Insight
Giga-tronics manufactures specialized electronic equipment for use in both military test and airborne operational applications. Our operations consist of two business segments, those of our wholly owned subsidiary,Microsource Inc. , and those of our Giga-tronics Division. OurMicrosource segment designs and manufactures custom microwave products for military airborne applications while the Giga-tronics Division designs and manufactures real time solutions for RADAR/EW test applications. OurMicrosource subsidiary generates revenue through sole-source production contracts for custom engineered components funded by theU.S. Federal Government.Microsource revenue for fiscal year 2022 was$8.3 million from the delivery of RADAR filters for the F-15D, F-16 and F/A-18E aircrafts. These filters solve an interference problem that occurs between the aircraft's radar system and the onboard electronic warfare suite when these older aircrafts receive upgraded radar systems. The engineering of each filter variant was funded by theU.S. Government indirectly through prime contractors, including filters for foreign military sales. Orders forMicrosource components are typically between$1.0 million to$5.0 million each and involve production contracts where the period of performance spans multiple years. We believe opportunities exist for expanding the use of our Microsource RADAR filters by offering to design variants, such as for use in other aircraft or in situations where the electronic warfare suite is externally mounted on a pylon rather than onboard the aircraft.Microsource will also pursue development contracts for adapting the Company's ASGA technology for the benefit of customers who will appreciate faster operation of our RADAR filters, representing a potential source of new revenue as customers upgrade their installed base. In addition, from time-to-time, the Company may pursue adding third party sole-source component revenue though acquisition. Our Giga-tronics Division participates in the EW test segment with modular microwave up and down converters, our real-time TEmS solution and integrated playback and record solutions. The Giga-tronics solutions are architected like a RADAR system but built like a test system. This approach differentiates TEmS from the other suppliers' products and provides a better correlation between laboratory tests and actual field results. The platform was specifically designed to address the need for multiple test channels and delivers a product that is smaller, more flexible, easier to use and lower in cost than those previously available. Orders for Giga-tronics EW test solutions are relatively large, tend to be sporadic and typically involve a long and consultive sales process. Competing against market incumbents has exposed greater than expected challenges in displacing them in laboratory settings. We have achieved limited success to date because existing solutions offer extensive test capability with a record of success built over years of use. These larger and higher cost multi-purpose solutions have become the accepted standard and customers face substantial risk switching to a new solution on a large-scale basis. Consequently, our EW test sales have fallen short of our expectations due to the longer than expected time required to establish credibility and grow market share in the laboratory segment. During fiscal 2021, we moved beyond the laboratory environment and pursued opportunities for open-air range applications for our TEmS solution. Market incumbents on these ranges offer single-purpose solutions because the applications being addressed are less data-intensive and narrower in their requirements compared to those in the laboratory environment. During fiscal 2022, Giga-tronics successfully won sales into applications for air-crew training and air-to-ground missile testing. We believe our initial success in the market for open-air range application results in part because customers only need to compare our accuracy and fidelity against a competing single purpose solution rather than the extensive capability offered by competing laboratory solutions. We believe, the Giga-tronics solution is also competitive with incumbent open-air solutions due to its lower price point, smaller size, and relative ease of use. Our early success in applications for air-crew training and air-to-ground missile testing leads us to believe that we can grow our market share faster in this segment compared to laboratory settings. Management expects that additional sales for air-crew training and field testing on ranges throughout the country represent an opportunity for the growth of the Company's EW test business revenue in fiscal 2023. COVID-19 Impact Following the initial impact of the COVID-19 pandemic in early 2020, Giga-tronics was identified early on as an essential business by theU.S. Department of Homeland Security due to the importance of our Microsource RADAR filters to theU.S. Department of Defense . The Company restored operations as quickly as feasible while taking the necessary steps to protect our employees from potential harm. Although Giga-tronics experienced a relatively brief shutdown period in late fiscal 2020, the impact was nevertheless significant financially as we had to absorb all of our overhead expenses without any offsetting shipments during that period. During fiscal 2021, Giga-tronics applied for and received a loan of$786,200 from theSmall Business Administration ("SBA") associated with theU.S. Government's Payroll Protection Program. The loan, including all accrued interest, was subsequently forgiven inNovember 2020 and was recorded as a gain on extinguishment of debt during our third quarter of fiscal 2021. The COVID-19 pandemic had a significant impact on our ability to directly interact in person with customers at the end of fiscal 2020 and throughout most of fiscal 2021. Consequently, the progress in demonstrating solutions to customers and increasing awareness of Giga-tronics within the user community was delayed. Furthermore, we were unable to discuss customer needs and how our solutions could solve their problems as the military bases blocked outside personnel from visiting and mandated many of their personnel to work from home. In addition, travel restrictions made it difficult for our sales team to visit locations throughout the country due to mandatory quarantine periods. The pandemic also impacted our supply chain during most of fiscal 2021 and fiscal 2022. Many of our suppliers have indicated similar challenges in keeping their own operations running and management believes there may still be some residual delays in fulfilling orders due limited availability of parts and services. We expect this situation to improve throughout fiscal 2023. While we expect the impact of COVID-19 to be temporary, the disruptions caused by the pandemic negatively impacted our revenue and results from operations beginning in March of 2020 and throughout most of fiscal year 2021 and 2022. Looking ahead, we see that our sales team is better able to interact with and demonstrate our solutions to customers, and as a result we anticipate a positive impact on orders for our Giga-tronics EW test solutions in fiscal year 2023. 17
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Table of Contents Results of Operations
For the year ended
New orders by reporting segment are as follows for the fiscal years ended:
New orders (Dollars in thousands) Category 2022 2021 $ Change % Change
RADAR/EW test products
415 164 251 153 % Giga-tronics Division 1,011 2,841 (1,830 ) (64 )% Microsource 4,259 8,572 (4,313 ) (50 )% Total$ 5,270 $ 11,413 $ (6,143 ) (54 )% The RADAR/EW test products orders decreased by 78% over the prior year. While we believe that we have a superior product for range applications as described above, we encountered delays in the procurement process for our systems. Legacy product orders increased by$251,000 due to an end-of-life purchase for our signal generators.Microsource orders decreased by 50% primarily due to timing differences of the placement of large orders which typically have scheduled deliveries (and revenue recognition) covering multiple fiscal year periods.
Order backlog by reporting segment is as follows for the fiscal years ended:
Backlog (Dollars in thousands) Category 2022 2021 $ Change % Change RADAR/EW Test Products$ 8 $ 21 $ (13 ) (62 )% Legacy Products 303 49 254 518 % Giga-tronics Division 311 70 241 344 % Microsource 1,048 5,045 (3,997 ) (79 )% Backlog of unfilled orders$ 1,359 $ 5,115 $ (3,756 ) (73 )% The allocation of Net revenue by reporting segment was as follows for the fiscal years shown: Allocation of Net revenue (Dollars in thousands) Category 2022 2021 $ Change % Change RADAR/EW Test$ 609 $ 3,554 $ (2,945 ) (83 )% Legacy Products 161 116 45 39 % Giga-tronics Division 770 3,670 (2,900 ) (79 )% Microsource 8,257 9,382 (1,125 ) (12 )% Total$ 9,027 $ 13,052 $ (4,025 ) (31 )% Net revenue for fiscal 2022 was$9.0 million , a decrease of 31%, compared to$13.1 million for fiscal 2021. The majority of the net revenue decrease in fiscal 2022 was attributable to the Giga-tronics Division which decreased by$2.9 million due to the lack of orders described above. The decrease inMicrosource revenue in fiscal 2022 was primarily due to the lack of new orders.
Cost of sales and gross margin by reporting segment were as follows for the years indicated:
Cost of revenue and Gross profit (Dollars in thousands) Category 2022 % of Total Revenue 2021 % of Total Revenue Giga-tronics Division$ 627 7 %$ 2,058 16 % Microsource 5,144 57 % 6,053 46 % Total Cost of revenue$ 5,771 64 %$ 8,111 62 % Gross profit$ 3,257 36 %$ 4,941 38 % The cost of revenue of the Giga-tronics Division was$627,000 or 7% of total revenue and 81% of its revenue. Giga-tronics Division revenues were adversely impacted by the low volume of shipments resulting in high material costs and large variances. The cost of revenue forMicrosource was$5.1 million or 57% of total revenue and 62% of its revenue. The gross profit for the Company decreased marginally by 2% over the prior fiscal year due to a higher percentage ofMicrosource revenue in fiscal 2022. Total gross profits for fiscal 2022 was$3.3 million with a 36% gross margins. 18
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Contents
Operating expenses are as follows for the years presented:
Operating expenses (Dollars in thousands) Category 2022 2021 $ Change % Change Engineering$ 1,153 $ 2,153 $ (1,000 ) (46 )% Selling, general and administrative 4,089 3,873 216 6 % Transaction expenses 611 - 611 N/A Total$ 5,853 $ 6,026 $ (173 ) (3 )% Total operating expenses in fiscal 2022 decreased 3% to$5.9 million from$6.0 million in fiscal 2021. Engineering expenses decreased by$1.0 million or 46% during fiscal 2022 compared to fiscal 2021, primarily due to an engineering services contract which caused engineering expenses to be charged to cost of revenue, as well as due to the engineering hours charged to capitalization of software, lower consulting expenses and reduction in personnel expenses on account of lower headcount. Selling, general and administrative expenses increased by 6% or$216,000 primarily due to increased personnel related expenses including the addition of staffing in sales and additional stock-based compensation. In addition, we incurred$611,000 of transaction expenses related to the proposed Exchange Transaction with BitNile. (See Note 20 - Share Exchange Agreement with BitNile and Gresham.)
The exchange transaction fees were as follows for fiscal year 2022
Foreign exchange transaction fees
(Dollars in thousands) Category 2022 Legal Fees$ 238 Investment banker's fairness opinion 150 Consulting fees 105 Retention bonuses 118 Total$ 611
Of the
Interest expense, net and other is as follows for the years presented:
Interest expense, net and other (Dollars in thousands) Category 2022 2021 $ Change % Change Gain on extinguishment of PPP Loan $ -$ 791 $ (791 ) (100 )% Interest expense, net$ (52 ) $ (97 ) $ (45 ) (46 )% Other expense, net$ (65 ) $ -$ 65 N/A Provision for income tax$ (2 ) $ (2 ) $ - 0 %
Deemed dividend on Series E Preferred Shares
279 % The Company received a Paycheck Protection Program Loan ("PPP Loan") of$786,000 inApril 2020 which was forgiven along with corresponding interest of$4,521 inNovember 2020 .
Interest expense, net for fiscal year 2022, was
The deemed dividend on the Series E Preferred Shares was
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Contents
Cash and capital resources
The Company incurred net losses of$2.7 million and$0.4 million in fiscal years 2021 and 2022, respectively. These losses have contributed to an accumulated deficit of$34.0 million as ofMarch 26, 2022 . The Company has also experienced delays in receipt of orders for the EW test system products. These delays have contributed, in part, to the losses, decrease in working capital and increase in inventories. Our primary sources of liquidity come from customer sales and our Financing Agreement, both of which are dependent on our receipt and shipment of customer orders, and capital raised from investors and lenders. Therefore, if we are unable to maintain sufficient levels of liquidity solely from sales to customers and borrowings under the Financing Agreement, we may be required to seek funding from other sources. The Company's limitation in resources as a small public company has caused it to reevaluate its future alternatives and as a result, has entered into the Exchange Agreement (See Note 20 - Share Exchange Agreement with BitNile and Gresham). To address our liquidity needs in the near term, we entered into a loan agreement withDigital Power Lending, LLC ("DPL"), an affiliate of BitNile, the parent company of Gresham and borrowed$500,000 onNovember 12, 2021 . OnJanuary 7, 2022 , the parties amended this loan agreement which allowed the Company to borrow an additional$300,000 (See Note 7 - Term Loans). OnApril 5, 2022 , the parties amended this loan agreement which allowed the Company to borrow an additional$500,000 , for a total of$1,300,000 (See Note 21 - Subsequent Events). The Exchange Agreement provides that following our combination with of Gresham, we will pursue an underwritten public offering of$25 million of our common stock. BitNile has agreed to purchase up to$5.75 million of common stock in the public offering and simultaneously therewith, to convert$4.25 million of indebtedness that BitNile has agreed to lend to us upon the closing of our acquisition of Gresham. There can be no assurance that we will successfully complete the acquisition of Gresham or the public offering or that additional financing will be available to us in the future. We have also put in place a plan as a standalone company and plan to repay the loan to BitNile inNovember 2022 without raising additional funding because of the large inventory on hand for the TEmS solution, which will result in cash with sales of TEmS. 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. Our historical operating results and forecasting uncertainties indicate that substantial doubt exists related to our ability to continue as a going concern. Management believes that through the actions to date and possible future actions described above, we should have the necessary liquidity to continue operations at least twelve months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our 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 our EW test system product line due to the potential longer than anticipated sales cycles. Therefore, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company's ability to do so. The accompanying Consolidated Financial Statements do not include any adjustments that might result if we were unable to do so. Cash Flows The following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this filing: Cash Flows (Dollars in thousands) Fiscal Year Ended CategoryMarch 26, 2022
Net cash provided by (used in) operating activities $ (2,386 ) $
359 Net cash used in investing activities - (94 ) Net cash provided by (used in) financing activities 1,675 (186 ) Net increase (decrease) in cash (711 ) 79 Cash at the beginning of the fiscal year 736 657 Cash at the end of the period $ 25 $ 736 Our cash balance decreased by$711,000 during fiscal 2022 primarily due to cash used in operating activities of$2.4 million , which was partially offset by$1.7 million in cash provided by financing activities.
Cash flow from operating activities
In fiscal 2022, we used cash from
We expect that cash flows from operating activities will fluctuate in future periods due to a number of factors including our level of revenue, which fluctuates significantly from one period to another due to the timing of receipt of contracts, operating results, amounts of non-cash charges, and the timing of our product shipments, inventory purchases, billings, collections and disbursements.
Cash flow from investing activities
In fiscal year 2022, there was no investment in property, plant and equipment, compared to fiscal year 2021 where
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Contents
Cash flow from financing activities
In fiscal 2022, we provided
The
Financed Receivables
On
Under the Financing Agreement, we may borrow up to 85% of the amounts of customer invoices issued by us, up to a maximum of
Interest accrues on amount outstanding under the Financing Agreement 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 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 Financing Agreement has no specified term and may be terminated by either the Company orWestern Alliance Bank at any time.
From
Term Loan OnNovember 12, 2021 , the Company entered into a loan agreement with DPL, aCalifornia limited liability company and licensed California Finance Lender, and an affiliate of BitNile, aDelaware corporation. The loan is evidenced by a secured promissory note dated as ofNovember 12, 2021 , which provides, among other things that the principal amount of the loan will bear interest at the rate of 10.0% per annum. Unless prepaid by the Company, all principal and accrued interest under the loan is payable onNovember 12, 2022 or, if earlier, upon the Company's completion of an underwritten public offering or the termination of the Exchange Agreement with BitNile and Gresham, aDelaware corporation. 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. The Company's outstanding balance of this loan as ofMarch 26, 2022 was$800,000 and is included in Loans payable, net of discounts and issuance costs on the Consolidated Balance Sheets. OnApril 27, 2017 , the Company entered into a$1.5 million loan agreement with Partners For Growth ("PFG"), which was funded by PFG onApril 28, 2017 ("PFG Loan"). As ofMarch 27, 2021 , the Company's total outstanding loan balance under this loan was paid off in full and the agreement was terminated.
Paycheck Protection Program under the CARES Act
OnApril 23, 2020 , the Company borrowed$786,200 fromWestern Alliance Bank pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act. The Company accounted for the PPP Loan as a loan under Accounting Standards Codification ("ASC") 470, Debt, ("ASC470"). The PPP Loan had a stated maturity date ofApril 23, 2022 with interest accruing on the principal balance at the rate of 1.0% per annum.
On
Contractual Obligations We lease ourDublin, California facility under an operating lease agreement which expires inMarch 2023 . Total future minimum lease payments under these leases amount to approximately$696,500 , of which$487,500 is scheduled to be paid in fiscal 2023. We lease ourNashua, New Hampshire facility under an amended operating lease agreement which expiresFebruary 28, 2023 . Total future minimum lease payments under this lease amount to$27,500 , all of which is scheduled to be paid in fiscal 2023.
We are committed to purchasing certain inventory under non-cancellable, non-returnable (“NCNR”) purchase orders. From
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Table of Contents Non-GAAP Financial Measures A non-GAAP financial measure is generally defined by theSEC as a numerical measure of a company's historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures. We measure our operating performance in part based on earnings before interest, taxes, depreciation and amortization ("EBITDA") which is a non-GAAP financial measure that is commonly used but is not a recognized accounting term under GAAP. We use EBITDA to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, and to plan and evaluate operating budgets. We believe that our measure of EBITDA provides useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures. EBITDA should not be considered in isolation or as a substitute for, but instead as a supplemental to, income or loss from operations, net income or loss, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP. We define Adjusted EBITDA as EBITDA adjusted for net other income or expense items, share based compensation and certain one-time income or expense items. In the following reconciliation, we provide amounts as reflected in our accompanying consolidated financial statements unless otherwise noted. The reconciliation of our net loss to Adjusted EBITDA for the fiscal years ended below is as follows: 2022 2021 Net (loss)$ (2,715 ) $ (393 ) Cumulative and deemed dividends on Series E preferred stock (53 ) (14 ) Net (loss) attributable to common shareholders (2,768 ) (407 ) Depreciation and amortization 202 253 Interest and taxes 54 99 EBITDA (2,512 ) (55 ) Adjustments: Stock-based compensation 543 354 Finance costs for issuance of prefunded warrants 157
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Gain on remeasurement of prefunded warrants liability (92 )
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Gain on extinguishment of PPP Loan - (791 ) Transaction related expenses 611 - Adjusted EBITDA$ (1,293 ) $ (492 )
Critical accounting policies
Our discussion and analysis of our financial condition and the results of operations are based upon the consolidated financial statements included in this report and the data used to prepare them. The consolidated financial statements have been prepared in accordance with GAAP and management is required to make judgments, estimates and assumptions in the course of such preparation. The Summary of Significant Accounting Policies included with the consolidated financial statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. On an ongoing basis, we re-evaluate our judgments, estimates and assumptions. We base our judgment and estimates on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following as our critical accounting policies: Revenue Recognition The Company follows the provisions of Accounting Standards Update ("ASU") 2014-09 as subsequently amended by theFinancial Accounting Standards Board ("FASB") between 2015 and 2017 and collectively known as ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). The guidance provides a unified model to determine how revenue is recognized. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreements, we perform the following steps: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price and (v) recognize revenue when (or as) we satisfy each performance obligation. We generate revenue through the design, manufacture, and sale of products used in the defense industry to major prime defense contractors, the armed services (primarily in theU.S. ) and research institutes. There is generally one performance obligation in our contracts with our customers. For highly engineered products, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our right to payment for costs incurred to date plus a reasonable profit for products or services that do not have an alternative use. In these circumstances, the performance obligation is the design and manufacturing service. As control transfers continuously over time on these contracts, revenue is recognized based on the extent of progress towards completion of the performance obligation using a cost-to-cost method. Engineering services are also satisfied over time and recognized on a cost-to-cost method. These types of revenue arrangements are typical for our defense contracts within theMicrosource segment for its RADAR filter products used in fighter jet aircrafts. For the sale of standard or minimally customized products, the performance obligation is the series of finished products which are recognized at the points in time the units are transferred to the control of the customer, typically upon shipment. This type of revenue arrangement is typical for our commercial contracts within the Giga-tronics segment for its system products used for testing RADAR/EW systems. 22
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Table of Contents Product Warranties Our warranty policy generally provides one to three years of coverage depending on the product. We record a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty coverage is based on our actual historical experience with our current products or similar products. For new products, the required reserve is based on historical experience of similar products until sufficient historical data has been collected on the new product. Adjustments are made as new information becomes available.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are stated at their net realizable values. We have estimated an allowance for uncollectible accounts based on our analysis of specifically identified problem accounts, outstanding receivables, consideration of the age of those receivables, our historical collection experience and adjustments for other factors management believes are necessary based on perceived credit risk. Inventories, net Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. We periodically review inventory on hand to identify and write down excess and obsolete inventory based on estimated product demand. Income Taxes Income taxes are accounted for using the asset and liability 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the 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 income in the period that includes the enactment date. Future tax benefits are subject to a valuation allowance when management is unable to conclude that its deferred tax assets will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Management considers both positive and negative evidence and tax planning strategies in making this assessment. We consider all tax positions recognized in the consolidated financial statements for the likelihood of realization. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amounts of the positions that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if any, would be reflected as unrecognized tax benefits, as applicable, in the accompanying Consolidated Balance Sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. We also recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of the provision for income taxes in the Consolidated Statements of Operations. Stock-Based Compensation We have a stock incentive plan that provides for the issuance of stock options and restricted stock to employees and directors. We calculate stock-based compensation expense for stock options using a Black-Scholes-Merton option pricing model and record the fair value of stock option and restricted stock awards expected to vest over the requisite service period. In doing so, we make certain key assumptions in making estimates used in the model. We believe the estimates used, which are presented in the Notes to Consolidated Financial Statements, are appropriate and reasonable. Going Concern We evaluate our relevant conditions and events that are known and reasonably knowable at the date that our financial statements are issued. This includes Management's preparation and review of a forecasting process that evaluates a twelve-month horizon period post issuance of the consolidated financial statements. Management responds to the known and reasonably knowable circumstances that give rise to our initial doubt as a going concern by implementing plans that are reasonably sufficient to overcome the conditions that give rise to our ability to continue. Our Consolidated Financial Statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might result if we were unable to do so.
Off-balance sheet arrangements
We have no off-balance-sheet arrangements (including standby letters of credit, guarantees, contingent interests in transferred assets, contingent obligations indexed to our stock or any obligation arising out of a variable interest in an unconsolidated entity that provides credit or other support to the Company), that have or are likely to have a material effect on our financial conditions, changes in financial conditions, revenue, expense, results of operations, liquidity, capital expenditures or capital resources.
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