Annual report pursuant to Section 13 and 15(d)

Note 2 - Going Concern and Management's Plan

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Note 2 - Going Concern and Management's Plan
12 Months Ended
Mar. 25, 2017
Notes to Financial Statements  
Substantial Doubt about Going Concern [Text Block]
2
Going Concern and Management’s Plan
 
The Company incurred net losses of
$1.5
million and
$4.1
million in the fiscal years ended
March 25, 2017
and
March 26, 2016,
respectively. These losses have contributed to an accumulated deficit of
$25.6
million as of
March 25, 2017.
 
The Company has experienced delays in the development of features, orders, and shipments for the new ASG. These delays have significantly contributed to a decrease in working capital from
$1.8
million on
March 26, 2016,
to
$620,000
on
March 25, 2017.
The new ASG product has now shipped to several customers, but potential delays in the refinement of features, longer than anticipated sales cycles, or the ability to efficiently manufacture the ASG, could significantly contribute to additional future losses and decreases in working capital.
 
To help fund operations, the Company relies on advances under the line of credit with Bridge Bank. The line of credit which expired on
May 7, 2017,
was renewed through
May 6, 2019 (
see Note
20,
Subsequent Events). The agreement includes a subjective acceleration clause, which allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit based on the lender’s judgement. As of
March 25, 2017,
the line of credit had a balance of
$582,000,
and additional borrowing capacity of
$234,000,
respectively.
 
These matters raise substantial doubt as to the Company’s ability to continue as a going concern.
 
To address these matters, the Company’s management has taken several actions to provide additional liquidity and reduce costs and expenses going forward. These actions are described in the following paragraphs.
 
In
July 2016,
Microsource received a
$1.9
million non-recurring engineering order associated with redesigning a component of its high performance YIG filter used on an aircraft platform. The Company delivered NRE services for approximately
$884,000
 during fiscal
2017
and we expect to continue such services over the next
nine
to
twelve
months.
   
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
,
with funding occurring on
April 28, 2017.
The loan has a
two
-year term, with interest only payments for the term of the loan (see Note
20,
Subsequent Events).
 
 
With the elimination of Giga-tronics Switch, Power Meter, Amplifier, and Signal Generator legacy product lines resulting from the Asset Purchase Agreements with Spanawave and Astronics, (see Note
10,
Sale of Product Lines), the Company has been able to reduce the number of employees from
71
in fiscal
2016
to
57
in fiscal
2017,
while providing additional cash for operations from the proceeds of the sales. We are also anticipating reductions in overhead costs by relocating our operations into a smaller facility beginning in fiscal
2018.
   
In
May 2017,
the Company renewed its accounts receivable line of credit with Bridge Bank through
May 6, 2019.
   
In the
first
quarter of fiscal
2016,
the Company’s Microsource business unit also finalized a multiyear
$10.0
million YIG Production Order. The Company started shipping the YIG Production Order in the
second
quarter of fiscal
2017,
 and we expect to ship the remainder through fiscal
2020.
   
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 the business in an effort to improve cash flow and reduce costs and expenses, while continuing to invest, to the extent possible, in new product development for future revenue streams.
 
Management will also continue to seek additional working capital through debt, equity financing or possible product line sales, however there are
no
assurances that such financings or sales will be available at all, or on terms acceptable to the Company.
 
The Company’s historical operating results and forecasting uncertainties indicate that substantial doubt exists related to the Company’s ability to continue as a going concern. Forecasting uncertainties exist with respect to the ASG product line due to the potential longer than anticipated sales
cycles as well as with potential delays in the refinement of certain features, and/or the Company’s 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.