Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Going Concern and Management's Plan

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Note 2 - Going Concern and Management's Plan
9 Months Ended
Dec. 27, 2014
Going Concern Disclosure [Abstract]  
Going Concern Disclosure [Text Block]

 (2)       Going Concern and Management’s Plan


The Company incurred a net loss of $283,000 for the first nine months of fiscal 2015 and $3,742,000 for the fiscal year ended March 29, 2014. These losses contributed to an accumulated deficit of $18.5 million as of December 27, 2014.


In the first nine months of fiscal 2015 and all of fiscal 2014 the Company invested heavily in the development of a new Giga-tronics Division product platform, the Advanced Signal Generation System. The Company anticipates long-term revenue growth and improved gross margins from the new product platform, but the delay in completing it contributed significantly to the losses of the Company. The Advanced Signal Generation System's initial customer deliveries occurred in the second and third quarters of fiscal 2015, and are approaching final customer acceptance. Additional delays in shipping volume quantities, or longer than anticipated sales cycles, could significantly contribute to additional losses.


To help fund operations, the Company relies on advances under the line of credit with Silicon Valley Bank. However the Bank may terminate or suspend advances under the line of credit if the Bank determines there has been a material adverse change in the Company’s general affairs, financial forecasts or general ability to repay. (Note 13, Line of Credit). As of December 27, 2014, borrowings under the line of credit were $1.6 million.


These matters, along with recurring losses in prior years, raise substantial doubt as to the ability of the Company to continue as a going concern.


To address this matter, 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.


 

On June 16, 2014, Giga-tronics amended its loan agreement with Partners For Growth IV, L.P. (“PFG”). Under the terms of the amendment, PFG made a revolving line of credit available to Giga-tronics in the amount of $500,000 and the Company borrowed the entire amount on June 17, 2014. The Company’s original agreement with PFG was entered into on March 13, 2014 under which the Company received $1.0 million from a three-year term loan. Pursuant to the amended loan agreement, the Company may borrow an additional $500,000. The loan agreement contains financial covenants associated with the Company achieving minimum quarterly net sales and maintaining a minimum monthly shareholders’ equity. In the event of default by the Company, all or any part of the Company’s obligation to PFG could become immediately due.


 

In the first three months of fiscal 2015 the Microsource business unit received a $6.2 million order (“NRE Order”) for the non-recurring engineering and for the delivery of a limited number of flight-qualified prototype hardware from a major aerospace company to develop a variant of its high performance fast tuning YIG filters for an aircraft platform. The Company expects to recognize the majority of revenue from the NRE Order in fiscal 2015. The Company expects to finalize in the next few months a multi-year follow-on order for approximately $10.0 million associated with the production units, which are anticipated to start shipping in April of 2016. No assurances can be given that the parties will agree on the final multi-year production agreement, or what the actual terms will be.


Also in the first three months of fiscal 2015 the Giga-tronics Division received a $2.4 million order from the United States Navy (“Navy”) for its Model 8003 Precision Scalar Analyzer product (“8003”). The Company recognized the associated revenue and invoiced the Navy in the first two quarters of fiscal 2015.


 

To assist with the upfront purchases of inventory required for future product deliveries, the Company entered into advance payment arrangements with certain of its customers whereby the customers reimburse the Company for raw material purchases prior to the shipment of the finished products. In fiscal 2014 the Company entered into advance payment arrangements totaling $1.3 million, and during the first three quarters of fiscal 2015 the Company entered into $1.4 million of advance payment arrangements. The Company will continue to seek similar terms in future agreements with these 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, but there are no assurances that such financings or sales will be available at all, or on terms acceptable to the Company.


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