| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies (Restated) Basis of Reporting The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and Article 8 of Regulation S-X. Accordingly, certain disclosures included in the annual financial statements have been condensed or omitted from these unaudited condensed consolidated financial statements as they are not required for interim financial statements under GAAP and the rules of the SEC. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any future period. The unaudited condensed consolidated financial statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2022 consolidated financial statements, included in Form S-1 which was determined effective on November 13, 2023, and should be read in conjunction with the Notes to condensed consolidated financial statements which appear therein. Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of Electriq, its wholly-owned subsidiaries and its 80% owned subsidiary for which it has controlling interest. All significant intercompany balances and transactions have been eliminated in consolidation. The Company’s revenues, expenses, assets and liabilities are primarily denominated in U.S. dollars, and as a result, the Company has adopted the U.S. dollar as its functional and reporting currency. Restatement On December 8, 2023, the Company received information related to an interpretation of the staff of the U.S. Securities and Exchange Commission (“SEC”) that the Company understands is applicable to SPAC-related companies that have entered into “forward purchase agreements,” “pre-paid forward transactions,” and/or “backstop agreements” (collectively, “Purchase Agreements”). The interpretation relates to the accounting and reporting for certain Purchase Agreements for which the repurchase price has been partially prepaid; in particular, that the prepayment amount may not be reported as an asset. The Company reviewed its prior interpretation of the accounting guidance applicable to certain elements of the Forward Purchase Agreement (“FPA”) and determined the prepayment amount of $37,072,106, previously recorded as part of a net forward purchase contract asset in the condensed consolidated balance sheet, should be reclassified to the equity section of the condensed consolidated balance sheet, and the remaining liability balance associated with the FPA, including the in-substance written put option, the maturity consideration and the share consideration, should be reflected in current liabilities in our condensed consolidated balance sheet, as its liquidation is reasonably expected to use or require current assets or the creation of current liabilities. The fair value of the forward purchase contract derivative liability as of September 30, 2023 was $34,970,682. The difference of $2,101,424 was previously recorded net as a forward purchase contract asset within total current assets in the Company’s condensed consolidated balance sheet, but should instead be reported on a gross basis. In accordance with ASC 250, Accounting Changes and Error Corrections, Electriq also evaluated the materiality of the errors to the Company’s previously filed financial statements for the third quarter of 2023. Considering both quantitative and qualitative factors, the Company determined that the related impact was material to the previously filed condensed consolidated financial statements as of and for the period ended September 30, 2023, and restated and reissued these financial statements. Description of Error Corrected The previously reported amount prepaid to the Seller associated with the FPA of $37,072,106, as described in Note 1, Organization and Description of Business, Note 2, Summary of Significant Accounting Policies, and Note 12, Fair Value, was incorrectly classified as an asset instead of as an equity transaction. Additionally, the forward purchase contract derivative liability was incorrectly netted with the amount prepaid to the Seller and was presented as a net asset, instead of being separately presented as a liability. These errors impacted total current assets, the forward purchase contract derivative liability included in total current liabilities, and additional paid-in capital in the condensed consolidated balances sheet as of September 30, 2023, as well as the related footnote disclosures within Note 1, Organization and Description of Business, Note 2, Summary of Significant Accounting Policies, Note 12, Fair Value and Note 14, Subsequent Events. The effect of the correction of the error noted above on the relevant financial statement line items is as follows: As of September 30, 2023 As previously reported Reclassifications As restated Condensed Consolidated Balance Sheet Forward purchase contract asset $ 2,101,424 $ (2,101,424) $ — Total current assets $ 32,493,030 $ (2,101,424) $ 30,391,606 Total assets $ 37,701,915 $ (2,101,424) $ 35,600,491 Forward purchase contract derivative liability $ — $ 34,970,682 $ 34,970,682 Total current liabilities $ 13,447,872 $ 34,970,682 $ 48,418,554 Total liabilities $ 40,558,103 $ 34,970,682 $ 75,528,785 Additional paid-in capital $ 76,075,014 $ (37,072,106) $ 39,002,908 Total stockholders’ deficit $ (42,379,699) $ (37,072,106) $ (79,451,805) Total liabilities, mezzanine equity and stockholders’ deficit $ 37,701,915 $ (2,101,424) $ 35,600,491 Condensed Consolidated Statement of Changes in Stockholders’ Deficit Issuance of common stock in connection with the Business Combination, net $ (26,185,485) $ (37,072,106) $ (63,257,591) Additional paid-in capital $ 76,075,014 $ (37,072,106) $ 39,002,908 Total stockholders’ deficit $ (42,379,699) $ (37,072,106) $ (79,451,805) Going Concern The accompanying unaudited condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists. Through September 30, 2023, the Company has incurred recurring losses from operations and negative operating cash flows, and as of September 30, 2023 has recorded an accumulated deficit of $118,458,233. As disclosed in Note 7, in December 2022, the Company received a notice from its major customer, Kohler Co. (“White-Label Provider”), of its intent to terminate its contract. On May 19, 2023, it entered into a settlement with the customer. As a result, the Company experienced a significant decline in revenue during the three and nine months ended September 30, 2023, which is consistent with its revised forecast for the year ending December 31, 2023. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon improving its profitability through the introduction of new products and service offerings, including the successful execution of its sustainable communities network and microgrid offerings from customer agreements entered into in 2022 and 2023, as well as the continuing financial support from its stockholders or other debt or capital sources. The Company is currently evaluating strategies to obtain the additional required funding for its future operations. These strategies include, but are not limited to, obtaining equity financing, issuing debt or entering into financing arrangements, and as reflected in Note 1, funds that were received as part of the Pre-Closing and Closing Financings and Notes Conversion Agreements associated with the Business Combination . The Company’s ability to raise additional capital through the sale of equity or convertible debt securities could be significantly impacted by the resale of shares of Class A common stock by selling securityholders, which could result in a significant decline in the trading price of the Company’s Class A common stock and potentially hinder its ability to raise capital at terms that are acceptable. In addition, debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our operations. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing. These unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities and reported expenses that may result if the Company is not able to continue as a going concern. Use of Estimates The preparation of condensed consolidated 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions include the useful lives of property and equipment; inventory; stock-based compensation; warrants; derivatives; preferred stock; Forward Purchase Agreement; Simple Agreement for Future Equity (“SAFE”) notes; convertible notes; income taxes; and reserves for warranties. Trade Accounts Receivable Accounts receivable are recorded at original invoice amount less an allowance for uncollectible accounts that the Company believes will be adequate to absorb estimated losses on existing balances. The Company estimates the allowance based on collectability of accounts receivable, historical bad debts loss rate experience and expectations of forward looking estimates. Accounts receivable balances are written off against the allowance upon the Company’s determination such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes credit risks on accounts receivable will not be material to the financial position of the Company or its results of operations. The allowance for doubtful accounts was $40,449 and $30,429 as of September 30, 2023 and December 31, 2022, respectively. The Company did not record any net charges in the provision for expected credit losses or any write-offs against the allowance during the three months ended September 30, 2023. The Company recorded a net charge in the provision for expected credit losses and write-offs charged against the allowance of $10,020 and zero, respectively, in the nine months ended September 30, 2023. The Company recorded net charges in the provision for expected credit losses of $72,791 in both the three and nine months ended September 30, 2022, and write-offs charged against the allowance of $89,196 and $263,784, respectively, in the three and nine months ended September 30, 2022. Customary terms generally require payment within 30 to 90 days and, for certain customers, deposits may be required in advance of shipment. Comprehensive Loss The Company applies Accounting Standards Codification Topic (“ASC”) Topic 220 (Reporting Comprehensive Income) which requires that all items that are recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The items of other comprehensive income that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. For the three and nine months ended September 30, 2023 and 2022, the Company had no unrealized gains or losses. Segment Information ASC 280-10, Segment Reporting (“ASC 280-10”), establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. During the three and nine months ended September 30, 2023 and 2022, the Company sold its integrated energy storage systems through its partners and operated as one segment. Therefore, the consolidated information disclosed herein also represents all the financial information related to the Company’s operating segment. Research and Development The Company accounts for research and development costs in accordance with the ASC 730-10, Research and Development. Under ASC 730-10, all research and development costs must be charged to expense as incurred. Shipping and Handling Fees Shipping and handling fees billed to customers, as well as the costs associated with shipping goods to customers, are recorded within selling, general and administrative expenses. During the three months ended September 30, 2023 and 2022, the Company incurred $6,645 and $9,970, respectively, and during the nine months ended September 30, 2023 and 2022, the Company incurred $16,181 and $29,435, respectively, which is recorded in general and administrative in the condensed consolidated statements of operations. Advertising The Company charges the cost of advertising to expense as incurred. During the three months ended September 30, 2023 and 2022, the Company incurred $440,618 and $148,215, respectively, and during the nine months ended September 30, 2023 and 2022, the Company incurred $1,122,791 and $628,826, respectively, which is recorded in sales and marketing in the condensed consolidated statements of operations. Concentration of Credit Risks and Other Risks and Uncertainties Financial instruments potentially subjecting the Company to concentrations of credit risk consist principally of cash and accounts receivable. Cash is mainly deposited on demand at one financial institution in the U.S. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash. The Company’s accounts receivables are derived from revenue earned from customers located throughout the world. When necessary, the Company performs credit evaluations of its customers’ financial condition and sometimes requires partial payment in advance of shipping. As of September 30, 2023 and December 31, 2022, the Company had two customers accounting for 70% and 19% of accounts receivable, and three customers accounting for 30%, 27% and 20% of accounts receivable, respectively. For the nine months ended September 30, 2023 and 2022, the Company had two customers accounting for 58% and 19% of its revenue, and one customer accounting for 90% of its revenue, respectively. On December 12, 2022, a customer, which accounted for 87% of the Company’s revenue for the year ended December 31, 2022, provided notice of its intent to terminate the contract claiming the Company breached its agreement with them. On May 19, 2023, the Company entered into a settlement with the customer. As a result, the Company experienced a significant decline in revenue during the three and nine months ended September 30, 2023, which is consistent with its revised forecast for the year ending December 31, 2023. Income Taxes The Company and its subsidiaries account for income taxes in accordance with ASC 740, Income Taxes. ASC 740 prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized. The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement. The Company classifies interest and penalties related to income taxes, if any, as a component of income tax expense in its condensed consolidated statements of operations. Fair Value of Financial Instruments The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the condensed consolidated balance sheets, primarily due to their short-term nature, except for the derivative warrant liabilities and the forward purchase contract derivative liability. See Note 12. Fair Value Measurements Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: • Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; • Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and • Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. Derivative Warrants Liability The Company does not use derivative instruments to hedge exposures to cashflow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. The preferred stock warrants were for contingently redeemable preferred stock, and as such, the preferred stock warrants were classified as a liability in warrants liability in the condensed consolidated balance sheets. The common stock warrants were legally detachable, transferable, and exercisable into a variable number of shares, and as such were classified as a liability in warrants liability in the condensed consolidated balance sheets. The warrants liability is subject to a fair value remeasurement each period with an offsetting adjustment reflected in unrealized fair value adjustments in the condensed consolidated statements of operations. The Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. The Private Placement Warrants failed the indexation guidance in ASC 815-40. Provisions within the warrant agreement preclude the Private Placement Warrants from being considered indexed to the Company’s own stock, and thus the Private Placement Warrants are classified as a liability measured at fair value. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and remeasures to fair value at each reporting period. Changes in fair value are recognized in the Company’s condensed consolidated statements of operations. The Company’s Private Placement Warrants have been measured to fair value using the option-pricing method. See Note 11. De rivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities. As a result of the Business Combination, Public Warrants were recorded at a fair value of $1,600,000 in equity at the Closing Date. After completion of the Business Combination, Electriq has only a single class of participating securities. Therefore, in the event of a tender offer of more than 50% of outstanding equity, a change of control would occur and settlement of warrants in cash or other assets would not preclude equity classification under ASC 815-40-25. Further the Company notes that there are no settlement features that otherwise preclude the public warrants from being considered fixed-for-fixed under ASC 815-40-15 and being considered equity classified under ASC 815-40-25 post-merger. Therefore, Electriq has presented these public warrants as equity classified instruments. Forward Purchase Contract Derivative Liability The Company accounts for the forward purchase contract derivative liability as a derivative instrument in accordance with the guidance in ASC 480-10. The instrument is subject to remeasurement at each balance sheet date, with changes in fair value recognized in the statements of operations. See Note 12. The ability of the Company to receive any of the proceeds from the forward purchase contract is dependent upon factors outside the control of the Company. The Company established the fair value of the forward purchase contract derivative liability on the Closing Date of the Business Combination. The estimated fair value of the forward purchase contract derivative liability was calculated using a Black-Scholes option pricing model and used significant assumptions including the risk free rate and volatility. Given the limited trading history of the Company, the Company utilized the volatility of a peer group of similar public companies. Forward purchase contract derivative liability was classified as a current liability, as its liquidation is reasonably expected to use or require current assets or the creation of current liabilities. Contingently Redeemable Class A Common Stock The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. The Company’s Class A common stock is classified as mezzanine equity as it features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. As of September 30, 2023 and December 31, 2022, 3,734,062 and zero, respectively, shares of Class A common stock subject to possible redemption is presented at redemption value as mezzanine equity. See Note 9. Embedded Derivatives The Company accounts for embedded derivatives at fair value in accordance with ASC 815-15, Derivatives and Hedging; Embedded Derivatives. Embedded derivatives that are required to be bifurcated from the underlying host instrument are accounted for and valued as a separate financial instrument. Product Warranties The Company provides a warranty on all its products, which is the shorter of ten years or when the usage exceeds 7.52 megawatt hours (MWh), except one customer during 2020 and prior where the warranty excludes batteries and limits the inverter warranty to five years. Estimated future warranty costs are accrued and charged to cost of goods sold in the period the related revenue is recognized. These estimates are derived from historical data and trends of product reliability and estimated costs of repairing and replacing defective products. Stock-based Compensation Stock-based awards issued to employees, executives and consultants are valued as of the grant date. Corresponding compensation expense is recognized over the applicable vesting period. For awards with a service condition for vesting, the related expense is recognized on a straight-line basis over the entire award’s actual or implied vesting period. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards as of the date of grant. This requires management assumptions that involve inherent uncertainties and the application of judgment, including (a) the fair value of the Company’s common stock on the date of the option grant, (b) the expected term of the stock option until its exercise by the recipient, (c) expected stock price volatility over the expected term, (d) the prevailing risk-free interest rate over the expected term, and (e) expected dividend payments over the expected term. Management estimates the expected term of awarded stock options utilizing the “simplified method” as the Company does not yet have sufficient exercise history. Further, the Company lacked company-specific historical and implied volatility information of its stock. Accordingly, management estimates this expected volatility using its designated peer-group of publicly-traded companies for a look-back period, as of the date of grant, which corresponds with the expected term of the awarded stock option. The Company estimates the risk-free interest rate based upon the U.S. Department of the Treasury yield curve in effect at award grant for time periods that correspond with the expected term of the awarded stock option. The Company accounts for forfeitures as they occur. The Company’s expected dividend yield is zero because it has never paid cash dividends and does not expect to for the foreseeable future. Given the absence of a public trading market prior to the completion of the Business Combination, the Company’s Board of Directors, with input from management, considered numerous objective and subjective factors to determine the fair value of its common stock. The factors included: (1) third-party valuations of the Company’s common stock; (2) the Company’s stage of development; (3) the status of research and development efforts; (4) the rights, preferences and privileges of the Company’s preferred stock relative to common stock; (5) the Company’s operating results and financial condition, including the Company’s levels of available capital resources; (6) equity market conditions affecting comparable public companies; (7) general U.S. market conditions; and (8) the lack of current marketability of the Company’s common stock. Subsequent to the Closing Date, the closing price of ELIQ on the date of grant is utilized for the measurement of stock compensation expense. A restricted stock award is a grant of company stock in which the recipient's rights in the stock are restricted until the shares vest. As per the Company’s 2023 Equity Incentive Plan, unless otherwise set forth in an individual award agreement, each award shall vest over a three year period with one-third of the award vesting on each annual anniversary of the date of grant. The fair market value of a restricted stock award is the market value as determined by the closing price of the stock on the date of grant. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation, and are depreciated using the following method over the estimated useful lives: Depreciation Method Estimated useful lives of assets Computer Straight-line 5 years Office equipment Straight-line 5-7 years Machinery Straight-line 5 years Leasehold improvements Straight-line 1-5 years Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterments that extend the useful lives of property and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in the condensed consolidated statements of operations. Long-Lived Assets The Company follows a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Impairment is measured as the excess of the carrying value over the estimated fair value of such assets. Debt Debt is carried at the outstanding principal balance, less unamortized discount or premium. The Company accounts for convertible instruments in accordance ASC Topic 470, Accounting for Convertible Securities with Beneficial Conversion Features. Accordingly, the Company records, when necessary, discounts to convertible notes for the fair value of conversion options identified as embedded derivatives in accordance with ASC 815-15, Derivatives and Hedging; Embedded Derivatives. Debt discounts under these arrangements are amortized over the term of the related debt. SAFE notes During the year ended December 31, 2021, the Company executed SAFE arrangements. The SAFE notes were not mandatorily redeemable, nor did they require the Company to repurchase a fixed number of shares. The Company determined the SAFE notes contained a liquidity event provision that embodied an obligation indexed to the fair value of the Company’s equity shares and could have required the Company to settle the SAFE obligation by transferring assets or cash. Accordingly, the Company recorded the SAFE notes as a liability under ASC 480 and re-measured fair value at the end of each reporting period, with changes in fair value reported in operations. The fair value of the SAFE notes was estimated using a probability weighted value method based on the total present value of cash flows, utilizing a 20% discount rate, plus the additional upside from the fixed price conversions for each of the scenarios. The unobservable inputs for the fixed |
