GIGA-TRONICS INCORPORATED The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring net losses and operations have not provided cash flows. In view of these matters, there is substantial doubt about our ability to continue as a going concern. The Company intends to finance its future development activities and its working capital needs largely through the sale of equity securities with some additional funding from other sources, including term notes until such time as funds provided by operations are sufficient to fund working capital requirements. The consolidated financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our primary sources of liquidity has historically been funding by our parent company BitNile. The extent of continued support from BitNile is not assured as we seek additional financing from third parties. There is substantial doubt that we will have sufficient cash to meet our needs over the next 12 months. Our ability to obtain additional financing is subject to several factors, including market and economic conditions, our performance and investor and lender sentiment with respect to us and our industry. If we are unable to raise additional financing in the near term as needed, our operations and production plans may be scaled back or curtailed and our operations and growth would be impeded.
Our near term fixed commitments for cash expenditures are primarily for payments for employee salaries, operating leases and inventory purchase commitments.
As of
Note 3. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
9
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The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("GAAP"), the instructions to Form 10-Q and Regulation
S-X and do not include all the information and disclosures required by GAAP. The
Company has made estimates and judgments affecting the amounts reported in the
Company's condensed consolidated financial statements and the accompanying
notes. The actual results experienced by the Company may differ materially from
the Company's estimates. The condensed consolidated financial information is
unaudited and reflects all normal adjustments that are, in the opinion of
management, necessary to provide a fair statement of results for the interim
periods presented. These condensed consolidated financial statements should be
read in conjunction with the GIGA's Definitive Proxy Statements relating to the
Merger or Acquisition on Schedule 14A filed with the Securities and Exchange
Commission ("SEC") on August 2, 2022 (the "Proxy Statement").
The condensed consolidated balance sheet as of December 31, 2021 was derived
from the GWW's audited 2021 financial statements contained in the above
referenced Proxy Statement. Results of the three and nine months ended September
30, 2022 , are not necessarily indicative of the results to be expected for the
full year ending December 31, 2022 .
Principles of Consolidation
The Acquisition is accounted for as a reverse recapitalization with GWW being the accounting acquirer and GIGA being the acquired company for accounting purposes. All historical financial information presented in the unaudited condensed consolidated financial statements represents the accounts of GWW and its wholly owned subsidiaries. The consolidated financial statements after completion of the Acquisition will include the assets and liabilities and operations of GIGA and its subsidiaries from the Closing Date of the Acquisition. The shares and net loss per common share prior to the merger have been retroactively restated as shares reflecting the exchange ratio established in the merger. Change in Fiscal Year
As a result of the Acquisition, we changed our fiscal year-end from
Accounting Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include acquisition accounting, reserves for trade receivables and inventories, accruals of certain liabilities including product warranties, useful lives and the recoverability of long-lived assets, impairment analysis of intangibles and goodwill, and deferred income taxes and related valuation allowance.
Significant Accounting Policies
Business Combinations
The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquired customer relations, developed technology and tradenames are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions as of the acquisition date with respect to intangible assets. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from date of acquisition. Direct transaction costs associated with the business combination are expensed as incurred. Revenue Recognition The Company recognizes revenue in accordance withFinancial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
•
Step 1: Identify the contract with the customer,
•
Step 2: Identify the performance obligations in the contract,
•
Step 3: Determine the transaction price,
•
Step 4: Allocate the transaction price to the performance obligations in the contract, and
•
Step 5: Recognize revenue when the company satisfies a performance obligation.
Sales of Products
10
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The Company enters into contracts directly with its customers and generates
revenues from the sale of its products through a direct and indirect sales
force. The Company's performance obligations to deliver products are satisfied
at the point in time when products are received by the customer, which is when
the customer obtains control over the goods. The Company provides standard
assurance warranties, which are not separately priced, that the products
function as intended. The Company primarily receives fixed consideration for
sales of product. Some of the Company's contracts with distributors include
stock rotation rights after six months for slow moving inventory, which
represents variable consideration. The Company uses an expected value method to
estimate variable consideration and constrains revenue for estimated stock
rotations until it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur. To date, returns have been
insignificant.
Because the Company's product sales agreements have an expected duration of one
year or less, the Company has elected to adopt the practical expedient in
ASC606-10-50-14(a) of not disclosing information about its remaining performance
obligations.
Manufacturing Services
The Company's principal business is providing manufacturing services in exchange
primarily for fixed fees. For manufacturing services, which include revenues
generated by Enertec , Microsource and Microphase and in certain instances
revenues generated by Gresham Power , the Company's performance obligation for
manufacturing services is satisfied over time as the Company creates or enhances
an asset based on criteria that are unique to the customer and that the customer
controls as the asset is created or enhanced. Generally, the Company recognizes
revenue based upon proportional performance over time using a cost-to-cost
method which measures progress based on the costs incurred to total expected
costs in satisfying its performance obligation. This method provides a depiction
of the progress in providing the manufacturing service because there is a direct
relationship between the costs incurred by the Company and the transfer of the
manufacturing service to the customer. Manufacturing services are recognized
based upon the proportional performance method as services transferred over time
and to the extent the customer has not been invoiced for these revenues, as
accrued revenue in the accompanying consolidated balance sheets. Revisions to
the Company's estimates may result in increases or decreases to revenues and
income and are reflected in the consolidated financial statements in the periods
in which they are first identified.
The Company has elected the practical expedient in ASC 606-10-50-14(a) to not
adjust the promised amount of consideration for the effects of a significant
financing component to the extent that the period between when the Company
transfers its promised good or service to the customer and when the customer
pays in one year or less.
Accounts Receivable and Allowance for Doubtful Accounts
The Company's receivables are recorded when billed and represent claims against third parties that will be settled in cash. The carrying amount of the Company's receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company individually reviews all accounts receivable balances and based upon an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The Company estimates the allowance for doubtful accounts based on historical collection trends, age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. A customer's receivable balance is considered past-due based on its contractual terms. Past-due receivable balances are written-off when the Company's internal collection efforts have been unsuccessful in collecting the amount due.
Based on an assessment as of the collectability of accounts receivable on
Accrued Revenue
Manufacturing services that are recognized as revenue based upon the proportional performance method are considered revenue based on services transferred over time and to the extent the customer has not been invoiced for these revenues, are recorded as accrued revenue in the accompanying consolidated balance sheets.
As of
Fair value of Financial Instruments
In accordance with ASC No. 820, Fair Value Measurements and Disclosures, fair
value is defined as the exit price, or the amount that would be received for the
sale of an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date.
The guidance also establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when
available. Observable inputs include those that market participants would use in
valuing the asset or liability and are developed based on market data obtained
from sources independent of the Company.
11
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Unobservable inputs are inputs that reflect the Company's assumptions about the
factors that market participants would use in valuing the asset or liability.
The guidance establishes three levels of inputs that may be used to measure fair
value:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations. All significant inputs used in our valuations are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include quoted prices that were adjusted for security-specific restrictions which are compared to output from internally developed models such as a discounted cash flow model.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of financial instruments carried at cost, including cash and cash equivalents and accounts receivables, approximate their fair value due to the short-term maturities of such instruments. The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Foreign Currency Translation
A substantial portion of the Company's revenues are generated inU.S. dollars ("U.S. dollar"). In addition, a substantial portion of the Company's costs are incurred inU.S. dollars. Company management has determined that theU.S. dollar is the functional currency of the primary economic environment in which it operates. Accordingly, monetary accounts maintained in currencies other than theU.S. dollar are re-measured intoU.S. dollars in accordance with ASC 830, Foreign Currency Matters ("ASC 830"). All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses as appropriate. The financial statements of Relec,Gresham Power andEnertec , whose functional currencies have been determined to be their local currencies, the British Pound ("GBP"), and the New Israeli Shekel ("ILS"), respectively, have been translated intoU.S. dollars in accordance with ASC 830. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate in effect for the reporting period. The resulting translation adjustments are reported as other comprehensive income (loss) in the condensed consolidated statement of operations and comprehensive (loss) income and as accumulated comprehensive loss in the condensed consolidated statement of changes in stockholders' equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash is maintained in checking accounts, money market funds and certificates of deposits with reputable financial institutions in banks in theU.S. ,UK andIsrael . Such deposits inthe United States may exceed theU.S. Federal Deposit Insurance Corporation insurance limits and are not insured in other jurisdictions. The Company had total cash of$2.1 million and$1.6 million atSeptember 30, 2022 andDecember 31, 2021 , respectively, of which$1,043,000 and$933,000 atSeptember 30, 2022 andDecember 31, 2021 , respectively, were in theUnited Kingdom ("U.K.") and$554,000 and$61,000 , respectively, inIsrael . The Company has not experienced any losses on deposits of cash and cash equivalents.
Inventory
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover risks arising from technological obsolescence as the Company's products are mostly original equipment manufactured for its clients. Cost of inventories is determined as follows:
•
Raw materials, parts and supplies-using the "first-in, first-out" method.
•
Work-in-progress and finished products-using the "first-in, first-out" method on the basis of direct manufacturing costs with the addition of indirect manufacturing costs.
The Company periodically assesses its inventories valuation in respect of
obsolete items by reviewing revenue forecasts and technological obsolescence and
moving such items into a reserve allowance for obsolescence. When inventories on
hand exceed the foreseeable demand or become obsolete, the value of excess
inventory, which at the time of the review was not expected to be sold, is
written off.
12
--------------------------------------------------------------------------------Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Repairs and maintenance costs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following rates: Assets Useful Lives
(In
Years)
Computer software and office and computer equipment 3-5
Machinery and equipment, automobile, furniture and fixtures 5-10
Leasehold improvements Over the term of the
lease or life of the
asset, whichever is
shorter
Goodwill
The Company evaluates its goodwill for impairment in accordance with ASC 350,
Intangibles- Goodwill and Other. Goodwill is recorded when the purchase price
paid for an acquisition exceeds the estimated fair value of the net identified
tangible and intangible assets acquired.
The Company tests the recorded amount of goodwill for impairment on an annual
basis on December 31 of each fiscal year or more frequently if there are
indicators that the carrying amount of the goodwill exceeds its carried value.
The Company performed a qualitative assessment and determined no indicators of
impairment existed for the nine months ended September 30, 2022 and year ended
December 31, 2021 .
Intangible Assets
The Company records identifiable intangible assets subject to amortization at
fair value at the date of acquisition. The Company has trademarks which were
determined to have an indefinite life. Intangibles with definite lives are being
amortized on a straight line bases over their estimated useful lives as follows:
Useful Lives (In Years)
Tradenames 12
Customer relationships 10-16
Developed technology 8
Domain name and other intangible assets 5
The Company reviews intangible assets for impairment whenever events or changes
in business circumstances indicate that the carrying amount of the assets might
not be recoverable. Factors that the Company considers in deciding when to
perform an impairment review include significant underperformance of the
business in relation to expectations, significant negative industry or economic
trends, and significant changes or planned changes in the use of the assets.
When an impairment review is performed to evaluate a long-lived asset for
recoverability, the Company compares forecasts of undiscounted cash flows
expected to result from the use and eventual disposition of the long-lived asset
to its carrying value. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of an asset are
less than its carrying amount. The impairment loss would be based on the excess
of the carrying value of the impaired asset over its fair value, determined
based on discounted cash flows.
Long-Lived Assets
The long-lived assets of the Company are reviewed for impairment in accordance with ASC 360, Property, Plant, and Equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted expected future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by comparing the amount by which the carrying amount of the assets to their fair value.
Note Payable
The Company has elected to record certain notes payable at fair value on the
date of issuance, with gains and losses arising from changes in fair value
recognized in the statements of operations at each period end while such notes
payable are outstanding. Issuance costs are recognized in the statement of
operations in the period in which they are incurred. The fair value of the notes
payable was determined using a probability weighted expected return model, a
scenario-based valuation model in which discrete future outcome scenarios for
the Company are projected and discounted to present value (See Note 13 - Notes
payable, related party).
13
--------------------------------------------------------------------------------Warranty
Company offers a warranty period for all its manufactured products. The warranty period is typically twelve months. The Company estimates the costs that may be incurred under its warranty and records a warranty liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of units sold, historical rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount, as necessary.
Income Taxes
The Company determines its income taxes under the asset and liability method in accordance with FASB ASC No. 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the condensed consolidated statements of operations and comprehensive (loss) income in the period that includes the enactment date. The Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as ofSeptember 30, 2022 andDecember 31, 2021 , there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements. The Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income Taxes. The Company's effective tax rate ("ETR") from continuing operations was (1)% and (6.6)% for the nine months endedSeptember 30, 2022 and 2021, respectively. The Company's income tax benefit was$3,000 and a provision of$139,000 for the nine months endedSeptember 30, 2022 and 2021, respectively. The effective tax rate for the nine months endedSeptember 30, 2022 and 2021 is different from the federal statutory income tax rate of 21% due to state and local income taxes net of federal benefit, income tax rate differences betweenU.S. domestic tax rates and foreign income tax rates, non-deductible/non-taxable items, global intangible low-taxed income (GILTI) inclusions, and a change in the valuation allowance. Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation ("ASC 718"). Under ASC 718:
•
the Company recognizes stock-based expenses related to stock option awards on a straight-line basis over the requisite service period of the awards, which is generally the vesting term of two to four years,
•
the expected term assumption, using the simplified method, reflects the period for which the Company believes the option will remain outstanding,
•
the Company determines the volatility of its stock by looking at the historic volatility of its stock estimated over the expected term of the stock options, and
•
the risk-free rate reflects the
The Company uses the Black-Scholes option pricing model for determining the
estimated fair value for stock-based awards. The Black-Scholes model requires
the use of assumptions which determine the fair value of stock-based awards,
including the option's expected term and the price volatility of the underlying
stock. Forfeitures are accounted for as they occur.
14
--------------------------------------------------------------------------------Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables.
Trade receivables of the Company and its subsidiaries are mainly derived from sales to customers located primarily in theU.S. ,Europe andIsrael . The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to those amounts that the Company have determined to be doubtful of collection.
The following table provides the percentage of total revenues attributable to a single customer from which 10% or more of total revenues are derived:
Three Months Ended Three Months Ended
September 30, % of Total September 30, % of Total
Segment 2022 Revenue 2021 Revenue
Customer A $ 1,563 20 % $ 2,635 41 %
Customer B $ 1,186 15 % $ 2,003 31 %
Customer C $ 1,027 13 % N/A N/A%
Nine Months Ended Nine Months Ended
September 30, % of Total September 30, % of Total
Segment 2022 Revenue 2021 Revenue
Customer A $ 5,654 26 % $ 6,819 36 %
Customer B $ 2,768 13 % $ 3,088 16 %
Customer C $ 2,266 11 % N/A N/A%
Net Loss per Share
Basic net loss per common share is computed using the weighted average number of
common shares outstanding during the period. Diluted Earnings per Share ("EPS")
incorporates the incremental shares issuable upon the assumed exercise of stock
options and warrants using the treasury stock method. Anti-dilutive securities
are not included in the computation of diluted EPS. Non-vested shares of
restricted stock have non-forfeitable dividend rights and are considered
participating securities for the purpose of calculating basic and diluted EPS
under the two-class method.
Shares excluded from the diluted EPS calculation for the three months periods
ended
Anti-dilutive securitiesSeptember 30, 2022 Common shares issuable upon exercise of stock options
801
Common shares issuable on conversion of series F preferred stock
3,960
Common shares issuable upon exercise of warrants 301 RSU granted 250 Total 5,312 Comprehensive Loss The Company reports comprehensive loss in accordance with ASC 220, Comprehensive Income. This statement establishes standards for the reporting and presentation of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss generally represents all changes in equity during the period except those resulting from investments by, or distributions to, stockholders.
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance,
arrangements meeting the definition of a lease are classified as operating or
financing leases. Operating leases are recognized as Right-of-use ("ROU")
assets, Operating lease liability, current, and Operating lease liability,
non-current on our condensed consolidated balance sheets. Lease assets and
liabilities are recognized based on the present value of the future minimum
lease payments over the lease term at commencement date. As most of our leases
do not provide an implicit rate, we use our incremental borrowing rate based on
the information available at commencement date in determining the present value
of future payments. In certain of our lease agreements, we receive rent holidays
and other incentives. We recognize lease costs on a straight-line basis over the
lease term without regard to deferred payment terms, such as rent holidays, that
defer the commencement date of required payments. Our lease terms may include
options to extend or terminate the lease when it is reasonably certain that we
will exercise that option. Leasehold improvements are capitalized at cost and
amortized over the lesser of their expected useful life or the remaining life of
the lease, without assuming renewal features, if any, are exercised. We elected
the practical expedient in ASC 842 and do not separate lease and non-lease
components for our leases.
15
--------------------------------------------------------------------------------Recent Accounting Standards
InNovember 2021 , the FASB issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832)," which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity's financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December15, 2021. The adoption of ASU 2021-10 did not have a significant impact on the Company's condensed consolidated financial statements. InOctober 2021 , the FASB issued ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers." The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements. InMay 2021 , the FASB issued ASU 2021-04, "Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815- 40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options." The guidance became effective for the Company onJanuary 1, 2022 . The Company adopted the guidance onJanuary 1, 2022 , and has concluded the adoption did not have a material impact on its consolidated financial statements. InAugust 2020 , the FASB issued ASU 2020-06, "Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU 2020-06"). ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by theSEC for fiscal years beginning afterDecember 15, 2023 , including interim periods within those fiscal years. EffectiveJanuary 1, 2022 , the Company early adopted ASU 2020-06 using the modified retrospective approach, which resulted in no impact on its consolidated financial statements. InJune 2016 , the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses,"("ASU No. 2016-13") to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance is effective for the Company beginning onJanuary 1, 2023 , with early adoption permitted. The Company does not expect that the adoption of this standard will have a significant impact on its consolidated financial statements and related disclosures. 16 --------------------------------------------------------------------------------
Note 4. Revenue Disaggregation
The Company's disaggregated revenues are comprised of the following (In
thousands):
Three Months Ended Nine Months Ended
Category September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Primary Geographical
Markets
North America $ 2,473 $ 1,415 $ 5,094 $ 5,444
Europe 2,288 1,848 7,007 5,600
Middle East 2,729 2,832 9,127 7,728
Other 293 278 302 426
Total revenue $ 7,783 $ 6,373 $ 21,530 $ 19,198
Major Goods
RF/microwave filters $ 1,411 $ 1,983 $ 3,482 $ 4,273
Detector logarithmic
video amplifiers 250 1,055 942 1,199
Power supply units and
systems 3,193 716 7,979 5,911
Healthcare diagnostic
systems 294 174 2,285 587
Defense systems 2,635 2,445 6,842 7,228
Total revenue $ 7,783 $ 6,373 $ 21,530 $ 19,198
Timing of Revenue
Recognition
Goods transferred at a
point in time $ 5,696 $ 4,217 $ 12,809 $ 11,838
Services transferred
over time 2,087 2,156 8,721 7,360
Revenue from contracts
with customers $ 7,783 $ 6,373 $ 21,530 $ 19,198
Note 5. Inventories, net
Inventories, net, are comprised of the following (In thousands):
Category September 30, 2022 December 31, 2021 Raw materials $ 4,189 $ 1,908 Work-in-progress 3,378 1,107 Finished goods 2,742 1,191 Total $ 10,309 $ 4,206
Note 6. Property and Equipment, net
Property and Equipment, net, are comprised of the following (In thousands):
Category September 30, 2022 December 31, 2021
Machinery and equipment $ 6,862 $ 1,804
Computer, software and related equipment 1,754 700
Office furniture and equipment 254 667
Leasehold improvements 1,809 1,338
10,679 4,509
Less: accumulated depreciation and amortization (8,358 ) (2,457 )
Property and equipment, net $ 2,321 $ 2,052
Depreciation and amortization expenses related to the property and equipment for
the nine months periods ended
Depreciation and amortization expenses related to the property and equipment for
the three months periods ended
Note 7. Business Combination
OnSeptember 8, 2022 , GIGA acquired 100% of the capital stock of GWW from BitNile in exchange for 2.92 million shares of GIGA's common stock and 514.8 shares of GIGA's Series F that are convertible into an aggregate of 3.96 million shares of GIGA's common stock. GIGA also assumed GWW's outstanding equity awards representing the right to receive up to 749,626 shares of GIGA's common stock, on an as-converted basis. The transaction described above resulted in a change of control of GIGA. Assuming BitNile was to convert all of the Series F, it would 17 -------------------------------------------------------------------------------- own approximately 71.2% of GIGA' outstanding shares. The Series F Certificate of Determination contains an exchange cap which requires GIGA's shareholders to approve the issuance of more than 19.99% of GIGA's outstanding common stock that would apply as of the time of any future conversion (the "Exchange Cap"). OnSeptember 8, 2022 the GIGA's shareholders approved issuances of its common stock upon conversion of the Series F in excess of the Exchange Cap.
On
In respect of the above transactions, the acquired assets and assumed liabilities, together with acquired processes and employees, represent a business as defined in ASC 805, Business Combinations. The transactions were accounted for as a reverse acquisition using the acquisition method of accounting with GIGA treated as the legal acquirer and GWW treated as the accounting acquirer. In identifying GWW as the acquiring entity for accounting purposes, GIGA and GWW took into account a number of factors, including the relative voting rights, executive management and the corporate governance structure of the Company. GWW is considered the accounting acquirer since the Company controls the board of directors of GIGA following the transactions and received a 71.2% beneficial ownership interest in GIGA. However, no single factor was the sole determinant in the overall conclusion that GWW is the acquirer for accounting purposes; rather all relevant factors were considered in arriving at such conclusion. The fair value of the purchase consideration is$8.2 million , consisting of$4.0 million for GIGA's common stock and prefunded warrants,$0.35 million fair value of vested stock incentives and$3.8 million for cash consideration paid to existing preferred stockholders. The Company estimated the fair values of assets acquired and liabilities assumed using valuation techniques, such as the income, cost and market approaches. The fair values are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. The income method to measure the fair value of intangible assets, is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflected a consideration of other marketplace participants and included the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, economic barriers to entry and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances could affect the accuracy or validity of the estimates and assumptions. The total purchase price to acquire GIGA has been allocated to the assets acquired and assumed liabilities based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The fair value of the acquired assets and assumed liabilities as of the date of acquisition are based on preliminary estimates assisted, in part, by a third-party valuation expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result in asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those differences would alter the understanding of the impact of this transaction on the consolidated financial position and results of operations of the Company. 18 --------------------------------------------------------------------------------
The preliminary purchase price allocation is as follows (In thousands):
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