UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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.
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
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Registrant’s telephone number, including area code |
Securities registered pursuant to Section 12(b) of the Act:
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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:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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.
Large accelerate filer |
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Emerging growth company |
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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
There was a total of
TABLE OF CONTENTS
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Page No. |
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Item 1. |
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Unaudited Condensed Consolidated Balance Sheets as of June 25, 2022 and March 26, 2022 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about Giga-tronics Incorporated (the “Company,” “we” or “our”) 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; (9) U.S. and international economic conditions; (10) the COVID-19 pandemic, including the effects of governmental responses to the pandemic and (11) the Company’s pending acquisition of Gresham Worldwide Inc. 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 26, 2022 for 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.
3
PART I – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share data)
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June 25, 2022 |
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March 26, 2022* |
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Assets |
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Current assets: |
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Cash |
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$ |
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$ |
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Trade accounts receivable, net of allowance of $ |
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Inventories, net |
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Prepaid expenses |
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Unbilled receivable |
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Total current assets |
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Property, plant and equipment, net |
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Right-of-use asset |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Loans payable, net of discounts and issuance costs |
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Accrued payroll and benefits |
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Lease obligations |
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Other current liabilities |
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Total current liabilities |
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Other non-current liabilities |
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Long-term lease obligations |
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Total liabilities |
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Shareholders’ equity: |
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Preferred stock; |
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Series A convertible preferred stock: |
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Series B, C, D convertible preferred stock: |
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Series E convertible preferred stock: |
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Common stock; |
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Accumulated deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
* Derived from the audited financial statements as of and for the fiscal year ended March 26, 2022
4
GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
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Three Months Ended |
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June 25, 2022 |
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June 26, 2021 |
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Net revenue: |
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Goods |
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$ |
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$ |
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Services |
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Total revenue |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Engineering |
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Selling, general and administrative |
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Transaction expenses |
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Total operating expenses |
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Operating loss |
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Interest expense, net and other: |
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Interest expense, net |
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Other expense, net |
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Loss before income taxes |
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Provision for income taxes |
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Net loss |
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Deemed dividend on Series E preferred stock |
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Cumulative dividends on converted Series E |
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Net loss attributable to common shareholders |
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$ |
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$ |
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Net loss per common share attributable to |
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$ |
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$ |
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Weighted average common shares used in computing net loss per |
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See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
GIGA-TRONICS INCORPORATED
(UNAUDITED)
(In thousands except share data)
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Preferred Stock |
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Common Stock |
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Accumulated |
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Shares |
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Amount |
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Shares |
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Amount |
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Deficit |
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Total |
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Balance at March 27, 2021 |
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$ |
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$ |
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$ |
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$ |
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Net loss attributable to common shareholders |
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— |
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— |
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— |
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— |
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( |
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( |
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Restricted stock granted |
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— |
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— |
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— |
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— |
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— |
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Restricted stock forfeited |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Deemed dividend in connection with prefunded warrants issuance |
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— |
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— |
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— |
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— |
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( |
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( |
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Common stock issuance, net of offering costs |
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— |
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— |
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— |
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Conversion of Series E preferred stock to common stock |
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( |
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— |
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Balance at June 26, 2021 |
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$ |
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$ |
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$ |
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$ |
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Preferred Stock |
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Common Stock |
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Accumulated |
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Shares |
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Amount |
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Shares |
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Amount |
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Deficit |
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Total |
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Balance at March 26, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss attributable to common shareholders |
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— |
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— |
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— |
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— |
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( |
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( |
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Restricted stock granted |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance at June 25, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
GIGA-TRONICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
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Three Months Ended |
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June 25, 2022 |
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June 26, 2021 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Cumulative dividends on Series E preferred stock |
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Finance costs for issuance of prefunded warrants |
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Finance costs from issuance of warrant in connection with term loan |
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Gain on remeasurement of prefunded warrants liability |
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( |
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Gain on remeasurement of warrant issued in connection with term loan |
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( |
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Changes in operating assets and liabilities: |
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Trade accounts receivable |
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( |
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Inventories |
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( |
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Prepaid expenses |
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( |
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Unbilled receivable |
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Right-of-use asset |
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Other long-term assets |
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( |
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Accounts payable |
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( |
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Accrued payroll and benefits |
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Deferred revenue |
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Accrued Interest |
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Other current and non-current liabilities |
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( |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities: |
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Principal payments on leases |
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( |
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( |
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Repayments of borrowings |
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( |
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Proceeds from loans payable, net of issuance costs |
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Proceeds from issuance of stock, net of issuance costs |
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Proceeds from issuance of prefunded warrants |
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Finance costs from issuance of prefunded warrants |
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( |
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Net cash provided by financing activities |
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Increase in cash |
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Beginning cash |
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Ending cash |
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$ |
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$ |
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Supplementary disclosure of cash flow information: |
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Cash paid for interest |
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$ |
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$ |
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Finance costs from issuance of warrant in connection with term loan |
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$ |
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$ |
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Supplementary disclosure of noncash activities: |
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Deemed dividend on common shares from prefunded warrants issuance |
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$ |
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$ |
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Deemed dividend on common shares from conversion of Series E Shares |
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$ |
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$ |
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See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
The unaudited condensed consolidated financial statements included herein have been prepared by Giga-tronics Incorporated (“Giga-tronics,” “Company,” or “we”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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. Please refer to the Company’s Annual Report on Form 10-K for the year ended March 26, 2022 for a discussion of our significant accounting policies. During the three months ended June 26, 2022, there were no material changes to these policies other than as disclosed below. For further information, refer to the consolidated financial statements and footnotes thereto, included in the Annual Report on Form 10-K, filed with the SEC for the year ended March 26, 2022.
Principles of Consolidation The unaudited condensed 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.
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 2. Going Concern and Management’s Plan
The Company incurred net losses of $
On December 27, 2021, Giga-tronics entered into a Share Exchange Agreement with BitNile Holdings, Inc. ("BitNile") and Gresham Worldwide, Inc. (“Gresham”), which is a wholly-owned subsidiary of BitNile (the “Share Exchange Agreement”). Under the Share Exchange Agreement, the Company is restricted from raising funds either via debt or equity and has therefore received a loan of $
Management has also put in place a plan as a stand-alone company and believes that the Company can repay the loan to BitNile in November 2022 without raising additional funding because of the large inventory on hand for the Threat Emulation System ("TEmS") solution, which will result in cash with sales of the TEmS solution. 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.
The Company's historical operating results and forecasting uncertainties indicate that substantial doubt exists related to its ability to continue as a going concern. Management believes that through the actions to date and possible future actions described above, the Company should have the necessary liquidity to continue operations for at least twelve months from the issuance of the financial statements. However, management cannot predict, with certainty, the outcome of its 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 the Electronic Warfare ("EW") test system product line due to the potential longer than anticipated sales cycles.
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.
8
Note 3. Inventories, net
Inventories, net are comprised of the following (In thousands):
Category |
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June 25, 2022 |
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March 26, 2022 |
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Raw materials |
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$ |
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$ |
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Work-in-progress |
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Finished goods |
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Demonstration inventory |
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Total |
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$ |
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$ |
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Note 4. Property, Plant and Equipment, net
Property, plant and equipment, net, are comprised of the following (In thousands):
Category |
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June 25, 2022 |
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March 26, 2022 |
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Leasehold improvements |
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$ |
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$ |
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Machinery and equipment |
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Computer and software |
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Furniture and office equipment |
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Property, plant and equipment |
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Less: accumulated depreciation and amortization |
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( |
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( |
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Property, plant and equipment, net |
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$ |
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$ |
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Depreciation and amortization expenses for the three months periods ended June 25, 2022 and June 26, 2021 was $
Note 5. Financed Receivables
On March 11, 2019, the Company entered into an Amended and Restated Business Financing Agreement (“Restated Financing Agreement”) with Western Alliance Bank, as successor to Bridge Bank.
Under the Restated Financing Agreement, Western Alliance Bank may advance up to
Under the Restated Financing Agreement, interest accrues on outstanding amounts at an annual rate equal to the greater of prime or
As of June 25, 2022, and March 26, 2022, the Company’s total outstanding borrowings under the Restated Financing Agreement were $
Note 6. Term Loan
On November 12, 2021, the Company borrowed $
On April 5, 2022, the Company (1) borrowed an additional $
The loan is evidenced by a secured promissory note dated April 5, 2022 that provides, among other things that the principal amount of the loan will bear interest at the rate of
9
termination of the Share Exchange Agreement. The Company’s obligations under the loan are secured by a pledge of all of the Company’s assets. The loan and the lender’s security interest are subordinate to the Company’s existing bank lending arrangement.
As of June 25, 2022, and March 26, 2022, the Company’s total outstanding loan balance was $
On April 5, 2022, the Company borrowed an additional $
This description is qualified by the Amended and Restated Secured Promissory Note, the Security and Pledge Agreement with DPL and the amendment thereto, copies of which are filed as exhibits to this report and incorporated by reference herein.
Note 7. Employee Retention Credit under the CARES Act
In August 2021, the Company applied for the Employee Retention Credit (“ERC”) for a total amount of $
In January 2022, the Company applied for another ERC for a total amount of $
Currently, we are unable to provide an estimate as to whether and when we will receive these ERC funds as the Company's applications are pending Internal Revenue Service processing and approval.
Note 8. Leases
Operating leases
The Company has a non-cancelable operating lease for office, research and development, engineering, laboratory, storage and warehouse uses in Dublin, California for
In December 2018, the Company entered into a lease agreement for an additional
Per the terms of the Company’s lease agreements, the Company does not have any residual value guarantees. In calculating the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate. The Company has elected for facility operating leases to not separate each lease component from its associated non-lease components. The building lease includes variable payments (i.e., common area maintenance) which are charged and paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use asset and liability but reflected in operating expense in the period incurred.
Lease costs
For the three months ended (In thousands):
Lease Costs |
|
Classification |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||
Operating lease costs |
|
Operating expenses |
|
$ |
|
|
$ |
|
Other information for the three months ended (In thousands):
|
|
|
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||
Operating cash used for leases |
|
|
|
$ |
|
|
$ |
|
10
Future lease payments as of June 26, 2022, were as follows (In thousands):
Fiscal Year |
|
Operating leases |
|
|
2023 (remaining 9 months) |
|
$ |
|
|
2024 |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less: imputed interest |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
Note 9. Fair Value Measurement
Accounting Standards Codification ("ASC") 820 “Fair Value Measurements” ("ASC 820") defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under ASC 820 are described below:
In determining the fair value of warrants, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
Upon issuance on April 5, 2022 and at June 25, 2022 the warrant issued in connection with loan from DPL was measured at fair value (See Note 18 - Share Exchange Agreement with BitNile and Gresham).
The Company’s fair value hierarchies for its financial assets and liabilities which require fair value measurement on a recurring basis are as follows:
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Balance at March 26, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability for warrant issued in connection with loan from DPL |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at June 25, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability for warrant issued in connection with loan from DPL |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
During the three months ended June 25, 2022 and the year ended March 26, 2022, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value and the valuation techniques used did not change compared to the Company’s established practice.
11
The fair value of the warrant issued in connection with loan from DPL has been determined using Black-Scholes-Merton model. The Company’s common stock fair value is a significant Level 3 input affecting the valuation of the warrant.
(In thousands) |
|
Warrant liability |
|
|
Balance at March 26, 2022 |
|
$ |
|
|
Initial fair value of warrants issued in connection with loan from DPL in April 2022 |
|
|
|
|
Gain on remeasurement of warrant issued in connection with loan from DPL |
|
|
( |
) |
Balance at June 25, 2022 |
|
$ |
|
Upon issuance on April 27, 2021, the prefunded warrants liability was measured at fair value. On July 28, 2021, the Company and the holder amended the terms of the Prefunded Warrants to restrict the holder’s option to require cash payment at the Black-Scholes-Merton model value of the remaining unexercised portion of the holder’s Prefunded Warrants to only Fundamental Transactions that are within the Company’s control. Because of this modification of the put-option provision, the Prefunded Warrants are no longer required to be classified as a liability under either ASC 480, "Distinguishing Liabilities from Equity", or ASC 815, "Derivatives and Hedging", guidance and do not include any embedded features that require bifurcation. Therefore, the Prefunded Warrants liability were remeasured on the modification date and reclassified to equity (See Note 10 – Sale of Common Stock and Prefunded Warrants). As of June 25, 2022 and March 26, 2022, the prefunded warrants liability was $
There were
Note 10. Sale of Common Stock and Prefunded Warrants
On April 27, 2021, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with certain accredited investors (“Investors”) pursuant to which it issued and sold prefunded warrants to purchase an aggregate of
The Prefunded Warrants are immediately exercisable and may be exercised for a de-minimis exercise price of $
Pursuant to the terms of the Purchase Agreement, and as a condition to closing the private placement, the Company and each Investor simultaneously entered into a registration rights agreement (“Registration Rights Agreement”) requiring the Company to file a registration statement with the SEC within 45 days of the closing of the private placement to register for resale the shares of the Company’s common stock underlying the Prefunded Warrants. The Registration Rights Agreement contains customary terms and conditions, certain liquidated damages provisions for failing to comply with the timing obligations for the filing and effectiveness of the registration statement, and certain customary indemnification obligations.
On April 27, 2021, in connection with the private placement, the Company issued warrants to purchase
12
On June 6, 2021, the Company entered into a Securities Purchase Agreement with a private investor for the sale of a total of
On July 28, 2021, the Company and the holder amended the terms of the Prefunded Warrants to restrict the holder’s option to require cash payment at the Black-Scholes-Merton value of the remaining unexercised portion of the holder’s Prefunded Warrants to only Fundamental Transactions that are within the Company’s control. Because of this modification of the put-option provision, the Prefunded Warrants are no longer required to be classified as a liability under either ASC 480, "Distinguishing Liabilities from Equity", or ASC 815, "Derivatives and Hedging", guidance and do not include any embedded features that require bifurcation. Therefore, the Prefunded Warrants liability were remeasured on the modification date of July 28, 2021 and reclassified to equity as of that date.
Note 11. Net Loss Per Share
Basic loss per share is calculated by dividing net loss by the weighted average common shares outstanding during the period. Diluted earnings per share (“EPS”) reflects the net incremental shares that would be issued if unvested restricted shares became vested and dilutive outstanding stock options and warrants were exercised, using the treasury stock method. In addition, certain options are considered anti-dilutive 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 for the three month periods ended June 25, 2022 and June 26, 2021 are as follows (In thousands):
Anti-dilutive securities |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||
Common shares issuable upon exercise of stock options |
|
|
|
|
|
|
||
Restricted stock awards |
|
|
|
|
|
|
||
Common shares issuable upon conversion of convertible preferred stock |
|
|
|
|
|
|
||
Common shares issuable upon exercise of warrants |
|
|
|
|
|
|
(In thousands except per share data) |
|
Three Months Ended |
|
|||||
|
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||
Net loss attributable to common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Weighted-average basic and diluted common shares outstanding |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Net loss per common share attributable to common shareholder – basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
There were
Note 12. Stock-based Compensation and Employee Benefit Plans
The Company maintains a 2018 Equity Incentive Plan which provides for the issuance of up to
During the first quarter of fiscal year 2023, the Company did
As of June 25, 2022, there were
13
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 model and the following weighted average assumptions:
Description |
|
Three Months Ended |
|
|
|||||
|
|
June 25, 2022 |
|
|
June 26, 2021 |
|
|
||
Dividend yield |
|
|
|
|
|
|
|
||
Expected volatility |
|
|
% |
|
|
% |
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
|
||
Expected term (years) |
|
|
|
|
|
|
|
The computation of expected volatility used in the Black-Scholes-Merton 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 months period ended June 25, 2022 is as follows:
Description |
|
Shares |
|
|
Weighted |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Outstanding at March 26, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Forfeited / Expired |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Outstanding at June 25, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercisable at June 25, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected to vest in the future |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
As of June 25, 2022, there was $
Restricted Stock
The Company granted
As of June 25, 2022, there was $
A summary of the changes in non-vested RSAs outstanding for the three month period ended June 25, 2022 is as follows:
Restricted Stock Awards |
|
Shares |
|
|
Weighted Average |
|
||
Non-vested at March 26, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Non-vested at June 25, 2022 |
|
|
|
|
$ |
|
14
Note 13. Significant Customer and Industry Segment Information
The Company has
The Giga-tronics Division designs, manufactures and markets a family of functional test products for the RADAR/EW segment of the defense electronics market. Our RADAR/EW test products are used to evaluate and improve the performance of RADAR/EW systems.
The table below presents information for the two reportable segments (In thousands):
|
|
Three Month Period Ended June 25, 2022 |
|
|
Three Month Period Ended June 26, 2021 |
|
||||||||||||||||||
Description |
|
Giga-tronics |
|
|
Microsource |
|
|
Total |
|
|
Giga-tronics |
|
|
Microsource |
|
|
Total |
|
||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest expense and other, net |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Assets (at period end) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
During the first quarter of fiscal 2023,
During the first quarter of fiscal 2022,
Note 14. Income Taxes
The Company accounts for income taxes using the asset and liability method as codified in ASC 740, Income Taxes. 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
As of June 25, 2022, the Company had recorded $
Note 15. Warranty Obligations
The Company records a liability for estimated warranty obligations in cost of revenue at the date products are sold. Adjustments are made as new information becomes available. The Company provides no other guarantees.
15
The following provides a reconciliation of changes in the Company’s warranty obligation for the respective periods (In thousands):
|
|
Three Months Ended |
|
|
|||||
|
|
June 25, 2022 |
|
|
June 26, 2021 |
|
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
||
Provision, net |
|
|
|
|
|
|
|
||
Warranty costs incurred |
|
|
|
|
|
( |
) |
|
|
Balance at end of period |
|
$ |
|
|
$ |
|
|
Note 16. Preferred Stock and Warrants
Series E Senior Convertible Voting Perpetual Preferred Stock
On March 26, 2018, the Company issued and sold
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 semiannually in cash at a rate per annum equal to
On November 7, 2019 the Company issued an aggregate of
During the three months ended June 25, 2022, no exchange of Series E Preferred Stock was done by the Company.
The table below presents Preferred Stock information as of June 25, 2022 and March 26, 2022 (In thousands):
Preferred Stock |
|
Designated |
|
|
Shares Issued and Outstanding |
|
|
Liquidation Preference |
|
|||
Series B |
|
|
|
|
|
|
|
$ |
|
|||
Series C |
|
|
|
|
|
|
|
|
|
|||
Series D |
|
|
|
|
|
|
|
|
|
|||
Series E |
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
|
|
|
|
|
$ |
|
Note 17. COVID-19 (Coronavirus)
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) and in March 2020 classified the outbreak as a pandemic. In March 2020, the President of the United States and the Governor of California declared a state of emergency, based on the rapid increase in COVID-19 cases including in California. In response to the COVID-19 pandemic, the Company has implemented a number of measures intended to ensure the safety of personnel and the continuity of operations. Following a mandated shut down in March 2020, the Company was designated as an essential business and has largely returned to normal operations though it continues to implement and follow the protective measures described above.
The COVID-19 pandemic has caused significant disruptions to the global, national and local economies. The overall economic and other impacts of the COVID-19 pandemic in the areas in which the Company and its customers and suppliers operates is not known and cannot be predicted at this time. While the disruption is currently expected to be temporary, there is uncertainty about the duration and the total economic impact. If this situation is prolonged, the pandemic could cause additional delays and could have a short- or long-term adverse impact, possibly material, on the Company’s future financial condition, liquidity, and results of operations.
To mitigate these risks, the Company has purchased long-lead inventory ahead of order receipt according to a forecast of anticipated business for its EW business. Microsource generally buys inventory upon receipt of each contract but has experienced delays in delivery
16
of specialty components and certain chips needed for its RADAR filter production. Microsource management is working to secure supply of these materials to minimize gaps in delivery to its customers.
Note 18. Share Exchange Agreement with BitNile and Gresham
On December 27, 2021, Giga-tronics entered into the Share Exchange Agreement with BitNile and Gresham. The Share Exchange Agreement provides that the Company will acquire all of the outstanding shares of capital stock of Gresham in exchange for issuing to BitNile
Immediately following the completion of the Exchange Transaction, Gresham will be a wholly-owned subsidiary of the Company. Outstanding shares of the Company’s common stock, warrants and options will remain outstanding and unaffected upon completion of the Exchange Transaction. The Company’s common stock will continue to be registered under the Exchange Act immediately following the Exchange Transaction.
The Share Exchange Agreement further provides that BitNile will loan the Company $
The Share Exchange Agreement contains certain termination rights for each of the parties, including the right of the Company or BitNile to terminate the Share Exchange Agreement if the Exchange Transaction is not consummated by August 31, 2022.
On April 5, 2022, the Company (1) amended the Share Exchange Agreement, (2) borrowed an additional $
The Amendment to the Share Exchange Agreement
On April 5, 2022, the Company, BitNile and Gresham amended the Share Exchange Agreement by entering into Amendment No. 1 to the Share Exchange Agreement (“Amendment”). The Amendment (1) extends from June 30, 2022 to August 31, 2022 the earliest date on which either the Company or BitNile may terminate the Share Exchange Agreement for any reason if the share exchange contemplated by the Share Exchange Agreement is not completed (assuming the terminating party’s breach of the Share Exchange Agreement is not the principal cause of the failure to complete the share exchange) (“End Date Termination”), (2) restates an existing provision of the Share Exchange Agreement, which provides that if the Company terminates the Share Exchange Agreement, it must repay the loan from an affiliate of BitNile the following business day, to reflect the full principal amount of such loan, which is $
The Warrant
On April 5, 2022, as contemplated by the Amendment, the Company issued to Gresham a warrant representing the right to purchase
17
the issuance. The Warrant includes a most favored nation clause providing that if the Company issues or sells any shares of common stock or any securities of the Company which would entitle the holder of such securities to acquire common stock on terms the holder reasonably believes are more favorable than those in the Warrant, at the request of the holder, the Company shall amend the Warrant to include such terms.
18
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Giga-tronics manufactures specialized electronic equipment for use in military test and airborne operational applications. Our operations consist of two business segments, those of our wholly owned subsidiary, Microsource Inc., and those of our Giga-tronics Division. Microsource designs and manufactures custom microwave products for military airborne applications while the Giga-tronics Division designs and manufactures real time solutions for RADAR/EW test applications.
Our Microsource subsidiary generates revenue through sole-source production contracts for custom engineered components funded by the United States ("U.S.") Federal Government. Microsource revenue for the first three months of fiscal year 2022 was $2.0 million from the delivery of RADAR filters for the F-15D, F-16 and F/A-18E aircrafts. These filters solve an interference problem that occurs between the aircraft’s RADAR system and the onboard electronic warfare suite when these older aircrafts receive upgraded RADAR systems. The engineering of each filter variant was funded by the U.S. Government indirectly through prime contractors, including filters for foreign military sales.
Orders for Microsource components are typically between $1.0 million to $3.0 million each and involve production contracts where the period of performance spans multiple years. We believe opportunities exist for expanding the use of our Microsource RADAR filters by offering design variants, such as for use in other aircraft or in situations where the electronic warfare suite is externally mounted on a pylon rather than onboard the aircraft. Microsource will also pursue development contracts for adapting the Company’s up/down converter technology for the benefit of customers who will appreciate the faster operation of our RADAR filters, representing a potential source of new revenue as customers upgrade their installed base.
Our Giga-tronics Division participates in the electronic warfare test segment with modular microwave up and down converters, our real-time TEmS and integrated playback and record solutions. The Giga-tronics solutions are architected like a RADAR system but built like a test system. We believe this approach differentiates our TEmS system from the competing solutions and provides a better correlation between laboratory tests and actual field results. The platform was specifically designed to address the need for multiple test channels and delivers a product that is smaller, more flexible, much easier to use and much lower in cost than those previously available.
We have sold our TEmS solution for use in air-crew training and air-to-ground missile testing applications. Our early sales for air-crew training and air-to-ground missile testing solutions leads us to believe that we can grow our market share faster in the field range testing segment compared to laboratory settings. Management expects that air-crew training and field testing on ranges throughout the country represent an opportunity for the growth of the Company’s EW test business revenue in fiscal 2023.
COVID-19 Impact
Following the initial impact of the COVID-19 pandemic in early 2020, Giga-tronics was identified early on as an essential business by the U.S. Department of Homeland Security due to the importance of our Microsource RADAR filters to the U.S. Department of Defense. The Company restored operations as quickly as feasible while taking the necessary steps to protect our employees from potential harm. During fiscal 2021, Giga-tronics applied for and received a loan of $786,200 from the Small Business Administration (“SBA”) associated with the U.S. Government’s Payroll Protection Program. The loan, including all accrued interest, was subsequently forgiven in November 2020 and was recorded as a gain on extinguishment of debt during our first quarter of fiscal 2021.
The COVID-19 pandemic had a significant impact on our ability to directly interact in person with customers throughout most of fiscal 2021 and fiscal 2022. Consequently, the progress in demonstrating solutions to customers and increasing awareness of Giga-tronics within the user community was delayed. Furthermore, we were unable to discuss customer needs and how our solutions could solve their problems as the military bases blocked outside personnel from visiting and mandated many of their personnel to work from home. In addition, travel restrictions made it difficult for our sales team to visit locations throughout the country due to mandatory quarantine periods. Requirements for visitation vary among the services and as a minimum require negative COVID test, proof of vaccination and advanced notices and approvals of planned visits.
The pandemic also impacted our supply chain during most of fiscal 2021 and fiscal 2022. Many of our suppliers have indicated similar challenges in keeping their own operations running and management believes we may continue to experience delays in fulfilling orders due limited availability of parts and services throughout fiscal 2023.
While we expect the impact of COVID-19 to be temporary, the disruptions caused by the pandemic negatively impacted our revenue and results from operations beginning in March 2020 and throughout most of fiscal years 2021 and 2022. Looking ahead, we see that our sales team is better able to interact with and demonstrate our solutions to customers, and as a result we anticipate a positive impact on orders for our Giga-tronics EW test solutions in fiscal year 2023.
19
Critical Accounting Policies
Please refer to the section of the Company’s Annual Report on Form 10-K for the year ended March 26, 2022 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 25, 2022, there were no material changes to these policies other than as disclosed in Note 1 Organization and Significant Accounting Policies to our unaudited condensed consolidated financial statements included with this Quarterly Report on Form 10-Q.
In preparing the unaudited condensed 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.
Results of Operations
New orders by reporting segment are as follows at the end of the respective periods (In thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
Segment |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Giga-tronics Division |
|
$ |
864 |
|
|
$ |
387 |
|
|
$ |
477 |
|
|
|
123 |
% |
Microsource |
|
|
755 |
|
|
|
1,124 |
|
|
|
(369 |
) |
|
|
(33 |
)% |
Total |
|
$ |
1,619 |
|
|
$ |
1,511 |
|
|
$ |
108 |
|
|
|
7 |
% |
New orders received in the first quarter of fiscal 2023 increased by $108,000 to $1.6 million. The Giga-tronics Division booked a TEmS order in the first quarter of fiscal 2023, as compared to several synthesizer orders booked in the first quarter of fiscal 2022. The Microsource business unit booked a RADAR filter order from a prime contractor in the first quarter of fiscal 2023 as compared to a spares order and a non-recurring engineering order from two prime contractors in the first quarter of fiscal 2022. The timing of receipt of RADAR filter contracts and EW Test orders can vary significantly from period to period.
The following table shows order backlog and related information at the end of the respective periods (In thousands):
|
|
As of |
|
|
|
|
|
|
|
|||||||
Segment |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Giga-tronics Division |
|
$ |
8 |
|
|
$ |
406 |
|
|
$ |
(398 |
) |
|
|
(98 |
)% |
Microsource |
|
|
1,040 |
|
|
|
4,171 |
|
|
|
(3,131 |
) |
|
|
(75 |
)% |
Total |
|
$ |
1,048 |
|
|
$ |
4,577 |
|
|
$ |
(3,529 |
) |
|
|
(77 |
)% |
Backlog at the end of the first three months of fiscal 2023 decreased 77% compared to the same period prior year. Giga-tronics Division backlog on June 25, 2022 was $8,000, a large percentage decrease from the comparable prior year period. Microsource experienced a 75% decrease in backlog in the first three months of fiscal 2023 due primarily to lower bookings during that period.
The allocation of net revenue was as follows for the periods shown (In thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
Segment |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Giga-tronics Division |
|
$ |
1,167 |
|
|
$ |
51 |
|
|
$ |
1,116 |
|
|
|
2,188 |
% |
Microsource |
|
|
763 |
|
|
|
1,999 |
|
|
|
(1,236 |
) |
|
|
(62 |
)% |
Total |
|
$ |
1,930 |
|
|
$ |
2,050 |
|
|
$ |
(120 |
) |
|
|
(6 |
)% |
The Giga-tronics Division net revenue for the first fiscal quarter ended June 25, 2022 was $1.2 million, a 2,188% increase from the comparable prior year quarter. The Giga-tronics Division shipped a TEmS order and multiple synthesizers in the first quarter of fiscal 2023, as compared to some service revenue in the first quarter of fiscal 2022. Net revenue for the Microsource segment during the quarter ended June 25, 2022 decreased 62% over the comparable prior year period primarily due lower orders. The timing of receipt of expected large RADAR filter orders varies from period to period.
20
Cost of revenue and gross profit was as follows for the periods shown (In thousands):
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||
Segment |
|
June 25, 2022 |
|
|
% of Segment Revenue |
|
|
June 26, 2021 |
|
|
% of Segment Revenue |
|
||||
Giga-tronics Division |
|
$ |
903 |
|
|
|
77 |
% |
|
$ |
54 |
|
|
|
106 |
% |
Microsource |
|
|
613 |
|
|
|
80 |
% |
|
|
1,196 |
|
|
|
60 |
% |
Total cost of revenue |
|
$ |
1,516 |
|
|
|
79 |
% |
|
$ |
1,250 |
|
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
$ |
414 |
|
|
|
21 |
% |
|
$ |
800 |
|
|
|
39 |
% |
Gross profit decreased by $386,000 in the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022 primarily due to the decrease in revenue at the Microsource segment as described above.
Operating expenses were as follows for the periods shown (In thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
Category |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Engineering |
|
$ |
298 |
|
|
$ |
402 |
|
|
$ |
(104 |
) |
|
|
(26 |
)% |
Selling, general and administrative |
|
|
1,162 |
|
|
|
1,098 |
|
|
|
64 |
|
|
|
6 |
% |
Transaction expenses |
|
|
164 |
|
|
|
— |
|
|
|
164 |
|
|
|
— |
% |
Total |
|
$ |
1,624 |
|
|
$ |
1,500 |
|
|
$ |
124 |
|
|
|
8 |
% |
Total operating expenses increased 8% or $124,000 in the first quarter of fiscal 2023 versus the first quarter of fiscal 2022. Engineering expenses decreased by $104,000 primarily due to reduced engineering personnel costs and a greater portion of non-recurring engineering expenses for contract services which were allocated to cost of revenue. Selling, general and administrative expenses increased by 6% primarily due to recruiting expenses. In addition the Company incurred transaction expenses of $164,000 associated with the aforementioned Share Exchange Agreement (See Note 18– Share Exchange Agreement with BitNile and Gresham).
Interest expense, net and other were as follows for the periods shown (In thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
Category |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Interest expense, net |
|
$ |
33 |
|
|
$ |
3 |
|
|
$ |
30 |
|
|
|
1000 |
% |
Deemed dividend on Series E preferred stock |
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
(1 |
) |
|
|
(33 |
)% |
Cumulative dividends on converted Series E |
|
$ |
— |
|
|
$ |
43 |
|
|
$ |
(43 |
) |
|
|
(100 |
)% |
Amortization of finance costs from issuance of warrant in connection with term loan |
|
$ |
13 |
|
|
$ |
0 |
|
|
$ |
13 |
|
|
|
— |
% |
Gain on remeasurement of warrant issued in connection with term loan |
|
$ |
10 |
|
|
$ |
— |
|
|
$ |
10 |
|
|
|
— |
% |
Finance costs from prefunded warrants issuance |
|
$ |
— |
|
|
$ |
157 |
|
|
$ |
(157 |
) |
|
|
(100 |
)% |
Gain on remeasurement of prefunded warrants liability |
|
$ |
— |
|
|
$ |
46 |
|
|
$ |
(46 |
) |
|
|
(100 |
)% |
Net interest expense in the first quarter of fiscal 2023 was $33,000, an increase of $30,000 from the first quarter of fiscal 2022. Interest expense increased primarily due to the $1.3 million loan from DPL (See Note 6– Term Loans).
During the first quarter of fiscal 2023, the Company amortized $13,000 of finance cost related to the warrant issued in connection with the term loan. In addition, the re-measurement of the warrant liability resulted in a gain of $10,000.
During the first quarter of fiscal 2022 the conversion of 35,000 Series E preferred stock to common shares resulted in a $43,000 cumulative dividend non-cash charge. In addition, the issuance of the prefunded warrants incurred financing costs of $157,000 and the re-measurement of the prefunded warrants liability resulted in a gain of $46,000 (See Note 16 – Preferred Stock and Warrants).
Net Loss
Net loss attributable to common shareholders for the first quarter of fiscal 2023 was $1.2 million, compared to a net loss of $860,000 recorded in the first quarter of fiscal 2022. The $383,000 increase in losses during the first quarter of fiscal 2023 was primarily due to
21
lower gross margins along with the transaction related costs of $164,000 in the first quarter of fiscal 2023 versus the comparable prior year period.
Financial Condition and Liquidity
|
|
As of |
|
|||||
Category (In thousands) |
|
June 25, 2022 |
|
|
March 26, 2022 |
|
||
Cash |
|
$ |
400 |
|
|
$ |
25 |
|
Total current assets |
|
$ |
7,043 |
|
|
$ |
6,850 |
|
Total current liabilities |
|
$ |
5,601 |
|
|
$ |
4,114 |
|
Working Capital |
|
$ |
1,442 |
|
|
$ |
2,736 |
|
Current ratio |
|
1.26 |
|
|
$ |
1.67 |
|
Our primary sources of liquidity are customer sales and our Restated Financing Agreement with Western Alliance Bank, both of which are dependent on our receipt and shipment of customer orders, and capital raised from investors and lenders. Therefore, if we are unable to maintain sufficient levels of liquidity solely from sales to customers and borrowings under the Restated Financing Agreement, we may be required to seek funding from other sources. To address our liquidity needs in the near term, we entered into a loan agreement with DPL, an affiliate of BitNile, the parent company of Gresham, and borrowed $500,000 on November 12, 2021 (See Note 6 – Term Loan). We borrowed an additional $300,000 on January 7, 2022 and an additional $500,000 on April 5, 2022, and the outstanding principal amount of the DPL loan as of June 25, 2022 is $1,300,000. The DPL loan matures in November 2022 but if we exercise our right to terminate the Share Exchange Agreement, we must repay the DPL loan immediately. Our Share Exchange Agreement provides that following our acquisition of Gresham, we will pursue an underwritten public offering of $25 million of our common stock in which BitNile will purchase $10 million of our common stock, which amount shall include the conversion of the $4.25 million loan that BitNile will make to us upon the closing of our acquisition of Gresham. There can be no assurance that we will successfully complete the public offering or that additional financing will be available to us in the future. Our ability to obtain additional financing is subject to several factors, including market and economic conditions, our performance and investor and lender sentiment with respect to us and our industry. If we are unable to raise additional financing in the near term as needed, our operations and production plans may be scaled back or curtailed and our operations and growth would be impeded.
Our near-term fixed commitments for cash expenditures are primarily for payments for employee salaries, operating leases and inventory purchase commitments.
Cash Flows
The following summary of our cash flows for the periods indicated has been derived from our unaudited condensed consolidated financial statements included elsewhere in this filing (In thousands):
|
|
Three Months Ended |
|
|||||
Category |
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||
Net cash used in operating activities |
|
$ |
(716 |
) |
|
$ |
(699 |
) |
Net cash used in investing activities |
|
|
(41 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
1,132 |
|
|
|
993 |
|
Net increase in cash |
|
|
375 |
|
|
|
294 |
|
|
|
|
|
|
|
|
||
Cash at the beginning of the fiscal year |
|
|
25 |
|
|
|
736 |
|
Cash at the end of the period |
|
$ |
400 |
|
|
$ |
1,030 |
|
Cash Flows from Operating Activities
During the first three months of fiscal 2023, cash used in the operating activities was $716,000, as compared to $699,000 in the first three months of fiscal 2022. The primary use of cash in the first quarter of fiscal 2023 was to finance net losses.
We expect that cash flows from operating activities will fluctuate in future periods due to a number of factors including our level of revenue, which fluctuates significantly from one period to another due to the timing of receipt of contracts, operating results, amounts of non-cash charges, and the timing of our inventory purchases, billings, collections and disbursements.
22
Cash Flows from Financing Activities
Cash provided by financing activities for the three month period ended June 25, 2022 was $1.1 million which was primarily due to an increase in our accounts receivable factoring credit line. In addition, we borrowed an additional $500,000 from DPL.
Non-GAAP Financial Measures
A Non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures.
We measure our operating performance in part based on earnings before interest, taxes, depreciation and amortization (“EBITDA”). We also measure our operating performance based on “Adjusted EBITDA,” which we define as EBITDA adjusted for net other income or expense items, share based compensation and certain one-time income or expense items. EBITDA and Adjusted EBITDA are non-GAAP financial measures that are commonly used, but neither is a recognized accounting term under GAAP. We use EBITDA and Adjusted EBITDA to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, and to plan and evaluate our operating budgets. We believe that our measures of EBITDA and Adjusted EBITDA provide useful information to the investing public regarding our operating performance and our ability to service debt and fund capital expenditures and may help investors understand and compare our results to other companies that have different financing, capital and tax structures. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for, but as a supplement to, income or loss from operations, net income or loss, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP.
In the following reconciliation, we provide amounts as reflected in our accompanying unaudited condensed consolidated financial statements unless otherwise noted.
The reconciliation of our Net loss to EBITDA and Adjusted EBITDA is as follows (In thousands):
|
|
Three Months Ended |
|
|||||
|
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||
Net loss |
|
$ |
(1,246 |
) |
|
$ |
(814 |
) |
Cumulative and deemed dividends on Series E preferred stock |
|
|
(2 |
) |
|
|
(46 |
) |
Net loss attributable to common shareholders |
|
|
(1,248 |
) |
|
|
(860 |
) |
Depreciation and amortization |
|
|
39 |
|
|
|
52 |
|
Interest and taxes |
|
|
33 |
|
|
|
3 |
|
EBITDA |
|
|
(1,176 |
) |
|
|
(805 |
) |
|
|
|
|
|
|
|
||
Adjustments: |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
52 |
|
|
|
155 |
|
Other expense, net |
|
|
3 |
|
|
|
111 |
|
Transaction related expenses |
|
|
164 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
(957 |
) |
|
$ |
(539 |
) |
23
ITEM 3 – QUANTITATIVE 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 Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 25, 2022, which is the end of the fiscal quarter covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief 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 Officer and Chief 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.
24
II - OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
As of June 25, 2022, 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 26, 2022, except for 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
None.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 – OTHER INFORMATION
None.
ITEM 6 – EXHIBITS
2.1 |
|
2.2 |
|
4.1 |
|
10.1 |
|
10.2 |
|
31.1* |
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act. |
31.2* |
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act. |
32.1** |
|
101.INS* |
Inline XBRL Instance |
101.SCH* |
Inline XBRL Taxonomy Extension Schema |
101.CAL* |
Inline XBRL Taxonomy Extension Calculation |
101.DEF* |
Inline XBRL Taxonomy Extension Definition |
101.LAB* |
Inline XBRL Taxonomy Extension Labels |
101.PRE* |
Inline XBRL Taxonomy Extension Presentation |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
* Filed herewith
** Furnished herewith
25
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 9, 2022 |
|
/s/ JOHN R. REGAZZI |
|
|
|
|
John R. Regazzi |
|
|
|
|
Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: |
August 9, 2022 |
|
/s/ LUTZ P. HENCKELS |
|
|
|
|
Lutz P. Henckels |
|
|
|
|
Chief Financial Officer Chief Operating Officer and Director (Principal Financial and Accounting Officer) |
|
26