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, 2012 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 2013, 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 wireless telecommunications markets. The Company has seen an increase in defense orders for the first quarter of fiscal 2013 versus the first quarter of fiscal 2012. Commercial orders are slightly up for the quarter ended June 30, 2012 as compared to the quarter ended June 25, 2011.

The Company continues to monitor costs; including personnel, facilities and other expenses to more appropriately align costs with revenues.

Results of Operations

New orders received by segment are as follows:

NEW ORDERS
                                             Three Months Ended
(Dollars in thousands)     June 30, 2012           June 25, 2011      % change
Giga-tronics Division    $         2,181     $             3,885           (44 %)
Microsource                        6,499                   1,663           291 %
Total                    $         8,680     $             5,548            56 %

New orders received in the first quarter of fiscal 2013 increased by 56% to $8,680,000 from the $5,548,000 received in the first quarter of fiscal 2012. New orders at Giga-tronics Division decreased primarily due to a decrease in military orders whereas orders at Microsource increased primarily due to an increase in new military orders. In fiscal year 2012, Giga-tronics Division received a large first quarter signal generator order from the military which did not repeat in the first quarter of fiscal 2013. During the first quarter of fiscal year 2013, Microsource received a significant components order from the defense sector.

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

BACKLOG
                                                                   Three Months
                                                                       Ended
(Dollars in thousands)                           June 30, 2012     June 25, 2011         % change
Backlog of unfilled orders                     $         8,461     $       5,700               48 %
Backlog of unfilled orders shippable within
one year                                                 5,667             4,177               36 %
Previous fiscal year end (FYE) long term
backlog reclassified during year as
shippable within one year                                1,573                28             5518 %
Net cancellations during year of previous
FYE one-year backlog                                         -                 -                -

Backlog at the end of the first quarter of fiscal 2013 increased 48% as compared to the end of the same period last year. A significant order from the defense sector for Microsource components was received but not shipped in the first quarter of fiscal 2013. Approximately one half of the order is classified as noncurrent.

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

ALLOCATION OF NET SALES
                                             Three Months Ended
(Dollars in thousands)     June 30, 2012           June 25, 2011       % change
Giga-tronics Division    $         2,827     $             2,423             17 %
Microsource                        1,231                   1,074             15 %
Total                    $         4,058     $             3,497             16 %

Fiscal 2013 first quarter net sales were $4,058,000, a 16% increase from the $3,497,000 in the first quarter of fiscal 2012. Sales at Giga-tronics Division increased 17% or $404,000 primarily due to an increase in commercial shipments of its products. Sales at Microsource increased 15% or $157,000 during the first quarter of fiscal 2013 versus the first quarter of fiscal 2012 largely due to an increase in military shipments. A signal generator marketing campaign accounts for approximately one half of the Giga-tronics revenue increase, while the Microsource revenue increase is attributable to shipments of previously recorded defense contractor orders.

Cost of sales was as follows for the periods shown:

COST OF SALES
                                             Three Months Ended
(Dollars in thousands)     June 30, 2012           June 25, 2011       % change
Cost of sales            $         2,428     $             2,054             18 %

Cost of sales as a percentage of sales increased slightly for the first quarter of fiscal 2013 to 59.8% compared to 58.7% from the first quarter of fiscal 2012 due to a change in product mix.

Operating expenses were as follows for the periods shown:

OPERATING EXPENSES
                                                                   Three Months
                                                                       Ended
(Dollars in thousands)                           June 30, 2012     June 25, 2011          % change
Engineering                                    $           933     $         680                37 %
Selling, general and administrative                      1,310             1,434                (9 %)
Restructuring                                               92                 -                 0 %
Total                                          $         2,335     $       2,114                10 %

Operating expenses increased 10% or $221,000 in the first quarter of fiscal 2013 over fiscal 2012 due primarily to a $253,000 increase in new product development expense, partially offset by a $124,000 reduction general and administrative expense related to personnel reductions in fiscal 2012. Company plans are to aggressively invest in its instrument products.

In the fourth quarter of fiscal 2012, Giga-tronics made the decision to move ahead with the consolidation of its Santa Rosa, CA operation into one facility in San Ramon, CA to help with overhead absorption in San Ramon and to eliminate the facility expense in Santa Rosa. The Company announced its intentions to employees in February, 2012 and entered into employment agreements with all key Santa Rosa individuals to retain the talent needed to continue shipments during the transition and to ensure the new operation in San Ramon will run smoothly.

The major types of cost associated with this move and estimates of their respective total costs are shown:

Type of Cost                          Estimated Total Expense (In thousands)
Retention Agreements for employees          $                             506
Preparation of San Ramon facility           $                             103
Training of San Ramon Employees             $                              34
Moving expenses                             $                              56
Clean-up of Santa Rosa facility             $                              67
Total                                       $                             766

Of the total expense, only a prorated portion of the retention bonuses were accrued during this quarter for $92,000 and $31,000 had been accrued as of March 31, 2012. The balance of the expenses will be incurred throughout the remainder of this fiscal year and through the third quarter of fiscal 2014. The Company must vacate its Santa Rosa facility in May of 2013.

Giga-tronics recorded a net loss of $707,000 or $0.14 per fully diluted share for the first quarter of fiscal 2013 versus a net loss of $674,000 or $0.13 per fully diluted share in the same period last year.

Financial Condition and Liquidity

As of June 30, 2012, Giga-tronics had $1,436,000 in cash and cash equivalents, compared to $2,365,000 as of March 31, 2012.

Working capital at June 30, 2012 was $5,925,000 compared to $6,568,000 at March 31, 2012. The decrease in working capital was primarily attributable to the net loss of $707,000 during the first quarter of fiscal 2013 and an increase in accounts receivable which was partially offset by an increase in deferred revenue.

The Company's current ratio (current assets divided by current liabilities) at June 30, 2012 was 2.61 compared to 4.14 on March 31, 2012.

Cash used in operations amounted to $882,000 and is due to the net loss for the period.

Additions to property and equipment were $45,000 in the first quarter of 2013. There was $36,000 in additions for the same period last year. The increase in capital equipment spending was due to an upgrade of capital equipment enabling the manufacture of new products being released.

Effective September 15, 2011, the Company obtained a revolving line of credit for $2,500,000, with interest payable at prime rate plus 1.5%. The line of credit expires on September 15, 2012. The borrowing capacity under this line of credit is based on the Company's accounts receivable and is secured by all of the assets of the Company. The line of credit has standard financial covenants that require the maintenance of prescribed levels of working capital and shareholders' equity. The Company was in compliance with all covenants at June 30, 2012. At June 30, 2012 and June 25, 2011 there was no balance on the line of credit.

We believe the funds generated by the collection of our accounts receivable; the anticipated revenues of our operations and reductions in operating expenses; and, continued management of our supply chain are adequate to fund our anticipated cash needs through the next twelve months. Although our line of credit expires in September 2012, we expect to renew the line of credit at maturity. Additionally, we do not have any outstanding balances on the line of credit. We anticipate that we will retain all earnings, if any, to fund future growth in the business. We believe we have effectively implemented cash management controls to meet ongoing obligations and as such believe that we will have sufficient liquidity to continue to operate over the next twelve months.

Should unforeseen circumstances occur, there are no assurances that we will not be required to seek additional working capital through debt or equity offerings. If such additional working capital is required, there are no assurances that such financing will be available on favorable terms to the Company, if at all.