NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
The condensed consolidated financial statements included herein have been prepared by Giga-tronics Incorporated (“Giga-tronics,” “Company,” “us” 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 27, 2021 for a discussion of our significant accounting policies. During the three months ended June 26, 2021, 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 27, 2021.
On December 12, 2019, the Company completed a one-for-fifteen reverse stock split of its common stock. All shares and per share amounts included in the financial statements have been adjusted to reflect the effect of the reverse stock split.
Principles of Consolidation The 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 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. Inventories
Inventories are comprised of the following:
Category (Dollars in thousands)
|
|
June 26, 2021
|
|
|
March 27, 2021
|
|
Raw materials
|
|
$
|
1,576
|
|
|
$
|
946
|
|
Work-in-progress
|
|
|
2,621
|
|
|
|
2,418
|
|
Finished goods
|
|
|
125
|
|
|
|
129
|
|
Demonstration inventory
|
|
|
82
|
|
|
|
108
|
|
Total
|
|
$
|
4,404
|
|
|
$
|
3,601
|
|
Note 3. 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 semiannual 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.
During the first quarter of fiscal 2022, the Company borrowed a total of $620,000 and repaid a total of $1.0 million under the Restated Financing Agreement. During the first quarter of fiscal 2021, the Company borrowed a total of $344,000 and repaid a total of $424,000 under the Restated Financing Agreement. As of June 26, 2021 and March 27, 2021, the Company’s total outstanding borrowings under the Restated Financing Agreement were $295,246 and $683,382, respectively, and are included in Loan payable, net of discounts and issuance costs on the Condensed Consolidated Balance Sheets.
Note 4. Term Loan
On April 27, 2017, the Company entered into a $1.5 million loan agreement with Partners For Growth (“PFG”), which was funded by PFG on April 28, 2017 (“PFG Loan”).
As of June 26, 2021 and March 27, 2021, the Company’s total outstanding loan balance was zero dollars and the agreement was terminated.
Note 5. Paycheck Protection Program under the CARES Act
On April 23, 2020, the Company borrowed $786,200 from Western Alliance Bank pursuant to the Paycheck Protection Program under the Coronavirus Aid Relief, and the Economic Security Act (“PPP Loan”). The Company accounted for the PPP Loan as a loan under ASC 470, Debt. The PPP Loan had a stated maturity date of April 23, 2022 with interest accruing on the principal balance at the rate of 1.0% per annum.
On November 19, 2020, the outstanding principal and accrued interest for the PPP Loan was forgiven in full by the Small Business Administration (“SBA”) and recognized as a gain on extinguishment.
Note 6. Leases
Operating leases
Building - The Company has a non-cancelable operating lease for office, research and development, engineering, laboratory, storage and/or 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 beyond the initial twelve month lease period. 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.
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:
Description (Dollars in thousands)
|
|
Classification
|
|
June 26, 2021
|
|
Operating lease costs
|
|
Operating expenses
|
|
$
|
133
|
|
Other information:
Three month period ended June 26, 2021
|
|
Operating leases
|
|
Operating cash used for leases
|
|
$
|
150
|
|
Future lease payments as of June 26, 2021, were as follows:
Description (Dollars in thousands)
|
|
Operating leases
|
|
2022 (remaining 9 months)
|
|
$
|
377
|
|
2023
|
|
|
515
|
|
2024
|
|
|
209
|
|
Total future minimum lease payments
|
|
|
1,101
|
|
Less: imputed interest
|
|
|
(108
|
)
|
Present value of lease liabilities
|
|
$
|
993
|
|
Note 7. Fair Value Measurement
ASC 820 “Fair Value Measurements” 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 27, 2021 and at June 26, 2021 the prefunded warrants liability was measured at fair value. See Note 8.
The Company’s fair value hierarchies for its financial assets and liabilities which require fair value measurement on a recurring basis are as follows:
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Balance at March 27, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Prefunded warrants liability
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 26, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Prefunded warrants liability
|
$
|
—
|
|
$
|
—
|
|
$
|
1,657
|
|
$
|
1,657
|
During the three months ended June 26, 2021 and the year ended March 27, 2021, 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.
The fair value measurement of the prefunded warrants has been determined considering its intrinsic value because of the de-minimis exercise price of $0.01 per share. The Company’s common stock fair value is a significant Level 3 input affecting the valuation of the prefunded warrants.
|
Prefunded warrants liability
|
Balance at March 27, 2021
|
$
|
—
|
|
Initial fair value of prefunded warrants issued in April 2021
|
|
1,703
|
|
Gain on remeasurement of prefunded warrants liability
|
|
(46
|
)
|
Balance at June 26, 2021
|
$
|
1,657
|
|
There were no assets measured at fair value on a recurring basis and there were no assets measured at fair value on a non-recurring basis at June 26, 2021 and March 27, 2021. There were no liabilities measured at fair value on a recurring or non-recurring basis at March 27, 2021.
Note 8. Sales 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 461,538 shares of the Company’s common stock (“Prefunded Warrants”) for gross proceeds of $1,500,000 or $3.25 per Prefunded Warrants in a private placement on the same day. Net proceeds to the Company after fees and expenses of the private placement were approximately $1,343,000. The Purchase Agreement contains customary representations and warranties of the Company and certain indemnification obligations and ongoing covenants of the Company.
The Prefunded Warrants are immediately exercisable and may be exercised for a de-minimis exercise price of $0.01 per share subject to the limitation that a holder of the Prefunded Warrants will not have the right to exercise any portion of the Prefunded Warrants if the holder together with its affiliates and attribution parties (as such terms are defined in the Prefunded Warrants) would beneficially own in excess of 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Prefunded Warrants. The Prefunded Warrants do not expire. The Prefunded Warrants also contain a put option, under which, if the Company enters into a Fundamental Transaction, as defined in the Prefunded Warrants, the Company or any successor entity will, at the option of a holder of a Prefunded Warrant, which is exercisable concurrently with or at any time within 30 days after the consummation of such Fundamental Transaction, purchase such holder’s Prefunded Warrants by paying to such holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of such holder’s Prefunded Warrants within five trading days after the notice of exercise by the holder of the put option. Because of this put-option provision, the Prefunded Warrants are classified as a liability at fair value of $1,703,000 on the issuance date and are marked to market at each reporting date. Further because the fair value of the prefunded warrants liability on the issuance date was greater than the proceeds of the Prefunded Private Placement and the warrants were issued to existing common stockholders, the difference was recorded to accumulated deficit as a $203,000 deemed dividend. There were finance costs of $157,000 associated with the issuance of the Prefunded Warrants. There was a gain on remeasurement of $46,000 on the prefunded warrant liability in the first quarter of fiscal 2022. Both of these amounts are recorded in Other expense, net in the condensed consolidated statement of operations.
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 23,076 shares of the Company’s common stock to the placement agent for such offering (“Placement Agent Warrants”). The Placement Agent Warrants have an exercise price per share equal to $3.575, subject to adjustment in certain circumstances, and will expire on April 27, 2026. The Placement Agent Warrants do not have the same put option provision as the Prefunded Warrants and, therefore, are classified as equity.
On June 6, 2021, the Company entered into a Securities Purchase Agreement with a private investor for the sale of a total of 46,154 common shares at the price of $3.25 per share, for aggregate gross proceeds of $150,000. The sale was completed, and the shares of common stock were issued on June 6, 2021. Net proceeds to the Company after fees and expenses of the transaction were approximately $145,000. This transaction was completed in conjunction with the conversion of 3,500 shares of Series E preferred stock. See Note 14.
Note 9. Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted EPS reflects the net incremental shares that would be issued if unvested restricted shares became vested and dilutive outstanding stock options were exercised, using the treasury stock method. In addition, certain options are considered antidilutive 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 included in the diluted EPS calculation for the three-month periods ended June 26, 2021 and June 27, 2020 are as follows:
(In thousands except per share data)
|
|
Three Months Ended
|
|
|
|
June 26, 2021
|
|
|
June 27, 2020
|
|
Net income (loss)
|
|
$
|
(860
|
)
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
2,725
|
|
|
|
2,636
|
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
190
|
|
Weighted-average dilutive shares
|
|
|
2,725
|
|
|
|
2,826
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
(0.32
|
)
|
|
$
|
0.03
|
|
Diluted earnings per share
|
|
$
|
(0.32
|
)
|
|
$
|
0.03
|
|
There were no dilutive securities in the three months ended June 26, 2021 because the stock options are considered antidilutive. The dilutive securities in the prior year were due to stock options using the treasury method as described above.
Note 10. Stock-based Compensation and Employee Benefit Plans
The Company maintains the 2018 Equity Incentive Plan which provides for the issuance of up to 416,667 shares of common stock upon the exercise of options, stock awards and grants. With the adoption of the 2018 Equity Incentive Plan, no further awards will be issued under the Company’s 2005 Equity Incentive Plan, though all awards under the 2005 Equity Incentive Plan that are outstanding will continue to be governed by the terms, conditions and procedures set forth in the plan and any applicable award agreement.
During the first quarter of fiscal year 2022, the Company granted stock options to purchase 18,000 shares of common stock. The options vest over a four year service period. The weighted average fair value of stock options granted during the first quarter of fiscal year 2022 was $58,974. During the first quarter of fiscal year 2021, the Company did not grant any stock options. The vested portion of all option grants may be exercised only while the grantee is employed by the Company (or while providing services under a service arrangement in the case of non-employees) or within a certain period after termination of employment or service arrangement in the case of non-employees. Options granted to employees shall not have terms in excess of 10 years from the grant date. Holders of options may be granted stock appreciation rights (“SARs”), which entitle them to surrender outstanding awards for a cash distribution under certain changes in ownership of the Company, as defined in the stock option plan. As of June 26, 2021 and March 27, 2021, no SARs have been granted under any option plan.
As of June 26, 2021, there were 123,167 shares of common stock available for issuance of additional awards under the 2018 Equity Incentive Plan. The Company records compensation cost associated with stock-based compensation equivalent to the estimated fair value of the awards over the requisite service period.
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 option-pricing model and the following weighted average assumptions:
Description
|
|
Three Months Ended
|
|
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
Expected volatility
|
|
|
107
|
%
|
|
|
—
|
|
Risk-free interest rate
|
|
|
0.82
|
%
|
|
|
—
|
|
Expected term (years)
|
|
|
5.50
|
|
|
|
—
|
|
The computation of expected volatility used in the Black-Scholes-Merton option-pricing 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 month period ended June 26, 2021 is as follows:
Description
|
|
Shares
|
|
|
Weighted
Average Price
per share
|
|
|
Weighted Average Remaining
Contractual Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at March 27, 2021
|
|
|
374,808
|
|
|
|
5.00
|
|
|
|
7.90
|
|
|
$
|
—
|
|
Granted
|
|
|
18,000
|
|
|
|
3.28
|
|
|
|
9.72
|
|
|
|
—
|
|
Forfeited / Expired
|
|
|
(15,228
|
)
|
|
|
4.05
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at June 26, 2021
|
|
|
377,580
|
|
|
$
|
4.90
|
|
|
$
|
7.76
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 26, 2021
|
|
|
157,169
|
|
|
$
|
6.37
|
|
|
$
|
6.09
|
|
|
$
|
—
|
|
As of June 26, 2021, there was $393,602 of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted average period of 1.43 years and will be adjusted for subsequent changes in estimated forfeitures. There were 19,661 options that vested during the quarter ended June 26, 2021 and 24,693 options that vested during the quarter ended June 27, 2020. The total fair value of options that vested during the quarters ended June 26, 2021 and June 27, 2020 was $76,771 and $105,124 respectively. There were no options exercised in the three-month periods ended June 26, 2021 and June 27, 2020. Share based compensation cost related to stock options recognized for the three month periods ended June 26, 2021 and June 27, 2020 totaled $129,000 and $68,000, respectively.
Restricted Stock
The Company granted 18,000 restricted stock awards (“RSAs”) during the first quarter of fiscal 2022 and no RSAs were granted during the first quarter of fiscal 2021. RSAs are considered fixed awards as the number of shares and fair value at the grant date is amortized over the requisite service period net of estimated forfeitures.
As of June 26, 2021, there was $40,334 of total unrecognized compensation cost related to non-vested RSAs. That cost is expected to be recognized over a weighted average period of 0.75 years and will be adjusted for subsequent changes in estimated forfeitures. Compensation cost recognized for RSAs and unrestricted stock awards for the three month periods ended June 26, 2021 and June 27, 2020 totaled $26,000 and $8,000, respectively.
A summary of the changes in non-vested RSAs outstanding for the three month period ended June 26, 2021 is as follows:
Restricted Stock Awards
|
|
Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Non-Vested at March 27, 2021
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
18,000
|
|
|
$
|
4.12
|
|
Vested
|
|
|
(3,000
|
)
|
|
$
|
4.12
|
|
Non-Vested at June 26, 2021
|
|
|
15,000
|
|
|
$
|
4.12
|
|
Note 11. Significant Customer and Industry Segment Information
The Company has two reportable segments, Microsource and the Giga-tronics Division. Microsource’s primary business is the design of custom Microwave Integrated Components (“MIC”) as well as the production of MIC components using chip and wire assembly methods. Microsource offers a line of tunable, synthesized Band Reject Filters for solving interference problems in RADAR and Electronic Warfare ("RADAR/EW") applications. Self-protection systems onboard high-performance military aircraft often require RADAR filters to block electromagnetic interference generated by other onboard electronic systems, primarily from the aircraft’s main RADAR system. These high-speed, tunable notch filters can quickly block interference from both continuous wave and wide bandwidth emissions. Using proprietary driver and phase lock technology, these filters offer tuning speeds that are up to ten times faster than traditional filter designs. We design these filters specifically for each application. Microsource’s two largest customers are prime contractors for which it develops and manufactures RADAR filters used in fighter jet aircraft.
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:
|
|
Three Month Period Ended June 26, 2021
|
|
Description (Dollars in thousands)
|
|
Giga-tronics Division
|
|
|
Microsource
|
|
|
Total
|
|
Revenue
|
|
$
|
51
|
|
|
$
|
1,999
|
|
|
$
|
2,050
|
|
Interest expense, net
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
Depreciation and amortization
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
Income (loss) before income taxes
|
|
$
|
(824
|
)
|
|
$
|
10
|
|
|
$
|
(814
|
)
|
Assets
|
|
$
|
5,640
|
|
|
$
|
2,571
|
|
|
$
|
8,211
|
|
|
|
Three Month Period Ended June 27, 2020
|
|
Description (Dollars in thousands)
|
|
Giga-tronics Division
|
|
|
Microsource
|
|
|
Total
|
|
Revenue
|
|
$
|
1,109
|
|
|
$
|
2,439
|
|
|
$
|
3,548
|
|
Interest expense, net
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
(33
|
)
|
Depreciation and amortization
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
68
|
|
Income (loss) before income taxes
|
|
$
|
(130
|
)
|
|
$
|
205
|
|
|
$
|
75
|
|
Assets
|
|
$
|
6,319
|
|
|
$
|
3,235
|
|
|
$
|
9,554
|
|
During the first quarter of fiscal 2022, one customer accounted for 85% of the Company’s consolidated revenues and was included in the Microsource segment. A second customer accounted for 14% and was included in the Microsource segment. During the first quarter of fiscal 2021, one customer accounted for 54% of the Company’s consolidated revenues and was included in the Microsource segment. A second customer accounted for 28% and was included in the Giga-tronics division.
Note 12. Income Taxes
The Company accounts for income taxes using the asset and liability method as codified in Topic 740. 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 carryforwards.
The Company recorded no income tax expense for the three months ended June 26, 2021 and June 27, 2020. The effective tax rate for the three months ended June 26, 2021 and June 27, 2020 was 0% each year, primarily due to a valuation allowance recorded against the net deferred tax asset balance.
As of June 26, 2021, the Company had recorded $52,000 for unrecognized tax benefits related to uncertain tax positions. The unrecognized tax benefit is netted against the non-current deferred tax asset on the Condensed Consolidated Balance Sheet. The Company does not expect the liability for unrecognized tax benefits to change materially within the next 12 months.
Note 13. Warranty Obligations
The Company records a liability in cost of revenue for estimated warranty obligations at the date products are sold. Adjustments are made as new information becomes available. The following provides a reconciliation of changes in the Company’s warranty reserve. The Company provides no other guarantees.
Warranty Obligations (Dollars in thousands)
|
|
Three Months Ended
|
|
|
|
June 26, 2021
|
|
|
June 27, 2020
|
|
Balance at beginning of period
|
|
$
|
51
|
|
|
$
|
34
|
|
Provision, net
|
|
|
17
|
|
|
|
3
|
|
Warranty costs incurred
|
|
|
(21
|
)
|
|
|
—
|
|
Balance at end of period
|
|
$
|
47
|
|
|
$
|
37
|
|
Note 14. Preferred Stock and Warrants
Series E Senior Convertible Voting Perpetual Preferred Stock
On March 26, 2018, the Company issued and sold 42,800 shares of a newly designated series of 6.0% Series E Senior Convertible Voting Perpetual Preferred Stock (“Series E Shares”) to approximately 15 investors in a private placement for gross proceeds of approximately $1.1 million. Net proceeds to the Company after fees and expenses were approximately $1.0 million. During the 2019 fiscal year, the Company issued and sold an additional 56,200 Series E Shares resulting in additional gross proceeds of $1,405,000 or approximately $1.2 million after fees and expenses of approximately $212,000.
Holders of Series E Shares are entitled to receive, when and if declared by the Company’s Board of Directors, cumulative preferential dividends, payable semiannual in cash at a rate per annum equal to 6.0% of the initial purchase price of $25.00 per share or in-kind (at the Company’s election) through the issuance of shares of the Company’s common stock, based on the 10 day volume weighted average price of the common stock. The deemed dividend is reflected on the face of the income statement as a decrease in net income (or an increase in the case of a net loss) to arrive at net income (loss) attributable to common shareholders.
Series E Exchange
The Company completed a private exchange offer on November 7, 2019, issuing an aggregate of 896,636 shares of common stock in exchange for 88,600 Series E Shares and the unpaid dividends accrued thereon. The shares of common stock issued in the exchange were issued in reliance on the exemption from registration set forth in Section 3(a)(9) of the Securities Act of 1933 (“Securities Act”), though other exemptions may be available.
During the three months ended June 26, 2021, the Company issued an additional 35,000 shares of common stock in exchange for 3,500 Series E Shares. As a result, 5,700 Series E Shares with an aggregate liquidation preference of $214,000 remained outstanding as of June 26, 2021. See Note 8.
The table below presents Preferred Stock information as of June 26, 2021 and March 27, 2021:
Preferred Stock
|
|
Designated
|
|
|
Shares
|
|
|
Shares
|
|
|
Liquidation
|
|
As of June 26, 2021
|
|
Shares
|
|
|
Issued
|
|
|
Outstanding
|
|
|
Preference
|
|
Series B
|
|
|
10,000
|
|
|
|
9,997
|
|
|
|
9,245
|
|
|
$
|
2,136
|
|
Series C
|
|
|
3,500
|
|
|
|
3,425
|
|
|
|
3,425
|
|
|
|
500
|
|
Series D
|
|
|
6,000
|
|
|
|
5,112
|
|
|
|
5,112
|
|
|
|
731
|
|
Series E
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
5,700
|
|
|
|
214
|
|
Total at June 26, 2021
|
|
|
119,500
|
|
|
|
118,534
|
|
|
|
23,482
|
|
|
$
|
3,581
|
|
Preferred Stock
|
|
Designated
|
|
|
Shares
|
|
|
Shares
|
|
|
Liquidation
|
|
As of March 27, 2021
|
|
Shares
|
|
|
Issued
|
|
|
Outstanding
|
|
|
Preference
|
|
Series B
|
|
|
10,000
|
|
|
|
9,997
|
|
|
|
9,245
|
|
|
$
|
2,136
|
|
Series C
|
|
|
3,500
|
|
|
|
3,425
|
|
|
|
3,425
|
|
|
|
500
|
|
Series D
|
|
|
6,000
|
|
|
|
5,112
|
|
|
|
5,112
|
|
|
|
731
|
|
Series E
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
9,200
|
|
|
|
345
|
|
Total at March 27, 2021
|
|
|
119,500
|
|
|
|
118,534
|
|
|
|
26,982
|
|
|
$
|
3,712
|
|
Note 15. COVID-19 (Coronavirus)
On January 30, 2020, the World Health Organization 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 “business as usual,” 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 economy. 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.
Note 16. Subsequent Events
On July 28, 2021, the Company amended the terms of the Prefunded Warrants to restrict the holder’s option to require cash payment at the Black-Scholes 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 will be remeasured on the modification date of July 28, 2021 and reclassified to equity as of that date. See Note 8.