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 28, 2009 Part I, under the heading "Certain Factors Which May Adversely Affect Future Operations or an Investment in Giga-tronics", and Part II, under the heading "Management's Discussion and Analysis of Financial Conditions and Results of Operations".

Overview

Giga-tronics produces instruments, subsystems and sophisticated microwave components that have broad applications in both defense electronics and wireless telecommunications. In the first quarter of fiscal year 2010, the Company consisted of two operating and reporting segments: Giga-tronics Division and Microsource.

Our business is highly dependent on government spending in the defense electronics sector and on the wireless telecommunications market. The Company has seen a reduction in defense orders for the first quarter of fiscal 2010 versus the first quarter of fiscal 2009. Commercial orders are slightly down for the quarter ended June 27, 2009 as compared to the quarter ended June 28, 2008.

The Company continues to monitor costs, including reductions in personnel, facilities and other expenses, to more appropriately align costs with revenues. In March 2007, the Company moved ASCOR's engineering, sales and marketing, and administrative activities to the San Ramon, California facility, effectively abandoning its Fremont, California facility. Subsequently, in fiscal 2009, the ASCOR subsidiary was combined into the Giga-tronics Instrument Division. As a result, the Company has accrued its future lease obligations, net of

estimated sub-lease income, through June 2009. As of June 30, 2009, our Fremont facility lease obligation has terminated. Microsource sales and marketing and engineering activities were also consolidated into the San Ramon facility to better integrate our component development activities with the Company's overall new product plans. The Microsource facility in Santa Rosa, California, however, remains open as a manufacturing operation.

Results of Operations

New orders received by segment are as follows:

NEW ORDERS
                                      Three Months Ended
(Dollars in thousands)    June 27, 2009      June 28, 2008      % change
Giga-tronics Division     $       2,202      $       4,058           (46 %)
Microsource                         331                166            99 %
  Total new orders        $       2,533      $       4,224           (40 %)

New orders received in the first quarter of fiscal 2010 decreased by 40% to $2,533,000 from the $4,224,000 received in the first quarter of fiscal 2009. New orders decreased primarily due to a decrease in new military orders at Giga-tronics Division. Orders at Microsource increased primarily due to an increase in commercial demand for its products.

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

BACKLOG
                                                                   Three Months Ended
(Dollars in thousands)                                June 27, 2009      June 28, 2008     % change
Backlog of unfilled orders                            $       7,169      $       8,264            (13 %)
Backlog of unfilled orders shippable within one
year                                                          5,724              5,842             (2 %)
Previous fiscal year (FY) end backlog reclassified
during  quarter as shippable later than one year                174                 61            185 %
Net cancellations during the quarter                            365                 --             --

Backlog at the end of the first quarter of fiscal 2010 decreased 13% as compared to the end of the same period last year.

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

ALLOCATION OF NET SALES
                                      Three Months Ended
(Dollars in thousands)    June 28, 2009      June 28, 2008     % change
Giga-tronics Division     $       2,536      $       2,660            (5 %)
Microsource                       1,933                828           134 %
 Total net sales          $       4,469      $       3,488            28 %

Fiscal 2010 first quarter net sales were $4,469,000, a 28% increase from the $3,488,000 in the first quarter of fiscal 2009. Sales at Giga-tronics Division decreased 5% or $124,000 primarily due to a decrease in commercial shipments for its products. Sales at Microsource increased 134% or $1,105,000 during the first quarter of fiscal 2010 versus the first quarter of fiscal 2009 primarily due to an increase in military and commercial shipments.

Cost of sales was as follows for the periods shown:

COST OF SALES

Cost of sales as a percentage of sales improved by 7.3% for the first quarter of fiscal 2010 to 52.7% compared to 60.0% from the first quarter of fiscal 2009.

Operating expenses were as follows for the periods shown:

OPERATING EXPENSES
                                                   Three Months Ended
(Dollars in thousands)                 June 27, 2009      June 28, 2008     % change
Product development                    $         381      $         556           (31 %)
Selling, general and administrative            1,394              1,364             2 %
 Total operating expenses              $       1,775      $       1,920            (8 %)

Operating expenses decreased 8% or $145,000 in the first quarter of fiscal 2010 over fiscal 2009 due to a decrease of $175,000 in product development expense excluding non-recurring engineering (NRE) costs, offset by an increase of $30,000 in selling, general and administrative expense. The labor content of the NRE charged to cost of sales in the first quarter of fiscal 2010 was $112,000. In the first quarter of fiscal 2009, the engineering labor charged to cost of sales was not material. The increase in selling, general and administrative expense is a result of higher marketing of $61,000 and higher commission expense of $6,000 offset by lower administrative expenses of $37,000.

Giga-tronics recorded a net profit of $333,000 or $0.07 per fully diluted share for the first quarter of fiscal 2010 versus a net loss of $522,000 or $0.11 per fully diluted share in the same period last year. A $2,000 provision for income taxes was incurred in both the first quarter of fiscal 2010 and fiscal 2009.

The following provides a reconciliation of GAAP to non-GAAP net income (loss).

                                                                           Three Months Ended
(In thousands except per share data)                                June 27, 2009        June 28, 2008
Net income (loss) as reported                                     $           333      $          (522 )
Share based compensation                                                       37                   64
Net income (loss) non-GAAP                                        $           370      $          (458 )

Basic and diluted earnings (loss) per share as reported           $          0.07      $         (0.11 )
Impact of share based compensation on earnings (loss) per share              0.01                 0.01
Basic and diluted earnings (loss) per share non-GAAP              $          0.08      $         (0.10 )

Shares used in per share calculation:
    Basic                                                                   4,824                4,824
    Diluted                                                                 4,826                4,824

Non-GAAP net income, which excludes share based compensation, for the three month period ended June 27, 2009 would have been $37,000 higher or $370,000. Non-GAAP basic and diluted earnings per share would have been $0.08 compared to $0.07 as reported. For the same period last year, the Company's non-GAAP net

loss would have been $64,000 lower or $458,000 and the basic and diluted share loss would have been $0.10 compared to $0.11 as reported. Management has included this information as this expense is a non-cash item with no net equity impact.

Financial Condition and Liquidity

As of June 27, 2009, Giga-tronics had $1,551,000 in cash and cash-equivalents, compared to $1,518,000 as of March 28, 2009.

Working capital at June 27, 2009 was $7,526,000 compared to $7,131,000 at March 28, 2009. The increase in working capital was primarily due to an increase in inventory and partially offset by a decrease in accounts payable in fiscal 2010.

The Company's current ratio (current assets divided by current liabilities) at June 27, 2009 was 2.97 compared to 3.14 on March 28, 2009.

Cash used in operations amounted to $463,000 in the first quarter of fiscal 2010. Cash used in operations amounted to $118,000 in the first quarter of fiscal 2009. Cash used in operations in the first quarter of fiscal 2010 is primarily attributed to an increase in inventory partially offset by the operating profit. Cash used in operations in the first quarter of fiscal 2009 was primarily attributed to the operating loss in the quarter offset by the net change in operating assets and liabilities.

There were no additions to property and equipment in the first quarter of 2010 compared to $9,000 for the same period last year. The capital equipment spending in fiscal 2009 was due to an upgrade of capital equipment enabling the manufacture of new products being released.

On June 16, 2009, the Company renewed its secured revolving line of credit for $1,500,000, with interest payable at prime rate plus 1.5%. The borrowing under this line of credit is based on the Company's accounts receivable and inventory and is secured by all of the assets of the Company. The Company borrowed $500,000 under this line of credit during the period ended June 27, 2009, and was in compliance with all required covenants at June 27, 2009.

Future tax benefits are subject to a valuation allowance when management is unable to conclude that its deferred tax assets will more likely than not be realized from the results of operations. The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based on historical taxable income and projections for future taxable income over the periods in which the deferred tax assets become deductible, the Company may not realize benefits of these deductible differences as of June 27, 2009. Management has, therefore, established a full valuation allowance against its net deferred tax assets as of June 27, 2009.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 9 to the condensed Consolidated Financial Statements included in this report.