial services and management consulting,    a $167,000 increase in sales and marketing efforts associated with our new ASG, a $155,000 increase in officer salaries, and a $113,000 increase in non-cash stock based compensation.

Operating expenses decreased 12%, or $1.0 million, in fiscal 2015 compared to fiscal 2014. Engineering expenses decreased

$687,000 during fiscal 2015 when compared to fiscal 2014, which was primarily due to certain engineers being assigned to a Microsource nonrecurring engineering project that is recorded as cost of sales. Selling, general and administrative expenses were approximately $4.8 million for both fiscal 2015 and fiscal 2014. Restructuring expenses decreased $331,000 in fiscal 2015 when compared to fiscal 2014, primarily due to Giga-tronics completion of its closure of the Santa Rosa facility in fiscal 2014.

Operating Income (Loss)

Operating loss was $3.7 million in fiscal 2016 compared to an operating income of $14,000 in fiscal 2015. The decline in operating results in fiscal 2016 compared to fiscal 2015 was primarily due to decreased revenues associated with the Microsource NRE Order and the Navy 8003 order. Operating loss was also impacted by the delays in the development and manufacturing of the ASG, along with its longer than anticipated sales cycle.

Derivative Liability

In fiscal 2016, we recorded a loss of $12,000 related to revaluation of the derivative liability, associated with warrants issued with the PFG Loan. There was no gain or loss recorded in fiscal 2015 related to the revaluation of the PFG warrant liability (see Note 8, Term Loan, Revolving Line of Credit and Warrants).

Warrant Charge Expense

In fiscal 2015 we recorded a $1.2 million non-cash charge related to the issuance of new warrants in connection with a Stock Purchase Agreement and Warrant Agreement with Alara Capital dated February 16, 2015. Pursuant to the agreements, we received during February 2015 total cash proceeds of approximately $1.5 million through Alara’s exercise of its existing Series C and Series D warrants to purchase common shares, all of which had an exercise price of $1.43 per share for total cash proceeds of $1,434,000, which was recorded net of $42,000 of stock issuance costs. As part of the consideration for this exercise, we sold to Alara two new warrants to purchase an additional 898,634 and 194,437 common shares at an exercise price of $1.78 and $1.76 per share, respectively, for a total purchase price of $137,500 or $0.125 per share. The new warrants were accounted for and resulted in the charges described above (see Note 20, Exercise of Series C and Series D Warrants). There was no warrant charge expense recorded in fiscal 2016.

Net Interest Expense

Net interest expense in fiscal 2016 was $383,000 a decrease of $23,000 over fiscal 2015. Interest expense decreased in fiscal 2016 over fiscal 2015 primarily due to the lower principal balances in both loans with PFG. For fiscal 2016, interest expense includes $165,000 of accretion of discounts on the PFG Loan and Warrant Debt compared to $152,000 recorded in fiscal 2015 (see Note 8, Term Loan, Revolving Line of Credit and Warrants).

Net Loss

Net loss was $4.1 million in fiscal 2016, compared to a net loss of $1.7 million in fiscal 2015. The higher net loss recorded in fiscal 2016 was primarily due to decreased revenues associated with the Microsource NRE Order and the Navy 8003 orders. Net loss was also impacted by the delays in the development and manufacturing of the ASG, along with it’s longer than anticipated sales cycle. The net loss for fiscal 2015 was impacted by the $1.2 million Alara Capital non-cash warrant charge described above. 

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Net Inventories

Inventories consisted of the following:

Net Inventories					% change
	March 26,		March 28,		2016 vs.
(Dollars in thousands)	2016		2015		2015
Raw materials	$	3,489	$	1,631		114	%
Work-in-progress		2,156		1,598		35	%
Finished goods		2		15		(87	%)
Demonstration inventory		47		121		(61	%)
Total	$	5,694	$	3,365		69	%

Net inventories increased by $2.3 million from March 28, 2015 to March 26, 2016. Inventories associated with the ASG increased by $1.3 million, as it moved from development to production. Microsource inventory also increased by $1.0 million primarily due to the raw material buy associated with the $10.0 million YIG Production Order. Giga-tronics has an advance payment arrangement with the customer associated with the YIG Production Order raw materials, allowing Giga-tronics to purchase all of the related raw materials prior to the start of manufacturing.

Financial Condition and Liquidity

As of March 26, 2016, Giga-tronics had $1.3 million in cash and cash-equivalents, compared to $1.2 million as of March 28, 2016. Working capital at the end of fiscal year 2016 was $1.7 million as compared to $3.0 million at the end of fiscal year 2015. The current ratio (current assets divided by current liabilities) at March 26, 2016 was 1.23 as compared to 1.69 at March 28, 2015. The fiscal 2016 decrease in working capital was primarily attributable to a $1.7 million increase in deferred revenue related to advance payment arrangements for raw materials for our customer, a $951,000 increase in accounts payable associated with inventory purchases and amounts due under a software development agreement with a major aerospace and defense company and $800,000 owed on the line of credit. This was partially offset by a $2.3 million increase in inventories described above.

Cash used in operating activities was $3.0 million in fiscal 2016. Cash used in operating activities is primarily due to the net loss of $4.1 million, partially offset by non-cash charges of $925,000 for stock based compensation, $321,000 for depreciation and amortization, and $165,000 for accretion of discounts on loan and warrant debt. Cash used in operating activities amounted to $542,000 in fiscal 2015, primarily due to the net loss of $1.7 million, a $508,000 increase in accounts receivable due to increased sales, and a $457,000 decrease in accounts payable associated with the timing of vendor payments. These were partially offset by non-cash charges of $1.2 million for the Alara Capital warrants and $827,000 for share based compensation.

Cash provided by investing activities was $183,000 and included $375,000 received from Spanawave for the initiation of data transfer pertaining to the sale of our legacy product lines as well as additions to property and equipment of $192,000 in fiscal 2016 compared to $16,000 in fiscal 2015. The additions in both fiscal 2016 and fiscal 2015 were associated with equipment required to manufacture the ASG.

Cash provided by financing activities in fiscal year 2016 was $3.0 million, primarily due to $3.1 million in net proceeds from a Private Placement completed in the fourth quarter of fiscal 2016. Cash provided by financing activities in fiscal year 2015 was $669,000, primarily due to $1.5 million in net proceeds from the exercise of existing Alara Capital warrants and $500,000 in proceeds from a line of credit with PFG. These proceeds were partially offset by a $1.2 million repayment of the Company’s line of credit with SVB and a $200,000 repayment on the term loan with PFG.

On January 29, 2016, we consummated the sale of 2,787,872 Units, each consisting of one share of common stock and a warrant to purchase 0.75 shares of common stock, to approximately 20 private investors pursuant to a Securities Purchase Agreement dated as of January 19, 2016. The purchase price for each Unit was $1.24375. Gross proceeds were approximately $3.5 million. Net proceeds to the Company after fees were approximately $3.1 million. The portion of the purchase price attributable to the common shares included in each Unit was $1.15, the consolidated closing bid price for the Company’s common stock on January 15, 2016. The warrant price was $.09375 per Unit (equivalent to $0.125 per whole warrant share), with an exercise price of $1.15 per share. The term of the warrants is five years from the date of completion of the transaction. Emerging Growth Equities, Ltd also received warrants to purchase 292,727 shares of common stock as part of its consideration for serving as placement agent in connection with the private placement.

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On February 16, 2015, we entered into a Securities Purchase Agreement and Warrant Agreement with Alara Capital AVI II, LLC (“Alara Capital”), an investment vehicle sponsored by AVI Partners, LLC (“AVI”) (with both entities collectively referred to herein as “Alara”), in which we received total gross cash proceeds of approximately $1.5 million. Funds were received from Alara in separate closings dated February 16, 2015 and February 23, 2015 in which Alara exercised a total of 1,002,818 of its existing Series C and Series D warrants to purchase common shares, all of which had an exercise price of $1.43 per share for total cash proceeds of $1,434,000, which was recorded net of $42,000 of stock issuance costs. As part of the consideration for this exercise, we sold to Alara two new warrants to purchase an additional 898,634 and 194,437 common shares at an exercise price of $1.78 and $1.76 per share, respectively, for a total purchase price of $137,000 or $0.125 per share. The new warrants have a term of five years and may be paid in cash or through a cashless net share settlement. The Company and Alara amended the remaining 14,587 warrants as part of the February closings. On May 14, 2015, Alara exercised the remaining 14,587 warrants by acquiring 7,216 of shares of the Company’s common stock through a cashless net share settlement.

We incurred net losses of $4.1 million for fiscal 2016, which have contributed to an accumulated deficit of $24.0 million as of March 26, 2016.

We experienced delays in the development of features, orders, and shipments for the new ASG. These delays have significantly contributed to a decrease in working capital from $3.0 million at March 28, 2015, to $1.8 million at March 26, 2016. The new ASG product has now shipped to several customers, but potential delays in the development of features, longer than anticipated sales cycles, or the ability to efficiently manufacture the ASG, could significantly contribute to additional future losses and decreases in working capital.

To help fund operations, we rely on advances under the line of credit with Bridge Bank. The line of credit expires on May 7, 2017. The agreement includes a subjective acceleration clause, which allows for amounts due under the facility to become immediately due in the event of a material adverse change in our business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit based on the lender’s judgement. As of March 26, 2016, outstanding borrowings and additional borrowing capacity under the line of credit were $800,000 and $906,000, respectively.

These matters raise substantial doubt as to our ability to continue as a going concern.

To address these matters, our management has taken several actions to provide additional liquidity and reduce costs and expenses going forward. These actions are described in the following paragraphs. 

● In April 2016 the Microsource Business Unit regained AS9100C certification of its Supplier Quality Management System. The AS9100C Certification is commonly required in the aircraft manufacturing industry. The Company’s Microsource division sells components used on military aircrafts to two major customers that require such certification. During the lapse in certification the Company worked with one of the major customers to allow continued shipping and orders. The Company was pursuing a similar solution with the second customer, but this is no longer required with the regained certification.

● Giga-tronics plans to work with Bridge Bank to renew the line of credit prior to its May 7, 2017 expiration. 

● On January 29, 2016, we completed the sale of approximately 2.7 million shares of Common Stock yielding gross proceeds of approximately $3.5 million. Net proceeds to the Company were approximately $3.1 million. The sale included Warrants to purchase approximately 2.4 million shares of Common Stock at $1.15 per share (see Note 18, Private Placement Offering). The proceeds were used to pay suppliers past due accounts, and will be used to fund operations and the forecasted increases in sales and manufacturing activities associated with the Advanced Signal Generator.

● On December 15, 2015, we entered into an Asset Purchase Agreement with Spanawave, whereby Spanawave agreed to purchase the Giga-tronics’ Division product lines for its Power Meters, Amplifiers and Legacy Signal Generators for $1.5 million. (see Note 10, Sale of Product Lines). As of March 26, 2016, we had received $375,000 from Spanawave under the agreement. We are entitled to receive another $375,000 between July and September 2016, the final installment of $750,000 is expected to be paid between July and December 2016. Proceeds from the asset sale will be used for working capital and general corporate purposes.

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● In the first quarter of fiscal 2016, our Microsource business unit also finalized a multiyear $10.0 million YIG production order (“YIG Production Order”). We expect to start shipping the YIG Production Order in the fall of 2016.

● In April of 2016, Microsource received a $4.5 million YIG RADAR filter order for the same fighter jet platform, which we expect to ship throughout fiscal 2017. This was a $1.5 million increase compared to the order received in fiscal 2016 for the same platform. In June 2016, the Gigatronics Division also received a $3.3 million order from the United States Navy for the Real-Time TEmS which we also expect to ship in the second half of fiscal 2017.

● To assist with the upfront purchases of inventory required for future product deliveries, we entered into advance payment arrangements with two large customers, whereby the customers reimburse us for raw material purchases prior to the shipment of the finished products. In fiscal 2016, we entered into advance payment arrangements totaling $3.9 million. We will continue to seek similar terms in future agreements with these customers and other customers.

Management will continue to review all aspects of the business in an effort to improve cash flow and reduce costs and expenses, while continuing to invest, to the extent possible, in new product development for future revenue streams.

Management will also continue to seek additional working capital through product line sales, debt, or possible equity financing. However, there are no assurances that such financings or sales will be available at all, or on terms acceptable to the Company.

The current year loss has had a significant negative impact on the financial condition of the Company and raises substantial doubt about our ability to continue as a going concern. Management believes that through the actions to date and possible future actions described above, we should have the necessary liquidity to continue its operations at least for the next twelve months, though no assurances can be made in this regard based on uncertainties with respect the ASG associated with potential delays in the development of features, longer than anticipated sales cycles, or the ability to efficiently manufacture it. No assurances can be given that we can renew the Bridge Bank line of credit. The Consolidated Financial Statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might result if we were unable to do so.    

Contractual Obligations

We lease our facility under an operating lease that expires in December 2016 and lease certain equipment under operating leases. Total future minimum lease payments under these leases amount to approximately $553,000, of which $529,000 is scheduled to be paid in fiscal 2017.

We lease equipment under capital leases that expire through September 2020. The future minimum lease payments under these leases are approximately $271,000.

We are committed to repay the PFG loan with a maturity date of January 2017. Future payments under this loan consist of $400,000 in principal and $17,000 in interest.

We are committed to purchase certain inventory under non-cancelable purchase orders. As of March 26, 2016, total non–cancelable purchase orders were approximately $2.3 million and are scheduled to be delivered to the Company at various dates through March 2017.

Critical Accounting Policies

Our discussion and analysis of our 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 accounting principles generally accepted in the United States of America and management is 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, we re-evaluate our judgments, estimates and assumptions. We base our judgment and estimates on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following as our critical accounting policies:

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Revenue Recognition

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. Revenue recognized under the milestone method is recognized once milestones are met. 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. Our 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 our 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.

On certain contracts with one of our significant customers we receive payments in advance of manufacturing. Advanced payments are recorded as deferred revenue until the revenue recognition criteria described above have been met.

Product Warranties

Our warranty policy generally provides one to three years of coverage depending on the product. We record a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty coverage is based on our actual historical experience with our current products or similar products. For new products, the required reserve is based on historical experience of similar products until sufficient historical data has been collected on the new product. Adjustments are made as new information becomes available.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at their net realizable values. We have estimated an allowance for uncollectible accounts based on our analysis of specifically identified problem accounts, outstanding receivables, consideration of the age of those receivables, our historical collection experience, and adjustments for other factors management believes are necessary based on perceived credit risk.

Inventory

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. We periodically review inventory on hand to identify and write down excess and obsolete inventory based on estimated product demand.

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. 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 both positive and negative evidence and tax planning strategies in making this assessment.

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We consider all tax positions recognized in the consolidated financial statements for the likelihood of realization. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amounts of the positions that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if any, would be reflected as unrecognized tax benefits, as applicable, in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. We also recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of the provision for income taxes in the consolidated statements of operations.

Share Based Compensation

We have a stock incentive plan that provides for the issuance of stock options and restricted stock to employees and directors. We calculate share based compensation expense for stock options using a Black-Scholes-Merton option pricing model and record the fair value of stock option and restricted stock awards expected to vest over the requisite service period. In so doing, we make certain key assumptions in making estimates used in the model. We believe the estimates used, which are presented in the Notes to Consolidated Financial Statements, are appropriate and reasonable.

Going Concern

We evaluate our relevant conditions and events that is known and reasonably knowable at the date that our financial statements are issued. This includes Management’s preparation and review of a robust forecasting process that evaluates a twelve month horizon period. Management responds to the known and reasonably knowable circumstances that give rise to our initial doubt as a going concern by implementing plans that are reasonably sufficient to overcome the conditions that give rise to our ability to continue as a going concern. Our Consolidated Financial Statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might result if we were unable to do so.    

Software Development Costs

We expense development costs included in the research and development of new products and enhancements to existing products as incurred, until technological feasibility in the form of a working model has been established. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning our product’s technological feasibility has been established and ending when the product is available for general release to our customers.

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Off-Balance-Sheet Arrangements

We have 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 conditions, changes in financial conditions, revenue, expense, results of operations, liquidity, capital expenditures or capital resources.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to Item 305 of Regulation S-K, the Company, as a smaller reporting company, is not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Financial Statements	Page
Consolidated Balance Sheets - As of March 26, 2016 and March 28, 2015	23
Consolidated Statements of Operations - Years ended March 26, 2016 and March 28, 2015	24
Consolidated Statements of Shareholders’ Equity - Years ended March 26, 2016 and March 28, 2015	25
Consolidated Statements of Cash Flows - Years ended March 26, 2016 and March 28, 2015	26
Notes to Consolidated Financial Statements	27-45
Report of Independent Registered Public Accounting Firm	46

22

GIGA-TRONICS INCORPORATED

CONSOLIDATED BALANCE SHEETS

(In thousands except share data)	March 26, 2016			March 28, 2015
Assets
Current assets:
Cash and cash-equivalents	$	1,331		$	1,170
Trade accounts receivable, net of allowance of $45, respectively		2,129			2,354
Inventories, net		5,694			3,365
Prepaid expenses and other current assets		327			373
Total current assets		9,481			7,262
Property and equipment, net		837			718
Other long term assets		8			74
Capitalized software development costs		876			—
Total assets	$	11,202		$	8,054
Liabilities and shareholders' equity
Current liabilities:
Line of credit	$	800		$	—
Current portion of long term debt, net of discount		379			811
Accounts payable		1,924			973
Accrued payroll and benefits		647			678
Deferred revenue		2,804			1,127
Deferred rent		110			127
Capital lease obligations		44			69
Other current liabilities		996			501
Total current liabilities		7,704			4,286
Long term loan		—			392
Warrant liability, at estimated fair value		353			252
Long term obligations - deferred rent		—			111
Long term obligations - capital lease		165			58
Total liabilities		8,222			5,099
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock of no par value; Authorized - 1,000,000 shares
Series A - designated 250,000 shares; no shares at March 26, 2016 and March 28, 2015 issued and outstanding		—			—
Series B, C, D- designated 19,500 shares; 18,533.51 shares at March 26, 2016 and March 28, 2015 issued and outstanding; (liquidation preference of $3,540 at March 26, 2016 and March 28, 2015)		2,911			2,911
Common stock of no par value; Authorized - 40,000,000 shares; 9,549,703 shares at March 26, 2016 and 6,706,065 at March 28, 2015 issued and outstanding		24,104			19,975
Accumulated deficit		(24,035	)		(19,931	)
Total shareholders' equity		2,980			2,955
Total liabilities and shareholders' equity	$	11,202		$	8,054

See Accompanying Notes to Consolidated Financial Statements

23

GIGA-TRONICS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended
(In thousands except per share data)	March 26, 2016			March 28, 2015
Net sales	$	14,596		$	18,452
Cost of sales		9,975			10,445
Gross margin		4,621			8,007
Operating expenses:
Engineering		2,806			3,210
Selling, general and administrative		5,522			4,783
Total operating expenses		8,328			7,993
Operating (loss)/income		(3,707	)		14
Loss on adjustment of warrant liability to fair value		(12	)		—
Warrant expense		—			(1,232	)
Other loss		—			(2	)
Interest expense:
Interest expense, net		(218	)		(254	)
Interest expense from accretion of loan discount		(165	)		(152	)
Total interest expense, net		(383	)		(406	)
Loss before income taxes		(4,102	)		(1,626	)
Provision for income taxes		2			47
Net loss	$	(4,104	)	$	(1,673	)
Loss per common share - basic	$	(0.59	)	$	(0.32	)
Loss per common share - diluted	$	(0.59	)	$	(0.32	)
Weighted average common shares used in per share calculation:
Basic		6,941			5,279
Diluted		6,941			5,279

See Accompanying Notes to Consolidated Financial Statements

24

GIGA-TRONICS INCORPORATED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Preferred Stock				Common Stock				Accumulated
(In thousands except share data)	Shares		Amount		Shares		Amount		Deficit			Total
Balance at March 29, 2014		18,534	$	2,911		5,181,247	$	16,224	$	(18,258	)	$	877
Net loss										(1,673	)		(1,673	)
Restricted stock granted						432,000		—
Option exercises						90,000		163					163
Share based compensation								827					827
Warrant charge expense						—		1,232					1,232
Warrant exercise and newly issued warrant, net of issuance cost						1,002,818		1,529					1,529
Balance at March 28, 2015		18,534		2,911		6,706,065		19,975		(19,931	)		2,955
Net loss										(4,104	)		(4,104	)
Restricted stock granted						—		—
Option exercises						48,550		77					77
Share based compensation								925					925
Shares issued for net settlement of warrant						7,216		—					—
Proceeds from common offering, net of issuance cost						2,787,872		3,127					3,127
Balance at March 26, 2016		18,534	$	2,911		9,549,703	$	24,104	$	(24,035	)	$	2,980

See Accompanying Notes to Consolidated Financial Statements

25

GIGA-TRONICS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)	Years Ended March 26, 2016			March 28, 2015
Cash flows from operating activities:
Net loss	$	(4,104	)	$	(1,673	)
Adjustments to reconcile net loss to net cash used in operating activities: Warrant issuance expense		—			1,232
Depreciation and amortization		321			311
Share based compensation		925			827
Accretion of discounts on debt		165			152
Adjustment of warrant liability to fair value		12			—
Capitalized software development costs		(876	)		—
Change in other long term assets		66			(5	)
Change in deferred rent		(128	)		(103	)
Changes in operating assets and liabilities:
Trade accounts receivable		225			(508	)
Inventories		(2,329	)		(44	)
Prepaid expenses and other assets		(3	)		(24	)
Accounts payable		915			(457	)
Accrued payroll and benefits		(31	)		(77	)
Deferred revenue		1,677			(202	)
Other current liabilities		120			29
Net cash used in operating activities		(3,045	)		(542	)
Cash flows from investing activities:
Purchases of property and equipment		(192	)		(16	)
Cash received from sale of product line		375			—
Net cash provided by (used in) investing activities		183			(16	)
Cash flows from financing activities:
Proceeds from exercise and issuance of warrants, net of issuance costs of $42		—			1,529
Proceeds from exercise of stock options		77			163
Payments on capital leases		(81	)		(158	)
Proceeds from line of credit		1,800			8,624
Proceeds from issuance of debt		—			500
Repayments of line of credit		(1,000	)		(9,789	)
Repayments of debt		(900	)		(200	)
Proceeds from issuance of common stock, net of issuance costs of $278		3,127			—
Net cash provided by financing activities		3,023			669
Increase in cash and cash-equivalents		161			111
Beginning cash and cash-equivalents		1,170			1,059
Ending cash and cash-equivalents	$	1,331		$	1,170
Supplementary disclosure of cash flow information:
Cash paid for income taxes	$	2		$	2
Cash paid for interest	$	165		$	219
Supplementary disclosure of noncash investing and financing activities:
Equipment acquired under capital lease	$	163		$	61
Equipment acquired with reduction of other current asset	$	49		$	—
Equipment acquired with an increase in accounts payable	$	36		$	—

See Accompanying Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 Summary of Significant Accounting Policies

The accompanying consolidated financial statements include the accounts of Giga-tronics Incorporated (“Giga- tronics”) and its wholly-owned subsidiary, Microsource Incorporated (“Microsource”), collectively the “Company”. The Company’s corporate office and manufacturing facilities are located in San Ramon, California.

Giga-tronics Division designs, manufactures and markets the new Advanced Signal Generator (ASG) for the electronic warfare market, and switching systems that are used in automatic testing systems primarily in aerospace, defense and telecommunications.

Microsource develops and manufactures a broad line of YIG (Yttrium, Iron, Garnet) tuned oscillators, filters and microwave synthesizers, which are used by its customers in operational applications and in manufacturing a wide variety of microwave instruments and devices. Microsource’s two largest customers are prime contractors for which it develops and manufactures YIG RADAR filters used in fighter jet aircraft.

Principles of Consolidation The consolidated financial statements include the accounts of Giga-tronics and its wholly-owned subsidiary. 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 affect 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 2016 ended on March 26, 2016 resulting in a 52 week year. Fiscal year 2015 ended on March 28, 2015, also resulting in a 52 week year. All references to years in the consolidated financial statements relate to fiscal years rather than calendar years.

Reclassifications Certain reclassifications, none of which affected the prior year’s net loss or shareholders’ equity, have been made to prior year balances in order to conform to the current year presentation.

Revenue Recognition and Deferred Revenue 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 are based on product shipping while others are based on design review. In fiscal 2015 the Company’s Microsource business unit received a $6.5 million order from a major aerospace company for non-recurring engineering services to develop a variant of its high performance fast tuning YIG filters for an aircraft platform and to deliver a limited number of flight-qualified prototype hardware units (the “NRE Order”) which is being accounted for on a milestone basis. The Company considered factors such as estimated completion dates and product acceptance of the order prior to accounting for the NRE Order as milestone revenue. During the fiscal years ended March 26, 2016 and March 28, 2015, revenue recognized on a milestone basis were $1.0 million and $4.7 million, respectively.

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On certain contracts with several of the Company’s significant customers the Company receives payments in advance of manufacturing. Advanced payments are recorded as deferred revenue until the revenue recognition criteria described above has been met.

Accounts receivable are stated at their net realizable value. The Company has estimated an allowance for uncollectable accounts based on analysis of specifically identified accounts, outstanding receivables, consideration of the age of those receivables, the Company’s historical collection experience, and adjustments for other factors management believes are necessary based on perceived credit risk.

The activity in the allowance account for doubtful accounts is as follows for the years ended March 26, 2016 and March 28, 2015:

(Dollars in thousands)	March 26, 2016		March 28, 2015
Beginning balance	$	45	$	44
Provisions for doubtful accounts		—		1
Write-off of doubtful accounts		—		—
Ending balance	$	45	$	45

Accrued Warranty The Company’s warranty policy generally provides one to three years of coverage depending on the product. 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 fair value using full absorption and standard costing. Cost is determined on a first-in, first-out basis. Standard costing and overhead allocation rates are reviewed by management periodically, but not less than annually. Overhead rates are recorded to inventory based on capacity management expects for the period the inventory will be held. Reserves are recorded within cost of sales for impaired or obsolete inventory when the cost of inventory exceeds its estimated fair value. Management evaluates the need for inventory reserves based on its estimate of the amount realizable through projected sales including an evaluation of whether a product is reaching the end of its life cycle. When inventory is discarded it is written off against the inventory reserve, as inventory generally has already been fully reserved for at the time it is discarded.

Research and Development Research and development expenditures, which include the cost of materials consumed in research and development activities, salaries, wages and other costs of personnel engaged in research and development, costs of services performed by others for research and development on the Company’s behalf and indirect costs are expensed as operating expenses when incurred. Research and development costs totaled approximately $2.8 million and $3.2 million for the years ended March 26, 2016 and March 28, 2015, respectively.

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 26, 2016 and March 28, 2015, management believes there has been no impairment of the Company’s long-lived assets.

Derivatives The Company accounts for certain of its warrants as derivatives. Changes in fair values are reported in earnings as gain or loss on adjustment of warrant liability to fair value. 

Deferred Rent Rent expense is recognized in an amount equal to the guaranteed base rent plus contractual future minimum rental increases amortized on the straight-line basis over the terms of the leases, including free rent periods.

28

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. 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 both positive and negative evidence and tax planning strategies in making this assessment.

The Company considers all tax positions recognized in its financial statements for the likelihood of realization. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amounts of the positions that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if any, would be reflected as unrecognized tax benefits, as applicable, in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of the provision for income taxes in the consolidated statements 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. Capitalized pre-production costs included in inventory were immaterial as of March 26, 2016 and March 28, 2015.

Software Development Costs Development costs included in the research and development of new software products and enhancements to existing software products are expensed as incurred, until technological feasibility in the form of a working model has been established. Capitalized development costs are amortized over the expected life of the product and evaluated each reporting period for impairment. As of March 26, 2016, capitalized software development costs were $876,000 and there was no amortization for the year ended March 26, 2016. There were no software development costs capitalized as of March 28, 2015.

Share-based Compensation The Company has established the 2005 Equity Incentive Plan, which provides for the granting of options for up to 2,850,000 shares of Common Stock. In 2014, the term of the 2005 Equity Incentive Plan was extended to 2025. The Company records share-based compensation expense for the fair value of all stock options and restricted stock that are ultimately expected to vest as the requisite service is rendered.

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) are classified as cash flows from financing in the statements of cash flows. These excess tax benefits were not significant for the Company for the fiscal years ended March 26, 2016 or March 28, 2015.

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. The computation of expected volatility used in the Black-Scholes- Merton option-pricing model is based on the historical volatility of Giga-tronics’ 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 for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected dividend yield was not considered in the option pricing formula since the Company has not paid dividends and has no current plans to do so in the future.

The fair value of restricted stock awards is based on the fair value of the underlying shares at the date of the grant. Management makes estimates regarding pre-vesting forfeitures that will impact timing of compensation expense recognized for stock option and restricted stock awards.

29

Earnings or Loss Per Common Share Basic earnings or loss per common 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 and warrants using the treasury stock method. Anti-dilutive options are not included in the computation of diluted earnings per share. Non-vested shares of restricted stock have non-forfeitable dividend rights and are considered participating securities for the purpose of calculating basic and diluted earnings per share under the two-class method.

Comprehensive Income or Loss There are no items of comprehensive income or loss other than net income or loss.

Financial Instruments and Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist of cash, cash-equivalents and trade accounts receivable. The Company’s cash-equivalents consist of overnight deposits with federally insured 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. At March 26, 2016, and March 28, 2015, three customers combined accounted for 52% and 65% of consolidated gross accounts receivable respectively.

Fair Value of Financial Instruments and Fair Value Measurements The Company’s financial instruments consist principally of cash and cash-equivalents, line of credit, term debt, and warrant derivative liability. The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date (Level 1), significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (Level 2), or significant unobservable inputs reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability (Level 3), depending on the nature of the item being valued.

Recently Issued Accounting Standards

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs,” or ASU 2015-03. ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this ASU by the Company, along with the adoption of ASU 2015-15 which amended ASU 2015-03 and is discussed on the next page will change the presentation of certain debt issuance costs, which will be reported as a direct offset to the applicable debt on the balance sheet.

In July 2015, the FASB issued ASU No, 2015-11, Inventory (Topic 330): “Simplifying the Measurement of Inventory”. Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.  

30

In August 2015, the FASB issued ASU 2015-14 – “Revenue from Contracts with Customers” (Topic 606). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 affects any entity using GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

Also in August 2015, the FASB issued ASU 2015-15 – “ Interest—Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”, Previously, on April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which required entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. The guidance in ASU 2015-03 (see paragraph 835-30-45-1A) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not expect a material impact on its financial statements as a result of the adoption of ASU No. 2015-03 or 2015-15, however certain debt issuance costs will be reported as a direct offset to the applicable debt on the balance sheet.

In November 2015, the FASB issued ASU 2015-17 – Income Taxes (Topic 740): “Balance Sheet Classification of Deferred Taxes”. Topic 740 is effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The amendments in ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to provide users of financial instruments with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. The recognition and measurement standard will take effect for public companies for fiscal years beginning after Dec. 15, 2017, including interim periods within those fiscal years. The standard takes effect for private companies, not-for-profits, and employee benefit plans for fiscal years beginning after Dec. 15, 2018, and for interim periods within fiscal years beginning after Dec. 15, 2019. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. ASU 2016-06 applies to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. For public business entities, the amendments in ASU 2016-06 are effective for financial statements issued for fiscal years beginning after 15 December 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

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In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company has not determined the impact of adoption on its condensed consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 addresses implementation issues identified under ASC Topic 606. The amendments in ASU 2016-10 affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements in ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this ASU is effective for public business entities with annual reporting periods beginning after 15 December 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

2 Going Concern and Management’s Plan

The Company incurred net losses of $4.1 million and $1.7 million in the fiscal years ended March 26, 2016 and March 28, 2015, respectively. These losses have contributed to an accumulated deficit of $24.0 million as of March 26, 2016.

The Company has experienced delays in the development of features, orders, and shipments for the new ASG. These delays have significantly contributed to a decrease in working capital from $3.0 million at March 28, 2015, to $1.8 million at March 26, 2016. The new ASG product has now shipped to several customers, but potential delays in the development of features, longer than anticipated sales cycles, or the ability to efficiently manufacture the ASG, could significantly contribute to additional future losses and decreases in working capital.

To help fund operations, the Company relies on advances under the line of credit with Bridge Bank. The line of credit expires on May 7, 2017. The agreement includes a subjective acceleration clause, which allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit based on the lender’s judgement. As of March 26, 2016, the line of credit had a balance of $800,000, and additional borrowing capacity of $906,000.

These matters raise substantial doubt as to the Company’s ability to continue as a going concern.

To address these matters, the Company’s management has taken several actions to provide additional liquidity and reduce costs and expenses going forward. These actions are described in the following paragraphs. 

● In April 2016 the Microsource Business Unit regained AS9100C certification of its Supplier Quality Management System. The AS9100C Certification is commonly required in the aircraft manufacturing industry. The Company’s Microsource division sells components used on military aircrafts to two major customers that require such certification. During the lapse in certification the Company worked with one of the major customers to allow continued shipping and orders. The Company was pursuing a similar solution with the second customer, but this is no longer required with the regained certification.

● Giga-tronics plans to work with Bridge Bank to renew the line of credit prior to its May 7, 2017 expiration. 

● On January 29, 2016, the Company completed the sale of approximately 2.7 million shares of Common Stock yielding gross proceeds of approximately $3.5 million. Net proceeds to the Company were approximately $3.1 million. The sale included Warrants to purchase approximately 2.4 million shares of Common Stock at $1.15 per share (see Note 18, Private Placement Offering). The proceeds were used to pay suppliers past due accounts, and will be used to fund operations and the forecasted increases in sales and manufacturing activities associated with the Advanced Signal Generator.

● On December 15, 2015, the Company entered into an Asset Purchase Agreement with Spanawave, whereby Spanawave agreed to purchase the Giga-tronics’ Division product lines for its Power Meters, Amplifiers and Legacy Signal Generators for $1.5 million (see Note 10, Sale of Product Lines). As of March 26, 2016, the Company had received $375,000 from Spanawave under the agreement. The Company is entitled to receive another $375,000 between July and September 2016, the final installment of $750,000 is expected to be paid between July and December 2016. Proceeds from the asset sale will be used for working capital and general corporate purposes.

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● In the first quarter of fiscal 2016, the Company’s Microsource business unit also finalized a multiyear $10.0 million YIG production order (“YIG Production Order”). The Company expects to start shipping the YIG Production Order in the fall of 2016.

● In April of 2016, Microsource received a $4.5 million YIG RADAR filter order for the same fighter jet platform, which the Company expects to ship throughout fiscal 2017. This was a $1.5 million increase compared to the order received in fiscal 2016 for the same platform. In June 2016, the Gigatronics Division also received a $3.3 million order from the United States Navy for the Real-Time TEmS which the Company also expects to ship in the second half of fiscal 2017.

● To assist with the upfront purchases of inventory required for future product deliveries, the Company entered into advance payment arrangements with two large customers, whereby the customers reimburse the Company for raw material purchases prior to the shipment of the finished products. In fiscal 2016, the Company entered into advance payment arrangements totaling $3.9 million. The Company will continue to seek similar terms in future agreements with these customers and other customers.

Management will continue to review all aspects of the business in an effort to improve cash flow and reduce costs and expenses, while continuing to invest, to the extent possible, in new product development for future revenue streams.

Management will also continue to seek additional working capital through debt, equity financing or possible product line sales, however there are no assurances that such financings or sales will be available at all, or on terms acceptable to the Company.

The current year losses has had a significant negative impact on the financial condition of the Company and raise substantial doubt about the Company’s ability to continue as a going concern. The Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result if the Company were unable to do so.

3 Cash and Cash-Equivalents

Cash and cash-equivalents of $1.3 million and $1.2 million at March 26, 2016 and March 28, 2015, respectively, consisted of demand deposits with a financial institution that is a member of the Federal Deposit Insurance Corporation (FDIC). At March 26, 2016, $1.0 million of the Company’s demand deposits exceeded FDIC insurance limits.

4 Inventories

Inventories, net of reserves, consisted of the following:

	March 26,		March 28,
(Dollars in thousands)	2016		2015
Raw materials	$	3,489	$	1,631
Work-in-progress		2,156		1,598
Finished goods		2		15
Demonstration inventory		47		121
Total	$	5,694	$	3,365

5 Property, Plant and Equipment, net

Property, plant and equipment, net is comprised of the following:

	March 26,			March 28,
(Dollars in thousands)	2016			2015
Leasehold improvements	$	327			327
Machinery and equipment		4,604			4,334
Computer and software		647			459
Furniture and office equipment		121			121
		5,699			5,241
Less: accumulated depreciation and amortization		(4,862	)		(4,523	)
Total	$	837		$	718

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6 Software Development Costs

On September 3, 2015, the Company entered into a software development agreement with a major aerospace and defense company whereby the aerospace company would develop and license its simulation software to the Company. The simulation software (also called Open Loop Simulator or OLS technology) is currently the aerospace company’s intellectual property. The OLS technology generates threat simulations and enables various hardware to generate signals for performing threat analysis on systems under test. The Company intends to license the OLS software as a bundled or integrated solution with its Advanced Signal Generator system. The Company is obligated to pay the aerospace company software development costs and fees for OLS of $919,000 in the aggregate, which is payable in monthly installments as the work is performed by the aerospace company through August 2016. The OLS technology is a perpetual license agreement that may be terminated by the Company at any time as long as the Company provides a notice to the aerospace company and pays for the development costs incurred through the notice termination date. The Company is also obligated to pay royalties to the aerospace company on net sales of its Advanced Signal Generator product sold with the OLS software equal to a percentage of net sales price of each ASG system sold and subject to certain minimums. The Company expenses research and development costs as they are incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. Capitalized software costs for the fiscal year ended March 26, 2016 were $876,000. The Company intends to begin amortizing the costs of capitalized software to cost of sales once the product is released to its customers.

7 Accounts Receivable Line of Credit

On June 1, 2015 the Company entered into a $2.5 million Revolving Accounts Receivable Line of Credit agreement with Bridge Bank. The credit facility agreement replaced the line of credit with Silicon Valley Bank which expired April 15, 2015. The agreement provides for a maximum borrowing capacity of $2.5 million of which $2.0 million is subject to a borrowing base calculation and $500,000 is non-formula based.

The loan is secured by all assets of the Company including intellectual property and general intangibles and provides for a borrowing capacity equal to 80% of eligible accounts receivable. The loan matures on May 6, 2017 and bears an interest rate, equal to 1.5% over the bank’s prime rate of interest (which was 3.5% March 26, 2016 resulting in an interest rate of 5.0%). Interest is payable monthly with principal due upon maturity. The Company paid a commitment fee of $12,500, and an additional $12,500 is due in May 2016. The loan agreement contains financial and non-financial covenants that are customary for this type of lending and includes a covenant to maintain an asset coverage ratio of at least 135% (defined as unrestricted cash and cash equivalents maintained with Bridge Bank, plus eligible accounts receivable aged less than 90 days from the invoice date, divided by the total amount of outstanding principal of all obligations under the loan agreement). As of March 26, 2016, the Company was in compliance with all the financial covenants under the agreement. The line of credit requires a lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of Bridge Bank. This arrangement, combined with the existence of the subjective acceleration clause in the line of credit agreement, necessitates the line of credit be classified as a current liability on the balance sheet. The acceleration clause allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit based on the lender's judgment. As of March 26, 2016, the Company’s total outstanding borrowings and remaining borrowing capacity under the Bridge Bank line of credit were $800,000 and $906,000, respectively.

8 Term Loan, Revolving Line of Credit and Warrants

On March 13, 2014 the Company entered into a three year, $2.0 million term loan agreement with PFG under which the Company received $1.0 million on March 14, 2014. Pursuant to the agreement, the Company had the ability to borrow an additional $1.0 million following the Company’s achievement of certain performance milestones which included achieving $7.5 million in net sales during the first half of fiscal 2015 and two consecutive quarters of net income greater than zero during fiscal 2015.

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On June 16, 2014, the Company amended its loan agreement with PFG (the “Amendment”). Under the terms of the Amendment, PFG made a revolving credit line available to Giga-tronics in the amount of $500,000, and the Company borrowed the entire amount on June 17, 2014. The revolving line had a thirty-three month term. The Amendment reduced the future amount potentially available for the Company to borrow under the PFG Loan agreement from $1.0 million to $500,000. The interest on the PFG revolving credit line was fixed, calculated on a daily basis at a rate of 12.50% per annum. The Company was allowed to prepay the loan at any time prior to its March 13, 2017 maturity date without a penalty.

On June 3, 2015, the Company further amended its loan agreement with PFG (the “Second Amendment”). The Second Amendment cancelled the Company’s $500,000 of borrowing availability under the June 2014 Amendment and required the Company to pay PFG $150,000 towards its existing $500,000 outstanding balance under the revolving line of credit, which the Company paid in July 2015. The Company also agreed to pay PFG an additional $10,000 per month towards its remaining credit line balance until repaid, followed by like payments towards its term loan balance until repaid. As of March 26, 2016, the $500,000 borrowed with the June 2014 Amendment had been fully repaid.

Interest on the initial $1.0 million term loan is fixed at 9.75% and required monthly interest only payments during the first six months of the agreement followed by monthly principal and interest payments over the remaining thirty months. The Company may prepay the loan at any time prior to maturity by paying all future scheduled principal and interest payments. As of March 26, 2016, the Company’s total outstanding debt associated with the initial PFG loan was $400,000.

The PFG Loan is secured by all of the assets of the Company under a lien that is junior to the Bridge Bank debt described in Note 7, and limits borrowing under the Bridge Bank credit line limit to $2.5 million. The Company paid a loan fee of $30,000 upon the initial draw (“First Draw”) and $15,000 for the June 2014 Amendment. The loan fees paid are recorded as prepaid expenses and amortized to interest expense over the remaining term of the PFG amended loan agreement, although the loan fee for the June 2014 Amendment was fully amortized because that portion of the PFG loan was fully repaid as March 26, 2016.

The future payments under the initial loan and all the Amendments, were $400,000 in principal payments and $17,000 in interest as of March 26, 2016, all of which is due during fiscal year 2017 since the second Amendment described above requires an accelerated repayment schedule which should fully repay the loan in January 2017.

The loan agreement contains financial covenants associated with the Company achieving minimum quarterly net sales and maintaining a minimum monthly shareholders’ equity. In the event of default by the Company, all or any part of the Company’s obligation to PFG could become immediately due. As of March 26, 2016, the Company was in compliance with all the financial covenants under the agreement.

The loan agreement also initially provided for the issuance of warrants convertible into 300,000 shares of the Company’s common stock, of which 180,000 were exercisable upon receipt of the initial $1.0 million from the First Draw, 80,000 became exercisable with the First Amendment and 40,000 were cancelled as a result of the Second Amendment. Each warrant issued under the loan agreement has a term of five years and an exercise price of $1.42 which was equal to the average NASDAQ closing price of the Company’s common stock for the ten trading days prior to the First Draw.

If the warrants are not exercised before expiration on March 13, 2019, the Company would be required to pay PFG $150,000 and $67,000 as settlement for warrants associated with the First Draw and the Amendment, respectively. The warrants could be settled for cash at an earlier date in the event of any acquisition or other change in control of the Company, future public issuance of Company securities or liquidation (or substantially similar event) of the Company. The Company currently has no definitive plans for any of the aforementioned events, and as a result, the cash payment date is estimated to be the expiration date unless warrants are exercised before then. The warrants have the characteristics of both debt and equity and are accounted for as a derivative liability measured at fair value each reporting period with the change in fair value recorded in earnings. The initial fair value of the warrants associated with the First Draw and Amendment were $173,000 and $168,000, respectively.

As of March 26, 2016, the estimated fair values of the derivative liabilities associated with the warrants issued in connection with the First Draw and Amendment were $212,000 and $141,000, respectively, for a combined value of $353,000. As of March 28, 2015, the estimated fair value of the derivative liability associated with the warrant issued in connection with the First Draw and Amendment was $235,000 and $106,000, respectively for a combined value of $341,000, of which $89,000 was reported as part of the PFG Loan on the balance sheet. The change in the fair value of the warrant liability totaled $12,000 for the fiscal year ended March 26, 2016 and is reported in the accompanying statement of operations as a loss on adjustment of derivative liability to fair value.

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The initial $1.0 million in proceeds under the term loan agreement were allocated between the PFG Loan and the warrants based on their relative fair values on the date of issuance which resulted in initial carrying values of $822,000 and $178,000, respectively. The resulting discount of $178,000 on the PFG Loan is being accreted to interest expense under the effective interest method over the three-year term of the PFG Loan.

The proceeds from the $500,000 credit line issued in connection with the Amendment were allocated between the PFG Loan and the warrants based on their relative fair values on the date of issuance which resulted in initial carrying values of $365,000 and $135,000, respectively. The resulting discount of $135,000 on the PFG Loan was being accreted to interest expense under the effective interest method over the remaining term of the PFG Loan, and as of March 26,2016 had been fully accreted since the $500,000 from the Amendment had been fully repaid.

For the fiscal years ended March 26, 2016 and March 28, 2015, the Company recorded accretion of discount expense associated with the warrants issued with the PFG Loan of $165,000 and $152,000, respectively.

9 Fair Value

Pursuant to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.  

The fair value hierarchy is broken down into the three input levels summarized below:

•   Level 1  —Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities with quoted prices on active markets.

•   Level 2  —Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates of deposit and over-the- counter derivatives.

•   Level 3  —Valuations based on unobservable inputs in which there are little or no market data, which require us to develop our own assumptions.

The carrying amounts of the Company’s cash and cash-equivalents and line of credit approximate their fair values at each balance sheet date due to the short-term maturity of these financial instruments, and generally result in inputs categorized as Level 1 within the fair value hierarchy. The fair values of term debt are based on the present value of expected future cash flows and assumptions about current interest rates and the creditworthiness of the Company, and generally result in inputs categorized as Level 3 within the fair value hierarchy. At March 26, 2016 and March 28, 2015, the carrying amounts of the Company’s term debt totaled $379,000 and $1.1 million, respectively and the estimated fair value totaled $384,000 and $1.2 million, respectively. The fair value was calculated using a discounted cash flow model and utilized a 20% and 18% discount rate, respectively. The rates are commensurate with market rates given the remaining term, principal repayment schedule, the Company’s creditworthiness and outstanding loan balance.

The Company’s derivative warrant liability is measured at fair value on a recurring basis and is categorized as Level 3 in the fair value hierarchy. The derivative warrant liability is valued using a Monte Carlo simulation model, which used the following assumptions as of March 26, 2016: (i) the remaining expected life of 3.0 years, (ii) the Company’s historical volatility rate of 115.1%, (iii) risk-free interest rate of 1.05%, and (iv) a discount rate of twenty percent.

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The aforementioned derivative warrant liability is the Company’s only asset and liability recognized and measured at fair value on a recurring or non-recurring basis and was follows:

Fair Value Measurements as of Mar. 26, 2016 (In Thousands) :
	Level 1		Level 2		Level 3
Warrant Liability	$	—		—	$	353
Total	$	—		—	$	353

Fair Value Measurements as of March 28, 2015 ( In Thousands):
	Level 1		Level 2		Level 3
Warrant Liability	$	—		—	$	341
Total	$	—	$	—	$	341

There were no transfers between Level 1, Level 2 or Level 3 for the fiscal years ended March 26, 2016 and March 28, 2015.  

The table below summarizes changes in gains and losses recorded in earnings for Level 3 assets and liabilities that are still held at March 26, 2016:

	Years Ended
(In thousands)	Mar. 26, 2016		Mar. 28, 2015
Warrant liability at beginning of year	$	341	$	173
Additional warrant liability from warrants issued with June 2014 Amendment		—		168
Losses on adjustment of warrant liability to fair value		12		—
Warrant liability at end of period	$	353	$	341

There were no assets measured at fair value on a recurring basis and there were no assets or liabilities measured on a non-recurring basis at December 26, 2015 and March 28, 2015.

The following table presents quantitative information about recurring Level 3 fair value measurements at March 26, 2015 and March 28, 2015:

March 26, 2016	Valuation Technique(s)	Unobservable Input
Warrant liability	Monte Carlo	Discount rate	20%

March 28, 2015	Valuation Techniques(s)	Unobservable Input
Warrant liability	Black Scholes Merton with discounted cash flow	Discount rate	18%

The discount rate of twenty percent is management’s estimate of the cost of capital given the Company’s credit worthiness. A significant increase in the discount rate would significantly decrease the fair value, but the magnitude of this decrease would be less significant in a scenario where the Company’s stock price is significantly higher than the exercise price since the holder’s option to take a cash payment at maturity represents a smaller component of the total fair value when the Company’s stock price is higher. The Monte Carlo simulation model simulated the Company’s stock price through the maturity date of March 31, 2019. At the end of the simulated period, the value of the warrant was determined based on the greater of (1) the net share settlement value, (2) the net exercise value, or (3) the fixed cash put value.

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10 Sale of Product Lines

On December 15, 2015, the Company entered into an Asset Purchase Agreement with Spanawave, whereby Spanawave agreed to purchase the Giga-tronics’ Division product lines for its Power Meters, Amplifiers and Legacy Signal Generators for $1.5 million. The product lines will transfer to Spanawave sequentially in six phases beginning with certain sensor and amplifier products effective the fourth quarter of fiscal 2016, with the final product line transfer (legacy Signal Generators) estimated to be completed by December 2016. As of March 26, 2016, the Company had received $375,000 in connection with the initiation of data transfer to Spanawave for phases 1 through 5, this amount is included in other current liabilities in the consolidated financial statements. No gain was recognized in fiscal 2016 as the Company had not fully completed the asset transfer as required by the provisions of the agreement and final acceptance by Spanawave was pending. The Company is entitled to receive another $375,000 between July and September 2016 upon the initiation of the last phase. The final installment of $750,000 is expected to be paid between July and December 2016. In addition, the Company will sell to Spanawave existing inventory for these products in phases. The Company will continue to manufacture the related products until the respective product line transfer is complete. These product lines accounted for total revenues of $1.7 million and $2.7 million respectively, for the fiscal years ended March 26, 2016 and March 28, 2015. Due to the low profit margins on these product lines, the contribution to pre-tax operating results for the fiscal years ended March 26, 2016 and March 28, 2015 were immaterial to the consolidated financial statements. 

11 Selling and Advertising Expenses

Selling expenses consist primarily of salaries to employees and commissions paid to various sales representatives and marketing agencies. Commission expense totaled $172,000 and $237,000 for fiscal 2016 and 2015, respectively. Advertising costs, which are expensed as incurred, totaled $123,000 and $7,000 for fiscal 2016 and 2015, respectively.

12 Significant Customers and 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 Yttrium, Iron and Garnet (YIG) tuned oscillators, filters and microwave synthesizers, which are used in a wide variety of microwave instruments or devices.

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. 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 accounting systems. 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 or loss by operating segment.

The tables below present information for the fiscal years ended in 2016 and 2015.

March 26, 2016 (Dollars in thousands)	Giga-tronics Division			Microsource		Total
Revenue	$	8,679		$	5,917	$	14,596
Interest expense, net		383			—		383
Depreciation and amortization		301			20		321
Capital expenditures		192			—		192
Income/(Loss) before income taxes		(4,119	)		17		(4,102	)
Assets		8,068			3,134		11,202

March 28, 2015 (Dollars in thousands)	Giga-tronics Division			Microsource		Total
Revenue	$	9,123		$	9,329	$	18,452
Other expense		1,386			—		1,386
Interest expense, net		406			—		406
Depreciation and amortization		277			34		311
Capital expenditures		81			—		81
Income/(Loss) before income taxes		(3,068	)		1,442		(1,626	)
Assets		6,103			1,951		8,054

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The Company’s Giga-tronics Division and Microsource segments sell to agencies of the U.S. government and U.S. defense- related customers. In fiscal 2016 and 2015, U.S. government and U.S. defense-related customers accounted for 71% and 69% of sales, respectively. During fiscal 2016, the Boeing Company accounted for 32% of the Company’s consolidated revenues at March 26, 2016 and was included in the Microsource segment. A second customer, DFAS accounted for 11% of the Company’s consolidated revenues at March 26, 2016 was included in the Giga-tronics Division reporting segment.

During fiscal 2015, Lockheed Martin accounted for 28% of the Company’s consolidated revenues at March 28, 2015 and was included in the Microsource segment. A second customer, the Boeing Company accounted for 23% of the Company’s consolidated revenues at March 28, 2015 and was also included in the Microsource segment. A third customer, DFAS accounted for 14% of the Company’s consolidated revenues during fiscal 2015 and was included in the Giga-tronics Division reporting segment.

Export sales accounted for 4% and 8% of the Company’s sales in fiscal 2016 and 2015, respectively. Export sales by geographical area for these fiscal years are shown below:

(Dollars in thousands)	March 26, 2016		March 28, 2015
Americas	$	10	$	26
Europe		326		179
Asia		140		1,085
Rest of world		122		177
Total	$	598	$	1,467

13 Loss per Common Share

Net loss and common shares used in per share computations for the fiscal years ended March 26, 2016 and March 28, 2015 are as follows:

(In thousands except per-share data)	March 26, 2016			March 28, 2015
Net loss	$	(4,104	)	$	(1,673	)
Weighted average: Common shares outstanding		6,941			5,279
Potential common shares		—			—
Common shares assuming dilution		6,941			5,279
Loss per common share – basic	$	(0.59	)	$	(0.32	)
Loss per common share – diluted	$	(0.59	)	$	(0.32	)
Stock options not included in computation that could potentially dilute EPS in the future		1,592			1,727
Restricted stock awards not included in computation that could potentially dilute EPS in the future		—			482
Convertible preferred stock not included in computation that could potentially dilute EPS in the future		1,853			1,853
Warrants not included in computation that could potentially dilute EPS in the future		3,737			1,368

The stock options, restricted stock, convertible preferred stocks and warrants not included in the computation of diluted earnings per share (EPS) for the fiscal years ended March 26, 2016 and March 28, 2015 is a result of the Company’s net loss and, therefore, the effect of these instruments would be anti-dilutive.

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14 Income Taxes

Following are the components of the provision for income taxes:

Fiscal years ended (in thousands)	March 26, 2016			March 28, 2015
Current
Federal	$	—		$	—
State		2			47
		2			47
Deferred
Federal		(1,297	)		210
State		215			391
		(1,082	)		601
Change in liability for uncertain tax positions		13			23
Change in valuation allowance		(1,069	)		(624	)
Provision for income taxes	$	2		$	47

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows:

Fiscal years ended (In thousands)	March 26, 2016			March 28, 2015
Net operating loss carryforwards	$	15,065		$	13,657
Income tax credits		296			306
Inventory reserves and additional costs capitalized		1,935			1,974
Accrued vacation		131			133
Deferred rent		44			95
Non-qualified stock options and restricted stock		(10	)		247
Other		68			48
Total deferred tax assets		17,529			16,460
Valuation allowance		(17,529	)		(16,460	)
Net deferred tax assets	$	—		$	—

The following summarizes the difference between the income tax expense and the amount computed by applying the statutory federal income tax rate of 34% to income before income tax. The items comprising these differences consisted of the following for the fiscal years ended March 26, 2016 and March 28, 2015:

Fiscal years ended (In thousands except percentages)	March 26, 2016					March 28, 2015
Statutory federal income tax (benefit)	$	(1,395	)	34.0	%	$	(553	)	34.0	%
Valuation allowance		1,069		(26.1	)		(624	)	38.4
State income tax, net of federal benefit		(239	)	5.8			(95	)	5.8
Net operating loss expiration		451		(11.0	)		861		(53.0	)
Non tax-deductible expenses		107		(2.6	)		593		(36.5	)
Tax credits		(35	)	0.9			(187	)	11.5
Liability for uncertain tax positions		13		(0.3	)		23		(1.4	)
Other		31		(0.8	)		29		(1.8	)
Effective income tax	$	2		(0.1	)	$	47		(3.0%	)

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The increase in valuation allowance from March 28, 2015 to March 26, 2016 was $1.1 million.

As of March 26, 2016, the Company had pre-tax federal net operating loss carryforwards of $40.5 million and state net operating loss carryforwards of $21.9 million available to reduce future taxable income. The federal and state net operating loss carryforwards begin to expire from fiscal 2023 through 2036 and from 2016 through 2036, 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 federal income tax credits begin to expire from 2023 through 2036 and state income tax credit carryforwards are carried forward indefinitely.

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 both positive and negative evidence and tax planning strategies in making this assessment.

As of March 26, 2016, the Company recorded unrecognized tax benefits of $106,000 related to uncertain tax positions. The unrecognized tax benefit is netted against the noncurrent 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 files U.S federal and California state income tax returns. The Company is generally no longer subject to tax examinations for years prior to the fiscal year 2012 for federal purposes and fiscal year 2011 for California purposes, except in certain limited circumstances. The Company does have a California Franchise Tax Board audit that is currently in process. The Company is working with the California Franchise Tax Board to resolve all audit issues and does not believe any material taxes or penalties are due. However, as a result of the ongoing examination, the Company eliminated certain income tax credit carryovers. The write-off of these income tax credit carryovers did not have a significant impact on total income tax expense as the majority had an uncertain tax position reserve with the balance having a full valuation allowance against the deferred tax asset.

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions, excluding potential interest and penalties, is as follows:

(In thousands)	Fiscal Year 2016		Fiscal Year 2015
Balance as of beginning of year	$	93	$	70
Additions based on current year tax positions		13		23
(Reductions) additions for prior year tax positions		—		—
Balance as of end of year	$	106	$	93

The total amount of interest and penalties related to unrecognized tax benefits at March 26, 2016 is not material. The amount of tax benefits that would impact the effective rate, if recognized, is not expected to be material. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within next twelve (12) months.

15 Share-based Compensation and Employee Benefit Plans

Share-based Compensation The Company has established the 2005 Equity Incentive Plan, which provides for the granting of stock options and restricted stock for up to 2,850,000 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 generally vest in one or more installments in a four or five year period 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 26, 2016, no SAR’s have been granted under the option plan. As of March 26, 2016, the total number of shares of common stock available for issuance is 955,427. All outstanding options have a ten year life from the date of grant.

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Stock Options

The weighted average grant date fair value of stock options granted during the fiscal years ended March 26, 2016 and March 28, 2015 was $1.04 and $1.66, respectively, and was calculated using the following weighted-average assumptions:

Fiscal years ended	March 26, 2016			March 28, 2015
Dividend yield		—			—
Expected volatility		98	%		92	%
Risk-free interest rate		1.55	%		1.61	%
Expected term (years)		8.36			8.34

A summary of the changes in stock options outstanding for the fiscal years ended March 26, 2016 and March 28, 2015 is presented below:

			Weighted		Weighted Average
(Dollars in thousands except share prices)	Shares		Average Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at March 29, 2014		1,738,750	$	1.53		6.8	$	113
Granted		306,500		2.01
Exercised		90,000		1.80
Forfeited / Expired		228,275		1.81
Outstanding at March 28, 2015		1,726,975	$	1.57		6.9	$	219
Granted		35,000		1.22
Exercised		48,550		1.59
Forfeited / Expired		121,225		2.15
Outstanding at March 26, 2016		1,592,200	$	1.52		6.8	$	69
Exercisable at March 26, 2016		900,350	$	1.47		6.4	$	41
At March 26, 2016, expected to vest in the future		467,071	$	1.58		7.4	$	15

As of March 26, 2016, there was $414,000 of total unrecognized compensation cost related to non-vested options granted under the 2005 Plan and outside of the 2005 Plan. That cost is expected to be recognized over a weighted average period of 2.4 years and will be adjusted for subsequent changes in estimated forfeitures. There were 419,050 and 280,650 options vested during the fiscal years ended March 26, 2016 and March 28, 2015 respectively. The total fair value of options vested during the fiscal years ended March 26, 2016 and March 28, 2015 was $104,000 and $120,000, respectively. Cash received from the exercise of stock options during fiscal 2016 and fiscal 2015 was $77,000 and $163,000, respectively. Share based compensation cost recognized in operating results for the fiscal years ended March 26, 2016 and March 28, 2015 totaled $403,000 and $370,000, respectively.

Restricted Stock

The Company granted 432,000 shares of restricted stock during fiscal 2015 to certain members of the Board of Directors in lieu of cash fees for services performed in fiscal 2015 and fiscal 2016. These restricted stock fully vested in fiscal 2016 and the vesting date fair value totaled $761,000. The weighted average grant date fair value was $2.11. The restricted stock awards are considered fixed awards as the number of shares and fair value at the grant date is amortized over the requisite service period net of estimated forfeitures. Compensation cost recognized for restricted stock awards for fiscal 2016 and fiscal 2015 totaled $522,000 and $457,000, respectively.

A summary of the changes in non-vested restricted stock awards outstanding for the fiscal years ended March 26, 2016 and March 28, 2015 is presented below:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at March 29, 2014		121,500	$	1.39
Granted		432,000		2.11
Vested		71,500		1.53
Forfeited or cancelled		—		—
Non-vested at March 28, 2015		482,000	$	2.02
Granted		—		—
Vested		482,000		2.02
Forfeited or cancelled		—		—
Non-vested at March 26, 2016		—	$	—

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401(k) Plans The Company has established 401(k) plans which cover substantially all employees. Participants may make voluntary contributions to the plans for up to 100% of their defined compensation. The Company matches a percentage of the participant’s contributions in accordance with the plan. Participants vest ratably in Company contributions over a four- year period. Company contributions to the plans for fiscal 2016 and 2015 were approximately $41,000 and $39,000, respectively.

16 Commitments and Contingencies

The Company leases a 47,300 square foot facility located in San Ramon, California that expires in December 31, 2016. All of the Company’s operations are in the San Ramon facility as of March 26, 2016.

The Company also leases certain other equipment under operating leases.

Total future minimum lease payments under these leases are as follows. Fiscal year (Dollars in thousands)

Fiscal year (Dollars in thousands)
2017		529
2018		6
2019		6
2020		6
Thereafter		6
Total	$	553

The aggregate rental expense was $677,000 and $654,000 in fiscal 2016 and 2015, respectively.

The Company leases certain equipment under capital leases that expire through May 2021. Capital leases with costs totaling $249,000 and $319,000 are reported net of accumulated depreciation of $32,000 and $60,000 at March 26, 2016 and March 28, 2015, respectively.

Total future minimum lease payments under these capital leases are as follows.

Fiscal year (Dollars in thousands)	Principal		Interest		Total
2017	$	44	$	25	$	69
2018		50		19		69
2019		52		12		64
2020		40		5		45
2021		23		1		24
Total	$	209	$	62	$	271

The Company is committed to purchase certain inventory under non-cancelable purchase orders. As of March 26, 2016, total non–cancelable purchase orders were approximately $2.3 million and are scheduled to be delivered to the Company at various dates through March 2017.

17 Warranty Obligations

The Company records a liability in cost of sales 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)	March 26, 2016			March 28, 2015
Balance as of beginning of year	$	76		$	61
Provision, net		55			81
Warranty costs incurred		(71	)		(66	)
Balance as of end of year	$	60		$	76

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18 Private Placement Offering

On January 19, 2016, the Company entered into a Securities Purchase Agreement for the sale of 2,787,872 Units, each consisting of one share of common stock and a warrant to purchase 0.75 shares of common stock, to approximately 20 private investors. The purchase price for each Unit was $1.24375. Gross proceeds were approximately $3.5 million. Net proceeds to the Company after fees was approximately $3.1 million. The portion of the purchase price attributable to the common shares included in each Unit was $1.15, the consolidated closing bid price for the Company’s common stock on January 15, 2016. The warrant price was $.09375 per Unit (equivalent to $0.125 per whole warrant share), with an exercise price of $1.15 per share. The term of the warrants is five years from the date of completion of the transaction. Emerging Growth Equities, Ltd also received warrants to purchase 292,727 shares of common stock at an exercise price of $1.15 per share as part of its consideration for serving as placement agent in connection with the private placement.

19 Series B, C, D Convertible Voting Perpetual Preferred Stock and Warrants

On November 10, 2011, the Company received $2,199,000 in cash proceeds from Alara Capital AVI II, LLC, a Delaware limited liability company (the “Investor”), an investment vehicle sponsored by Active Value Investors, LLC, under a Securities Purchase Agreement entered into on October 31, 2011. Under the terms of the Securities Purchase Agreement, the Company issued 9,997 shares of its Series B Convertible Voting Perpetual Preferred Stock (“Series B Preferred Stock”) to the Investor at a price of $220 per share. The Company has recorded $2.0 million as Series B Preferred Stock on the consolidated balance sheet which is net of stock offering costs of approximately $202,000 and represents the value attributable to both the convertible preferred stock and warrants issued to the Investor. After considering the value of the warrants, the effective conversion price of the preferred stock was greater than the common stock price on date of issue and therefore no beneficial conversion feature was present.

On February 19, 2013, the Company entered into a Securities Purchase Agreement pursuant to which it agreed to sell 3,424.65 shares of its Series C Convertible Voting Perpetual Preferred Stock (“Series C Preferred Stock”) to the Investor, for aggregate consideration of $500,000, which is approximately $146.00 per share. The Company has recorded $457,000 as Series C Preferred Stock on the consolidated balance sheet, which is net of stock offering costs of approximately $43,000. As part of this transaction, the Company and the Investor agreed to reduce the number of shares exercisable under the previously issued warrant, and after considering the reduction in the value of the warrant, the effective conversion price of the preferred stock was greater than the common stock price on the date of issue and therefore no beneficial conversion feature was present.

On July 8, 2013 the Company received $817,000 in net cash proceeds from the Investor under a Securities Purchase Agreement. The Company sold to the Investor 5,111.86 shares of its Series D Convertible Voting Perpetual Preferred Stock (Series D Preferred Stock) and a warrant to purchase up to 511,186 additional shares of common stock at the price of $1.43 per share. The allocation of the $858,000 in gross proceeds from issuance of Series D Preferred Stock based on the relative fair values resulted in an allocation of $498,000 (which was recorded net of $41,000 of issuance costs) to Series D Preferred Stock and $360,000 to Common Stock. In addition, because the effective conversion rate based on the $498,000 allocated to Series D Preferred Stock was $0.97 per common share which was less than the Company’s stock price on the date of issuance, a beneficial conversion feature was present at the issuance date. The beneficial conversion feature totaled $238,000 and was recorded as a reduction of common stock and an increase to accumulated deficit.

Each share of Series B, Series C and Series D Preferred Stock is convertible into one hundred shares of the Company’s common stock. In connection with the preferred stock issuance described above, the Company issued to the investor warrants to purchase a total of 1,017,405 common shares at an exercise price of $1.43 per share. These warrants were exercised in February 2015, and May 2015 as discussed in Note 20, Exercise of Series C and Series D Warrants.

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The table below present information for the periods ended March 26, 2016 and March 28, 2015:

 Preferred Stock

As of March 26, 2016 and March 28, 2015

							Liquidation
	Designated		Shares		Shares		Preference
	Shares		Issued		Outstanding		(in thousands)
Series B		10,000.00		9,997.00		9,997.00	$	2,309
Series C		3,500.00		3,424.65		3,424.65		500
Series D		6,000.00		5,111.86		5,111.86		731
Total		19,500.00		18,533.51		18,533.51	$	3,540

20 Exercise of Series C and Series D Warrants

On February 16, 2015, the Company entered into a Securities Purchase Agreement and Warrant Agreement with Alara Capital AVI II, LLC (“Alara Capital”), an investment vehicle sponsored by AVI Partners, LLC (“AVI” ) (with both entities collectively referred to herein as “Alara”), in which the Company received total gross cash proceeds of approximately $1.5 million. Funds were received from Alara in separate closings dated February 16, 2015 and February 23, 2015 in which Alara exercised a total of 1,002,818 of its existing Series C and Series D warrants to purchase common shares, all of which had an exercise price of $1.43 per share for total cash proceeds of $1,434,000, which was recorded net of $42,000 of stock issuance costs. As part of the consideration for this exercise, the Company sold to Alara two new warrants to purchase an additional 898,634 and 194,437 common shares at an exercise price of $1.78 and $1.76 per share, respectively, for a total purchase price of $137,000 or $0.125 per share, The new warrants have a term of five years and may be paid in cash or through a cashless net share settlement. The Company and Alara amended the remaining 14,587 warrants as part of the February closings. On May 14, 2015, Alara exercised the remaining 14,587 warrants by acquiring 7,216 of shares of the Company’s common stock through a cashless net share settlement. The Company recorded the issuance of the new Warrants using their estimated fair value on the date of issuance. The Company estimated the fair value of the new Warrants using the Black-Scholes option valuation model with the following assumptions: expected term of 5 years, a risk-free interest rate of 1.54%, expected volatility of 90% and 0% expected dividend yield. The resulting $1.2 million from the issuance of the new Warrants was recorded as a charge to other expense in the fiscal year ended March 28, 2015.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders Giga-tronics Incorporated

San Ramon, California

We have audited the accompanying consolidated balance sheets of Giga-tronics Incorporated (the “Company”) as of March 26, 2016 and March 28, 2015 and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 as of March 26, 2016 and March 28, 2015, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company incurred a net loss of $4.1 million for the year ended March 26, 2016, had an accumulated deficit of $24.0 million as of March 26, 2016, has experienced delays in the development of features, orders and shipments of its new product line, and has relied on its line of credit to fund operations.  These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Crowe Horwath LLP

San Francisco, California

June 7, 2016

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company periodically reviews the design and effectiveness of its disclosure controls and internal control over financial reporting. The Company makes modifications to improve the design and effectiveness of its disclosure controls and internal control structure, and may take other corrective action, if its reviews identify a need for such modifications or actions. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

As of the end of the period covered by this Form 10-K, an evaluation was completed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, regarding the design and effectiveness of our disclosure controls and procedures. Based on this evaluation, our management, including our principal executive officer and principal financial officer, has concluded that our disclosure controls and procedures were effective as of March 26, 2016.

Report of Management on Internal Control over Financial Reporting

Management of Giga-tronics is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company's management, under the supervision of the Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of the Company's internal control over financial reporting as of March 26, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 1992 Internal Control-Integrated Framework. Our internal control over financial reporting includes policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with United States generally accepted accounting principles and that:

● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Based on the above described procedures and actions taken, the Company’s management, including its Chief Executive Officer and its Chief Financial Officer have concluded that as of March 26, 2016, the Company’s internal control over financial reporting was effective based on the criteria described in the 1992 “COSO Internal Control – Integrated Framework.”

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Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of March 26, 2016, has not been audited by the Company’s independent registered public accounting firm. Management’s report is not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Changes in Internal Control

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act) during the fiscal quarter ended March 26, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

The Company is not aware of any information required to be reported on Form 8-K that has not been previously reported.

48

PART III

ITEM 10. DIRECTOR, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding Directors of the Company is set forth under the heading “Election of Directors” of the Company’s Proxy Statement for its 2016 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 26, 2016.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding the Company’s compensation of its executive officers is set for the under the heading “Executive Compensation” of the Company’s Proxy Statement for its 2016 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 26, 2016.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

Information regarding security ownership of certain beneficial owners and management is set forth under the heading “Stock Ownership of Certain Beneficial Owners and Management” of the Company’s Proxy Statement for its 2016 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 2016 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 26, 2016.

ITEM 13. CERTAIN RELATONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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 26, 2016.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information set forth in the Proxy Statement under the section captioned “Appointment of Independent Registered Accounting Firm” 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 26, 2016.

49

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following consolidated financial statements of Giga-tronics Incorporated and the related independent registered public accounting firm are filed herewith:

1. Financial Statements. See Index to Financial Statements on page 23. The financial statements and Report of Independent Registered Public Accounting Firm are included in Item 8 are filed as part of this report.

2. Exhibits. The exhibit list required by this item is incorporated by reference to the Exhibit Index filed with this report.

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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

/s/ JOHN R. REGAZZI                                              

Chief Executive Officer

In accordance with the requirements of the Securities Exchange Act, this annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ GARRETT A. GARRETTSON	Chairman of the Board	June 7, 2016
Garrett A. Garrettson	of Directors	Date
/s/ JOHN R. REGAZZI	Chief Executive Officer	June 7, 2016
John R. Regazzi	(Principal Executive Officer)	Date
	and Director
/s/ STEVEN D. LANCE	Vice President of Finance/	June 7, 2016
Steven D. Lance	Chief Financial Officer & Secretary	Date
	(Principal Financial Officer)
/s/ GORDON L. ALMQUIST	Director	June 7, 2016
Gordon L. Almquist		Date
/s/ JAMES A. COLE	Director	June 7, 2016
James A. Cole		Date
/s/ KENNETH A. HARVEY	Director	June 7, 2016
Kenneth A. Harvey		Date
/s/ LUTZ P. HENCKELS	Director	June 7, 2016
Lutz P. Henckels		Date
/s/ WILLIAM J. THOMPSON	Director	June 7, 2016
William J. Thompson		Date

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The following exhibits are filed by reference or herewith as a part of this report:

INDEX TO EXHIBITS

3.1 Articles of Incorporation of the Company, as amended, incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 1999.

3.2 Certificate of Determination of Preferences of Preferred Stock Series A of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 1999.

3.3 Certificate of Determination of Series B Convertible Voting Perpetual Preferred Stock of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 14, 2011.

3.4 Certificate of Determination of Series C Convertible Voting Perpetual Preferred Stock of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 25, 2013.

3.5 Certificate of Determination of Series D Convertible Voting Perpetual Preferred Stock of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 3, 2013.

3.6 Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2008..

4.1 Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC dated January 23, 2013, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 25, 2013.

4.2 Amendment No. 1 to Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC dated June 27, 2013, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 3, 2013.

4.3 Amendment No. 2 to Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC dated February 16, 2015, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 20, 2015.

10.1 Form of Indemnification Agreement between the Company and each of its directors and officers, incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2010.

10.2 First Amendment to Office Lease Agreement between the Company and VIF/ZKS Norris Tech Center, LLC dated March 29, 2010 and relating to space located at 4650 Norris Canyon Road, San Ramon, CA, incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2010.

10.3 2000 Stock Option Plan, incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 33-45476) filed on September 8, 2000. *

52

10.4 2005 Equity Incentive Plan, incorporated by reference to Attachment A to the Company’s Proxy Statement on Form DEF 14A filed on July 21, 2005. *

10.5 Amended and Restated Loan and Security Agreement between the Company and Partners for Growth IV, L.P. dated June 16, 2014, incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014.

10.6 Amended and Restated Warrant between the Company and Partners for Growth IV, L.P. dated June 16, 2014, incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014.

10.7 Amended and Restated Warrant between the Company and SVB Financial Group dated June 16, 2014, incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014.

10.8 Amended and Restated Warrant between the Company and PFG Equity Investors, LLC dated June 16, 2014, incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014.

10.9 Securities Purchase Agreement between the Company and Alara Capital AVI II, LLC dated June 27, 2013, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 3, 2013.

10.10 Securities Purchase Agreement between the Company and Alara Capital AVI II, LLC dated February 16, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 20, 2015.

10.11 Warrant to Purchase 506,219 Shares of Common Stock between the Company and Alara Capital AVI II, LLC dated July 8, 2013, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 12, 2013.

10.12 Warrant to Purchase 511,186 Shares of Common Stock between the Company and Alara Capital AVI II, LLC dated July 8, 2013, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on July 12, 2013.

10.13 Warrant to Purchase 898,634 Shares of Common Stock between the Company and Alara Capital AVI II, LLC dated February 16, 2015, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 20, 2015.

10.14 Warrant to Purchase 194,437 Shares of Common Stock between the Company and Alara Capital AVI II, LLC dated February 23, 2015, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 27, 2015.

10.15 Amended and Restated Warrant to Purchase 14,587 Shares of Common Stock between the Company and Alara Capital AVI II, LLC dated February 23, 2015.

10.16 Investor Rights Agreement between the Company and Alara Capital AVI II, LLC dated November 10, 2011, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 14, 2011.

10.17 Investor Rights Agreement between the Company and Alara Capital AVI II, LLC dated July 8, 2013, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 12, 2013.

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10.18 Investor Rights Agreement between the Company and Alara Capital AVI II, LLC dated February 16, 2015, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 20, 2015.

10.19 Amendment No. 1 to Securities Purchase Agreement and Investor Rights Agreement between the Company and Alara Capital AVI II, LLC dated February 23, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 27, 2015.

10.20 Severance Agreement between the Company and John R. Regazzi dated June 3, 2010, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2010. *

10.21 Severance Agreement between the Company and Michael R. Penta dated July 16, 2012, incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on June 9, 2015.*

10.22 Severance Agreement between the Company and Steven D. Lance dated June 1, 2015, incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on June 9, 2015.*

10.23 Asset Purchase Agreement between the Company and Spanawave Corporation, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on February 8, 2016.

10.24 Form of Securities Purchase Agreement dated January 19, 2016, between the Company and individual investors, incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-3 (File No. 333-210157) filed on March 14, 2016.

10.25 Form of Warrant Agreement dated January 29, 2016, between the Company and individual investors, incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-3 (File No. 333-210157) filed on March 14, 2016.

10.26 Form of Rights Agreement dated January 29, 2016, between the Company and individual investors

21     Significant Subsidiaries.

23     Consent of Independent Registered Public Accounting Firm, Crowe Horwath LLP.

31.1 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1 The following materials from the Company’s Annual Report on Form 10K for the year ended March 26, 2016, formatted in XBRL (“eXtensible Business Reporting Language”): (i) the Consolidated Balances Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements, tagged as blocks of text (furnished but not filed).

*     Management contract or compensatory plan or arrangement.

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EX-10.15

Exhibit 10.15

AMENDED AND RESTATED
WARRANT TO PURCHASE COMMON STOCK

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A REGISTRATION STATEMENT RELATING THERETO IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.

Warrant To Purchase
14,587 Shares of Common Stock of
GIGA-TRONICS INCORPORATED

Issue Date: February 23, 2015

Explanatory Note. This is an amendment and restatement of a Warrant originally dated June 27, 2013, for the purchase of 383,200 shares of common stock of the Company, as previously amended, following the surrender of the original Warrant in connection with a partial exercise.

1.     Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meanings indicated.

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act; provided, however, that notwithstanding the foregoing, as used herein, no Purchaser shall be deemed an Affiliate of the Company or any Subsidiary, and none of the Company and its Subsidiaries shall be deemed an Affiliate of any Purchaser.

“Articles of Incorporation” means, with respect to any Person, its certificate or articles of incorporation, articles of association, or similar organizational document.

“Board” means the board of directors of the Company, including any duly authorized committee thereof.

“Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s shareholders.

“business day” means any day except Saturday, Sunday and any day on which banking institutions in the State of California generally are authorized or required by law or other governmental actions to close.

“Capital Stock” means (A) with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (B) with respect to any Person that is not a corporation or company, any and all partnership or other equity interests of such Person.

“Common Stock” means the Company’s common stock, no par value.

“Company” means Giga-tronics Incorporated, a California corporation.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Exercise Price” means $1.43 per share, subject to adjustment as provided herein.

“Expiration Time” means 5:00 p.m., Pacific time on January 8, 2016.

“Fair Market Value” means, with respect to any security or other property, the fair market value of such security or other property as determined by the Board, acting in good faith.

“Holder” has the meaning set forth in Section 2.

“Issue Date” means the date identified as the issue date on the first page of this Warrant.

“Market Price” means, with respect to a particular security, on any given day, the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the last closing bid and ask prices regular way, in either case on the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by Pink Sheets LLC or similar organization. “Market Price” shall be determined without reference to after hours or extended hours trading. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be the Fair Market Value per share of such security. For the purposes of determining the Market Price of the Common Stock on the "trading day" preceding, on or following the occurrence of an event, (i) that trading day shall be deemed to commence immediately after the regular scheduled closing time of trading on the Nasdaq Stock Market or, if trading is closed at an earlier time, such earlier time and (ii) that trading day shall end at the next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last trading day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).

“Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

“Pro Rata Repurchases” means any purchase of shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any tender offer or exchange offer subject to Section 12(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any other offer available to substantially all holders of Common Stock, in the case of both (A) or (B), whether for cash, shares of Capital Stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other Person or any other property (including, without limitation, shares of Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while this Warrant is outstanding. The “Effective Date” of a Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or exchange by the Company under any tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer.

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Securities Purchase Agreement” means that Securities Purchase Agreement dated as of June __, 2013, by and among the Company and the Holder.

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“Shares” means the shares of the Company’s Common Stock that may be acquired under this Warrant.

“trading day” means (A) if the shares of Common Stock are not traded on any national or regional securities exchange or association or over-the-counter market, a business day or (B) if the shares of Common Stock are traded on any national or regional securities exchange or association or over-the-counter market, a business day on which such relevant exchange or quotation system is scheduled to be open for business and on which the shares of Common Stock (i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market for any period or periods aggregating one half hour or longer; and (ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the shares of Common Stock.

“Warrant” means this amended and restated warrant, which has been modified as of the date hereof in accordance with the Explanatory Note included on the first page of this Warrant.

2.     Number of Shares; Exercise Price. This certifies that, for value received, Alara Capital AVI II, LLC, a Delaware limited liability company, or its permitted assigns (the “Holder”) is entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from the Company, in whole or in part, up to an aggregate of 14,587 shares of Common Stock, at a purchase price per share of Common Stock equal to the Exercise Price. The number of Shares and the Exercise Price are subject to adjustment as provided herein, and all references to “Common Stock,” “Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments.

3.     Exercise of Warrant; Term.

(A)     Subject to Section 2, the right to purchase the Shares represented by this Warrant is exercisable, in whole or in part by the Holder, at any time or from time to time, but in no event later than the Expiration Time, by (A) the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed and executed on behalf of the Holder, at the principal executive office of the Company located at the address set forth in Section 19(a) hereto (or such other office or agency of the Company in the United States as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), and (B) payment of the Exercise Price for the Shares thereby purchased by tendering in cash or by wire transfer of immediately available funds to an account designated by the Company. If the Holder does not exercise this Warrant in its entirety, the Holder will be entitled to receive from the Company within a reasonable time, and in any event not exceeding three business days, a new warrant in substantially identical form for the purchase of that number of Shares equal to the difference between the number of Shares subject to this Warrant and the number of Shares as to which this Warrant is so exercised.

(B)     If at any time until the Expiration Time, there is no effective registration statement under the Securities Act of 1933, as amended, or no current prospectus covering the resale of the Shares, then, this Warrant may be exercised at such time by means of a “cashless exercise,” whereupon the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed and executed on behalf of the Holder, at the principal executive office of the Company located at the address set forth in Section 19(a) hereto (or such other office or agency of the Company in the United States as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), the Company will issue the number of Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = Market Price of the Common Stock on the last trading day preceding the date of exercise;

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(B) = the Exercise Price; and

(X) = the number of Shares for which this Warrant is being exercised.

(C)     To the extent permitted by applicable laws and regulations, the Company’s obligations to issue and deliver Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or entity or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person or entity of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person or entity, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Shares. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing Shares upon exercise of this Warrant as required pursuant to the terms hereof.

4.      Issuance of Shares; Authorization. Certificates for Shares issued upon exercise of this Warrant will be issued in the name of Holder or and will be delivered to Holder or such named Person or Persons within a reasonable time after the date on which this Warrant has been duly exercised in accordance with the terms of this Warrant. The Company hereby represents and warrants that any Shares issued upon the exercise of this Warrant in accordance with the provisions of Section 3 will be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than liens or charges created by the Holder, income and franchise taxes incurred in connection with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company agrees that the Shares so issued will be deemed to have been issued to the Holder as of the close of business on the date on which this Warrant and payment of the Exercise Price are delivered to the Company in accordance with the terms of this Warrant, notwithstanding that the stock transfer books of the Company may then be closed or certificates representing such Shares may not be actually delivered on such date. The Company will at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock then issuable upon exercise of this Warrant at any time. The Company will use reasonable best efforts to ensure that the Shares may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Shares are listed or traded, if any. Upon agreement of the Company and Holder, in lieu of issuing certificates evidencing Shares, the Company shall cause its transfer agent to issue such Shares in book-entry form.

5.      No Fractional Shares or Scrip. No fractional Shares or scrip representing fractional Shares shall be issued upon any exercise of this Warrant. In lieu of any fractional Share to which the Holder would otherwise be entitled, the Holder shall be entitled to receive a cash payment equal to the Market Price of the Common Stock on the last trading day preceding the date of exercise less the pro-rated Exercise Price for such fractional share.

6.      No Rights as Shareholder. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the date of exercise hereof.

7.      Charges, Taxes and Expenses. Issuance of certificates for Shares to the Holder upon the exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company.

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8.      Transfer/Assignment. This Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Company by the registered holder hereof in person or by duly authorized attorney to any Affiliate of such registered holder, and a new warrant shall be made and delivered by the Company, of the same tenor and date as this Warrant but registered in the name of one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of the Company described in Section 3. All expenses (other than stock transfer taxes) and other charges payable in connection with the preparation, execution and delivery of the new warrants pursuant to this Section 8 shall be paid by the Company.

9.      Exchange and Registry of Warrant. This Warrant is exchangeable, upon the surrender hereof by the Holder to the Company, for a new warrant or warrants of like tenor and representing the right to purchase the same aggregate number of Shares. The Company shall maintain a registry showing the name and address of the Holder as the registered holder of this Warrant. This Warrant may be surrendered for exchange or exercise in accordance with its terms, at the office of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

10.      Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.

11.      Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a business day, then such action may be taken or such right may be exercised on the next succeeding day that is a business day.

12.      Adjustments and Other Rights. The Exercise Price and the number of Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as follows; provided, that if more than one subsection of this Section 12 is applicable to a single event, the subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection of this Section 12 so as to result in duplication:

(A)     Stock Splits, Subdivisions, Reclassifications or Combinations. If the Company shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares, then, in each such case, the number of Shares issuable upon exercise of this Warrant at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Holder after such date shall be entitled to purchase the number of shares of Common Stock which such Holder would have owned or been entitled to receive in respect of the shares of Common Stock subject to this Warrant after such date had this Warrant been exercised immediately prior to such date. In such event, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment and (2) the Exercise Price in effect immediately prior to the record or effective date, as the case may be, for the dividend, distribution, subdivision, combination or reclassification giving rise to this adjustment by (y) the new number of Shares issuable upon exercise of the Warrant determined pursuant to the immediately preceding sentence.

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(B)      Certain Repurchases of Common Stock. If the Company effects a Pro Rata Repurchase of Common Stock, then, in each such case, the Exercise Price shall be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to the Effective Date of such Pro Rata Repurchase by a fraction of which the numerator shall be (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market Price of a share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of which the denominator shall be the product of (i) the number of shares of Common Stock outstanding immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so repurchased and (ii) the Market Price per share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence. Notwithstanding anything in this Section 12(B) to the contrary, in no event shall any adjustment be made pursuant to this Section 12(B) which would result in an increase to the Exercise Price or a decrease in the number of Shares issuable upon exercise of this Warrant.

(C)     Business Combinations. In the event of any Business Combination or reclassification of Common Stock (other than a reclassification of Common Stock referred to in Section 12(A)), then, in each such case, the Holder’s right to receive Shares upon exercise of this Warrant shall be converted into the right to receive upon exercise of this Warrant the number of shares of stock or other securities or property (including cash) which the Common Stock issuable (at the time of such Business Combination or reclassification) upon exercise of this Warrant immediately prior to such Business Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification; and in each such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Holder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the Holder’s right to exercise this Warrant in exchange for any shares of stock or other securities or property pursuant to this paragraph. In determining the kind and amount of stock, securities or the property receivable upon exercise of this Warrant following the consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination, then the consideration that the Holder shall be entitled to receive upon exercise shall be deemed to be the types and amounts of consideration received by the majority of all holders of the shares of Common Stock that affirmatively make an election (or of all such holders if none make an election).

(D)     Rounding of Calculations; Minimum Adjustments. All calculations under this Section 12 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest one-hundredth (1/100th) of a share, as the case may be. Any provision of this Section 12 to the contrary notwithstanding, no adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable shall be made if the amount of such adjustment would be less than $0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.

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(E)     Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in which the provisions of this Section 12 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of this Warrant exercised after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such Holder any amount of cash in lieu of a fractional share of Common Stock; provided, however, that the Company upon request shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment.

(F)      Other Events. For so long as the Holder holds this Warrant or any portion thereof, if any event occurs as to which the provisions of this Section 12 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then the Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board, to protect such purchase rights as aforesaid. The Exercise Price or the number of Shares into which this Warrant is exercisable shall not be adjusted in the event of a change in the par value of the Common Stock or a change in the jurisdiction of incorporation of the Company.

(G)     Statement Regarding Adjustments. Whenever the Exercise Price or the number of Shares into which this Warrant is exercisable shall be adjusted as provided in Section 12, the Company shall forthwith file at the principal office of the Company a statement showing in reasonable detail the facts requiring such adjustment and the Exercise Price that shall be in effect and the number of Shares into which this Warrant shall be exercisable after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each Holder at the address appearing in the Company’s records.

(H)      Notice of Adjustment Event. In the event that the Company shall propose to take any action of the type described in this Section 12 (but only if the action of the type described in this Section 12 would result in an adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable or a change in the type of securities or property to be delivered upon exercise of this Warrant), the Company shall give notice to the Holder, in the manner set forth in Section 12(G), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

(I)     Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 12, the Company shall take any action which may be necessary, including obtaining regulatory and other applicable national securities exchange or shareholder approvals or exemptions, in order that the Company may thereafter validly and legally issue as fully paid and nonassessable all shares of Common Stock that the Holder is entitled to receive upon exercise of this Warrant pursuant to this Section 12.

(J)     Adjustment Rules. Any adjustments pursuant to this Section 12 shall be made successively whenever an event referred to herein shall occur.

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13.      No Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder.

14.      Governing Law. This Warrant will be governed by and construed in accordance with the law of the State of California applicable to contracts made and to be performed entirely within such State. Each of the Company and the Holder agrees (a) to submit to the exclusive jurisdiction and venue of the state and federal courts in the State of California for any civil action, suit or proceeding arising out of or relating to this Warrant or the transactions contemplated hereby, and (b) that notice may be served upon the Company at the address in Section 18 below and upon the Holder at the address for the Holder set forth in the registry maintained by the Company pursuant to Section 9 hereof. To the extent permitted by applicable law, each of the Company and the Holder hereby unconditionally waives trial by jury in any civil legal action or proceeding relating to the Warrant or the transactions contemplated hereby or thereby.

15.      Binding Effect. This Warrant shall be binding upon any successors or assigns of the Company.

16.      Amendments. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Holder.

17.      Prohibited Actions. The Company agrees that it will not take any action which would entitle the Holder to an adjustment of the Exercise Price if the total number of shares of Common Stock issuable after such action upon exercise of this Warrant, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon the exercise of all outstanding options, warrants, conversion and other rights, would exceed the total number of shares of Common Stock then authorized by its Articles of Incorporation.

18.      Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, (or on the first business day after transmission by facsimile) be, in writing by the Company or such Holder from time to time as follows:

(a)  if to the Company, at:

Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, California 94583
Attn: John Regazzi, President and Chief Executive Officer

(b)  if to Holder, at the addressed indicated below Holder’s signature.

or to such other representative or at such other address of a party as such party hereto may furnish to the other parties in writing in accordance with this Section 10.

19.      Entire Agreement. This Warrant and the form attached hereto and the Securities Purchase Agreement contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings with respect thereto.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a duly authorized officer as of the Issue Date set forth above.

“COMPANY”

GIGA-TRONICS INCORPORATED

By: ___/s/ John Regazzi_____________________

Name: John Regazzi

Title:President and Chief Executive Officer

“HOLDER”

ALARA CAPITAL AVI II, LLC,

a Delaware limited liability company

By: /s/ Darren C. Wallis__________________

Name: Darren C. Wallis

Title:Managing Member

Address for Notice:

c/o AVI Partners, LLC

555 E. Lancaster Avenue

Suite 520

Radnor, PA 19087

Telephone No.: (610) 860-6660
E-mail Address: dwallis@avipartners.com

Attention: Darren C. Wallis, Managing Member

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[Form of Notice of Exercise]

Date: _________

TO: Giga-tronics Incorporated 

RE: Election to Purchase Common Stock

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees to subscribe for and purchase the number of shares of the Common Stock set forth below covered by such Warrant. The undersigned, in accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price for such shares of Common Stock in the manner set forth below. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name set forth below.

Number of Shares of Common Stock                                                     

Method of Payment of Exercise Price:                                                   

Aggregate Exercise Price:                                      

Holder:                                                   

By:                                                         

Name:                                                    

Title:                                                      

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EX-10.26

Exhibit 10.26

Investor rights agreement

This Investor Rights Agreement (this “Agreement”) is made and entered into as of January [__], 2016, by and among Giga-tronics Incorporated, a corporation organized in the State of California (the “Company”), and the purchaser identified on the signature page hereto (the “Purchaser”).

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of January 15, 2016, between the Company and the Purchaser, relating to the purchase of Units consisting of shares of Common Stock and Warrants (the “Purchase Agreement”).

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows:

1.     Definitions. As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act; provided, however, that notwithstanding the foregoing, as used herein, the Purchaser shall not be deemed an Affiliate of the Company or any Subsidiary, and none of the Company and its Subsidiaries shall be deemed an Affiliate of the Purchaser.

“Agreement” has the meaning set forth in the preamble.

“Blue Sky Filing” has the meaning set forth in Section 6(a).

“Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the State of California or City of New York are authorized or required by law to remain closed.

“Claims” has the meaning set forth in Section 6(a).

“Commission” means the United States Securities and Exchange Commission.

“Common Shares” means those shares of the Common Stock issued to the Purchaser by the Company under the Purchase Agreement and those shares of Common Stock issuable upon exercise of the Warrants issued by the Company to the Purchaser pursuant to the Purchase Agreement.

“Common Stock” means the Company’s common stock, no par value.

“Company” has the meaning set forth in the preamble and includes the Company’s successors by merger, acquisition, reorganization or otherwise.

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“Company Indemnified Party” has the meaning set forth in Section 6(b).

“Effective Date” means the date a Registration Statement is declared effective by the Commission.

“Effectiveness Deadline” means the date that is 60 days after the date of the Filing Deadline or, if the Commission staff reviews or provides comments on the applicable Registration Statement, 90 days after the date of the Filing Deadline.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Filing Deadline” means the date that is 45 days after the Closing Date under the Purchase Agreement.

“Grace Period” has the meaning set forth in Section 3(j).

“Indemnified Damages” has the meaning set forth in Section 6(a).

“Initial Registration Statement” has the meaning set forth in Section 2(a).

“Legal Counsel” has the meaning set forth in Section 3(c).

“New Registration Statement” has the meaning set forth in Section 2(a).

“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, incorporated or unincorporated association, joint stock company, joint venture, sole proprietorship, government (or an agency or subdivision thereof), governmental authority or other entity of any kind.

“Prospectus” means the prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Purchase Agreement” has the meaning set forth in the recitals.

“Purchaser” has the meaning set forth in the preamble and includes any transferee or assignee thereof to whom the Purchaser assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 8 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 8.

“Purchaser Indemnified Party” has the meaning set forth in Section 6(a).

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“register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the Securities Act and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration Statement(s) by the Commission.

“Registrable Securities” means all of the Common Shares and any securities issued or distributed or issuable in respect thereof by way of a stock split, dividend or other distribution or in connection with a combination of shares, recapitalization, merger consolidation or other reorganization or similar event with respect to the Common Shares; provided, that Common Shares shall cease to be Registrable Securities upon the earliest to occur of the following: (A) a sale pursuant to a Registration Statement or Rule 144 (in which case, only such security sold shall cease to be a Registrable Security); (B) if such Common Shares have ceased to be outstanding; or (C) if such Common Shares have been sold in a private transaction in which the Purchaser’s rights under this Agreement have not been assigned to the transferee.

“Registration Period” has the meaning set forth in Section 3(a).

“Registration Statement” means a registration statement or registration statements of the Company filed under the Securities Act covering the Registrable Securities.

“Required Holders” means the holders of at least 50% of the Registrable Securities.

“Rule 144” means Rule 144 under the Securities Act as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 415” means Rule 415 under the Securities Act as such Rule may be amended from time to time, or any successor rule providing for offering securities on a continuous or delayed basis.

“Rule 424” means Rule 424 under the Securities Act as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Guidance” means any publicly-available written or oral guidance, comments, requirements or requests of the Commission staff.

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Selling Expenses” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any holder of Registrable Securities, except for the fees and disbursements of counsel for the holders of Registrable Securities required to be paid by the Company pursuant to Section 5.

“Suspension Notice” has the meaning set forth in Section 4(c).

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“Underwritten Offering” means a registration in which Registrable Securities are sold to an underwriter or underwriters on a firm commitment basis for reoffering to the public.

“Units” has the meaning given to it in the Purchase Agreement.

“Violations” has the meaning set forth in Section 6(a).

“Warrants” means the warrants issued by the Company and purchased by the Purchaser pursuant to the Purchase Agreement.

2.             Registration.

a.     The Company agrees to file with the Commission a Registration Statement under the Securities Act on Form S-1 (or, if applicable, Form S-3), no later than the Filing Deadline, covering the offer and resale of all of the Registrable Securities on a continuous basis pursuant to Rule 415 (the “Initial Registration Statement”). The Company shall use commercially reasonable efforts to have the Registration Statement declared effective by the Commission as soon as practicable, but in no event later than the Effectiveness Deadline. Notwithstanding the registration obligations set forth in the preceding sentences of this Section 2(a), if, in response to its filing of the Initial Registration Statement, the Company receives a Commission comment that all of the Registrable Securities cannot be registered for resale on the Initial Registration Statement, then the Company shall promptly inform the Purchaser thereof and, upon the written request of the Required Holders, either (i) file amendments to the Initial Registration Statement, or (ii) withdraw the Initial Registration Statement and file a new registration statement (a “New Registration Statement”), in either case covering the maximum number of Registrable Securities consistent with such Commission comment, and, as promptly as practicable thereafter, taking into account such Commission comment, file a Registration Statement covering the balance of the Registrable Securities. In no event shall the Company include any securities other than Registrable Securities on any Registration Statement under this Section 2 without the prior written consent of the Required Holders.

b.             [intentionally omitted]

c.             Effectiveness. The Company shall cause any Registration Statement filed under Section 2 to be declared effective under the Securities Act as promptly as possible after the filing thereof.

d.             [intentionally omitted].

e.             Underwritten Offering.

(i)     If the holders of not less than a majority of any class of Registrable Securities included in any offering pursuant to a Registration Statement filed pursuant to Section 2 so elect, such offering shall be in the form of an Underwritten Offering and the Company, if necessary, shall amend or supplement such Registration Statement for such purpose. The holders of a majority of the class of Registrable Securities included in such Underwritten Offering shall, after consulting with the Company, have the right to select the managing underwriter or underwriters for the offering.

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(ii)     In the case of an Underwritten Offering pursuant to Section 2.e(i), the Company shall cause the senior executive officers of the Company to participate in the customary “road show” presentations that may be reasonably requested by the managing underwriter in any such Underwritten Offering and otherwise to facilitate, cooperate with, and participate in each proposed offering contemplated herein and customary selling efforts related thereto (provided, that such activities shall not unreasonably interfere with the duties of such officers in the ordinary course of the Company’s business).

(iii)     In the case of an Underwritten Offering pursuant to Section 2.e(i), the Company shall cooperate with the selling holders of Registrable Securities and the managing underwriter, underwriters or agent, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends.

3.           Registration Procedures. At such time as the Company is obligated to file a Registration Statement with the Commission pursuant to Section 2, the Company will use reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:

a.     The Company shall keep each Registration Statement effective pursuant to Rule 415 at all times from its effective time until the earlier of (i) the date as of which the Common Stock covered by such Registration Statement cease to be Registrable Securities or (ii) the date on which the Purchaser shall have sold all of the Registrable Securities covered by such Registration Statement (the “Registration Period”). The Company shall ensure that each Registration Statement (including any amendments or supplements thereto and Prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of Prospectuses, in the light of the circumstances in which they were made) not misleading.

b.     The Company shall prepare and file with the Commission such amendments and supplements to a Registration Statement and the Prospectus used in connection with such Registration Statement, which Prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement that are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form 10-K or any analogous report under the Exchange Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the Commission on the same day on which the Exchange Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement.

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c.     The Purchaser shall have the right to select one legal counsel to review and oversee any registration pursuant to this Agreement (“Legal Counsel”), as designated by the Required Holders. The Company and Legal Counsel shall reasonably cooperate with each other in performing the Company’s obligations under this Agreement. The Company shall (A) permit Legal Counsel to review and comment upon (i) a Registration Statement at least five (5) Business Days prior to its filing with the Commission and (ii) all amendments and supplements to all Registration Statements (except for Annual Reports on Form 10-K, and Reports on Form 10-Q and any similar or successor reports) within a reasonable number of days prior to their filing with the Commission, and (B) not file any Registration Statement or amendment or supplement thereto in a form to which Legal Counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall promptly furnish to Legal Counsel, without charge, (i) copies of any correspondence from the Commission or the staff of the Commission to the Company or its representatives relating to any Registration Statement, (ii) after the same is prepared and filed with the Commission, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by the Purchaser, and all exhibits and (iii) upon the effectiveness of any Registration Statement, one copy of the Prospectus included in such Registration Statement and all amendments and supplements thereto. The Company shall reasonably cooperate with Legal Counsel in performing the Company’s obligations pursuant to this Section 3.

d.     The Company shall promptly furnish to the Purchaser, without charge, (i) after the same is prepared and filed with the Commission, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by the Purchaser, all exhibits and each preliminary Prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the Prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as the Purchaser may reasonably request) and (iii) such other documents, including copies of any preliminary or final Prospectus, as the Purchaser may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by the Purchaser.

e.     The Company shall (i) register and qualify, unless an exemption from registration and qualification applies, the resale by the Purchaser of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify Legal Counsel and the Purchaser of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.

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f.     The Company shall notify Legal Counsel and the Purchaser in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which the Prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and, subject to Section 3(l), promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to Legal Counsel and the Purchaser (or such other number of copies as Legal Counsel or the Purchaser may reasonably request). The Company shall also promptly notify Legal Counsel and the Purchaser in writing (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and the Purchaser by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the Commission for amendments or supplements to a Registration Statement or related Prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

g.     The Company shall use commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify Legal Counsel and the Purchaser of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

h.     The Company shall hold in confidence and not make any disclosure of information concerning the Purchaser provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Purchaser is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Purchaser and allow the Purchaser, at the Purchaser’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

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i.     If requested by the Purchaser, the Company shall (i) as soon as practicable incorporate in a Prospectus supplement or post-effective amendment such information as the Purchaser reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such Prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by the Purchaser holding any Registrable Securities.

j.     Notwithstanding anything to the contrary herein, at any time after the Effective Date, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company shall promptly (i) notify the Purchaser in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to the Purchaser) and the date on which the Grace Period will begin, and (ii) notify the Purchaser in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed sixty (60) consecutive days and during any three hundred sixty five (365) day period such Grace Periods shall not exceed an aggregate of one hundred twenty (120) days and the first day of any Grace Period must be at least two (2) trading days after the last day of any prior Grace Period. For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Purchaser receives the notice referred to in clause (i) and shall end on and include the later of the date the Purchaser receives the notice referred to in clause (ii) and the date referred to in such notice. The provisions of Section 3(g) hereof shall not be applicable during the period of any Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of the Purchaser in connection with any sale of Registrable Securities with respect to which such Purchaser has entered into a contract for sale, and delivered a copy of the Prospectus included as part of the applicable Registration Statement (unless an exemption from such prospectus delivery requirements exists), prior to the Purchaser’s receipt of the notice of a Grace Period and for which the Purchaser has not yet settled.

4.             Obligations of the Purchaser Relating to Registration.

a.     At least ten Business Days prior to the first anticipated filing date of a Registration Statement, the Company shall notify the Purchaser in writing of the information the Company requires from the Purchaser to have any of the Purchaser’s Registrable Securities included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of the Purchaser that the Purchaser shall furnish to the Company, not later than five Business Days after the date of the Company’s notice, such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the effectiveness of the registration of the Purchaser’s Registrable Securities.

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b.     The Purchaser, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Purchaser has notified the Company in writing of its election to exclude all of such Purchaser’s Registrable Securities from such Registration Statement.

c.     The Purchaser agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of Section 3(f) (each a “Suspension Notice”), the Purchaser will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Purchaser’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(g) or the first sentence of Section 3(f) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of the Purchaser in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which such Purchaser has entered into a contract for sale prior to such Purchaser’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of Section 3(f) and for which the Purchaser has not yet settled. In any event, the Company shall not be entitled to deliver more than one Suspension Notice in any one year.

d.     The Purchaser covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to the Registration Statement.

5.            Expenses of Registration. All expenses, other than Selling Expenses, with respect to the registration and disposition of Registrable Securities including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company and reasonable fees (which shall be proportional and reasonable in relation to the market value of the Registrable Securities being registered) of one counsel for the Purchaser, who shall be selected by the Required Holders shall be paid by the Company. All Selling Expenses relating to Registrable Securities registered pursuant to this Agreement shall be borne and paid by the holders of such Registrable Securities, in proportion to the number of Registrable Securities registered for each such holder.

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6.            Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement:

a.     To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Purchaser, the directors, officers, managers, members, partners, employees, agents, representatives of, and each Person, if any, who controls the Purchaser within the meaning of the Securities Act or the Exchange Act (each, a “Purchaser Indemnified Party”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the Commission, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any amendment thereof or supplement thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus or free writing prospectus (as defined in Rule 405 under the Securities Act), or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation of this Agreement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). Subject to Section 6(c), the Company shall reimburse the Purchaser Indemnified Parties, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): shall not apply to a Claim (a) arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such Purchaser Indemnified Party expressly for use in any Prospectus or supplement thereto or the omission or alleged omission in such written information to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if such Prospectus or supplement thereto was timely made available by the Company pursuant to Section 3(d); (b) to the extent such Claim is based on a failure of such Purchaser Indemnified Party to deliver or to cause to be delivered the Prospectus made available by the Company, including a corrected Prospectus, if such Prospectus or corrected Prospectus was timely made available by the Company pursuant to Section 3(d); (c) in which amounts are paid in settlement of any Claim and such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed; (d) in which such Purchaser Indemnified Party fails to cease all offers and sales of Registrable Securities in accordance with Section 4(c) herein, to the extent such Claim is based on such failure; and (e) arising out of or based solely upon a breach by such Purchaser Indemnified Party of such Purchaser Indemnified Party’s obligations set forth herein. This indemnity shall be in addition to any liability the Company may otherwise have. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Purchaser Indemnified Party and shall survive the transfer of the Registrable Securities by the Purchaser pursuant to Section 8.

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b.     In connection with any Registration Statement in which the Purchaser is participating, to the fullest extent permitted by law, such Purchaser agrees to severally and not jointly indemnify, hold harmless and defend the Company and each of its directors, officers, employees, agents and representatives and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each, an “Company Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any amendment thereof or supplement thereto or in any filing made in connection with a Blue Sky Filing, or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus or free writing prospectus (as defined in Rule 405 under the Securities Act), or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading, in each case to the extent, and only to the extent, that such untrue statement or omission of a material fact is contained in any written information furnished to the Company by such Purchaser expressly for use in connection with such Registration Statement; and, subject to Section 6(c), such Purchaser will reimburse any legal or other expenses reasonably incurred by an Company Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Purchaser, which consent shall not be unreasonably withheld or delayed and provided further, that the obligation to indemnify shall be limited to the net proceeds (after underwriting fees, commissions or discounts) actually received by such holder from the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Company Indemnified Party and shall survive the transfer of the Registrable Securities by the Purchaser pursuant to Section 8.

c.     Promptly after receipt by a Purchaser Indemnified Party or Company Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Purchaser Indemnified Party or Company Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Purchaser Indemnified Party or the Company Indemnified Party, as the case may be; provided, however, that a Purchaser Indemnified Party or Company Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Purchaser Indemnified Party or Company Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Purchaser Indemnified Party or Company Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Purchaser Indemnified Party or Company Indemnified Party and any other party represented by such counsel in such proceeding. In the case of a Purchaser Indemnified Party, legal counsel referred to in the immediately preceding sentence shall be selected by the Required Holders. The Company Indemnified Party or Purchaser Indemnified Party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Company Indemnified Party or Purchaser Indemnified Party which relates to such action or Claim. The indemnifying party shall keep the Company Indemnified Party or Purchaser Indemnified Party reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Company Indemnified Party or Purchaser Indemnified Party, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Company Indemnified Party or Purchaser Indemnified Party of a release from all liability in respect to such Claim or litigation, and such settlement shall not include any admission as to fault on the part of the Company Indemnified Party. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Company Indemnified Party or Purchaser Indemnified Party with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Purchaser Indemnified Party or Company Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

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d.     The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

e.     The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Company Indemnified Party or Purchaser Indemnified Party against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

7.            Contribution. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein.

-12-

8.             Assignment of Registration Rights. The registration rights provided pursuant to Sections 2 through 10 of this Agreement shall be assignable in full or in part by the Purchaser to any transferee of such Purchaser’s Registrable Securities if: (i) the Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, contemporaneous with such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the Registrable Securities with respect to which such registration rights are being transferred or assigned; and (iii) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein.

9.            Amendment. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Holders. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon the Purchaser and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities.

10.          Preservation of Rights.   Except with the prior consent of the Required Holders, the Company shall not, for so long as there are Registrable Securities, (a) grant any registration rights to third parties that are inconsistent with the rights granted hereunder, or (b) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the holders of Registrable Securities in this Agreement.

11.           Rule 144 Compliance.   With a view to making available to the holders of Registrable Securities the benefits of Rule 144 under the Securities Act and any other rule or regulation of the Commission that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3 (or any successor form), the Company shall:

a.      make and keep public information available, as those terms are understood and defined in Rule 144 at all times; and

b.     use its commercially reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act.

12.          Inspection.

a.     Upon execution, a copy of this Agreement and any extension or amendment thereof shall be filed with the Secretary of the Company and during the term of this agreement shall be open to inspection by a shareholder of the Company or its agent, upon the same terms as the records of shareholders of the Company are open to inspection.

-13-

13.          Miscellaneous.

a.     A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities.

b.     Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally, (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party), so long as such facsimile is followed by mail delivery of the same information contained in such facsimile, or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:

If to the Company:              Giga-tronics Incorporated

4650 Norris Canyon Road

San Ramon, California 94583

Attn: John Regazzi

Email: jregazzi@gigatronics.com

If to the Purchaser, to the address set forth underneath the Purchaser’s name on the signature page hereto.

Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, or (B) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, or receipt from a nationally recognized overnight delivery service in accordance with clause (i) or (iii) above, respectively.

c.     Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d.     All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of California.

e.     This Agreement and the instruments referenced herein constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the instruments referenced herein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

-14-

f.     Subject to the requirements of Section 8, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

g.     The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

h.     This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

i.     Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

j.     All consents and other determinations required to be made by the Purchaser pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders.

k.     The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

l.     This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

m.     As used herein, “Dollar”, “US Dollar” and “$” each mean the lawful money of the United States.

n.     The parties acknowledge that it would be impossible to fix money damages for violations of this Agreement and that such violations will cause irreparable injury for which an adequate remedy at law is not available. The parties hereby agree that any party hereto may, in its sole discretion, apply to any California Court for specific performance or similar relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation thereof and, to the extent permitted by applicable law, each party waives any objection or defense to the imposition of such relief. Nothing herein shall be construed to prohibit any party from bringing any action for damages in addition to an action for specific performance or an injunction for a breach of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-15-

IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first written above.

GIGA-TRONICS INCORPORATED

By:       /s/ John Regazzi                                               
Name:   John Regazzi
Title:     President and Chief Executive Officer

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES OF PURCHASER TO FOLLOW]

[Signature Page to Investor Rights Agreement]

IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first written above.

NAME OF PURCHASER

[__________], [a/an] [__________]

AUTHORIZED SIGNATORY

By:            /s/                                               

            Name: [__________]

            Title: [__________]

Address for Notice:

[__________]

Telephone No.: [__________]
E-mail Address: [__________]

Attention: [__________]

[Signature Page to Investor Rights Agreement]

EX-21

EXHIBIT 21

SIGNIFICANT SUBSIDIARIES
	Name	Jurisdiction of incorporation
	Microsource, Inc.	California

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements (Nos. 333-45476, 333-34719, 333-48889, 333-39403, 333-69688 and 333-135578) on Form S-8 and Registration Statements (Nos. 333-205051 and 333-210157) on Form S-3 of Giga-tronics Incorporated (the “Company”) of our report dated June 7, 2016 relating to the consolidated financial statements (which report expresses an unqualified opinion and includes an explanatory paragraph regarding matters that raise substantial doubt about the Company’s ability to continue as a going concern), appearing in this Annual Report on Form 10-K.

/s/ Crowe Horwath LLP

San Francisco, California

June 7, 2016

EX-31.1

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-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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: 06/ 07/2016
	/s/  JOHN R. REGAZZI
	John R. Regazzi
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven D. Lance, certify that:

1. I have reviewed this Annual Report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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: 06/ 07/2016
	/s/  STEVEN D. LANCE
	Steven D. Lance
	Vice President of Finance/
	Chief Financial Officer & Secretary

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO18 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-K for the period ending March 26, 2016, 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: 06/ 07/2016
	/s/  JOHN R. REGAZZI
	John R. Regazzi
	Chief Executive Officer

EX-32.2

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-K for the period ending March 26, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven D. Lance, Vice President of Finance, Chief Financial Officer and Secretary, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: 06/ 07/2016
	/s/  STEVEN D. LANCE
	Steven D. Lance
	Vice President of Finance,
	Chief Financial Officer & Secretary

XML

Document And Entity Information - USD ($)	12 Months Ended
	Mar. 26, 2016	Jun. 02, 2016	Sep. 24, 2015
Entity Registrant Name	GIGA TRONICS INC
Entity Central Index Key	0000719274
Trading Symbol	giga
Current Fiscal Year End Date	--03-26
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		9,549,703
Entity Public Float			$ 6,455,711
Document Type	10-K
Document Period End Date	Mar. 26, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Mar. 26, 2016	Mar. 28, 2015
Series A Preferred Stock [Member]
Shareholders' equity:
Convertible preferred stock of no par value; Authorized - 1,000,000 shares Series A - designated 250,000 shares; no shares at March 26, 2016 and March 28, 2015 issued and outstanding	$ 0	$ 0
Series B, C, and D Preferred Stock [Member]
Shareholders' equity:
Convertible preferred stock of no par value; Authorized - 1,000,000 shares Series A - designated 250,000 shares; no shares at March 26, 2016 and March 28, 2015 issued and outstanding	2,911,000	2,911,000
Cash and cash-equivalents	1,331,000	1,170,000
Trade accounts receivable, net of allowance of $45, respectively	2,129,000	2,354,000
Inventories, net	5,694,000	3,365,000
Prepaid expenses and other current assets	327,000	373,000
Total current assets	9,481,000	7,262,000
Property and equipment, net	837,000	718,000
Other long term assets	8,000	74,000
Capitalized software development costs	876,000	0
Total assets	11,202,000	$ 8,054,000
Line of credit	800,000
Current portion of long term debt, net of discount	379,000	$ 811,000
Accounts payable	1,924,000	973,000
Accrued payroll and benefits	647,000	678,000
Deferred revenue	2,804,000	1,127,000
Deferred rent	110,000	127,000
Capital lease obligations	44,000	69,000
Other current liabilities	996,000	501,000
Total current liabilities	$ 7,704,000	4,286,000
Long term loan		392,000
Warrant liability, at estimated fair value	$ 353,000	252,000
Long term obligations - deferred rent		111,000
Long term obligations - capital lease	$ 165,000	58,000
Total liabilities	8,222,000	5,099,000
Common stock of no par value; Authorized - 40,000,000 shares; 9,549,703 shares at March 26, 2016 and 6,706,065 at March 28, 2015 issued and outstanding	24,104,000	19,975,000
Accumulated deficit	(24,035,000)	(19,931,000)
Total shareholders' equity	2,980,000	2,955,000
Total liabilities and shareholders' equity	$ 11,202,000	$ 8,054,000

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Mar. 26, 2016	Mar. 28, 2015
Series A Preferred Stock [Member]
Preferred stock, shares authorized (in shares)	250,000	250,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Series B, C, and D Preferred Stock [Member]
Preferred stock, shares authorized (in shares)	19,500	19,500
Preferred stock, issued (in shares)	18,533.51	18,533.51
Preferred stock, outstanding (in shares)	18,533.51	18,533.51
Preferred stock, liquidation preference	$ 3,540	$ 3,540
Trade accounts receivable, allowance	$ 45	$ 45
Preferred Stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, authorized (in shares)	40,000,000	40,000,000
Common stock, issued (in shares)	9,549,703	6,705,065
Common stock, outstanding (in shares)	9,549,703	6,705,065

XML

Consolidated Statements of Operations - USD ($) shares in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Net sales	$ 14,596,000	$ 18,452,000
Cost of sales	9,975,000	10,445,000
Gross margin	4,621,000	8,007,000
Operating expenses:
Engineering	2,806,000	3,210,000
Selling, general and administrative	5,522,000	4,783,000
Total operating expenses	8,328,000	7,993,000
Operating (loss)/income	(3,707,000)	$ 14,000
Loss on adjustment of warrant liability to fair value	$ (12,000)
Warrant expense		$ (1,232,000)
Other loss		2,000
Interest expense:
Interest expense, net	$ (218,000)	(254,000)
Interest expense from accretion of loan discount	(165,000)	(152,000)
Total interest expense, net	(383,000)	(406,000)
Loss before income taxes	(4,102,000)	(1,626,000)
Provision for income taxes	2,000	47,000
Net loss	$ (4,104,000)	$ (1,673,000)
Loss per common share - basic (in dollars per share)	$ (0.59)	$ (0.32)
Loss per common share - diluted (in dollars per share)	$ (0.59)	$ (0.32)
Weighted average common shares used in per share calculation:
Basic (in shares)	6,941	5,279
Diluted (in shares)	6,941	5,279

XML

Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Preferred Stock [Member]	Common Stock [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Mar. 29, 2014	18,534	5,181,247
Balance at Mar. 29, 2014	$ 2,911	$ 16,224	$ (18,258)	$ 877
Net loss			(1,673)	$ (1,673)
Restricted stock granted (in shares)		432,000
Option exercises (in shares)		90,000		90,000
Option exercises		$ 163		$ 163
Share based compensation		827		827
Warrant issuance expense		$ 1,232		1,232
Warrant exercise and newly issued warrant, net of issuance cost (in shares)		1,002,818
Warrant exercise and newly issued warrant, net of issuance cost		$ 1,529		1,529
Balance (in shares) at Mar. 28, 2015	18,534	6,706,065
Balance at Mar. 28, 2015	$ 2,911	$ 19,975	(19,931)	2,955
Net loss			(4,104)	$ (4,104)
Option exercises (in shares)		48,550		48,550
Option exercises		$ 77		$ 77
Share based compensation		$ 925		$ 925
Warrant issuance expense
Balance (in shares) at Mar. 26, 2016	18,534	9,549,703
Balance at Mar. 26, 2016	$ 2,911	$ 24,104	$ (24,035)	$ 2,980
Shares issued for net settlement of warrant (in shares)		7,216
Proceeds from common offering, net of issuance cost (in shares)		2,787,872
Proceeds from common offering, net of issuance cost		$ 3,127		$ 3,127

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Cash flows from operating activities:
Net loss	$ (4,104,000)	$ (1,673,000)
Warrant issuance expense		1,232,000
Depreciation and amortization	$ 321,000	311,000
Share based compensation	925,000	827,000
Accretion of discounts on debt	165,000	$ 152,000
Adjustment of warrant liability to fair value	12,000
Capitalized software development costs	(876,000)
Change in other long term assets	66,000	$ (5,000)
Change in deferred rent	(128,000)	(103,000)
Changes in operating assets and liabilities:
Trade accounts receivable	225,000	(508,000)
Inventories	(2,329,000)	(44,000)
Prepaid expenses and other assets	(3,000)	(24,000)
Accounts payable	915,000	(457,000)
Accrued payroll and benefits	(31,000)	(77,000)
Deferred revenue	1,677,000	(202,000)
Other current liabilities	120,000	29,000
Net cash used in operating activities	(3,045,000)	(542,000)
Cash flows from investing activities:
Purchases of property and equipment	(192,000)	$ (16,000)
Cash received from sale of product line	375,000
Net cash provided by (used in) investing activities	183,000	$ (16,000)
Cash flows from financing activities:
Proceeds from exercise and issuance of warrants, net of issuance costs of $42		1,529,000
Proceeds from exercise of stock options	77,000	163,000
Payments on capital leases	(81,000)	(158,000)
Proceeds from line of credit	$ 1,800,000	8,624,000
Proceeds from issuance of debt		500,000
Repayments of line of credit	$ (1,000,000)	(9,789,000)
Repayments of debt	(900,000)	(200,000)
Proceeds from issuance of common stock, net of issuance costs of $278	3,127,000
Net cash provided by financing activities	3,023,000	669,000
Increase in cash and cash-equivalents	161,000	111,000
Beginning cash and cash-equivalents	1,170,000	1,059,000
Ending cash and cash-equivalents	1,331,000	1,170,000
Supplementary disclosure of cash flow information:
Cash paid for income taxes	2,000	2,000
Cash paid for interest	165,000	219,000
Supplementary disclosure of noncash investing and financing activities:
Equipment acquired under capital lease	163,000	$ 61,000
Equipment acquired with reduction of other current asset	49,000
Equipment acquired with an increase in accounts payable	$ 36,000

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Consolidated Statements of Cash Flows (Parentheticals)	12 Months Ended
	Mar. 28, 2015 USD ($)
Series C and D Warrants [Member]
Issuance costs	$ 42,000
Issuance costs	$ 278

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Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1 Summary of Significant Accounting Policies

The accompanying consolidated financial statements include the accounts of Giga-tronics Incorporated (“Giga- tronics”) and its wholly-owned subsidiary, Microsource Incorporated (“Microsource”), collectively the “Company”. The Company’s corporate office and manufacturing facilities are located in San Ramon, California.

Giga-tronics Division designs, manufactures and markets the new Advanced Signal Generator (ASG) for the electronic warfare market, and switching systems that are used in automatic testing systems primarily in aerospace, defense and telecommunications.

Microsource develops and manufactures a broad line of YIG (Yttrium, Iron, Garnet) tuned oscillators, filters and microwave synthesizers, which are used by its customers in operational applications and in manufacturing a wide variety of microwave instruments and devices. Microsource’s two largest customers are prime contractors for which it develops and manufactures YIG RADAR filters used in fighter jet aircraft

.

Principles

of

Consolidation

The consolidated financial statements include the accounts of Giga-tronics and its wholly-owned subsidiary. 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 affect 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 2016 ended on March 26, 2016 resulting in a 52 week year. Fiscal year 2015 ended on March 28, 2015, also resulting in a 52 week year. All references to years in the consolidated financial statements relate to fiscal years rather than calendar years.

Reclassifications

Certain reclassifications, none of which affected the prior year’s net loss or shareholders’ equity, have been made to prior year balances in order to conform to the current year presentation.

Revenue Recognition and Deferred Revenue

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 are based on product shipping while others are based on design review. In fiscal 2015 the Company’s Microsource business unit received a $6.5 million order from a major aerospace company for non-recurring engineering services to develop a variant of its high performance fast tuning YIG filters for an aircraft platform and to deliver a limited number of flight-qualified prototype hardware units (the “NRE Order”) which is being accounted for on a milestone basis. The Company considered factors such as estimated completion dates and product acceptance of the order prior to accounting for the NRE Order as milestone revenue. During the fiscal years ended March 26, 2016 and March 28, 2015, revenue recognized on a milestone basis were $1.0 million and $4.7 million, respectively.

On certain contracts with several of the Company’s significant customers the Company receives payments in advance of manufacturing. Advanced payments are recorded as deferred revenue until the revenue recognition criteria described above has been met.

Accounts receivable are stated at their net realizable value. The Company has estimated an allowance for uncollectable accounts based on analysis of specifically identified accounts, outstanding receivables, consideration of the age of those receivables, the Company’s historical collection experience, and adjustments for other factors management believes are necessary based on perceived credit risk.

The activity in the allowance account for doubtful accounts is as follows for the years ended March 26, 2016 and March 28, 2015:

(Dollars in thousands)	March 2 6 , 201 6		March 28 , 201 5
Beginning balance	$	45	$	44
Provisions for doubtful accounts		—		1
Write-off of doubtful accounts		—		—
Ending balance	$	45	$	45

Accrued Warranty

The Company’s warranty policy generally provides one to three years of coverage depending on the product. 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 fair value using full absorption and standard costing. Cost is determined on a first-in, first-out basis. Standard costing and overhead allocation rates are reviewed by management periodically, but not less than annually. Overhead rates are recorded to inventory based on capacity management expects for the period the inventory will be held. Reserves are recorded within cost of sales for impaired or obsolete inventory when the cost of inventory exceeds its estimated fair value. Management evaluates the need for inventory reserves based on its estimate of the amount realizable through projected sales including an evaluation of whether a product is reaching the end of its life cycle. When inventory is discarded it is written off against the inventory reserve, as inventory generally has already been fully reserved for at the time it is discarded.

Research and Development

Research and development expenditures, which include the cost of materials consumed in research and development activities, salaries, wages and other costs of personnel engaged in research and development, costs of services performed by others for research and development on the Company’s behalf and indirect costs are expensed as operating expenses when incurred. Research and development costs totaled approximately $2.8 million and $3.2 million for the years ended March 26, 2016 and March 28, 2015, respectively.

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 26, 2016 and March 28, 2015, management believes there has been no impairment of the Company’s long-lived assets.

Derivatives

The Company accounts for certain of its warrants as derivatives. Changes in fair values are reported in earnings as gain or loss on adjustment of warrant liability to fair value. 

Deferred Rent

Rent expense is recognized in an amount equal to the guaranteed base rent plus contractual future minimum rental increases amortized on the straight-line basis over the terms of the leases, including free rent periods.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Future tax benefits are subject to a valuation allowance when management is unable to conclude that its deferred tax assets will more likely than not be realized. 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 both positive and negative evidence and tax planning strategies in making this assessment.

The Company considers all tax positions recognized in its financial statements for the likelihood of realization. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amounts of the positions that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if any, would be reflected as unrecognized tax benefits, as applicable, in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of the provision for income taxes in the consolidated statements 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. Capitalized pre-production costs included in inventory were immaterial as of March 26, 2016 and March 28, 2015.

Software Development Costs

Development costs included in the research and development of new software products and enhancements to existing software products are expensed as incurred, until technological feasibility in the form of a working model has been established. Capitalized development costs are amortized over the expected life of the product and evaluated each reporting period for impairment. As of March 26, 2016, capitalized software development costs were $876,000 and there was no amortization for the year ended March 26, 2016. There were no software development costs capitalized as of March 28, 2015.

Share-based Compensation

The Company has established the 2005 Equity Incentive Plan, which provides for the granting of options for up to 2,850,000 shares of Common Stock. In 2014, the term of the 2005 Equity Incentive Plan was extended to 2025. The Company records share-based compensation expense for the fair value of all stock options and restricted stock that are ultimately expected to vest as the requisite service is rendered.

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) are classified as cash flows from financing in the statements of cash flows. These excess tax benefits were not significant for the Company for the fiscal years ended March 26, 2016 or March 28, 2015.

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. The computation of expected volatility used in the Black-Scholes- Merton option-pricing model is based on the historical volatility of Giga-tronics’ 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 for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected dividend yield was not considered in the option pricing formula since the Company has not paid dividends and has no current plans to do so in the future.

The fair value of restricted stock awards is based on the fair value of the underlying shares at the date of the grant. Management makes estimates regarding pre-vesting forfeitures that will impact timing of compensation expense recognized for stock option and restricted stock awards.

Earnings or Loss Per

Common Share

Basic earnings or loss per common 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 and warrants using the treasury stock method. Anti-dilutive options are not included in the computation of diluted earnings per share. Non-vested shares of restricted stock have non-forfeitable dividend rights and are considered participating securities for the purpose of calculating basic and diluted earnings per share under the two-class method.

Comprehensive Income or Loss

There are no items of comprehensive income or loss other than net income or loss.

Financial

Instruments

and

Concentration

of

Credit

Risk

Financial instruments that potentially subject the Company to credit risk consist of cash, cash-equivalents and trade accounts receivable. The Company’s cash-equivalents consist of overnight deposits with federally insured 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. At March 26, 2016, and March 28, 2015, three customers combined accounted for 52% and 65% of consolidated gross accounts receivable respectively.

Fair

Value

of

Financial

Instruments

and

Fair

Value

Measurements

The Company’s financial instruments consist principally of cash and cash-equivalents, line of credit, term debt, and warrant derivative liability. The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date (Level 1), significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (Level 2), or significant unobservable inputs reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability (Level 3), depending on the nature of the item being valued.

Recently Issued Accounting Standards

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40):

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

. ASU 2014-15 provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) –

Simplifying the Presentation of Debt Issuance Costs

,” or ASU 2015-03. ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this ASU by the Company, along with the adoption of ASU 2015-15 which amended ASU 2015-03 and is discussed on the next page will change the presentation of certain debt issuance costs, which will be reported as a direct offset to the applicable debt on the balance sheet.

In July 2015, the FASB issued ASU No, 2015-11,

Inventory (Topic 330): “Simplifying the Measurement of Inventory”

. Topic 330,

Inventory

, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.  

In August 2015, the FASB issued ASU 2015-14 – “

Revenue from Contracts with Customers” (Topic 606).

The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 affects any entity using GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g

.,

insurance contracts or lease contracts). Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

Also in August 2015, the FASB issued ASU 2015-15 – “

Interest—Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”,

Previously, on April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30):

Simplifying the Presentation of Debt Issuance Costs

, which required entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. The guidance in ASU 2015-03 (see paragraph 835-30-45-1A) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not expect a material impact on its financial statements as a result of the adoption of ASU No. 2015-03 or 2015-15, however certain debt issuance costs will be reported as a direct offset to the applicable debt on the balance sheet.

In November 2015, the FASB issued ASU 2015-17 –

Income Taxes (Topic 740): “Balance Sheet Classification of Deferred Taxes”.

Topic 740 is effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The amendments in ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities

. The update intends to enhance the reporting model for financial instruments to provide users of financial instruments with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. The recognition and measurement standard will take effect for public companies for fiscal years beginning after Dec. 15, 2017, including interim periods within those fiscal years. The standard takes effect for private companies, not-for-profits, and employee benefit plans for fiscal years beginning after Dec. 15, 2018, and for interim periods within fiscal years beginning after Dec. 15, 2019. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”),

Leases

. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In March 2016, the FASB issued ASU 2016-06,

Derivatives and Hedging

(Topic 815):

Contingent Put and Call Options in Debt Instruments

. ASU 2016-06 applies to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. For public business entities, the amendments in ASU 2016-06 are effective for financial statements issued for fiscal years beginning after 15 December 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”),

Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company has not determined the impact of adoption on its condensed consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10,

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

. ASU 2016-10 addresses implementation issues identified under ASC Topic 606. The amendments in ASU 2016-10 affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements in ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. ASU 2015-14,

Revenue from Contracts with Customers (Topic 606

)

. The amendments in this ASU is effective for public business entities with annual reporting periods beginning after 15 December 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

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Note 2 - Going Concern and Management's Plan

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Substantial Doubt about Going Concern [Text Block]

2 Going Concern and Management’s Plan

The Company incurred net losses of $4.1 million and $1.7 million in the fiscal years ended March 26, 2016 and March 28, 2015, respectively. These losses have contributed to an accumulated deficit of $24.0 million as of March 26, 2016.

The Company has experienced delays in the development of features, orders, and shipments for the new ASG. These delays have significantly contributed to a decrease in working capital from $3.0 million at March 28, 2015, to $1.8 million at March 26, 2016. The new ASG product has now shipped to several customers, but potential delays in the development of features, longer than anticipated sales cycles, or the ability to efficiently manufacture the ASG, could significantly contribute to additional future losses and decreases in working capital.

To help fund operations, the Company relies on advances under the line of credit with Bridge Bank. The line of credit expires on May 7, 2017. The agreement includes a subjective acceleration clause, which allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit based on the lender’s judgement. As of March 26, 2016, the line of credit had a balance of $800,000, and additional borrowing capacity of $906,000.

These matters raise substantial doubt as to the Company’s ability to continue as a going concern.

To address these matters, the Company’s management has taken several actions to provide additional liquidity and reduce costs and expenses going forward. These actions are described in the following paragraphs. 

● In April 2016 the Microsource Business Unit regained AS9100C certification of its Supplier Quality Management System. The AS9100C Certification is commonly required in the aircraft manufacturing industry. The Company’s Microsource division sells components used on military aircrafts to two major customers that require such certification. During the lapse in certification the Company worked with one of the major customers to allow continued shipping and orders. The Company was pursuing a similar solution with the second customer, but this is no longer required with the regained certification.  

● Giga-tronics plans to work with Bridge Bank to renew the line of credit prior to its May 7, 2017 expiration.   

● On January 29, 2016, the Company completed the sale of approximately 2.7 million shares of Common Stock yielding gross proceeds of approximately $3.5 million. Net proceeds to the Company were approximately $3.1 million. The sale included Warrants to purchase approximately 2.4 million shares of Common Stock at $1.15 per share (see Note 18, Private Placement Offering). The proceeds were used to pay suppliers past due accounts, and will be used to fund operations and the forecasted increases in sales and manufacturing activities associated with the Advanced Signal Generator.  

● On December 15, 2015, the Company entered into an Asset Purchase Agreement with Spanawave, whereby Spanawave agreed to purchase the Giga-tronics’ Division product lines for its Power Meters, Amplifiers and Legacy Signal Generators for $1.5 million (see Note 10, Sale of Product Lines). As of March 26, 2016, the Company had received $375,000 from Spanawave under the agreement. The Company is entitled to receive another $375,000 between July and September 2016, the final installment of $750,000 is expected to be paid between July and December 2016.  Proceeds from the asset sale will be used for working capital and general corporate purposes.

● In the first quarter of fiscal 2016, the Company’s Microsource business unit also finalized a multiyear $10.0 million YIG production order (“YIG Production Order”). The Company expects to start shipping the YIG Production Order in the fall of 2016.

● In April of 2016, Microsource received a $4.5 million YIG RADAR filter order for the same fighter jet platform, which the Company expects to ship throughout fiscal 2017. This was a $1.5 million increase compared to the order received in fiscal 2016 for the same platform. In June 2016, the Gigatronics Division also received a $3.3 million order from the United States Navy for the Real-Time TEmS which the Company also expects to ship in the second half of fiscal 2017.

● To assist with the upfront purchases of inventory required for future product deliveries, the Company entered into advance payment arrangements with two large customers, whereby the customers reimburse the Company for raw material purchases prior to the shipment of the finished products. In fiscal 2016, the Company entered into advance payment arrangements totaling $3.9 million. The Company will continue to seek similar terms in future agreements with these customers and other customers.

Management will continue to review all aspects of the business in an effort to improve cash flow and reduce costs and expenses, while continuing to invest, to the extent possible, in new product development for future revenue streams.

Management will also continue to seek additional working capital through debt, equity financing or possible product line sales, however there are no assurances that such financings or sales will be available at all, or on terms acceptable to the Company.

The current year losses has had a significant negative impact on the financial condition of the Company and raise substantial doubt about the Company’s ability to continue as a going concern. The Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result if the Company were unable to do so.

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Note 3 - Cash and Cash-Equivalents

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Cash and Cash Equivalents Disclosure [Text Block]

3 Cash and Cash-Equivalents

Cash and cash-equivalents of $1.3 million and $1.2 million at March 26, 2016 and March 28, 2015, respectively, consisted of demand deposits with a financial institution that is a member of the Federal Deposit Insurance Corporation (FDIC). At March 26, 2016, $1.0 million of the Company’s demand deposits exceeded FDIC insurance limits.

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Note 4 - Inventories

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

4 Inventories

Inventories, net of reserves, consisted of the following:

	March 26,		March 28,
(Dollars in thousands)	2016		201 5
Raw materials	$	3,489	$	1,631
Work-in-progress		2,156		1,598
Finished goods		2		15
Demonstration inventory		47		121
Total	$	5,694	$	3,365

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Note 5 - Property, Plant and Equipment, net

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

5 Property, Plant and Equipment, net

Property, plant and equipment, net is comprised of the following:

	March 26,			March 28,
(Dollars in thousands)	2016			201 5
Leasehold improvements	$	327			327
Machinery and equipment		4,604			4,334
Computer and software		647			459
Furniture and office equipment		121			121
		5,699			5,241
Less: accumulated depreciation and amortization		(4,862	)		(4,523	)
Total	$	837		$	718

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Note 6 - Software Development Costs

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Research, Development, and Computer Software Disclosure [Text Block]

6 Software Development Costs

On September 3, 2015, the Company entered into a software development agreement with a major aerospace and defense company whereby the aerospace company would develop and license its simulation software to the Company. The simulation software (also called Open Loop Simulator or OLS technology) is currently the aerospace company’s intellectual property. The OLS technology generates threat simulations and enables various hardware to generate signals for performing threat analysis on systems under test. The Company intends to license the OLS software as a bundled or integrated solution with its Advanced Signal Generator system. The Company is obligated to pay the aerospace company software development costs and fees for OLS of $919,000 in the aggregate, which is payable in monthly installments as the work is performed by the aerospace company through August 2016. The OLS technology is a perpetual license agreement that may be terminated by the Company at any time as long as the Company provides a notice to the aerospace company and pays for the development costs incurred through the notice termination date. The Company is also obligated to pay royalties to the aerospace company on net sales of its Advanced Signal Generator product sold with the OLS software equal to a percentage of net sales price of each ASG system sold and subject to certain minimums. The Company expenses research and development costs as they are incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. Capitalized software costs for the fiscal year ended March 26, 2016 were $876,000. The Company intends to begin amortizing the costs of capitalized software to cost of sales once the product is released to its customers.

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Note 7 - Accounts Receivable Line of Credit

12 Months Ended

Mar. 26, 2016

Bridge Bank [Member]

Notes to Financial Statements

Debt Disclosure [Text Block]

7 Accounts Receivable Line of Credit

On June 1, 2015 the Company entered into a $2.5 million Revolving Accounts Receivable Line of Credit agreement with Bridge Bank. The credit facility agreement replaced the line of credit with Silicon Valley Bank which expired April 15, 2015. The agreement provides for a maximum borrowing capacity of $2.5 million of which $2.0 million is subject to a borrowing base calculation and $500,000 is non-formula based.

The loan is secured by all assets of the Company including intellectual property and general intangibles and provides for a borrowing capacity equal to 80% of eligible accounts receivable. The loan matures on May 6, 2017 and bears an interest rate, equal to 1.5% over the bank’s prime rate of interest (which was 3.5% March 26, 2016 resulting in an interest rate of 5.0%). Interest is payable monthly with principal due upon maturity. The Company paid a commitment fee of $12,500, and an additional $12,500 is due in May 2016. The loan agreement contains financial and non-financial covenants that are customary for this type of lending and includes a covenant to maintain an asset coverage ratio of at least 135% (defined as unrestricted cash and cash equivalents maintained with Bridge Bank, plus eligible accounts receivable aged less than 90 days from the invoice date, divided by the total amount of outstanding principal of all obligations under the loan agreement). As of March 26, 2016, the Company was in compliance with all the financial covenants under the agreement. The line of credit requires a lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of Bridge Bank. This arrangement, combined with the existence of the subjective acceleration clause in the line of credit agreement, necessitates the line of credit be classified as a current liability on the balance sheet. The acceleration clause allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit based on the lender's judgment. As of March 26, 2016, the Company’s total outstanding borrowings and remaining borrowing capacity under the Bridge Bank line of credit were $800,000 and $906,000, respectively.

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Note 8 - Term Loan, Revolving Line of Credit and Warrants

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Long-term Debt [Text Block]

8 Term Loan, Revolving Line of Credit and Warrants

On March 13, 2014 the Company entered into a three year, $2.0 million term loan agreement with PFG under which the Company received $1.0 million on March 14, 2014. Pursuant to the agreement, the Company had the ability to borrow an additional $1.0 million following the Company’s achievement of certain performance milestones which included achieving

$7.5 million in net sales during the first half of fiscal 2015 and two consecutive quarters of net income greater than zero during fiscal 2015.

On June 16, 2014, the Company amended its loan agreement with PFG (the “Amendment”). Under the terms of the Amendment, PFG made a revolving credit line available to Giga-tronics in the amount of $500,000, and the Company borrowed the entire amount on June 17, 2014. The revolving line had a thirty-three month term. The Amendment reduced the future amount potentially available for the Company to borrow under the PFG Loan agreement from $1.0 million to $500,000. The interest on the PFG revolving credit line was fixed, calculated on a daily basis at a rate of 12.50% per annum. The Company was allowed to prepay the loan at any time prior to its March 13, 2017 maturity date without a penalty.

On June 3, 2015, the Company further amended its loan agreement with PFG (the “Second Amendment”). The Second Amendment cancelled the Company’s $500,000 of borrowing availability under the June 2014 Amendment and required the Company to pay PFG $150,000 towards its existing $500,000 outstanding balance under the revolving line of credit, which the Company paid in July 2015. The Company also agreed to pay PFG an additional $10,000 per month towards its remaining credit line balance until repaid, followed by like payments towards its term loan balance until repaid. As of March 26, 2016, the $500,000 borrowed with the June 2014 Amendment had been fully repaid.

Interest on the initial $1.0 million term loan is fixed at 9.75% and required monthly interest only payments during the first six months of the agreement followed by monthly principal and interest payments over the remaining thirty months. The Company may prepay the loan at any time prior to maturity by paying all future scheduled principal and interest payments. As of March 26, 2016, the Company’s total outstanding debt associated with the initial PFG loan was $400,000.

The PFG Loan is secured by all of the assets of the Company under a lien that is junior to the Bridge Bank debt described in Note 7, and limits borrowing under the Bridge Bank credit line limit to $2.5 million. The Company paid a loan fee of $30,000 upon the initial draw (“First Draw”) and $15,000 for the June 2014 Amendment. The loan fees paid are recorded as prepaid expenses and amortized to interest expense over the remaining term of the PFG amended loan agreement, although the loan fee for the June 2014 Amendment was fully amortized because that portion of the PFG loan was fully repaid as March 26, 2016.

The future payments under the initial loan and all the Amendments, were $400,000 in principal payments and $17,000 in interest as of March 26, 2016, all of which is due during fiscal year 2017 since the second Amendment described above requires an accelerated repayment schedule which should fully repay the loan in January 2017.

The loan agreement contains financial covenants associated with the Company achieving minimum quarterly net sales and maintaining a minimum monthly shareholders’ equity. In the event of default by the Company, all or any part of the Company’s obligation to PFG could become immediately due. As of March 26, 2016, the Company was in compliance with all the financial covenants under the agreement.

The loan agreement also initially provided for the issuance of warrants convertible into 300,000 shares of the Company’s common stock, of which 180,000 were exercisable upon receipt of the initial $1.0 million from the First Draw, 80,000 became exercisable with the First Amendment and 40,000 were cancelled as a result of the Second Amendment. Each warrant issued under the loan agreement has a term of five years and an exercise price of $1.42 which was equal to the average NASDAQ closing price of the Company’s common stock for the ten trading days prior to the First Draw.

If the warrants are not exercised before expiration on March 13, 2019, the Company would be required to pay PFG $150,000 and $67,000 as settlement for warrants associated with the First Draw and the Amendment, respectively. The warrants could be settled for cash at an earlier date in the event of any acquisition or other change in control of the Company, future public issuance of Company securities or liquidation (or substantially similar event) of the Company. The Company currently has no definitive plans for any of the aforementioned events, and as a result, the cash payment date is estimated to be the expiration date unless warrants are exercised before then. The warrants have the characteristics of both debt and equity and are accounted for as a derivative liability measured at fair value each reporting period with the change in fair value recorded in earnings. The initial fair value of the warrants associated with the First Draw and Amendment were $173,000 and $168,000, respectively.

As of March 26, 2016, the estimated fair values of the derivative liabilities associated with the warrants issued in connection with the First Draw and Amendment were $212,000 and $141,000, respectively, for a combined value of $353,000. As of March 28, 2015, the estimated fair value of the derivative liability associated with the warrant issued in connection with the First Draw and Amendment was $235,000 and $106,000, respectively for a combined value of $341,000, of which $89,000 was reported as part of the PFG Loan on the balance sheet. The change in the fair value of the warrant liability totaled $12,000 for the fiscal year ended March 26, 2016 and is reported in the accompanying statement of operations as a loss on adjustment of derivative liability to fair value.

The initial $1.0 million in proceeds under the term loan agreement were allocated between the PFG Loan and the warrants based on their relative fair values on the date of issuance which resulted in initial carrying values of $822,000 and $178,000, respectively. The resulting discount of $178,000 on the PFG Loan is being accreted to interest expense under the effective interest method over the three-year term of the PFG Loan.

The proceeds from the $500,000 credit line issued in connection with the Amendment were allocated between the PFG Loan and the warrants based on their relative fair values on the date of issuance which resulted in initial carrying values of $365,000 and $135,000, respectively. The resulting discount of $135,000 on the PFG Loan was being accreted to interest expense under the effective interest method over the remaining term of the PFG Loan, and as of March 26,2016 had been fully accreted since the $500,000 from the Amendment had been fully repaid.

For the fiscal years ended March 26, 2016 and March 28, 2015, the Company recorded accretion of discount expense associated with the warrants issued with the PFG Loan of $165,000 and $152,000, respectively.

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Note 9 - Fair Value

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

9 Fair Value

Pursuant to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.  

The fair value hierarchy is broken down into the three input levels summarized below:

•   Level 1  —Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities with quoted prices on active markets.

•   Level 2  —Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates of deposit and over-the- counter derivatives.

•   Level 3  —Valuations based on unobservable inputs in which there are little or no market data, which require us to develop our own assumptions.

The carrying amounts of the Company’s cash and cash-equivalents and line of credit approximate their fair values at each balance sheet date due to the short-term maturity of these financial instruments, and generally result in inputs categorized as Level 1 within the fair value hierarchy. The fair values of term debt are based on the present value of expected future cash flows and assumptions about current interest rates and the creditworthiness of the Company, and generally result in inputs categorized as Level 3 within the fair value hierarchy. At March 26, 2016 and March 28, 2015, the carrying amounts of the Company’s term debt totaled $379,000 and $1.1 million, respectively and the estimated fair value totaled $384,000 and $1.2 million, respectively. The fair value was calculated using a discounted cash flow model and utilized a 20% and 18% discount rate, respectively. The rates are commensurate with market rates given the remaining term, principal repayment schedule, the Company’s creditworthiness and outstanding loan balance.

The Company’s derivative warrant liability is measured at fair value on a recurring basis and is categorized as Level 3 in the fair value hierarchy. The derivative warrant liability is valued using a Monte Carlo simulation model, which used the following assumptions as of March 26, 2016: (i) the remaining expected life of 3.0 years, (ii) the Company’s historical volatility rate of 115.1%, (iii) risk-free interest rate of 1.05%, and (iv) a discount rate of twenty percent.

The aforementioned derivative warrant liability is the Company’s only asset and liability recognized and measured at fair value on a recurring or non-recurring basis and was follows:

Fair Value Measurements as of Mar. 26, 2016 (In Thousands) :
	Level 1		Level 2		Level 3
Warrant Liability	$	—		—	$	353
Total	$	—		—	$	353

Fair Value Measurements as of March 28, 2015 ( In Thousands):
	Level 1		Level 2		Level 3
Warrant Liability	$	—		—	$	341
Total	$	—	$	—	$	341

There were no transfers between Level 1, Level 2 or Level 3 for the fiscal years ended March 26, 2016 and March 28, 2015.

The table below summarizes changes in gains and losses recorded in earnings for Level 3 assets and liabilities that are still held at March 26, 2016:

	Years Ended
(In thousands)	Mar. 26, 201 6		Mar. 2 8 , 201 5
Warrant liability at beginning of year	$	341	$	173
Additional warrant liability from warrants issued with June 2014 Amendment		—		168
Losses on adjustment of warrant liability to fair value		12		—
Warrant liability at end of period	$	353	$	341

There were no assets measured at fair value on a recurring basis and there were no assets or liabilities measured on a non-recurring basis at December 26, 2015 and March 28, 2015.

The following table presents quantitative information about recurring Level 3 fair value measurements at March 26, 2015 and March 28, 2015:

March 26, 2016	Valuation Technique(s)	Unobservable Input
Warrant liability	Monte Carlo	Discount rate	20%

March 28, 2015	Valuation Techniques(s)	Unobservable Input
Warrant liability	Black Scholes Merton with discounted cash flow	Discount rate	18%

The discount rate of twenty percent is management’s estimate of the cost of capital given the Company’s credit worthiness. A significant increase in the discount rate would significantly decrease the fair value, but the magnitude of this decrease would be less significant in a scenario where the Company’s stock price is significantly higher than the exercise price since the holder’s option to take a cash payment at maturity represents a smaller component of the total fair value when the Company’s stock price is higher. The Monte Carlo simulation model simulated the Company’s stock price through the maturity date of March 31, 2019. At the end of the simulated period, the value of the warrant was determined based on the greater of (1) the net share settlement value, (2) the net exercise value, or (3) the fixed cash put value.

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Note 10 - Sale of Product Lines

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

10 Sale of Product Lines

On December 15, 2015, the Company entered into an Asset Purchase Agreement with Spanawave, whereby Spanawave agreed to purchase the Giga-tronics’ Division product lines for its Power Meters, Amplifiers and Legacy Signal Generators for $1.5 million. The product lines will transfer to Spanawave sequentially in six phases beginning with certain sensor and amplifier products effective the fourth quarter of fiscal 2016, with the final product line transfer (legacy Signal Generators) estimated to be completed by December 2016. As of March 26, 2016, the Company had received $375,000 in connection with the initiation of data transfer to Spanawave for phases 1 through 5, this amount is included in other current liabilities in the consolidated financial statements. No gain was recognized in fiscal 2016 as the Company had not fully completed the asset transfer as required by the provisions of the agreement and final acceptance by Spanawave was pending. The Company is entitled to receive another $375,000 between July and September 2016 upon the initiation of the last phase. The final installment of $750,000 is expected to be paid between July and December 2016. In addition, the Company will sell to Spanawave existing inventory for these products in phases. The Company will continue to manufacture the related products until the respective product line transfer is complete. These product lines accounted for total revenues of $1.7 million and $2.7 million respectively, for the fiscal years ended March 26, 2016 and March 28, 2015. Due to the low profit margins on these product lines, the contribution to pre-tax operating results for the fiscal years ended March 26, 2016 and March 28, 2015 were immaterial to the consolidated financial statements. 

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Note 11 - Selling and Advertising Expenses

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Other Operating Income and Expense [Text Block]

11 Selling and Advertising Expenses

Selling expenses consist primarily of salaries to employees and commissions paid to various sales representatives and marketing agencies. Commission expense totaled $172,000 and $237,000 for fiscal 2016 and 2015, respectively. Advertising costs, which are expensed as incurred, totaled $123,000 and $7,000 for fiscal 2016 and 2015, respectively.

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Note 12 - Significant Customers and Industry Segment Information

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

12 Significant Customers and 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 Yttrium, Iron and Garnet (YIG) tuned oscillators, filters and microwave synthesizers, which are used in a wide variety of microwave instruments or devices.

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. 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 accounting systems. 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 or loss by operating segment.

The tables below present information for the fiscal years ended in 2016 and 2015.

March 26, 201 6 (Dollars in thousands)	Giga-tronics Division			Microsource		Total
Revenue	$	8,679		$	5,917	$	14,596
Interest expense, net		383			—		383
Depreciation and amortization		301			20		321
Capital expenditures		192			—		192
Income/(Loss) before income taxes		(4,119	)		17		(4,102	)
Assets		8,068			3,134		11,202

March 28, 201 5 (Dollars in thousands)	Giga-tronics Division			Microsource		Total
Revenue	$	9,123		$	9,329	$	18,452
Other expense		1,386			—		1,386
Interest expense, net		406			—		406
Depreciation and amortization		277			34		311
Capital expenditures		81			—		81
Income/(Loss) before income taxes		(3,068	)		1,442		(1,626	)
Assets		6,103			1,951		8,054

The Company’s Giga-tronics Division and Microsource segments sell to agencies of the U.S. government and U.S. defense- related customers. In fiscal 2016 and 2015, U.S. government and U.S. defense-related customers accounted for 71% and 69% of sales, respectively. During fiscal 2016, the Boeing Company accounted for 32% of the Company’s consolidated revenues at March 26, 2016 and was included in the Microsource segment. A second customer, DFAS accounted for 11% of the Company’s consolidated revenues at March 26, 2016 was included in the Giga-tronics Division reporting segment.

During fiscal 2015, Lockheed Martin accounted for 28% of the Company’s consolidated revenues at March 28, 2015 and was included in the Microsource segment. A second customer, the Boeing Company accounted for 23% of the Company’s consolidated revenues at March 28, 2015 and was also included in the Microsource segment. A third customer, DFAS accounted for 14% of the Company’s consolidated revenues during fiscal 2015 and was included in the Giga-tronics Division reporting segment.

Export sales accounted for 4% and 8% of the Company’s sales in fiscal 2016 and 2015, respectively. Export sales by geographical area for these fiscal years are shown below:

(Dollars in thousands)	March 26 , 201 6		March 2 8 , 201 5
Americas	$	10	$	26
Europe		326		179
Asia		140		1,085
Rest of world		122		177
Total	$	598	$	1,467

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Note 13 - Loss Per Common Stock

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

13 Loss per Common Share

Net loss and common shares used in per share computations for the fiscal years ended March 26, 2016 and March 28, 2015 are as follows:

(In thousands except per-share data)	March 2 6, 201 6			March 2 8 , 201 5
Net loss	$	(4,104	)	$	(1,673	)
Weighted average: Common shares outstanding		6,941			5,279
Potential common shares		—			—
Common shares assuming dilution		6,941			5,279
Loss per common share – basic	$	(0.59	)	$	(0.32	)
Loss per common share – diluted	$	(0.59	)	$	(0.32	)
Stock options not included in computation that could potentially dilute EPS in the future		1,592			1,727
Restricted stock awards not included in computation that could potentially dilute EPS in the future		—			482
Convertible preferred stock not included in computation that could potentially dilute EPS in the future		1,853			1,853
Warrants not included in computation that could potentially dilute EPS in the future		3,737			1,368

The stock options, restricted stock, convertible preferred stocks and warrants not included in the computation of diluted earnings per share (EPS) for the fiscal years ended March 26, 2016 and March 28, 2015 is a result of the Company’s net loss and, therefore, the effect of these instruments would be anti-dilutive.

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Note 14 - Income Taxes

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

14 Income Taxes

Following are the components of the provision for income taxes:

Fiscal years ended (in thousands)	March 26, 2016			March 28, 2015
Current
Federal	$	—		$	—
State		2			47
		2			47
Deferred
Federal		(1,297	)		210
State		215			391
		(1,082	)		601
Change in liability for uncertain tax positions		13			23
Change in valuation allowance		(1,069	)		(624	)
Provision for income taxes	$	2		$	47

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows:

Fiscal years ended (In thousands)	March 26 , 201 6			March 2 8 , 201 5
Net operating loss carryforwards	$	15,065		$	13,657
Income tax credits		296			306
Inventory reserves and additional costs capitalized		1,935			1,974
Accrued vacation		131			133
Deferred rent		44			95
Non-qualified stock options and restricted stock		(10	)		247
Other		68			48
Total deferred tax assets		17,529			16,460
Valuation allowance		(17,529	)		(16,460	)
Net deferred tax assets	$	—		$	—

The following summarizes the difference between the income tax expense and the amount computed by applying the statutory federal income tax rate of 34% to income before income tax. The items comprising these differences consisted of the following for the fiscal years ended March 26, 2016 and March 28, 2015:

Fiscal years ended (In thousands except percentages)	March 26, 2016					March 28, 2015
Statutory federal income tax (benefit)	$	(1,395	)	34.0	%	$	(553	)	34.0	%
Valuation allowance		1,069		(26.1	)		(624	)	38.4
State income tax, net of federal benefit		(239	)	5.8			(95	)	5.8
Net operating loss expiration		451		(11.0	)		861		(53.0	)
Non tax-deductible expenses		107		(2.6	)		593		(36.5	)
Tax credits		(35	)	0.9			(187	)	11.5
Liability for uncertain tax positions		13		(0.3	)		23		(1.4	)
Other		31		(0.8	)		29		(1.8	)
Effective income tax	$	2		(0.1	)	$	47		(3.0%	)

The increase in valuation allowance from March 28, 2015 to March 26, 2016 was $1.1 million.

As of March 26, 2016, the Company had pre-tax federal net operating loss carryforwards of $40.5 million and state net operating loss carryforwards of $21.9 million available to reduce future taxable income. The federal and state net operating loss carryforwards begin to expire from fiscal 2023 through 2036 and from 2016 through 2036, 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 federal income tax credits begin to expire from 2023 through 2036 and state income tax credit carryforwards are carried forward indefinitely.

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 both positive and negative evidence and tax planning strategies in making this assessment.

As of March 26, 2016, the Company recorded unrecognized tax benefits of $106,000 related to uncertain tax positions. The unrecognized tax benefit is netted against the noncurrent 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 files U.S federal and California state income tax returns. The Company is generally no longer subject to tax examinations for years prior to the fiscal year 2012 for federal purposes and fiscal year 2011 for California purposes, except in certain limited circumstances. The Company does have a California Franchise Tax Board audit that is currently in process. The Company is working with the California Franchise Tax Board to resolve all audit issues and does not believe any material taxes or penalties are due. However, as a result of the ongoing examination, the Company eliminated certain income tax credit carryovers. The write-off of these income tax credit carryovers did not have a significant impact on total income tax expense as the majority had an uncertain tax position reserve with the balance having a full valuation allowance against the deferred tax asset.

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions, excluding potential interest and penalties, is as follows:

(In thousands)	Fiscal Year 201 6		Fiscal Year 201 5
Balance as of beginning of year	$	93	$	70
Additions based on current year tax positions		13		23
(Reductions) additions for prior year tax positions		—		—
Balance as of end of year	$	106	$	93

The total amount of interest and penalties related to unrecognized tax benefits at March 26, 2016 is not material. The amount of tax benefits that would impact the effective rate, if recognized, is not expected to be material. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within next twelve (12) months.

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Note 15 - Share-based Compensation and Employee Benefit Plans

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

15 Share-based Compensation and Employee Benefit Plans

Share-based Compensation

The Company has established the 2005 Equity Incentive Plan, which provides for the granting of stock options and restricted stock for up to 2,850,000 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 generally vest in one or more installments in a four or five year period 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 26, 2016, no SAR’s have been granted under the option plan. As of March 26, 2016, the total number of shares of common stock available for issuance is 955,427. All outstanding options have a ten year life from the date of grant.

Stock

Options

The weighted average grant date fair value of stock options granted during the fiscal years ended March 26, 2016 and March 28, 2015 was $1.04 and $1.66, respectively, and was calculated using the following weighted-average assumptions:

Fiscal years ended	March 26, 2016			March 28, 2015
Dividend yield		—			—
Expected volatility		98	%		92	%
Risk-free interest rate		1.55	%		1.61	%
Expected term (years)		8.36			8.34

A summary of the changes in stock options outstanding for the fiscal years ended March 26, 2016 and March 28, 2015 is presented below:

			Weighted		Weighted Average
(Dollars in thousands except share prices)	Shares		Average Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at March 29, 2014		1,738,750	$	1.53		6.8	$	113
Granted		306,500		2.01
Exercised		90,000		1.80
Forfeited / Expired		228,275		1.81
Outstanding at March 28, 2015		1,726,975	$	1.57		6.9	$	219
Granted		35,000		1.22
Exercised		48,550		1.59
Forfeited / Expired		121,225		2.15
Outstanding at March 26, 2016		1,592,200	$	1.52		6.8	$	69
Exercisable at March 26, 2016		900,350	$	1.47		6.4	$	41
At March 26, 2016, expected to vest in the future		467,071	$	1.58		7.4	$	15

As of March 26, 2016, there was $414,000 of total unrecognized compensation cost related to non-vested options granted under the 2005 Plan and outside of the 2005 Plan. That cost is expected to be recognized over a weighted average period of 2.4 years and will be adjusted for subsequent changes in estimated forfeitures. There were 419,050 and 280,650 options vested during the fiscal years ended March 26, 2016 and March 28, 2015 respectively. The total fair value of options vested during the fiscal years ended March 26, 2016 and March 28, 2015 was $104,000 and $120,000, respectively. Cash received from the exercise of stock options during fiscal 2016 and fiscal 2015 was $77,000 and $163,000, respectively. Share based compensation cost recognized in operating results for the fiscal years ended March 26, 2016 and March 28, 2015 totaled $403,000 and $370,000, respectively.

Restricted Stock

The Company granted 432,000 shares of restricted stock during fiscal 2015 to certain members of the Board of Directors in lieu of cash fees for services performed in fiscal 2015 and fiscal 2016. These restricted stock fully vested in fiscal 2016 and the vesting date fair value totaled $761,000. The weighted average grant date fair value was $2.11. The restricted stock awards are considered fixed awards as the number of shares and fair value at the grant date is amortized over the requisite service period net of estimated forfeitures. Compensation cost recognized for restricted stock awards for fiscal 2016 and fiscal 2015 totaled $522,000 and $457,000, respectively.

A summary of the changes in non-vested restricted stock awards outstanding for the fiscal years ended March 26, 2016 and March 28, 2015 is presented below:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at March 29, 2014		121,500	$	1.39
Granted		432,000		2.11
Vested		71,500		1.53
Forfeited or cancelled		—		—
Non-vested at March 28, 2015		482,000	$	2.02
Granted		—		—
Vested		482,000		2.02
Forfeited or cancelled		—		—
Non-vested at March 26, 2016		—	$	—

401(k) Plans

The Company has established 401(k) plans which cover substantially all employees. Participants may make voluntary contributions to the plans for up to 100% of their defined compensation. The Company matches a percentage of the participant’s contributions in accordance with the plan. Participants vest ratably in Company contributions over a four- year period. Company contributions to the plans for fiscal 2016 and 2015 were approximately $41,000 and $39,000, respectively.

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Note 16 - Commitments and Contingencies

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

16 Commitments and Contingencies

The Company leases a 47,300 square foot facility located in San Ramon, California that expires in December 31, 2016. All of the Company’s operations are in the San Ramon facility as of March 26, 2016.

The Company also leases certain other equipment under operating leases.

Total future minimum lease payments under these leases are as follows. Fiscal year (Dollars in thousands)

Fiscal year (Dollars in thousands)
2017		529
2018		6
2019		6
2020		6
Thereafter		6
Total	$	553

The aggregate rental expense was $677,000 and $654,000 in fiscal 2016 and 2015, respectively.

The Company leases certain equipment under capital leases that expire through May 2021. Capital leases with costs totaling

$249,000 and $319,000 are reported net of accumulated depreciation of $32,000 and $60,000 at March 26, 2016 and March 28, 2015, respectively.

Total future minimum lease payments under these capital leases are as follows.

Fiscal year (Dollars in thousands)	Principal		Interest		Total
2017	$	44	$	25	$	69
2018		50		19		69
2019		52		12		64
2020		40		5		45
2021		23		1		24
Total	$	209	$	62	$	271

The Company is committed to purchase certain inventory under non-cancelable purchase orders. As of March 26, 2016, total non–cancelable purchase orders were approximately $2.3 million and are scheduled to be delivered to the Company at various dates through March 2017.

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Note 17 - Warranty Obligations

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

17 Warranty Obligations

The Company records a liability in cost of sales 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)	March 26, 201 6			March 28, 201 5
Balance as of beginning of year	$	76		$	61
Provision, net		55			81
Warranty costs incurred		(71	)		(66	)
Balance as of end of year	$	60		$	76

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Note 18 - Private Placement Offering

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Private Placement Offering [Text Block]

18 Private Placement Offering

On January 19, 2016, the Company entered into a Securities Purchase Agreement for the sale of 2,787,872 Units, each consisting of one share of common stock and a warrant to purchase 0.75 shares of common stock, to approximately 20 private investors. The purchase price for each Unit was $1.24375. Gross proceeds were approximately $3.5 million. Net proceeds to the Company after fees was approximately $3.1 million. The portion of the purchase price attributable to the common shares included in each Unit was $1.15, the consolidated closing bid price for the Company’s common stock on January 15, 2016. The warrant price was $.09375 per Unit (equivalent to $0.125 per whole warrant share), with an exercise price of $1.15 per share. The term of the warrants is five years from the date of completion of the transaction. Emerging Growth Equities, Ltd also received warrants to purchase 292,727 shares of common stock at an exercise price of $1.15 per share as part of its consideration for serving as placement agent in connection with the private placement.

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Note 19 - Series B, C, D Convertible Voting Perpetual Preferred Stock and Warrants

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Preferred Stock [Text Block]

19 Series B, C, D Convertible Voting Perpetual Preferred Stock and Warrants

On November 10, 2011, the Company received $2,199,000 in cash proceeds from Alara Capital AVI II, LLC, a Delaware limited liability company (the “Investor”), an investment vehicle sponsored by Active Value Investors, LLC, under a Securities Purchase Agreement entered into on October 31, 2011. Under the terms of the Securities Purchase Agreement, the Company issued 9,997 shares of its Series B Convertible Voting Perpetual Preferred Stock (“Series B Preferred Stock”) to the Investor at a price of $220 per share. The Company has recorded $2.0 million as Series B Preferred Stock on the consolidated balance sheet which is net of stock offering costs of approximately $202,000 and represents the value attributable to both the convertible preferred stock and warrants issued to the Investor. After considering the value of the warrants, the effective conversion price of the preferred stock was greater than the common stock price on date of issue and therefore no beneficial conversion feature was present.

On February 19, 2013, the Company entered into a Securities Purchase Agreement pursuant to which it agreed to sell 3,424.65 shares of its Series C Convertible Voting Perpetual Preferred Stock (“Series C Preferred Stock”) to the Investor, for aggregate consideration of $500,000, which is approximately $146.00 per share. The Company has recorded $457,000 as Series C Preferred Stock on the consolidated balance sheet, which is net of stock offering costs of approximately $43,000. As part of this transaction, the Company and the Investor agreed to reduce the number of shares exercisable under the previously issued warrant, and after considering the reduction in the value of the warrant, the effective conversion price of the preferred stock was greater than the common stock price on the date of issue and therefore no beneficial conversion feature was present.

On July 8, 2013 the Company received $817,000 in net cash proceeds from the Investor under a Securities Purchase Agreement. The Company sold to the Investor 5,111.86 shares of its Series D Convertible Voting Perpetual Preferred Stock (Series D Preferred Stock) and a warrant to purchase up to 511,186 additional shares of common stock at the price of $1.43 per share. The allocation of the $858,000 in gross proceeds from issuance of Series D Preferred Stock based on the relative fair values resulted in an allocation of $498,000 (which was recorded net of $41,000 of issuance costs) to Series D Preferred Stock and $360,000 to Common Stock. In addition, because the effective conversion rate based on the $498,000 allocated to Series D Preferred Stock was $0.97 per common share which was less than the Company’s stock price on the date of issuance, a beneficial conversion feature was present at the issuance date. The beneficial conversion feature totaled $238,000 and was recorded as a reduction of common stock and an increase to accumulated deficit.

Each share of Series B, Series C and Series D Preferred Stock is convertible into one hundred shares of the Company’s common stock. In connection with the preferred stock issuance described above, the Company issued to the investor warrants to purchase a total of 1,017,405 common shares at an exercise price of $1.43 per share. These warrants were exercised in February 2015, and May 2015 as discussed in Note 20, Exercise of Series C and Series D Warrants.

The table below present information for the periods ended March 26, 2016 and March 28, 2015:

 Preferred Stock

As of March 26, 2016 and March 28, 2015

							Liquidation
	Designated		Shares		Shares		Preference
	Shares		Issued		Outstanding		(in thousands)
Series B		10,000.00		9,997.00		9,997.00	$	2,309
Series C		3,500.00		3,424.65		3,424.65		500
Series D		6,000.00		5,111.86		5,111.86		731
Total		19,500.00		18,533.51		18,533.51	$	3,540

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Note 20 - Exercise of Series C and Series D Warrants

12 Months Ended

Mar. 26, 2016

Notes to Financial Statements

Warrants [Text Block]

20 Exercise of Series C and Series D Warrants

On February 16, 2015, the Company entered into a Securities Purchase Agreement and Warrant Agreement with Alara Capital AVI II, LLC (“Alara Capital”), an investment vehicle sponsored by AVI Partners, LLC (“AVI” ) (with both entities collectively referred to herein as “Alara”), in which the Company received total gross cash proceeds of approximately $1.5 million. Funds were received from Alara in separate closings dated February 16, 2015 and February 23, 2015 in which Alara exercised a total of 1,002,818 of its existing Series C and Series D warrants to purchase common shares, all of which had an exercise price of $1.43 per share for total cash proceeds of $1,434,000, which was recorded net of $42,000 of stock issuance costs. As part of the consideration for this exercise, the Company sold to Alara two new warrants to purchase an additional 898,634 and 194,437 common shares at an exercise price of $1.78 and $1.76 per share, respectively, for a total purchase price of $137,000 or $0.125 per share, The new warrants have a term of five years and may be paid in cash or through a cashless net share settlement. The Company and Alara amended the remaining 14,587 warrants as part of the February closings. On May 14, 2015, Alara exercised the remaining 14,587 warrants by acquiring 7,216 of shares of the Company’s common stock through a cashless net share settlement. The Company recorded the issuance of the new Warrants using their estimated fair value on the date of issuance. The Company estimated the fair value of the new Warrants using the Black-Scholes option valuation model with the following assumptions: expected term of 5 years, a risk-free interest rate of 1.54%, expected volatility of 90% and 0% expected dividend yield. The resulting $1.2 million from the issuance of the new Warrants was recorded as a charge to other expense in the fiscal year ended March 28, 2015.

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Significant Accounting Policies (Policies)

12 Months Ended

Mar. 26, 2016

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles

of

Consolidation

The consolidated financial statements include the accounts of Giga-tronics and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

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 affect 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 Period, Policy [Policy Text Block]

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 2016 ended on March 26, 2016 resulting in a 52 week year. Fiscal year 2015 ended on March 28, 2015, also resulting in a 52 week year. All references to years in the consolidated financial statements relate to fiscal years rather than calendar years.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain reclassifications, none of which affected the prior year’s net loss or shareholders’ equity, have been made to prior year balances in order to conform to the current year presentation.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition and Deferred Revenue

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 are based on product shipping while others are based on design review. In fiscal 2015 the Company’s Microsource business unit received a $6.5 million order from a major aerospace company for non-recurring engineering services to develop a variant of its high performance fast tuning YIG filters for an aircraft platform and to deliver a limited number of flight-qualified prototype hardware units (the “NRE Order”) which is being accounted for on a milestone basis. The Company considered factors such as estimated completion dates and product acceptance of the order prior to accounting for the NRE Order as milestone revenue. During the fiscal years ended March 26, 2016 and March 28, 2015, revenue recognized on a milestone basis were $1.0 million and $4.7 million, respectively.

On certain contracts with several of the Company’s significant customers the Company receives payments in advance of manufacturing. Advanced payments are recorded as deferred revenue until the revenue recognition criteria described above has been met.

Accounts receivable are stated at their net realizable value. The Company has estimated an allowance for uncollectable accounts based on analysis of specifically identified accounts, outstanding receivables, consideration of the age of those receivables, the Company’s historical collection experience, and adjustments for other factors management believes are necessary based on perceived credit risk.

The activity in the allowance account for doubtful accounts is as follows for the years ended March 26, 2016 and March 28, 2015:

(Dollars in thousands)	March 2 6 , 201 6		March 28 , 201 5
Beginning balance	$	45	$	44
Provisions for doubtful accounts		—		1
Write-off of doubtful accounts		—		—
Ending balance	$	45	$	45

Standard Product Warranty, Policy [Policy Text Block]

Accrued Warranty

The Company’s warranty policy generally provides one to three years of coverage depending on the product. 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.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are stated at the lower of cost or fair value using full absorption and standard costing. Cost is determined on a first-in, first-out basis. Standard costing and overhead allocation rates are reviewed by management periodically, but not less than annually. Overhead rates are recorded to inventory based on capacity management expects for the period the inventory will be held. Reserves are recorded within cost of sales for impaired or obsolete inventory when the cost of inventory exceeds its estimated fair value. Management evaluates the need for inventory reserves based on its estimate of the amount realizable through projected sales including an evaluation of whether a product is reaching the end of its life cycle. When inventory is discarded it is written off against the inventory reserve, as inventory generally has already been fully reserved for at the time it is discarded.

Research and Development Expense, Policy [Policy Text Block]

Research and Development

Research and development expenditures, which include the cost of materials consumed in research and development activities, salaries, wages and other costs of personnel engaged in research and development, costs of services performed by others for research and development on the Company’s behalf and indirect costs are expensed as operating expenses when incurred. Research and development costs totaled approximately $2.8 million and $3.2 million for the years ended March 26, 2016 and March 28, 2015, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

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 26, 2016 and March 28, 2015, management believes there has been no impairment of the Company’s long-lived assets.

Derivatives, Policy [Policy Text Block]

Derivatives

The Company accounts for certain of its warrants as derivatives. Changes in fair values are reported in earnings as gain or loss on adjustment of warrant liability to fair value. 

Lease, Policy [Policy Text Block]

Deferred Rent

Rent expense is recognized in an amount equal to the guaranteed base rent plus contractual future minimum rental increases amortized on the straight-line basis over the terms of the leases, including free rent periods.

Income Tax, Policy [Policy Text Block]

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. 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 both positive and negative evidence and tax planning strategies in making this assessment.

The Company considers all tax positions recognized in its financial statements for the likelihood of realization. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amounts of the positions that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if any, would be reflected as unrecognized tax benefits, as applicable, in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of the provision for income taxes in the consolidated statements of operations.

Product Development Costs, Policy [Policy Text Block]

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. Capitalized pre-production costs included in inventory were immaterial as of March 26, 2016 and March 28, 2015.

Software Development Costs, Policy [Policy Text Block]

Software Development Costs

Development costs included in the research and development of new software products and enhancements to existing software products are expensed as incurred, until technological feasibility in the form of a working model has been established. Capitalized development costs are amortized over the expected life of the product and evaluated each reporting period for impairment. As of March 26, 2016, capitalized software development costs were $876,000 and there was no amortization for the year ended March 26, 2016. There were no software development costs capitalized as of March 28, 2015.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Share-based Compensation

The Company has established the 2005 Equity Incentive Plan, which provides for the granting of options for up to 2,850,000 shares of Common Stock. In 2014, the term of the 2005 Equity Incentive Plan was extended to 2025. The Company records share-based compensation expense for the fair value of all stock options and restricted stock that are ultimately expected to vest as the requisite service is rendered.

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) are classified as cash flows from financing in the statements of cash flows. These excess tax benefits were not significant for the Company for the fiscal years ended March 26, 2016 or March 28, 2015.

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. The computation of expected volatility used in the Black-Scholes- Merton option-pricing model is based on the historical volatility of Giga-tronics’ 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 for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected dividend yield was not considered in the option pricing formula since the Company has not paid dividends and has no current plans to do so in the future.

The fair value of restricted stock awards is based on the fair value of the underlying shares at the date of the grant. Management makes estimates regarding pre-vesting forfeitures that will impact timing of compensation expense recognized for stock option and restricted stock awards.

Earnings Per Share, Policy [Policy Text Block]

Earnings or Loss Per

Common Share

Basic earnings or loss per common 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 and warrants using the treasury stock method. Anti-dilutive options are not included in the computation of diluted earnings per share. Non-vested shares of restricted stock have non-forfeitable dividend rights and are considered participating securities for the purpose of calculating basic and diluted earnings per share under the two-class method.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income or Loss

There are no items of comprehensive income or loss other than net income or loss.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Financial

Instruments

and

Concentration

of

Credit

Risk

Financial instruments that potentially subject the Company to credit risk consist of cash, cash-equivalents and trade accounts receivable. The Company’s cash-equivalents consist of overnight deposits with federally insured 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. At March 26, 2016, and March 28, 2015, three customers combined accounted for 52% and 65% of consolidated gross accounts receivable respectively.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair

Value

of

Financial

Instruments

and

Fair

Value

Measurements

The Company’s financial instruments consist principally of cash and cash-equivalents, line of credit, term debt, and warrant derivative liability. The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date (Level 1), significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (Level 2), or significant unobservable inputs reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability (Level 3), depending on the nature of the item being valued.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Standards

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40):

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

. ASU 2014-15 provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) –

Simplifying the Presentation of Debt Issuance Costs

,” or ASU 2015-03. ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this ASU by the Company, along with the adoption of ASU 2015-15 which amended ASU 2015-03 and is discussed on the next page will change the presentation of certain debt issuance costs, which will be reported as a direct offset to the applicable debt on the balance sheet.

In July 2015, the FASB issued ASU No, 2015-11,

Inventory (Topic 330): “Simplifying the Measurement of Inventory”

. Topic 330,

Inventory

, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.  

In August 2015, the FASB issued ASU 2015-14 – “

Revenue from Contracts with Customers” (Topic 606).

The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 affects any entity using GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g

.,

insurance contracts or lease contracts). Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

Also in August 2015, the FASB issued ASU 2015-15 – “

Interest—Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”,

Previously, on April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30):

Simplifying the Presentation of Debt Issuance Costs

, which required entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. The guidance in ASU 2015-03 (see paragraph 835-30-45-1A) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not expect a material impact on its financial statements as a result of the adoption of ASU No. 2015-03 or 2015-15, however certain debt issuance costs will be reported as a direct offset to the applicable debt on the balance sheet.

In November 2015, the FASB issued ASU 2015-17 –

Income Taxes (Topic 740): “Balance Sheet Classification of Deferred Taxes”.

Topic 740 is effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The amendments in ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities

. The update intends to enhance the reporting model for financial instruments to provide users of financial instruments with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. The recognition and measurement standard will take effect for public companies for fiscal years beginning after Dec. 15, 2017, including interim periods within those fiscal years. The standard takes effect for private companies, not-for-profits, and employee benefit plans for fiscal years beginning after Dec. 15, 2018, and for interim periods within fiscal years beginning after Dec. 15, 2019. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”),

Leases

. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In March 2016, the FASB issued ASU 2016-06,

Derivatives and Hedging

(Topic 815):

Contingent Put and Call Options in Debt Instruments

. ASU 2016-06 applies to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. For public business entities, the amendments in ASU 2016-06 are effective for financial statements issued for fiscal years beginning after 15 December 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”),

Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company has not determined the impact of adoption on its condensed consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10,

Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

. ASU 2016-10 addresses implementation issues identified under ASC Topic 606. The amendments in ASU 2016-10 affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements in ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. ASU 2015-14,

Revenue from Contracts with Customers (Topic 606

)

. The amendments in this ASU is effective for public business entities with annual reporting periods beginning after 15 December 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.

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Note 1 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

(Dollars in thousands)	March 2 6 , 201 6		March 28 , 201 5
Beginning balance	$	45	$	44
Provisions for doubtful accounts		—		1
Write-off of doubtful accounts		—		—
Ending balance	$	45	$	45

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Note 4 - Inventories (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 26,		March 28,
(Dollars in thousands)	2016		201 5
Raw materials	$	3,489	$	1,631
Work-in-progress		2,156		1,598
Finished goods		2		15
Demonstration inventory		47		121
Total	$	5,694	$	3,365

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Note 5 - Property, Plant and Equipment, net (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Property, Plant and Equipment [Table Text Block]

	March 26,			March 28,
(Dollars in thousands)	2016			201 5
Leasehold improvements	$	327			327
Machinery and equipment		4,604			4,334
Computer and software		647			459
Furniture and office equipment		121			121
		5,699			5,241
Less: accumulated depreciation and amortization		(4,862	)		(4,523	)
Total	$	837		$	718

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Note 9 - Fair Value (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

Fair Value Measurements as of Mar. 26, 2016 (In Thousands) :
	Level 1		Level 2		Level 3
Warrant Liability	$	—		—	$	353
Total	$	—		—	$	353

Fair Value Measurements as of March 28, 2015 ( In Thousands):
	Level 1		Level 2		Level 3
Warrant Liability	$	—		—	$	341
Total	$	—	$	—	$	341

Fair Value, Measured on Recurring Basis, Gain (Loss) Included in Earnings [Table Text Block]

	Years Ended
(In thousands)	Mar. 26, 201 6		Mar. 2 8 , 201 5
Warrant liability at beginning of year	$	341	$	173
Additional warrant liability from warrants issued with June 2014 Amendment		—		168
Losses on adjustment of warrant liability to fair value		12		—
Warrant liability at end of period	$	353	$	341

Fair Value Inputs, Liabilities, Quantitative Information [Table Text Block]

March 26, 2016	Valuation Technique(s)	Unobservable Input
Warrant liability	Monte Carlo	Discount rate	20%

March 28, 2015	Valuation Techniques(s)	Unobservable Input
Warrant liability	Black Scholes Merton with discounted cash flow	Discount rate	18%

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Note 12 - Significant Customers and Industry Segment Information (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

March 26, 201 6 (Dollars in thousands)	Giga-tronics Division			Microsource		Total
Revenue	$	8,679		$	5,917	$	14,596
Interest expense, net		383			—		383
Depreciation and amortization		301			20		321
Capital expenditures		192			—		192
Income/(Loss) before income taxes		(4,119	)		17		(4,102	)
Assets		8,068			3,134		11,202

March 28, 201 5 (Dollars in thousands)	Giga-tronics Division			Microsource		Total
Revenue	$	9,123		$	9,329	$	18,452
Other expense		1,386			—		1,386
Interest expense, net		406			—		406
Depreciation and amortization		277			34		311
Capital expenditures		81			—		81
Income/(Loss) before income taxes		(3,068	)		1,442		(1,626	)
Assets		6,103			1,951		8,054

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

(Dollars in thousands)	March 26 , 201 6		March 2 8 , 201 5
Americas	$	10	$	26
Europe		326		179
Asia		140		1,085
Rest of world		122		177
Total	$	598	$	1,467

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Note 13 - Loss Per Common Stock (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

(In thousands except per-share data)	March 2 6, 201 6			March 2 8 , 201 5
Net loss	$	(4,104	)	$	(1,673	)
Weighted average: Common shares outstanding		6,941			5,279
Potential common shares		—			—
Common shares assuming dilution		6,941			5,279
Loss per common share – basic	$	(0.59	)	$	(0.32	)
Loss per common share – diluted	$	(0.59	)	$	(0.32	)
Stock options not included in computation that could potentially dilute EPS in the future		1,592			1,727
Restricted stock awards not included in computation that could potentially dilute EPS in the future		—			482
Convertible preferred stock not included in computation that could potentially dilute EPS in the future		1,853			1,853
Warrants not included in computation that could potentially dilute EPS in the future		3,737			1,368

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Note 14 - Income Taxes (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

Fiscal years ended (in thousands)	March 26, 2016			March 28, 2015
Current
Federal	$	—		$	—
State		2			47
		2			47
Deferred
Federal		(1,297	)		210
State		215			391
		(1,082	)		601
Change in liability for uncertain tax positions		13			23
Change in valuation allowance		(1,069	)		(624	)
Provision for income taxes	$	2		$	47

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

Fiscal years ended (In thousands)	March 26 , 201 6			March 2 8 , 201 5
Net operating loss carryforwards	$	15,065		$	13,657
Income tax credits		296			306
Inventory reserves and additional costs capitalized		1,935			1,974
Accrued vacation		131			133
Deferred rent		44			95
Non-qualified stock options and restricted stock		(10	)		247
Other		68			48
Total deferred tax assets		17,529			16,460
Valuation allowance		(17,529	)		(16,460	)
Net deferred tax assets	$	—		$	—

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

Fiscal years ended (In thousands except percentages)	March 26, 2016					March 28, 2015
Statutory federal income tax (benefit)	$	(1,395	)	34.0	%	$	(553	)	34.0	%
Valuation allowance		1,069		(26.1	)		(624	)	38.4
State income tax, net of federal benefit		(239	)	5.8			(95	)	5.8
Net operating loss expiration		451		(11.0	)		861		(53.0	)
Non tax-deductible expenses		107		(2.6	)		593		(36.5	)
Tax credits		(35	)	0.9			(187	)	11.5
Liability for uncertain tax positions		13		(0.3	)		23		(1.4	)
Other		31		(0.8	)		29		(1.8	)
Effective income tax	$	2		(0.1	)	$	47		(3.0%	)

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

(In thousands)	Fiscal Year 201 6		Fiscal Year 201 5
Balance as of beginning of year	$	93	$	70
Additions based on current year tax positions		13		23
(Reductions) additions for prior year tax positions		—		—
Balance as of end of year	$	106	$	93

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Note 15 - Share-based Compensation and Employee Benefit Plans (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

Fiscal years ended	March 26, 2016			March 28, 2015
Dividend yield		—			—
Expected volatility		98	%		92	%
Risk-free interest rate		1.55	%		1.61	%
Expected term (years)		8.36			8.34

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

			Weighted		Weighted Average
(Dollars in thousands except share prices)	Shares		Average Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at March 29, 2014		1,738,750	$	1.53		6.8	$	113
Granted		306,500		2.01
Exercised		90,000		1.80
Forfeited / Expired		228,275		1.81
Outstanding at March 28, 2015		1,726,975	$	1.57		6.9	$	219
Granted		35,000		1.22
Exercised		48,550		1.59
Forfeited / Expired		121,225		2.15
Outstanding at March 26, 2016		1,592,200	$	1.52		6.8	$	69
Exercisable at March 26, 2016		900,350	$	1.47		6.4	$	41
At March 26, 2016, expected to vest in the future		467,071	$	1.58		7.4	$	15

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	Shares		Weighted Average Grant Date Fair Value
Non-vested at March 29, 2014		121,500	$	1.39
Granted		432,000		2.11
Vested		71,500		1.53
Forfeited or cancelled		—		—
Non-vested at March 28, 2015		482,000	$	2.02
Granted		—		—
Vested		482,000		2.02
Forfeited or cancelled		—		—
Non-vested at March 26, 2016		—	$	—

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Note 16 - Commitments and Contingencies (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Fiscal year (Dollars in thousands)
2017		529
2018		6
2019		6
2020		6
Thereafter		6
Total	$	553

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Fiscal year (Dollars in thousands)	Principal		Interest		Total
2017	$	44	$	25	$	69
2018		50		19		69
2019		52		12		64
2020		40		5		45
2021		23		1		24
Total	$	209	$	62	$	271

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Note 17 - Warranty Obligations (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

(In thousands)	March 26, 201 6			March 28, 201 5
Balance as of beginning of year	$	76		$	61
Provision, net		55			81
Warranty costs incurred		(71	)		(66	)
Balance as of end of year	$	60		$	76

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Note 19 - Series B, C, D Convertible Voting Perpetual Preferred Stock and Warrants (Tables)

12 Months Ended

Mar. 26, 2016

Notes Tables

Schedule of Stock by Class [Table Text Block]

							Liquidation
	Designated		Shares		Shares		Preference
	Shares		Issued		Outstanding		(in thousands)
Series B		10,000.00		9,997.00		9,997.00	$	2,309
Series C		3,500.00		3,424.65		3,424.65		500
Series D		6,000.00		5,111.86		5,111.86		731
Total		19,500.00		18,533.51		18,533.51	$	3,540

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Note 1 - Summary of Significant Accounting Policies (Details Textual)	12 Months Ended
	Mar. 26, 2016 USD ($) shares	Mar. 28, 2015 USD ($)
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Three Customers [Member]
Concentration Risk, Percentage	52.00%	65.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Number of Major Customers	3	3
Machinery and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life	3 years
Machinery and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life	10 years
Equity Incentive Plan 2005 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares	2,850,000
Asset Impairment Charges	$ 0	$ 0
Capitalized Computer Software, Amortization	0
Capitalized Computer Software, Net	$ 876,000	0
Number of Major Customers	2
Unbilled Receivables, Not Billable, Amount Expected to be Collected in Remainder of Fiscal Year		6,500,000
Revenue Recognition, Milestone Method, Revenue Recognized	$ 1,000,000	4,700,000
Research and Development Expense	$ 2,806,000	$ 3,210,000

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Note 1 - Activity in the Reserve Account (Details) - USD ($) $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Beginning balance	$ 45	$ 44
Provisions for doubtful accounts		$ 1
Write-off of doubtful accounts
Ending balance	$ 45	$ 45

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Note 2 - Going Concern and Management's Plan (Details Textual) - USD ($) $ / shares in Units, shares in Millions			1 Months Ended	3 Months Ended	6 Months Ended	8 Months Ended	12 Months Ended
	Jan. 29, 2016	Dec. 15, 2015	Apr. 30, 2016	Sep. 30, 2016	Dec. 31, 2016	Aug. 31, 2016	Mar. 26, 2016	Mar. 28, 2015	Jun. 30, 2016	Jan. 15, 2016	Jun. 27, 2015
Bridge Bank [Member]
Line of Credit, Current							$ 800,000
Line of Credit Facility, Remaining Borrowing Capacity							906,000
Spanawave [Member] | Scenario, Forecast [Member]
Proceeds from Sales of Business, Affiliate and Productive Assets				$ 375,000	$ 750,000	$ 1,500,000
Spanawave [Member]
Proceeds from Sales of Business, Affiliate and Productive Assets		$ 1,500,000					375,000
Microsource [Member] | YIG Production Order [Member] | Subsequent Event [Member]
Unbilled Receivables, Not Billable, Amount Expected to be Collected in Next Twelve Months			$ 4,500,000
Increase (Decrease) in Unbilled Receivables			$ 1,500,000
Microsource [Member] | YIG Production Order [Member]
Unbilled Receivables, Not Billable, Amount Expected to be Collected in Remainder of Fiscal Year											$ 10,000,000
Gigatronics Division [Member] | Real-Time TEmS [Member] | Subsequent Event [Member]
Unbilled Receivables, Not Billable, Amount Expected to be Collected in Next Twelve Months									$ 3,300,000
Net Income (Loss) Attributable to Parent							(4,104,000)	$ (1,673,000)
Retained Earnings (Accumulated Deficit)							(24,035,000)	(19,931,000)
Working Capital							1,800,000	$ 3,000,000
Line of Credit, Current							800,000
Line of Credit Facility, Remaining Borrowing Capacity							906,000
Stock Issued During Period, Shares, New Issues	2.7
Proceeds from Issuance of Common Stock, Gross	$ 3,500,000
Proceeds from Issuance of Common Stock	$ 3,100,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	2.4
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 1.15									$ 1.15
Proceeds from Sales of Business, Affiliate and Productive Assets							375,000
Unbilled Receivables, Not Billable, Amount Expected to be Collected in Remainder of Fiscal Year								$ 6,500,000
Advance Payment Arrangements							$ 3,900,000

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Note 3 - Cash and Cash-Equivalents (Details Textual) - USD ($)	Mar. 26, 2016	Mar. 28, 2015	Mar. 29, 2014
Cash and Cash Equivalents, at Carrying Value	$ 1,331,000	$ 1,170,000	$ 1,059,000
Cash, Uninsured Amount	$ 1,000,000

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Note 4 - Inventories, Net of Reserves (Details) - USD ($)	Mar. 26, 2016	Mar. 28, 2015
Raw materials	$ 3,489,000	$ 1,631,000
Work-in-progress	2,156,000	1,598,000
Finished goods	2,000	15,000
Demonstration inventory	47,000	121,000
Total	$ 5,694,000	$ 3,365,000

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Note 5 - Property, Plant, and Equipment (Details) - USD ($)	Mar. 26, 2016	Mar. 28, 2015
Leasehold Improvements [Member]
Property, plant, and equipment, gross	$ 327,000	$ 327,000
Machinery and Equipment [Member]
Property, plant, and equipment, gross	4,604,000	4,334,000
Computer Equipment [Member]
Property, plant, and equipment, gross	647,000	459,000
Furniture and Fixtures [Member]
Property, plant, and equipment, gross	121,000	121,000
Property, plant, and equipment, gross	5,699,000	5,241,000
Less: accumulated depreciation and amortization	(4,862,000)	(4,523,000)
Total	$ 837,000	$ 718,000

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Note 6 - Software Development Costs (Details Textual) - USD ($)	Sep. 03, 2015	Mar. 26, 2016
OLS Development Costs [Member]
Research and Development Expense, Software (Excluding Acquired in Process Cost)	$ 919,000
Capitalized Software Development Costs for Software Sold to Customers		$ 876,000

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Note 7 - Accounts Receivable Line of Credit (Details Textual) - USD ($)	Jun. 01, 2015	Mar. 26, 2016	Mar. 28, 2015
New Amended Credit Facility 2 [Member] | Borrowing Base for International Services Sub-Limit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,500,000
New Amended Credit Facility 2 [Member] | Formula-Basis Sub-Limit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	2,000,000
New Amended Credit Facility 2 [Member] | Non-Formula Basis Sub-Limit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	500,000
New Amended Credit Facility 2 [Member] | Due on the Anniversary of the Loan Closing [Member]
Line of Credit Facility, Commitment Fee Amount	$ 12,500
New Amended Credit Facility 2 [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
New Amended Credit Facility 2 [Member]
Long-term Line of Credit	$ 2,500,000
Advance Rate	80.00%
Debt Instrument, Variable Interest Rate	3.50%
Debt Instrument, Interest Rate, Effective Percentage	5.00%
Line of Credit Facility, Commitment Fee Amount	$ 12,500
Asset Coverage Ratio	135.00%
Accounts Receivable, Aging from Invoice Date	90 days
Line of Credit, Current		$ 800,000
Line of Credit Facility, Remaining Borrowing Capacity		$ 906,000

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Note 8 - Term Loan, Revolving Line of Credit and Warrants (Details Textual) - USD ($)								1 Months Ended	10 Months Ended	12 Months Ended
	Mar. 26, 2016	Jun. 03, 2015	Jun. 16, 2014	Mar. 14, 2014	Mar. 14, 2014	Mar. 13, 2014	Mar. 13, 2014	Jul. 31, 2015	Mar. 26, 2016	Mar. 26, 2016	Mar. 28, 2015	Jan. 29, 2016	Jan. 15, 2016	Jun. 15, 2014
PFG Loan [Member] | Achievement of Performance Milestones First Half of Fiscal 2015 [Member]
Line of Credit Facility, Remaining Borrowing Capacity				$ 1,000,000	$ 1,000,000
Debt Instrument, Performance Milestone Net Sales						$ 7,500,000
PFG Loan [Member] | Achievement of Performance Milestones During Two Consecutive Quarters In Fiscal 2015 [Member] | Minimum [Member]
Debt Instrument, Performance Milestones, Net Income						$ 0
PFG Loan [Member] | Under First Draw [Member] | Common Stock [Member]
Class of Warrant or Right, Outstanding				180,000	180,000
Class of Warrant or Right, Exchanged for Cash, Amount				$ 150,000	$ 150,000
PFG Loan [Member] | Under First Draw [Member]
Long-term Debt, Gross				822,000	822,000
Debt Instrument, Convertible, Beneficial Conversion Feature					173,000
Debt Instrument, Unamortized Discount				178,000	178,000
PFG Loan [Member] | Amendment [Member] | Common Stock [Member]
Class of Warrant or Right, Outstanding			80,000
Class of Warrant or Right, Exchanged for Cash, Amount				67,000	67,000
PFG Loan [Member] | Amendment [Member]
Long-term Debt, Gross				365,000	365,000
Debt Instrument, Convertible, Beneficial Conversion Feature					168,000
Debt Instrument, Unamortized Discount				$ 135,000	135,000
PFG Loan [Member] | Second Amendment [Member] | Common Stock [Member]
Class of Warrant or Right, Cancelled During Period		40,000
PFG Loan [Member] | Partners For Growth IV, L.P. [Member] | Revolving Credit Facility [Member]
Debt Instrument, Term			2 years 270 days
Line of Credit Facility, Remaining Borrowing Capacity			$ 500,000											$ 1,000,000
Debt Instrument, Interest Rate, Stated Percentage			12.50%
Long-term Line of Credit		$ 500,000
Repayments of Lines of Credit								$ 150,000
Line of Credit Facility, Periodic Payment, Principal									$ 10,000
PFG Loan [Member] | Secured Debt [Member]
Long-term Debt, Gross	$ 1,000,000								1,000,000	$ 1,000,000
PFG Loan [Member] | Prepaid Expenses and Other Current Assets [Member]
Payments of Debt Issuance Costs			$ 15,000		$ 30,000
PFG Loan [Member] | Principal [Member]
Contractual Obligation, Due in Next Fiscal Year	400,000								400,000	400,000
PFG Loan [Member] | Interest [Member]
Contractual Obligation, Due in Next Fiscal Year	$ 17,000								$ 17,000	$ 17,000
PFG Loan [Member] | Common Stock [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights						300,000	300,000
Class of Warrant or Right, Term				5 years
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 1.42	$ 1.42
PFG Loan [Member]
Debt Instrument, Term	30 years						3 years
Debt Instrument, Face Amount						$ 2,000,000	$ 2,000,000
Proceeds from Issuance of Debt					$ 1,000,000
Debt Instrument, Interest Rate, Stated Percentage	9.75%								9.75%	9.75%
Long-term Debt	$ 400,000								$ 400,000	$ 400,000
Derivative Liability, Fair Value, Gross Liability	353,000								353,000	353,000	$ 89,000
Fair Value Adjustment of Warrants										12,000
Warrant Debt [Member] | Under First Draw [Member]
Long-term Debt, Gross				$ 178,000	178,000
Derivative Liability, Fair Value, Gross Liability	212,000								212,000	212,000	235,000
Warrant Debt [Member] | Amendment [Member]
Long-term Debt, Gross				$ 135,000	135,000
Derivative Liability, Fair Value, Gross Liability	141,000								141,000	141,000	106,000
Warrant Debt [Member]
Derivative Liability, Fair Value, Gross Liability											341,000
Partners For Growth IV, L.P. [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity			$ 500,000
Repayments of Lines of Credit								$ 500,000
Proceeds from Lines of Credit					$ 500,000
Bridge Bank [Member]
Line of Credit Facility, Remaining Borrowing Capacity	906,000								906,000	906,000
Line of Credit Facility, Maximum Borrowing Capacity	2,500,000								2,500,000	$ 2,500,000
Proceeds from Issuance of Debt											500,000
Line of Credit Facility, Remaining Borrowing Capacity	$ 906,000								$ 906,000	$ 906,000
Repayments of Lines of Credit										1,000,000	$ 9,789,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights												2,400,000
Class of Warrant or Right, Exercise Price of Warrants or Rights												$ 1.15	$ 1.15
Fair Value Adjustment of Warrants										12,000
Proceeds from Lines of Credit										1,800,000	$ 8,624,000
Amortization of Debt Discount (Premium)										$ 165,000	$ 152,000

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Note 9 - Fair Value (Details Textual) - USD ($)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015	Dec. 26, 2015
Long-term Debt [Member]
Long-term Debt	$ 379,000	$ 1,100,000
Long-term Debt, Fair Value	$ 384,000	$ 1,200,000
Fair Value Inputs, Discount Rate	20.00%	18.00%
Derivative Financial Instruments, Liabilities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value Inputs, Discount Rate	20.00%
Fair Value Assumptions, Expected Term	3 years
Fair Value Assumptions, Expected Volatility Rate	115.10%
Fair Value Assumptions, Risk Free Interest Rate	1.05%
Assets, Fair Value Disclosure, Recurring		$ 0	$ 0
Assets, Fair Value Disclosure, Nonrecurring		0	0
Liabilities, Fair Value Disclosure, Nonrecurring		$ 0	$ 0

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Note 9 - Fair Value Measurements (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Mar. 28, 2015
Fair Value, Inputs, Level 1 [Member] | Warrant [Member] | Fair Value, Measurements, Recurring [Member]
Warrant Liability
Fair Value, Inputs, Level 1 [Member]
Total
Fair Value, Inputs, Level 2 [Member] | Warrant [Member] | Fair Value, Measurements, Recurring [Member]
Warrant Liability
Fair Value, Inputs, Level 2 [Member]
Total
Fair Value, Inputs, Level 3 [Member] | Warrant [Member] | Fair Value, Measurements, Recurring [Member]
Warrant Liability	$ 353	$ 341
Fair Value, Inputs, Level 3 [Member]
Total	$ 353	$ 341

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Note 9 - Summary of Changes in Gains and Losses (Details) - Fair Value, Inputs, Level 3 [Member] - Warrant [Member] - Derivative Financial Instruments, Liabilities [Member] - USD ($) $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Warrant liability at beginning of year	$ 341	$ 173
Additional warrant liability from warrants issued with June 2014 Amendment		168
Losses on adjustment of warrant liability to fair value	12
Warrant liability at end of period	$ 353	$ 341

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Note 9 - Quantitative Information (Details) - Warrant [Member] - Fair Value, Inputs, Level 3 [Member] - Derivative Financial Instruments, Liabilities [Member]	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Monte Carlo [Member]
Fair Value Inputs, Discount Rate	20.00%
Discounted Cash Flow [Member]
Fair Value Inputs, Discount Rate		18.00%

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Note 10 - Sale of Product Lines (Details Textual) - USD ($)		3 Months Ended	6 Months Ended	8 Months Ended	12 Months Ended
	Dec. 15, 2015	Sep. 30, 2016	Dec. 31, 2016	Aug. 31, 2016	Mar. 26, 2016	Mar. 28, 2015
Spanawave [Member] | Scenario, Forecast [Member]
Proceeds from Sales of Business, Affiliate and Productive Assets		$ 375,000	$ 750,000	$ 1,500,000
Spanawave [Member]
Gain (Loss) on Sale of Business, Affiliated and Productive Assets					$ 0
Proceeds from Sales of Business, Affiliate and Productive Assets	$ 1,500,000				375,000
Power Meters, Amplifiers, and Legacy Signal Generators [Member] | Gigatronics Division [Member] | Operating Segments [Member]
Revenues					1,700,000	$ 2,700,000
Proceeds from Sales of Business, Affiliate and Productive Assets					$ 375,000

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Note 11 - Selling and Advertising Expenses (Details Textual) - USD ($)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Sales Commissions and Fees	$ 172,000	$ 237,000
Advertising Expense	$ 123,000	$ 7,000

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Note 12 - Significant Customers and Industry Segment Information (Details Textual)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
U.S. Government and Defense-Related Customers [Member]
Concentration Risk, Percentage	71.00%	69.00%
Second Customer [Member] | Microsource [Member] | Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage		23.00%
Second Customer [Member] | Gigatronics Division [Member] | Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage	11.00%
Third Customer [Member] | Microsource [Member] | Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage		14.00%
Microsource [Member] | Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage	32.00%	28.00%
Export Sales [Member]
Concentration Risk, Percentage	4.00%	8.00%
Number of Reportable Segments	2

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Note 12 - Segment Reporting Information (Details) - USD ($)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Gigatronics Division [Member]
Revenue	$ 8,679,000	$ 9,123,000
Interest expense, net	383,000	406,000
Depreciation and amortization	301,000	277,000
Capital expenditures	192,000	81,000
Income/(Loss) before income taxes	(4,119,000)	(3,068,000)
Assets	8,068,000	6,103,000
Other Expenses		1,386,000
Microsource [Member]
Revenue	$ 5,917,000	$ 9,329,000
Interest expense, net
Depreciation and amortization	$ 20,000	$ 34,000
Capital expenditures
Income/(Loss) before income taxes	$ 17,000	$ 1,442,000
Assets	3,134,000	$ 1,951,000
Other Expenses
Revenue	14,596,000	$ 18,452,000
Interest expense, net	383,000	406,000
Depreciation and amortization	321,000	311,000
Capital expenditures	192,000	81,000
Income/(Loss) before income taxes	(4,102,000)	(1,626,000)
Assets	$ 11,202,000	8,054,000
Other Expenses		$ 1,386,000

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Note 12 - Export Sales by Geographic Area (Details) - USD ($)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Americas [Member] | Export Sales [Member]
Revenue	$ 10	$ 26
Europe [Member] | Export Sales [Member]
Revenue	326	179
Asia [Member] | Export Sales [Member]
Revenue	140	1,085
Rest of World [Member] | Export Sales [Member]
Revenue	122	177
Export Sales [Member]
Revenue	598	1,467
Revenue	$ 14,596,000	$ 18,452,000

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Note 13 - Net Income (Loss) and Common Shares Used in Per-share Computations (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Equity Option [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	1,592	1,727
Restricted Stock [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)		482
Convertible Debt Securities [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	1,853	1,853
Warrant [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	3,737	1,368
Net Income (Loss) Attributable to Parent	$ (4,104)	$ (1,673)
Weighted average: Common shares outstanding (in shares)	6,941	5,279
Common shares assuming dilution (in shares)	6,941	5,279
Loss per common share – basic (in dollars per share)	$ (0.59)	$ (0.32)
Loss per common share – diluted (in dollars per share)	$ (0.59)	$ (0.32)

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Note 14 - Income Taxes (Details Textual) - USD ($)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Domestic Tax Authority [Member]
Operating Loss Carryforwards	$ 40,500,000
State and Local Jurisdiction [Member]
Operating Loss Carryforwards	$ 21,900,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%	34.00%
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	$ 1,100,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	$ 106,000

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Note 14 - Components of the Provision for Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Current
Federal
State	$ 2	$ 47
	2	47
Deferred
Federal	(1,297)	210
State	215	391
	(1,082)	601
Liability for uncertain tax positions	13	23
Change in valuation allowance	(1,069)	624
Valuation allowance	1,069	(624)
Effective income tax	$ 2	$ 47

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Note 14 - Deferred Tax Assets (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Mar. 28, 2015
Net operating loss carryforwards	$ 15,065	$ 13,657
Income tax credits	296	306
Inventory reserves and additional costs capitalized	1,935	1,974
Accrued vacation	131	133
Deferred rent	44	95
Non-qualified stock options and restricted stock	(10)	247
Other	68	48
Total deferred tax assets	17,529	16,460
Valuation allowance	$ (17,529)	$ (16,460)
Net deferred tax assets

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Note 14 - Effective Income Tax Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Statutory federal income tax (benefit)	$ (1,395)	$ (553)
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%	34.00%
Valuation allowance	$ 1,069	$ (624)
Valuation allowance	(26.10%)	38.40%
State income tax, net of federal benefit	$ (239)	$ (95)
State income tax, net of federal benefit	5.80%	5.80%
Net operating loss expiration	$ 451	$ 861
Net operating loss expiration	(11.00%)	(53.00%)
Non tax-deductible expenses	$ 107	$ 593
Non tax-deductible expenses	(2.60%)	(36.50%)
Tax credits	$ (35)	$ (187)
Tax credits	0.90%	11.50%
Liability for uncertain tax positions	$ 13	$ 23
Liability for uncertain tax positions	(0.30%)	(1.40%)
Other	$ 31	$ 29
Other	(0.80%)	(1.80%)
Effective income tax	$ 2	$ 47
Effective income tax	(0.10%)	(3.00%)

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Note 14 - Liability for Uncertain Tax Positions (Details) - USD ($) $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Balance as of beginning of year	$ 93	$ 70
Additions based on current year tax positions	$ 13	$ 23
(Reductions) additions for prior year tax positions
Balance as of end of year	$ 106	$ 93

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Note 15 - Share-based Compensation and Employee Benefit Plans (Details Textual) - USD ($)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Stock Appreciation Rights (SARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	0
Employee Stock Option [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Employee Stock Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Share-based Compensation Arrangement by Share-based Payment Award Expiration	10 years
Employee Stock Option [Member]
Allocated Share-based Compensation Expense	$ 403,000	$ 370,000
Outstanding Options [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award Expiration	10 years
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		432,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value	$ 761,000
Allocated Share-based Compensation Expense	$ 522,000	$ 457,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 2.11	$ 2.11
2000 Stock Option Plan and 2005 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	2,850,000
Percent Of Fair Market Value Of Common Stock At Date Of Grant	100.00%
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	955,427
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 1.04	$ 1.66
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 414,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years 146 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares	419,050	280,650
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value	$ 104,000	$ 120,000
Proceeds from Stock Options Exercised	$ 77,000	163,000
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	100.00%
Defined Contribution Plan, Vesting Period	4 years
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 41,000	$ 39,000

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Note 15 - Weighted Average Assumptions (Details)	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Dividend yield
Expected volatility	98.00%	92.00%
Risk-free interest rate	1.55%	1.61%
Expected term (years)	8 years 131 days	8 years 124 days

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Note 15 - Changes in Stock Options Outstanding (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015	Mar. 29, 2014
Outstanding (in shares)	1,726,975	1,738,750
Outstanding (in dollars per share)	$ 1.57	$ 1.53
Outstanding	6 years 292 days	6 years 328 days	6 years 292 days
Outstanding	$ 69	$ 219	$ 113
Granted (in shares)	35,000	306,500
Granted (in dollars per share)	$ 1.22	$ 2.01
Exercised (in shares)	48,550	90,000
Exercised (in dollars per share)	$ 1.59	$ 1.80
Forfeited / Expired (in shares)	121,225	228,275
Forfeited / Expired (in dollars per share)	$ 2.15	$ 1.81
Outstanding (in shares)	1,592,200	1,726,975	1,738,750
Outstanding (in dollars per share)	$ 1.52	$ 1.57	$ 1.53
Outstanding	$ 69	$ 219	$ 113
Exercisable (in shares)	900,350
Exercisable (in dollars per share)	$ 1.47
Exercisable	6 years 146 days
Exercisable	$ 41
At March 26, 2016, expected to vest in the future (in shares)	467,071
At March 26, 2016, expected to vest in the future (in dollars per share)	$ 1.58
At March 26, 2016, expected to vest in the future	7 years 146 days
At March 26, 2016, expected to vest in the future	$ 15

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Note 15 - Changes in Nonvested Restricted Stock Awards Outstanding (Details) - Restricted Stock [Member] - $ / shares	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Non-vested (in shares)	482,000	121,500
Non-vested (in dollars per share)	$ 2.02	$ 1.39
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		432,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 2.11	$ 2.11
Vested (in shares)	482,000	71,500
Vested (in dollars per share)	$ 2.02	$ 1.53
Non-Vested (in shares)		482,000
Non-vested (in dollars per share)		$ 2.02

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Note 16 - Commitments and Contingencies (Details Textual)	12 Months Ended
	Mar. 26, 2016 USD ($) ft²	Mar. 28, 2015 USD ($)
San Ramon [Member]
Area of Real Estate Property | ft²	47,300
Operating Leases, Rent Expense	$ 677,000	$ 654,000
Capital Leases, Balance Sheet, Assets by Major Class, Net	249,000	319,000
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation	32,000	$ 60,000
Long-term Purchase Commitment, Amount	$ 2,300,000

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Note 16 - Future Minimum Lease Payments Under Operating Leases (Details) $ in Thousands	Mar. 26, 2016 USD ($)
2017	$ 529
2018	6
2019	6
2020	6
Thereafter	6
Total	$ 553

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Note 16 - Future Minimum Lease Payments Under Capital Leases (Details) $ in Thousands	Mar. 26, 2016 USD ($)
Principal [Member]
2017	$ 44
2018	50
2019	52
2020	40
2021	23
Total	209
Interest [Member]
2017	25
2018	19
2019	12
2020	5
2021	1
Total	62
2017	69
2018	69
2019	64
2020	45
2021	24
Total	$ 271

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Note 17 - Reconciliation of Company's Estimated Warranty Obligations (Details) - USD ($) $ in Thousands	12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Balance as of beginning of year	$ 76	$ 61
Provision, net	55	81
Warranty costs incurred	(71)	(66)
Balance as of end of year	$ 60	$ 76

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Note 18 - Private Placement Offering (Details Textual) $ / shares in Units, $ in Millions	Jan. 19, 2016 USD ($) $ / shares shares	Jan. 29, 2016 $ / shares shares	Jan. 15, 2016 $ / shares
Common Stock [Member]
Securities Purchase Agreement, Purchase Price	$ 1.15
Warrant [Member]
Securities Purchase Agreement, Purchase Price	0.09375
Securities Purchase Agreement, Price of One Common Share	0.125
Emerging Growth Equities, Ltd [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 1.15
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares	292,727
Securities Purchase Agreement, Units Issued | shares	2,787,872
Number of Common Stock Per Unit | shares	1
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right | shares	0.75
Number of Private Investors	20
Securities Purchase Agreement, Purchase Price	$ 1.24375
Securities Purchase Agreement, Gross Proceeds | $	$ 3.5
Securities Purchase Agreement, Net Proceeds | $	$ 3.1
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 1.15	$ 1.15
Warrant Term	5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares		2,400,000

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Note 19 - Series B, C, D Convertible Voting Perpetual Preferred Stock and Warrants (Details Textual) - USD ($)					12 Months Ended
	Jan. 29, 2016	Jul. 08, 2013	Feb. 19, 2013	Nov. 10, 2011	Mar. 26, 2016	Mar. 28, 2015	Jan. 15, 2016	Feb. 23, 2015	Feb. 16, 2015
Series B Preferred Stock [Member]
Proceeds from Issuance of Preferred Stock, Preference Stock, and Warrants				$ 2,199,000
Preferred Stock, Shares Issued				9,997	9,997
Sale of Stock, Price Per Share				$ 220
Preferred Stock, Value, Issued					$ 2,000,000
Adjustments to Additional Paid in Capital, Stock Issued, Issuance Costs					$ 202,000
Series C Preferred Stock [Member]
Preferred Stock, Shares Issued			3,424.65		3,424.65
Sale of Stock, Price Per Share			$ 146
Preferred Stock, Value, Issued			$ 457,000
Adjustments to Additional Paid in Capital, Stock Issued, Issuance Costs			43,000
Proceeds from Issuance of Preferred Stock and Preference Stock			$ 500,000
Series D Preferred Stock [Member] | SPA [Member] | Unallocated [Member]
Proceeds from Issuance of Convertible Preferred Stock		$ 817,000
Series D Preferred Stock [Member] | SPA [Member] | Allocated [Member]
Proceeds from Issuance of Convertible Preferred Stock		498,000
Proceeds from Issuance of Common Stock		$ 360,000
Debt Instrument, Convertible, Conversion Price		$ 0.97
Series D Preferred Stock [Member] | SPA [Member]
Payments of Stock Issuance Costs		$ 41,000
Debt Instrument, Convertible, Beneficial Conversion Feature		$ 238,000
Series D Preferred Stock [Member]
Preferred Stock, Shares Issued		5,111.86			5,111.86
Proceeds from Issuance of Convertible Preferred Stock		$ 858,000
Series B, C, and D Preferred Stock [Member]
Preferred Stock, Shares Issued					18,533.51	18,533.51
Preferred Stock, Value, Issued					$ 2,911,000	$ 2,911,000
Convertible Preferred Stock, Shares Issued upon Conversion					100
New Warrant [Member] | Alara Capital AVI II, LLC [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights								194,437	898,634
Class of Warrant or Right, Exercise Price of Warrants or Rights								$ 1.76	$ 1.78
New Warrant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		511,186
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 1.43
Alara Capital AVI II, LLC [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					1,017,405
Class of Warrant or Right, Exercise Price of Warrants or Rights					$ 1.43
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	2,400,000
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 1.15						$ 1.15
Payments of Stock Issuance Costs						$ 278
Proceeds from Issuance of Common Stock	$ 3,100,000

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Note 19 - Preferred Stock Information (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Mar. 28, 2015	Jul. 08, 2013	Feb. 19, 2013	Nov. 10, 2011
Series B Preferred Stock [Member]
Designated Shares (in shares)	10,000
Preferred Stock, Shares Issued	9,997				9,997
Shares Outstanding (in shares)	9,997
Liquidation Preference	$ 2,309
Series C Preferred Stock [Member]
Designated Shares (in shares)	3,500
Preferred Stock, Shares Issued	3,424.65			3,424.65
Shares Outstanding (in shares)	3,424.65
Liquidation Preference	$ 500
Series D Preferred Stock [Member]
Designated Shares (in shares)	6,000
Preferred Stock, Shares Issued	5,111.86		5,111.86
Shares Outstanding (in shares)	5,111.86
Liquidation Preference	$ 731
Series B, C, and D Preferred Stock [Member]
Designated Shares (in shares)	19,500	19,500
Preferred Stock, Shares Issued	18,533.51	18,533.51
Shares Outstanding (in shares)	18,533.51	18,533.51
Liquidation Preference	$ 3,540	$ 3,540
Designated Shares (in shares)	1,000,000	1,000,000

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Note 20 - Exercise of Series C and Series D Warrants (Details Textual)					3 Months Ended	12 Months Ended
	Jan. 19, 2016	May. 14, 2015 shares	Feb. 23, 2015 USD ($) $ / shares shares	Feb. 16, 2015 USD ($) $ / shares shares	Mar. 28, 2015 USD ($)	Mar. 28, 2015 USD ($)	Mar. 26, 2016 $ / shares shares	Jan. 29, 2016 $ / shares shares	Jan. 15, 2016 $ / shares	Jul. 08, 2013 $ / shares shares
Alara Capital AVI II, LLC [Member] | Series C and D Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares			1,002,818	1,002,818
Proceeds from Issuance of Preferred Stock, Preference Stock, and Warrants | $				$ 1,500,000
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares			$ 1.43
Alara Capital AVI II, LLC [Member] | Series C and D Warrants [Member]
Proceeds from Warrant Exercises | $			$ 1,434,000
Payments of Stock Issuance Costs | $			$ 42,000
Alara Capital AVI II, LLC [Member] | New Warrant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares			194,437	898,634
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares			$ 1.76	$ 1.78
Number of Warrants Sold | shares			2
Warrant Purchase Price | $			$ 137,000
Warrant Purchase Price Per Share | $ / shares			$ 0.125
Warrant Term			5 years
Alara Capital AVI II, LLC [Member] | Additional Warrant [Member]
Class of Warrant or Right, Outstanding | shares			14,587
Alara Capital AVI II, LLC [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares							1,017,405
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares							$ 1.43
Class of Warrant Or Right Exercised in Period		14,587
Shares Issued Upon Cashless Warrant Exercise | shares		7,216
Series C and D Warrants [Member]
Payments of Stock Issuance Costs | $						$ 42,000
New Warrant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares										511,186
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares										$ 1.43
Fair Value Assumptions, Expected Term			5 years
Fair Value Assumptions, Risk Free Interest Rate			1.54%
Fair Value Assumptions, Expected Volatility Rate			90.00%
Fair Value Assumptions, Expected Dividend Rate			0.00%
Issuance of Warrants [Member]
Other Expenses | $					$ 1,200,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares								2,400,000
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares								$ 1.15	$ 1.15
Payments of Stock Issuance Costs | $						278
Warrant Term	5 years
Other Expenses | $						$ 1,386,000