NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Ascent Solar Technologies, Inc. (“Ascent”) was incorporated on October 18, 2005 from the separation by ITN Energy Systems, Inc. (“ITN”) of its Advanced Photovoltaic Division and all of that division’s key personnel, core technologies, and certain trade secrets and royalty free licenses to use in connection with the manufacturing, developing marketing, and commercializing Copper-Indium-Gallium-diSelenide (“CIGS”) photovoltaic (“PV”) products. ITN, a private company incorporated in 1994, is an incubator dedicated to the development of thin film, PV, battery, fuel cell and nano technologies. Through its work on research and development contracts for private and governmental entities, ITN developed proprietary processing and manufacturing know how applicable to PV products generally, and CIGS PV products in particular. ITN formed Ascent to commercialize its investment in CIGS PV technologies.
Currently, the Company is focusing on integrating its PV products into high value markets such as aerospace, satellites, near earth orbiting vehicles, and fixed wing unmanned aerial vehicles (“UAV”). The value proposition of Ascent’s proprietary solar technology not only aligns with the needs of customers in these industries, but also overcomes many of the obstacles other solar technologies face in these unique markets. Ascent has the capability to design and develop finished products for end users in these areas as well as collaborate with strategic partners to design and develop custom integrated solutions for products like fixed-wing UAVs. Ascent sees significant overlap of the needs of end users across some of these industries and can achieve economies of scale in sourcing, development, and production in commercializing products for these customers.
On September 15, 2021, the Company entered into the Joint Development Agreement (“JDA”) with TubeSolar, a significant existing stakeholder in the Company. Under the terms of the JDA, the Company will produce, and TubeSolar will purchase, thin-film PV foils (“PV Foils”) for use in TubeSolar’s solar modules for APV applications that require solar foils for its production. Under the JDA, the Company will receive up (i) to $4 million of NRE fees, (ii) up to $13.5 million of payments upon achievement of certain agreed production and cost structure milestones, and (iii) product revenues from sales of PV Foils to TubeSolar. The JDA has no fixed term, and may only be terminated by either party for breach. The Company recognized $40,000 in product revenue from TubeSolar during the year ended December 31, 2021.
The Company and TubeSolar have also jointly established Ascent Solar Technologies Germany GmbH (“Ascent Germany”), in which TubeSolar holds of 30% of the entity. The purpose of Ascent Germany is to establish and operate a PV manufacturing facility in Germany that will produce and deliver PV Foils exclusively to TubeSolar. Until Ascent Germany’s facility is fully operational, PV Foils will be manufactured in the Company’s existing facility in Thornton, Colorado. The parties expect to jointly develop next generation tooling for use in manufacturing PV Foils at the JV facility. The Company purchased 17,500 shares of the JV for 1 Euro per share and accounts for this investment as an equity method investment as it does not have control of this entity, but does have significant influence over the activities that most significantly impacts the entity’s operations and financial performance. The Company currently cannot quantify its maximum exposure in this entity.
On January 28, 2022 as of 5:00 pm Eastern Time, the Company effected a reverse stock split of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a ratio of one-for-five thousand (the “Reverse Stock Split”). The Company’s common stock began trading on a split-adjusted basis at 9:30 am Eastern Time on January 31, 2022. Stockholders also received one whole share of Common Stock in lieu of a fractional share and no fractional shares were issued. All shares and per share amounts in the consolidated financial statements and accompanying notes have been retroactively adjusted to give effect to the Reverse Stock Split.
Following the Reverse Stock Split, the Company’s issued and outstanding shares of Common Stock were decreased from approximately 23.74 billion pre-split shares to 4.81 million post-split shares. In connection with the Reverse Stock Split effectiveness, the number of authorized shares of the Company's Common Stock were decreased from 30 billion to 500 million shares.
Although the Company is focused on various markets for its product, the Chief Executive Officer makes significant operating decisions and assesses the performance of the Company as a single business segment. Accordingly, the Company has one reportable segment.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been derived from the accounting records of Ascent Solar Technologies, Inc. and its direct and indirectly wholly owned subsidiaries Ascent Solar (Asia) Pte. Ltd., and Ascent Solar (Shenzhen)
F-8
Co., Ltd. (collectively, the “Company”) as of December 31, 2021 and 2020, and the results of operations for the years ended December 31, 2021 and 2020. Ascent Solar (Shenzhen) Co., Ltd. is wholly owned by Ascent Solar (Asia) Pte. Ltd.. All significant inter-company balances and transactions have been eliminated in the accompanying consolidated financial statements.
The preparation of financial statements in conformity with US 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents: The Company classifies all short-term investments in interest bearing bank accounts and highly liquid debt securities purchased with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances which may exceed federally insured limits. The Company does not believe this results in significant credit risk.
Inventories: All inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average method. Inventory balances are frequently evaluated to ensure they do not exceed net realizable value. The computation for net realizable value takes into account many factors, including expected demand, product life cycle and development plans, module efficiency, quality issues, obsolescence and others. Management's judgment is required to determine reserves for obsolete or excess inventory. As of December 31, 2021, and 2020, the Company had inventory reserve balances of $395,943 and $598,392, respectively. If actual demand and market conditions are less favorable than those estimated by management, additional inventory write downs may be required.
Property, Plant and Equipment: Property, plant and equipment are recorded at the original cost to the Company. Assets are being depreciated over estimated useful lives of three to 10 years using the straight-line method, as presented in the table below, commencing when the asset is placed in service. Leasehold improvements are depreciated over the shorter of the remainder of the lease term or the life of the improvements. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Expenditures for repairs and maintenance are expensed as incurred.
|
|
Useful Lives |
|
|
in Years |
Manufacturing machinery and equipment |
|
5 - 10 |
Furniture, fixtures, computer hardware/software |
|
3 - 7 |
Leasehold improvements |
|
life of lease |
Patents: At such time as the Company is awarded patents, patent costs are amortized on a straight-line basis over the legal life on the patents, or over their estimated useful lives, whichever is shorter. As of December 31, 2021, and 2020, the Company had $86,595 and $439,836 of net patent costs, respectively. Of these amounts $45,015 and $103,740 represent costs net of amortization incurred for awarded patents, and the remaining $41,580 and $663,892 represents costs incurred for patent in process applications as of December 31, 2021 and 2020, respectively. During the years ended December 31, 2021 and 2020, the Company capitalized $0 and $156 in patent costs, respectively, as it worked to secure design rights and trademarks for newly developed products. Amortization expense was $37,891 and $45,920 for the years ended December 31, 2021 and 2020, respectively.
During the year ended December 31, 2021, the Company concluded that certain expired patents were not curable and certain patents in process would not be granted. As such, during the year ended December 31, 2021, the Company wrote off the remaining book value of these assets and recorded a charge of $297,702 in Other income/(expense) in the consolidated statement of operations.
As of December 31, 2021, future amortization of patents is expected as follows:
2022 |
|
$ |
19,169 |
|
2023 |
|
|
19,168 |
|
2024 |
|
|
6,493 |
|
2025 |
|
|
185 |
|
2026 |
|
|
- |
|
|
|
$ |
45,015 |
|
Impairment of Long-lived Assets: The Company analyzes its long-lived assets (property, plant and equipment) and definitive-lived intangible assets (patents) for impairment, both individually and as a group, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Events that might cause impairment would include significant
F-9
current period operating or cash flow losses associated with the use of a long-lived asset or group of assets combined with a history of such losses, significant changes in the manner of use of assets and significant negative industry or economic trends. An undiscounted cash flow analysis is calculated to determine if impairment exists. If impairment is determined to exist, any related loss is calculated using the difference between the fair value and the carrying value of the assets. During the years ended December 31, 2021 and 2020, the Company did not incur impairments of its manufacturing facilities and equipment.
Equity Method Investment: The Company accounts for its investments in stock of other entities over which the Company has significant influence, but not control, using the equity method of accounting. Under the equity method of accounting, the Company increases its investment for contributions made and records its proportionate share of net earnings, declared dividends and partnership distributions based on the most recently available financial statements of the investee. The Company re-evaluates the classification at each balance sheet date and when events or changes in circumstances indicate that there is a change in the Company’s ability to exercise significant influence. The Company evaluates its equity method investments for potential impairment whenever events or changes in circumstances indicate that there is an other-than-temporary decline in the value of the investment. Declines in fair value that are deemed to be other-than-temporary are charged to Other income (expense), net.
Related Party Payables: The Company accounts for fees due to board members in the related party payables account on the consolidated balance sheets.
Convertible Notes: The Company issues, from time to time, convertible notes. Refer to Note 11 for further information.
Convertible Preferred Stock: The Company evaluates its preferred stock instruments under FASB ASC 480, "Distinguishing Liabilities from Equity" to determine the classification, and thereby the accounting treatment, of the instruments. Refer to Notes 13 and 14 for further discussion on the classification of each instrument.
Derivatives: The Company evaluates its financial instruments under FASB ASC 815, "Derivatives and Hedging" to determine whether the instruments contain an embedded derivative. When an embedded derivative is present, the instrument is evaluated for a fair value adjustment upon issuance and at the end of every reporting period. Any adjustments to fair value are treated as gains and losses in fair values of derivatives and are recorded in the Consolidated Statements of Operations. Refer to Notes 11 and 12 for further discussion on embedded derivatives.
Product Warranties: The Company provides a limited warranty to the original purchaser of products against defective materials and workmanship. The Company also guarantees that standalone modules and PV integrated consumer electronics will achieve and maintain the stated conversion efficiency rating for certain products. Warranty accruals are recorded at the time of sale and are estimated based upon product warranty terms, historical experience and analysis of peer company product returns. The Company assesses the adequacy of its liabilities and makes adjustments as necessary based on known or anticipated warranty claims, or as new information becomes available.
Leases: The Company determines if an arrangement is a lease or contains a lease at the inception of the contract. The Company accounts for non-lease components, such as certain taxes, insurance and common area maintenance, separate from the lease arrangement. Operating lease liabilities, which represent the Company’s obligation to make lease payments arising from the lease, and corresponding Operating lease right-of-use assets, which represent the Company’s right to use an underlying asset for the lease term, are recognized at the commencement date of the lease based on the present value of fixed future payments over the lease term. The Company utilizes the lease term for which it is reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease. Incentives received from landlords are recorded as a reduction to the lease right-of-use assets. The Company does not recognize lease right-of-use assets and corresponding lease liabilities for leases with initial terms of 12 months or less.
The Company calculates the present value of future payments using the discount rate implicit in the lease, if available, or its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. In determining the Company's operating lease right of use assets and operating lease liabilities, the Company applied these incremental borrowing rates to the minimum lease payments within the lease agreement.
Revenue Recognition:
Product revenue. We recognize revenue for the sale of PV modules and other equipment sales at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For module and other equipment sales contracts that contain multiple performance obligations, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer.
F-10
During the years ended December 31, 2021 and 2020, the Company recognized product revenue of $607,783 and $66,613, respectively.
Milestone revenue. Each milestone arrangement is a separate performance obligation. The transaction price is estimated using the most likely amount method and revenue is recognized as the performance obligation is satisfied through achieving manufacturing or cost targets and engineering targets. No milestone revenue was recognized for the years ended December 31, 2021 and 2020.
Government contracts revenue. Revenue from government research and development contracts is generated under terms that are cost plus fee or firm fixed price. We generally recognize this revenue over time using cost-based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract. In applying cost-based input methods of revenue recognition, we use the actual costs incurred relative to the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.
Cost based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy long-term government research and development contracts and therefore reflect the performance obligations under such contracts. Costs incurred that do not contribute to satisfying our performance obligations are excluded from our input methods of revenue recognition as the amounts are not reflective of our transferring control under the contract. Costs incurred towards contract completion may include direct costs plus allowable indirect costs and an allocable portion of the fixed fee. If actual and estimated costs to complete a contract indicate a loss, provision is made currently for the loss anticipated on the contract.
No government contract revenue was recognized for the years ended December 31, 2021 and 2020.
As a practical expedient, the Company elects to exclude disclosures related to certain unsatisfied performance obligations. These performance obligations include the milestone performance obligations which are wholly unsatisfied as of December 31, 2021.
Receivables and Allowance for Doubtful Accounts: Trade accounts receivable are recorded at the invoiced amount as the result of transactions with customers. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company estimates the collectability of accounts receivable using analysis of historical bad debts, customer creditworthiness and current economic trends. Reserves are established on an account-by-account basis and are written off against the allowance in the period in which the Company determines that is it probable that the receivable will not be recovered.
The Company bills the government under cost-based research and development contracts at provisional billing rates which permit the recovery of indirect costs. These rates are subject to audit on an annual basis by the government agencies’ cognizant audit agency. The cost audit may result in the negotiation and determination of the final indirect cost rates. In the opinion of management, re-determination of any cost-based contracts will not have a material effect on the Company’s financial position or results of operations.
As of December 31, 2021 and 2020, the Company had an accounts receivable, net balance of $49,250 and $5,539, respectively. As of December 31, 2021 and 2020, the Company had an allowance for doubtful accounts of $26,000 and $45,883, respectively
The payment terms and conditions in customer contracts vary. Customers required to prepay are represented by the contract liabilities, included in Accrued Liabilities on the Consolidated Balance Sheets, until the Company’s performance obligations are satisfied. Invoiced customers are typically required to pay within 30 days of invoicing. Deferred revenue was as follows:
Balance as of January 1, 2020 |
$ |
- |
|
Additions |
|
307,500 |
|
Recognized as revenue |
|
- |
|
Balance as of December 31, 2020 |
|
307,500 |
|
Additions |
|
22,500 |
|
Recognized as revenue |
|
(307,500 |
) |
Balance as of December 31, 2021 |
$ |
22,500 |
|
For the years ended December 31, 2021 and 2020, one customer’s revenue individually represented 83% and 67%, respectively, of the Company’s total revenue.
Shipping and Handling Costs: The Company classifies shipping and handling costs for products shipped to customers as a component of “Cost of revenues” on the Company’s Consolidated Statements of Operations. Customer payments of shipping and handling costs are recorded as a component of Revenues.
F-11
Research, Development and Manufacturing Operations Costs: Research, development and manufacturing operations expenses were $4,140,319 and $1,165,193 for the years ended December 31, 2021 and 2020, respectively. Research, development and manufacturing operations expenses include: 1) technology development costs, which include expenses incurred in researching new technology, improving existing technology and performing federal government research and development contracts, 2) product development costs, which include expenses incurred in developing new products and lowering product design costs, and 3) pre-production and production costs, which include engineering efforts to improve production processes, material yields and equipment utilization, and manufacturing efforts to produce saleable product. Research, development and manufacturing operations costs are expensed as incurred, with the exception of costs related to inventoried raw materials, work-in-process and finished goods, which are expensed as cost of revenue as products are sold.
Marketing and Advertising Costs: The Company advertises in print, television, online and through social media. The Company will also authorize customers to run advertising campaigns on its behalf through various media outlets. Marketing and advertising costs are expensed as incurred. Marketing and advertising expenses were $8,912 and $3,559 for the years ended December 31, 2021 and 2020, respectively.
Income Taxes: Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates as of the date of enactment. Interest and penalties, if applicable, would be recorded in operations.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years (2018-2021) in these jurisdictions. The Company believes its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.
Earnings per Share: Earnings per share (“EPS”) are the amount of earnings attributable to each share of common stock. Basic EPS has been computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Income available to common stockholders has been computed by deducting dividends accumulated for the period on cumulative preferred stock (whether or not earned) from net income. Diluted earnings per share have been computed by dividing net income adjusted on an if-converted basis for the period by the weighted average number of common shares and potentially dilutive common share outstanding (which consist of options and convertible securities using the treasury stock method or the if-converted method, as applicable, to the extent they are dilutive).
Approximately 28.2 million dilutive common shares for the year ended December 31, 2021 were omitted because they were anti-dilutive. There were approximately 2.3 million dilutive shares for the year ended December 31, 2020.
Fair Value Estimates: Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses fair value hierarchy based on three levels of inputs, of which, the first two are considered observable and the last unobservable, to measure fair value:
|
• |
Level 1 – Quoted prices in active markets for identical assets or liabilities. |
|
• |
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
• |
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Certain long-lived assets and current liabilities have been measured at fair value on a recurring and non-recurring basis. See Note 5. Property, Plant and Equipment and Note 11. Convertible Notes. The carrying amount of our long-term debt outstanding approximates fair value because our current borrowing rate does not materially differ from market rates for similar bank borrowings and are considered to be Level 2. The carrying value for cash and cash equivalents, accrued expenses and other assets and liabilities approximate their fair values due to their short maturities.
Recently Issued Accounting Standards
F-12
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for smaller reporting public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Management has not yet evaluated the impact that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures.
Other new pronouncements issued but not effective as of December 31, 2021 are not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 4. LIQUIDITY, CONTINUED OPERATIONS, AND GOING CONCERN
During the years ended December 31, 2021 and 2020, the Company entered into multiple financing agreements to fund operations. Further discussion of these transactions can be found in Notes 8, 9, 10, and 11.
The Company has continued limited PV production at its manufacturing facility. The Company does not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until it has fully implemented its product strategy. During the year ended December 31, 2021 the Company used $9,404,443 in cash for operations. As of December 31, 2021, the Company had $2,365,087 in net debt (debt adjusted for cash and cash equivalents), and $687,165 in payables. Also, as of December 31, 2021, the Company owed $475,671 in interest.
Additional projected product revenues are not anticipated to result in a positive cash flow position for the year 2022 overall and, as of December 31, 2021, the Company has a working capital of $3,799,806. As such, cash liquidity sufficient for the year ending December 31, 2022 will require additional financing.
The Company continues to accelerate sales and marketing efforts related to its consumer and military solar products and specialty PV application strategies through expansion of its sales and distribution channels. The Company has begun activities related to securing additional financing through strategic or financial investors, but there is no assurance the Company will be able to raise additional capital on acceptable terms or at all. If the Company's revenues do not increase rapidly, and/or additional financing is not obtained, the Company will be required to significantly curtail operations to reduce costs and/or sell assets. Such actions would likely have an adverse impact on the Company's future operations.
As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern.
Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes property, plant and equipment as of December 31, 2021 and 2020:
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
Furniture, fixtures, computer hardware and computer software |
|
$ |
473,448 |
|
|
$ |
489,421 |
|
Manufacturing machinery and equipment |
|
|
21,863,624 |
|
|
|
24,377,755 |
|
Manufacturing machinery and equipment, in progress |
|
|
88,863 |
|
|
|
- |
|
Depreciable property, plant and equipment |
|
|
22,425,935 |
|
|
|
24,867,176 |
|
Less: Accumulated depreciation and amortization |
|
|
(22,146,273 |
) |
|
|
(24,848,408 |
) |
Net property, plant and equipment |
|
$ |
279,662 |
|
|
$ |
18,768 |
|
F-13
The Company analyzes its long-lived assets for impairment, both individually and as a group, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Depreciation expense for the years ended December 31, 2021 and 2020 was $19,423 and $105,738, respectively. Depreciation expense is recorded under “Depreciation and amortization expense” in the Consolidated Statements of Operations.
On July 29, 2020 the Company’s owned facility at 12300 Grant Street, Thornton, CO 80241 (the “Building”) was foreclosed by the Building’s first lien holder (“Mortgage Holder”) and sold at public auction. The successful bidder for the Building was the Mortgage Holder, at the price of $7.193 million. As a result, the Company’s obligations to Mortgage Holder and all of the Company’s outstanding real property taxes on the Building were considered fully repaid. The Company recognized a gain of approximately $3 million on the sale of the property.
On September 21, 2020, the Company entered into a lease agreement with 12300 Grant LLC (“Landlord”), an affiliated company of the Mortgage Holder, for approximately 100,000 rentable square feet of the Building (the “Lease”). The lease is classified as an operating lease and accounted for accordingly. The Lease term is for 88 months commencing on September 21, 2020 at a rent of $50,000 per month including taxes, insurance and common area maintenance until December 31, 2020. Beginning January 1, 2021, the rent shall adjust to $80,000 per month on a triple net basis and shall increase at an annual rate of 3% per annum until December 31, 2027.
As of December 31, 2021 and 2020, assets and liabilities related to the Company's lease were as follows:
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
Operating lease right-of-use assets, net |
|
$ |
4,984,688 |
|
|
$ |
5,633,663 |
|
Current portion of operating lease liability |
|
|
646,742 |
|
|
|
575,404 |
|
Non-current portion of operating lease liability |
|
|
4,532,490 |
|
|
|
5,179,229 |
|
During the years ended December 31, 2021 and 2020 the Company recorded operating lease costs included in rent expense of $1,033,570 and $287,103, respectively.
Future maturities of the operating lease liability are as follows:
2022 |
|
$ |
988,800 |
|
2023 |
|
|
1,018,464 |
|
2024 |
|
|
1,049,018 |
|
2025 |
|
|
1,080,488 |
|
2026 |
|
|
1,112,903 |
|
Thereafter |
|
|
1,146,291 |
|
Total lease payments |
|
$ |
6,395,964 |
|
Less amounts representing interest |
|
|
(1,216,732 |
) |
Present value of lease liability |
|
$ |
5,179,232 |
|
The remaining lease term and discount rate of the operating lease is 72.5 months and 7.0% respectively.
NOTE 6. INVENTORIES
Inventories consisted of the following at December 31, 2021 and 2020:
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
Raw materials |
|
$ |
575,154 |
|
|
$ |
525,626 |
|
Work in process |
|
|
15,803 |
|
|
|
- |
|
Finished goods |
|
|
1,215 |
|
|
|
8,805 |
|
Total |
|
$ |
592,172 |
|
|
$ |
534,431 |
|
F-14
NOTE 7. NOTES PAYABLE
Prior to 2020, the Company entered into two agreements with a vendor (“Vendor 1”) to convert the balance of their account into four notes payable in the aggregate amount of $1,073,825. The notes bear interest of 6% per annum and matured on February 24, 2018 and July 31, 2018, respectively, but remained unpaid as of January 1, 2020. At January 1, 2020, the aggregate principal and accrued interest balances were $1,073,825 and $162,205, respectively. On September 11, 2020, the Company entered into a settlement agreement (the “Settlement Agreement A”) with Vendor 1 and paid $120,000 on September 23, 2020 as the full and final settlement of all amounts owed between the parties. Following payment, a satisfaction of an existing judgment in favor of Vendor 1 was filed in Adams County, Colorado. The Company booked a gain of approximately $1.1 million relating to Settlement Agreement A.
Prior to 2020, the Company entered into an agreement with another vendor (“Vendor 2”) to convert the balance of their account into a note payable in the amount of $250,000. The note bears interest of 5% per annum and matured on February 28, 2018. As of December 31, 2021, the Company had not made any payments on this note, the accrued interest was $56,336, and the note is due upon demand. To the best of our knowledge, Vendor 2 had not made any attempts to recover any amount owing to them since 2019.
Prior to 2020, the Company entered into a settlement agreement with a customer to convert the credit balance of their account into a note payable in the amount of $215,234. The note bears interest of 5% per annum and matured on December 31, 2019. The Company made principal and interest payments of $32,529 and $897, respectively. At January 1, 2020, the remaining principal and accrued interest balances were $182,705 and $21,933, respectively. On September 11, 2020, the Company entered into a settlement agreement (the “Settlement Agreement B”) with the customer and paid $20,000 on September 18, 2020 as the full and final settlement of all amounts owed between the parties. The Company booked a gain of approximately $185,000 relating to Settlement Agreement B.
NOTE 8. DEBT
On August 2, 2019, Colorado Housing and Finance Authority (“CHFA”) entered into an agreement to assign the mortgage note to Iliad Research and Trading, L.P., a Utah limited liability partnership ("IRT"). This agreement closed on September 11, 2019, and IRT paid a total of $5,885,148 to CHFA to assume the note. The payment amount consisted of $5,405,666 of principal and $479,482 of interest and fees. Interest was accrued on the note at the default interest rate of 10.5%. At January 1, 2020, the remaining principal and accrued interest balances were $5,885,148 and $190,158, respectively.
On July 29, 2020, the Company’s owned facility at 12300 Grant Street, Thornton, CO 80241 (the “Building”) was foreclosed by IRT and sold at public auction.
NOTE 9. SECURED PROMISSORY NOTE
The following table provides a summary of the activity of the Company's secured notes:
|
|
Global
Ichiban |
|
|
St. George |
|
|
BD1 |
|
|
Total |
|
Secured Notes Principal Balance at January 1, 2020 |
|
|
5,012,897 |
|
|
|
2,160,000 |
|
|
|
— |
|
|
$ |
7,172,897 |
|
New notes |
|
|
6,400,000 |
|
|
|
— |
|
|
|
— |
|
|
|
6,400,000 |
|
Note conversions |
|
|
(600,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(600,000 |
) |
Note Assignments |
|
|
— |
|
|
|
(2,160,000 |
) |
|
|
2,160,000 |
|
|
|
— |
|
Notes Exchanged |
|
|
(5,012,897 |
) |
|
|
— |
|
|
|
(2,160,000 |
) |
|
|
(7,172,897 |
) |
Secured Notes Principal Balance at December 31, 2020 |
|
|
5,800,000 |
|
|
|
— |
|
|
|
— |
|
|
|
5,800,000 |
|
Less: remaining discount |
|
|
(394,363 |
) |
|
|
— |
|
|
|
— |
|
|
|
(394,363 |
) |
Secured Notes, net of discount, at December 31, 2020 |
|
|
5,405,637 |
|
|
|
— |
|
|
|
— |
|
|
|
5,405,637 |
|
New notes |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Note conversions |
|
|
(5,800,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,800,000 |
) |
Secured Notes Principal Balance at December 31, 2021 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
F-15
Global Ichiban Secured Promissory Notes
Prior to 2020, the Company had issued secured notes to Global Ichiban Limited (“Global”) that had aggregate remaining principal and accrued interest balances of $5,012,897 and $885,475, respectively, as of January 1, 2020.
All principal and accrued interest on the notes was redeemable at any time, in whole or in part, at the option of Global. The redemption amount may be paid in cash or converted into shares of common stock at a variable conversion price equal to the lowest of (i) 85% of the average VWAP for the shares over the prior 5 trading days, (ii) the closing bid price for the shares on the prior trading day, or (iii) $10,000 per share, at the option of the Company.
The notes may not be converted, and shares of the common stock may not be issued pursuant to the notes, if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of common stock.
All the notes issued in accordance with the note purchase and exchange agreement dated November 30, 2017 were secured by a security interest on substantially all of the Company’s assets, bear interest at a rate of 12% per annum and contain standard and customary events of default.
On September 9, 2020, the Company entered into a securities exchange agreement (“GI Exchange Agreement”) with Global. Pursuant to the terms of the GI Exchange Agreement, Global agreed to surrender and exchange all of its existing outstanding promissory notes with an aggregate principal balance of $6,313,387 (including accrued interest). In exchange, the Company issued to Global a secured convertible promissory note with a principal amount of $6,400,000 (“GI Exchange Note”). The GI Exchange Note will mature on September 30, 2022. Principal on the GI Exchange Note, if not converted, will be payable in a lump sum on September 30, 2022. The GI Exchange Note will not bear any accrued interest but bears a default interest rate of 18% in the event of a default under the GI Exchange Note. The GI Exchange Note is secured by a lien on substantially all of the Company’s assets pursuant to the Security Agreement dated November 30, 2017 (the “Security Agreement”) entered into between the Company and Global. The Company has accounted for the GI Exchange Agreement as a troubled debt restructuring. The future undiscounted cash flow of the new secured convertible promissory note totaling $6,400,000 is more than the carrying value of the original outstanding promissory notes totaling $6,313,387, therefore no gain was recorded and a new effective interest rate has been established based on the carrying value of the original promissory notes and revised cash flow. The difference of $86,613 was recorded as an original issue debt discount and will be charged to interest over the term of the note.
On December 9, 2020, Global converted $600,000 into 174,419 common shares. On March 9, 2021, the Company entered into a settlement agreement (“Settlement”) with Global. Pursuant to the Settlement, the Company issued 33,600 shares of Common Stock of the Company to Global in exchange for the cancellation of the remaining outstanding secured promissory note of $5,800,000.
The conversion option associated with the note was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
St. George Secured Convertible Notes
Prior to 2020, the Company had issued secured notes to St. George Investments LLC (“St. George”) that had aggregate remaining principal and accrued interest balances of $2,160,000 and $252,751, respectively, as of January 1, 2020. Beginning six months from the date of issuance, St. George shall have the option to redeem all or a portion of the amounts outstanding under the Company Note. At St. George's option, redemption amounts are payable by the Company in cash or in the form of shares of the common stock. Conversions into common stock shall be calculated using a variable conversion price equal to 60% of the average of the two lowest closing bid prices for the shares over the prior 10-day trading period immediately preceding the conversion.
Shares of common stock may not be issued pursuant to these notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of common stock.
The conversion option associated with the notes was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 9, 2020, all debts with St. George were assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
F-16
NOTE 10. PROMISSORY NOTES
The following table provides a summary of the activity of the Company's non-convertible, unsecured, promissory notes:
|
|
Investor 1 |
|
|
Investor 2 |
|
|
BD1 |
|
|
SBA |
|
|
Total |
|
Promissory Notes Principal Balance at January 1, 2020 |
|
$ |
494,437 |
|
|
$ |
615,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,109,437 |
|
New principal |
|
|
— |
|
|
|
35,000 |
|
|
|
— |
|
|
|
193,200 |
|
|
|
228,200 |
|
Notes assigned |
|
|
(494,437 |
) |
|
|
(650,000 |
) |
|
|
1,144,437 |
|
|
|
— |
|
|
|
— |
|
Notes exchanged |
|
|
|
|
|
|
|
|
|
|
(1,144,437 |
) |
|
|
|
|
|
$ |
(1,144,437 |
) |
Promissory Notes Principal Balance at December 31, 2020 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
193,200 |
|
|
|
193,200 |
|
Notes forgiven |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(193,200 |
) |
|
|
(193,200 |
) |
Promissory Notes Balance at December 31, 2021 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Offering of Unsecured, Non-Convertible Notes to Investor 1
Prior to 2020, the Company had issued a note to a private investor (“Investor 1”), that had remaining principal and accrued interest balances of $494,437 and $145,971, respectively, as of January 1, 2020. The note bears an interest rate of 12%, and principal and interest on this note were payable at maturity. This note was not convertible into equity shares of the Company and was unsecured.
On September 11, 2020 the debt with Investor 1 was assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
Offering of Unsecured, Non-Convertible Notes to Investor 2
Prior to 2020, the Company had issued notes to another private investor (“Investor 2”), that had aggregate remaining principal and accrued interest balances of $615,000 and $34,046, respectively, as of January 1, 2020. These notes bear interest at a rate of 12% and matured between September 11, 2019 and March 9, 2020. All principal and interest was payable upon maturity.
During 2020, the Company initiated a non-convertible, unsecured promissory note with Investor 2 for an aggregate principal amount of $150,000. The promissory note was issued with an original issue discount of $35,000, which will be recorded as interest expense ratably over the term of the note, resulting in proceeds to the company of $115,000, which was received in several tranches between September 2020 and November 2020. This note bears interest at 12% per annum and matured on May 1, 2021. All principal and interest is payable upon maturity.
On September 11, 2020, the entire debt with Investor 2 was assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
SBA PPP
On April 17, 2020, the Company obtained a PPP Loan from Vectra Bank Colorado (“Vectra”) in the aggregate amount of $193,200, which was established under the CARES Act, as administered by the Small Business Association (“SBA”). Under the terms of the CARES Act and the PPP, all or a portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following the Company’s receipt of the proceeds of the PPP Loan, the Company uses those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan is unsecured, guaranteed by the SBA, and has a two-year term, maturing on April 17, 2022. Interest accrues on the loan beginning with the initial disbursement; however, payments of principal and interest are deferred until Vectra’s determination of the amount of forgiveness applied for by the Company is approved by the SBA. If the Company does not apply for forgiveness within 10 months after the last day of the covered period (defined, at the Company’s election as 24 weeks), such payments will be due that month. On September 4, 2021, the Company received notification from Vectra that the SBA has forgiven the PPP loan. The Company recognized $195,852 of forgiven principal and accrued interest in Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net in the Consolidated Statement of Operations.
F-17
NOTE 11. CONVERTIBLE NOTES
The following table provides a summary of the activity of the Company's unsecured, convertible, promissory notes:
|
Principal
Balance
1/1/2020 |
|
New
Notes |
|
Notes
assigned
or
exchanged |
|
Notes
converted |
|
Principal
Balance
12/31/2020 |
|
Less:
Discount
Balance |
|
Net
Principal
Balance
12/31/2020 |
|
October 2016 Notes |
$ |
330,000 |
|
$ |
— |
|
$ |
(330,000 |
) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
St. George Notes |
|
617,663 |
|
|
— |
|
|
(617,663 |
) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
BayBridge Notes |
|
940,600 |
|
|
— |
|
|
(940,600 |
) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
Bellridge Notes |
|
496,000 |
|
|
— |
|
|
(451,000 |
) |
|
(45,000 |
) |
|
— |
|
|
— |
|
|
— |
|
Power Up Notes |
|
106,820 |
|
|
— |
|
|
(106,820 |
) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
Widjaja Note |
|
330,000 |
|
|
— |
|
|
(330,000 |
) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
GS Capital Notes |
|
169,500 |
|
|
— |
|
|
(169,500 |
) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
Penumbra Note
(related party) |
|
— |
|
|
250,000 |
|
|
(250,000 |
) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
BD1 Notes
(related party) |
|
— |
|
|
10,500,000 |
|
|
— |
|
|
|
|
|
10,500,000 |
|
|
(2,936,952 |
) |
|
7,563,048 |
|
Crowdex Note
(related party) |
|
— |
|
|
— |
|
|
250,000 |
|
|
|
|
|
250,000 |
|
|
— |
|
|
250,000 |
|
|
$ |
2,990,583 |
|
$ |
10,750,000 |
|
$ |
(2,945,583 |
) |
$ |
(45,000 |
) |
$ |
10,750,000 |
|
$ |
(2,936,952 |
) |
$ |
7,813,048 |
|
|
Principal
Balance
12/31/2020 |
|
New
Notes |
|
Notes
assigned
or
exchanged |
|
Notes
converted |
|
Principal
Balance
12/31/2021 |
|
Less:
Discount
Balance |
|
Net
Principal
Balance
12/31/2021 |
|
BD1 Notes
(related party) |
$ |
10,500,000 |
|
$ |
— |
|
$ |
(600,000 |
) |
$ |
— |
|
$ |
9,900,000 |
|
$ |
(2,210,182 |
) |
$ |
7,689,818 |
|
Crowdex Note
(related party) |
|
250,000 |
|
|
— |
|
|
— |
|
|
(250,000 |
) |
|
— |
|
|
— |
|
|
— |
|
Nanyang Note |
|
— |
|
|
— |
|
|
600,000 |
|
|
(100,000 |
) |
|
500,000 |
|
|
(112,971 |
) |
|
387,029 |
|
|
$ |
10,750,000 |
|
$ |
— |
|
$ |
— |
|
$ |
(350,000 |
) |
$ |
10,400,000 |
|
$ |
(2,323,153 |
) |
$ |
8,076,847 |
|
October 2016 Convertible Notes
Prior to 2020, the Company had issued convertible notes to a private investor that had remaining principal and accrued interest balances of $330,000 and $65,010, respectively, as of January 1, 2020.
The convertible notes matured on December 31, 2017 and bear an interest rate of 6% per annum, subject to increase to 24% per annum upon the occurrence and continuance of an event of default. Principal and accrued interest on the convertible notes is payable upon demand. The default interest rate has not been designated by the investor.
All principal and accrued interest on the convertible notes is convertible at any time, in whole or in part, at the option of the investor, into shares of common stock at a variable conversion price equal to 80% of the lowest closing bid price of the Company’s common stock for the fifteen consecutive trading day period prior to the conversion date. After the six-month anniversary of the issuance of any convertible note, the conversion price for such note shall thereafter be equal to 50% of the lowest closing bid price of the Company’s common stock for the fifteen consecutive trading day period prior to the conversion date. The convertible notes contain standard and customary events of default.
The conversion option associated with the notes was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 11, 2020, the October 2016 Convertible Notes were assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
F-18
St. George Convertible Note
Prior to 2020, the Company sold and issued a $1,700,000 convertible note to St. George, which had a principal balance of $617,663 as of January 1, 2020.
This note matured on March 11, 2019. The note does not bear interest in the absence of an event of default. The note is due upon demand and a default interest rate has not been designated by St. George.
The conversion option associated with the note was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 9, 2020, the St. George Convertible Note was assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
Baybridge Convertible Note
Prior to 2020, the Company had issued convertible notes to BayBridge Capital Fund LP ("BayBridge”), which had remaining principal and accrued interest balances of $940,600 and $65,888, respectively, as of January 1, 2020.
The Exchange Notes are unsecured, have no applicable registration rights, bear interest at a rate of 12% per annum, and matured between September 7, 2019 and August 22, 2020. The notes contain standard and customary events of default.
The terms of the Exchange Notes included a conversion feature which was the lesser of (i) a price range of $2.50 to $750, or (ii) a range of 65% to 70% of the lowest traded price for the shares over the prior five trading days.
The conversion option associated with the notes was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 11, 2020, the Baybridge Convertible Notes were assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
Bellridge Convertible Notes
Prior to 2020, the Company had issued convertible notes to Bellridge Capital, LP (“Bellridge”) which had aggregate principal and accrued interest balances of $496,000 and $63,474, respectively, as of January 1, 2020.
The note is not secured, contains no registration rights, has an interest rate of 10% per annum, matured on October 22, 2020, and contains standard and customary events of default. Bellridge shall have the option to convert all or a portion of the amounts outstanding under the note, into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to the lesser of (i) $2.50 or (ii) 70% of the lowest traded price for the shares over the prior ten-day trading period immediately preceding the conversion. The original issue discount of $20,000 was charged to interest, ratably, over the life of the note.
Shares of common stock may not be issued pursuant to any of these notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of Common Stock.
During 2020, an aggregate principal of $45,000 and interest of $2,133, on the Bellridge convertible notes had been converted into 94,266 shares of common stock and no cash payments of principal or interest had been made.
The conversion option associated with the notes was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 11, 2020, the Bellridge Convertible Notes were assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
F-19
Power Up Convertible Notes
Prior to 2020, the Company had issued convertible notes to Power Up Lending Group, LTD ("Power Up"), which had remaining aggregate principal and accrued interest balances of $106,820 and $9,346, respectively, at January 1, 2020.
Beginning in six months after issuance, Power Up shall have the option to convert all or a portion of the amounts outstanding under the convertible note, into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to 65% of the average of the three lowest closing bid prices for the shares over the prior ten-day trading period immediately preceding the conversion.
Shares of common stock may not be issued pursuant to any of these notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of Common Stock.
The conversion option associated with the notes was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 11, 2020, the Power Up Convertible Notes were assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
Widjaja Convertible Note
Prior to 2020, the Company had sold and issued a convertible note to Jason Widjaja (“Widjaja”) which had remaining aggregate principal and accrued interest balances of $330,000 and $38,407, respectively, as of January 1, 2020. The note is unsecured, bears interest at 12% per annum, matures on January 11, 2020, and contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the note, and (ii) bankruptcy or insolvency of the Company. Principal and interest on the note will be payable upon maturity.
At any time after inception of the note, until fully paid, Widjaja shall have the option to convert all or a portion of amounts outstanding under the note into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable conversion price equal to 80% of the lowest closing bid price for the shares over the prior five trading days immediately preceding the conversion date.
There are no registration rights applicable to the note. Shares of common stock may not be issued pursuant to the note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 19.99% of the outstanding shares of the Company's common stock.
During 2020, no principal and no interest had been converted into shares of common stock and no cash payments of principal or interest had been made.
The conversion option associated with the note was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 11, 2020, the Widjaja Convertible Note was assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
GS Capital Convertible Note
Prior to 2020, the Company had sold and issued convertible notes to GS Capital Partners, LLC (“GS”) which had remaining aggregate principal and accrued interest balances of $169,500 and $8,832, respectively, as of January 1, 2020.
These notes are unsecured, bear interest at 8% per annum, matures twelve months from the date of issuance, and contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the note, and (ii) bankruptcy or insolvency of the Company. Principal and interest on the note will be payable upon maturity. There are no registration rights applicable to the note.
At any time after inception of the note until fully paid, GS shall have the option to convert all or a portion of amounts outstanding under the note into shares of the Company's common stock. Conversions into common stock shall be calculated using a variable
F-20
conversion price equal to 65% of the average of the three lowest closing bid prices for the shares over the prior ten day trading period immediately preceding the conversion.
Shares of common stock may not be issued pursuant to the note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of the Company's common stock.
The conversion option associated with the notes was deemed to include an embedded derivative that required bifurcation and separate accounting. Refer to Note 12. Derivative Liabilities for further details.
On September 11, 2020, the GS Convertible Note was assigned to BD1 as part of the Company’s recapitalization and restructuring effort which began in June 2020. The Company subsequently entered into an Exchange Agreement with BD1 on December 18, 2020. Refer to the BD1 Convertible Notes in Note 11. Convertible Notes for further discussion.
Penumbra Convertible Note
On June 9, 2020, the Company issued to Penumbra Solar, Inc. (“Penumbra”) a $250,000 aggregate principal amount convertible promissory note. The Company has received $250,000 of gross proceeds from the offering of the note. The aggregate principal amount (together with accrued interest) will mature on June 9, 2021. The note bears interest at a rate of 6% per annum. The interest rate increases to 18% in the event of a default. The note is convertible, at the holder’s option, into shares of the Company’s Common Stock at a conversion price equal to $0.50 per share.
On September 25, 2020, the Penumbra Convertible Note was assigned to Crowdex.
Crowdex Convertible Note
On September 25, 2020, as discussed above, Penumbra assigned its note to Crowdex. At December 31, 2020, the note had a principal balance of $250,000 and an accrued interest balance of $8,425. The aggregate principal amount (together with accrued interest) will mature on June 9, 2021. The note bears an interest rate of 6% per annum. The interest rate increases to 18% in the event of a default. The note is convertible, at the holder’s option, into shares of the Company’s Common Stock at a conversion price equal to $0.50 per share. On December 9, 2021, Crowdex converted its aggregate principal and accrued interest totaling $272,521 into 545,041 shares of common stock.
BD1 Convertible Note
During September 2020, a number of the Company’s investors entered into assignment agreements to sell their existing debt to BD1. Refer to Notes 9, 10, and 11, for more information. The assignments did not change the terms of the notes, and transferred ownership of the following debts:
|
Principal Converted |
|
Interest
Converted |
|
Footnote Reference |
St George |
$ |
2,160,000 |
|
$ |
417,000 |
|
Note 9 |
Investor 1 |
|
495,000 |
|
|
187,000 |
|
Note 10 |
Investor 2 |
|
650,000 |
|
|
86,000 |
|
Note 10 |
October 2016 Note |
|
330,000 |
|
|
79,000 |
|
Note 11 |
St George |
|
618,000 |
|
|
— |
|
Note 11 |
Baybridge |
|
941,000 |
|
|
152,000 |
|
Note 11 |
Bellridge |
|
451,000 |
|
|
121,000 |
|
Note 11 |
Power Up |
|
107,000 |
|
|
16,000 |
|
Note 11 |
Widjaja |
|
330,000 |
|
|
68,000 |
|
Note 11 |
GS Capital |
|
170,000 |
|
|
19,000 |
|
Note 11 |
Total |
$ |
6,252,000 |
|
$ |
1,145,000 |
|
|
On December 18, 2020, the Company entered into a securities exchange agreement (“BD1 Exchange Agreement”) with BD1, who had previously acquired all of the Company’s existing outstanding unsecured notes (other than notes held by GI and Crowdex) from the original note holders as listed above.
Pursuant to the terms of the BD1 Exchange Agreement, BD1 agreed to surrender and exchange all of its outstanding promissory notes with principal balances of approximately $10.4 million (including accrued interest and default penalties). In exchange, the Company issued to BD1 two unsecured convertible notes with an aggregate principal amount of $10,500,000 (“BD1 Exchange Notes”). The BD1 Exchange Notes do not bear any interest, and will mature on December 18, 2025. BD1 has the right, at any time until the BD1 Exchange Notes are fully paid, to convert any outstanding and unpaid principal into shares of Common Stock at a fixed
F-21
conversion price equal to $0.50 per share. Accordingly, the Company would issue 21,000,000 shares of Common Stock upon a full conversion of the BD1 Exchange Notes.
On August 13, 2021, BD1 assigned $600,000 of its outstanding principal balance to Nanyang Investment Management Pte Ltd (“Nanyang”). As of December 31, 2021, BD1 held notes with an aggregate principal amount of $9,900,000 convertible to 19,800,000 shares of common stock.
Nanyang Convertible Note
On August 13, 2021, as discussed above, BD1 assigned $600,000 of the BD1 Exchange Notes to Nanyang. This note does not bear any interest and will mature on December 18, 2025. Nanyang has the right, at any time until the note is fully paid, to convert any outstanding and unpaid principal into share of common stock at a fixed conversion price equal to $0.50 per share. Accordingly, the Company would issue 1,200,000 common shares upon full conversion of this note. Shares of common stock may not be issued pursuant to this note if, after giving effect to the conversion or issuance, Nanyang, together with its affiliates, would beneficially own in excess of 4.99% of the outstanding shares of the Company’s common stock.
On October 13, 2021, $100,000 of Nanyang’s convertible notes were converted into 200,000 shares of common stock. As of December 31, 2021, Nanyang held notes with an aggregate principal amount of $500,000 convertible to 1,000,000 shares of common stock.
NOTE 12. DERIVATIVE LIABILITIES
The following table is a summary of the derivative liability activity for the years ended December 31, 2021 and 2020:
Derivative Liability Balance as of January 1, 2020 |
|
$ |
7,717,150 |
|
Additional derivative liability on new notes |
|
|
447,903 |
|
Change in fair value of derivative liability |
|
|
(2,861,069 |
) |
Derivative Liability Balance as of December 31, 2020 |
|
|
5,303,984 |
|
Liability extinguished |
|
|
(5,303,984 |
) |
Derivative Liability Balance as of December 31, 2021 |
|
$ |
— |
|
Convertible Notes Assigned to BD1
The convertible notes that were assigned to BD1 in September 2020, further described above in Notes 10 and 11, were exchanged for new notes as part of the Company’s recapitalization and restructuring effort which began in June 2020. Prior to the exchange, pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion options in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.
At January 1, 2020, the aggregate derivative liability associated with these notes was $5,706,175. This value was derived from Management’s fair value assessment using the following assumptions: annual volatility range of 42% to 46%, present value discount rate of 12%, and a dividend yield of 0%.
During the first three quarters of 2020, pursuant to ASC Topic 815, Derivatives and Hedging, Management conducted quarterly fair value assessments of the embedded derivatives associated with these notes. Engaging the services of a firm specializing in these valuations, it was determined that a rational investor would not convert the notes, and would not expect to do so in the foreseeable future. The Company had reported doubt as to its ability to continue as a going concern since 2015. The Company scaled down operations and did not expect to ramp up until significant financing could be obtained and had been operating under these conditions for some time already, continuously chasing funding to continue operations. Circumstances shifted in late 2019 and early 2020, making fundraising and continuing operations more difficult, thereby reducing liquidity and attractiveness of the common stock. These new circumstances made it clear to current and prospective investors that the Company would either file bankruptcy or restructure with a strategic investor. Accordingly, as of the valuation date, conversion of a debt instrument into common stock that cannot be sold in the marketplace would put the holder in a far less secure position compared to holding the instrument as debt. As a result of the fair value assessments, the Company recorded an aggregate net gain of $5,706,175 for the year ended December 31, 2020,
F-22
as “Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net” in the Consolidated Statements of Operations to properly reflect that the value of the embedded derivative had been eliminated in 2020.
Convertible Notes held by Global Ichiban
In connection with the convertible notes held by Global, further described above in Note 9, pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion options in the notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below.
At January 1, 2020, the aggregate derivative liability associated with these notes was $2,010,975. This value was derived from Management’s fair value assessment using the following assumptions: annual volatility of 46%, present value discount rate of 12%, and a dividend yield of 0%.
The conversion option in the GI Exchange Note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance based on the following assumptions: annual volatility of 49%, expected interest rate of 1.52%, and a dividend yield of 0%, and appropriately recorded that value as a derivative liability. At September 9, 2020, the derivative liability associated with the Global note was $447,903. The fair value of the derivative was recorded as a debt discount and will be charged to interest over the life of the note.
The derivative liability associated with the note is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. Management assessed the fair value option of this embedded derivative, as of December 31, 2020, using the following assumptions: annual volatility of 62%, and a dividend yield of 0%. As a result of the fair value assessments, the Company recorded an aggregate net loss of $2,845,106 for the year ended December 31, 2020, as “Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net” in the Consolidated Statement of Operations to properly reflect that the value of the embedded derivative of $5,303,984 as of December 31, 2020.
On March 9, 2021, the Company entered into a settlement agreement with Global, further described above in Note 8. As a result of the settlement, the entire debt was cancelled and the Company recorded an aggregate net gain of $5,303,984 as “Change in fair value of derivatives and gain/loss on extinguishment of liabilities, net” in the Consolidated Statement of Operations to properly reflect that the value of the embedded derivative had been eliminated.
NOTE 13. SERIES A PREFERRED STOCK
In June 2013, the Company entered into a Securities Purchase Agreement with an investor to sell an aggregate of $750,000 shares of Series A Preferred Stock at a price of $8.00 per share, resulting in gross proceeds of $6.0 million. This purchase agreement included warrants to purchase up to 13,125 shares of common stock of the Company. The transfer of cash and securities took place incrementally, the first closing occurring on June 17, 2013 with the transfer of 125,000 shares of Series A Preferred Stock and a warrant to purchase 2,187 shares of common stock for $1.0 million. The final closings took place in August 2013, with the transfer of 625,000 shares of Series A Preferred Stock.
Holders of Series A Preferred Stock are entitled to cumulative dividends at a rate of 8% per annum when and if declared by the Board of Directors in its sole discretion. The dividends may be paid in cash or in the form of common stock (valued at 10% below market price, but not to exceed the lowest closing price during the applicable measurement period), at the discretion of the Board of Directors. The dividend rate on the Series A Preferred Stock is indexed to the Company’s stock price and subject to adjustment. In addition, the Series A Preferred Stock contains a make-whole provision whereby, conversion or redemption of the preferred stock within 4 years of issuance will require dividends for the full four year period to be paid by the Company in cash or common stock (valued at 10% below market price, but not to exceed the lowest closing price during the applicable measurement period). This make-whole provision expired in June 2017.
F-23
The Series A Preferred Stock may be converted into shares of common stock at the option of the Company if the closing price of the common stock exceeds $1,160,000, as adjusted, for twenty consecutive trading days, or by the holder at any time. The Company has the right to redeem the Series A Preferred Stock at a price of $8.00 per share, plus any accrued and unpaid dividends, plus the make-whole amount (if applicable). At December 31, 2021, the preferred shares were not eligible for conversion to common shares at the option of the Company. The holder of the preferred shares may convert to common shares at any time, at no cost, at a ratio of 1 preferred share into 1 common share (subject to standard ratable anti-dilution adjustments). Upon any conversion (whether at the option of the Company or the holder), the holder is entitled to receive any accrued but unpaid dividends.
On October 6, 2016, the Series A Holder entered into an exchange agreement with a private investor. Pursuant to the exchange agreement, beginning December 5, 2016, the investor has the option to exchange, from time to time, all or any portion of the October 2016 Convertible Notes (see Note 11) for outstanding shares of Series A Preferred Stock from the Series A Holder.
Except as otherwise required by law (or with respect to approval of certain actions), the Series A Preferred Stock shall have no voting rights. Upon any liquidation, dissolution or winding up of the Company, after payment or provision for payment of debts and other liabilities of the Company, the holders of Series A Preferred Stock shall be entitled to receive, pari passu with any distribution to the holders of common stock of the Company, an amount equal to $8.00 per share of Series A Preferred Stock plus any accrued and unpaid dividends.
As of December 31, 2021, there were 48,100 shares of Series A Preferred Stock outstanding and accrued and unpaid dividends of $416,733.
NOTE 14. SERIES 1A PREFERRED STOCK
Series 1A Preferred Stock – Tranche 1 Closing
On September 22, 2020, the Company entered into a securities purchase agreement (“Series 1A SPA”) with Crowdex, for the private placement of up to $5,000,000 of the Company’s newly designated Series 1A Convertible Preferred Stock (“Series 1A Preferred Stock”).
Each share of Series 1A Preferred Stock has an original issue price of $1,000 per share. Shares of the Series 1A Preferred Stock are convertible into common stock at a fixed conversion price equal to $0.50 per common share, subject to standard ratable anti-dilution adjustments.
Outstanding shares of Series 1A Preferred Stock are entitled to vote together with the holders of common stock as a single class (on an as-converted to common stock basis) on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stock holders (or written consent of stockholders in lieu of meeting).
Holders of the Series 1A Preferred Stock are not entitled to any fixed rate of dividends. If the Company pays a dividend or otherwise makes a distribution payable on shares of common stock, holders of the Series 1A Preferred Stock will receive such dividend or distribution on an as-converted to common stock basis. There are no specified redemption rights for the Series 1A Preferred Stock. Upon liquidation, dissolution or winding up, holders of Series 1A Preferred Stock will be entitled to be paid out of the Company’s assets, prior to the holders of our common stock, an amount equal to $1,000 per share plus any accrued but unpaid dividends (if any) thereon.
The Company sold 2,000 shares of Series 1A Preferred Stock to Crowdex in exchange for $2,000,000 of gross proceeds at an initial closing under the Series 1A SPA on September 22, 2020.
In November 2020, Crowdex converted 1,200 shares of outstanding Series 1A Preferred Stock into 2,400,000 shares of common stock.
On December 31, 2020 the Company sold 500 shares of Series 1A Preferred Stock to Crowdex in exchange for the cancellation of the Crowdex Note issued on November 27, 2020. There were no additional cash proceeds from this closing.
On January 4, 2021, the Company entered into a securities purchase agreement (“Series 1ATranche 2 SPA”) with TubeSolar. Pursuant to the Series 1A Tranche 2 SPA, the Company sold 2,500 shares of Series 1A Preferred Stock to TubeSolar and received $2,500,000 of gross proceeds on January 5, 2021. During the year ended December 31, 2021, TubeSolar converted 100 shares of Series 1A Preferred Stock into 200,000 shares of common stock.
F-24
NOTE 15. STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
At, the Company had 500 million shares of common stock, $0.0001 par value, authorized for issuance. Each share of common stock has the right to one vote. As of December 31, 2021, the Company had 4,786,804 shares of common stock outstanding. The Company has not declared or paid any dividends related to the common stock through December 31, 2021.
On March 4, 2021, Baybridge purchased 15,000 shares of the Company’s common stock for an aggregate purchase price of $3,000,000.
On August 2, 2021, the Company entered into a common stock purchase agreement (“Common Stock SPA”) with BD1 for the placement of 133,333 shares of the Company’s common stock for an aggregate purchase price of $10,000,000. The first tranche of 66,667 shares for $5,000,000 closed on September 2, 2021 and the second tranche closed on November 5, 2021.
Preferred Stock
At December 31, 2020, the Company had 25,000,000 shares of preferred stock, $0.0001 par value, authorized for issuance. Preferred stock may be issued in classes or series. Designations, powers, preferences, rights, qualifications, limitations and restrictions are determined by the Company’s Board of Directors. The following table summarizes the designations, shares authorized, and shares outstanding for the Company’s Preferred Stock:
Preferred Stock Series Designation |
|
Shares
Authorized |
|
|
Shares
Outstanding |
|
Series A |
|
|
750,000 |
|
|
|
48,100 |
|
Series 1A |
|
|
5,000 |
|
|
|
3,700 |
|
Series B-1 |
|
|
2,000 |
|
|
|
— |
|
Series B-2 |
|
|
1,000 |
|
|
|
— |
|
Series C |
|
|
1,000 |
|
|
|
— |
|
Series D |
|
|
3,000 |
|
|
|
— |
|
Series D-1 |
|
|
2,500 |
|
|
|
— |
|
Series E |
|
|
2,800 |
|
|
|
— |
|
Series F |
|
|
7,000 |
|
|
|
— |
|
Series G |
|
|
2,000 |
|
|
|
— |
|
Series H |
|
|
2,500 |
|
|
|
— |
|
Series I |
|
|
1,000 |
|
|
|
— |
|
Series J |
|
|
1,350 |
|
|
|
— |
|
Series J-1 |
|
|
1,000 |
|
|
|
— |
|
Series K |
|
|
20,000 |
|
|
|
— |
|
F-25
Series A Preferred Stock
Refer to Note 13 for Series A Preferred Stock activity.
Series 1A Preferred Stock
Refer to Note 14 for Series 1A Preferred Stock activity.
Series B-1, B-2, C, D, D-1, E, F, G, H, I, J, J-1, and K Preferred Stock
There were no transactions involving the Series B-1, B-2, C, D, D-1, E, G, H, I, J, J-1, or K during the years ended December 31, 2021 and 2020.
NOTE 16. INCOME TAXES
The Company records income taxes using the liability method. Under this method, deferred tax assets and are computed for the expected future impact of temporary differences between the financial statement and income tax bases of assets and liabilities using current income tax rates and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold before a benefit is recognized in the financial statements.
At December 31, 2021, the Company had $233.6 million of cumulative net operating loss carryforwards for federal income tax purposes that were available to offset future taxable income through the year 2037. At December 31, 2021, the Company had $64.8 million of cumulative net operating loss carryforwards for federal income tax purposes that were available to offset future taxable income indefinitely. Under the Internal Revenue Code, the future utilization of net operating losses may be limited in certain circumstances where there is a significant ownership change. The Company prepared an analysis for the year ended December 31, 2012 and determined that a significant change in ownership had occurred as a result of the cumulative effect of the sales of common stock through its offerings. Such change limited the Company’s utilizable net operating loss carryforwards to $298.4 million for the year ended December 31, 2021. Available net operating loss carryforwards may be further limited in the event of another significant ownership change.
Deferred income taxes reflect an estimate of the cumulative temporary differences recognized for financial reporting purposes from that recognized for income tax reporting purposes. At December 31, 2021 and 2020, the components of these temporary differences and the deferred tax asset were as follows:
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
Deferred Tax Asset |
|
|
|
|
|
|
|
|
Accrued Expenses |
|
$ |
104,000 |
|
|
$ |
22,000 |
|
Inventory Allowance |
|
|
98,000 |
|
|
|
137,000 |
|
Other |
|
|
5,000 |
|
|
|
10,000 |
|
Operating Lease Liability |
|
|
1,280,000 |
|
|
|
1,183,000 |
|
Tax effect of NOL carryforward |
|
|
74,167,000 |
|
|
|
72,307,000 |
|
Depreciation |
|
|
596,000 |
|
|
|
355,000 |
|
Warranty reserve |
|
|
5,000 |
|
|
|
3,000 |
|
Gross Deferred Tax Asset |
|
|
76,255,000 |
|
|
|
74,017,000 |
|
Valuation Allowance |
|
|
(75,003,000 |
) |
|
|
(72,555,000 |
) |
Net Deferred Tax Asset |
|
$ |
1,252,000 |
|
|
$ |
1,462,000 |
|
Operating lease right-of-use asset, net |
|
|
(1,231,000 |
) |
|
|
(1,287,000 |
) |
Amortization |
|
|
(21,000 |
) |
|
|
(175,000 |
) |
Net Deferred Tax Liability |
|
$ |
(1,252,000 |
) |
|
$ |
(1,462,000 |
) |
Total |
|
|
— |
|
|
|
— |
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
F-26
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical losses and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is not more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31, 2021. The Company’s deferred tax valuation allowance of $75.0 million reflected above is an increase of $2.4 million from the valuation allowance reflected as of December 31, 2020 of $72.6 million.
As of December 31, 2021, the Company has not recorded a liability for uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax (benefit)/expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2021.
The Company’s effective tax rate for the years ended December 31, 2021 and 2020 differs from the statutory rate due to the following (expressed as a percentage of pre-tax income):
|
|
2021 |
|
|
|
2020 |
|
|
Federal statutory rate |
|
|
21.0 |
|
% |
|
|
21.0 |
|
% |
State statutory rate |
|
|
5.4 |
|
% |
|
|
6.9 |
|
% |
Permanent tax differences |
|
|
(3.9 |
) |
% |
|
|
3.7 |
|
% |
Derivative/Warrant Revaluation |
|
|
— |
|
% |
|
|
(30.9 |
) |
% |
Debt Discount |
|
|
12.7 |
|
% |
|
|
1.6 |
|
% |
Deferred true-ups |
|
|
4.9 |
|
% |
|
|
48.9 |
|
% |
Other |
|
|
0.7 |
|
% |
|
|
— |
|
% |
Change in valuation allowance |
|
|
(40.8 |
) |
% |
|
|
(51.2 |
) |
% |
|
|
|
— |
|
% |
|
|
— |
|
% |
NOTE 17. COMMITMENTS AND CONTINGENCIES
In May 2019, the Company’s former law firm filed suit against the Company in District Court in Adams County Colorado in an effort to collect approximately $1.2 million of unpaid fees (and related interest charges). On September 11, 2020, the Company entered into a settlement agreement (the “Settlement Agreement”) with its former law firm. Pursuant to the Settlement Agreement, the Company paid $120,000 on September 23, 2020 as the full and final settlement of all amounts owed between the parties. Following such payment, a satisfaction of an existing judgment in favor of such law firm was filed in Adams County Colorado.
On July 29, 2020, the Company’s owned facility at 12300 Grant Street, Thornton, CO 80241 (the “Building”) was foreclosed by the Building’s first lien holder (“Mortgage Holder”) and sold at public auction. The successful bidder for the Building was the Mortgage Holder, at the price of $7.193 million. As a result, the Company’s obligations to Mortgage Holder and all of the Company’s outstanding real property taxes on the Building were considered fully repaid.
The Company is subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. The Company cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this report, the Company believes that none of these claims will have a material adverse effect on its consolidated financial position or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that the Company’s assessment of any claim will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated financial position or results of operations in particular quarterly or annual periods.
NOTE 18. RETIREMENT PLAN
On July 1, 2006, the Company adopted a qualified 401(k) plan which provides retirement benefits for all of its eligible employees. Under the plan, employees become eligible to participate at the first entry date, provided they are at least 21 years of age. The participants may elect through salary reduction to contribute up to ceilings established in the Internal Revenue Code. The Company will match 100% of the first four percent of employee contributions. In addition, the Company may make discretionary contributions to the Plan as determined by the Board of Directors. Employees are immediately vested in all salary reduction contributions. Rights to benefits provided by the Company’s discretionary and matching contributions vest 100% after the first year of service for all employees hired before January 1, 2010. For employees hired after December 31, 2009, matching contributions vest over a three-year period, one-third per year. Employer 401(k) match expense was $31,423 and 0 for the year ended December 31, 2021 and 2020, respectively. 401(k) match expenses are recorded under “Research, development and manufacturing operations" expense and “Selling, general and administrative" expense in the Consolidated Statements of Operations.
F-27
NOTE 19. SUBSEQUENT EVENTS
Below is the sequence of events subsequent to December 31, 2021 through the Audit Report date of March 14, 2022:
Reverse Stock Split
On January 28, 2022 as of 5:00 pm Eastern Time, the Company effected a 1:5,000 reverse stock split of the Company’s common stock, par value $0.0001 per share. The Company’s common stock began trading on a split-adjusted basis as of 9:30 am Eastern Time on January 31, 2022.
BD1 Convertible Notes
On January 3, 2022, BD1 sold and assigned $1,000,000 of its convertible notes to Fleur Capital Pte Ltd (“Fleur”). On January 21, 2022, BD1 sold and assigned $1,000,000 of its convertible notes to Nanyang. The aggregate remaining principal balance held by BD1 after these assignments was $7,900,000. On February 1, 2022, BD1 converted its $7,900,000 aggregate outstanding principal amount into 15,800,000 shares of common stock.
Series 1A Preferred Stock
On February 1, 2022:
|
• |
Crowdex converted their remaining 1,300 shares of Series 1A Preferred Stock into 2,600,000 shares of common stock. |
|
• |
TubeSolar converted their remaining 2,400 shares of Series 1A Preferred Stock into 4,800,000 shares of common stock. |
Convertible Notes
On February 2, 2022:
|
• |
Nanyang converted $600,000 of their convertible notes into 1,200,000 shares of common stock. |
|
• |
Fleur converted $700,000 of their convertible notes into 1,400,000 shares of common stock. |
F-28
ASCENT SOLAR TECHNOLOGIES, INC.
1,219,512 Shares of Common Stock
Common Warrants to purchase up to 1,219,512 Shares of Common Stock
H.C. Wainwright & Co.
The date of this prospectus is , 2022