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 |
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|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability for warrant issued in connection with loan from DPL |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at June 25, 2022 |
|
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