QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which
registered
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None
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N/A
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N/A |
Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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Page
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PART I – FINANCIAL INFORMATION
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Item 1.
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4 |
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4 |
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5 |
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6 |
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8 |
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9 |
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Item 2.
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18 |
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Item 3.
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23 |
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Item 4.
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23 |
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PART II – OTHER INFORMATION
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Item 1.
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24 |
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Item 1A.
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24 |
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Item 2.
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25 |
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Item 3.
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26 |
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Item 4.
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26 |
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Item 5.
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26 |
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Item 6.
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26 |
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28 |
September 30, 2023
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December 31, 2022
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|||||||
ASSETS
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||||||||
Current Assets:
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||||||||
Cash
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$
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$
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||||
Accounts receivable, net of allowance of $
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Inventory
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Prepaid expenses and other current assets
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Total Current Assets
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Property, equipment and other, net
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Intangible assets, net
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Goodwill
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Total Non-current Assets | ||||||||
Total Assets
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$
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$
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LIABILITIES
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Current Liabilities:
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||||||||
Senior secured debt, in default
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$
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$
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||||
Convertible promissory notes payable
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||||||||
Convertible promissory notes payable, related parties
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||||||||
Asset-backed secured promissory notes
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||||||||
Asset-backed secured promissory notes, related parties
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Accounts payable
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Accrued expenses
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Factoring liabilities
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Warrant liability
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Accrued interest
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Accrued interest, related parties
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Current portion of contract liabilities
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Other
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Total Current Liabilities
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Non-current Liabilities
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Lease liabilities
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Contract liabilities
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Deferred tax liability
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Total Non-currrent Liabilities
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Total Liabilities
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$
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$
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||||
Commitments and Contingencies (Footnote 13)
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||||||||
STOCKHOLDERS’ DEFICIT
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||||||||
Preferred Stock, par value $
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$
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$
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||||
Common stock, par value $
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||||||
Additional paid-in capital
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Accumulated deficit
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(
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)
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(
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)
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||||
Accumulated other comprehensive loss
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(
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)
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(
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)
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||||
Total Stockholders’ Deficit
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(
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)
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(
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)
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||||
Total Liabilities and Stockholders’ Deficit
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$
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$
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Three Months Ended September 30,
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Nine Months Ended September 30,
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|||||||||||||||
2023
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2022
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2023
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2022
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|||||||||||||
Revenue
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$
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$
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$
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$
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||||||||
Cost of Revenues
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||||||||||||
Gross Margin
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Operating Expenses:
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General and administrative
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Selling and marketing
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Research and development
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Depreciation and amortization
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Total Operating Expenses
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Operating Loss
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
Other (Expense)/Income:
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Interest expense
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
Interest expense, related party
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( |
) | ( |
) | ( |
) | ( |
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Change in fair value of derivative liabilities
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(
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)
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(
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)
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||||||||||
Loss on issuance of debt
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(
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)
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Loss on extinguishment of debt
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( |
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Other (expense) income
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( |
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Total Other (Expense)/Income
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(
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)
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(
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)
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||||||||||
Net Loss before Income Taxes
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
Provision for Income Taxes
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||||||||||||
Net Loss
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
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||||||||||||||||
Other Comprehensive Loss |
||||||||||||||||
Foreign currency translation adjustments
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(
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)
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Total Comprehensive Loss
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$
|
(
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)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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||||
Loss per Share:
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||||||||||||||||
Basic and diluted
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$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Weighted average shares outstanding |
||||||||||||||||
Basic and diluted
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Three Months Ended September 30, 2023
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||||||||||||||||||||||||
Common Stock
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||||||||||||||||||||||||
Number of
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Accumulated
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|||||||||||||||||||||||
Shares
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Other | |||||||||||||||||||||||
Issued and
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Additional Paid-
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Accumulated
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Comprehensive | |||||||||||||||||||||
Outstanding
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Par Value
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in Capital
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Deficit | Loss | Total |
|||||||||||||||||||
Balances as of June 30, 2023
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$
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$
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$
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(
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)
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$
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(
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)
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$
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(
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)
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||||||||||
Shares issued for settlement of debt
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Net loss
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-
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(
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)
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(
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)
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||||||||||||||||
Foreign currency translation adjustment | - | |||||||||||||||||||||||
Balances as of September 30, 2023
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$
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$
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$
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(
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)
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$
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(
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)
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$
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(
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)
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Three Months Ended September 30, 2022
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||||||||||||||||||||||||
Common Stock
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||||||||||||||||||||||||
Number of
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Accumulated
|
|||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and
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Additional Paid-
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Accumulated
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Comprehensive | |||||||||||||||||||||
Outstanding |
Par Value
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in Capital
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Deficit | Loss | Total | |||||||||||||||||||
Balances as of June 30, 2022
|
|
$
|
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$
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|
$
|
(
|
)
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$
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(
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)
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$
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(
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)
|
||||||||||
Shares issued for settlement of debt and warrants
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||||||||||||||||||||||||
Net loss
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-
|
|
|
(
|
)
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|
(
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)
|
||||||||||||||||
Balances as of September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
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)
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$
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(
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)
|
Nine Months Ended September 30, 2023
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||||||||||||||||||||||||
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Common Stock
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|||||||||||||||||||||||
Number of | Accumulated | |||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and | Additional Paid- | Accumulated |
Comprehensive
|
|||||||||||||||||||||
Outstanding |
Par Value |
in Capital | Deficit | Loss | Total |
|||||||||||||||||||
|
||||||||||||||||||||||||
Balances as of December 31, 2022
|
|
$
|
|
$
|
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$
|
(
|
)
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$
|
(
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)
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$
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(
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)
|
||||||||||
Shares issued for services
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||||||||||||||||||
Shares issued for settlement of debt
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||||||||||||||||||||||||
Net loss
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-
|
( |
) | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
||||||||||||||||||||||||
Balances as of September 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Nine Months Ended September 30, 2022
|
||||||||||||||||||||||||
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Common Stock
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|||||||||||||||||||||||
Number of | Accumulated | |||||||||||||||||||||||
Shares | Other | |||||||||||||||||||||||
Issued and | Additional Paid- | Accumulated | Comprehensive | |||||||||||||||||||||
Outstanding | Par Value | in Capital | Deficit | Loss | Total | |||||||||||||||||||
|
||||||||||||||||||||||||
Balances as of December 31, 2021
|
|
$
|
|
$
|
|
$
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(
|
)
|
$
|
(
|
)
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$
|
(
|
)
|
||||||||||
Cashless warrant exercise
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|
||||||||||||||||||
Warrant exercise
|
||||||||||||||||||||||||
Shares issued in conjunction with Note Payable
|
||||||||||||||||||||||||
Shares issued for settlement of debt and warrants
|
||||||||||||||||||||||||
Shsares issued for services
|
||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
|
||||||||||||||||||
|
||||||||||||||||||||||||
Balances as of September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Nine Months Ended September 30,
|
||||||||
2023
|
2022
|
|||||||
Cash Flows - Operating Activities:
|
||||||||
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Adjustments to reconcile net loss to net cash used by operating activities
|
||||||||
Depreciation and amortization
|
|
|
||||||
Bad debt expense
|
|
|
||||||
Shares issued for services
|
||||||||
Change in fair value of derivative liabilities
|
(
|
)
|
||||||
Loss on extinguishment of debt
|
||||||||
Loss on issuance of debt
|
||||||||
Amortization of debt issuance costs and original issue discount
|
|
|
||||||
Accrued interest
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|
|
||||||
Gain on sale of property and equipment, net
|
||||||||
Changes in operating assets and liabilities
|
||||||||
Accounts receivable - trade
|
|
|
||||||
Inventory
|
(
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)
|
|
|||||
Prepaid expenses and other assets
|
(
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)
|
(
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)
|
||||
Accounts payable
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(
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)
|
|||||
Accrued expenses
|
(
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)
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(
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)
|
||||
Contract liabilities
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(
|
)
|
|||||
Net Cash Used in Operating Activities
|
(
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)
|
(
|
)
|
||||
Cash Flows - Investing Activities
|
||||||||
Proceeds from sale of property and equipment
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||||||
Purchase of property and equipment
|
( |
) | ||||||
Net Cash Flows (Used in)/Provided by Investing Activities
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(
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)
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Cash Flows - Financing Activities
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Proceeds from senior promissory notes
|
||||||||
Proceeds from convertible promissory notes payable
|
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Proceeds from bridge notes payable
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Payments
to factoring agent, net
|
( |
) | ( |
) | ||||
Proceeds from warrant exercises
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|
||||||
Payments of principal on finance leases
|
(
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)
|
(
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)
|
||||
Payments of principal on convertible promissory notes and SBA loans
|
( |
) | ||||||
Net Cash Flows Provided by Financing Activities
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|
||||||
Effect of Exchange Rates on Cash
|
(
|
)
|
(
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)
|
||||
Net Change in Cash During Period |
(
|
)
|
|
|||||
Cash at Beginning of Period
|
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|
||||||
Cash at End of Period
|
$
|
|
$
|
|
||||
Supplemental Information:
|
||||||||
Cash paid for interest
|
$
|
|
$
|
|
||||
Non-cash Investing and Financing Activities:
|
||||||||
Warrants issued in conjunction with senior secured promissory note payable and convertible promissory notes payable
|
$ | $ | ||||||
Conversion of convertible notes payable to common stock
|
||||||||
Common shares issued for advisory shares
|
||||||||
Embedded conversion feature on convertible promissory notes payable and bridge notes payable
|
( |
) | ||||||
Reclassification of warrant liability due to cashless warrant exercise
|
||||||||
Working capital balances refinanced into convertible notes payable
|
||||||||
Settlement of debt and warrants with stock
|
||||||||
Common shares issued in conjunction with senior secured promissory note payable
|
1.
|
Nature of the Business and Basis of Presentation
|
2. |
Going Concern
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3. |
Summary of Significant Accounting Policies
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4. |
Merger Agreement
|
• |
Merger Sub will merge with and into
the Company, with the Company being the surviving company following the merger.
|
• |
Each issued and outstanding share of
the Company’s common stock, will automatically be converted into Class A common stock of SEPA, par value $
|
• |
Outstanding convertible securities
of the Company will be assumed by SEPA and will be converted into the right to receive Class A Common Stock of SEPA.
|
5. |
Loss per Share
|
Three Months Ended
|
Nine Months Ended | |||||||||||||||
(in Thousands) |
September 30, 2023
|
September 30, 2022
|
September 30, 2023 |
September 30, 2022
|
||||||||||||
Weighted average shares outstanding
|
||||||||||||||||
Common shares
|
|
|
||||||||||||||
Common shares issuable assuming exercise of nominally priced warrants
|
|
|
||||||||||||||
Weighted average shares outstanding
|
|
|
Nine Months Ended | ||||||||
(in Thousands) |
September 30, 2023
|
September 30, 2022
|
||||||
Common stock options
|
|
|
||||||
Common stock purchase warrants
|
|
|
||||||
Convertible notes payable
|
|
|
||||||
|
|
6. |
Accrued Expenses
|
(in Thousands)
|
September 30, 2023
|
December 31, 2022
|
||||||
Registration penalties
|
$
|
|
$
|
|
||||
License fees
|
|
|
||||||
Director and professional fees |
|
|
||||||
Employee compensation |
||||||||
Other
|
|
|
||||||
|
$
|
|
$
|
|
7. |
Senior Secured Debt, In Default
|
September 30,
2023
|
December 31, 2022
|
|||||||||||||||||||||||||||||||
(in thousands)
|
Principal
|
Debt Discount
|
Carrying Value
|
Accrued Interest
|
Principal
|
Debt Discount
|
Carrying Value
|
Accrued Interest
|
||||||||||||||||||||||||
Senior secured debt
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
8. |
Convertible Promissory Notes Payable
|
|
As of September 30, 2023
|
|||||||||||||||||||
(In thousands, except conversion price)
|
Conversion
Price
|
Principal
|
Remaining
Debt Discount
|
Remaining
Embedded
Conversion
Option
|
Carrying Value
|
|||||||||||||||
Acquisition convertible promissory note, in default
|
$
|
|
|
|
|
|
||||||||||||||
Convertible promissory notes payable, related parties, in default
|
$
|
|
|
|
|
|
||||||||||||||
2022 convertible notes payable
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
2022 convertible notes payable, related parties
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
Total Convertible Promissory Notes Payable
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|
As of December 31, 2022
|
|||||||||||||||||||
(In thousands, except conversion price)
|
Conversion
Price
|
Principal
|
Remaining
Debt Discount
|
Remaining
Embedded
Conversion
Option
|
Carrying
Value
|
|||||||||||||||
Acquisition convertible promissory note, in default
|
$
|
|
|
|
|
|
||||||||||||||
Convertible promissory note, related party, in default
|
$
|
|
|
|
|
|
||||||||||||||
2022 convertible notes payable
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
2022 convertible notes payable, related parties
|
$
|
|
|
(
|
)
|
|
|
|||||||||||||
Total Convertible Promissory Notes Payable
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
9. |
Asset-Backed Secured Promissory Notes
|