Basis of Presentation and Significant Accounting Policies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies Basis of Presentation
The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for financial information and with the instructions to Form 10-K and Article 10 of Regulation S-X. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions among consolidated entities were eliminated upon consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Accounting estimates and assumptions are inherently uncertain. Management bases its estimates and assumptions on current facts, historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ materially and adversely from these estimates. Significant estimates and
assumptions made in the accompanying consolidated financial statements include, but are not limited to, cost-to-cost (input) revenue recognition method, fair value of warrant issuances, allowance for expected credit losses, useful lives and recoverability of long-lived assets, valuation of deferred tax assets, accrued insurance, stock-based compensation and operating lease right-of-use assets and liabilities.
Reclassifications
Certain reclassifications have been made to the consolidated statement of cash flows for the year ended December 31, 2023 for consistency with the presentation of the consolidated statement of cash flows for the year ended December 31, 2024. Certain amounts in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2023 have been reclassified to conform to current year presentation. There was no effect on the Company's financial position, net loss or stockholders' equity as of December 31, 2024 and 2023.
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, as well as Israel and Hamas. 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Concentrations of Risk and Significant Customers and Vendors
The Company maintains its cash accounts with financial institutions, ensuring all deposits remain fully protected by utilizing insured cash sweep accounts. As a result, no cash balances exceed the Federal Deposit Insurance Corporation limits, providing complete coverage and safeguarding the Company's funds through December 31, 2024.
The Company’s customers are generally large public or private companies with good credit and payment practices and a positive reputation in the industry at the time that the contracts are entered into. Furthermore, because it has the ability to stop transferring promised goods and services if payment is not received, the Company has concluded that collection risk is minimal.
Three customers accounted for 83% of the consolidated accounts and retention receivables as of December 31, 2024. The Company's accounts and retention receivables are related to the Fiber Optics, Slant Wells, and Element 82 operating segments with the following concentration: Customer A at 35%, Customer B at 27%, and Customer C at 21%. Accounts and retention receivables were not significant as of December 31, 2023.
The Company’s revenue is generated from its Fiber Optics, Slant Wells, and Element 82 operating segments. Three customers of Fiber Optics and Slant Wells accounted for approximately 75% of the consolidated revenue for the year ended December 31, 2024, with the following breakdown: Customer D at 32%, Customer C at 23%, and Customer A at 20%. Revenue was not significant for the year ended December 31, 2023.
For the year ended December 31, 2024, the Company’s vendor purchases primarily included costs associated with professional fees, subcontractor labor, equipment purchases and leases, and purchases of other supplies and materials. Any disruptions in the Company’s vendor relationships could have a material adverse effect on the Company’s business, results of operations and financial condition. Two vendors of Fiber Optics accounted for approximately 66% of the consolidated accounts payable and accounts payable - related party balances as of December 31, 2024, with the following breakdown: Horizon HDD, LLC ("Horizon HDD") at 51% (See Note 14 - Related Party Transactions) and Vendor A at 15%. For the year ended December 31, 2024, the costs incurred with Horizon HDD accounted for 26% of the consolidated cost of revenue and cost of revenue - related party. There were no significant vendor concentrations as of and for the year ended December 31, 2023.
Allowance for Expected Credit Losses
The allowance for expected credit losses is based on the Company’s assessment of the collectibility of its customer accounts and retention receivables, contract assets and note receivables, all of which fall within the scope of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 326, Financial Instruments - Credit Losses. In estimating the allowance for expected credit losses, the Company considers factors such as historical experience, industry data, credit quality, age of balances, and current economic conditions that may affect a customer’s ability to pay. The Company records an allowance for expected credit losses, when appropriate, using these factors along with reasonable supportable forecasts. The Company regularly assesses the state of its billings in order to identify issues, which may impact the collectability of these receivables or reserve estimates. Uncollectible amounts are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered. Actual write-offs may be in excess of the Company’s estimated allowance. The Company’s allowance for expected credit losses was $4,000 and zero as of December 31, 2024 and 2023, respectively. The Company has incurred nominal credit loss expense to date.
Property and Equipment, Net
Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, generally to ten years. Upon retirement or sale, the cost of the assets disposed of and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss. Repair and maintenance expenditures, which are not considered improvements and do not extend the useful life of an asset, are expensed as incurred.
Definite-lived Intangible Assets
Intangible assets with finite lives are comprised of patents and licenses for developed technology, which are amortized on a straight-line basis over their expected useful lives, which is their contractual term or estimated useful life. Patents consist of filing and legal fees incurred, which are initially recorded at cost.
Impairment of Long-lived Assets
The Company reviews long-lived assets (including property and equipment, lease related right-of-use assets, and definite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability of assets is determined by first grouping the long-lived assets at the lowest level for which there are identifiable cash flows, and then comparing the carrying value of each asset group to its forecasted undiscounted cash flows. If the evaluation of the forecasted cash flows indicates that the carrying value of an asset group is not recoverable, an impairment measurement of the asset group is performed. Impairment is recognized if the carrying amount of the asset group exceeds its fair value. Any impairment loss is allocated to the long-lived assets of the asset group on a pro rata basis using the relative carrying amounts of those assets, except that the carrying amount of an individual long-lived asset cannot be reduced below its fair value. For the year ended December 31, 2024, the Company did not record any impairment related to intangible assets. For the year ended December 31, 2023, the Company recorded an impairment of intangible assets of $0.2 million related to the acquisition of Amerigen 7.
Fair Value Measurement
The Company follows the accounting guidance in ASC 820, Fair Value Measurement, for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company did not have significant assets or liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023.
Warrants
The Company estimates the fair value of certain common stock warrants issued both before and after June 30, 2024, using the Black-Scholes option pricing model. This model requires management to make significant estimates and assumptions, including the expected volatility of the Company’s stock price, the expected term of the warrants, the risk-free interest rate, and expected dividends.
Common Stock Warrants Issued Before June 30, 2024:
These warrants are classified as liabilities as their settlement terms preclude equity classification. The warrants were recorded at fair value upon issuance and are subsequently remeasured at fair value at each balance sheet date, with changes in fair value recognized within other expense, net in the Company’s consolidated statements of operations and comprehensive loss.
The change in fair value of warrant liabilities was zero and $10.5 million for the years ended December 31, 2024 and 2023, respectively. The fair value of warrant liabilities was insignificant as of December 31, 2024 and 2023.
Common Stock Warrants Issued After June 30, 2024:
Warrants issued after June 30, 2024 have been classified within stockholders' equity as they meet the criteria for equity classification. Specifically, these warrants are indexed to the Company’s common stock and do not contain settlement provisions that would preclude them from equity classification. Upon issuance, the fair value of these equity-classified warrants was recorded in additional paid-in capital with no subsequent remeasurement required.
The following key assumptions were used in the Black-Scholes model to estimate fair value:
•Volatility: Based on historical volatility of comparable companies
•Expected Term: Estimated based on the contractual term of the warrants
•Risk-Free Interest Rate: Based on U.S. Treasury yields at the time of issuance
•Dividend Yield: Assumed to be zero, as the Company does not expect to pay dividends
The Company had 45,000 warrants to purchase shares of its Series E preferred stock. The warrants had nominal value as of December 31, 2024 and 2023.
Revenue Recognition
The Company generates revenue primarily through the four revenue streams described below which together, represent four operating segments; the Fiber Optics division, the Slant Wells group, Element 82, and the Smart Windows division. The Slant Wells group and Element 82, while reported as separate operating segments, are part of the Company's newly formed "Water Solutions" division.
The Fiber Optics division's specialty services are performed for communications providers in connection with the deployment of underground fiber optic transmission lines and include the upfront procurement of specialized equipment that will be used to provide the services.
The Slant Wells group's specialty services involves the construction of “slant wells” providing water for desalination plants and include the upfront procurement of specialized equipment that will be used to provide the services.
Element 82 helps water utility companies meet all Environmental Protection Agency compliance requirements by identifying lead pipes in residential, commercial and municipal water line systems. Their specialty services include the upfront procurement of specialized equipment that will be used to provide the services.
The Smart Windows division produces, sells and installs products referred to as the Smart Window Inserts, using DynamicTint Electrokinetic Technology that allows windows to tint and transition from clear to true black.
Together, these revenue sources support the Company’s diversified income model across its core operating segments.
The Company generally charges for its services on a fixed fee basis. The scheduled amounts are set at contract inception and do not vary over the contract term, which typically lasts less than one year. The Company recognizes revenue upon 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 promised goods or services. The Company applies the following five-step revenue recognition model in accounting for its revenue arrangements:
•Identification of the contract with the customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when, or as, the Company satisfies a performance obligation.
The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when the time between the goods or service being transferred to the customer and the customer pays is one year or less.
Fiber Optics Division Revenue Recognition
The nature of the Company’s Fiber Optics division's performance in its agreements is to customize outputs by constructing infrastructure that is customer specific. The Company is required to adhere to the rules and regulations that are outlined in an agreement between the Company and the customer. As a result, the Fiber Optic division's contracts prevent the Company from directing the use of such output to any other entity except the specific customer. The customer is the only party that can benefit from the output that results from the Company’s performance of specialty services under the contract.
As such, the Company’s performance does not create an asset with an alternative use and the Company has concluded that the specialty services are recognized over time.
In accordance with ASC 606, Revenue from Contracts with Customers, the Company meets the criteria for recognizing revenue over time because it maintains an enforceable right to bill the customer for performance completed to date as the services are rendered. This right to bill is consistent with the Company's obligation to provide continuous access to the project, reflecting progress toward completion that is aligned with customer specifications.
To measure the progress of completion, the Company uses a cost-to-cost (input) method, by comparing costs incurred to date relative to the total expected costs to satisfy the performance obligation. When applying this method, the Company excludes the effects of any costs that do not depict its performance in transferring control of goods or services to the customer. Additionally, the Company notes that the procurement performance obligation is not considered distinct and is therefore combined with other specialty services as part of a single performance obligation.
Slant Wells Group Revenue Recognition
The nature of the Company’s Slant Wells group's performance in its agreements is to customize output by constructing slant wells that are customer specific. The Company is required to adhere to the rules and regulations that are outlined in an agreement between the Company and the customer. As a result, the slant well contracts prevent the Company from directing the use of such output to any other entity except the specific customer. The customer is the only party that can benefit from the output that results from the Company’s performance of the services under the contract. As such, the
Company’s performance does not create an asset with an alternative use and the Company has concluded that the services are recognized over time.
The Company maintains an enforceable right to bill the customer for performance completed to date. This right to bill reflects the progress toward fulfilling the contract and confirms that the Company’s services are being rendered continuously, with the customer receiving benefits from the ongoing completion of the customized slant well.
To measure the progress of completion, the Company uses a cost-to-cost (input) method, by comparing costs incurred to date relative to the total expected costs to satisfy the performance obligation. The Company notes that when applying this method, it excludes the effects of any costs that do not depict its performance in transferring control of goods or services to the customer.
Element 82 Revenue Recognition
The Company performs water service line lead pipe inspection and investigation services at customer locations pursuant to the contracts. These fulfillment services which constitute a series of distinct performance obligations recognized over time, culminate in comprehensive lead pipe inspection reports which the Company is required to provide to its customers. Revenue is recognized as units are delivered (output method), reflecting the delivery of inspection report units as a percentage of the total units agreed upon in each contract.
The Company procures equipment essential for fulfilling these services. The costs associated with equipment procurement are capitalized when they meet the criteria for capitalization and are amortized over the period in which the related performance obligations are satisfied.
Smart Windows Division Revenue Recognition
The Company’s Smart Windows division has not entered into any material revenue contracts or purchase orders with its customers and no revenue was recognized for this operating segment for the years ended December 31, 2024 and 2023.
Segment Reporting
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. Operating segments are aggregated into a reportable segment if the operating segments have similar quantitative economic characteristics and if the operating segments are similar in the following qualitative characteristics: (i) nature of products and services; (ii) nature of production processes; (iii) type or class of customer for their products and services; (iv) methods used to distribute the products or provide services; and (v) if applicable, the nature of the regulatory environment. The Company has not aggregated operating segments based on similarity in economic characteristics, other qualitative factors and the objectives and principals of ASC 280, Segment Reporting.
Retention Receivables
The Company’s Fiber Optics customers have a contractual right to withhold payment of a retainage amount that typically ranges between 5% to 10% of the total contract consideration. The retainage can be utilized by customers for any claims that may arise after work is completed through one year after project completion. The retainage amount is expected to be collected upon the project's completion and acceptance by the customer. As of December 31, 2024 and 2023, the Company has recorded retainage receivables of $0.3 million and $10,500, respectively, which is a component of the accounts and retention receivables balance in the consolidated balance sheets.
Contract Assets
The Company records contract assets for revenue recognized in excess of billings, representing amounts due from customers where revenue has been recognized based on the satisfaction of performance obligations but for which billing has not yet occurred. Contract assets, including unbilled receivables, are recorded when the Company has an enforceable right to payment, and are subsequently reclassified to accounts and retention receivables when the right to bill the customer arises.
As of December 31, 2024, the Company's contract assets included unbilled receivables totaling $2.1 million, compared to zero as of December 31, 2023.
The following table provides a rollforward of the contract assets activity for the year ended December 31, 2024 (in thousands):
Deferred Revenue and Contract Liabilities
The Company records deferred revenue as contract liabilities when it receives payments from customers in advance of performing the contracted services or delivering goods. Deferred revenue is recognized as revenue in the period when the services are performed or the goods are delivered, satisfying the Company's obligations under the contract terms. In instances where significant judgments are required to estimate completion, management reviews and adjusts deferred revenue balances periodically to reflect performance progress accurately.
In instances where anticipated costs to complete a contract are expected to exceed the contract’s total revenue, the Company recognizes an estimated loss on the contract. This estimated loss is accrued as a liability and recognized in full in the period the loss is identified, ensuring the contract assets and liabilities accurately represent the Company’s financial position. As of December 31, 2024 and 2023, the estimated accrued loss on contracts was $0.2 million and zero, respectively, included in the accrued project costs, which is a component of the accrued expenses and other current liabilities in the consolidated balance sheets.
As of December 31, 2024 and 2023, the Company did not have any contract liability balances.
The following table provides a rollforward of the contract liabilities activity for the year ended December 31, 2024 (in thousands):
Revisions in Estimates
Profit recognition related to the Fiber Optics division and Slant Wells group’s contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate.
When there are significant revisions in these estimates, the Company’s management reviews the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally the cumulative catch-up method is used for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change.
Research and Development
Research and development costs, including in-process research and development acquired as part of an asset acquisition for which there is no alternative future use, is expensed as incurred. Advance payments for goods and services that will be
used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Deferred Issuance Costs
The Company accounts for issuance costs related to its line of credit and equity line of credit as a deferred asset on the consolidated balance sheets, which is amortized over the life of the line of credit and equity line of credit. Since the Company has elected the fair value option for its convertible notes, upon a draw down, a portion of the deferred asset balance will be amortized and recognized as other income (expense), net on the consolidated statements of operations and comprehensive loss.
Stock-Based Compensation
The Company expenses stock-based compensation to employees and non-employees based on a graded expense attribution over the requisite service period based on the estimated grant-date fair value of the awards. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
•Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. The simplified method was used because the Company does not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.
•Expected Volatility - The Company estimates its expected stock volatility based on the trading history from the common stock of a set of comparable publicly traded companies.
•Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
•Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
The Company accounts for forfeited awards as they occur.
Income taxes
Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
ASC 740, Income Taxes, also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740, Income Taxes, also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheets as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term.
In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842, Leases. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Comprehensive Loss
Comprehensive loss is comprised of two components: net income (loss) and other comprehensive income (loss). Other comprehensive (loss) income refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net loss. The Company did not record any transactions within other comprehensive income (loss) in the periods presented and, therefore, the net loss and comprehensive loss were the same for all periods presented.
Shareholder Receivables
Shareholder receivables represent amounts due from shareholders. The Company records stock issuances at the settlement date. If the amounts are not funded upon issuance, the Company records a shareholder receivable as an asset on the consolidated balance sheets, if the shareholder receivables are received within a reasonably short period of time. When shareholder receivables are not received prior to the issuance of the consolidated financial statements in satisfaction of the requirements under ASC 505, Equity, the shareholder receivable is reclassified as a contra account to stockholders’ equity on the consolidated balance sheets.
Equity Line of Credit
Issuance costs incurred in connection with the Company’s equity issuances, which primarily consist of direct incremental legal, printing, listing and sales agent fees, are offset against proceeds received in the issuances and charged to additional paid-in capital in the period the equity issuance is completed. Specific incremental costs directly attributable to a proposed or actual offering of securities are deferred and charged against the gross proceeds of the offering.
Costs related to the Equity Line of Credit (“ELOC”) Purchase Agreement with Liqueous, LP ("Liqueous") were insignificant. During the year ended December 31, 2024, the Company incurred issuance costs related to shares issued under the ELOC with Liqueous, which were offset against the gross proceeds received.
Derivatives and Hedging
The Company evaluates all features contained in financing agreements to determine if there are any embedded derivatives that require separate accounting from the underlying agreement under ASC 815, Derivatives and Hedging. An embedded derivative that requires separation is accounted for as a separate liability or asset from the host agreement. The separated embedded derivative is accounted for at fair market value, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss under the fair value change in derivative liability line item. The Company determined that certain features under the Liqueous ELOC Purchase Agreements (See Note 6 — Stockholders’ Equity) qualified as an embedded derivative to be bifurcated and separately accounted for. The bifurcated derivative had a nominal value as of December 31, 2024.
Net Loss per Share Attributable to Common Stockholders
The Company calculates basic and diluted net loss per share attributable to common stockholders using the two-class method. The Company’s convertible Series A, B, C, and E Preferred Stock (collectively "Participating Preferred Stocks")
are entitled to participate in dividends on the common stock on an as-converted basis and are therefore considered to be participating securities.
Under the two-class method, net income, as adjusted for any accumulated dividends on preferred stocks for the period, is allocated to each class of common stock and participating security as if all of the net income for the period had been distributed. Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. During periods of loss, the Company allocates no net loss to participating securities because they have no contractual obligation to share in the losses of the Company. Basic net loss per share attributable to common stockholders is then calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. All participating securities are excluded from the basic weighted average common shares outstanding.
Diluted net loss per share attributable to common stockholders is based on the weighted average number of shares outstanding during the period, adjusted to include the assumed vesting of restricted stock units and exercise of certain stock options and warrants for common stock using the treasury method, if dilutive. The calculation assumes that any proceeds that could be obtained upon exercise of options and warrants would be used to purchase common stock at the average market price during the period. Adjustments to the denominator are required to reflect the related dilutive shares.
Emerging Growth Company
The Company was previously 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.
As of December 31, 2024, the Company ceased to qualify as an emerging growth company. The Company continues to qualify as a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act and thus will continue to be permitted to make certain reduced disclosures in this Annual Report on Form 10-K and other periodic reports.
Correction of Immaterial Errors in Previously Issued Financial Statements
In the course of preparing the consolidated financial statements for the year ended December 31, 2024, the Company identified the following errors in its previously issued consolidated financial statements.
•The Company identified an error of $0.8 million in the calculations of deemed dividends for the quarter ended June 30, 2024. This error had the effect of understating the deemed dividend in connection with conversion of Series A, Series B, and Series C preferred stock and net loss attributable to common stockholders in prior periods, which resulted in understatement of net loss per share in prior interim period condensed consolidated financial statements.
•The Company identified an error in the presentation of the 146,786 round-up shares (979 shares post the January 2025 Reverse Stock Split) issued in connection with the June 2024 Reverse Stock Split in the condensed consolidated statements of shareholders' equity for the six months ended June 30, 2024 and nine months ended September 30, 2024. This error had the effect of omitting the round-up shares in the condensed consolidated statement of shareholders' equity for the six months ended June 30, 2024, and overstating the beginning balance of common stock outstanding in the condensed consolidated statement of shareholders' equity for the nine months ended September 30, 2024 in prior interim period condensed consolidated financial statements.
•The Company identified an error related to Note 2 – Basis of Presentation and Significant Accounting Policies, Loss per Share Attributable to Common Stockholders to its prior periods interim and annual financial statements. This error had the effect of missing disclosure of the two-class method and the participating securities. There was no actual impact to the loss per share amounts calculated given the Company had net loss in all the prior periods.
•The Company identified an error in Note 17 – Segment Reporting to its consolidated financial statements as of and for the year ended December 31, 2023. Depreciation and amortization expenses were misclassified by segment, leading to an understatement for the Film segment by $0.2 million and an overstatement for the Fiber Optics
segment by the same amount. Additionally, a $0.2 million impairment of intangible assets for the Fiber Optics segment was omitted and the segment loss for the Corporate and Other was overstated by the same amount.
•The Company identified an error in the liquidation preference of Series F-2 preferred stock reported in its consolidated balance sheets as of December 31, 2023, as well as in its condensed consolidated balance sheets in subsequent periods (first and second quarter of 2024). The liquidation preference was overstated by $0.1 million.
•The Company identified an error in the treatment of prepaid rents under ASC 842, Leases. Various amounts up to $0.4 million were incorrectly classified among Prepaid and other current assets, Contract assets, Prepaid expenses - noncurrent and Right-of-use assets in the consolidated balance sheet as of December 31, 2023 and condensed consolidated balance sheets as of March 31, June 30 and September 30, 2024.
•The Company identified an error in presenting and disclosing related party transactions and balances as of and for the three and nine months ended September 30, 2024. This primarily resulted in the omission of disclosures about $1.5 million in accounts payable to a related party as of September 30, 2024, and $2.4 million and $3.0 million in costs of revenue attributable to a related party for the three and nine months ended September 30, 2024, respectively.
After considering the guidance in Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and ASC 250, Accounting Changes and Error Corrections, the Company evaluated the materiality of these amounts quantitatively and qualitatively and concluded that the errors were not material to any of the Company’s prior interim period condensed consolidated financial statements. As such the Company corrected the errors in the consolidated financial statements for the year ended December 31, 2024 and will prospectively revise the prior periods' consolidated financial statements in future filings as necessary.
Accounting Pronouncements Recently Adopted
In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an interim and annual basis. The Company adopted annual requirements under ASU 2023-07 on January 1, 2024 and adopted interim requirements under ASU 2023-07 on January 1, 2025. The Company began including financial statement disclosures in accordance with ASU 2023-07 in its Annual Report on Form 10-K for the year ended December 31, 2024, and applied the amendments in ASU 2023-07 retrospectively to all prior periods presented. Upon transition, the segment expense categories and amounts disclosed in the prior period have been adjusted to conform with the current year presentation. The Company concluded the adopted standard did not have a material impact on its consolidated financial statements and disclosures, other than providing the disclosure of incremental segment information as required under ASU 2023-07.
Recent Accounting Pronouncements Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission’s Disclosure Update and Simplification Initiative. ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 33-10532: Disclosure Update and Simplification into various topics within the ASC. ASU 2023-06’s amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. The amendments in ASU 2023-06 should be applied prospectively. Early adoption is prohibited. The Company does not expect the standard to have a material impact on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures, which requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses
at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company is currently evaluating the impact that the updated standard will have on its consolidated financial statement disclosures.
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