10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ X ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 30, 2018

  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. 001-14605

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.)
5990 Gleason Drive, Dublin CA 94568	(925) 328-4650
(Address of principal executive offices)	Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes [ X ]     No [    ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ X ]     No [    ]

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes [   ]     No [ X ]

There were a total of 10,418,953 shares of the Registrant’s Common Stock outstanding as of July 26, 2018.  

1

INDEX

				Page No.
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements
			Unaudited Condensed Consolidated Balance Sheets as of June 30, 2018 and March 31, 2018	4
			Unaudited Condensed Consolidated Statements of Operations, Three Month Periods Ended June 30, 2018 and June 24, 2017	5
			Unaudited Condensed Consolidated Statements of Cash Flows, Three Month Periods Ended June 30, 2018 and June 24, 2017	6
			Notes to Unaudited Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
	Item 4.	Controls and Procedures		25
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings		25
	Item 1A.	Risk Factors		25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
	Item 3.	Defaults Upon Senior Securities		25
	Item 4.	Mine Safety Disclosures		26
	Item 5.	Other information		26
	Item 6.	Exhibits		26
SIGNATURES				27
		Exhibit Index
			31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act.
			31.2 Certification of Principal Accounting Officer pursuant to Section 302 of Sarbanes-Oxley Act.
			32.1 Certification of CEO pursuant to Section 906 of Sarbanes-Oxley Act.
			32.2 Certification of Principal Accounting Officer pursuant to Section 906 of Sarbanes-Oxley Act.

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FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements about Giga-tronics Incorporated (the “Company”) for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products, revenue or cost savings; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements.  Words such as "believes", "anticipates", "expects", "intends", "targeted", "projected", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These factors include but are not limited to risks related to (1) the Company’s potential inability to obtain necessary capital to finance its operations and to continue as a going concern; (2) the Company’s ability to develop competitive products in a market with rapidly changing technology and standards; (3) the results of pending or threatened litigation; (4) risks related to customers’ credit worthiness/profiles; (5) changes in the Company’s credit profile and its ability to borrow; (6) a potential decline in demand for certain of the Company’s products; (7) potential product liability claims; (8) the potential loss of key personnel; and (9) U.S. and international economic conditions. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. The reader is directed to the Company's annual report on Form 10-K for the year ended March 31, 2018 or further discussion of factors that could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report. The Company undertakes no obligation to update any forward-looking statements in this report.

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PART I – FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) 

(In thousands except share data)	June 30, 2018			March 31, 2018**
Assets
Current assets:
Cash and cash-equivalents	$	748		$	1,485
Trade accounts receivable, net of allowance of $8 and $8, respectively		458			364
Inventories, net		3,438			5,487
Prepaid expenses and other current assets		792			87
Total current assets		5,436			7,423
Property and equipment, net		760			833
Other long term assets		175			175
Total assets	$	6,371		$	8,431
Liabilities and shareholders' equity
Current liabilities:
Line of credit	$	552		$	552
Accounts payable		756			996
Loan payable, net of discounts and issuance costs		1,523			1447
Accrued payroll and benefits		413			343
Deferred revenue		257			3,374
Deferred rent, net of long term portion		62			58
Capital lease obligations		40			40
Deferred liability related to asset sale		51			52
Other current liabilities		959			947
Total current liabilities		4,613			7,809
Long term deferred rent		411			429
Long term obligations - capital lease		50			62
Total liabilities		5,074			8,300
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock no par value Authorized - 1,000,000 shares Series A designated 250,000 shares; no shares at June 30, 2018 and March 31, 2018 issued and outstanding		—			—
Series B, C, D designated 19,500 shares; 18,533.51 shares at June 30, 2018 and March 31, 2018 issued and outstanding; (liquidation preference of $3,540 at June 30, 2018 and March 31, 2018)		2,911			2,911
Series E designated 60,000 shares; 53,400 shares at June 30, 2018 and 43,800 shares at March 31, 2018 issued and outstanding; (liquidation preference of $2,003 at June 30, 2018 and $1,643 at March 31, 2018)		907			702
Common stock no par value; Authorized - 40,000,000 shares; 10,418,953 shares at June 30, 2018 and 10,312,653 shares at March 31, 2018 issued and outstanding		25,272			25,200
Accumulated deficit		(27,793	)		(28,682	)
Total shareholders' equity		1,297			131
Total liabilities and shareholders' equity	$	6,371		$	8,431

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

As the Company adopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606) as of April 1, 2018, using the modified retrospective method, there is a lack of comparability to the prior periods presented. See Note 1.

** Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended
(In thousands except per share data)	June 30, 2018			June 24, 2017
Revenue
Goods	$	207		$	316
Services		2,843			1,675
Total revenue		3,050			1,991
Cost of goods and services		1,744			1,525
Gross margin		1,306			466
Operating expenses:
Engineering		375			452
Selling, general and administrative		1,001			1,171
Total operating expenses		1,376			1,623
Operating loss		(70	)		(1,157	)
Interest expense:
Interest expense, net		(127	)		(79	)
Interest expense from accretion of loan discount		(50	)		(22	)
Total interest expense, net		(177	)		(101	)
Loss before income taxes		(247	)		(1,258	)
Provision for income taxes		40			—
Net loss	$	(287	)	$	(1,258	)
Loss per common share - basic	$	(0.03	)	$	(0.13	)
Loss per common share - diluted	$	(0.03	)	$	(0.13	)
Weighted average common shares used in per share calculation:
Basic		10,419			9,715
Diluted		10,419			9,715

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

As the Company adopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606) as of April 1, 2018, using the modified retrospective method, there is a lack of comparability to the prior periods presented. See Note 1.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
(In thousands)	June 30, 2018			June 24, 2017
Cash flows from operating activities:
Net loss	$	(287	)	$	(1,258	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		73			247
Stock based compensation		57			46
Estimated equity forward		—			46
Accretion of discounts on debt		50			22
Accrued interest and fees on loan payable		25			—
Change in deferred rent		(14	)		451
Changes in operating assets and liabilities:
Trade accounts receivable		(94	)		206
Inventories		468			(178	)
Prepaid expenses and other assets		(516	)		75
Accounts payable		(240	)		(441	)
Accrued payroll and benefits		70			(156	)
Deferred revenue		(550	)		(167	)
Other current liabilities		12			—
Net cash used in operating activities		(945	)		(1,107	)
Cash flows from investing activities:
Purchases of property and equipment		—			(620	)
Net cash used in investing activities		—			(620	)
Cash flows from financing activities:
Principal payments on capital leases		(12	)		(13	)
Proceeds from borrowings, net of issuance costs		—			1,456
Proceeds from issuance of preferred stock, net of issuance costs		205			—
Exercise of warrants		15			—
Net cash provided by financing activities		208			1,443
Decrease in cash and cash-equivalents		(737	)		(284	)
Beginning cash and cash-equivalents		1,485			1,421
Ending cash and cash-equivalents	$	748		$	1,137
Supplementary disclosure of cash flow information:
Cash paid for income taxes	$	—		$	—
Cash paid for interest	$	61		$	39
Supplementary disclosure of noncash activities:
Cumulative effect of adoption of ASC 606 on inventory	$	(1,581	)		—
Cumulative effect of adoption of ASC 606 on prepaid expenses and other current assets	$	189			—
Cumulative effect of adoption of ASC 606 on deferred revenue	$	2,567			—
Common stock issued in connection with debt issuance	$	—		$	156
Fully depreciated equipment disposal	$	—		$	377

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

As the Company adopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606) as of April 1, 2018, using the modified retrospective method, there is a lack of comparability to the prior periods presented. See Note 1.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)          Organization and Significant Accounting Policies

The condensed consolidated financial statements included herein have been prepared by Giga-tronics Incorporated (“Giga-tronics” or the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments (consisting of normal recurring entries) necessary to make the consolidated results of operations for the interim periods a fair statement of such operations. For further information, refer to the consolidated financial statements and footnotes thereto, included in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission for the year ended March 31, 2018.

 Principles of Consolidation The consolidated financial statements include the accounts of Giga-tronics and its wholly-owned subsidiary, Microsource, Inc. (“Microsource”). All significant intercompany balances and transactions have been eliminated in consolidation

Derivatives The Company accounts for certain of its warrants and embedded debt features as derivatives. Changes in fair values are reported in earnings as gain or loss on adjustment of these instruments to fair value. 

Revenue Recognition and Deferred Revenue Beginning April 1, 2018, the Company follows the provisions of ASU 2014-09 as subsequently amended by the FASB between 2015 and 2017 and collectively known as ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Amounts for prior periods are not adjusted and continue to be reported in accordance with the Company’s historic accounting practices. The guidance provides a unified model to determine how revenue is recognized. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.

The Company generates revenue through the design, manufacture, and sale of products used in defense industry to major prime defense contractors, the armed services (primarily in the U.S.) and research institutes. There is generally one performance obligation in the Company’s contracts with its customers. For highly engineered products, the customer typically controls the work in process as evidenced either by contractual termination clauses or by the Company’s right to payment for costs incurred to date plus a reasonable profit for products or services that do not have an alternative use. In these circumstances, the performance obligation is the design and manufacturing service. As control transfers continuously over time on these contracts, revenue is recognized based on the extent of progress towards completion of the performance obligation using a cost-to-cost method. Engineering services are also satisfied over time and recognized on the cost-to-cost method. These types of revenue arrangements are typical for our defense contracts within the Microsource segment for its YIG RADAR filter products used in fighter jet aircrafts.

For the sale of standard or minimally customized products, the performance obligation is the series of finished products which are recognized at the points in time the units are transferred to the control of the customer, typically upon shipment. This type of revenue arrangement is typical for our commercial contracts within the Giga-tronics segment for its Advanced Signal Generation and Analysis system products used for testing RADAR and Electronic Warfare (“EW”) equipment.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. The Company’s performance obligations include:

● Design and manufacturing services

● Product supply – Distinct goods or services that are substantially the same

● Engineering services

7

The majority of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company’s revenue in fiscal 2019 under ASC 606 primarily relates to design and manufacturing services, there was no product supply, and engineering services were $56,000.

Transaction Price

The Company has both fixed and variable consideration. Under the Company’s highly engineered design and manufacturing arrangements, advance payments and unit prices are considered fixed, as product is not returnable and the Company has an enforceable right to reimbursement in the event of a cancellation. For standard and minimally customized products, payments can include variable consideration, such as product returns and sales allowances. The transaction price in engineering services arrangements may include estimated amounts of variable consideration, including award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. Milestone payments are identified as variable consideration when determining the transaction price. At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. The Company estimates variable consideration at the amount to which they expect to be entitled, and determines whether to include estimated amounts as a reduction in the transaction price based largely on an assessment of the conditions that might trigger an adjustment to the transaction price and all information (historical, current and forecasted) that is reasonably available to the Company. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the estimation uncertainty is resolved.

Allocation of Consideration

As part of the accounting for arrangements that contain multiple performance obligations, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. When a contract contains more than one performance obligation, the Company uses key assumptions to determine the stand-alone selling price of each performance obligation. Because of the customized nature of products and services, estimated stand-alone selling prices for most performance obligations are estimated using a cost-plus margin approach. For non-customized products, list prices generally represent the standalone selling price. The Company allocates the total transaction price to each performance obligation based on the estimated relative stand-alone selling prices of the promised goods or service underlying each performance obligation.

Timing of Recognition

Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress as this measure best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recognized for design and manufacturing services and for engineering services over time proportionate to the costs that the Company has incurred to perform the services using the cost-to-cost input method and for products at a point in time. Approximately 99% of the Company’s revenue is recognized over time, with the remaining 1% recognized at a point in time.

Changes in Estimates

The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

For contracts using the cost-to-cost method, management reviews the progress and execution of the performance obligations. This process requires management judgment relative to estimating contract revenue and cost, and making assumptions for delivery schedule. This process requires management’s judgment to make reasonably dependable cost estimates. Since certain contracts extend over a longer period of time, the impact of revisions in cost and revenue estimates during the progress of work may adjust the current period earnings through a cumulative catch-up basis. This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters. Contract cost and revenue estimates for significant contracts are generally reviewed and reassessed quarterly. Revenue recognized over time using the cost-to-cost method represented approximately 99% of revenue for the first quarter of 2019.

The aggregate effects of these changes on contracts in the first quarter of 2019 was nominal.

8

Balance Sheet Presentation

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. Under the typical payment terms of over time contracts, the customer pays either performance-based payments or progress payments. Amounts billed and due from customers are classified as receivables on the Condensed Consolidated Balance Sheet. Interim payments may be made as work progresses, and for some contracts, an advance payment may be made. A liability is recognized for these interim and advance payments in excess of revenue recognized and is presented as a contract liability which is included within accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheet. Contract liabilities typically are not considered a significant financing component because these cash advances are used to meet working capital demands that can be higher in the early stages of a contract. When revenue recognized exceeds the amount billed to the customer, an unbilled receivable (contract asset) is recorded for the amount the Company is entitled to receive based on its enforceable right to payment.

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity).

Recognition Prior to April 1, 2018

Prior to April 1, 2018 under the legacy GAAP, the Company recorded revenue when there was persuasive evidence of an arrangement, delivery had occurred, the price was fixed and determinable, and collectability was reasonably assured. This occurred when products were shipped or the customer accepted title transfer. If the arrangement involved acceptance terms, the Company deferred revenue until product acceptance was received. On certain large development contracts, revenue was recognized upon achievement of substantive milestones.  Advanced payments were recorded as deferred revenue until the revenue recognition criteria described above had been met. Amounts for periods ending prior to April 1, 2018 have not been adjusted for ASC 606 and continue to be reported in accordance with the Company’s previous accounting practices.

New Accounting Standards

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 of the adoption of ASU 2016-02 on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 (“ASC 606”), Revenue from Contracts with Customers. In August 2015 and March, April, May and December 2016, the FASB issued additional amendments to the new revenue guidance relating to reporting revenue on a gross versus net basis, identifying performance obligations, licensing arrangements, collectability, noncash consideration, presentation of sales tax, transition, and clarifying examples. Collectively these are referred to as ASC Topic 606, which replaces all legacy GAAP guidance on revenue recognition and eliminates all industry-specific guidance. ASC 606 establishes a broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. ASU ASC 606 was further updated to provide clarification on a number of specific issues as well as requiring additional disclosures. ASC 606 may be applied either retrospectively or through the use of a modified-retrospective method. The full retrospective method requires companies to recast each prior reporting period presented as if the new guidance had always existed. Under the modified retrospective method, companies would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application. ASC 606 is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted beginning in the first quarter of 2017.

The Company adopted ASC 606 on April 1, 2018 (beginning of the Company’s fiscal year) using the modified retrospective method. Under this approach, no restatement of fiscal years 2017 or 2018 was required. Rather, the effect of the adoption was recorded as a cumulative adjustment decreasing the opening balance of accumulated deficit at April 1, 2018.

The most significant change relates to the timing of revenue and cost recognition on the Company’s customer contracts. Under ASC 606, revenue is recognized as the customer obtains control of the goods and services promised in the contract. Given the nature of the Company’s products and terms and conditions in the contracts, the customer typically obtains control as the Company performs work under such contract. Therefore, the Company expects to recognize revenue over time for substantially all of its contracts using the percentage-of-completion cost-to-cost method. As a result, the Company now recognizes revenue for these contracts as it incurs costs, as opposed to when units are delivered. This change has generally resulted in earlier revenue recognition in the performance period as compared to the legacy method for those contracts, giving rise to a decrease to the Company’s opening balance of accumulated deficit as of April 1, 2018.

9

Adopting ASC 606, Revenue from Contracts with Customers, involves significant new estimates and judgments such as estimating stand-alone selling prices, variable consideration, and total costs to complete the contract. All of the estimates are subject to change during the performance of the contract which may cause more variability due to significant estimates involved in the new accounting.

The cumulative effect of the changes made to the Company’s consolidated April 1, 2018 balance sheet for the adoption of Topic 606 were as follows (in thousands):

	Balance at March 31, 2018			Topic ASC 606 Adjustments			Balance at April 1, 2018
Assets
Prepaid and other current assets	$	87		$	188		$	275
Inventories, net		5,487			(1,581	)		3,906
Liabilities
Deferred revenue	$	3,374		$	(2,568	)	$	806
Stockholders' Equity
Accumulated deficit	$	(28,682	)	$	1,176		$	(27,506	)

In accordance with the requirements of Topic 606, the disclosure of the impact of adoption on our condensed consolidated income statement and balance sheet for the first quarter ended June 30, 2018 was as follows (in thousands except for net loss per share):

For the first quarter ended June 30, 2018	Without ASC 606 Adoption			Topic ASC 606 Adjustments			As Reported
Assets
Prepaid and other current assets	$	149		$	643		$	792
Inventories, net		5,406			(1,968	)		3,438
Liabilities
Deferred revenue	$	2,966		$	(2,709	)		257
Stockholders' Equity
Accumulated deficit	$	(29,177	)	$	1,384			(27,793	)
Revenue
Revenue	$	2,247		$	596		$	2,843
Costs of services
Costs of services	$	416		$	358			774
Net loss	$	(525	)	$	(238	)		(287	)
Net loss per share, basic and fully diluted	$	(0.05	)	$	0.02		$	(0.03	)

(2)          Going Concern and Management’s Plan

The Company incurred net losses of $287,000 in the first quarter of fiscal 2019 and $3.1 million in fiscal year 2018. These losses have contributed to an accumulated deficit of $27.8 million as of June 30, 2018. The Company used cash flow in operations totaling $945,000 and $1.1 million in the first quarters of fiscal 2019 and 2018, respectively. The Company has also experienced delays in the development of features, receipt of orders, and shipments for our new EW test system products. These delays have significantly contributed to our continued losses, liquidity concerns and accumulated deficits.

Our EW test system products have shipped to several customers, but potential delays in the refinement of features, longer than anticipated sales cycles, or the ability to efficiently manufacture our EW test system products, 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 which expires on May 6, 2019. 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 June 30, 2018, the line of credit had an outstanding balance of $582,000, and additional borrowing capacity of $143,000.

10

In April 2017, we entered into a $1.5 million loan agreement with Partners For Growth, V L.P. (“PFG”) to provide additional cash to fund our operations. As a result of experiencing continued delays in receiving EW test system product orders in fiscal 2018, we were unable to maintain compliance with certain financial covenants required by the PFG loan and, as a result, were subject to a default interest rate between June 2017 and March 2018. On March 26, 2018, and concurrent with the execution of certain stock purchase agreements for the sale of new Series E Convertible Preferred Stock and conditional upon the sale of at least $1.0 million in gross proceeds thereof, the Company and PFG entered into a modification agreement which provided for the restructuring of certain terms of the PFG loan including resetting of the financial covenants for the remaining loan term (see Note 6, Term Loans, Revolving Line of Credit and Warrants).

In order to raise additional working capital and to restructure the PFG loan, on March 26, 2018, the Company entered into a Securities Purchase Agreement for the sale of 43,800 shares of a newly designated series of 6.0% Series E Senior Convertible Voting Perpetual Preferred Stock (“Series E Shares”) to approximately 15 private investors. The purchase price for each Series E Share was $25.00. Gross proceeds received by the Company were approximately $1.095 million (the “Placement”). Net proceeds to the Company after fees and expenses of the placement agent were approximately $1.0 million. Each Series E Share is initially convertible into common stock at the option of the holder at the conversion price of $0.25 per share, which is equivalent to 100 shares of the Company’s common stock for each Series E Share (see Note 13, Preferred Stock and Warrants – Series E Senior Convertible Voting Perpetual Preferred Stock).

To assist with the upfront purchases of inventory required for future product deliveries, the Company entered into advance payment arrangements with certain customers, whereby the customers reimburse the Company for raw material purchases prior to the shipment of the finished products. 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 its business including, but not limited to, the contribution of its individual business segments, 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 and liquidity through debt (including debt refinancing), equity financing or possible product line sales or cessation of unprofitable business product lines, however there are no assurances that such financings or product line sales will be available at all, or on terms acceptable to the Company.

Our historical operating results and forecasting uncertainties indicate that substantial doubt exists related to 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 operations at least twelve months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to maintain or generate additional liquidity, including the availability of additional financing, or whether such actions would generate the expected liquidity as currently planned. Forecasting uncertainties also exist with respect to our EW test system product line due to the potential longer than anticipated sales cycles, as well as with potential delays in the refinement of certain features or requisition of certain components and/or our ability to efficiently manufacture it in a timely manner.

The accompanying consolidated financial statements have been prepared assuming that 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)         Revenue Recognition

The following table presents changes in the Company’s contract assets and liabilities for the three months ended June 30, 2018.

	Balance at Beginning of the Period			Additions			Deductions		Balance at the end of the Period
	(in thousands)
Contract Assets	$	189		$	466		$	12	$	643
Contract Liabilities: Deferred Revenue	$	(806	)	$	(248	)	$	787	$	257

During the three months ended June 30, 2018, the Company recognized the following revenues (in thousands).

Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	559
New activities in the period:
Changes in estimates		(29	)
Performance obligations satisfied		2,313
Total services revenue	$	2,843

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As of June 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $257,000, which the Company expects to recognize into revenue within the next twelve months.

(4 )           Inventories

Inventories consisted of the following:

(In thousands)	June 30, 2018		March 31, 2018
Raw materials	$	1,147	$	2,290
Work-in-progress		1,749		2,100
Finished goods		81		561
Demonstration inventory		461		536
Total	$	3,438	$	5,487

(5)      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 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. On May 23, 2017, the Company renewed this credit line (which expired on May 7, 2017) through May 6, 2019.

The loan agreement 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, 2019 and bears an interest rate, equal to 1.5% over the bank’s prime rate of interest. Interest is payable monthly with principal due upon maturity. The Company paid an annual commitment fee of $12,500 in May 2017. 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 150% (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 June 30, 2018, 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 June 30, 2018, the Company had outstanding borrowings of $552,000 under the line of credit.

(6)        Term Loans, Revolving Line of Credit and Warrants  

On April 27, 2017, the Company entered into a $1,500,000 loan agreement with Partners For Growth V, L.P. (“PFG”), which was funded by PFG on April 28, 2017 (the “2017 Loan”). The 2017 Loan, which matures on April 27, 2019, provides for interest only payments during the term of the loan with principal and any accrued interest and fees due upon maturity. The 2017 Loan bears interest at a fixed aggregate per annum rate equal to 16% per annum, of which 9.5% per annum rate is payable monthly in cash and 6.5% per annum rate is accrued monthly and due upon maturity. In addition, the Company agreed to pay PFG a cash fee of up to $100,000 payable upon maturity (the “back-end fee”), $76,000 of which was earned on April 27, 2017, and $24,000 of which is earned at the rate of $1,000 per month on the first day of each month if the loan principal (or any amount thereof) is outstanding during any day of the prior month.

Additionally, the 2017 Loan provides for the Company’s issuance of up to 250,000 common shares to PFG, of which 190,000 was eaned by PFG upon signing (April 27, 2017) and 60,000 of which is earned at the rate of 2,500 per month on the first day of each month if the loan principal (or any amount thereof) is outstanding during any day of the prior month. The 2017 Loan provided for certain financial covenants related to the revenue achievement and maintenance of tangible net worth. PFG can accelerate the maturity of the loan in case of a default and the Company can prepay the loan before maturity without interest prepayments or penalty. The Company has pledged all of its assets as collateral for the 2017 Loan, including all its accounts, inventory, equipment, deposit accounts, intellectual property and all other personal property. The 2017 Loan is subordinate to the Bridge Bank line of credit (see Note 5, Accounts Receivable Line of Credit).

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The requirement to issue 60,000 shares of the Company’s common stock over the term of the loan is an embedded derivative (an embedded equity forward). The Company evaluated the embedded derivative in accordance with ASC 815-15-25. The embedded derivative is not clearly and closely related to the debt host instrument and therefore is being separately measured at fair value, with subsequent changes in fair value being recognized in the consolidated statements of operations.

The proceeds received upon issuing the loan were allocated to: i) common stock, for the fair value of the 190,000 shares of common stock initially issued to the lender; ii) the fair value of the embedded derivative; and iii) the loan host instrument. Upon issuance of the loan, the Company recognized $1,576,000 of principal payable to PFG, representing the stated principal balance of $1,500,000 plus the initial back-end fee of $76,000. The initial carrying value of the loan was recognized net of debt discount aggregating approximately $326,000, which is comprised of the following:

Fees paid to the lender and third parties	$	44,000
Back-end fee		76,000
Estimated fair value of embedded equity forward		49,000
Fair value of 190,000 shares of common stock issued to lender		157,000
Aggregate discount amount	$	326,000

The bifurcated embedded derivative and the debt discount are presented net with the related loan balance in the consolidated balance sheets. The debt discount is being amortized to interest expense over the loan’s term using the effective interest method. During the fiscal year ended March 31, 2018, the Company amortized discounts of approximately $127,000 to interest expense. As of June 30, 2018, the Company had issued to PFG 375,000 common shares under the loans.

PFG’s ability to call the debt on default (contingent put) and its ability to assess interest rate at a default rate (contingent interest) are embedded derivatives, which the Company evaluated. The fair value of these embedded features was determined to be immaterial and was not bifurcated from the debt host for accounting purposes.

Between June 24, 2017 and March 25, 2018, the Company was not in compliance with the loan’s revenue and tangible net worth financial covenants and was subject to a default interest rate of 22% per annum which it accrued and paid when due during this period.

On March 26, 2018, concurrent with the execution of the Securities Purchase Agreement for the Series E Shares (see Note 13 – Preferred Stock and Warrants - Series E Senior Convertible Voting Perpetual Preferred Stock), the Company and PFG entered into a modification agreement providing for the restructuring of certain terms associated with approximately $1.7 million in indebtedness under the 2017 Loan. Subject to the sale of at least $1.0 million in Series E Shares, PFG agreed to waive all current defaults and cease applying the applicable default interest rate, returning to the stated non-default rate of 16%, and to lower the revenue and tangible net worth covenants for the remaining term of the loan. As consideration for the modifications, the Company reduced the exercise price of outstanding warrants previously granted to PFG pursuant to the 2014 Loan Agreement and Credit Line to purchase 260,000 shares of the Company’s common stock from $1.42 to $0.25 per share and extended the exercisability of the warrants by one year to March 13, 2020.

The amendments to the 2017 Loan were recognized as a loan modification. The change in fair value of the warrants of $43,700, resulting from the reduced strike price and extension of term, was recognized as a discount to the 2017 Loan and is being amortized to interest expense over the remaining term of the 2017 Loan.

The Company anticipates it will need to seek additional funds through the issuance of new debt, equity securities or product line sales in order to repay the 2017 Loan (including accrued interest and back end fees) in full upon maturity or otherwise enter into a refinancing agreement with PFG. However, there can be no assurances that such financings, re-financing or product line sales will be available at all, or on terms acceptable to the Company.

(7)         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.  

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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 carrying value of the outstanding PFG loan approximates the estimated aggregate fair value and classified with the loan host. The fair value estimate of the embedded equity forward is based on the closing price of the Company’s common stock on the measurement date, the risk-free rate, the date of expiration, and any expected cash distributions of the underlying asset before expiration. The estimated fair value of the embedded equity forward represents a Level 2 measurement.

On March 26, 2018, the Company and PFG agreed to eliminate the cash put provision contained in warrants in exchange for the Company issuing 150,000 shares of the Company’s common stock. Upon removal of the put, the warrants were re-valued using the Black-Scholes option-pricing model with the following assumptions: (i) remaining term of 0.96 years, (ii) expected volatility of 85%, (iii) risk-free interest rate of 2.12%, and (iv) no expected dividends. The resulting change in fair value of the warrants, along with the fair value of the common stock issued to PFG, was recognized as an adjustment of warrant liability in the consolidated statements of operations.

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 June 30, 2018 and March 31, 2018.

(8)          Loss Per Share

Basic loss per share (EPS) is calculated by dividing net income or loss by the weighted average common shares outstanding during the period. Diluted EPS reflects the net incremental shares that would be issued if unvested restricted shares became vested and dilutive outstanding stock options were exercised, using the treasury stock method. In the case of a net loss, it is assumed that no incremental shares would be issued because they would be antidilutive. In addition, certain options are considered antidilutive because assumed proceeds from exercise price, related tax benefits and average future compensation was greater than the weighted average number of options outstanding multiplied by the average market price during the period. Shares excluded from the diluted EPS calculation because they would be anti-dilutive are as follows:

	Three Months Ended
(In thousands)	June 30, 2018		June 24, 2017
(in thousands):
Common shares issuable upon exercise of stock options		1,498		1,104
Restricted stock awards		262		350
Issuable shares for interest on loan		25		60
Common shares issuable upon conversion of convertible preferred stock		7,113		1,853
Common shares issuable upon exercise of warrants		3,960		3,737

The stock options, restricted stock, convertible preferred stocks and warrants not included in the computation of diluted earnings per share (EPS) for the three month period ended June 30, 2018 and June 24, 2017 is a result of the Company’s net loss and, therefore, the effect of these instruments would be anti-dilutive.

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(9)          Stock Based Compensation

The Company has established the 2005 Equity Incentive Plan, which provide for the granting of 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. The 2005 Plan has been extended to be effective until 2025. Option grants under the 2000 Stock Option Plan are no longer available. 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 or service arrangement. 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 (SARs), which entitle them to surrender outstanding awards for a cash distribution under certain changes in ownership of the Company, as defined in the stock option plan. As of June 30, 2018, no SAR’s have been granted under the option plan. As of June 30, 2018, the total number of shares of common stock available for issuance was 437,677. All outstanding options have a ten year life from the date of grant. The Company records compensation cost associated with share-based compensation equivalent to the estimated fair value of the awards over the requisite service period.

Stock Options

In calculating compensation related to stock option grants, the fair value of each stock option was estimated on the date of grant using the Black-Scholes-Merton option-pricing model and the following weighted average assumptions: 

	Three Months Ended
	June 30, 2018			June 24, 2017
Dividend yield		—			—
Expected volatility		92.55	%		—
Risk-free interest rate		2.82	%		—
Expected term (years)		8.36			—

The computation of expected volatility used in the Black-Scholes-Merton option-pricing model is based on the historical volatility of the Company’s share price. The expected term is estimated based on a review of historical employee exercise behavior with respect to option grants. The risk-free interest rate is based on the U.S. Treasury rates with maturity similar to the expected term of the option on the date of grant.

 A summary of the changes in stock options outstanding for the three-month period ended June 30, 2018 and the year ended March 31, 2018 is as follows:    

				Weighted Average		Weighted Average Remaining		Aggregate
	Shares			Exercise Price per share		Contractual Terms (Years)		Intrinsic Value
Outstanding at March 25, 2017		1,104,500		$	1.41		6.1	$	3
Granted		856,000			0.34		10.0
Forfeited / Expired		(481,800	)		1.34
Outstanding at March 31, 2018		1,478,700		$	0.56		8.0	$	—
Granted		50,000			0.27		10.0
Forfeited / Expired		(31,000	)		1.41
Outstanding at June 30, 2018		1,497,700		$	0.53		7.8	$	—
Exercisable at June 30, 2018		500,650		$	0.79		4.4	$	—
At June 30, 2018 expected to vest in the future		702,491		$	0.40		9.6	$	—

As of June 30, 2018, there was $205,000 of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted average period of 3.71 years and will be adjusted for subsequent changes in estimated forfeitures. There were 7,200 options that vested during the quarter ended June 30, 2018, and 26,500 options that vested during the quarter ended June 24, 2017. The total fair value of options vested during each of the quarters ended June 30, 2018 and June 24, 2017 was $9,052 and $33,000 respectively. There were no options exercised in the three-month period ended June 30, 2018 and June 24, 2017. Share based compensation cost related to stock options recognized in operating results for the three months ended June 30, 2018 and June 24, 2017 totaled $20,000 and $37,000, respectively.

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Restricted Stock

The Company granted no restricted awards (“RSAs”) during the first quarter of fiscal 2019. No RSAs were granted during the first quarter of fiscal 2018. The RSAs 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. As of June 30, 2018, there was $61,000 of total unrecognized compensation cost related to non-vested RSAs. That cost is expected to be recognized over a weighted average period of 0.87 years and will be adjusted for subsequent changes in estimated forfeitures. Compensation cost recognized for RSAs and unrestricted stock awards in operating results for the three months ended June 30, 2018 and June 24, 2017 totaled $37,000 and $9,000, respectively

A summary of the changes in non-vested RSAs outstanding for the three-month period ended June 30, 2018 and the fiscal year ended March 31, 2018 is as follows:

	Shares			Weighted Average Fair Value
Non-Vested at March 25, 2017		—		$	—
Granted		586,950			0.66
Vested		(51,000	)		(0.60	)
Forfeited or cancelled		(236,000	)		(0.68	)
Non-Vested at March 31, 2018		299,950		$	0.65
Vested		(37,500	)		(0.39	)
Non-Vested at June 30, 2018		262,450		$	0.68

(10)           Significant Customer and Industry Segment Information

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

● The Giga-tronics Division historically produced 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. The Company completed the divestiture of its switch and legacy product lines, and is now solely focused on producing the ASG and the ASA.

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

The tables below present information for the two reportable segments:

	Three Month Periods Ended							Three Month Periods Ended
(In thousands)	At June 30 , 2018		June 30, 2018					At June 24, 2017		June 24, 2017
	Assets		Net Sales		Net Income (Loss)			Assets		Net Sales		Net Income (Loss)
Giga-tronics Division	$	4,418	$	38	$	(1559	)	$	6,153	$	297	$	(1,849	)
Microsource		1,953		1,061		1,272			2,907		1,694		591
Total	$	6,371	$	1,099	$	(287	)	$	9,060	$	1,991	$	(1,258	)

During the first quarter of fiscal 2019, one customer accounted for 64% of the Company’s consolidated revenues and was included in the Microsource segment. A second customer accounted for 31% and was also included in the Microsource segment. During the first quarter of fiscal 2018, one customer accounted for 43% of the Company’s consolidated revenues and was included in the Microsource segment. A second customer accounted for 37% and was also included in the Microsource segment.

(11)          Income Taxes

The Company accounts for income taxes using the asset and liability method as codified in Topic 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.

The Company recorded $62,000 income tax expense for the three months ended June 30, 2018 and no income tax expense for the three months ended June 24, 2017. In April 2018, the Franchise Tax Board (“FTB”) issued its response to the Appeal filed by the Company to dispute the original audit findings related an ongoing audit. As a result of this development, the accrued state tax liability was increased by $62,000, from $45,000 to $107,000. The effective tax rate for the three months ended June 30, 2018 and June 24, 2017 was 0% each year, primarily due to a valuation allowance recorded against the net deferred tax asset balance.

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As of June 30, 2018, the Company had recorded $122,000 for unrecognized tax benefits related to uncertain tax positions. The unrecognized tax benefit is netted against the non-current deferred tax asset on the Consolidated Balance Sheet. The Company does not expect the liability for unrecognized tax benefits to change materially within the next 12 months.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, and imposes new limitations on the utilization of losses incurred in tax years beginning after December 31, 2017. However, the enactment of the legislative changes has not affected the Company’s overall effective tax rate of 0%, due to, as previously noted, a full valuation allowance recorded against the net deferred tax asset balance.

(12)        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)	Three Months Ended June 30, 2018			Three Months Ended June 24, 2017
Balance at beginning of period	$	164		$	123
Provision, net		6			1
Warranty costs incurred		(29	)		(33	)
Balance at end of period	$	141		$	91

(13)       Preferred Stock and Warrants

Series E Senior Convertible Voting Perpetual Preferred Stock

On March 26, 2018, the Company entered into a Securities Purchase Agreement for the sale of 43,800 shares of a newly designated series of 6.0% Series E Senior Convertible Voting Perpetual Preferred Stock (“Series E Shares”) to approximately 15 private investors. The sale was completed and the Series E Shares were issued on March 28, 2018.

The purchase price for each Series E Share was $25.00. Gross proceeds received by the Company were approximately $1.095 million (the “Placement”). Net proceeds to the Company after fees and expenses of the Placement were approximately $1.0 million. Placement agent fees incurred in connection with the transaction were 5% of gross proceeds or approximately $57,000 in cash, plus warrants to purchase 5% of the number of common shares into which the Series E shares can be converted (223,000 shares) at an exercise price of $0.25 per share.

Each Series E Share is initially convertible (at the option of the holder) at a conversion price of $0.25 per share of common stock, representing 100 shares of the Company’s common stock per each Series E Share. The conversion ratio is subject to adjustments for stock splits, stock dividends, recapitalizations and similar transactions. As of March 31, 2018, if all 43,800 issued Series E Shares were immediately converted, holders of such shares would acquire 4,380,000 shares of common stock of the Company, or 31% of the pro forma number of shares of common stock that would be outstanding if the conversion had occurred on this date, 27% of the pro forma number of shares of common stock that would be outstanding upon the conversion of the Company’s outstanding shares of Series B, Series C and Series D Convertible Preferred Stock (collectively, the “Previously Issued Preferred Shares”) and 22% of the pro forma number of shares of common stock that would be outstanding if all shares of preferred stock were converted and all warrants exercised as of this date. The Company is entitled to redeem Series E Shares at a price equal to 300% of the Series E Share purchase price, or $75.00 per share, subject to potential adjustment, but the right to redeem is subject to satisfaction of certain conditions related to the market price and trading volume of the Company’s common stock.

Each Series E Share has a liquidation preference of 150% of the purchase price or $37.50, subject to adjustment. In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, a merger, or a sale of the Company’s MSI business line or Simulation and Electronics Warfare business line or their related assets, before any payment or distribution to holders of junior shares (including common stock and Previously Issued Preferred Stock), holders of Series E Shares will be entitled to receive an amount of cash per share of Series E Shares up to the liquidation preference plus all accumulated accrued and unpaid dividends thereon. Upon a sale of the Company’s MSI business line or Simulation and Electronics Warfare business line or their related assets, holders of Series E Shares shall be entitled to receive a pro rata portion of the net sale proceeds after reasonable transaction expenses and amount payable to the Company’s secured creditors for releases of their liens on such assets, up to the liquidation preference plus accrued and unpaid dividends. If the payment per Series E Shares is less than the Series E Shares’ liquidation preference, the liquidation preference and the Series E Share redemption price will be reduced by the amount of the payment received.

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Holders of Series E Shares are entitled to receive, when, as and if declared by the Company’s Board of Directors, cumulative preferential dividends, payable semiannual in cash at a rate per annum equal to 6.0% of the initial purchase price of $25.00 per share or in-kind (at the Company’s election) through the issuance of shares of the Company’s common stock, based on the 10 day volume weighted average price of the common stock.

Holders of Series E Shares generally vote together with the common stock on an as-converted basis on each matter submitted to the vote or approval of the holders of common stock, and vote as a separate class with respect to certain actions that adversely affect the rights of the holders of Series E Shares and on other matters as required by law. In addition, the approval of the Holders of the Series E shares is generally required prior to the Company’s issuance of any securities having rights senior to or in parity with the Series E Shares with respect to dividends or liquidation preferences. The Series E Shares’ right to approve parity securities will terminate at such time that (1) fewer than 22,300 Series E Shares, which is 50% of the number of Series E Shares first issued, remain outstanding or (2) the volume weighted average closing price of the Company’s common stock for any 20 trading days within any 30 trading day period is $0.75 or more, the average daily trading volume over such 30 trading day period is 100,000 shares or more and there is either an effective registration statement covering resale of the shares of common stock that holders of Series E Shares would be entitled to receive upon conversion and any shares received as pay-in-kind dividends, or such share could be freely sold pursuant to Rule 144 under the Securities Act of 1933, as amended.

The Company and each Series E investor entered into an Investor Rights Agreement. Under this agreement, the Company agreed to, among other things, use best efforts to file certain registration statements for the resale of common stock of the Company that the investor may acquire upon conversion of the Series E Shares and may potentially receive as payment-in-kind dividends during the two years following the date of the agreement. The Company also agreed that it would not issue additional debt without the approval by holders of at least 66.6% of the Series E Shares, other than trade debt incurred in the normal course and commercial bank working capital debt, whether revolving or term debt. Concurrent with the execution of the Securities Purchase Agreement for the Series E Shares, the Company and PFG entered into a modification agreement providing for the restructuring of certain terms associated with approximately $1.7 million in indebtedness owed to PFG (see Note 8 – Term Loans, Revolving Line of Credit and Warrants).

In connection with the sale of Series E Shares, the Company agreed to reduce the exercise price of certain warrants issued in connection with the Company’s private placement in January 2016 (see Note 18 – Private Placement Offering), in which the Company sold (in part) 2,787,872 warrants (a “2016 Warrant”). Each 2016 Warrant entitled the holder to purchase 0.75 shares of the Company’s common stock at the price of $1.15 per whole share. The Company agreed to reduce the exercise price of 2016 Warrants that are held by the 2016 Investors purchasing Series E Shares from $1.15 to $0.25 per share as follows: A 2016 Investor purchasing an amount equal to or exceeding the lesser of $200,000 or 50% of the amount it invested in the 2016 Private Placement will have the exercise price of all of its 2016 Warrants reduced to $0.25, and 2016 Investors purchasing less than the lesser of $200,000 or 50% of the amount it invested in the January 2016 Private Placement will have the exercise price of a ratable percentage of the 2016 Warrants reduced to $0.25. In connection with its sale of the Series E Shares, the Company reduced the exercise price of 1,759,268 of the outstanding 2016 Warrants to $0.25.

The fair value attributable to re-pricing the 2016 Warrants, provided to the participating 2016 Investors, of approximately $203,000, was deducted from the Series E gross proceeds to arrive at the initial discounted carrying value of the Series E Shares. The initial discounted carrying value resulted in recognition of a beneficial conversion feature of approximately $557,000, further reducing the initial carrying value of the Series E Shares. The discount to the aggregate stated value of the Series E Shares, resulting from recognition of the beneficial conversion feature, was immediately accreted as a reduction of common stock and an increase in the carrying value of the Series E Shares. The accretion is presented as a deemed dividend in the consolidated statements of operations.

In addition, warrants to purchase 292,727 shares of common stock held by the placement agent, as a result of a prior transaction, were amended to reduce the exercise price from $1.15 per share to $0.25 per share. The fair value attributable to re-pricing the placement agent warrants of approximately $53,000 was recognized as additional Series E issuance costs and recognized net in the carrying value of Series E Shares.

For the three months ending June 30, 2018, the Company issued an additional 8,800 shares of Series E Senior Convertible Voting Perpetual Preferred Stock at a purchase price of $25.00 per share for total gross proceeds of $220,000.

18

The table below presents information as of June 30, 2018 and March 31, 2018:

Preferred Stock
	Shares		Shares		Shares		Liquidation Preference
	Designated		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
Series E		60,000.00		43,800.00		43,800.00		1,643
Total at March 31, 2018		79,500.00		62,333.51		62,333.51	$	5,183
Series E				9,600.00		9,600.00		360
Total at June 30, 2018		79,500.00		71,933.51		71,933.51	$	5,413

(14)        Subsequent Events

During August 2018, the Company issued an additional 1,400 shares of Series E Senior Convertible Voting Perpetual Preferred Stock at a purchase of $25.00 per share for total gross proceeds of $35,000.

19

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The forward-looking statements included in this report including, without limitation, statements containing the words "believes", "anticipates", "estimates", "expects", "intends" and words of similar import, which reflect management’s best judgment based on factors currently known, involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including but not limited to those listed in Giga-tronics’ Annual Report on Form 10-K for the fiscal year ended March 31, 2018 Part I, under the heading “Risk Factors”, and Part II, under the heading “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

Overview and Refocusing of Giga-tronics

We produce YIG (Yttrium, Iron, Garnet) tuned oscillators, RADAR filters, and microwave synthesizers for use in military defense applications. We also produce sophisticated test and measurement equipment primarily used in electronic warfare test & emulation applications. We have two reporting segments: Microsource and the Giga-tronics Division.

● Microsource primarily develops and manufactures YIG RADAR filters used in fighter jet aircraft for two prime contractors. These YIG RADAR filters are typically delivered pursuant to contracts covering multiple interim and or fiscal year periods and often include non-recurring engineering services for the design or redesign of such products prior to quantity production orders and deliveries thereof.

● The Giga-tronics Division designs, manufactures and markets a family of modular test products for use primarily in the electronic warfare (EW) segment of the defense electronics market. These modular test products represent critical building blocks in the construction of test and simulation systems used to validate the performance of RADAR & EW equipment. Giga-tronics Division customers include major prime defense contractors, the armed services (primarily in the U.S) and research institutes. This product platform for RADAR & EW test & simulation applications (formerly referred to as “Hydra”) has been the Company’s principal new product development initiative since 2011 within the test & measurement equipment marketplace, replacing its broad product line of general purpose benchtop test & measurement products used for the design, production, repair and maintenance of products in the aerospace and telecommunications equipment marketplace. The substantial majority of these legacy product lines which the Company produced over the previous 35 years were sold by the Company between 2013 and 2016 because of lack of growth and poor gross margins. For example, we sold our SCPM product line to Teradyne in 2013; in December 2015, we sold our Power Meters and Amplifiers to Spanawave Corporation; and in June 2016, we sold our Switch product line to Astronics. The Company believes the EW test and simulation product market possesses greater long-term opportunities for revenue growth and improved gross margins compared to the general purpose test & measurement equipment marketplace.

● The recent sales of our legacy general-purpose test & measurement product lines and focus on our Microsource products and our EW test & emulation product platform has allowed us to significantly reduce our headcount and operating expenses during fiscal years 2018 and 2017. For example, our operating expenses for fiscal 2018 were 15% lower as compared to fiscal year 2017 and 30% lower as compared to fiscal year 2016.

The Company believes that customer spending for EW systems, including test and emulation, will grow in future years due to more complex RADAR signals and foreign investment in new technology which will require customers to have greater access to more sophisticated test and emulation equipment.

Although the Company believes its RADAR & EW test products have the potential to significantly grow our sales, we have experienced significant delays in developing, manufacturing, and receiving orders for these products. These EW platform products are the most technically complex and advanced products Giga-tronics has developed and manufactured, and we have experienced delays in bringing the product to market and efficiently manufacturing it. It is also priced significantly higher than our previous general-purpose test & measurement products, and we have experienced longer than anticipated procurement cycles in the electronic warfare market it services. The delays in the development, refinement and manufacturing of the EW platform products, along with the longer than anticipated procurement cycles, have contributed to the significant operating losses in fiscal years 2018 and 2017. Through March 31, 2018, the Company has delivered its new Radar & EW test products to multiple customers resulting in approximately $10 million in cumulative revenue. Additionally, the Company has recently restructured and refocused its sales force towards selling complete test solutions to defense agencies and prime contractors as opposed to component selling. To bring the EW product platform to its full potential, Giga-tronics may be required to seek additional working capital; however, there are no assurances that such working capital will be available, or on terms acceptable to the Company. The Company may also be required to further reduce expenses if EW product platform sales goals are not achieved and thereby restructure its operations to rely solely on its more profitable Microsource MIC component business segment to generate profits and cash from operating activities. As part of such a restructuring, management believes the MIC components which the Company developed for the RADAR & EW test products could be a source of growth for the Microsource business segment.

20

The Company also anticipates growth in its Microsource RADAR filter business because the potential for significant additional future orders for such products and related services.

Significant Orders  

Both Microsource and the Giga-tronics Division receive large customer orders each year. The timing of orders, delivery schedules and any associated milestones achievement, can cause 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:

Microsource

In fiscal 2015, Microsource received a $6.5 million order for non-recurring engineering (“NRE”) services and for delivery of a limited number of flight-qualified prototype hardware from a prime defense contractor to develop a variant of our high performance, fast tuning YIG RADAR filters for a fighter jet aircraft platform. In fiscal 2016 our Microsource business unit finalized an associated multiyear $10.0 million YIG production order (“YIG Production Order”). The Company started shipping the YIG Production Order in the second quarter of fiscal 2017 and anticipates shipping the remainder through fiscal 2020.  

In the first quarter of fiscal 2017, Microsource received a $4.5 million order for a YIG RADAR filter which we have been manufacturing for a fighter jet platform since fiscal 2014. We shipped approximately $4.1 million of this order in fiscal 2017 and shipped the remainder in the first quarter of fiscal 2018.

In July 2016, Microsource received a $1.9 million non-recurring engineering services order associated with redesigning a component of its high performance YIG filter used on a fighter jet aircraft platform. Of this NRE service order, we delivered services of approximately $884,000 and $816,000 in fiscal years 2017 and 2018, respectively, and expect to deliver the remaining services during fiscal 2019.

In September 2017, Microsource received a $4.8 million order for continuing the YIG RADAR filter for a fighter jet platform. The Company began initial shipments of these filters in the fourth quarter of fiscal 2018 and expects to ship the bulk of the order over the succeeding 9 to 12 month period.

In February 2018, Microsource received a $1.6 million YIG RADAR filter order from one of our customers. We expect to start shipping this order in the second quarter of fiscal 2019.

Giga-tronics Division

In June 2016, the Giga-tronics Division received a $3.3 million order from the United States Navy for our Real-Time Threat Emulation System (TEmS) which is a combination of the ASGA hardware platform, along with software developed and licensed to the Company from a major aerospace and defense company. The complete order included ASGA blades, along with engineering services to integrate the Real-Time TEmS product with additional third-party hardware and software for the customer. We fulfilled the order during the fourth quarter of the fiscal 2017. An additional order for $542,000 was received in July 2016 from the United States Navy for our ASG hardware only platform. We fulfilled this order in the second quarter of fiscal 2017.

In July 2017, the Giga-tronics Division received a follow on $1.7 million order from the United States Navy for our TEmS product. We fulfilled this order during the third quarter of fiscal 2018.    

Critical Accounting Policies

Please refer to the section of the Company’s Annual Report on Form 10-K for the year ended March 31, 2018 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Policies” for a discussion of our critical accounting policies. During the three months ended June 30, 2018, there were no material changes to these policies other than as disclosed in Note 1 Organization and Significant Accounting Policies.

In preparing the consolidated financial statements, management is required to make estimates based on the information available that affect the reported amounts of assets and liabilities as of the balance sheet dates and revenues and expenses for the reporting periods. While we believe that these accounting policies and estimates are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates and forecasts.

21

Results of Operations

New orders received by segment are as follows:

NEW ORDERS
	Three Month Periods Ended
(Dollars in thousands)	June 30, 2018		June 24, 2017		% change
Giga-tronics Division	$	52	$	—		100	%
Microsource		413		17		NM
Total	$	465	$	17		NM

New orders received in the first quarter of fiscal 2019 increased to $465,000 from $17,000 received in the first quarter of fiscal 2018. Both the Giga-tronics Division and Microsource segment saw increases in orders in the first quarter of fiscal 2019. The Giga-tronics Division had minimal ASG orders in the first quarter of fiscal 2019. The increase in Microsource business unit orders during the first quarter of fiscal 2019 was attributable to YIG filters orders. The timing of receipt of expected large YIG filter contracts varies from period to period.

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

BACKLOG
(Dollars in thousands)	June 30, 2018		June 24, 2017		% change
Backlog of unfilled orders at end of period:
Giga-tronics Division	$	—	$	444		(100	)%
Microsource		5,824		8,924		(35	)%
Total	$	5,824	$	9,368		(38	)%
Backlog of unfilled orders shippable within one year:
Giga-tronics Division	$	—	$	444		(100	)%
Microsource		3,504		4,058		(14	)%
Total	$	3,504	$	4502		(22	)%

Backlog at the end of the first quarter of fiscal 2019 decreased 38% comparable prior year date primarily due to the impact of the adoption of ASC 606 on April 1, 2018. The Giga-tronics ASG backlog at June 30, 2018 was zero, a decrease of $444,000 from the comparable prior year date due to the fulfilment of the Navy ASG order. Microsource saw a 35% decrease in backlog in the first quarter of fiscal 2019 which was primarily due the impact of the adoption of ASC 606.

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

ALLOCATION OF NET SALES
	Three Month Periods Ended
(Dollars in thousands)	June 30, 2018		June 24, 2017		% Change
Giga-tronics Division	$	129	$	297		(57	)%
Microsource		2,921		1,694		72	%
Total	$	3,050	$	1,991		53	%

Fiscal 2019 first quarter net sales were $3.1 million, a 53% increase as compared to $2.0 million for the first quarter of fiscal 2018. Revenue allocated to Microsource segment increased 72% in part due to the Company’s required adoption of ASC 606 on April 1, 2018 (beginning of the Company’s 2019 fiscal year) using the modified retrospective method. Under ASC 606, revenue is recognized as the customer obtains control of the goods and services promised in the contract. Given the nature of the Company’s products and terms and conditions in the contracts, the customer typically obtains control as the Company performs work under such contract. Therefore, the Company expects to recognize revenue over time for substantially all of its contracts using the percentage-of-completion cost-to-cost method. As a result, the Company is recognizing revenue for these contracts as it incurs costs, as opposed to when units are delivered. This change has resulted in earlier revenue recognition in the performance period as compared to the legacy method for those contracts. In addition, increased Microsource RADAR filter sales contributed to the Company’s higher revenue for the first quarter fiscal 2019 over 2018.

22

Net sales for the Company’s Giga-tronics business unit were $129,000, a 57% decrease from $297,000 in the first quarter of fiscal 2018. The decrease was due to lower ASG product shipments. Sales for the Company’s Advanced Signal Generator (“ASG”) were $100,000 in the first quarter of fiscal 2019 compared to $200,000 in the first quarter of fiscal 2018. 

Gross profit was as follows for the periods shown:

GROSS PROFIT
	Three Month Periods Ended
(Dollars in thousands)	June 30, 2018		June 24, 2017		% change
Total	$	1,306	$	466		180	%

Gross profit increased in the first quarter of fiscal 2019 to $1,306,000 from $466,000 for the first quarter of fiscal 2018. The higher gross profit was due to an increase in the sales of Microsource RADAR filters of 72% with only a 49% increase in Microsource cost of sales in the first quarter of fiscal 2019 over fiscal 2018. In addition, the increase in gross profit was partially due to the acceleration of revenue and related profit resulting from the adoption of ASC 606 as described above.

Operating expenses were as follows for the periods shown:

OPERATING EXPENSES
	Three Month Periods Ended
(Dollars in thousands)	June 30, 2018		June 24, 2017		% change
Engineering	$	375	$	452		(17	)%
Selling, general and administrative		1,001		1,171		(15	)%
Total	$	1,376	$	1,623		(15	)%

Operating expenses decreased 15% or $247,000 in the first quarter of fiscal 2019 over fiscal 2018. Engineering expenses decreased $77,000, primarily due to a decrease in personnel related expenses due to lower headcount. Selling, general and administrative decreased by $170,000 primarily due to a decrease in headcount and personnel related expenses, a decrease in bonuses and commissions, and lower lease and facilities cost as a result of the Company’s relocation to a smaller facility in Dublin, California during May 2017.

Interest Expense

Net interest expense in the first quarter of fiscal 2019 was $177,000, an increase of $75,000 over the first quarter of fiscal 2018. Interest expense increased primarily due to the loan modification with PFG effective March 26, 2018, as well as additional interest accrued as a result of the Company’s Series E Convertible Stock Offering. For the first quarter of fiscal 2019, interest expense includes $50,000 of accretion of discounts on the new PFG loan compared to $22,000 recorded in the first quarter of fiscal 2018.

Net Loss

Net loss for the first quarter of fiscal 2019 was $287,000 compared to a net loss of $1.3 million recorded in the first quarter of fiscal 2018. The decrease in net loss was primarily due to the impact of the adoption of ASC 606 as described above.

Financial Condition and Liquidity

	Periods Ended
	June 30, 2018		March 31, 2018
Cash and cash equivalents	$	748	$	1,485
Total current assets		5,436		7,423
Total current liabilities		4,613		7,809
Working capital	$	823	$	(386	)
Current ratio		1.18		0.95

As of June 30, 2018, Giga-tronics had $748,000 in cash and cash equivalents, compared to $1.5 million as of March 31, 2018. The Company had working capital of $823,000 at June 30, 2018 compared to negative working capital of ($386,000) at March 31, 2018. The current ratio (current assets divided by current liabilities) at June 30, 2018 was 1.18 compared to 0.95 at March 31, 2018. The increase in working capital was primarily due to the acceleration of revenue of $596,000, an increase in prepaids and other current assets of $643,000, a decrease in inventories of $2.0 million, a decrease in deferred revenue of $2.7 million all of which resulted from the adoption of ASC 606 during the first quarter of fiscal 2019.

23

Cash Flows

The following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this filing:

	Three Months Ended
	June 30, 2018			June 24, 2017
Net cash used in operating activities	$	(945	)	$	(1,107	)
Net cash used in investing activities		—			(620	)
Net cash provided by financing activities	$	208		$	1,443

Cash Flows from Operating Activities

Cash used by operating activities during the three months ended June 30, 2018 of $945,000 was primarily attributable to our net loss, changes in our working capital accounts, offset by other non-cash charges of $73,000 for depreciation and amortization and $57,000 for share-based compensation. Cash flow from our operating assets and liabilities decreased by $849,000 as a result of increased inventories of $468,000, a $70,000 increase in accrued payroll and benefits, and a $12,000 increase in other accrued liabilities, offset by a $550,000 decrease in deferred revenue, a $516,000 decrease in prepaid expenses and other current assets, a $94,000 decrease in accounts receivable, and a decrease in accounts payable of $240,000.

Cash used in operating activities was $1.1 million for the three-month period ended June 24, 2017. Cash used in operating activities in the first quarter of fiscal 2018 resulted primarily from our net loss of $1.3 million, a decrease of $441,000 in accounts payable, a decrease of $206,000 in accounts receivable and a decrease of $167,000 in deferred revenues. These were partially offset by non-cash charges of $247,000 for depreciation and amortization and an increase of $451,000 in deferred rent.

We expect that cash flows from operating activities will fluctuate in future periods due to a number of factors including our operating results, amounts of non-cash charges, and the timing of our billings, collections and disbursements.

Cash Flows from Investing Activities

Cash used in investing activities for the three-month period ended June 30, 2018 was zero.

Cash used in investing activities for the three-month period ended June 24, 2017 was $620,000 which was primarily attributable to leasehold improvements in connection with the Company’s facility relocation to Dublin, California.

Cash Flows from Financing Activities

Cash provided by financing activities for the quarter ended June 30, 2018 was $208,000, primarily due to net proceeds of $205,000 from the Company’s issuance of Series E convertible preferred stock.

Cash provided by financing activities for the quarter ended June 24, 2017 was $1.4 million, primarily due to proceeds from the Company’s term loan with PFG which was funded on April 28, 2017.

24

ITEM 3 – QUANTITATI VE 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.

ITEM 4  – CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Principal Accounting & Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 30, 2018, which is the end of the fiscal quarter covered by this report. Based upon that evaluation, the Chief Executive Officer and Principal Accounting & Financial Officer concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurances that (i) the information the Company is required to disclose in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period required by the Commission’s rules and forms, and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officers and Principal Accounting & Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

There were no significant changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

II - OTHER INFORMATION

ITEM 1  – LEGAL PROCEEDINGS  

As of June 30, 2018, the Company has no material pending legal proceedings. From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business.

ITEM 1A   – RISK FACTORS

There has been no material change in the risk factors disclosed in the registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018, except (i) with respect to the matter reported in Item 3, Defaults Upon Senior Securities, below and (ii) a continuing decrease in the Company’s cash flow and liquidity, which increases the level of doubt as to the Company’s ability to continue as a going concern.

ITEM 2  – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.           

ITEM 3  – DEFAULTS UPON SENIOR SECURITIES

On April 27, 2017, the Company entered into a new loan agreement with PFG. Under the terms of the agreement, PFG made a term loan to the Company in the principal amount of $1,500,000. Between June 24, 2017 and March 25, 2018, the Company was not in compliance with the loan’s revenue and tangible net worth financial covenants and was subject to a default interest rate of 22% per annum which it accrued and paid when due during this period.

On March 26, 2018, concurrent with the execution of the Securities Purchase Agreement for the Series E Shares (see Note 13 – Preferred Stock and Warrants - Series E Senior Convertible Voting Perpetual Preferred Stock), the Company and PFG entered into a modification agreement providing for the restructuring of certain terms associated with approximately $1.7 million in indebtedness under the 2017 Loan. Subject to the sale of at least $1.0 million in Series E Shares, PFG agreed to waive all current defaults and cease applying the applicable default interest rate, returning to the stated non-default rate of 16%, and to lower the revenue and tangible net worth covenants for the remaining term of the loan. As consideration for the modifications, the Company reduced the exercise price of outstanding warrants previously granted to PFG pursuant to the 2014 Loan Agreement and Credit Line to purchase 260,000 shares of the Company’s common stock from $1.42 to $0.25 per share and extended the exercisability of the warrants by one year to March 13, 2020.

The amendments to the 2017 Loan were recognized as a loan modification. The change in fair value of the warrants of $43,700, resulting from the reduced strike price and extension of term, was recognized as a discount to the 2017 Loan and is being amortized to interest expense over the remaining term of the 2017 Loan.

The Company anticipates it will need to seek additional funds through the issuance of new debt, equity securities or product line sales in order to repay the 2017 Loan (including accrued interest and back end fees) in full upon maturity or otherwise enter into a refinancing agreement with PFG. However, there can be no assurances that such financings, re-financing or product line sales will be available at all, or on terms acceptable to the Company.

25

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.          

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 –   EXHIBITS

31.1	Certification of Co-Chief Executive Officers pursuant to Section 302 of Sarbanes-Oxley Act.
31.2	Certification of Principal Accounting & Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act.
32.1	Certification of Co-Chief Executive Officers pursuant to Section 906 of Sarbanes-Oxley Act.
32.1	Certification of Principal Accounting& Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act.
101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GIGA-TRONICS INCORPORATED
		(Registrant)
		By:
Date:	August 14, 2018	/s/ John R. Regazzi
		John R. Regazzi
		Chief Executive Officer
		(Principal Executive Officer)
Date:	August 14, 2018	/s/ Lutz P. Henckels
		Lutz P. Henckels
		Acting Chief Financial Officer
		Principal Accounting & Officer

27

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 quarterly report on Form 10-Q of Giga-tronics Incorporated;

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:	August 14, 2018
		/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, Lutz P. Henckels, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Giga-tronics Incorporated;

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:	August 14, 2018
		/s/ Lutz P. Henckels
		Lutz P. Henckels
		Acting Chief Financial Officer
		Principal Accounting & Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Giga-tronics Incorporated (the "Company") on Form 10-Q for the period ending June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Regazzi, Co-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:	August 14, 2018
		/s/ John R. Regazzi
		John R. Regazzi
		Chief Executive Officer

In connection with the quarterly report of Giga-tronics Incorporated (the "Company") on Form 10-Q for the period ending June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lutz P. Henckels, Chief Financial 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:	August 14, 2018
		/s/ Lutz P. Henckels
		Lutz P. Henckels
		Acting Chief Financial Officer
		Principal Accounting & Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Jun. 30, 2018	Jul. 26, 2018
Document Information [Line Items]
Entity Registrant Name	GIGA TRONICS INC
Entity Central Index Key	0000719274
Trading Symbol	giga
Current Fiscal Year End Date	--03-31
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)		10,418,953
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2018	Mar. 31, 2018
Current assets:
Cash and cash-equivalents	$ 748	$ 1,485	[1]
Trade accounts receivable, net of allowance of $8 and $8, respectively	458	364	[1]
Inventories, net	3,438	5,487	[1]
Prepaid expenses and other current assets	792	87	[1]
Total current assets	5,436	7,423	[1]
Property and equipment, net	760	833	[1]
Other long term assets	175	175	[1]
Total assets	6,371	8,431	[1]
Liabilities and shareholders' equity
Line of credit	552	552	[1]
Accounts payable	756	996	[1]
Loan payable, net of discounts and issuance costs	1,523	1,447	[1]
Accrued payroll and benefits	413	343	[1]
Deferred revenue	257	3,374	[1]
Deferred rent, net of long term portion	62	58	[1]
Capital lease obligations	40	40	[1]
Deferred liability related to asset sale	51	52	[1]
Other current liabilities	959	947	[1]
Total current liabilities	4,613	7,809	[1]
Long term deferred rent	411	429	[1]
Long term obligations - capital lease	50	62	[1]
Total liabilities	5,074	8,300	[1]
Commitments and contingencies
Shareholders' equity:
Common stock no par value; Authorized - 40,000,000 shares; 10,418,953 shares at June 30, 2018 and 10,312,653 shares at March 31, 2018 issued and outstanding	25,272	25,200	[1]
Accumulated deficit	(27,793)	(28,682)	[1]
Total shareholders' equity	1,297	131	[1]
Total liabilities and shareholders' equity	6,371	8,431	[1]
Series A Preferred Stock [Member]
Shareholders' equity:
Preferred stock			[1]
Series B, C, and D Preferred Stock [Member]
Shareholders' equity:
Preferred stock	2,911	2,911	[1]
Series E Preferred Stock [Member]
Shareholders' equity:
Preferred stock	$ 907	$ 702	[1]

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands	Jun. 30, 2018	Mar. 31, 2018	[1]
Trade accounts receivable, allowance	$ 8	$ 8
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, issued (in shares)	10,418,953	10,312,653
Common stock, outstanding (in shares)	10,418,953	10,312,653
Series A Preferred Stock [Member]
Preferred stock, authorized (in shares)	250,000	250,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Series B, C, and D Preferred Stock [Member]
Preferred stock, 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
Series E Preferred Stock [Member]
Preferred stock, authorized (in shares)	60,000	60,000
Preferred stock, issued (in shares)	53,400	43,800
Preferred stock, outstanding (in shares)	53,400	43,800
Preferred stock, liquidation preference	$ 2,003	$ 1,643

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Jun. 30, 2018	Jun. 24, 2017
Revenue	$ 2,843,000	$ 1,991,000
Cost of goods and services	774,000	1,525,000
Gross margin	1,306,000	466,000
Operating expenses:
Engineering	375,000	452,000
Selling, general and administrative	1,001,000	1,171,000
Total operating expenses	1,376,000	1,623,000
Operating loss	(70,000)	(1,157,000)
Interest expense:
Interest expense, net	(127,000)	(79,000)
Interest expense from accretion of loan discount	(50,000)	(22,000)
Total interest expense, net	(177,000)	(101,000)
Loss before income taxes	(247,000)	(1,258,000)
Provision for income taxes	62,000	0
Net loss	$ (287,000)	$ (1,258,000)
Loss per common share - basic (in dollars per share)	$ (0.03)	$ (0.13)
Loss per common share - diluted (in dollars per share)	$ (0.03)	$ (0.13)
Weighted average common shares used in per share calculation:
Basic (in shares)	10,419	9,715
Diluted (in shares)	10,419	9,715
Product [Member]
Revenue	$ 207,000	$ 316,000
Service [Member]
Revenue	$ 2,843,000	$ 1,675,000

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Jun. 30, 2018		Jun. 24, 2017
Cash flows from operating activities:
Net loss	$ (287,000)		$ (1,258,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	73,000		247,000
Stock based compensation	57,000		46,000
Estimated equity forward			46,000
Accretion of discounts on debt	50,000		22,000
Accrued interest and fees on loan payable	25,000
Change in deferred rent	(14,000)		451,000
Changes in operating assets and liabilities:
Trade accounts receivable	(94,000)		206,000
Inventories	468,000		(178,000)
Prepaid expenses and other assets	(516,000)		75,000
Accounts payable	(240,000)		(441,000)
Accrued payroll and benefits	70,000		(156,000)
Deferred revenue	(550,000)		(167,000)
Other current liabilities	12,000
Net cash used in operating activities	(945,000)		(1,107,000)
Cash flows from investing activities:
Purchases of property and equipment			(620,000)
Net cash used in investing activities			(620,000)
Cash flows from financing activities:
Principal payments on capital leases	(12,000)		(13,000)
Proceeds from borrowings, net of issuance costs			1,456,000
Proceeds from issuance of preferred stock, net of issuance costs	205,000
Exercise of warrants	15,000
Net cash provided by financing activities	208,000		1,443,000
Decrease in cash and cash-equivalents	(737,000)		(284,000)
Beginning cash and cash-equivalents	1,485,000	[1]	1,421,000
Ending cash and cash-equivalents	748,000		1,137,000
Supplementary disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest	61,000		39,000
Supplementary disclosure of noncash activities:
Cumulative effect of adoption of ASC 606 on inventory	(1,581,000)
Cumulative effect of adoption of ASC 606 on prepaid expenses and other current assets	189,000
Cumulative effect of adoption of ASC 606 on deferred revenue	2,567,000
Common stock issued in connection with debt issuance			156,000
Fully depreciated equipment disposal			$ 377,000

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Note 1 - Organization and Significant Accounting Policies

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

(

1

)          Organization and Significant Accounting Policies

The condensed consolidated financial statements included herein have been prepared by Giga-tronics Incorporated (“Giga-tronics” or the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated results of operations for the interim periods shown in this report are

not

necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments (consisting of normal recurring entries) necessary to make the consolidated results of operations for the interim periods a fair statement of such operations. For further information, refer to the consolidated financial statements and footnotes thereto, included in the Annual Report on Form

10

-K, filed with the Securities and Exchange Commission for the year ended

March 31, 2018.

 

Principles of Consolidation

The consolidated financial statements include the accounts of Giga-tronics and its wholly-owned subsidiary, Microsource, Inc. (“Microsource”). All significant intercompany balances and transactions have been eliminated in consolidation

Derivatives

The Company accounts for certain of its warrants and embedded debt features as derivatives. Changes in fair values are reported in earnings as gain or loss on adjustment of these instruments to fair value. 

Revenue Recognition and Deferred Revenue

Beginning

April 

1,

2018,

the Company follows the provisions of ASU

2014

-

09

as subsequently amended by the FASB between

2015

and

2017

and collectively known as ASC Topic

606,

 

Revenue from Contracts with Customers

(“ASC

606”

)

. Amounts for prior periods are

not

adjusted and continue to be reported in accordance with the Company’s historic accounting practices. The guidance provides a unified model to determine how revenue is recognized. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.

The Company generates revenue through the design, manufacture, and sale of products used in defense industry to major prime defense contractors, the armed services (primarily in the U.S.) and research institutes. There is generally

one

performance obligation in the Company’s contracts with its customers. For highly engineered products, the customer typically controls the work in process as evidenced either by contractual termination clauses or by the Company’s right to payment for costs incurred to date plus a reasonable profit for products or services that do

not

have an alternative use. In these circumstances, the performance obligation is the design and manufacturing service. As control transfers continuously over time on these contracts, revenue is recognized based on the extent of progress towards completion of the performance obligation using a cost-to-cost method. Engineering services are also satisfied over time and recognized on the cost-to-cost method. These types of revenue arrangements are typical for our defense contracts within the Microsource segment for its YIG RADAR filter products used in fighter jet aircrafts.

For the sale of standard or minimally customized products, the performance obligation is the series of finished products which are recognized at the points in time the units are transferred to the control of the customer, typically upon shipment. This type of revenue arrangement is typical for our commercial contracts within the Giga-tronics segment for its Advanced Signal Generation and Analysis system products used for testing RADAR and Electronic Warfare (“EW”) equipment.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic

606.

The Company’s performance obligations include:

● Design and manufacturing services

● Product supply – Distinct goods or services that are substantially the same

● Engineering services

The majority of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods or services is

not

separately identifiable from other promises in the contracts and, therefore,

not

distinct. The Company’s revenue in fiscal

2019

under ASC

606

primarily relates to design and manufacturing services, there was

no

product supply, and engineering services were

$56,000.

Transaction Price

The Company has both fixed and variable consideration. Under the Company’s highly engineered design and manufacturing arrangements, advance payments and unit prices are considered fixed, as product is

not

returnable and the Company has an enforceable right to reimbursement in the event of a cancellation. For standard and minimally customized products, payments can include variable consideration, such as product returns and sales allowances. The transaction price in engineering services arrangements

may

include estimated amounts of variable consideration, including award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. Milestone payments are identified as variable consideration when determining the transaction price. At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. The Company estimates variable consideration at the amount to which they expect to be entitled, and determines whether to include estimated amounts as a reduction in the transaction price based largely on an assessment of the conditions that might trigger an adjustment to the transaction price and all information (historical, current and forecasted) that is reasonably available to the Company. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will

not

occur when the estimation uncertainty is resolved.

Allocation of Consideration

As part of the accounting for arrangements that contain multiple performance obligations, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. When a contract contains more than

one

performance obligation, the Company uses key assumptions to determine the stand-alone selling price of each performance obligation. Because of the customized nature of products and services, estimated stand-alone selling prices for most performance obligations are estimated using a cost-plus margin approach. For non-customized products, list prices generally represent the standalone selling price. The Company allocates the total transaction price to each performance obligation based on the estimated relative stand-alone selling prices of the promised goods or service underlying each performance obligation.

Timing of Recognition

Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress as this measure best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recognized for design and manufacturing services and for engineering services over time proportionate to the costs that the Company has incurred to perform the services using the cost-to-cost input method and for products at a point in time. Approximately

99%

of the Company’s revenue is recognized over time, with the remaining

1%

recognized at a point in time.

Changes in Estimates

The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

For contracts using the cost-to-cost method, management reviews the progress and execution of the performance obligations. This process requires management judgment relative to estimating contract revenue and cost, and making assumptions for delivery schedule. This process requires management’s judgment to make reasonably dependable cost estimates. Since certain contracts extend over a longer period of time, the impact of revisions in cost and revenue estimates during the progress of work

may

adjust the current period earnings through a cumulative catch-up basis. This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters. Contract cost and revenue estimates for significant contracts are generally reviewed and reassessed quarterly. Revenue recognized over time using the cost-to-cost method represented approximately

99%

of revenue for the

first

quarter of

2019.

The aggregate effects of these changes on contracts in the

first

quarter of

2019

was nominal.

Balance Sheet Presentation

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. Under the typical payment terms of over time contracts, the customer pays either performance-based payments or progress payments. Amounts billed and due from customers are classified as receivables on the Condensed Consolidated Balance Sheet. Interim payments

may

be made as work progresses, and for some contracts, an advance payment

may

be made. A liability is recognized for these interim and advance payments in excess of revenue recognized and is presented as a contract liability which is included within accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheet. Contract liabilities typically are

not

considered a significant financing component because these cash advances are used to meet working capital demands that can be higher in the early stages of a contract. When revenue recognized exceeds the amount billed to the customer, an unbilled receivable (contract asset) is recorded for the amount the Company is entitled to receive based on its enforceable right to payment.

Remaining performance obligations represent the transaction price of firm orders for which work has

not

been performed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity).

Recognition Prior to

April 1, 2018

Prior to

April 1, 2018

under the legacy GAAP, the Company recorded revenue when there was persuasive evidence of an arrangement, delivery had occurred, the price was fixed and determinable, and collectability was reasonably assured. This occurred when products were shipped or the customer accepted title transfer. If the arrangement involved acceptance terms, the Company deferred revenue until product acceptance was received. On certain large development contracts, revenue was recognized upon achievement of substantive milestones.  Advanced payments were recorded as deferred revenue until the revenue recognition criteria described above had been met. Amounts for periods ending prior to

April 1, 2018

have

not

been adjusted for ASC

606

and continue to be reported in accordance with the Company’s previous accounting practices.

New Accounting Standards

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 of the adoption of ASU

2016

-

02

on its consolidated financial statements.

In 

May 2014, 

the FASB issued ASU 

2014

-

09

 (“ASC

606”

), Revenue from Contracts with Customers. In 

August 2015 

and 

March, 

April, 

May 

and 

December 2016, 

the FASB issued additional amendments to the new revenue guidance relating to reporting revenue on a gross versus net basis, identifying performance obligations, licensing arrangements, collectability, noncash consideration, presentation of sales tax, transition, and clarifying examples. Collectively these are referred to as ASC Topic

606,

which replaces all legacy GAAP guidance on revenue recognition and eliminates all industry-specific guidance. ASC

606

 establishes a broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. ASU ASC

606

 was further updated to provide clarification on a number of specific issues as well as requiring additional disclosures. ASC

606

 

may 

be applied either retrospectively or through the use of a modified-retrospective method. The full retrospective method requires companies to recast each prior reporting period presented as if the new guidance had always existed. Under the modified retrospective method, companies would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application. ASC

606

is effective for annual reporting periods beginning after

December 

15,

2017,

and early adoption is permitted beginning in the

first

quarter of

2017.

The Company adopted ASC

606

on 

April 1, 2018 (

beginning of the Company’s fiscal year) using the modified retrospective method. Under this approach, 

no

 restatement of fiscal years 

2017

 or 

2018

 was required. Rather, the effect of the adoption was recorded as a cumulative adjustment decreasing the opening balance of accumulated deficit at 

April 1, 2018.

The most significant change relates to the timing of revenue and cost recognition on the Company’s customer contracts. Under ASC

606,

revenue is recognized as the customer obtains control of the goods and services promised in the contract. Given the nature of the Company’s products and terms and conditions in the contracts, the customer typically obtains control as the Company performs work under such contract. Therefore, the Company expects to recognize revenue over time for substantially all of its contracts using the percentage-of-completion cost-to-cost method. As a result, the Company now recognizes revenue for these contracts as it incurs costs, as opposed to when units are delivered. This change has generally resulted in earlier revenue recognition in the performance period as compared to the legacy method for those contracts, giving rise to a decrease to the Company’s opening balance of accumulated deficit as of

April 1, 2018.

Adopting ASC

606,

Revenue from Contracts with Customers, involves significant new estimates and judgments such as estimating stand-alone selling prices, variable consideration, and total costs to complete the contract. All of the estimates are subject to change during the performance of the contract which

may

cause more variability due to significant estimates involved in the new accounting.

The cumulative effect of the changes made to the Company’s consolidated

April 1, 2018

balance sheet for the adoption of Topic

606

were as follows (in thousands):

	Balance at March 31, 2018			Topic ASC 606 Adjustments			Balance at April 1, 2018
Assets
Prepaid and other current assets	$	87		$	188		$	275
Inventories, net		5,487			(1,581	)		3,906
Liabilities
Deferred revenue	$	3,374		$	(2,568	)	$	806
Stockholders' Equity
Accumulated deficit	$	(28,682	)	$	1,176		$	(27,506	)

In accordance with the requirements of Topic

606,

the disclosure of the impact of adoption on our condensed consolidated income statement and balance sheet for the

first

quarter ended

June 30, 2018

was as follows (in thousands except for net loss per share):

For the first quarter ended June 30, 2018	Without ASC 606 Adoption			Topic ASC 606 Adjustments			As Reported
Assets
Prepaid and other current assets	$	149		$	643		$	792
Inventories, net		5,406			(1,968	)		3,438
Liabilities
Deferred revenue	$	2,966		$	(2,709	)		257
Stockholders' Equity
Accumulated deficit	$	(29,177	)	$	1,384			(27,793	)
Revenue
Revenue	$	2,247		$	596		$	2,843
Costs of services
Costs of services	$	416		$	358			774
Net loss	$	(525	)	$	(238	)		(287	)
Net loss per share, basic and fully diluted	$	(0.05	)	$	0.02		$	(0.03	)

XML

Note 2 - Going Concern and Management's Plan

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Substantial Doubt about Going Concern [Text Block]

(

2

)          Going Concern and Management’s Plan

The Company incurred net losses of

$287,000

in the

first

quarter of fiscal

2019

and

$3.1

million in fiscal year

2018.

These losses have contributed to an accumulated deficit of

$27.8

million as of

June 30, 2018.

The Company used cash flow in operations totaling

$945,000

and

$1.1

million in the

first

quarters of fiscal

2019

and

2018,

respectively. The Company has also experienced delays in the development of features, receipt of orders, and shipments for our new EW test system products. These delays have significantly contributed to our continued losses, liquidity concerns and accumulated deficits.

Our EW test system products have shipped to several customers, but potential delays in the refinement of features, longer than anticipated sales cycles, or the ability to efficiently manufacture our EW test system products, 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 which expires on

May 6, 2019.

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

June 30, 2018,

the line of credit had an outstanding balance of

$582,000,

and additional borrowing capacity of

$143,000.

In

April 2017,

we entered into a

$1.5

million loan agreement with Partners For Growth, V L.P. (“PFG”) to provide additional cash to fund our operations. As a result of experiencing continued delays in receiving EW test system product orders in fiscal

2018,

we were unable to maintain compliance with certain financial covenants required by the PFG loan and, as a result, were subject to a default interest rate between

June 2017

and

March 2018.

On

March 26, 2018,

and concurrent with the execution of certain stock purchase agreements for the sale of new Series E Convertible Preferred Stock and conditional upon the sale of at least

$1.0

million in gross proceeds thereof, the Company and PFG entered into a modification agreement which provided for the restructuring of certain terms of the PFG loan including resetting of the financial covenants for the remaining loan term (see Note

6,

Term Loans, Revolving Line of Credit and Warrants).

In order to raise additional working capital and to restructure the PFG loan, on

March 26, 2018,

the Company entered into a Securities Purchase Agreement for the sale of

43,800

shares of a newly designated series of

6.0%

Series E Senior Convertible Voting Perpetual Preferred Stock (“Series E Shares”) to approximately

15

private investors. The purchase price for each Series E Share was

$25.00.

Gross proceeds received by the Company were approximately

$1.095

million (the “Placement”). Net proceeds to the Company after fees and expenses of the placement agent were approximately

$1.0

million. Each Series E Share is initially convertible into common stock at the option of the holder at the conversion price of

$0.25

per share, which is equivalent to

100

shares of the Company’s common stock for each Series E Share (see Note

13,

Preferred Stock and Warrants – Series E Senior Convertible Voting Perpetual Preferred Stock).

To assist with the upfront purchases of inventory required for future product deliveries, the Company entered into advance payment arrangements with certain customers, whereby the customers reimburse the Company for raw material purchases prior to the shipment of the finished products. 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 its business including, but

not

limited to, the contribution of its individual business segments, 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 and liquidity through debt (including debt refinancing), equity financing or possible product line sales or cessation of unprofitable business product lines, however there are

no

assurances that such financings or product line sales will be available at all, or on terms acceptable to the Company.

Our historical operating results and forecasting uncertainties indicate that substantial doubt exists related to 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 operations at least

twelve

months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to maintain or generate additional liquidity, including the availability of additional financing, or whether such actions would generate the expected liquidity as currently planned. Forecasting uncertainties also exist with respect to our EW test system product line due to the potential longer than anticipated sales cycles, as well as with potential delays in the refinement of certain features or requisition of certain components and/or our ability to efficiently manufacture it in a timely manner.

The accompanying consolidated financial statements have been prepared assuming that 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.

XML

Note 3 - Revenue Recognition

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

(

3

)         Revenue Recognition

The following table presents changes in the Company’s contract assets and liabilities for the

three

months ended

June 30, 2018.

	Balance at Beginning of the Period			Additions			Deductions		Balance at the end of the Period
	(in thousands)
Contract Assets	$	189		$	466		$	12	$	643
Contract Liabilities: Deferred Revenue	$	(806	)	$	(248	)	$	787	$	257

During the

three

months ended

June 30, 2018,

the Company recognized the following revenues (in thousands).

Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	559
New activities in the period:
Changes in estimates		(29	)
Performance obligations satisfied		2,313
Total services revenue	$	2,843

As of

June 30, 2018,

the aggregate amount of the transaction price allocated to remaining performance obligations was

$257,000,

which the Company expects to recognize into revenue within the next

twelve

months.

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Note 4 - Inventories

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

(

4

)         

 Inventories

Inventories consisted of the following:

(In thousands)	June 30 , 201 8		March 31 , 201 8
Raw materials	$	1,147	$	2,290
Work-in-progress		1,749		2,100
Finished goods		81		561
Demonstration inventory		461		536
Total	$	3,438	$	5,487

XML

Note 5 - Accounts Receivable Line of Credit

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

(

5

)      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 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. On

May 23, 2017,

the Company renewed this credit line (which expired on

May 7, 2017)

through

May 6, 2019.

The loan agreement 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, 2019

and bears an interest rate, equal to

1.5%

over the bank’s prime rate of interest. Interest is payable monthly with principal due upon maturity. The Company paid an annual commitment fee of

$12,500

in

May 2017.

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

150%

(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

June 30, 2018,

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

June 30, 2018,

the Company had outstanding borrowings of

$552,000

under the line of credit.

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Note 6 - Term Loans, Revolving Line of Credit and Warrants

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Long-term Debt [Text Block]

(

6

)

       Term Loan

s

, Revolving Line of Credit and Warrants

On

April 27, 2017,

the Company entered into a

$1,500,000

loan agreement with Partners For Growth V, L.P. (“PFG”), which was funded by PFG on

April 28, 2017 (

the

“2017

Loan”). The

2017

Loan, which matures on

April 27, 2019,

provides for interest only payments during the term of the loan with principal and any accrued interest and fees due upon maturity. The

2017

Loan bears interest at a fixed aggregate per annum rate equal to

16%

per annum, of which

9.5%

per annum rate is payable monthly in cash and

6.5%

per annum rate is accrued monthly and due upon maturity. In addition, the Company agreed to pay PFG a cash fee of up to

$100,000

payable upon maturity (the “back-end fee”),

$76,000

of which was earned on

April 27, 2017,

and

$24,000

of which is earned at the rate of

$1,000

per month on the

first

day of each month if the loan principal (or any amount thereof) is outstanding during any day of the prior month.

Additionally, the

2017

Loan provides for the Company’s issuance of up to

250,000

common shares to PFG, of which

190,000

was eaned by PFG upon signing (

April 27, 2017)

and

60,000

of which is earned at the rate of

2,500

per month on the

first

day of each month if the loan principal (or any amount thereof) is outstanding during any day of the prior month. The

2017

Loan provided for certain financial covenants related to the revenue achievement and maintenance of tangible net worth. PFG can accelerate the maturity of the loan in case of a default and the Company can prepay the loan before maturity without interest prepayments or penalty. The Company has pledged all of its assets as collateral for the

2017

Loan, including all its accounts, inventory, equipment, deposit accounts, intellectual property and all other personal property. The

2017

Loan is subordinate to the Bridge Bank line of credit (see Note

5,

Accounts Receivable Line of Credit).

The requirement to issue

60,000

shares of the Company’s common stock over the term of the loan is an embedded derivative (an embedded equity forward). The Company evaluated the embedded derivative in accordance with ASC

815

-

15

-

25.

The embedded derivative is

not

clearly and closely related to the debt host instrument and therefore is being separately measured at fair value, with subsequent changes in fair value being recognized in the consolidated statements of operations.

The proceeds received upon issuing the loan were allocated to: i) common stock, for the fair value of the

190,000

shares of common stock initially issued to the lender; ii) the fair value of the embedded derivative; and iii) the loan host instrument. Upon issuance of the loan, the Company recognized

$1,576,000

of principal payable to PFG, representing the stated principal balance of

$1,500,000

plus the initial back-end fee of

$76,000.

The initial carrying value of the loan was recognized net of debt discount aggregating approximately

$326,000,

which is comprised of the following:

Fees paid to the lender and third parties	$	44,000
Back-end fee		76,000
Estimated fair value of embedded equity forward		49,000
Fair value of 190,000 shares of common stock issued to lender		157,000
Aggregate discount amount	$	326,000

The bifurcated embedded derivative and the debt discount are presented net with the related loan balance in the consolidated balance sheets. The debt discount is being amortized to interest expense over the loan’s term using the effective interest method. During the fiscal year ended

March 31, 2018,

the Company amortized discounts of approximately

$127,000

to interest expense. As of

June 30, 2018,

the Company had issued to PFG

375,000

common shares under the loans.

PFG’s ability to call the debt on default (contingent put) and its ability to assess interest rate at a default rate (contingent interest) are embedded derivatives, which the Company evaluated. The fair value of these embedded features was determined to be immaterial and was

not

bifurcated from the debt host for accounting purposes.

Between

June 24, 2017

and

March 25, 2018,

the Company was

not

in compliance with the loan’s revenue and tangible net worth financial covenants and was subject to a default interest rate of

22%

per annum which it accrued and paid when due during this period.

On

March 26, 2018,

concurrent with the execution of the Securities Purchase Agreement for the Series E Shares (see Note

13

– Preferred Stock and Warrants - Series E Senior Convertible Voting Perpetual Preferred Stock), the Company and PFG entered into a modification agreement providing for the restructuring of certain terms associated with approximately

$1.7

million in indebtedness under the

2017

Loan. Subject to the sale of at least

$1.0

million in Series E Shares, PFG agreed to waive all current defaults and cease applying the applicable default interest rate, returning to the stated non-default rate of

16%,

and to lower the revenue and tangible net worth covenants for the remaining term of the loan. As consideration for the modifications, the Company reduced the exercise price of outstanding warrants previously granted to PFG pursuant to the

2014

Loan Agreement and Credit Line to purchase

260,000

shares of the Company’s common stock from

$1.42

to

$0.25

per share and extended the exercisability of the warrants by

one

year to

March 13, 2020.

The amendments to the

2017

Loan were recognized as a loan modification. The change in fair value of the warrants of

$43,700,

resulting from the reduced strike price and extension of term, was recognized as a discount to the

2017

Loan and is being amortized to interest expense over the remaining term of the

2017

Loan.

The Company anticipates it will need to seek additional funds through the issuance of new debt, equity securities or product line sales in order to repay the

2017

Loan (including accrued interest and back end fees) in full upon maturity or otherwise enter into a refinancing agreement with PFG. However, there can be

no

assurances that such financings, re-financing or product line sales will be available at all, or on terms acceptable to the Company.

XML

Note 7 - Fair Value

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

(

7

)

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 carrying value of the outstanding PFG loan approximates the estimated aggregate fair value and classified with the loan host. The fair value estimate of the embedded equity forward is based on the closing price of the Company’s common stock on the measurement date, the risk-free rate, the date of expiration, and any expected cash distributions of the underlying asset before expiration. The estimated fair value of the embedded equity forward represents a Level

2

measurement.

On

March 26, 2018,

the Company and PFG agreed to eliminate the cash put provision contained in warrants in exchange for the Company issuing

150,000

shares of the Company’s common stock. Upon removal of the put, the warrants were re-valued using the Black-Scholes option-pricing model with the following assumptions: (i) remaining term of

0.96

years, (ii) expected volatility of

85%,

(iii) risk-free interest rate of

2.12%,

and (iv)

no

expected dividends. The resulting change in fair value of the warrants, along with the fair value of the common stock issued to PFG, was recognized as an adjustment of warrant liability in the consolidated statements of operations.

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

June 30, 2018

and

March 31, 2018.

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Note 8 - Loss Per Share

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

(

8

)         

Loss Per Share

Basic loss per share (EPS) is calculated by dividing net income or loss by the weighted average common shares outstanding during the period. Diluted EPS reflects the net incremental shares that would be issued if unvested restricted shares became vested and dilutive outstanding stock options were exercised, using the treasury stock method. In the case of a net loss, it is assumed that

no

incremental shares would be issued because they would be antidilutive. In addition, certain options are considered antidilutive because assumed proceeds from exercise price, related tax benefits and average future compensation was greater than the weighted average number of options outstanding multiplied by the average market price during the period. Shares excluded from the diluted EPS calculation because they would be anti-dilutive are as follows:

	Three Months Ended
(In thousands )	June 30, 2018		June 24, 2017
(in thousands):
Common shares issuable upon exercise of stock options		1,498		1,104
Restricted stock awards		262		350
Issuable shares for interest on loan		25		60
Common shares issuable upon conversion of convertible preferred stock		7,113		1,853
Common shares issuable upon exercise of warrants		3,960		3,737

The stock options, restricted stock, convertible preferred stocks and warrants

not

included in the computation of diluted earnings per share (EPS) for the

three

month period ended

June 30, 2018

and

June 24, 2017

is a result of the Company’s net loss and, therefore, the effect of these instruments would be anti-dilutive.

XML

Note 9 - Share Based Compensation

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

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

(

9

)          S

tock

Based Compensation

The Company has established the

2005

Equity Incentive Plan, which provide for the granting of 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. The

2005

Plan has been extended to be effective until

2025.

Option grants under the

2000

Stock Option Plan are

no

longer available. 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 or service arrangement. 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 (SARs), which entitle them to surrender outstanding awards for a cash distribution under certain changes in ownership of the Company, as defined in the stock option plan. As of

June 30, 2018,

no

SAR’s have been granted under the option plan. As of

June 30, 2018,

the total number of shares of common stock available for issuance was

437,677.

All outstanding options have a

ten

year life from the date of grant. The Company records compensation cost associated with share-based compensation equivalent to the estimated fair value of the awards over the requisite service period.

Stock

Options

In calculating compensation related to stock option grants, the fair value of each stock option was estimated on the date of grant using the Black-Scholes-Merton option-pricing model and the following weighted average assumptions: 

	Three Months Ended
	June 30, 2018			June 2 4 , 2017
Dividend yield		—			—
Expected volatility		92.55	%		—
Risk-free interest rate		2.82	%		—
Expected term (years)		8.36			—

The computation of expected volatility used in the Black-Scholes-Merton option-pricing model is based on the historical volatility of the Company’s share price. The expected term is estimated based on a review of historical employee exercise behavior with respect to option grants. The risk-free interest rate is based on the U.S. Treasury rates with maturity similar to the expected term of the option on the date of grant.

 A summary of the changes in stock options outstanding for the

three

-month period ended

June 30, 2018

and the year ended

March 31, 2018

is as follows:    

				Weighted Average		Weighted Average Remaining		Aggregate
	Shares			Exercise Price per share		Contractual Terms (Years)		Intrinsic Value
Outstanding at March 25, 2017		1,104,500		$	1.41		6.1	$	3
Granted		856,000			0.34		10.0
Forfeited / Expired		(481,800	)		1.34
Outstanding at March 31, 2018		1,478,700		$	0.56		8.0	$	—
Granted		50,000			0.27		10.0
Forfeited / Expired		(31,000	)		1.41
Outstanding at June 30, 2018		1,497,700		$	0.53		7.8	$	—
Exercisable at June 30, 2018		500,650		$	0.79		4.4	$	—
At June 30, 2018 expected to vest in the future		702,491		$	0.40		9.6	$	—

As of

June 30, 2018,

there was

$205,000

of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted average period of

3.71

years and will be adjusted for subsequent changes in estimated forfeitures. There were

7,200

options that vested during the quarter ended

June 30, 2018,

and

26,500

options that vested during the quarter ended

June 24, 2017.

The total fair value of options vested during each of the quarters ended

June 30, 2018

and

June 24, 2017

was

$9,052

and

$33,000

respectively. There were

no

options exercised in the

three

-month period ended

June 30, 2018

and

June 24, 2017.

Share based compensation cost related to stock options recognized in operating results for the

three

months ended

June 30, 2018

and

June 24, 2017

totaled

$20,000

and

$37,000,

respectively.

Restricted Stock

The Company granted

no

restricted awards (“RSAs”) during the

first

quarter of fiscal

2019.

No

RSAs were granted during the

first

quarter of fiscal

2018.

The RSAs 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. As of

June 30, 2018,

there was

$61,000

of total unrecognized compensation cost related to non-vested RSAs. That cost is expected to be recognized over a weighted average period of

0.87

years and will be adjusted for subsequent changes in estimated forfeitures. Compensation cost recognized for RSAs and unrestricted stock awards in operating results for the

three

months ended

June 30, 2018

and

June 24, 2017

totaled

$37,000

and

$9,000,

respectively

A summary of the changes in non-vested RSAs outstanding for the

three

-month period ended

June 30, 2018

and the fiscal year ended

March 31, 2018

is as follows:

	Shares			Weighted Average Fair Value
Non-Vested at March 25, 2017		—		$	—
Granted		586,950			0.66
Vested		(51,000	)		(0.60	)
Forfeited or cancelled		(236,000	)		(0.68	)
Non-Vested at March 31, 2018		299,950		$	0.65
Vested		(37,500	)		(0.39	)
Non-Vested at June 30, 2018		262,450		$	0.68

XML

Note 10 - Significant Customer and Industry Segment Information

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

(

1

0

)          

Significant

Customer and

Industry Segment Information

The Company has

two

reportable segments: Giga-tronics Division and Microsource.

● The Giga-tronics Division historically produced 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. The Company completed the divestiture of its switch and legacy product lines, and is now solely focused on producing the ASG and the ASA.

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

The tables below present information for the

two

reportable segments:

	Three Month Periods Ended							Three Month Periods Ended
(In thousands)	At June 30 , 201 8		June 30 , 201 8					At June 2 4 , 201 7		June 2 4 , 201 7
	Assets		Net Sales		Net Income (Loss)			Assets		Net Sales		Net Income (Loss)
Giga-tronics Division	$	4,418	$	38	$	(1559	)	$	6,153	$	297	$	(1,849	)
Microsource		1,953		1,061		1,272			2,907		1,694		591
Total	$	6,371	$	1,099	$	(287	)	$	9,060	$	1,991	$	(1,258	)

During the

first

quarter of fiscal

2019,

one

customer accounted for

64%

of the Company’s consolidated revenues and was included in the Microsource segment. A

second

customer accounted for

31%

and was also included in the Microsource segment. During the

first

quarter of fiscal

2018,

one

customer accounted for

43%

of the Company’s consolidated revenues and was included in the Microsource segment. A

second

customer accounted for

37%

and was also included in the Microsource segment.

XML

Note 11 - Income Taxes

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(

1

1

)          Income Taxes

The Company accounts for income taxes using the asset and liability method as codified in Topic

740.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.

The Company recorded

$62,000

income tax expense for the

three

months ended

June 30, 2018

and

no

income tax expense for the

three

months ended

June 24, 2017.

In

April 2018,

the Franchise Tax Board (“FTB”) issued its response to the Appeal filed by the Company to dispute the original audit findings related an ongoing audit. As a result of this development, the accrued state tax liability was increased by

$62,000,

from

$45,000

to

$107,000.

The effective tax rate for the

three

months ended

June 30, 2018

and

June 24, 2017

was

0%

each year, primarily due to a valuation allowance recorded against the net deferred tax asset balance.

As of

June 30, 2018,

the Company had recorded

$122,000

for unrecognized tax benefits related to uncertain tax positions. The unrecognized tax benefit is netted against the non-current deferred tax asset on the Consolidated Balance Sheet. The Company does

not

expect the liability for unrecognized tax benefits to change materially within the next

12

months.

On

December 22, 2017,

the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from

35%

to

21%

effective

January 1, 2018,

and imposes new limitations on the utilization of losses incurred in tax years beginning after

December 31, 2017.

However, the enactment of the legislative changes has

not

affected the Company’s overall effective tax rate of

0%,

due to, as previously noted, a full valuation allowance recorded against the net deferred tax asset balance.

XML

Note 12 - Warranty Obligations

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

(

1

2

)       

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)	Three Months Ended June 30 , 201 8			Three Months Ended June 2 4 , 201 7
Balance at beginning of period	$	164		$	123
Provision, net		6			1
Warranty costs incurred		(29	)		(33	)
Balance at end of period	$	141		$	91

XML

Note 13 - Preferred Stock and Warrants

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Preferred Stock [Text Block]

(

1

3

)       Preferred Stock and Warrants

Series E Senior Convertible Voting Perpetual Preferred Stock

On

March 26, 2018,

the Company entered into a Securities Purchase Agreement for the sale of

43,800

shares of a newly designated series of

6.0%

Series E Senior Convertible Voting Perpetual Preferred Stock (“Series E Shares”) to approximately

15

private investors. The sale was completed and the Series E Shares were issued on

March 28, 2018.

The purchase price for each Series E Share was

$25.00.

Gross proceeds received by the Company were approximately

$1.095

million (the “Placement”). Net proceeds to the Company after fees and expenses of the Placement were approximately

$1.0

million. Placement agent fees incurred in connection with the transaction were

5%

of gross proceeds or approximately

$57,000

in cash, plus warrants to purchase

5%

of the number of common shares into which the Series E shares can be converted (

223,000

shares) at an exercise price of

$0.25

per share.

Each Series E Share is initially convertible (at the option of the holder) at a conversion price of

$0.25

per share of common stock, representing

100

shares of the Company’s common stock per each Series E Share. The conversion ratio is subject to adjustments for stock splits, stock dividends, recapitalizations and similar transactions. As of

March 31, 2018,

if all

43,800

issued Series E Shares were immediately converted, holders of such shares would acquire

4,380,000

shares of common stock of the Company, or

31%

of the pro forma number of shares of common stock that would be outstanding if the conversion had occurred on this date,

27%

of the pro forma number of shares of common stock that would be outstanding upon the conversion of the Company’s outstanding shares of Series B, Series C and Series D Convertible Preferred Stock (collectively, the “Previously Issued Preferred Shares”) and

22%

of the pro forma number of shares of common stock that would be outstanding if all shares of preferred stock were converted and all warrants exercised as of this date. The Company is entitled to redeem Series E Shares at a price equal to

300%

of the Series E Share purchase price, or

$75.00

per share, subject to potential adjustment, but the right to redeem is subject to satisfaction of certain conditions related to the market price and trading volume of the Company’s common stock.

Each Series E Share has a liquidation preference of

150%

of the purchase price or

$37.50,

subject to adjustment. In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, a merger, or a sale of the Company’s MSI business line or Simulation and Electronics Warfare business line or their related assets, before any payment or distribution to holders of junior shares (including common stock and Previously Issued Preferred Stock), holders of Series E Shares will be entitled to receive an amount of cash per share of Series E Shares up to the liquidation preference plus all accumulated accrued and unpaid dividends thereon. Upon a sale of the Company’s MSI business line or Simulation and Electronics Warfare business line or their related assets, holders of Series E Shares shall be entitled to receive a pro rata portion of the net sale proceeds after reasonable transaction expenses and amount payable to the Company’s secured creditors for releases of their liens on such assets, up to the liquidation preference plus accrued and unpaid dividends. If the payment per Series E Shares is less than the Series E Shares’ liquidation preference, the liquidation preference and the Series E Share redemption price will be reduced by the amount of the payment received.

Holders of Series E Shares are entitled to receive, when, as and if declared by the Company’s Board of Directors, cumulative preferential dividends, payable semiannual in cash at a rate per annum equal to

6.0%

of the initial purchase price of

$25.00

per share or in-kind (at the Company’s election) through the issuance of shares of the Company’s common stock, based on the

10

day volume weighted average price of the common stock.

Holders of Series E Shares generally vote together with the common stock on an as-converted basis on each matter submitted to the vote or approval of the holders of common stock, and vote as a separate class with respect to certain actions that adversely affect the rights of the holders of Series E Shares and on other matters as required by law. In addition, the approval of the Holders of the Series E shares is generally required prior to the Company’s issuance of any securities having rights senior to or in parity with the Series E Shares with respect to dividends or liquidation preferences. The Series E Shares’ right to approve parity securities will terminate at such time that (

1

) fewer than

22,300

Series E Shares, which is

50%

of the number of Series E Shares

first

issued, remain outstanding or (

2

) the volume weighted average closing price of the Company’s common stock for any

20

trading days within any

30

trading day period is

$0.75

or more, the average daily trading volume over such

30

trading day period is

100,000

shares or more and there is either an effective registration statement covering resale of the shares of common stock that holders of Series E Shares would be entitled to receive upon conversion and any shares received as pay-in-kind dividends, or such share could be freely sold pursuant to Rule

144

under the Securities Act of

1933,

as amended.

The Company and each Series E investor entered into an Investor Rights Agreement. Under this agreement, the Company agreed to, among other things, use best efforts to file certain registration statements for the resale of common stock of the Company that the investor

may

acquire upon conversion of the Series E Shares and

may

potentially receive as payment-in-kind dividends during the

two

years following the date of the agreement. The Company also agreed that it would

not

issue additional debt without the approval by holders of at least

66.6%

of the Series E Shares, other than trade debt incurred in the normal course and commercial bank working capital debt, whether revolving or term debt. Concurrent with the execution of the Securities Purchase Agreement for the Series E Shares, the Company and PFG entered into a modification agreement providing for the restructuring of certain terms associated with approximately

$1.7

million in indebtedness owed to PFG (see Note

8

– Term Loans, Revolving Line of Credit and Warrants).

In connection with the sale of Series E Shares, the Company agreed to reduce the exercise price of certain warrants issued in connection with the Company’s private placement in

January 2016 (

see Note

18

– Private Placement Offering), in which the Company sold (in part)

2,787,872

warrants (a

“2016

Warrant”). Each

2016

Warrant entitled the holder to purchase

0.75

shares of the Company’s common stock at the price of

$1.15

per whole share. The Company agreed to reduce the exercise price of

2016

Warrants that are held by the

2016

Investors purchasing Series E Shares from

$1.15

to

$0.25

per share as follows: A

2016

Investor purchasing an amount equal to or exceeding the lesser of

$200,000

or

50%

of the amount it invested in the

2016

Private Placement will have the exercise price of all of its

2016

Warrants reduced to

$0.25,

and

2016

Investors purchasing less than the lesser of

$200,000

or

50%

of the amount it invested in the

January 2016

Private Placement will have the exercise price of a ratable percentage of the

2016

Warrants reduced to

$0.25.

In connection with its sale of the Series E Shares, the Company reduced the exercise price of

1,759,268

of the outstanding

2016

Warrants to

$0.25.

The fair value attributable to re-pricing the

2016

Warrants, provided to the participating

2016

Investors, of approximately

$203,000,

was deducted from the Series E gross proceeds to arrive at the initial discounted carrying value of the Series E Shares. The initial discounted carrying value resulted in recognition of a beneficial conversion feature of approximately

$557,000,

further reducing the initial carrying value of the Series E Shares. The discount to the aggregate stated value of the Series E Shares, resulting from recognition of the beneficial conversion feature, was immediately accreted as a reduction of common stock and an increase in the carrying value of the Series E Shares. The accretion is presented as a deemed dividend in the consolidated statements of operations.

In addition, warrants to purchase

292,727

shares of common stock held by the placement agent, as a result of a prior transaction, were amended to reduce the exercise price from

$1.15

per share to

$0.25

per share. The fair value attributable to re-pricing the placement agent warrants of approximately

$53,000

was recognized as additional Series E issuance costs and recognized net in the carrying value of Series E Shares.

For the

three

months ending

June 30, 2018,

the Company issued an additional

8,800

shares of Series E Senior Convertible Voting Perpetual Preferred Stock at a purchase price of

$25.00

per share for total gross proceeds of

$220,000.

The table below presents information as of

June 30, 2018

and

March 31, 2018:

Preferred Stock
	Shares		Shares		Shares		Liquidation Preference
	Designated		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
Series E		60,000.00		43,800.00		43,800.00		1,643
Total at March 31, 2018		79,500.00		62,333.51		62,333.51	$	5,183
Series E				9,600.00		9,600.00		360
Total at June 30, 2018		79,500.00		71,933.51		71,933.51	$	5,413

XML

Note 14 - Subsequent Events

3 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

(

1

4

)

Subsequent Events

During

August 2018,

the Company issued an additional

1,400

shares of Series E Senior Convertible Voting Perpetual Preferred Stock at a purchase of

$25.00

per share for total gross proceeds of

$35,000.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Jun. 30, 2018

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, Microsource, Inc. (“Microsource”). All significant intercompany balances and transactions have been eliminated in consolidation

Derivatives, Policy [Policy Text Block]

Derivatives

The Company accounts for certain of its warrants and embedded debt features as derivatives. Changes in fair values are reported in earnings as gain or loss on adjustment of these instruments to fair value.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition and Deferred Revenue

Beginning

April 

1,

2018,

the Company follows the provisions of ASU

2014

-

09

as subsequently amended by the FASB between

2015

and

2017

and collectively known as ASC Topic

606,

 

Revenue from Contracts with Customers

(“ASC

606”

)

. Amounts for prior periods are

not

adjusted and continue to be reported in accordance with the Company’s historic accounting practices. The guidance provides a unified model to determine how revenue is recognized. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.

The Company generates revenue through the design, manufacture, and sale of products used in defense industry to major prime defense contractors, the armed services (primarily in the U.S.) and research institutes. There is generally

one

performance obligation in the Company’s contracts with its customers. For highly engineered products, the customer typically controls the work in process as evidenced either by contractual termination clauses or by the Company’s right to payment for costs incurred to date plus a reasonable profit for products or services that do

not

have an alternative use. In these circumstances, the performance obligation is the design and manufacturing service. As control transfers continuously over time on these contracts, revenue is recognized based on the extent of progress towards completion of the performance obligation using a cost-to-cost method. Engineering services are also satisfied over time and recognized on the cost-to-cost method. These types of revenue arrangements are typical for our defense contracts within the Microsource segment for its YIG RADAR filter products used in fighter jet aircrafts.

For the sale of standard or minimally customized products, the performance obligation is the series of finished products which are recognized at the points in time the units are transferred to the control of the customer, typically upon shipment. This type of revenue arrangement is typical for our commercial contracts within the Giga-tronics segment for its Advanced Signal Generation and Analysis system products used for testing RADAR and Electronic Warfare (“EW”) equipment.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic

606.

The Company’s performance obligations include:

● Design and manufacturing services

● Product supply – Distinct goods or services that are substantially the same

● Engineering services

The majority of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods or services is

not

separately identifiable from other promises in the contracts and, therefore,

not

distinct. The Company’s revenue in fiscal

2019

under ASC

606

primarily relates to design and manufacturing services, there was

no

product supply, and engineering services were

$56,000.

Transaction Price

The Company has both fixed and variable consideration. Under the Company’s highly engineered design and manufacturing arrangements, advance payments and unit prices are considered fixed, as product is

not

returnable and the Company has an enforceable right to reimbursement in the event of a cancellation. For standard and minimally customized products, payments can include variable consideration, such as product returns and sales allowances. The transaction price in engineering services arrangements

may

include estimated amounts of variable consideration, including award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. Milestone payments are identified as variable consideration when determining the transaction price. At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. The Company estimates variable consideration at the amount to which they expect to be entitled, and determines whether to include estimated amounts as a reduction in the transaction price based largely on an assessment of the conditions that might trigger an adjustment to the transaction price and all information (historical, current and forecasted) that is reasonably available to the Company. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will

not

occur when the estimation uncertainty is resolved.

Allocation of Consideration

As part of the accounting for arrangements that contain multiple performance obligations, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. When a contract contains more than

one

performance obligation, the Company uses key assumptions to determine the stand-alone selling price of each performance obligation. Because of the customized nature of products and services, estimated stand-alone selling prices for most performance obligations are estimated using a cost-plus margin approach. For non-customized products, list prices generally represent the standalone selling price. The Company allocates the total transaction price to each performance obligation based on the estimated relative stand-alone selling prices of the promised goods or service underlying each performance obligation.

Timing of Recognition

Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress as this measure best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recognized for design and manufacturing services and for engineering services over time proportionate to the costs that the Company has incurred to perform the services using the cost-to-cost input method and for products at a point in time. Approximately

99%

of the Company’s revenue is recognized over time, with the remaining

1%

recognized at a point in time.

Changes in Estimates

The effect of a contract modification on the transaction price and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

For contracts using the cost-to-cost method, management reviews the progress and execution of the performance obligations. This process requires management judgment relative to estimating contract revenue and cost, and making assumptions for delivery schedule. This process requires management’s judgment to make reasonably dependable cost estimates. Since certain contracts extend over a longer period of time, the impact of revisions in cost and revenue estimates during the progress of work

may

adjust the current period earnings through a cumulative catch-up basis. This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters. Contract cost and revenue estimates for significant contracts are generally reviewed and reassessed quarterly. Revenue recognized over time using the cost-to-cost method represented approximately

99%

of revenue for the

first

quarter of

2019.

The aggregate effects of these changes on contracts in the

first

quarter of

2019

was nominal.

Balance Sheet Presentation

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. Under the typical payment terms of over time contracts, the customer pays either performance-based payments or progress payments. Amounts billed and due from customers are classified as receivables on the Condensed Consolidated Balance Sheet. Interim payments

may

be made as work progresses, and for some contracts, an advance payment

may

be made. A liability is recognized for these interim and advance payments in excess of revenue recognized and is presented as a contract liability which is included within accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheet. Contract liabilities typically are

not

considered a significant financing component because these cash advances are used to meet working capital demands that can be higher in the early stages of a contract. When revenue recognized exceeds the amount billed to the customer, an unbilled receivable (contract asset) is recorded for the amount the Company is entitled to receive based on its enforceable right to payment.

Remaining performance obligations represent the transaction price of firm orders for which work has

not

been performed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity).

Recognition Prior to

April 1, 2018

Prior to

April 1, 2018

under the legacy GAAP, the Company recorded revenue when there was persuasive evidence of an arrangement, delivery had occurred, the price was fixed and determinable, and collectability was reasonably assured. This occurred when products were shipped or the customer accepted title transfer. If the arrangement involved acceptance terms, the Company deferred revenue until product acceptance was received. On certain large development contracts, revenue was recognized upon achievement of substantive milestones.  Advanced payments were recorded as deferred revenue until the revenue recognition criteria described above had been met. Amounts for periods ending prior to

April 1, 2018

have

not

been adjusted for ASC

606

and continue to be reported in accordance with the Company’s previous accounting practices.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Standards

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 of the adoption of ASU

2016

-

02

on its consolidated financial statements.

In 

May 2014, 

the FASB issued ASU 

2014

-

09

 (“ASC

606”

), Revenue from Contracts with Customers. In 

August 2015 

and 

March, 

April, 

May 

and 

December 2016, 

the FASB issued additional amendments to the new revenue guidance relating to reporting revenue on a gross versus net basis, identifying performance obligations, licensing arrangements, collectability, noncash consideration, presentation of sales tax, transition, and clarifying examples. Collectively these are referred to as ASC Topic

606,

which replaces all legacy GAAP guidance on revenue recognition and eliminates all industry-specific guidance. ASC

606

 establishes a broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. ASU ASC

606

 was further updated to provide clarification on a number of specific issues as well as requiring additional disclosures. ASC

606

 

may 

be applied either retrospectively or through the use of a modified-retrospective method. The full retrospective method requires companies to recast each prior reporting period presented as if the new guidance had always existed. Under the modified retrospective method, companies would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application. ASC

606

is effective for annual reporting periods beginning after

December 

15,

2017,

and early adoption is permitted beginning in the

first

quarter of

2017.

The Company adopted ASC

606

on 

April 1, 2018 (

beginning of the Company’s fiscal year) using the modified retrospective method. Under this approach, 

no

 restatement of fiscal years 

2017

 or 

2018

 was required. Rather, the effect of the adoption was recorded as a cumulative adjustment decreasing the opening balance of accumulated deficit at 

April 1, 2018.

The most significant change relates to the timing of revenue and cost recognition on the Company’s customer contracts. Under ASC

606,

revenue is recognized as the customer obtains control of the goods and services promised in the contract. Given the nature of the Company’s products and terms and conditions in the contracts, the customer typically obtains control as the Company performs work under such contract. Therefore, the Company expects to recognize revenue over time for substantially all of its contracts using the percentage-of-completion cost-to-cost method. As a result, the Company now recognizes revenue for these contracts as it incurs costs, as opposed to when units are delivered. This change has generally resulted in earlier revenue recognition in the performance period as compared to the legacy method for those contracts, giving rise to a decrease to the Company’s opening balance of accumulated deficit as of

April 1, 2018.

Adopting ASC

606,

Revenue from Contracts with Customers, involves significant new estimates and judgments such as estimating stand-alone selling prices, variable consideration, and total costs to complete the contract. All of the estimates are subject to change during the performance of the contract which

may

cause more variability due to significant estimates involved in the new accounting.

The cumulative effect of the changes made to the Company’s consolidated

April 1, 2018

balance sheet for the adoption of Topic

606

were as follows (in thousands):

	Balance at March 31, 2018			Topic ASC 606 Adjustments			Balance at April 1, 2018
Assets
Prepaid and other current assets	$	87		$	188		$	275
Inventories, net		5,487			(1,581	)		3,906
Liabilities
Deferred revenue	$	3,374		$	(2,568	)	$	806
Stockholders' Equity
Accumulated deficit	$	(28,682	)	$	1,176		$	(27,506	)

In accordance with the requirements of Topic

606,

the disclosure of the impact of adoption on our condensed consolidated income statement and balance sheet for the

first

quarter ended

June 30, 2018

was as follows (in thousands except for net loss per share):

For the first quarter ended June 30, 2018	Without ASC 606 Adoption			Topic ASC 606 Adjustments			As Reported
Assets
Prepaid and other current assets	$	149		$	643		$	792
Inventories, net		5,406			(1,968	)		3,438
Liabilities
Deferred revenue	$	2,966		$	(2,709	)		257
Stockholders' Equity
Accumulated deficit	$	(29,177	)	$	1,384			(27,793	)
Revenue
Revenue	$	2,247		$	596		$	2,843
Costs of services
Costs of services	$	416		$	358			774
Net loss	$	(525	)	$	(238	)		(287	)
Net loss per share, basic and fully diluted	$	(0.05	)	$	0.02		$	(0.03	)

XML

Note 1 - Organization and Significant Accounting Policies (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	Balance at March 31, 2018			Topic ASC 606 Adjustments			Balance at April 1, 2018
Assets
Prepaid and other current assets	$	87		$	188		$	275
Inventories, net		5,487			(1,581	)		3,906
Liabilities
Deferred revenue	$	3,374		$	(2,568	)	$	806
Stockholders' Equity
Accumulated deficit	$	(28,682	)	$	1,176		$	(27,506	)

For the first quarter ended June 30, 2018	Without ASC 606 Adoption			Topic ASC 606 Adjustments			As Reported
Assets
Prepaid and other current assets	$	149		$	643		$	792
Inventories, net		5,406			(1,968	)		3,438
Liabilities
Deferred revenue	$	2,966		$	(2,709	)		257
Stockholders' Equity
Accumulated deficit	$	(29,177	)	$	1,384			(27,793	)
Revenue
Revenue	$	2,247		$	596		$	2,843
Costs of services
Costs of services	$	416		$	358			774
Net loss	$	(525	)	$	(238	)		(287	)
Net loss per share, basic and fully diluted	$	(0.05	)	$	0.02		$	(0.03	)

XML

Note 3 - Revenue Recognition (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Contract with Customer, Asset and Liability [Table Text Block]

	Balance at Beginning of the Period			Additions			Deductions		Balance at the end of the Period
	(in thousands)
Contract Assets	$	189		$	466		$	12	$	643
Contract Liabilities: Deferred Revenue	$	(806	)	$	(248	)	$	787	$	257

Disaggregation of Revenue [Table Text Block]

Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	559
New activities in the period:
Changes in estimates		(29	)
Performance obligations satisfied		2,313
Total services revenue	$	2,843

XML

Note 4 - Inventories (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

(In thousands)	June 30 , 201 8		March 31 , 201 8
Raw materials	$	1,147	$	2,290
Work-in-progress		1,749		2,100
Finished goods		81		561
Demonstration inventory		461		536
Total	$	3,438	$	5,487

XML

Note 6 - Term Loans, Revolving Line of Credit and Warrants (Tables)

3 Months Ended

Jun. 30, 2018

PFG Loan [Member]

Notes Tables

Schedule of Debt Discount [Table Text Block]

Fees paid to the lender and third parties	$	44,000
Back-end fee		76,000
Estimated fair value of embedded equity forward		49,000
Fair value of 190,000 shares of common stock issued to lender		157,000
Aggregate discount amount	$	326,000

XML

Note 8 - Loss Per Share (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended
(In thousands )	June 30, 2018		June 24, 2017
(in thousands):
Common shares issuable upon exercise of stock options		1,498		1,104
Restricted stock awards		262		350
Issuable shares for interest on loan		25		60
Common shares issuable upon conversion of convertible preferred stock		7,113		1,853
Common shares issuable upon exercise of warrants		3,960		3,737

XML

Note 9 - Share Based Compensation (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three Months Ended
	June 30, 2018			June 2 4 , 2017
Dividend yield		—			—
Expected volatility		92.55	%		—
Risk-free interest rate		2.82	%		—
Expected term (years)		8.36			—

Share-based Compensation, Stock Options, Activity [Table Text Block]

				Weighted Average		Weighted Average Remaining		Aggregate
	Shares			Exercise Price per share		Contractual Terms (Years)		Intrinsic Value
Outstanding at March 25, 2017		1,104,500		$	1.41		6.1	$	3
Granted		856,000			0.34		10.0
Forfeited / Expired		(481,800	)		1.34
Outstanding at March 31, 2018		1,478,700		$	0.56		8.0	$	—
Granted		50,000			0.27		10.0
Forfeited / Expired		(31,000	)		1.41
Outstanding at June 30, 2018		1,497,700		$	0.53		7.8	$	—
Exercisable at June 30, 2018		500,650		$	0.79		4.4	$	—
At June 30, 2018 expected to vest in the future		702,491		$	0.40		9.6	$	—

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	Shares			Weighted Average Fair Value
Non-Vested at March 25, 2017		—		$	—
Granted		586,950			0.66
Vested		(51,000	)		(0.60	)
Forfeited or cancelled		(236,000	)		(0.68	)
Non-Vested at March 31, 2018		299,950		$	0.65
Vested		(37,500	)		(0.39	)
Non-Vested at June 30, 2018		262,450		$	0.68

XML

Note 10 - Significant Customer and Industry Segment Information (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Month Periods Ended							Three Month Periods Ended
(In thousands)	At June 30 , 201 8		June 30 , 201 8					At June 2 4 , 201 7		June 2 4 , 201 7
	Assets		Net Sales		Net Income (Loss)			Assets		Net Sales		Net Income (Loss)
Giga-tronics Division	$	4,418	$	38	$	(1559	)	$	6,153	$	297	$	(1,849	)
Microsource		1,953		1,061		1,272			2,907		1,694		591
Total	$	6,371	$	1,099	$	(287	)	$	9,060	$	1,991	$	(1,258	)

XML

Note 12 - Warranty Obligations (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

(In thousands)	Three Months Ended June 30 , 201 8			Three Months Ended June 2 4 , 201 7
Balance at beginning of period	$	164		$	123
Provision, net		6			1
Warranty costs incurred		(29	)		(33	)
Balance at end of period	$	141		$	91

XML

Note 13 - Preferred Stock and Warrants (Tables)

3 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Stock by Class [Table Text Block]

Preferred Stock
	Shares		Shares		Shares		Liquidation Preference
	Designated		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
Series E		60,000.00		43,800.00		43,800.00		1,643
Total at March 31, 2018		79,500.00		62,333.51		62,333.51	$	5,183
Series E				9,600.00		9,600.00		360
Total at June 30, 2018		79,500.00		71,933.51		71,933.51	$	5,413

XML

Note 1 - Organization and Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended
	Jun. 30, 2018	Jun. 24, 2017
Revenue from Contract with Customer, Including Assessed Tax	$ 2,843,000	$ 1,991,000
Revenue, Performance Obligation, Recognized over Time	99.00%
Revenue, Performance Obligation, Recognized at Point in Time	1.00%
Technology Service [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 56,000

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Note 1 - Organization and Significant Accounting Policies - Adoption of Topic 606 (Details) - USD ($)	3 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 24, 2017	Mar. 31, 2018		Apr. 01, 2018
Prepaid expenses and other current assets	$ 792,000		$ 87,000	[1]	$ 275,000
Inventories, net	3,438,000		5,487,000	[1]	3,906,000
Deferred revenue	257,000		3,374,000	[1]	806,000
Accumulated deficit	(27,793,000)		(28,682,000)	[1]	(27,506,000)
Revenue	2,843,000	$ 1,991,000
Costs of services	774,000	1,525,000
Net loss	$ (287,000)	$ (1,258,000)	$ (3,100,000)
Net loss per share, basic and fully diluted (in dollars per share)	$ (0.03)
Accounting Standards Update 2014-09 [Member]
Prepaid expenses and other current assets					188,000
Inventories, net					(1,581,000)
Deferred revenue					(2,568,000)
Accumulated deficit					$ 1,176,000
Calculated under Revenue Guidance in Effect before Topic 606 [Member]
Prepaid expenses and other current assets	$ 149,000
Inventories, net	5,406,000
Deferred revenue	2,966,000
Accumulated deficit	(29,177,000)
Revenue	2,247,000
Costs of services	416,000
Net loss	$ (525,000)
Net loss per share, basic and fully diluted (in dollars per share)	$ (0.05)
Difference between Revenue Guidance in Effect before and after Topic 606 [Member] | Accounting Standards Update 2014-09 [Member]
Prepaid expenses and other current assets	$ 643,000
Inventories, net	(1,968,000)
Deferred revenue	(2,709,000)
Accumulated deficit	1,384,000
Revenue	596,000
Costs of services	358,000
Net loss	$ (238,000)
Net loss per share, basic and fully diluted (in dollars per share)	$ 0.02

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Note 2 - Going Concern and Management's Plan (Details Textual)			3 Months Ended		12 Months Ended
	Mar. 26, 2018 USD ($) $ / shares shares	Apr. 27, 2017 USD ($) shares	Jun. 30, 2018 USD ($) $ / shares shares	Jun. 24, 2017 USD ($)	Mar. 31, 2018 USD ($)		Apr. 01, 2018 USD ($)
Net Income (Loss) Attributable to Parent, Total			$ (287,000)	$ (1,258,000)	$ (3,100,000)
Retained Earnings (Accumulated Deficit), Ending Balance			(27,793,000)		$ (28,682,000)	[1]	$ (27,506,000)
Net Cash Provided by (Used in) Operating Activities, Total			(945,000)	(1,107,000)
Long-term Line of Credit, Total			582,000
Line of Credit Facility, Remaining Borrowing Capacity			143,000
Proceeds from Issuance of Convertible Preferred Stock, Net of Issuance Costs			$ 205,000
Series E Preferred Stock [Member]
Stock Issued During Period, Shares, New Issues | shares	43,800		8,800
Preferred Stock, Dividend Rate, Percentage	6.00%
Issuance of Stock, Number of Investors	15
Shares Issued, Price Per Share | $ / shares	$ 25		$ 25
Proceeds from Issuance of Convertible Preferred Stock	$ 1,095,000		$ 220,000
Proceeds from Issuance of Convertible Preferred Stock, Net of Issuance Costs	$ 1,000,000
Convertible Preferred Stock, Conversion Price Per Share | $ / shares	$ 0.25
Convertible Preferred Stock, Shares Issued upon Conversion | shares	100
PFG Loan [Member]
Debt Instrument, Face Amount		$ 1,500,000
Debt Instrument, Modification Agreement, Conditions, Gross Proceeds from Sale of Convertible Preferred Stock	$ 1,000,000
Stock Issued During Period, Shares, New Issues | shares		190,000

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Note 3 - Revenue Recognition (Details Textual)	Jun. 30, 2018 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: (nil)
Revenue, Remaining Performance Obligation, Amount	$ 257,000

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Note 3 - Revenue Recognition - Changes in Contract Assets and Liabilities (Details) $ in Thousands	3 Months Ended
	Jun. 30, 2018 USD ($)
Contract Assets, Balance	$ 189
Contract Assets, Additions	466
Contract Assets, Deductions	12
Contract Assets, Balance	643
Contract Liabilities: Deferred Revenue, Balance	806
Contract Liabilities: Deferred Revenue, Additions	(248)
Contract Liabilities: Deferred Revenue, Deductions	787
Contract Liabilities: Deferred Revenue, Balance	$ 257

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Note 3 - Revenue Recognition - Revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2018	Jun. 24, 2017
Performance obligations satisfied	$ 559
Changes in estimates	(29)
Performance obligations satisfied	2,313
Revenue	2,843	$ 1,991
Service [Member]
Revenue	$ 2,843	$ 1,675

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Note 4 - Inventories - Inventories, Net of Reserves (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Apr. 01, 2018	Mar. 31, 2018
Raw materials	$ 1,147		$ 2,290
Work-in-progress	1,749		2,100
Finished goods	81		561
Demonstration inventory	461		536
Total	$ 3,438	$ 3,906	$ 5,487	[1]

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Note 5 - Accounts Receivable Line of Credit (Details Textual) - USD ($)		1 Months Ended
	Jun. 01, 2015	May 31, 2017	Jun. 30, 2018	Mar. 31, 2018	[1]
Long-term Line of Credit, Total			$ 582,000
Line of Credit, Current			552,000	$ 552,000
New Amended Credit Facility 2 [Member]
Long-term Line of Credit, Total	$ 2,500,000
Advance Rate	80.00%
Line of Credit Facility, Commitment Fee Amount		$ 12,500
Asset Coverage Ratio	150.00%
Accounts Receivable, Aging from Invoice Date	90 days
Line of Credit, Current			$ 552,000
New Amended Credit Facility 2 [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
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

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Note 6 - Term Loans, Revolving Line of Credit and Warrants (Details Textual) - USD ($)			3 Months Ended		9 Months Ended	12 Months Ended
	Mar. 26, 2018	Apr. 27, 2017	Jun. 30, 2018	Jun. 24, 2017	Mar. 25, 2018	Mar. 31, 2018
Amortization of Debt Discount (Premium)			$ 50,000	$ 22,000
PFG Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	260,000
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.25				$ 1.42
Class of Warrant or Right, Extension of Exercise Period	1 year
Fair Value Adjustment of Warrants	$ 43,700
PFG Loan [Member]
Debt Instrument, Face Amount		$ 1,500,000
Debt Instrument, Interest Rate, Stated Percentage	16.00%	16.00%
Debt Instrument, Cash Interest Rate		9.50%
Debt Instrument, Deferred Interest Rate		6.50%
Debt Instrument, Maximum Fee Amount to be Paid upon Maturity		$ 100,000
Debt Instrument, Fee Amount		76,000
Debt Instrument, Remaining Fee Amount		24,000
Debt Instrument, Remaining Fee Amount, Per Month		$ 1,000
Number of New Shares to be Issued, Maximum		250,000
Stock Issued During Period, Shares, New Issues		190,000
Number of New Shares to be Issued, Remaining		60,000
Number of New Shares to be Issued, Remaining, Per Month		2,500
Long-term Debt, Total		$ 1,576,000
Debt Instrument, Unamortized Discount, Total		$ 326,000
Amortization of Debt Discount (Premium)						$ 127,000
Stock Issued During Period, Shares, Loan Agreement			375,000
Debt Instrument, Interest Rate During Period					22.00%
Debt Instrument, Amount of Indebtedness Restructured	$ 1,700,000
Debt Instrument, Modification Agreement, Conditions, Gross Proceeds from Sale of Convertible Preferred Stock	$ 1,000,000

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Note 6 - Term Loans, Revolving Line of Credit and Warrants - Debt Discount (Details) - PFG Loan [Member]	Apr. 27, 2017 USD ($)
Aggregate discount amount	$ 326,000
Fees Paid to Lenders and Third Parties [Member]
Aggregate discount amount	44,000
Backend Fees [Member]
Aggregate discount amount	76,000
Estimated Fair Value of Derivatives [Member]
Aggregate discount amount	49,000
Equity Issued to Lenders [Member]
Aggregate discount amount	$ 157,000

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Note 6 - Term Loans, Revolving Line of Credit and Warrants - Debt Discount (Details) (Parentheticals)	Apr. 27, 2017 shares
PFG Loan [Member]
Common stock issued to lender (in shares)	190,000

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Note 7 - Fair Value (Details Textual) $ in Thousands	Mar. 26, 2018 yr shares	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)
Fair Value, Measurements, Recurring [Member]
Assets, Fair Value Disclosure		$ 0	$ 0
Fair Value, Measurements, Nonrecurring [Member]
Assets, Fair Value Disclosure		0	0
Financial and Nonfinancial Liabilities, Fair Value Disclosure		$ 0	$ 0
PFG Warrants [Member]
Stock Issued During Period, Shares, Revaluation of Warrants | shares	150,000
PFG Warrants [Member] | Fair Value, Measurements, Recurring [Member] | Measurement Input, Expected Term [Member]
Derivative Liability, Measurement Input | yr	0.96
PFG Warrants [Member] | Fair Value, Measurements, Recurring [Member] | Measurement Input, Price Volatility [Member]
Derivative Liability, Measurement Input	0.85
PFG Warrants [Member] | Fair Value, Measurements, Recurring [Member] | Measurement Input, Risk Free Interest Rate [Member]
Derivative Liability, Measurement Input	0.0212
PFG Warrants [Member] | Fair Value, Measurements, Recurring [Member] | Measurement Input, Expected Dividend Rate [Member]
Derivative Liability, Measurement Input	0

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Note 8 - Loss Per Share - Net Loss and Common Shares Used in Per Share Computations (Details) - shares shares in Thousands	3 Months Ended
	Jun. 30, 2018	Jun. 24, 2017
Equity Option [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	1,498	1,104
Restricted Stock [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	262	350
Common Shares Issuable for Debt Interest [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	25	60
Convertible Debt Securities [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	7,113	1,853
Warrant [Member]
Anti-dilutive securities excluded from computation of earning per share (in shares)	3,960	3,737

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Note 9 - Share Based Compensation (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 24, 2017	Mar. 31, 2018
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 Period	10 years
Stock Appreciation Rights (SARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	0
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	0	0	586,950
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 61,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	317 days
Allocated Share-based Compensation Expense, Total	$ 37,000	$ 9,000
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	437,677
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 205,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	3 years 259 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares	7,200	26,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value	$ 9,052	$ 33,000
Proceeds from Stock Options Exercised	0	0
Allocated Share-based Compensation Expense, Total	$ 20,000	$ 37,000

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Note 9 - Share Based Compensation - Weighted Average Assumptions (Details)	3 Months Ended
	Jun. 30, 2018	Jun. 24, 2017
Dividend yield
Expected volatility	92.55%
Risk-free interest rate	2.82%
Expected term (Year)	8 years 131 days

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Note 9 - Share Based Compensation - Changes in Stock Options Outstanding (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Mar. 25, 2017
Outstanding, Shares (in shares)	1,478,700	1,104,500
Outstanding, weighted average exercise price (in dollars per share)	$ 0.56	$ 1.41
Outstanding, Weighted average remaining contractual terms (Year)	7 years 292 days	8 years	6 years 36 days
Outstanding			$ 3
Granted, Shares (in shares)	50,000	856,000
Granted, weighted average exercise price (in dollars per share)	$ 0.27	$ 0.34
Granted, Weighted average remaining contractual terms (Year)	10 years	10 years
Forfeited / Expired, Shares (in shares)	(31,000)	(481,800)
Forfeited / Expired, weighted average exercise price (in dollars per share)	$ 1.41	$ 1.34
Forfeited / Expired, Weighted average remaining contractual term (Year)
Outstanding, Shares (in shares)	1,497,700	1,478,700	1,104,500
Outstanding, weighted average exercise price (in dollars per share)	$ 0.53	$ 0.56	$ 1.41
Exercisable, Shares (in shares)	500,650
Exercisable, weighted average exercise price (in dollars per share)	$ 0.79
Exercisable, Weighted average remaining contractual terms (Year)	4 years 146 days
Exercisable
Expected to vest in the future, Shares (in shares)	702,491
Expected to vest in the future, weighted average exercise price (in dollars per share)	$ 0.40
Expected to vest in the future, Weighted average remaining contractual terms (Year)	9 years 219 days
Expected to vest in the future

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Note 9 - Share Based Compensation - Changes in Nonvested Restricted Stock Awards Outstanding (Details) - Restricted Stock [Member] - $ / shares	3 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 24, 2017	Mar. 31, 2018
Non-Vested at March 25, 2017 (in shares)	299,950	0	0
Non-Vested at March 25, 2017 (in dollars per share)	$ 0.65	$ 0	$ 0
Granted, Shares (in shares)	0	0	586,950
Granted, Weighted average fair value (in dollars per share)			$ 0.66
Vested, Shares (in shares)	(37,500)		(51,000)
Vested, Weighted average fair value (in dollars per share)	$ (0.39)		$ (0.60)
Forfeited or cancelled (in shares)			(236,000)
Forfeited or cancelled, Weighted average fair value (in dollars per share)			$ (0.68)
Non-Vested at March 31, 2018 (in shares)	262,450		299,950
Non-Vested at March 31, 2018 (in dollars per share)	$ 0.68		$ 0.65

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Note 10 - Significant Customer and Industry Segment Information (Details Textual)	3 Months Ended
	Jun. 30, 2018	Jun. 24, 2017
Number of Reportable Segments	2
Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
Number of Major Customers	2
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | First Customer [Member] | Microsource [Member]
Concentration Risk, Percentage	64.00%	43.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Second Customer [Member] | Microsource [Member]
Concentration Risk, Percentage	31.00%	37.00%

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Note 10 - Significant Customer and Industry Segment Information - Breakdown of Customer and Segment Information (Details) - USD ($)	3 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 24, 2017	Mar. 31, 2018
Assets	$ 6,371,000	$ 9,060,000	$ 8,431,000	[1]
Sales Revenue	2,843,000	1,991,000
Net Income (Loss) Attributable to Parent, Total	(287,000)	(1,258,000)	$ (3,100,000)
Gigatronics Division [Member]
Assets	4,418,000	6,153,000
Sales Revenue	38,000	297,000
Net Income (Loss) Attributable to Parent, Total	(1,559,000)	(1,849,000)
Microsource [Member]
Assets	1,953,000	2,907,000
Sales Revenue	1,061,000	1,694,000
Net Income (Loss) Attributable to Parent, Total	$ 1,272,000	$ 591,000

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Note 11 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 24, 2017	Dec. 31, 2018	Mar. 31, 2018
Income Tax Expense (Benefit), Total	$ 62,000	$ 0
Income Tax Examination, Increase (Decrease) in Liability from Prior Year	$ 62,000
Effective Income Tax Rate Reconciliation, Percent, Total	0.00%	0.00%
Unrecognized Tax Benefits, Ending Balance	$ 122,000
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			21.00%
State and Local Jurisdiction [Member] | California Franchise Tax Board [Member]
Accrued Income Taxes, Total	$ 107,000			$ 45,000

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Note 12 - Warranty Obligations - Reconciliation of Company's Estimated Warranty Obligations (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2018	Jun. 24, 2017
Balance at beginning of period	$ 164	$ 123
Provision, net	6	1
Warranty costs incurred	(29)	(33)
Balance at end of period	$ 141	$ 91

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Note 13 - Preferred Stock and Warrants (Details Textual) - USD ($)			3 Months Ended
	Mar. 26, 2018	Apr. 27, 2017	Jun. 30, 2018	Mar. 31, 2018	Mar. 25, 2018	Jan. 19, 2016
PFG Loan [Member]
Stock Issued During Period, Shares, New Issues		190,000
Debt Instrument, Amount of Indebtedness Restructured	$ 1,700,000
Series E Preferred Stock Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights, Percentage of Common Shares Into Which the Preferred Shares Can Be Converted	5.00%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	223,000
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.25
The 2016 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights						2,787,872
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.25					$ 1.15
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right						0.75
Class of Warrant or Right, Exercise Price of Warrants or Rights, Alternative Price for Certain Investors						$ 0.25
Class of Warrant or Right, Exercise Price Reduction, Number	1,759,268
Placement Agent Warrants [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.25				$ 1.15
Class of Warrant or Right, Exercise Price Reduction, Number	292,727
Series E Preferred Stock [Member]
Stock Issued During Period, Shares, New Issues	43,800		8,800
Preferred Stock, Dividend Rate, Percentage	6.00%
Issuance of Stock, Number of Investors	15
Shares Issued, Price Per Share	$ 25		$ 25
Proceeds from Issuance of Preferred Stock and Preference Stock	$ 1,095,000
Proceeds from Issuance of Preferred Stock and Preference Stock, Net of Issuance Costs	$ 1,000,000
Stock Issued During Period, Placement Agent Fees, Percentage of Gross Proceeds	5.00%
Payments of Stock Issuance Costs	$ 57,000
Convertible Preferred Stock, Conversion Price Per Share	$ 0.25
Convertible Preferred Stock, Shares Issued upon Conversion	100
Convertible Preferred Stock, Common Shares That Would Be Issued If All Preferred Shares Were Converted				4,380,000
Convertible Preferred Stock, Common Shares That Would Be Issued If All Preferred Shares Were Converted, Percentage of Pro Forma Common Stock				31.00%
Convertible Preferred Stock, Common Shares That Would Be Issued If All Preferred Shares Were Converted, Percentage of Pro Forma Common Stock If All Classes of Convertible Preferred Stock Were Converted				27.00%
Convertible Preferred Stock, Common Shares That Would Be Issued If All Preferred Shares Were Converted, Percentage of Pro Forma Common Stock If All Convertible Preferred Stock Were Converted and All Warrants Exercised				22.00%
Preferred Stock, Redemption Price Percentage				300.00%
Preferred Stock, Redemption Price Per Share				$ 75
Preferred Stock, Liquidation Preference, Percentage	150.00%
Preferred Stock, Liquidation Preference Per Share	$ 37.50
Convertible Preferred Stock, Termination of Right to Approve Parity Securities, Threshold Shares	22,300
Convertible Preferred Stock, Termination of Right to Approve Parity Securities, Threshold Percentage	50.00%
Convertible Preferred Stock, Termination of Right to Approve Parity Securities, Threshold Closing Price	$ 0.75
Convertible Preferred Stock, Termination of Right to Approve Parity Securities, Threshold Trading Volume	100,000
Preferred Stock, Investor Rights Agreement, Period During Which Payment-in-kind Dividends May Potentially Be Received	2 years
Preferred Stock, Investor Rights Agreement, Ability to Issue Additional Debt Other Than Trade Debt and Commercial Bank Working Capital Debt, Required Percentage of Approval By Holders	66.60%
Issuance of Preferred Stock, Amount Deducted from Gross Proceeds Attributable to the Re-pricing of Warrants	$ 203,000
Beneficial Conversion Feature Upon Issuance of Preferred Shares	557,000
Fair Value of Warrants Issued as Issuance Costs for Preferred Stock	53,000
Proceeds from Issuance of Convertible Preferred Stock	1,095,000		$ 220,000
Series E Preferred Stock [Member] | The 2016 Warrants [Member]
Class of Warrant or Right, Alternative Exercise Price, Criteria, Amount of Preferred Stock Purchased	$ 200,000
Class of Warrant or Right, Alternative Exercise Price, Criteria, Percentage of Preferred Stock Purchased	50.00%

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Note 13 - Preferred Stock and Warrants - Preferred Stock Information (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Mar. 31, 2018
Designated shares (in shares)	1,000,000	1,000,000	[1]
Series B Preferred Stock [Member]
Designated shares (in shares)		10,000
Shares issued (in shares)		9,997
Shares outstanding (in shares)		9,997
Liquidation preference		$ 2,309
Series C Preferred Stock [Member]
Designated shares (in shares)		3,500
Shares issued (in shares)		3,424.65
Shares outstanding (in shares)		3,424.65
Liquidation preference		$ 500
Series D Preferred Stock [Member]
Designated shares (in shares)		6,000
Shares issued (in shares)		5,111.86
Shares outstanding (in shares)		5,111.86
Liquidation preference		$ 731
Series E Preferred Stock [Member]
Designated shares (in shares)	60,000	60,000	[1]
Shares issued (in shares)	53,400	43,800	[1]
Shares outstanding (in shares)	53,400	43,800	[1]
Liquidation preference	$ 2,003	$ 1,643	[1]
Series B, C, D, and E Preferred Stock [Member]
Designated shares (in shares)	79,500	79,500
Shares issued (in shares)	71,933.51	62,333.51
Shares outstanding (in shares)	71,933.51	62,333.51
Liquidation preference	$ 5,413	$ 5,183

[1] Derived from the audited consolidated financial statements as of and for the fiscal year ended March 31, 2018.

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Note 14 - Subsequent Events (Details Textual) - Series E Preferred Stock [Member] - USD ($)			3 Months Ended
	Aug. 13, 2018	Mar. 26, 2018	Jun. 30, 2018
Stock Issued During Period, Shares, New Issues		43,800	8,800
Shares Issued, Price Per Share		$ 25	$ 25
Proceeds from Issuance of Convertible Preferred Stock		$ 1,095,000	$ 220,000
Subsequent Event [Member]
Stock Issued During Period, Shares, New Issues	1,400
Shares Issued, Price Per Share	$ 25
Proceeds from Issuance of Convertible Preferred Stock	$ 35,000