10-Q

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 10, 2023, there were 92,069,632 shares of our Common Stock, par value $0.00001 per share, outstanding.

The accompanying notes are an integral part of these condensed financial statements.

Note 2 – Liquidity and Management Plans

During the three and six months ended June 30, 2023, the Company recorded revenue of $117,133 and $213,809, respectively. During the three and six months ended June 30, 2023, the Company recorded net losses of $3,995,166 and $10,647,673, respectively. Net cash used in operating activities was $11,695,128 and $13,453,948 for the six months ended June 30, 2023 and 2022, respectively. The Company is currently meeting its liquidity requirements through the proceeds of securities offerings that raised net proceeds of $27,043,751 during 2021, $744,787 during 2022 and $5,351,888 during the first quarter of 2023, along with proceeds from contributions to the Company’s employee stock purchase plan (the “ESPP”) and payments received from customers.

As of June 30, 2023, the Company had cash and cash equivalents of $19,959,768. The Company expects that cash and cash equivalents as of June 30, 2023, together with expected additional ATM financing during the third quarter of 2023, implementation of cost and expense reductions and anticipated revenues, will be sufficient to fund the Company’s operations through August 2024.

Research and development of new technologies is by its nature unpredictable. Although the Company intends to continue its research and development activities, there can be no assurance that its available resources and revenue generated from its business operations will be sufficient to sustain its operations. Accordingly, the Company expects to pursue additional cost and expense reductions in addition to financing, which could include offerings of equity or debt securities, bank financings, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions. There is no assurance that such cost and expense reductions and financing will be available on terms that the Company would find acceptable, or at all. If the Company is unsuccessful in implementing this plan, the Company will be required to make further cost and expense reductions or modifications to its on-going and strategic plans.

The market for products using the Company’s technology is broad and evolving, but remains nascent and unproven, so the Company’s success is dependent upon many factors, including customer acceptance of its existing products, technical feasibility of future products, regulatory approvals, the development of complementary technologies, competition and global market fluctuations.

Note 3 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

These unaudited condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2022 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 30, 2023. The accounting policies used in preparing these unaudited condensed interim financial statements are consistent with those described in the Company’s December 31, 2022 audited financial statements.

Use of Estimates

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 the disclosure of contingent liabilities at the date of the financial statements as well as the reported expenses during the reporting periods.

Note 3 – Summary of Significant Accounting Policies, continued

The Company’s significant estimates and assumptions include the valuation of stock-based compensation instruments, recognition of revenue, inventory valuation, fair value of warrant liabilities and the valuation allowance on deferred tax assets. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. Although the Company believes that its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the warrants is estimated using an appropriate valuation model. Such warrant classification is also subject to re-evaluation at each reporting period.

Offering costs associated with warrants classified as liabilities are expensed as incurred and are presented as offering cost related to warrant liability in the statement of operations. Offering costs associated with the sale of warrants classified as equity are charged against proceeds.

Fair Value

The Company follows ASC 820, Fair Value Measurements (“ASC 820”), which establishes a common definition of fair value to be applied when US GAAP requires the use of fair value, establishes a framework for measuring fair value, and requires certain disclosure about such fair value measurements.

ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about what market participants would use in pricing the asset or liability based on the best informa


Delaware		46-1318953
(State of incorporation)		(I.R.S. Employer Identification No.)


PART I - FINANCIAL INFORMATION		3

Item 1. Financial Statements		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

Item 3. Quantitative and Qualitative Disclosure About Market Risk		28

Item 4. Controls and Procedures		28

PART II – OTHER INFORMATION		29

Item 1. Legal Proceedings		29

Item 1A. Risk Factors		29

Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities		42

Item 3. Defaults Upon Senior Securities		42

Item 4. Mine Safety Disclosures		42

Item 5. Other Information		42

Item 6. Exhibits		42


	As of
	June 30, 2023			December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	19,959,768		$	26,287,293
Accounts receivable, net		168,084			143,353
Inventory		176,786			105,821
Prepaid expenses and other current assets		1,251,839			827,551
Total current assets		21,556,477			27,364,018

Property and equipment, net		389,659			429,035
Operating lease right-of-use assets		1,595,869			1,959,869
Total assets	$	23,542,005		$	29,752,922
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,053,204		$	900,765
Accrued expenses		1,462,742			1,790,414
Accrued severance expense		215,442			416,516
Warrant liability		1,238,000			–
Operating lease liabilities, current portion		699,673			705,894
Deferred revenue		58,091			29,727
Total current liabilities		4,727,152			3,843,316

Operating lease liabilities, long-term portion		915,854			1,264,131
Total liabilities		5,643,006			5,107,447

Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $0.00001 par value, 10,000,000 shares authorized at June 30, 2023 and December 31, 2022; no shares issued or outstanding at June 30, 2023 and December 31, 2022.		–			–
Common Stock, $0.00001 par value, 200,000,000 shares authorized at June 30, 2023 and December 31, 2022; 92,040,276 and 78,944,954 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.		921			789
Additional paid-in capital		391,221,050			387,319,985
Accumulated deficit		(373,322,972	)		(362,675,299	)
Total stockholders’ equity		17,898,999			24,645,475
Total liabilities and stockholders’ equity	$	23,542,005		$	29,752,922


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	117,133		$	232,971		$	213,809		$	448,932
Costs and expenses:
Cost of revenue		82,818			271,384			221,631			474,633
Research and development		2,880,132			3,209,910			5,958,656			6,737,056
Sales and marketing		1,088,084			1,158,092			2,300,022			2,771,682
General and administrative		2,103,971			2,024,939			4,065,431			4,052,459
Severance expense		90,310			633,444			90,310			633,444
Total costs and expenses		6,245,315			7,297,769			12,636,050			14,669,274
Loss from operations		(6,128,182	)		(7,064,798	)		(12,422,241	)		(14,220,342	)
Other (expense) income:
Offering costs related to warrant liability		–			–			(591,670	)		–
Change in fair value of warrant liability		1,897,000			–			1,897,000			–
Interest income		236,016			47,049			469,238			49,875
Total other income		2,133,016			47,049			1,774,568			49,875
Net loss	$	(3,995,166	)	$	(7,017,749	)	$	(10,647,673	)	$	(14,170,467	)
Basic and diluted loss per common share	$	(0.04	)	$	(0.09	)	$	(0.12	)	$	(0.18	)
Weighted average shares outstanding, basic and diluted		91,241,080			77,125,105			86,351,876			77,028,549


	Common Stock				Additional Paid-in			Accumulated			Total Stockholders'
	Shares		Amount		Capital			Deficit			Equity
Balance at January 1, 2023		78,944,954	$	789	$	387,319,985		$	(362,675,299	)	$	24,645,475
Stock-based compensation - options		–		–		21,095			–			21,095
Stock-based compensation - restricted stock units ("RSUs")		–		–		476,242			–			476,242
Stock-based compensation - employee stock purchase plan ("ESPP")		–		–		24,740			–			24,740
Issuance of shares for RSUs		186,878		2		(2	)		–			–
Proceeds from contributions to the ESPP		–		–		65,134			–			65,134
Issuance of shares in an at-the-market ("ATM") placement, net of $68,637 in issuance costs		3,650,198		37		2,674,660			–			2,674,697
Issuance of shares in a sale of common stock, net of $3,166,139 in issuance costs and fair value of liability warrant		8,250,000		83		133,778			–			133,861
Net loss		–		–		–			(6,652,507	)		(6,652,507	)
Balance at March 31, 2023 (unaudited)		91,032,030	$	911	$	390,715,632		$	(369,327,806	)	$	21,388,737
Stock-based compensation - options		–		–		21,330			–			21,330
Stock-based compensation - RSUs		–		–		455,695			–			455,695
Stock-based compensation - PSUs		–		–		10,601			–			10,601
Stock-based compensation - ESPP		–		–		16,267			–			16,267
Issuance of shares for RSUs		681,434		7		(7	)		–			–
Proceeds from contributions to the ESPP		326,812		3		1,532			–			1,535
Net loss		–		–		–			(3,995,166	)		(3,995,166	)
Balance at June 30, 2023 (unaudited)		92,040,276	$	921	$	391,221,050		$	(373,322,972	)	$	17,898,999


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
Emerging growth company	☐


	For the Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(10,647,673	)	$	(14,170,467	)
Adjustments to reconcile net loss to:
Net cash used in operating activities:
Depreciation and amortization		90,330			127,311
Stock based compensation		1,025,970			1,460,693
Changes in operating lease right-of-use assets		364,000			371,604
Inventory net realizable adjustment		142,313			–
Bad debt expense		(12,500	)		17,500
Change in fair value of warrant liability		(1,897,000	)		–
Offering costs allocated to warrants		591,670			–
Changes in operating assets and liabilities:
Accounts receivable		(12,231	)		55,819
Inventory		(213,278	)		(52,153	)
Prepaid expenses and other current assets		(424,288	)		(391,009	)
Accounts payable		152,439			(197,025	)
Accrued expenses		(327,672	)		(50,554	)
Accrued severance expense		(201,074	)		(230,619	)
Operating lease liabilities		(354,498	)		(403,029	)
Deferred revenue		28,364			7,981
Net cash used in operating activities		(11,695,128	)		(13,453,948	)
Cash flows from investing activities:
Purchases of property and equipment		(50,954	)		(112,509	)
Net cash used in investing activities		(50,954	)		(112,509	)
Cash flows from financing activities:
Net proceeds from an ATM offering		2,674,697			–
Net proceeds from a sale of common stock and warrant issuance		2,677,191			–
Proceeds from contributions to employee stock purchase plan		66,669			164,728
Net cash provided by financing activities		5,418,557			164,728
Net decrease in cash and cash equivalents		(6,327,525	)		(13,401,729	)
Cash and cash equivalents - beginning		26,287,293			49,071,414
Cash and cash equivalents - ending	$	19,959,768		$	35,669,685
Supplemental disclosure of non-cash investing and financing activities:
Increase in operating lease right-of-use assets and operating lease liabilities	$	–		$	2,071,336
Common stock issued for RSUs	$	9		$	6