Ascent Solar Technologies Inc

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

Ascent Solar Technologies, Inc. (the “Company") is focusing on integrating its photovoltaic ("PV") products into scalable and high value markets such as terrestrial and space power beaming, aerospace, satellites, near earth orbiting vehicles, fixed wing unmanned aerial vehicles (“UAV”), and agrivoltaics. 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 August 14, 2024, the Company effected a reverse stock split of the Company’s common stock at a ratio of one-for-one hundred (the “Reverse Stock Split”). The Company’s common stock began trading on a split-adjusted basis on August 15, 2024. 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 unaudited condensed financial statements and accompanying notes have been retroactively adjusted to give effect to the Reverse Stock Split.

NOTE 2. BASIS OF PRESENTATION

The accompanying, unaudited, condensed financial statements have been derived from the accounting records of the Company as of September 30, 2024, and December 31, 2023, and the results of operations for the three and nine months ended September 30, 2024, and 2023.

The accompanying, unaudited, condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these interim financial statements do not include all of the information and footnotes typically found in U.S. GAAP audited annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. The Condensed Balance Sheet at December 31, 2023, has been derived from the audited financial statements as of that date but does not include all of the information and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. These condensed financial statements and notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The preparation of financial statements in conformity with U.S. 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. Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies were described in Note 2 to the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes to our accounting policies as of September 30, 2024.

Revenue Recognition:

Product revenue. The Company recognizes 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, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognizes the related revenue as control of each individual product is transferred to the customer.

During the three months ended September 30, 2024 and 2023, the Company recognized product revenue of$8,550 and$209,496, respectively. During the nine months ended September 30, 2024 and 2023, the Company recognized product revenue of$41,893 and$395,106, respectively.

Milestone and engineering revenue. Each milestone and engineering 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, cost, or engineering targets. During the three months ended September 30, 2024 and 2023, the Company recognized total milestone and engineering revenue of$0 and$20,458, respectively. During the nine months ended September 30, 2024 and 2023, the Company recognized total milestone and engineering revenue of$0 and $60,374, respectively.

Government contracts revenue. Revenue from government research and development contracts is generated under terms that are cost plus fee or firm fixed price. The Company generally recognizes this revenue over time using cost-based input methods, which recognizes 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, the Company uses 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 the Company’s 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 the Company’s performance obligations are excluded from the input methods of revenue recognition as the amounts are not reflective of 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 during the three and nine months ended September 30, 2024 and 2023.

Accounts Receivable. As of September 30, 2024 and December 31, 2023, the Company had an accounts receivable, net balance of$4,275 and$0, respectively. As of September 30, 2024 and December 31, 2023, the Company had an allowance for doubtful accounts of$0 and$0, respectively.

Deferred revenue for thenine months ended September 30, 2024 was as follows:

Other Assets: Other assets is comprised of the following:

Other Income/(Expense), net: Other income/(expense), net is comprised as follows:

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) and deemed dividends due to down round financings from net income. For the nine months ended September 30, 2023, income available to common stockholders was adjusted for deemed dividends due to down round financings of $11,653,986 (See Note 10 in the Company's Annual Report on Form 10-K for the year ended December 31, 2023). Diluted earnings per share has been computed by dividing income available to common stockholders 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 warrants, options, restricted stock units and convertible securities using the if-converted or treasury stock method to the extent they are dilutive). Approximately 202 thousand and 11 thousand shares of dilutive shares were excluded from the three months period ended September 30, 2024 and 2023, respectively, EPS calculation as their impact is antidilutive. Approximately 128 thousand and 5 thousand shares of dilutive shares were excluded from the nine months period ended September 30, 2024 and 2023, respectively, EPS calculation as their impact is antidilutive.

Net loss attributable to common shareholders for the three and nine months ended September 30, 2023 was as follows:

Recently Issued Accounting Policies

In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvement to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 improves segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Management is evaluating the impact of this ASU on the Company's financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures("ASU 2023-09"). ASU 2023-09 improves income tax disclosures by requiring public entities annually to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 is effective for public entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for annual financial statements that have not yet been issued or made available for issuance. Management is evaluating the impact of this ASU on the Company's financial statements.

NOTE 4. LIQUIDITY, CONTINUED OPERATIONS, AND GOING CONCERN

During the year ended December 31, 2023, the Company sold Series 1B preferred stock and completed a public offering to fund operations. Further discussion of these transactions can be found in Notes 13 and 14 in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. The Company continues to enter into financing arrangements in 2024 to fund operations.

The Company currently has limited production capabilities in its Thornton facility and continues to focus on restarting production at industrial scale while continuing its research and development activities to improve its PV products. 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 this strategy. During the nine months ended September 30, 2024, the Company used$6,897,159 in cash for operations.

Current committed product revenues are not anticipated to result in a positive cash flow position for the next twelve months and although the Company has, as of September 30, 2024, working capital of $1,362,847, Management does not believe cash liquidity is sufficient for the next twelve months and will require additional financing or committed purchase orders.

The Company continues to look for ways to expand its production of PV films at industrial scale and to secure long-term contracts for the sale of such output. The Company also continues 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 potential 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 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 unaudited condensed financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

NOTE 5. RELATED PARTY TRANSACTIONS

In September 2021, the Company and TubeSolar AG ("TubeSolar"), a former significant stakeholder in the Company, entered into a Long-Term and Joint Development Agreement ("JDA") where the Company would provide PV foils for use in TubeSolar's solar modules for agricultural photovoltaic applications. The Company and TubeSolar also jointly established Ascent Solar Technologies Germany GmbH (“Ascent Germany”), in which TubeSolar holds of 30% of the entity. Ascent Germany was established to operate a PV manufacturing facility in Germany that will produce and deliver PV Foils exclusively to TubeSolar. There were no Company contributions to Ascent Germany during thenine months ended September 30, 2024 and 2023.

In June, 2023, TubeSolar filed an application for insolvency proceedings with the insolvency court. Since then, there has been no activity under the JDA and minimal activity in Ascent Germany. Management continues to monitor this situation.

NOTE 6. SWITZERLAND ASSETS

On April 17, 2023, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Flisom AG (“Seller”), pursuant to which, among other things, the Company purchased certain assets relating to thin-film photovoltaic manufacture and production from Seller (collectively, the “Assets”). The purchase price paid by the Company was $4,083,926

(including$1,283,926 of transaction costs). The Company also entered into a sublease agreement allowing the Company to use the manufacturing facility where the Assets are located.

During the year ended December 31, 2023, Management concluded that these assets were impaired and recognized an impairment loss of $3,283,715. The remaining carrying value of the Assets, as of December 31, 2023, was $786,000. On April 1, 2024, the Company entered into an agreement with the manufacturing facility landlord (“Landlord”) and sold all but one piece of equipment from the Assets to the Landlord for 1 CHF and forgiveness of $221,519 in payables and any potential future claims the manufacturing facility Landlord may have. The carrying value of the Assets sold was $746,000.

At March 31, 2024, the Company designated the Assets as assets held for sale as all of the following criteria have been met: (i) a formal commitment to a plan to sell a property has been made and exercised; (ii) the property is available for sale in its present condition; (iii) actions required to complete the sale of the property have been initiated; (iv) sale of the property is probable and we expect the sale will occur within one year; and (v) the property is being actively marketed for sale at a price that is reasonable given its current market value. Assets held for sale were recorded in Property, Plant and Equipment, net in the unaudited condensed balance sheets.

Upon designation as an asset held for sale, the Company recorded the carrying value of the property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and depreciation of the property ceases. As the estimated fair value of $221,519 and the price the Company sold the Assets for is less than their carrying value, the Company recorded an impairment loss of $524,481. Upon completion of the sale, on April 1, 2024, the Company wrote off the remaining carrying value of the Assets and the payables to the Landlord.

In September, 2023, Flisom filed for bankruptcy in Switzerland. In February, 2024, the Swiss bankruptcy administrator closed the bankruptcy proceedings due to a lack of assets unless a creditor demands that the bankruptcy proceedings be carried out within the specified period and makes an advance to cover the costs. The deadline for creditors to make their demand has lapsed and the bankruptcy proceedings remained closed. As the bankruptcy proceedings are closed, the Company reversed the Swiss liabilities and recognized a gain on extinguishment of liabilities of $541,021 in Other income/(expense) on the unaudited Condensed Statements of Operations during the three months ended September 30, 2024.

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

The following table summarizes property, plant and equipment as of September 30, 2024 and December 31, 2023:

Depreciation expense for the three months ended September 30, 2024 and 2023 was$16,832 and$18,931, respectively. Depreciation expense for the nine months ended September 30, 2024 and 2023 was $50,923 and $59,570, respectively. Depreciation expense is recorded under “Depreciation and amortization expense” in the unaudited Condensed Statements of Operations.

NOTE 8. OPERATING LEASE

The Company’s lease is primarily comprised of manufacturing and office space. This lease is classified and accounted for as an operating lease. The building lease term is for 88 months commencing on September 21, 2020 at a rent of $50,000 permonth including taxes, insurance and common area maintenance until December 31, 2020. Beginning January 1, 2021, the rent adjustedto $80,000 per month on a triple net basis and shall increase at an annual rate of 3% per annum until December 31, 2027.

Effective September 1, 2023, the lease was amended to reduce the rentable square feet from approximately 100,000 to approximately 75,000 square feet and the rent and tenant share of expenses were decreased in proportion to the reduction in the rentable square feet.

As of September 30, 2024 and December 31, 2023, assets and liabilities related to the Company’s leases were as follows:

During the three months ended September 30, 2024 and 2023, the Company recorded operating lease expense included in selling, general and administrative expenses of$190,497 and $236,925, respectively. During the nine months ended September 30, 2024 and 2023, the Company recorded operating lease expense included in selling, general and administrative expenses of$571,492 and $770,836, respectively.

Future maturities of the operating lease liability are as follows:

The remaining weighted average lease term and discount rate of the operating leases is 39 months and 7.0%, respectively.

NOTE 9. INVENTORIES

Inventories, net of reserves, consisted of the following at September 30, 2024 and December 31, 2023:

NOTE 10. BRIDGE LOAN

On February 27, 2024, the Company entered into a loan agreement ("Loan 1") with a lender ("Lender") for an aggregate principal amount of $375,000. The Company paid origination fees of $25,000 for net proceeds of $350,000. The discount is recorded as interest expense ratably over the term of the loan. Under Loan 1, the Company will make weekly paymentsof

$19,420 for 28 weeks for a total repayment of $543,750. The Company also had an early repayment option where the Company would repay an aggregate of $478,125 if repaid by April 15, 2024.

On April 17, 2024, the Company entered into a new loan agreement ("Loan 2") with the Lender. Under Loan 2, the Company borrowed an aggregate principal amount of $685,000, incurred origination fees of $34,250, and repaid the outstanding balance of Loan 1 of $428,310 for net proceeds of $222,440. Under Loan 2, the Company will make weekly payments of $31,000 for 32 weeks for a total repayment of $993,250. This loan is secured by a lien on the Company's assets.

As of September 30, 2024, principal and interest payable on Loan 2 was $248,953 and $3,451, respectively. The Company also recognized $139,233 and $499,272 in interest expense during the three and nine months ended September 30, 2024, respectively.

On April 1 and 2, 2024, the Company closed two loan agreements with a second lender ("Lender 2") for an aggregate principal amount of $180,800. These loans have an original issuance discount of $20,800 for net proceeds of $160,000. The Company will repay a total of $202,496 under these loans. The loans mature on January 1, 2025 and are payable in monthly installments as defined in the loan agreements. Upon a default event, outstanding principal and interest payable is convertible into Company stock at a 25% discount; however, the conversion price cannot be below $25.

At September 30, 2024, principal and interest payable on these loans was $87,044 and $0, respectively. The Company also recognized $16,334 and $34,297 in interest expense during the three andnine months ended September 30, 2024, respectively.

The carrying amount of these bridge loans approximate fair value due to its short maturity and because the Company's current borrowing rate does not materially differ from market rates for similar bank borrowings and is considered to be Level 2 input on the fair value hierarchy.

NOTE 11. OTHER PAYABLE

On June 30, 2017, the Company entered into an agreement with a vendor (“Vendor”) 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. On September 25, 2024, the Company entered into a Note Termination and Release Agreement with the Vendor where the Company agreed to a one-time payment of $175,000 in exchange for the termination of the note payable. Upon payment, the remaining note and interest payable were forgiven and the Company recognized a gain on extinguishment of liabilities of $165,548 in Other income/(expense), net on the unaudited Condensed Statements of Operations during the three months ended September 30, 2024.

NOTE 12. CONVERTIBLE NOTES

The following table provides a summary of the activity of the Company's secured, convertible, promissory notes:

During the nine months ended September 30, 2024, $400,000 of principal was converted for 6,184 shares of common stock. The note matured on June 19, 2024 and the Company paid the remaining principal and interest payable. During thenine months ended September 30, 2024 and 2023, the Company had interest expense of $463,397 and $2,070,669, respectively, of which, $19,260 and $1,773,633, respectively was due to accretion of discount on the note. During the three months ended September 30, 2023, the Company had interest expense of $271,162, of which, $231,536 was due to accretion of discount on the note.

Conversions Payable represents the economic difference between the applicable conversion price of the notes payable and floor price of $65. This amount is payable either in shares valued as the VWAP on the conversion day or in cash. If the VWAP on the conversion day is less than the floor price, then the economic different between the conversion day VWAP and the floor price becomes payable in cash and is recorded as Cash payable on the unaudited Condensed Balance Sheet. During the nine months ended September 30, 2024, $1,279,782 of conversions payable was converted into 17,934 sharesof common stock and

$199,997 of Cash payable. The Cash payable was paid in April 2024 with the close of the Company's public offering (see Note 15).

NOTE 13. SERIES A PREFERRED STOCK

As of January 1, 2024, there were 48,100 shares of Series A Preferred Stock outstanding. 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 at 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.

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 $23.2 billion, adjusted for reverse stock splits, fortwenty 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 September 30, 2024, 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. After making adjustment for the Company’s prior reverse stock splits, all 48,100 outstanding Series A preferred shares are convertible into less thanone common share. Upon any conversion (whether at the option of the Company or the holder), the holder is entitled to receive any accrued but unpaid dividends.

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 September 30, 2024, there were 48,100 shares of Series A Preferred Stock outstanding and accrued and unpaid dividends of$550,879.

NOTE 14. SERIES Z PREFERRED STOCK

On June 20, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Paul Warley, the Company’s Chief Executive Officer (the “Purchaser”) pursuant to which it issued and soldone (1) share (the “Share”) of the Company’s newly designated Series Z Preferred Stock, par value $0.0001 per share (the “Series Z Preferred Stock”), to such Purchaser for an aggregate purchase price of $1,000. The Series Z Preferred Stock is recorded as Accrued Expenses in the unaudited Condensed Balance Sheets.

The Share of Series Z Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Share of Series Z Preferred Stock has no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Share of Series Z Preferred Stock will not be entitled to receive dividends of any kind.

The outstanding share of Series Z Preferred Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of Directors in its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split. Upon such redemption, the holder of the Series Z Preferred Stock will receive consideration of $1,000 in cash.

The Share of Series Z Preferred Stock will have 180,000,000 votes and will vote together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to any proposal to amend the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s common stock. The Share of Series Z Preferred Stock will be voted, without action by the holder, on any such reverse stock split proposal in the same proportion as shares of common stock are voted on such proposal (excluding any common shares that are not voted). The Series Z Preferred Stock otherwise has no voting rights, except as may otherwise be required by the General Corporation Law of the State of Delaware.

On August 22, 2024, the Company redeemed the Series Z Preferred Stock and repaid the consideration received.

NOTE 15. STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

At September 30, 2024, the Company had 500 million shares of common stock, $0.0001 par value, authorized for issuance. Each share of common stock has the right toone vote. As of September 30, 2024, the Company had 1,275,429 shares of common stock outstanding. The Company has not declared or paid any dividends related to the common stock during the three or nine months ended September 30, 2024 and 2023.

During the nine months ended September 30, 2024, $400,000 of convertible debt principal was converted into 6,184 shares of common stock and $1,279,782 of conversions payable was converted into 17,934 shares of common stock.3,500 shares of common stock was also issued to settle liabilities.

As part of the December 19, 2022 Securities Purchase Contract (the “Purchase Contract”) withtwo institutional investors (the “Investors”), the Company issued to the Investors certain common stock warrants (the “Warrants”). The Warrants have certain “full ratchet” anti-dilution adjustments that are triggered when the Company issues securities with a purchase or conversion, exercise or exchange price that is less than the exercise price of the Warrants then in effect at any time. Under the full ratchet anti-dilution adjustments, if the Company issues new securities at a price lower than the then applicable exercise price, (i) the exercise price is reduced to the lower new issue price and (ii) the number of warrant shares is proportionately increased. The Warrants have been previously adjusted following past issuances of Company securities. As of April 18, 2024, there were approximately 67 thousand Warrants exercisable at an exercise price of $147.27, that were repurchased and cancelled. See below for additional information.

On March 6, 2024 and March 7, 2024, the Company entered into Warrant Repurchase Agreements (the “Repurchase Agreements”), with each of the Investors. Pursuant to the Repurchase Agreements, if the Company closes a new capital raising transaction with gross proceeds in excess of $5 million (“Qualified Financing”), the Company will repurchase the Warrants from the Investors for an aggregate purchase price of $3.6 million. Following the delivery of the purchase price to the Investors, the Investors will relinquish all rights, title and interest in the Warrants and assign the same to the Company, and the Warrants will be cancelled. On April 12, 2024, the Company entered into Amended and Restated Warrant Repurchase Agreements (the “Amendments”) with each of the Investors. Pursuant to the Amendments, on April 12, 2024, the Company and the Investors agreed to the following:

•

First Repurchase. On April 12, 2024, the Investors agree to convey, assign and transfer 50% of the Warrants to the Company in exchange for the payment by the Company for an aggregate purchase price of $1.8 million.

•

Second Repurchase. On or before April 18, 2024, the Investors agree to convey, assign and transfer all remaining Warrants to the Company for an aggregate purchase price of $1.8 million.

To extend the repurchase deadline, on April 12, 2024 the Company agreed to issue the Investors approximately 85,500 warrants in aggregate at an exercise price of $11.68 per warrant. These warrants will be exercisable at any time, and from time to time, in whole or in part, commencing six months from the closing of the offering and expiring five and a half (5.5) years from the date of issue, and will be exercisable for cash only unless an effective registration statement is not available at the time of exercise, in which case the warrants could be exercised on a cashless basis. The Company recorded an expense of $743,462 as Warrant settlement expense on the unaudited Condensed Statement of Operations. The expense represents the estimated fair value of the warrants at the issuance date andwas determined using the Black Scholes model using the following inputs:

On April 9, 2024 the Company entered into a placement agency agreement (the “Placement Agent Agreement”) with Dawson James Securities Inc. (“Dawson James”) pursuant to which the Company engaged Dawson James as the placement agentfor a registered public offering by the Company (the “Offering”), of up to $6 million of shares of common stock or, in lieu of common stock, one prefunded warrant to purchase a share of common stock on a best efforts basis.

The Company agreed to pay Dawson James a placement agent fee in cash equal to 8.00% of the gross proceeds from the sale of the shares of common stock; provided, however, that the placement agent fee shall equal 4% for investors that the Company directs to the Offering. The Company also agreed to reimburse Dawson James for all reasonable travel and other out-of-pocket expenses, including the reasonable fees of legal counsel, not to exceed $155,000.

On April 18, 2024, the Company, completed closings under the Offering of common stock. Aggregate gross proceeds from all closings under the offering total $5.09 million before deducting offering expenses. In the completed closings, the Company issued an aggregate of (i)151,795 common shares and (ii)211,623 Pre-Funded Warrants. The Pre-Funded Warrants are immediately exercisable at a price of $0.0001 per share of common stock and only expire when such Pre-Funded warrants are fully exercised.

As of September 30, 2024, all 211,623 of the Pre-Funded Warrants were exercised into common stock.

The net proceeds from the closings of the Offering were utilized to retire approximately $200,000 of cash payable and $3.6 million to repurchase and cancel the Warrants that were both issued with our secured notes issued in December 2022. The repurchase of these warrants eliminated a substantial potential future issuance of common stock at a substantially reduced price. These warrants would have been adjusted in accordance with their terms to provide for the purchase of approximately 850 thousand shares of the Company’s common stock at an exercise price of $11.68 if they had not been repurchased by the Company.

On May 16, 2024, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent (“Wainwright”), to sell shares of its common stock, par value $0.0001 per share (the “Shares”), having an aggregate sales price of up to $4,219,000, from time to time, through an “at the market offering” program under which Wainwright will act as sales agent. The sales, if any, of the Shares made under the ATM Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through the Nasdaq Capital Market or on any other existing trading market for the Company’s common stock. The Company will pay Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of Common Stock and will also reimburse Wainwright for certain specified expenses inconnection with entering into the ATM Agreement, including certain fees and out-of-pocket expenses of its legal counsel.

On May 23, 2024, the Company increased the amount available for sale under the ATM Agreement, up to an additional aggregate offering price of $4,344,000 and on May 30, 2024, the Company again increased the amount available for sale under the ATM Agreement by an additional aggregate offering price of $3,981,000.

As of September 30, 2024, the Company sold 637,429 shares of common stock at an average price of $14.90 per share, resulting in aggregate gross proceeds of approximately $9.5 million. The Company anticipates that the at-the-market offering will continue throughout the next reporting period.

Preferred Stock

At September 30, 2024, the Company had 25 million 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 as of September 30, 2024:

Warrants

As of September 30, 2024, there are approximately 143,000 outstanding warrants with exercise prices between $11.68 and $74,086 per share.

Series A Preferred Stock

Refer to Note 13 for information on Series A Preferred Stock.

Series Z Preferred Stock

Refer to Note 14 for information on Series Z Preferred Stock.

Series 1A, 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 1A, B-1, B-2, C, D, D-1, E, F, G, H, I, J, J-1, or K during the three and nine months ended September 30, 2024.

NOTE 16. SHARE-BASED COMPENSATION

In January 2024, the Company granted 4,590 shares of restricted stock units to employees and directors. One third of these shares vested on March 31, 2024. The remaining unvested shares will vest pro rata on January 1, 2025 and January 1, 2026. The Company also granted members of our advisory board an aggregate of 200 shares of restricted stock units. The advisory shares originally vested pro rata on January 1, 2025 and January 1, 2026; however, were amended to vest pro rata on June 30, 2024 and January 1, 2025.

The Company had a total of 3,191 unvested units as of September 30, 2024 that are expected to vest in the future. Total unrecognized share-based compensation expense from the remaining unvested restricted stock as of September 30, 2024 was approximately $855,000 and is expected to be recognized over 1.25 years. The following table summarizes non-vested restricted stock and the related activity as of September 30, 2024:

The fair values of the respective vesting dates of RSUs were approximately $7,143 and$269,860 for the nine months ended September 30, 2024 and 2023, respectively.

In August 2024, the Company granted 124,850 stock options terminating 10 years from the date of grant to employees, directors, and advisory board members. One third of these options vested on September 15, 2024. The remaining unvested options will vest pro rata on January 1, 2025 and January 1, 2026.

The Company had a total of 83,220 unvested options as of September 30, 2024 that are expected to vest in the future. Total unrecognized share based compensation expense from the remaining unvested options as of September 30, 2024 was approximately $345,000 and is expected to be recognized over 2 years. The Company had approximately 41,630 exercisable options as of September 30, 2024. The following table summarizes options activity as of September 30, 2024:

The weighted average remaining contractual term for these options at September 30, 2024, was approximately 9.9 years. Based on the Black-Scholes option pricing model, the options estimated weighted average fair values at the date of grant of $4.15 per share. The fair values were estimated using the following weighted average assumptions:

The Company utilized the simplified method for estimating the stock options granted as the Company has experienced significant changes in its business and the historical data may not provide a reasonable basis upon which to estimate expected term.

NOTE 17. COMMITMENTS AND CONTINGENCIES

On August 15, 2023, Wainwright filed an action against the Company in the New York State Supreme Court in New York County. The complaint alleges a breach by the Company of an investment banking engagement letter entered into in October 2021. The Wainwright engagement letter expired in April 2022 without any financing transaction having been completed. The complaint claims that Wainright is entitled, under a “tail provision”, to an 8% fee and 7% warrant coverage on the Company’s $15 million secured convertible note financing. The complaint seeks damages of $1.2 million,22 common stock warrants with a per share exercise price of $60,500, and attorney fees. On May 15, 2024, the Company and Wainwright reached a settlement agreement. The settlement did not have a material impact on our financial statements.

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 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 financial position or results of operations in particular quarterly or annual periods.

NOTE 18. SUBSEQUENT EVENTS

Subsequent to September 30, 2024, the Company sold 49,325 shares of common stock under the ATM Agreement at an average price of $2.87 per share, resulting in aggregate gross proceeds of approximately $141,400.

On October 17, 2024, the Company entered into a securities purchase agreement with accredited investors for a convertible preferred stock financing for approximately $1.9 million of gross proceeds and will issue approximately 1,900 shares of Series 1C convertible preferred stock (“Series 1C Preferred Stock”) at a purchase price of $1,000 per share. Through November 14, 2024, the Company received approximately $665,000 of gross proceeds and will receive the remaining balance during the fourth quarter. The Series 1C Preferred Stock is convertible into common stock at any time after April 17, 2025 at the option of the holder at an initial fixed conversion price of $2.50 per share of common stock; however, the holder may not convert any portion to the extent that the holder would beneficially own more than 4.99% of the Company's outstanding shares of Common Stock outstanding immediately after giving effect to the conversion.

Holders of the Series 1C Preferred Stock will be entitled to dividends on the per share stated value of $1,000 in the amount of 10% per annum, payable quarterly. The dividend rate will increase to 15% if any of the Series 1C Preferred Stock remains outstanding on or after October 17, 2027. Unless the Company elects to pay dividends on the Series 1C Preferred Stock in cash, the Company will cumulate the dividends, in which case the accrued dividend amount shall be added to the stated value of each share of Series 1C Preferred Stock.

If at any time the closing sale price of the Company’s common stock equals at least 300% of the conversion price for the most recent 20 consecutive trading days, the Company shall have the right to redeem all, but not less than all, of the Series 1C Preferred Stock then outstanding in cash at a price equal to 110% of the stated value of the shares being redeemed.

Upon our liquidation, dissolution or winding up, holders of Series 1C Preferred Stock shall be entitled to receive in cash out of the assets of the Company, before any amount shall be paid to the holders of any of shares of common stock, an amount per share of Series 1C Preferred Stock equal to the greater of (A)110% of the stated value of such preferred share and (B) the amount per share such holder would receive if such holder converted such preferred share into common stock immediately prior to the date of such payment.

On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series 1C Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the outstanding shares of Series 1C Preferred Stock held by such holder are convertible as of the record date (but only after giving effect to the maximum percentage conversion limitations referred to above). Except as provided by law or by the other provisions of the Series 1C Preferred Stock, holders of Series 1C Preferred Stock shall vote together with the holders of common stock as a single class and on an as-converted to common stock basis.