Note 14 – Subsequent Events

The Company has evaluated all subsequent events through the date of filing, March 31, 2023, of this Annual Report on Form 10-K with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the consolidated financial statements as of December 31, 2022, and events which occurred after December 31, 2022, but which were not recognized in the financial statements. The Company has determined that there were no subsequent events which required recognition, adjustment to or disclosure in the financial statements.

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 LLC (the “Asset Acquisition”), for cash consideration of approximately $0.65 million. The Asset Acquisition included approximately 12 employees, customer contracts, and certain operating liabilities. The Asset Acquisition will be accounted for as a business combination in accordance with Accounting Standards Codification 805, Business Combinations. 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.

Notes Payable

On January 19, 2023, the Company entered into a warrant inducement agreement with certain holders of the Notes, and issued 6.4 million warrants, with a fair value of $2.05 million, to purchase shares of the Company’s common stock.

On February 28, 2023, the Company entered into waiver agreements with the investors of the Notes issued in October 2022, which extended the maturity date of the Notes from October 18, 2023 until April 18, 2024. In connection with the waiver agreements, the Company issued 5,813,414 warrants to purchase shares of the Company’s common stock, which are exercisable at $0.32 per share and expire five years from the issuance date.

On January 3, 2023, the Company issued senior secured notes (the “2023 Notes”) with a principal balance of approximately $1.2 million and warrants to purchase 2,500,000 shares of the Company’s common stock for net proceeds of $0.8 million. The 2023 Notes were issued with an original issue discount of 20%, do not bear interest, and mature three months from the date of issuance (unless extended pursuant to the terms of the 2023 Notes). The warrants are exercisable for five years at an exercise price of $0.322, subject to adjustment under certain circumstances described in the warrants.

2023 Line of Credit

On February 2, 2023, the Company entered into a line of credit (the “Line of Credit”) securing a line of credit up to $100.0 million. The Line of Credit will be used to fund expenses related to the fulfillment of contracts with customers of the Company’s wholly-owned subsidiary, Crown Fiber Optics Corporation (See Note 1). The Line of Credit expires February 2, 2024, unless the Line of Credit is extended for one or two additional years in accordance with its terms. On February 2, 2023, the Company withdrew $2.0 million under the Line of Credit.

Upon drawing down on the Line of Credit, the Company will issue a Secured Promissory Note (“the Promissory Note”) which is due and payable 60 days from the issuance date. The Promissory Note is non-interest bearing and secured by the Company’s assets. The Promissory Note issued with the initial $2.0 million draw down is convertible into shares of the Company’s common stock, at a conversion price per share of $0.50 per share, subject to adjustment under certain circumstances described in the Promissory Note. Promissory Notes evidencing future withdrawals, if any, will be convertible into common stock only upon the declaration of an event of default under such Promissory Note.

As consideration for entering into the Line of Credit, the Company issued 5,000 shares of Series E preferred stock, and issued a warrant to purchase 45,000 shares of the Company’s Series E preferred stock. Additionally, 5,000 shares of Series E preferred stock will be issued on the first and second anniversary of the effective date of the Line of Credit. However, if the Company does not elect to extend the Line of Credit for an additional one or two years, the additional 5,000 shares of Series E preferred stock will be issued immediately.

The warrant to purchase 45,000 shares of the Company’s Series E preferred stock is exercisable for five years at an exercise price of the greater of $0.50 per share multiplied by 1,000, and subject to adjustment under certain circumstances described in the warrant.

Common Stock

Subsequent to December 31, 2022, in connection with its ATM Offering, the Company received net proceeds on sales of 12,700,100 shares of its common stock of approximately $2.11 million (after deducting $0.09 million in commissions and expenses) at a weighted average price of $0.189 per share. 

Subsequent to December 31, 2022, the Company issued 6,405,844 shares of its common stock in connection with the exercise of 6,405,844 warrants, receiving net proceeds of approximately $2.06 million at a weighted average price of $0.32 per share.

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 $1.30 to $0.50 per share.

On February 1, 2023, the Company’s Board of Directors authorized 77,000 shares of Series E preferred stock with a par value of $0.0001 per share, in connection with its 2023 Line of Credit. Each share of Series E Preferred Stock is convertible into 1,000 shares of the Company’s common stock at the option of the holders. The holders of the Series E preferred stock shall receive dividends on an as converted basis together with the holders of the Company’ common stock. The Series E preferred stock has no voting rights and does not have a preference upon any liquidation, dissolution or winding-up of the Company.

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 4.99% and thereafter adjusted by the holder to a number between 4.99% and 9.99%) of the total number of shares of common stock issued and outstanding immediately after giving effect to such conversion. In addition, in the event a conversion of Series E preferred stock would result in the holder owning more than 19.99% of the Company’s outstanding shares of common stock, the number of shares of common stock that may be issued upon such conversion of Series E preferred stock, shall be limited to 19.99% of the Company’s outstanding shares of common stock on that date, unless stockholder approval is obtained by the Company to issue a number of shares of common stock exceeding the limit.

Common Stock

On December 22, 2022, the Company’s stockholders approved a reverse stock split of its common stock at a ratio of not more than 1-for-15, such ratio to be determined by the Company’s Board of Directors on or prior to December 22, 2023.