UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
The number of shares of common stock, $0.0001 par value per share,
outstanding as of August 22, 2023 was
| The |
CROWN ELECTROKINETICS CORP.
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties.
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
ii
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements.
CROWN ELECTROKINETICS CORP.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right of use asset | ||||||||
| Goodwill | ||||||||
| Deferred debt issuance costs | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Lease liability - current portion | ||||||||
| Warrant liability | ||||||||
| Notes payable at fair value | ||||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Lease liability - non-current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 14) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, par value $ | ||||||||
| Series A preferred stock, par value $ | ||||||||
| Series B preferred stock, par value $ | ||||||||
| Series C preferred stock, par value $ | ||||||||
| Series D preferred stock, par value $ | ||||||||
| Series F preferred stock, par value $ | ||||||||
| Series F-1 preferred stock, par value $ | ||||||||
| Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
CROWN ELECTROKINETICS CORP.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share amounts)
| Three Months Ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of warrant liability | - | ( | ) | |||||||||||||
| Loss on extinguishment of debt | ( | ) | - | ( | ) | |||||||||||
| Gain on issuance of convertible notes | ||||||||||||||||
| Change in fair value of warrants | ||||||||||||||||
| Change in fair value of notes | ( | ) | ( | ) | ||||||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend on Series D preferred stock | ( | ) | ||||||||||||||
| Cumulative dividends on Series A preferred stock | ( | ) | ( | ) | ||||||||||||
| Cumulative dividends on Series B preferred stock | ( | ) | ( | ) | ||||||||||||
| Cumulative dividends on Series C preferred stock | ( | ) | ( | ) | ||||||||||||
| Cumulative dividends on Series D preferred stock | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
CROWN ELECTROKINETICS CORP.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share and per share amounts)
| Series
A Preferred Stock | Series
B Preferred Stock | Series
C Preferred Stock | Series
D Preferred Stock | Series
E Preferred Stock | Series
F Preferred Stock | Series
F-1 Preferred Stock | Series
F-2 Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | $ | | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with conversion of notes | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock/At-the-market offering, net of offering costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series E preferred stock in connection with LOC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend for repricing of Series D preferred stock | - | - | - | - | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of common stock in connection with March waiver agreement | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with Series A and Series B Dividends | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the conversion of Series E preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with conversion of October Notes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in shares of Series D preferred stock | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred stock exchanged for Series F preferred stock in connection with Exchange Agreements | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Demand Notes and October Notes into Series F preferred stock in connection with Exchange Agreements | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of January Notes into Series F preferred stock in connection with Exchange Agreements | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series F-1 preferred stock | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series F-2 preferred stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of common stock in connection with January Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of common stock in connection with LOC Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of Series E preferred stock in connection with LOC Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of common stock in connection with Demand Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 (unaudited) | - | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CROWN ELECTROKINETICS CORP.
Condensed Consolidated Statements of Stockholders’ Equity (Continued)
(Unaudited)
(in thousands, except share and per share amounts)
| Series
A Preferred Stock | Series
B Preferred Stock | Series
C Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | Number | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | | $ | $ | ( | ) | $ | | |||||||||||||||||||||||||||||||||
| Issuance of common stock/At-the-market offering, net of offering costs | ||||||||||||||||||||||||||||||||||||||||||||
| Delivery of restricted common stock | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common stock warrants in connection with SLOC | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CROWN ELECTROKINETICS CORP.
Condensed Consolidated Statements of Stockholders’ Equity (Continued)
(Unaudited)
(in thousands, except share and per share amounts)
| Series
A Preferred Stock | Series
B Preferred Stock | Series
C Preferred Stock | Series
D Preferred Stock | Series
E Preferred Stock | Series
F Preferred Stock | Series
F-1 Preferred Stock | Series
F-2 Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Number | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 (Unaudited) | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with Series A and Series B Dividends | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the conversion of Series E preferred stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with conversion of October Notes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid in shares of Series D preferred stock | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred stock exchanged for Series F preferred stock in connection with Exchange Agreements | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Demand Notes and October Notes into Series F preferred stock in connection with Exchange Agreements | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of January Notes into Series F preferred stock in connection with Exchange Agreements | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series F-1 preferred stock | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series F-2 preferred stock | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of common stock in connection with January Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of common stock in connection with LOC Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of Series E preferred stock in connection with LOC Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment to issue shares of common stock in connection with Demand Notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 (Unaudited) | - | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CROWN ELECTROKINETICS CORP.
Condensed Consolidated Statements of Stockholders’ Equity (Continued)
(Unaudited)
(in thousands, except share and per share amounts)
| Series
A Preferred Stock | Series
B Preferred Stock | Series
C Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | Number | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 (Unaudited) | $ | $ | $ | $ | | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||
| Issuance of common stock/At-the-market offering, net of offering costs | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CROWN ELECTROKINETICS CORP.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Loss on extinguishment of warrant liability | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Loss on extinguishment of debt | ||||||||
| Change in fair value of notes | ||||||||
| Amortization of deferred debt issuance costs | ||||||||
| Amortization of right of use assets | ||||||||
| Other expenses | ||||||||
| Loss on disposal of equipment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for acquisition of Amerigen 7 | ( | ) | ||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Purchase of patents | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from the issuance of common stock / At-the-market offering | ||||||||
| Proceeds from the issuance of notes in connection with Line of Credit | ||||||||
| Offering costs for the issuance of common stock / At-the-market offering | ( | ) | ( | ) | ||||
| Proceeds from a deposit for Series D preferred stock (shares liability) | - | |||||||
| Proceeds from issuance of Series F-1 preferred stock | ||||||||
| Proceeds from issuance of Series F-2 preferred stock | ||||||||
| Proceeds from issuance of January promissory notes, net of fees paid | ||||||||
| Repayment of notes payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase / decrease in cash | ( | ) | ( | ) | ||||
| Cash — beginning of period | ||||||||
| Cash — end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Issuance of Series E preferred stock in connection with LOC | $ | $ | ||||||
| Issuance of Series F preferred stock in connection with exchange of Series D preferred stock | $ | $ | ||||||
| Issuance of common stock in connection with conversion of notes | $ | $ | ||||||
| Issuance of common stock warrants in connection with SLOC | $ | $ | ||||||
| Deemed dividend for repricing of Series D preferred stock | $ | $ | ||||||
| Commitment to issue shares of common stock in connection with Demand Notes | $ | $ | - | |||||
| Unpaid equipment included in accounts payable | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and Description of Business Operations
Crown Electrokinetics Corp. (the “Company”) was incorporated in the State of Delaware on April 20, 2015. Effective October 6, 2017, the Company’s name was changed to Crown Electrokinetics Corp. from 3D Nanocolor Corp. (“3D Nanocolor”).
On January 26, 2021, the Company completed its public offering, and its common stock began trading on the Nasdaq Capital Market (Nasdaq) under the symbol CRKN.
The Company is commercializing technology for smart or dynamic glass. The Company’s electrokinetic glass technology is an advancement on microfluidic technology that was originally developed by HP Inc.
On December 20, 2022, the Company incorporated Crown Fiber Optics Corp., a Delaware based entity, to own and operate its acquired business from the acquisition of Amerigen 7, LLC (“Amerigen 7”) in January 2023. Crown Fiber Optics Corp. is accounted for as a wholly- owned subsidiary of Crown Electrokinetics, Corp.
Preferred Stock
Subsequent to December 31, 2022, the Company filed
the first amendment to its Series D preferred stock, which modifies the conversion price of the Series D preferred stock from $
On February 1, 2023, the Company’s Board
of Directors authorized
On June 4, 2023, the Company’s Board of
Directors authorized
On June 13, 2023, the Company’s Board of
Directors authorized
On June 14, 2023, the Company’s Board of
Directors authorized
Business Combination
On January 3, 2023, the Company acquired certain
assets related to the construction of 5G fiber optics infrastructure and distributed antenna systems from Amerigen 7 (the “Business
Combination”), for cash consideration of approximately $
Reverse Stock Split
On August 11, 2023, the Company’s Board of Directors authorized a reverse stock split (‘Reverse Stock Split”) at an exchange ratio of one (1) share of common stock for every sixty (60) shares of common stock. The Reverse Stock Split was effective on August 15, 2023, such that every sixty (60) shares of common stock have been automatically converted into one (1) share of common stock. The Company did not issue fractional certificates for post-reverse split shares in connection with the Reverse Stock Split. Rather, all shares of common stock that were held by a stockholder were aggregated and each stockholder was entitled to receive the number of whole shares resulting from the combination of the shares so aggregated. Any fractions resulting from the Reverse Stock Split computation were rounded up to the next whole share.
The number of authorized shares of the common
stock was not adjusted as a result of the Reverse Stock Split. All share and per share data in these condensed consolidated financial
statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. The shares of
common stock retain a par value of $
8
Note 2 – Liquidity, Financial Condition, and Going Concern
The Company has incurred substantial operating
losses since its inception and expects to continue to incur significant operating losses for the foreseeable future and may never become
profitable. As reflected in the condensed consolidated financial statements, the Company had an accumulated deficit of approximately $
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
The Company will seek to obtain additional capital
through the sale of debt or equity financings or other arrangements to fund operations including through its existing At-The-Market offering,
$
At-the-Market Offerings
The Company entered into a Sales Agreement with
A.G.P./Alliance Global Partners (the “Sales Agents”) dated March 30, 2022 (the “Sales Agreement”), pursuant to
which the Company may, from time to time, sell up to $
During the six months ended June 30, 2023, the
Company received net proceeds on sales of shares of common stock under the Sales Agreement of approximately $
On July 5, 2023, the Company and the Sales Agents
filed the second amendment to the Sales Agreement (the “Second Amendment to the Sales Agreement”). Pursuant to the First Amendment
to the Sales Agreement, the Company may from time to time, sell up to $
Subsequent to June 30, 2023, the Company received
net proceeds on sales of
9
Line of Credit
On February 2, 2023, the Company entered into
a line of credit agreement (the “Line of Credit”) securing a line of credit up to $
On May 16, 2023, the Company made a second draw
of $
On May 26, 2023, the Company made a third draw
of $
On June 13, 2023, the Company partially redeemed
the principal amount of the 2023 Note and fully redeemed the principal amount of the 2nd 2023 Note and 3rd 2023
Note in addition to all accrued interest and commitment fees owing for approximately $
Demand Notes
Between May 17, 2023 and May 18, 2023, the Company
issued secured demand promissory notes (the “Demand Notes”) to certain investors (the “Demand Holders”) in an aggregate
principal amount equal to $
On May 30, 2023, the Company issued secured
demand promissory notes (the “2nd Demand Notes”) to certain investors (the “2nd Demand
Holders”) in an aggregate principal amount equal to $
Exchange Agreements
On June 4, 2023, the Company entered into Exchange
Agreements (the “Exchange Agreements”): (i) with the October Investors for the exchange of October Notes in the aggregate
principal amount of $
10
In addition, in connection with the Exchange
Agreements, the Company issued new five-year warrants to purchase an aggregate of
For the October Investors, the total fair value
of Series F Preferred Stock and Warrant Liability issued was $
Series F-1 Preferred Stock Offering
On June 13, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited
investors (the “Purchasers”), pursuant to which, at the closing of the transactions contemplated by the Purchase Agreement
(the “Closing”) the Purchasers agreed to purchase an aggregate of
Series F-2 Preferred Stock Offering
On June 14, 2023, the Company entered into a Securities
Purchase Agreement (the “F-2 Purchase Agreement”) with certain accredited investors (the “F-2 Purchasers”), pursuant
to which, at the closing of the transactions contemplated by the Purchase Agreement (the “F-2 Closing”) the F-2 Purchasers
agreed to purchase an aggregate of
Risks and Uncertainties
The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. The Company’s financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
11
Note 3 - Significant Accounting Policies
Basis of Presentation
The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. The condensed consolidated results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results for the full year or the results for any future periods. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31, 2022 included in the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023.
Use of Estimates
The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s condensed consolidated financial statements relate to the valuation of its business combination, senior secured convertible notes and warrants, Series F/F-1/F-2 Preferred Stock, warrants, and equity-based awards. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see the Company’s December 31, 2022 financial statements included in its 2022 Annual Report.
Revenue Recognition
The Company adopted the new revenue standard, ASC 606, on March 31, 2019 using the full retrospective approach. The adoption did not have an effect on 2021 or 2020 revenue recognition or a cumulative effect on opening equity, as the timing and measurement of revenue recognition is materially the same as under ASC 605. The core principle of the new revenue standard 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 |
| ● | Step 5: Recognize revenue when the company satisfies a performance obligation |
12
For contracts where the period between when the Company transfers a promised good or service to the customer and when the customer pays is one year or less, the Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component.
The Company’s performance obligation is to provide fiber splicing services as required based on short-term work orders as work is assigned by the Customer. The Company is required to complete the description of work described in the work order and test the service provided prior to any recognition of revenue and invoicing. The short-term work orders are for very specific performance obligations which are performed from start to finish within two weeks or less, and more often, within one week. The Company is required to adhere to the rules and regulations that are outlined in the Agreement between the Company and the Customer.
Cost for the work performed is outlined in the
individual work orders based on the detailed description of work to be performed. All of the revenue is recognized immediately upon completion
of the work in each work order. A
Revenue recognized during the six months ended June 30, 2023 was generated by the Company’s wholly-owned subsidiary, Crown Fiber Optics Corporation, and was immaterial. No revenue was recognized by the Company during the six months ended June 30, 2022.
Financial Instruments – Credit Losses
Measurements of Credit Losses on Financial Instruments (“ASC 326”), which replaces the existing incurred loss model with a current expected credit loss (“CECL”) model that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company would be required to use a forward-looking CECL model for accounts receivables, guarantees and other financial instruments. The Company adopted ASC 326 on January 1, 2023 and ASC 326 did not have a material impact on its financial statements.
Segment and Reporting Unit Information
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is determined to be the CODM. On January 3, 2023, the Company acquired Crown Fiber Optics, Corp. (see Note 1) and is currently in the process of integrating this new business line including identifying leadership, and aligning management reporting and allocation methodologies. The Company is assessing its current segment structure in conjunction with the integration efforts.
Business Combinations
The Company accounts for business combinations using the guidance provided by Accounting Standards Codification (“ASC”) 805, Business Combinations. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts.
Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets. Although the Company believes the assumptions and estimates made have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain intangible assets we have acquired include future expected cash flows from customer contracts. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. The initial purchase price may be adjusted as needed per the terms of the arrangement agreement. The allocation of purchase price, including any fair value the assets acquired and liabilities assumed as of the acquisition date has not been completed.
Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
13
Deferred Debt Issuance Costs
The Company accounts for debt issuance costs related to its Line of Credit as a deferred asset which is amortized over the life of the Line of Credit. Since the Company has elected the fair value option for its convertible notes (see below), upon a draw down, a portion of the deferred asset balance will be amortized to other expense. On the issuance date of the Company’s Line of Credit, the cost related to issuance of the Series E preferred shares and the warrant to purchase Series E preferred shares was recorded as a deferred asset.
Goodwill
The Company performs a goodwill impairment analysis on October 1st of each year. When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation to determine if it is more likely than not that the fair value of its reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test.
Convertible Notes and Notes Payable
In accordance with Accounting Standards Codification 825, Financial Instruments (“ASC 825”), the Company has elected the fair value option for recognition of its convertible notes and notes payable. In accordance with ASC 825, the Company recognizes these notes at fair value with changes in fair value recognized in the statements of operations. The fair value option may be applied instrument by instrument, but it is irrevocable. As a result of applying the fair value option, direct costs and fees related to the convertible notes and notes payable were recognized in other expense. The Company will include the interest expense as a component of the notes fair value.
Warrants
The Company accounted for certain common stock warrants outstanding as a liability at fair value and adjusted the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the warrants issued by the Company have been estimated using the Black Scholes Methodology.
SLOC
The Company accounts for its warrants related to the SLOC in accordance with ASC 815-40, Contracts in Entity’s Own Equity. The warrants to purchase the Company’s common stock meet the criteria in ASC 815-40 to be classified within stockholders’ equity, and therefore, the warrants are not revalued after issuance. The Company uses a Black-Scholes model to value the warrants at issuance.
Under the guidance of ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, the Company concluded the warrants should be recorded as a deferred asset. At issuance and as of June 30, 2023, since no loan amounts were drawn down, the SLOC warrant is recorded as a deferred asset at fair value and will be amortized over the life of the SLOC. Upon a draw down, the remaining balance of the deferred asset would be reclassified to debt discount and amortized under the effective interest method over the one-year term of the loan.
Purchase Order Warrants
The Company accounts for its warrants issued in connection with purchase orders in accordance with ASC 606, Revenue Recognition. With respect to the warrant, the Company accounts for it as consideration payable to a customer under ASC 606, as it relates to the future purchase of the Company’s Smart Window Inserts™. Pursuant to ASC 718 Compensation - Stock Compensation (“ASC 718”), the Company measured the fair value of the warrant using the Black-Scholes valuation model on the issuance date, with the value being recognized as a prepaid asset up to the recoverable value represented by the value of the contract.
14
Net Loss per Share
ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net loss per share of common stock excludes dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive.
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Series A preferred stock | ||||||||
| Series B preferred stock | ||||||||
| Series C preferred stock | ||||||||
| Series F preferred stock | ||||||||
| Series F-1 preferred stock | ||||||||
| Series F-2 preferred stock | ||||||||
| Convertible notes | ||||||||
| Warrants to purchase common stock (excluding penny warrants) | ||||||||
| Warrants to purchase Series E preferred stock | ||||||||
| Options to purchase common stock | ||||||||
| Unvested restricted stock units | ||||||||
| Commitment shares | ||||||||
Emerging Growth Company
The Company is considered to be an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (JOBS Act). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934.
Note 4 – Acquisitions
On January 3, 2023, the Company completed its
Business Combination as described in Note 1. In accordance with the terms of the Business Combination, the Company paid cash consideration
of approximately $
15
| Property and equipment | $ | |||
| Intangible assets | ||||
| Security deposits | ||||
| Accrued expenses | ( | ) | ||
| Notes payable | ( | ) | ||
| Total identifiable assets and liabilities acquired | ( | ) | ||
| Goodwill | ||||
| Total purchase consideration | $ |
The Company engaged an independent valuation specialist to conduct a valuation analysis of the identifiable intangible assets acquired by the Company with the objective of estimating the fair value of such assets as of January 3, 2023. The valuation specialist utilized the Income Approach, specifically the Multi-Period Excess Earnings Method, to value the existing customer relationship.
Note 5 - Prepaid and Other Current Assets
| June 30, 2023 | December 31, 2022 | |||||||
| License fees | $ | $ | ||||||
| Notes receivable | ||||||||
| Professional fees | ||||||||
| Insurance | ||||||||
| Hudson warrant * | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| * |
Note 6 - Property & Equipment, Net
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Vehicles | ||||||||
| Computers | ||||||||
| Other | ||||||||
| Total | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the three months ended June 30, 2023 and 2022
was $
16
Note 7 - Intangible Assets, Net
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Patents | $ | $ | ||||||
| Research license | ||||||||
| Customer relationships | ||||||||
| Total | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
| Estimated Amortization Expense | ||||
| Six months ended December 31, 2023 | $ | |||
| Year ended December 31, 2024 | ||||
| Year ended December 31, 2025 | ||||
| Year ended December 31, 2026 | ||||
| Year ended December 31, 2027 and thereafter | ||||
| Total | $ | |||
For the three months ended June 30, 2023 and 2022, amortization expense
was approximately $
Note 8 – Deferred Debt Issuance Costs
| June 30, 2023 | December 31, 2022 | |||||||
| SLOC | $ | $ | ||||||
| Line of Credit | $ | |||||||
| Total | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Deferred debt issuance costs, net | $ | $ | ||||||
17
Line of Credit
On February 2, 2023, the Company entered
into its Line of Credit and recorded deferred debt issuance costs of approximately $
SLOC
For the three months ended June 30, 2023 and 2022,
in connection with its SLOC, the Company recognized amortization expense of approximately $
Note 9 - Fair Value Measurements
| Fair value measured at June 30, 2023 | ||||||||||||||||
| Total carrying value at June 30, 2023 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Liabilities: | ||||||||||||||||
| Convertible notes | $ | $ | $ | $ | ||||||||||||
| Warrant liability | $ | $ | $ | $ | ||||||||||||
| Fair value measured at December 31, 2022 | ||||||||||||||||
| Total carrying value at December 31, 2022 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Liabilities: | ||||||||||||||||
| Convertible notes | $ | $ | $ | $ | ||||||||||||
| Warrant liability | $ | $ | $ | $ | ||||||||||||
18
For the six months ended June 30, 2023 there was
an increase of approximately $
The fair value of the convertible notes may change significantly as additional data is obtained, impacting the Company’s assumptions used to estimate the fair value of the liabilities. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts, and such changes could materially impact the Company’s results of operations in future periods.
The following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2023. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
| Convertible Notes | Warrant Liability | |||||||
| Balance at December 31, 2022 | $ | $ | ||||||
| Conversion of October convertible notes | ( | ) | ||||||
| Issuance of convertible note in connection with Line of Credit | ||||||||
| Change in fair value of convertible notes in connection with March waiver agreement | ||||||||
| Gain on issuance of convertible note | ( | ) | ||||||
| January Notes - reclass to fair value option | ||||||||
| Settlement in Connection with October Note | ( | ) | ||||||
| Conversion of October Notes | ( | ) | ||||||
| Settlement in Connection with LOC | ( | ) | ||||||
| LOC Note issuance | ||||||||
| Warrants issued in connection with January promissory note | ||||||||
| Warrants issued in connection with Line of Credit | ||||||||
| Warrants issued in connection with inducement agreement | ||||||||
| Warrants issued in connection with February waiver agreement | ||||||||
| Fair value of warrants exercised | ( | ) | ||||||
| Other income (expense): | ||||||||
| Warrants Issued in connection with Demand Notes Series F Exchange | ||||||||
| Warrants Issued in connection with January Notes Series F Exchange | ||||||||
| Warrants Issued in connection with October Notes Series F Exchange | ||||||||
| Warrants Issued in connection with Series D to Series F Exchange | ||||||||
| Warrants Issued in connection with Series F-1 | ||||||||
| Warrants Issued in connection with Series F-2 | ||||||||
| Change in fair value | ( | ) | ||||||
| Balance at June 30, 2023 | $ | $ | ||||||
Convertible Notes
During the year ended December 31, 2022, the Company issued convertible promissory notes (the “2022 Notes”). The fair value of the 2022 Notes on the issuance dates, and as of December 31, 2022 were estimated using a Monte Carlo simulation to capture the path dependencies intrinsic to their terms. The significant unobservable inputs used in the fair value measurement of the Company’s convertible notes are the common stock price, volatility, and risk-free interest rates. Significant changes in these inputs may result in significantly lower or higher fair value measurement. The Company elected the fair value option when recording its 2022 Notes and the 2022 Notes were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income (expense) on the statements of operations and disclosed in the condensed consolidated financial statements.
During the six months ended June 30, 2023,
seven noteholders converted a portion of their 2022 Notes into
February Waiver Agreement
On February 28, 2023, the Company entered into waiver agreements with holders of the 2022 Notes (See Note 11). In connection with this waiver agreement, the 2022 Notes were revalued as of the amendment date.
19
March Waiver Agreement
On March 24, 2023, the Company entered into the
second waiver agreements with holders of the 2022 Notes (See Note 11). A select number of holders elected to increase the principal balance
of their notes. The Company revalued the respective notes on the date prior to the amendment date, and again on the amendment date. The
change in fair value related to the amendment of these 2022 Notes was approximately $
On June 4, the Company entered into an Exchange
Agreement where the 2022 Notes balance with a fair value of $
Line of Credit
On February 3, 2023 the Company drew down $
Between May 17, 2023 and May 30, 2023 the Company
drew down $
As of June 30, 2023, the fair value of the 2023
Note was approximately $
Warrants
Senior Secured Notes
In connection with the issuance of its senior
secured notes on January 3, 2023 (See Note 11), the Company issued
Line of Credit
On February 2, 2023, in connection with the issuance
of its Line of Credit, the Company issued
Warrant Inducement and Exercise Agreement
During the year ended December 31, 2022, in connection
with the 2022 Notes, the Company issued
During the six months ended June 30, 2023, in
connection with its 2022 Notes, the Company entered into a warrant inducement and exercise agreement with certain holders. Under the terms
of the agreement, the holders exercised
February Waiver Agreement
As consideration for the February waiver agreement,
the Company issued
As of June 30, 2023, there are
20
The warrants were classified as liabilities and measured at fair value on the grant date, with changes in fair value recognized as other income (expense) on the statements of operations and disclosed in the condensed consolidated financial statements.
Exchange Agreements
As part of the Exchange Agreements, the Company
issued
Series F-1 and F-2 Issuances
As part of the Series F-1 and F-2 Preferred Stock
issuances, the Company issued
| Series F / F-1 / F-2 | 2022 Notes | Warrants - January Note | Warrants - Series E - LOC | December 31, 2022 | ||||||||||||||||
| Date | ||||||||||||||||||||
| Dividend yield | ||||||||||||||||||||
| Expected price volatility | ||||||||||||||||||||
| Risk free interest rate | ||||||||||||||||||||
| Expected term (in years) | ||||||||||||||||||||
Significant changes in the expected price volatility and expected term would result in significantly lower or higher fair value measurement of the warrants, respectively.
Note 10 - Accrued Expenses
| June 30, 2023 | December 31, | |||||||
| Payroll and related expenses | $ | $ | ||||||
| Bonus | ||||||||
| Taxes | ||||||||
| Insurance | ||||||||
| Other expenses | ||||||||
| Total | $ | $ | ||||||
21
Note 11 - Notes Payable
Convertible Notes
2022 Notes
On October 19, 2022, the Company issued its 2022
Notes with a principal balance of approximately $
During the six months ended June 30, 2023, in connection with its 2022 Notes, the Company entered into a warrant inducement and exercise agreement with certain holders of the 2022 Notes (See Notes 7 and 13).
On February 28, 2023, the Company entered into
waiver agreements with holders of the 2022 Notes which extended the
On
March 24, 2023, the Company entered into the waiver agreements with holders of the 2022 Notes to eliminate the minimum pricing covenant
as it relates to Company’s At-The-Market facility. As consideration for this agreement, the Company provided the holders with two
options to choose from i) to take an additional
On
May 12, 2023, the Company entered into letter agreements (the “Inducement Agreements”) with certain of the October Investors,
pursuant to which such October Investors agreed to reduce the conversion price of October Notes in an aggregate principal amount equal
to $
On May 17, 2023, the Company entered into Inducement
Agreements with the remaining October Investors, pursuant to which such October Investors agreed to reduce the conversion price of October
Notes in an aggregate principal amount equal to $
The Company elected to account for the October
Notes under the fair value option. For the Inducement Agreements that were entered into as described in Note 2, the Company accounted
for the change in the terms through the fair value adjustment of $
22
2023 Note
On February 3, 2023, upon drawing down on the
Line of Credit, the Company issued its 2023 Note totaling $
On April 14, 2023, the Company entered into
a First Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note
balance until May 1, 2023 in exchange for
On May 1, 2023, the Company entered into a Second
Amendment to the 2023 Note with the lender, pursuant to which the lender agreed
to extend the
On May 15, 2023, the Company entered into a
Third Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note
until June 7, 2023 in exchange for
On May 16, 2023, the Company made a second
draw of $
On May 26, 2023, the Company made a third draw
of $
On May 26, 2023, the Company entered into
that certain Fourth Amendment to the 2023 Note with the lender, pursuant to which the Company will issue to Holder a convertible
promissory note in the principal amount of $
On June 13, 2023, the Company partially
redeemed the principal of the 2023 Note and fully redeemed the principal of the 2nd 2023 Note and the 3rd 2023
Notes in addition to all accrued interest and commitment fees owing for approximately $
On June 30, 2023, the Company and the LOC Lender
agreed to amend the 2nd 2023 Note and the 3rd 2023 Note to extend the
23
Senior Secured Notes
On January 3, 2023, the Company issued senior
secured notes with a principal balance of approximately $
On May 8, 2023, the Company entered into a letter
agreement (the “Extension Letter”) with the lead noteholder and collateral agent for the January Notes (the “Agent”),
pursuant to which we agreed to issue an aggregate of
On May 15, 2023, the Agent agreed to grant us
an additional extension of the maturity date thereof until May 23, 2023 in exchange for the issuance by us to the holders of January Notes,
on a pro rata basis, of
Subsequently, on May 23, 2023, the Agent agreed
to grant us an extension of the maturity date thereof until May 31, 2023 in exchange for the issuance by us to the January Investors,
on a pro rata basis, of
Thereafter, on May 31, 2023, the Agent for the
January Notes agreed to grant us an extension of the maturity date thereof until June 12, 2023 in exchange for the issuance by us to the
January Investors, on a pro rata basis, of
With the completion of the Extension Letter and
additional extensions, the Company concluded that a troubled debt restructuring did not occur, but an extinguishment
of the outstanding senior secured notes occurred. Subsequent to the extinguishment, the Company concluded to account for the senior secured
notes using the fair value option. The Company recorded an extinguishment loss of $
On June 4, 2023, $
On June 30, 2023, the Company and the
remaining January Investors agreed to extend the maturity date of the January Notes until July 31, 2023, in exchange for
The secured notes and warrants were not registered under the Securities Act of 1933, as amended (the “Securities Act”) or the securities laws of any state and were offered and sold in reliance upon the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. The Investors are “accredited investors” as such term is defined in Regulation D promulgated under the Securities Act.
Note 12 – Stockholders’ Equity
Preferred Stock
As of June 30, 2023 and December 31, 2022, there
were
Series A Preferred Sock
As of June 30, 2023 and December 31, 2022,
Series B Preferred Stock
As of June 30, 2023 and December 31, 2022,
Series C Preferred Stock
As of June 30, 2023 and December 31, 2022,
24
Series D Preferred Stock
On July 8, 2022, the Company’s Board of
Directors authorized
In July 2022, the Company issued
In connection with the issuance of the
The Company entered into a Registration Rights
Agreement (“RRA”) with the holders of the Series D preferred stock, whereby the Company was to use its best efforts to file
a registration statement registering the resale of the shares of common stock issuable upon conversion of the Series D preferred stock
and upon exercise of the warrants within thirty (30) calendar days following the closing of the Series D preferred stock offering. The
Company was to use its best efforts to have the registration statement declared “effective” within ninety (90) calendar days
from closing, or one hundred and twenty (120) from closing in the event the registration statement is reviewed by the SEC. If the Company
fails to meet these requirements, the RRA states that the Company shall pay to each holder an amount in cash, as partial liquidated damages
and not as a penalty, equal to the product of
Using the guidance provided by ASC 825-20 Financial Instruments, the Company determined that the RRA should be accounted for as a separate unit of account from the Series D preferred stock. Accordingly, under ASC 825-20, a financial instrument that is both within the scope of ASC 825-20 and subject to a registration payment arrangement shall be recognized and measured in accordance with ASC 825-20 without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement.
The RRA called for the Company to file a registration
statement by August 25, 2022 and declare it effective within 90 days of July 26, 2022. The Company filed its registration statement on
November 17, 2022, and the holders of the Series D preferred stock waived the related registration rights penalty of approximately $
The Series D preferred stock and warrants sold were not registered under the Securities Act of 1933, as amended (the “Securities Act”) or the securities laws of any state and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. The holders of Series D preferred stock are “accredited investors” as such term is defined in Regulation D promulgated under the Securities Act.
During the six months ended June 30, 2023, the
Company filed the first amendment to its Series D preferred stock, which modifies the conversion price of the Series D preferred stock
from $
25
Series E Preferred Stock
On February 1, 2023, the Company’s Board
of Directors authorized
Holders of Series E preferred stock are prohibited
from converting shares of Series E preferred stock into shares of common stock if, as a result of such conversion, such holder, together
with its affiliates, would beneficially own more than a specified percentage (to be initially set at
On February 2, 2023, in connection with its Line
of Credit, the Company issued
As of June 30, 2023, following Series E conversions,
Series F Preferred Stock
On June 4, 2023, the Company entered into
Exchange Agreements: (i) with the October Investors for the exchange of October Notes in the aggregate principal amount of $
In addition, in connection with the Exchange Agreements, the Company issued new five-year warrants to purchase an aggregate of