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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2022

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. 001-14605

 

GIGA-TRONICS INCORPORATED

(Exact name of registrant as specified in its charter)

 

California

 

94-2656341

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

5990 Gleason Drive, Dublin CA 94568

 

(925) 328-4650

(Address of principal executive offices)

 

Registrant’s telephone number, including area code

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, No par value

 

GIGA

 

OTCQB Market

Preferred Share Purchase Rights

 

n/a

 

 

 

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: Yes No

 

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). Yes No

 

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

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

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 2,777,230 shares of the Registrant’s Common Stock outstanding as of August 8, 2022.

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page No.

PART I - FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of June 25, 2022 and March 26, 2022

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations, Three Month Periods Ended June 25, 2022 and June 26, 2021

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Shareholders’ Equity, Three Month Periods Ended June 25, 2022 and June 26, 2021

6

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows, Three Month Periods Ended June 25, 2022 and June 26, 2021

7

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other information

25

Item 6.

Exhibits

25

 

 

SIGNATURES

26

 

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)

 

 

 

June 25, 2022

 

 

March 26, 2022*

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

400

 

 

$

25

 

Trade accounts receivable, net of allowance of $0 and $3, respectively

 

 

1,510

 

 

 

530

 

Inventories, net

 

 

4,439

 

 

 

4,853

 

Prepaid expenses

 

 

85

 

 

 

62

 

Unbilled receivable

 

 

609

 

 

 

1,380

 

Total current assets

 

 

7,043

 

 

 

6,850

 

Property, plant and equipment, net

 

 

352

 

 

 

341

 

Right-of-use asset

 

 

431

 

 

 

521

 

Other long-term assets

 

 

406

 

 

 

343

 

Total assets

 

$

8,232

 

 

$

8,055

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,423

 

 

$

1,530

 

Loans payable, net of discounts and issuance costs

 

 

2,482

 

 

 

1,250

 

Accrued payroll and benefits

 

 

852

 

 

 

608

 

Lease obligations

 

 

488

 

 

 

485

 

Other current liabilities

 

 

356

 

 

 

241

 

Total current liabilities

 

 

5,601

 

 

 

4,114

 

Other non-current liabilities

 

 

19

 

 

 

10

 

Long-term lease obligations

 

 

83

 

 

 

206

 

Total liabilities

 

 

5,703

 

 

 

4,330

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock; no par value; Authorized – 1,000,000 shares

 

 

 

 

 

 

Series A convertible preferred stock: 250,000 shares designated; 0 shares issued
   and outstanding at June 25, 2022 and March 26, 2022

 

 

 

 

 

 

Series B, C, D convertible preferred stock: 19,500 designated shares; 17,782 shares
   issued and outstanding June 25, 2022 and March 26, 2022; (liquidation
   preference of $
3,367 at June 25, 2022 and March 26, 2022)

 

 

2,745

 

 

 

2,745

 

Series E convertible preferred stock: 100,000 designated shares; 5,700 shares
   issued and outstanding at June 25, 2022 and March 26, 2022; (liquidation
   preference of $
214 at June 25, 2022 and March 26, 2022)

 

 

90

 

 

 

90

 

Common stock; no par value; Authorized – 13,333,333 shares; 2,777,230 and
   
2,767,230 shares issued and outstanding at June 25, 2022 and March 26, 2022,
   respectively

 

 

34,894

 

 

 

34,842

 

Accumulated deficit

 

 

(35,200

)

 

 

(33,952

)

Total shareholders’ equity

 

 

2,529

 

 

 

3,725

 

Total liabilities and shareholders’ equity

 

$

8,232

 

 

$

8,055

 

 

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)

 

 

 

Three Months Ended

 

 

 

June 25, 2022

 

 

June 26, 2021

 

Net revenue:

 

 

 

 

 

 

Goods

 

$

1,167

 

 

$

51

 

Services

 

 

763

 

 

 

1,999

 

Total revenue

 

 

1,930

 

 

 

2,050

 

Cost of revenue

 

 

1,516

 

 

 

1,250

 

Gross profit

 

 

414

 

 

 

800

 

Operating expenses:

 

 

 

 

 

 

Engineering

 

 

298

 

 

 

402

 

Selling, general and administrative

 

 

1,162

 

 

 

1,098

 

Transaction expenses

 

 

164

 

 

 

 

Total operating expenses

 

 

1,624

 

 

 

1,500

 

Operating loss

 

 

(1,210

)

 

 

(700

)

Interest expense, net and other:

 

 

 

 

 

 

Interest expense, net

 

 

(33

)

 

 

(3

)

Other expense, net

 

 

(3

)

 

 

(111

)

Loss before income taxes

 

 

(1,246

)

 

 

(814

)

Provision for income taxes

 

 

 

 

 

 

Net loss

 

 

(1,246

)

 

 

(814

)

Deemed dividend on Series E preferred stock

 

 

(2

)

 

 

(3

)

Cumulative dividends on converted Series E
   preferred stock

 

 

 

 

 

(43

)

Net loss attributable to common shareholders

 

$

(1,248

)

 

$

(860

)

 

 

 

 

 

 

 

Net loss per common share attributable to
   common shareholder – basic and diluted

 

$

(0.45

)

 

$

(0.32

)

 

 

 

 

 

 

 

Weighted average common shares used in computing net loss per
   common share attributable to common shareholders– basic and diluted

 

 

2,777

 

 

 

2,725

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

5


 

GIGA-TRONICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(UNAUDITED)

(In thousands except share data)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Total

 

Balance at March 27, 2021

 

 

26,982

 

 

$

2,922

 

 

 

2,635,856

 

 

$

32,306

 

 

$

(30,981

)

 

$

4,247

 

Net loss attributable to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(860

)

 

 

(860

)

Restricted stock granted

 

 

 

 

 

 

 

 

18,000

 

 

 

 

 

 

 

 

 

 

Restricted stock forfeited

 

 

 

 

 

 

 

 

(10,000

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

155

 

Deemed dividend in connection with prefunded warrants issuance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(203

)

 

 

(203

)

Common stock issuance, net of offering costs

 

 

 

 

 

 

 

 

46,154

 

 

 

145

 

 

 

 

 

 

145

 

Conversion of Series E preferred stock to common stock

 

 

(3,500

)

 

 

(87

)

 

 

35,000

 

 

 

130

 

 

 

 

 

 

43

 

Balance at June 26, 2021

 

 

23,482

 

 

$

2,835

 

 

 

2,725,010

 

 

$

32,736

 

 

$

(32,044

)

 

$

3,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Total

 

Balance at March 26, 2022

 

 

23,482

 

 

$

2,835

 

 

 

2,767,230

 

 

$

34,842

 

 

$

(33,952

)

 

$

3,725

 

Net loss attributable to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,248

)

 

 

(1,248

)

Restricted stock granted

 

 

 

 

 

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

52

 

Balance at June 25, 2022

 

 

23,482

 

 

$

2,835

 

 

 

2,777,230

 

 

$

34,894

 

 

$

(35,200

)

 

$

2,529

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

6


 

GIGA-TRONICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

 

 

Three Months Ended

 

 

 

June 25, 2022

 

 

June 26, 2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(1,248

)

 

$

(860

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

39

 

 

 

52

 

Stock-based compensation

 

 

52

 

 

 

155

 

Cumulative dividends on Series E preferred stock

 

 

 

 

 

43

 

Finance costs for issuance of prefunded warrants

 

 

 

 

 

157

 

Finance costs from issuance of warrant in connection with term loan

 

 

14

 

 

 

 

Gain on remeasurement of prefunded warrants liability

 

 

 

 

 

(46

)

Gain on remeasurement of warrant issued in connection with term loan

 

 

(10

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

(981

)

 

 

407

 

Inventories

 

 

404

 

 

 

(829

)

Prepaid expenses

 

 

(24

)

 

 

37

 

Unbilled receivable

 

 

772

 

 

 

179

 

Right-of-use asset

 

 

90

 

 

 

84

 

Other long-term assets

 

 

(65

)

 

 

 

Accounts payable

 

 

(107

)

 

 

(245

)

Accrued payroll and benefits

 

 

244

 

 

 

77

 

Deferred revenue

 

 

 

 

 

96

 

Accrued Interest

 

 

30

 

 

 

10

 

Other current and non-current liabilities

 

 

74

 

 

 

(16

)

Net cash used in operating activities

 

 

(716

)

 

 

(699

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(41

)

 

 

 

Net cash used in investing activities

 

 

(41

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Principal payments on leases

 

 

(119

)

 

 

(107

)

Repayments of borrowings

 

 

(1,263

)

 

 

(1,008

)

Proceeds from loans payable, net of issuance costs

 

 

2,514

 

 

 

620

 

Proceeds from issuance of stock, net of issuance costs

 

 

 

 

 

145

 

Proceeds from issuance of prefunded warrants

 

 

 

 

 

1,500

 

Finance costs from issuance of prefunded warrants

 

 

 

 

 

(157

)

Net cash provided by financing activities

 

 

1,132

 

 

 

993

 

 

 

 

 

 

 

 

Increase in cash

 

 

375

 

 

 

294

 

Beginning cash

 

 

25

 

 

 

736

 

Ending cash

 

$

400

 

 

$

1,030

 

 

 

 

 

 

 

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

13

 

 

$

3

 

Finance costs from issuance of warrant in connection with term loan

 

$

34

 

 

$

 

Supplementary disclosure of noncash activities:

 

 

 

 

 

 

Deemed dividend on common shares from prefunded warrants issuance

 

$

 

 

$

203

 

Deemed dividend on common shares from conversion of Series E Shares

 

$

2

 

 

$

43

 

 

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 $1.2 million in the first quarter ended June 25, 2022 and $2.7 million in the fiscal year ended March 26, 2022. These losses have contributed to an accumulated deficit of $35.2 million as of June 25, 2022.

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 $1.3 million from Digital Power Lending, LLC, (“DPL”) which is an affiliate of BitNile. The Company expects to complete the merger with Gresham in September 2022 and resolve the going concern matter (See Note 18 - Share Exchange Agreement with BitNile and Gresham).

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

 

June 25, 2022

 

 

March 26, 2022

 

Raw materials

 

$

1,777

 

 

$

2,264

 

Work-in-progress

 

 

2,581

 

 

 

2,474

 

Finished goods

 

 

50

 

 

 

95

 

Demonstration inventory

 

 

31

 

 

 

20

 

Total

 

$

4,439

 

 

$

4,853

 

 

Note 4. Property, Plant and Equipment, net

Property, plant and equipment, net, are comprised of the following (In thousands):

 

Category

 

June 25, 2022

 

 

March 26, 2022

 

Leasehold improvements

 

$

648

 

 

$

648

 

Machinery and equipment

 

 

4,672

 

 

 

4,631

 

Computer and software

 

 

705

 

 

 

705

 

Furniture and office equipment

 

 

107

 

 

 

107

 

Property, plant and equipment

 

 

6,132

 

 

 

6,091

 

Less: accumulated depreciation and amortization

 

 

(5,780

)

 

 

(5,750

)

Property, plant and equipment, net

 

$

352

 

 

$

341

 

 

Depreciation and amortization expenses for the three months periods ended June 25, 2022 and June 26, 2021 was $39,000 and $52,000, respectively.

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 85% of the amounts of invoices issued by the Company up to a maximum of $2.5 million in aggregate advances outstanding at any time.

Under the Restated Financing Agreement, interest accrues on outstanding amounts at an annual rate equal to the greater of prime or 4.5% plus one percent. The Company is required to pay certain fees, including an annual facility fee of $14,700 that is paid in two equal semi-annual installments. The Company’s obligations under the Restated Financing Agreement are secured by a security interest in substantially all of the assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. The Restated Financing Agreement has no specified term and may be terminated by either the Company or Western Alliance Bank at any time.

As of June 25, 2022, and March 26, 2022, the Company’s total outstanding borrowings under the Restated Financing Agreement were $1,203,000 and $450,000, respectively, and are included in Loans payable, net of discounts and issuance costs on the unaudited condensed consolidated Balance Sheets.

Note 6. Term Loan

On November 12, 2021, the Company borrowed $500,000 from DPL and an affiliate of BitNile, a Delaware corporation. On January 7, 2022, the Company borrowed an additional $300,000 from DPL.

On April 5, 2022, the Company (1) borrowed an additional $500,000 from DPL, (2) amended its Share Exchange Agreement and issued a warrant to Gresham. The Share Exchange Agreement and the warrant issued to Gresham are described in Note 18 – Share Exchange Agreement with BitNile and Gresham.

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 10.0% per annum. Unless prepaid by the Company, all principal and accrued interest under the loan is payable on November 12, 2022 or, if earlier, upon the Company’s completion of an underwritten public offering or the

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 $1,300,000 and $800,000, respectively, and are included in Loans payable, net of discounts and issuance costs on the unaudited condensed consolidated Balance Sheets.

On April 5, 2022, the Company borrowed an additional $500,000 from DPL and the Company and DPL entered into an Amended and Restated Secured Promissory Note and an amendment to the Security and Pledge Agreement originally dated as of November 12, 2021 to reflect that the Company has borrowed an aggregate of $1,300,000 from DPL. The Company intends to use the additional loan proceeds for general corporate purposes. The other material terms of the Loan remain unchanged.

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 $233,000. This ERC is a fully refundable tax credit for employers equal to 50 percent of qualified wages that eligible employers pay their employees. This ERC applies to qualified wages paid after March 12, 2020 and before January 1, 2021.

In January 2022, the Company applied for another ERC for a total amount of $321,000. This ERC is a fully refundable tax credit for employers equal to 70 percent of qualified wages that eligible employers pay their employees. This ERC applies to qualified wages paid after December 2020 and before January 1, 2022.

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 77 months from April 1, 2017 through August 31, 2023. The Company agreed to pay an aggregate base rent of $2,384,913 for the period of 77 months, with an annual increase of $0.05 per rentable square foot for each subsequent year. The lease provided for rent abatement of $173,079 during the initial five months of the lease term, subject to the Company performing the terms and conditions required under the lease, and certain tenant improvements completed at the landlord’s expense of $358,095.

In December 2018, the Company entered into a lease agreement for an additional 1,200 square foot facility for certain engineering personnel located in Nashua, New Hampshire, which began on February 1, 2019. Effective March 1, 2020, we amended and replaced in its entirety the original Nashua lease agreement to increase the facility size to 2,400 square feet and extend its expiration to February 28, 2023.The monthly payment for fiscal year 2022 and fiscal year 2023 under the amended agreement is $2,500.

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

 

$

144

 

 

$

133

 

 

Other information for the three months ended (In thousands):

 

 

 

 

June 25, 2022

 

 

June 26, 2021

 

Operating cash used for leases

 

 

 

$

173

 

 

$

150

 

 

10


 

Future lease payments as of June 26, 2022, were as follows (In thousands):

 

Fiscal Year

 

Operating leases

 

2023 (remaining 9 months)

 

$

385

 

2024

 

 

209

 

Total future minimum lease payments

 

 

594

 

Less: imputed interest

 

 

(23

)

Present value of lease liabilities

 

$

571

 

 

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:

Level 1 —Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities with quoted prices in active markets.
Level 2 —Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates of deposit and over-the-counter derivatives.
Level 3 —Valuations based on unobservable inputs in which there is little or no market data, which require us to develop our own assumptions.

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