Document and Entity Information
Document and Entity Information | 9 Months Ended |
Sep. 30, 2023 | |
Document and Entity Information [Abstract] | |
Document Type | S-1/A |
Entity Registrant Name | ProSomnus, Inc. |
Entity Filer Category | Non-accelerated Filer |
Entity Small Business | true |
Entity Emerging Growth Company | true |
Entity Ex Transition Period | false |
Entity Central Index Key | 0001934064 |
Amendment Flag | true |
Amendment Description | AMENDMENT NO. 1 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Current assets: | ||
Cash and cash equivalents | $ 12,021,908 | $ 15,916,141 |
Accounts receivable, net | 3,443,306 | 2,843,148 |
Inventory | 1,650,097 | 639,945 |
Prepaid expenses and other current assets | 557,561 | 1,846,870 |
Total current assets | 17,672,872 | 21,246,104 |
Property and equipment, net | 3,739,621 | 2,404,402 |
Finance lease right-of-use assets | 3,532,240 | 3,650,451 |
Operating lease right-of-use assets | 5,154,399 | 5,632,771 |
Other assets | 284,000 | 262,913 |
Total assets | 30,383,132 | 33,196,641 |
Current liabilities: | ||
Accounts payable | 1,747,841 | 2,101,572 |
Accrued expenses | 8,373,482 | 3,706,094 |
Equipment financing obligation | 55,510 | 58,973 |
Finance lease liabilities | 1,109,899 | 1,008,587 |
Operating lease liabilities | 290,869 | 215,043 |
Total current liabilities | 11,577,601 | 7,090,269 |
Equipment financing obligation, net of current portion | 143,498 | 185,645 |
Finance lease liabilities, net of current portion | 2,226,908 | 2,081,410 |
Operating lease liabilities, net of current portion | 5,267,969 | 5,525,562 |
Senior Convertible Notes at fair value | 13,286,405 | 13,651,000 |
Subordinated Convertible Notes at fair value | 18,720,000 | 10,355,681 |
Earnout liability | 730,000 | 12,810,000 |
Warrant liability | 134,043 | 1,991,503 |
Total noncurrent liabilities | 40,508,823 | 46,600,801 |
Total liabilities | 52,086,424 | 53,691,070 |
Commitments and contingencies | ||
Stockholders' deficit: | ||
Preferred stock, $0.0001 par value, 975,000 and 1,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively; no shares issued and outstanding | ||
Common stock, $0.0001 par value, 100,000,000 shares authorized; 16,288,124 and 16,041,464 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 1,629 | 1,604 |
Additional paid-in capital | 194,650,729 | 190,298,562 |
Accumulated deficit | (228,020,639) | (210,794,595) |
Total stockholders' deficit | (33,368,281) | (20,494,429) |
Total liabilities and stockholders' deficit | 30,383,132 | $ 33,196,641 |
Series A Preferred Stock | ||
Current liabilities: | ||
Redeemable Series A Preferred Stock, $0.0001 par value, stated value $1,000; 25,000 shares authorized at September 30, 2023; 9,526 shares issued and outstanding at September 30, 2023; liquidation preference of $14,289 at September 30, 2023; No shares authorized, issued and outstanding at December 31, 2022 | $ 11,664,989 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Allowance for doubtful accounts | $ 162,635 | |
Redeemable Series A convertible preferred stock, par value (in dollars per share) | $ 0.0001 | |
Redeemable Series A convertible preferred stock, stated value (in dollars per share) | $ 1,000 | |
Redeemable Series A convertible preferred stock, shares authorized | 25,000 | 0 |
Redeemable Series A convertible preferred stock, shares issued | 9,526 | 0 |
Redeemable Series A convertible preferred stock, shares outstanding | 9,526 | 0 |
Redeemable Series A convertible preferred stock, liquidation preference | $ 14,289 | |
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 975,000 | 1,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 16,288,124 | 16,041,464 |
Common stock, shares outstanding | 16,288,124 | 16,041,464 |
Series A Preferred Stock | ||
Redeemable Series A convertible preferred stock, par value (in dollars per share) | $ 1,000 | $ 10 |
Redeemable Series A convertible preferred stock, shares authorized | 25,000 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||
Revenue | $ 7,071,445 | $ 4,997,979 | $ 19,813,735 | $ 13,601,031 |
Cost of revenue | 3,580,073 | 2,540,288 | 9,507,498 | 6,440,475 |
Gross profit | 3,491,372 | 2,457,691 | 10,306,237 | 7,160,556 |
Operating expenses | ||||
Sales and marketing | 3,240,511 | 2,319,362 | 9,707,277 | 6,450,173 |
Research and development | 1,040,065 | 688,540 | 3,435,070 | 1,915,521 |
General and administrative | 3,426,872 | 1,577,049 | 11,260,003 | 4,219,938 |
Total operating expenses | 7,707,448 | 4,584,951 | 24,402,350 | 12,585,632 |
Net loss from operations | (4,216,076) | (2,127,260) | (14,096,113) | (5,425,076) |
Other income (expense) | ||||
Interest expense, net | (1,489,286) | (1,421,702) | (3,901,255) | (3,714,777) |
Change in fair value of earnout liability | 3,880,000 | 12,080,000 | ||
Change in fair value of debt | 3,699,737 | 1,070,307 | ||
Change in fair value of warrant liability | 593,621 | 1,857,460 | (20,756) | |
Loss on debt extinguishment | (9,743,043) | (9,743,043) | (192,731) | |
Other expense | (3,963,756) | (4,493,400) | ||
Total other income (expense), net | (7,022,727) | (1,421,702) | (3,129,931) | (3,928,264) |
Net loss before income taxes | (11,238,803) | (3,548,962) | (17,226,044) | (9,353,340) |
Net loss | $ (11,238,803) | $ (3,548,962) | $ (17,226,044) | $ (9,353,340) |
Net loss per share attributable to common stockholders, basic | $ (0.70) | $ (0.14) | $ (1.07) | $ (0.38) |
Net loss per share attributable to common stockholders, diluted | $ (0.70) | $ (0.14) | $ (1.07) | $ (0.38) |
Weighted average shares attributable to common stockholders, basic | 16,115,254 | 24,713,218 | 16,071,719 | 24,611,666 |
Weighted average shares attributable to common stockholders, diluted | 16,115,254 | 24,713,218 | 16,071,719 | 24,611,666 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (UNAUDITED) - USD ($) | Series B redeemable convertible preferred stock Warrant Preferred Stock | Series B redeemable convertible preferred stock Preferred Stock | Series B redeemable convertible preferred stock | Series A Preferred Stock ProSomnus Common Holders Preferred Stock | Series A Preferred Stock ProSomnus Common Holders | Series A Preferred Stock Preferred Stock Convertible Bridge Notes | Series A Preferred Stock Preferred Stock | Series A Preferred Stock | Class A common stock PIPE Equity Common Stock | Class A common stock PIPE Debt SPA Shares Common Stock | Class A common stock Common Stock | Warrant Additional Paid-In Capital | Warrant | PIPE Equity Additional Paid-In Capital | PIPE Equity | PIPE Debt SPA Shares Additional Paid-In Capital | PIPE Debt SPA Shares | Common Stock | Additional Paid-In Capital Convertible Bridge Notes | Additional Paid-In Capital | Accumulated Deficit | Convertible Bridge Notes | Total |
Beginning balance at Dec. 31, 2020 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2020 | 7,288,333 | 26,245 | |||||||||||||||||||||
Ending balance at Dec. 31, 2021 | $ 12,389,547 | $ 12,389,547 | $ 26,245,000 | $ 26,245,000 | |||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2021 | 7,288,333 | 7,288,333 | 26,245 | 26,245 | 7,314,578 | ||||||||||||||||||
Beginning balance at Dec. 31, 2020 | $ 2,418 | $ 150,421,286 | $ (197,671,868) | $ (47,248,164) | |||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2020 | 24,184,697 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of restricted stock awards | $ 38 | (38) | |||||||||||||||||||||
Vesting of restricted stock awards (in shares) | 381,689 | ||||||||||||||||||||||
Stock-based compensation expense | $ 0 | 4,712 | 4,712 | ||||||||||||||||||||
Net loss | (5,977,407) | (5,977,407) | |||||||||||||||||||||
Ending balance at Dec. 31, 2021 | $ 2,456 | 150,425,960 | (203,649,275) | (53,220,859) | |||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2021 | 24,566,386 | ||||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 7,288,333 | 26,245 | |||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of restricted stock awards | $ 21 | (21) | |||||||||||||||||||||
Vesting of restricted stock awards (in shares) | 215,536 | ||||||||||||||||||||||
Stock-based compensation expense | 5,000 | 5,000 | |||||||||||||||||||||
Net loss | (9,353,340) | (9,353,340) | |||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 2,477 | 150,430,939 | (213,002,615) | $ (62,569,199) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 26,245 | 24,781,922 | |||||||||||||||||||||
Beginning balance at Dec. 31, 2021 | $ 12,389,547 | $ 12,389,547 | $ 26,245,000 | $ 26,245,000 | |||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 7,288,333 | 7,288,333 | 26,245 | 26,245 | 7,314,578 | ||||||||||||||||||
Increase (Decrease) in Temporary Equity | |||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 161,112 | 161,112 | 5,945 | 5,945 | 13,081 | ||||||||||||||||||
Merger Recapitalization - Preferred | $ (12,389,563) | $ (26,245,000) | |||||||||||||||||||||
Merger Recapitalization - Preferred (in shares) | (7,449,445) | (45,271) | |||||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2022 | 0 | ||||||||||||||||||||||
Beginning balance at Dec. 31, 2021 | $ 2,456 | 150,425,960 | (203,649,275) | $ (53,220,859) | |||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 24,566,386 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of early exercised options | $ 85 | 2,156,915 | 2,157,000 | ||||||||||||||||||||
Vesting of early exercised options (in shares) | 854,507 | ||||||||||||||||||||||
Issuance of shares, net of cancellations and issuance costs | $ 16 | $ 183 | $ 33 | $ 579,984 | $ 579,984 | $ 10,249,817 | $ 10,250,000 | $ 478,834 | $ 478,867 | $ 13,080,756 | $ 13,080,756 | ||||||||||||
Issuance of shares, net of cancellations and issuance costs (in shares) | 1,830,133 | 326,713 | 1,830,133 | ||||||||||||||||||||
Merger Recapitalization - Preferred | $ 721 | 38,635,975 | 38,636,696 | ||||||||||||||||||||
Merger Recapitalization - Preferred (in shares) | 7,208,865 | ||||||||||||||||||||||
Merger Recapitalization - Common | $ 408 | $ (2,541) | (2,132) | ||||||||||||||||||||
Merger Recapitalization - Common (in shares) | 4,084,418 | (25,420,893) | |||||||||||||||||||||
Issuance of Common Stock - services | $ 72 | 7,159,090 | 7,159,162 | ||||||||||||||||||||
Issuance of Common Stock - services (in shares) | 716,223 | ||||||||||||||||||||||
Issuance costs - ProSomnus Inc. | (12,640,679) | $ (12,640,679) | |||||||||||||||||||||
Conversion of LAAA Founder Common Stock | $ 105 | (105) | |||||||||||||||||||||
Conversion of LAAA Founder Common Stock (in shares) | 1,054,390 | ||||||||||||||||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders | $ 82 | (82) | |||||||||||||||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders (in shares) | 820,722 | ||||||||||||||||||||||
Issuance of Warrants | 1,991,503 | ||||||||||||||||||||||
Assumption of SPAC Assets and Liabilities | 2,242,097 | $ 2,242,097 | |||||||||||||||||||||
Earn-out liability | (22,070,000) | (22,070,000) | |||||||||||||||||||||
Stock-based compensation expense | $ 2,145,000 | 2,156,915 | |||||||||||||||||||||
Net loss | (7,145,320) | (7,145,320) | |||||||||||||||||||||
Ending balance at Dec. 31, 2022 | $ 1,604 | $ 1,604 | 190,298,562 | (210,794,595) | (20,494,429) | ||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2022 | 16,041,464 | 16,041,464 | |||||||||||||||||||||
Beginning balance at Jun. 30, 2022 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Beginning balance (in shares) at Jun. 30, 2022 | 7,288,333 | 26,245 | |||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 7,288,333 | 26,245 | |||||||||||||||||||||
Beginning balance at Jun. 30, 2022 | $ 2,469 | 150,429,947 | (209,453,653) | (59,021,237) | |||||||||||||||||||
Beginning balance (in shares) at Jun. 30, 2022 | 24,702,891 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of restricted stock awards | $ 8 | (8) | |||||||||||||||||||||
Vesting of restricted stock awards (in shares) | 79,031 | ||||||||||||||||||||||
Stock-based compensation expense | 1,000 | 1,000 | |||||||||||||||||||||
Net loss | (3,548,962) | (3,548,962) | |||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 2,477 | 150,430,939 | (213,002,615) | $ (62,569,199) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 26,245 | 24,781,922 | |||||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2022 | 0 | ||||||||||||||||||||||
Increase (Decrease) in Temporary Equity | |||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock | $ 11,664,989 | ||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 9,526 | 9,526 | |||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 11,664,989 | $ 11,664,989 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 9,526 | 9,526 | |||||||||||||||||||||
Beginning balance at Dec. 31, 2022 | $ 1,604 | $ 1,604 | 190,298,562 | (210,794,595) | $ (20,494,429) | ||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2022 | 16,041,464 | 16,041,464 | |||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Conversion of Subordinated Convertible Notes | $ 23 | 919,546 | 919,569 | ||||||||||||||||||||
Conversion of Subordinated Convertible Notes (in shares) | 230,494 | ||||||||||||||||||||||
Issuance of stock warrants | 2,552,857 | 2,552,857 | |||||||||||||||||||||
Issuance of shares, net of cancellations and issuance costs | $ 2 | 163,571 | 163,573 | ||||||||||||||||||||
Issuance of shares, net of cancellations and issuance costs (in shares) | 16,166 | ||||||||||||||||||||||
Stock-based compensation expense | 716,193 | 716,193 | |||||||||||||||||||||
Net loss | (17,226,044) | (17,226,044) | |||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 1,629 | 194,650,729 | (228,020,639) | $ (33,368,281) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 16,288,124 | ||||||||||||||||||||||
Increase (Decrease) in Temporary Equity | |||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock | $ 11,664,989 | ||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 9,526 | ||||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 11,664,989 | $ 11,664,989 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 9,526 | 9,526 | |||||||||||||||||||||
Beginning balance at Jun. 30, 2023 | $ 1,606 | 191,031,730 | (216,781,836) | $ (25,748,500) | |||||||||||||||||||
Beginning balance (in shares) at Jun. 30, 2023 | 16,057,630 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Conversion of Subordinated Convertible Notes (in shares) | 230,494 | ||||||||||||||||||||||
Issuance of stock warrants | 2,552,857 | 2,552,857 | |||||||||||||||||||||
Issuance of Common Stock - services | $ 23 | 919,546 | 919,569 | ||||||||||||||||||||
Stock-based compensation expense | 146,596 | 146,596 | |||||||||||||||||||||
Net loss | (11,238,803) | (11,238,803) | |||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 1,629 | $ 194,650,729 | $ (228,020,639) | $ (33,368,281) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 16,288,124 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 9 Months Ended | |
Sep. 30, 2023 | Sep. 30, 2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (17,226,044) | $ (9,353,340) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation | 578,503 | 302,932 |
Reduction of finance right-of-use asset | 681,763 | 597,904 |
Reduction of operating right-of-use asset | 286,337 | 131,090 |
Loss on financing transactions | 2,472,915 | |
Noncash interest | 2,528,106 | 2,934,254 |
Noncash research and development | 100,000 | |
Loss on disposal of property and equipment | 117,449 | |
Amortization of debt discount | 1,468,497 | 135,956 |
Bad debt expense | 87,181 | 54,448 |
Stock-based compensation | 716,193 | 5,000 |
Shares issued for services received | 163,573 | |
Change in fair value of earnout liability | (12,080,000) | |
Change in fair value of debt | (1,070,307) | |
Change in fair value of warrant liability | (1,857,460) | 20,756 |
Impairment of assets | 682,126 | |
Loss on extinguishment of debt | 9,743,043 | 192,731 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (687,339) | (296,524) |
Inventory | (1,010,152) | (26,936) |
Prepaid expenses and other current assets | 1,061,382 | (319,416) |
Deferred financing costs | (1,807,626) | |
Other assets | (21,087) | (108,117) |
Accounts payable | (472,438) | 2,195,139 |
Accrued expenses | 3,384,095 | 854,915 |
Operating lease liabilities | 38,101 | (148,486) |
Commission settlement | (127,074) | |
Net cash used in operating activities | (10,315,563) | (4,762,394) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | (1,903,242) | (331,373) |
Net cash used in investing activities | (1,903,242) | (331,373) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from issuance of Series A Convertible Preferred Stock and warrants | 9,526,000 | |
Proceeds from subscription agreements | 1,225,000 | |
Proceeds from line of credit | 18,759,540 | |
Repayments of line of credit | (17,587,978) | |
Proceeds from issuance of subordinated notes | 375,000 | |
Repayments of subordinated notes | (75,000) | |
Payment of deferred financing cost | (129,117) | |
Principal payments on finance lease obligations | (1,026,701) | (822,315) |
Principal payments on equipment financing obligation | (45,610) | (41,728) |
Repayments of subordinated loan and security agreement | (710,320) | |
Proceeds from issuance of unsecured subordinated promissory notes | 5,131,789 | |
Repayments of unsecured subordinated promissory notes | (500,000) | |
Net cash provided by (used in) financing activities | 8,324,572 | 5,753,988 |
Net increase (decrease) in cash and cash equivalents | (3,894,233) | 660,221 |
Cash and cash equivalents at beginning of period | 15,916,141 | 1,500,582 |
Cash and cash equivalents at end of period | 12,021,908 | 2,160,803 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 1,134,832 | 559,230 |
Cash paid for franchise taxes | 800 | 6,480 |
Supplemental disclosure of noncash investing and financing activities: | ||
Acquisition of property and equipment through finance financing | 1,560,520 | |
Addition of ROU assets from finance lease modification | $ 239,000 | |
ROU assets obtained in exchange for finance lease obligations | 1,273,511 | |
Conversion of Subordinated Convertible Notes to common stock | $ 919,546 |
DESCRIPTION OF THE BUSINESS
DESCRIPTION OF THE BUSINESS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
DESCRIPTION OF THE BUSINESS | ||
DESCRIPTION OF THE BUSINESS | NOTE 1 — DESCRIPTION OF THE BUSINESS Company Organization ProSomnus, Inc., and its wholly owned subsidiaries, ProSomnus Holdings, Inc. and ProSomnus Sleep Technologies, Inc. (collectively, the “Company”) is an innovative medical technology company that develops, manufactures, and markets its proprietary line of precision intraoral medical devices for treating and managing patients with obstructive sleep apnea (“OSA”). The Company is located in Pleasanton, California and was incorporated as a Delaware company on May 3, 2022. Its accounting predecessor company, ProSomnus Sleep Technologies, Inc. was incorporated as a Delaware company on March 2, 2016. | NOTE 1 — DESCRIPTION OF THE BUSINESS Company Organization ProSomnus, Inc., and its wholly owned subsidiaries, ProSomnus Holdings, Inc., ProSomnus Sleep Technologies, Inc. (collectively, the “Company”) is an innovative medical technology company that develops, manufactures, and markets its proprietary line of precision intraoral medical devices for treating and managing patients with obstructive sleep apnea (“OSA”). The Company is located in Pleasanton, California and was incorporated as Delaware company on May 3, 2022. Its accounting predecessor company, Sleep Technologies, Inc. was incorporated in Delaware on March 2, 2016. On December 6, 2022, Lakeshore Acquisition I Corp. (“Lakeshore”) consummated a series of transactions that resulted in the combination (the “Business Combination”) of Lakeshore with ProSomnus Holdings, Inc. and its wholly-owned subsidiary, Prosomnus Sleep Technologies, Inc., pursuant to an Agreement and Plan of Merger, dated May 9, 2022. Pursuant to the Merger Agreement, Lakeshore merged with and into ProSomnus Holdings, and changed its name to ProSomnus, Inc. The transaction was accounted for as a reverse recapitalization with ProSomnus Sleep Technologies, Inc. being the accounting acquirer and Lakeshore as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the consolidated financial statements represents the accounts of ProSomnus Sleep Technologies, Inc. Prior to the Business Combination, Lakeshore’s units, public shares, and public warrants were listed on The Nasdaq Global Market under the symbols “LAAU,” “LAAA,” and “LAAW,” respectively. On December 6, 2022, the Company’s Class A common stock and public warrants began trading on Nasdaq, under the symbols “OSA” and “OSAAW,” respectively . |
BASIS OF ACCOUNTING AND SIGNIFI
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | ||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and in conjunction with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 14, 2023. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any future periods. The condensed consolidated balance sheet as of December 31, 2022, has been derived from audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. The Company expects operating losses and negative cash flows from operations to continue for the foreseeable future. The Company’s ability to continue as a going concern depends on its ability to execute on its plans to achieve revenue growth forecast, control operating costs, and obtain additional financing. The Company has developed a cash flow breakeven plan pursuant to which the Company expects to maintain positive cash balances and compliance with its debt covenants and commitments. The Company has commenced the implementation of its plan and believes the plan, when fully implemented as planned, will mitigate the liquidity risks identified. However, the Company’s operating plan may change as a result of many factors currently unknown and there can be no assurance that the current operating plan or cash flow break even plan will be achieved in the time frame anticipated by the Company. Furthermore, there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis or at all. Based on the Company’s current level of expenditures and management’s future cash flow projections, the Company believes its cash and cash equivalents of $12.0 million and working capital of $6.1 million at September 30, 2023, may not be sufficient for the Company to continue operations as a going concern for at least one year from the issuance date of these condensed consolidated financial statements. Additionally, from July 1, 2023, the Convertible Notes (as defined in Note 7) require the Company to maintain a minimum cash balance of $4.5 million on the first of each calendar month. The Company believes that without the successful and full implementation of its cash flow breakeven plan, these factors raise substantial doubt about its ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s significant estimates in these condensed consolidated financial statements relate to the fair values, and the underlying assumptions used to formulate such fair values, of its Series A Preferred Stock, Convertible Notes, earn-out liability, and warrants. Estimates also include the allowance for doubtful accounts receivable, warranty and earned discount accruals, measurements of tax assets and liabilities and stock-based compensation. Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — The valuation is based on quoted prices in active markets for identical instrument. Level 2 Inputs — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model — based valuation techniques for which all significant assumptions are observable in the market. Level 3 Inputs — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company’s financial instruments consist primarily of cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable and accrued expenses, long-term debt instruments, earnout and warrant liabilities. The carrying values of our working capital balances are representative of their fair values due to their short-term maturities. The carrying value of our equipment financing obligation is considered to approximate its fair value because the interest rate is comparable to current rates for financing available to us. Under the fair value option as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments , we have elected to record our convertible debt instruments at fair value. The earnout and warrant liabilities are presented at fair value on the condensed consolidated balance sheets. The following tables provide a summary of the financial instruments that are measured at fair value on a recurring basis: September 30, 2023 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,286,405 $ — $ — $ 13,286,405 Subordinated Convertible Notes 18,720,000 — — 18,720,000 Earnout liability 730,000 — — 730,000 Warrant liability 134,043 — — 134,043 December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earnout liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Cash and Cash Equivalents The Company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of September 30, 2023, and December 31, 2022, the Company had $12.0 million and $15.9 million of cash an d no cash equivalents, respectively, which includes restricted cash of $0.7 million at September 30 , 2023 consisting of a letter of credit on hand w ith the Compan y' s financial institution as collateral for an office lease. Convertible Notes The Company accounts for its Senior Convertible Notes and Subordinated Convertible Notes (as defined below), as derivatives in accordance with, ASC 815-10, Derivatives and Hedging, and ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying condensed consolidated balance sheets and changes in fair value recorded in other expense within the condensed consolidated statements of operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. The Company has analyzed the redemption, conversion, settlement, and other derivative instrument features of its Convertible Notes. ● The Company identified that the (i) redemption features, (ii) lender’s optional conversion feature, (iii) lender’s optional conversion upon merger event feature and (iv) additional interest rate upon certain events feature meet the definition of a derivative. The Company analyzed the scope exception for all the above features under ASC 815-10-15-74(a). ● Based on the further analysis, the Company identified that the (i) lender’s optional conversion feature, (ii) lender’s optional conversion upon merger event feature and (iii) additional interest rate upon certain events feature, do not meet the settlement criteria to be considered indexed to equity. The Company concluded that each of these features should be classified as a derivative liability measured at fair value with the changes in fair value in the condensed consolidated statement of operations. ● The Company also identified that the redemption features are settled in cash and do not meet the indexed to equity and the equity classification scope exception, thus, they must be bifurcated from the Convertible Notes and accounted for separately at fair value on a recurring basis reflecting the changes in fair value in the condensed consolidated statement of operations. The Company determined the Convertible Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the condensed consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has elected to separately present interest expense related to the Convertible Notes within the condensed consolidated statement of operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Convertible Notes are reflected at their respective fair values on the condensed consolidated balance sheets. 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 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 own common stock, par value $0.0001 (“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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the liability classified warrants are recognized as other income or expense on the condensed consolidated statements of operations. Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● Identifying the contract with a customer: customers submit authorized prescriptions and oral impressions to the Company. Authorized prescriptions constitute the contract with customers. ● Identifying the performance obligations within the contract: The sole performance obligation is the shipment of a completed customized intraoral device. ● Determining the transaction price: Prices are determined by standardized pricing sheets and adjusted for estimated returns, discounts, and allowances. ● Allocating the transaction price to the performance obligations: The full transaction price is allocated to the shipment of the completed intraoral device as it is the only element in the transaction. ● Recognizing revenue as the performance obligation is satisfied at a point in time: revenue is recognized upon transfer of control which occurs upon shipment of the product. The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days . Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability for all leases, except short term leases with an original term of twelve months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term as the underlying leases for operating leases and the implied rate in the lease agreement for finance leases. Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. The Company’s real estate operating lease agreement requires variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments are recognized in operating expenses when incurred. Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to Common Stockholders is calculated by dividing the net loss attributable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the period, without consideration for Common Stock equivalents. Diluted net loss per share attributable to Common Stockholders is the same as basic net loss per share attributable to Common Stockholders, since the effects of potentially dilutive securities are antidilutive. Reclassifications Certain prior year balances have been reclassified in order to conform to the current period presentation. These reclassifications have no impact on previously reported earnings or cash flows. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The Company early adopted ASU 2020-06 effective January 1, 2023, which eliminated the need to assess whether a beneficial conversion feature needs to be recognized upon the issuance of new convertible instruments. The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company's consolidated financial statements. | NOTE 2 – BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements were prepared on the accrual basis of accounting in accordance with principles generally accepted in the United States of America (“U.S. GAAP”). Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. At December 31, 2022, the Company had a working capital of $14.2 million and cash and cash equivalents of $15.9 million. The Company expects to continue to incur net losses for the foreseeable future as it continues the development of its products. On December 6, 2022, on consummation of the Business Combination, we received $4.92 million of cash held in Lakeshore’s trust account from its initial public offering, $10.25 million of cash in connection with the PIPE Equity financing and approximately $30 million in proceeds from the Convertible Notes offering. These proceeds were used to pay transaction expenses and other liabilities of Lakeshore, pay certain transaction expenses of ProSomnus, and pay off approximately $11.53 million in debt of ProSomnus at closing, with the remaining being deposited in ProSomnus’ cash account. Based on cash flow projections from operating and financing activities and existing balance of cash and cash equivalents and investments, management is of the opinion that the Company has sufficient funds for sustainable operations, and it will be able to meet its payment obligations from operations and debt related commitments for at least one year from the issuance date of these financial statements. Based on the above considerations, the Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations. The Company’s ability to continue as a going concern is dependent on management’s ability to control operating costs and maintain revenue growth forecast. Management believes there is not substantial doubt about the ability of the Company to meet its obligations and operations for twelve months after the issuance of the consolidated financial statements. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s most significant estimates in these consolidated financial statements relate to the fair value of Senior and Subordinated convertible notes, fair value of Earnout liability, fair value of warrants, provision for doubtful accounts receivable, the warranty and earned discount accruals, future revenue estimates used to calculate the current and long-term portions due under the subordinated loan agreement, the effective interest rates of the subordinated loan agreement, measurement of tax assets and liabilities and stock-based compensation. Concentrations of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of accounts receivable and cash. The Company sells its products to customers primarily in North America and Europe. To reduce credit risk, management performs periodic credit evaluations of its customers’ financial condition. No customers exceeded more than 10% of the Company’s revenue or accounts receivables as of and for the years ended December 31, 2022 and 2021. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Company believes its credit risk is mitigated due to the high quality of the banks in which it places its deposits. Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — Level 2 Inputs — Level 3 Inputs — no 3 Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. Change in Fair Value of Senior and Subordinated Convertible Notes Under the fair value election as prescribed by ASC 815, the Company will record changes in fair value through the consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period, with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable. The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the consolidated statement of operations. As a result of the merger transaction, the company assumed an Earn-out liability, which is remeasured each reporting period. Given the unobservable nature of the inputs, the fair value measurement of the deferred earn-out is deemed to use Level 3 inputs. The Earn-out liability was accounted for as a liability as of the date of the merger transaction and will be remeasured to fair value until the Earnout Triggering Events are met. The Company believes the carrying amounts of financial instruments including cash and cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable, and revolving line of credit approximate fair value due to their short-term nature. Comprehensive Income Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It consists of net income and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net income. Comprehensive income is equal to the net income for the years ended December 31, 2022 and 2021. Cash and Cash Equivalents The company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of years ended December 31, 2022 and 2021, the Company had $15.9 million and $1.5 million of cash, respectively, and there were no cash equivalents. Accounts Receivable The Company reports accounts receivables at net realizable value. The Company has not historically assessed finance charges on past due accounts, but retains the right to do so. The allowance for doubtful accounts is estimated based on historical write-off percentages and management’s assessment of specific past due or delinquent customer accounts. The delinquency status of customers is determined by reference to contractual terms. Doubtful accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted and are recorded as recoveries of bad debts, if subsequently collected. The allowance for doubtful accounts amounted to $162,635 and $100,000 as of December 31, 2022 and 2021, respectively. All accounts receivable are primarily from customers located in North America and Europe. Inventory Inventory is recorded at the lower of cost or net realizable value under the first-in, first-out method of accounting. Inventories primarily consist of purchased raw materials. The Company regularly reviews whether the net realizable value of its inventory is lower than its carrying value. If the valuation shows that the net realizable value is lower than the carrying value, the Company takes a charge to cost of revenue and directly reduces the carrying value of the inventory. Indicators that could result in inventory write-downs include damaged or slow-moving materials and supplies. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are as follows: Manufacturing equipment 3 to 7 years Computers and software 3 years Furniture 7 years Leasehold Improvements Shorter of remaining lease term or estimated useful life Maintenance and repairs are charged to operations as incurred. Through December 31, 2021, equipment capitalized under capital lease obligations was included in property and equipment. Property and equipment capitalized under capital lease obligations were amortized using a straight-line method over the shorter of the life of the lease or the useful life of the asset, which ranges three and was included in depreciation expense in the consolidated statements of operations. On January 1, 2022 the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”), which impacted the classification of equipment formerly capitalized under capital lease obligations. The equipment related to capital leases, now finance leases, have been reclassified from property and equipment to right-of-use assets on the consolidated balance sheet. Occasionally, the Company enters into finance lease arrangements for various machinery, equipment, computer-related equipment, or software. The Company records amortization of assets leased under finance lease arrangements. Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or the fair value less costs to sell. No such impairments have been identified during the years ended December 31, 2022 and 2021. Redeemable Convertible Preferred Stock All Series A and Series B redeemable convertible preferred stock were converted into common shares of the Company on close of the merger transaction in December 2022. Prior to the merger transaction, the Company recorded all shares of redeemable convertible preferred stock at their respective issuance price, less issuance costs on the dates of issuance. The redeemable convertible preferred stock was presented outside of stockholders’ deficit in the consolidated balance sheets. When redeemable convertible preferred stock was considered either then currently redeemable or probable of becoming redeemable, the Company selected a policy to recognize changes in the redemption value immediately, as they would have occurred and adjust the carrying value of redeemable convertible preferred stock to the greater of the redemption value at the end of each reporting period or the initial carrying amount. Senior and Subordinated Convertible Notes The Company accounts for its derivatives in accordance with, ASC 815-10, Derivatives and Hedging, or ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying Consolidated Balance Sheets and changes in fair value recorded in other expense within the Consolidated Statements of Operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. Upon the consummation of the Business Combination, the Company issued Senior and Subordinated Convertible Notes. The Company analyzed various redemption, conversion and settlement features, and other derivative instrument features of these Convertible Notes offering. ● ● ● The Company determined the Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, if there is a conversion feature that is required to be bifurcated, the cash conversion feature and beneficial conversion feature guidance is not applicable to such conversion feature and the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Senior and Subordinated Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the Consolidated Statement of Operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the Consolidated Statement of Operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Senior and Subordinated Convertible Notes are reflected at their respective fair values on the Consolidated Balance Sheet at December 31, 2022. 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 own 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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash other income or expense on the consolidated statements of operations. Warranty The Company offers a warranty guaranteeing the fit and finish of their intraoral devices for three years from the date of initial sale, as well as a guarantee for the unlimited remaking of arches. The accrual for warranty claims and unlimited arch remakes totaled $269,496 and $217,244 at December 31, 2022 and 2021, respectively, and these amounts are recorded in accrued expenses on the consolidated balance sheets. Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● ● ● ● ● The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days. Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. Cost of Revenue Cost of revenue consists primarily of materials and the costs related to the production of the intra-oral device, including employee compensation, other employee-related expenses and allocable manufacturing overhead costs. The Company has a policy to classify initial recruiting, onboarding and training costs of new manufacturing employees as part of research and development expenses in the consolidated statements of operations. Such costs totaled $211,218 and $144,775 for the years ended December 31, 2022 and 2021, respectively. The Company utilizes the practical expedient which permits expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to employees. The Company expenses sales commissions paid to employees as revenue are recognized. Research and Development Research and development costs are charged to operations as incurred. Advertising Advertising costs are expensed as incurred and totaled $100,319 and $87,764 for the years ended December 31, 2022 and 2021, respectively. Stock-Based Compensation The Company’s stock-based compensation expense is recognized based on the estimated fair value of the restricted stock awards on the date of grant. The grant-date fair value of all stock-based payment awards is recognized as employee compensation expense on a straight-line basis over the requisite service period. The Company recognizes forfeitures of restricted stock awards as they occur. Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, for all less. represents for value at liability, any for at value Company’s for for for Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for for renewal renewal rate, at Company’s real at Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. Income Taxes The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes as well as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. Significant judgment may be required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that is more likely than not to be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company follows authoritative guidance regarding uncertain tax positions. The guidance requires that realization of an uncertain income tax position must be more likely than not (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the consolidated financial statements. The guidance further prescribes the benefit to be realized assumes a review by taxing authorities having all relevant information and applying current conventions. The guidance also clarifies the consolidated financial statements classification of tax related penalties and interest and sets forth disclosures regarding unrecognized tax benefits. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since the effects of potentially dilutive securities are antidilutive. Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer and Chief Financial Officer. The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Recent Accounting Pronouncements On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (ASC 842), which superseded previous guidance related to accounting for leases within Topic 842, Leases . The Company elected the practical expedient provided under ASU 2018-11, Leases (ASC 842) Targeted Improvements, which amended ASU 2016-02 to provide entities an optional transition practical expedient to adopt the new standard with a cumulative effect adjustment as of the beginning of the year of adoption with prior year comparative financial information and disclosures remaining as January Topic Topic The Company elected the package of practical expedients permitted under the transition guidance, which allowed forward for any January also with an initial term of 12 months or less off the consolidated balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Adoption of the new standard resulted in the recording of right of use assets and operating lease liabilities of $406,551 and $464,291 , respectively, as of January 1, 2022. Additionally, upon adoption of the new standard, the Company reclassified the equipment of $2,349,591 related to capital leases to right of use assets. Finance lease liabilities of $1,826,973 were reclassified from capital lease obligation. The transition did not have a material impact on the Company’s consolidated results of operations, cash flows or liquidity measures. In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - “ Debt with Conversion and Other Options Derivatives and Hedging-Contracts in Entity’s Own Equity In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. The impact to the company is immaterial. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
PROPERTY AND EQUIPMENT | ||
PROPERTY AND EQUIPMENT | NOTE 3 — PROPERTY AND EQUIPMENT Property and equipment consist of the following: September 30, 2023 December 31, 2022 Manufacturing equipment $ 3,626,396 $ 2,516,859 Computers and software 1,621,474 1,608,075 Leasehold improvements 822,134 441,956 Furniture — 27,587 6,070,004 4,594,477 Less accumulated depreciation and amortization (2,330,383) (2,190,075) Property and equipment, net $ 3,739,621 $ 2,404,402 Depreciation and amortization expense for property and equipment was $0.4 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $0.6 million and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, the Company disposed of property and equipment of $0.7 million which had an accumulated depreciation and amortization balance of $0.6 million. The resulting $0.1 million loss on disposal is reflected in the condensed consolidated statement of operations as other expense. | NOTE 4 — PROPERTY AND EQUIPMENT On January 1, 2022, the Company adopted ASC 842 for Leases. Adoption of the new standards resulted in a reclassification of $2,349,591 of assets reported as property, plant and equipment prior to adoption, to right of use assets. Property and equipment consisted of the following as of December 31: 2022 2021 Manufacturing equipment $ 2,516,859 $ 4,420,281 Computers and software 1,608,075 1,547,549 Furniture 27,587 27,587 Leasehold Improvements 441,956 295,471 4,594,477 6,290,888 Less: accumulated depreciation (2,190,075) (2,934,293) Total Property and equipment, net $ 2,404,402 $ 3,356,595 Depreciation expense for the |
INVENTORY
INVENTORY | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
INVENTORY | ||
INVENTORY | NOTE 4 — INVENTORY Inventory consists of the following: September 30, 2023 December 31, 2022 Raw materials $ 1,509,768 $ 561,726 Work-in-process 140,329 78,219 $ 1,650,097 $ 639,945 The Company did no t have any excess or obsolete inventory reserves at September 30, 2023 and December 31, 2022. | NOTE 5 — INVENTORY Inventory consisted of the following as of December 31: 2022 2021 Raw Materials $ 561,726 $ 323,989 Work in progress 78,219 54,780 $ 639,945 $ 378,769 The company did not have any excess or obsolete inventory reserves as of December 31, 2022 and 2021. |
ACCRUED EXPENSES
ACCRUED EXPENSES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
ACCRUED EXPENSES | ||
ACCRUED EXPENSES | NOTE 5 — ACCRUED EXPENSES Accrued expenses consist of the following: September 30, 2023 December 31, 2022 Compensation related accruals $ 3,274,248 $ 2,104,008 Marketing programs 940,930 611,642 Interest 381,595 110,239 Warranty 464,812 269,496 Professional fees 1,873,278 129,169 Inventory purchases and freight 1,242,311 — Other 196,308 481,540 $ 8,373,482 $ 3,706,094 | NOTE 6 — ACCRUED EXPENSES Accrued expenses consisted of the following as of December 31: 2022 2021 Bonus $ 832,918 $ 831,601 Wages 218,974 140,962 Vacation 959,004 569,777 Earned discounts 554,642 499,219 Commission settlement — 274,323 Warranty 269,496 217,244 Other 360,716 264,533 Professional fees 129,169 72,611 Interest 110,239 28,750 401k matching contributions 93,112 100,134 Travel 60,400 — Credit card fees 60,424 34,424 Marketing expenses 57,000 45,000 $ 3,706,094 $ 3,078,578 Commission The Company had an agreement in which it paid commission to an individual for promotional consideration. The agreement required commissions of 15% of sales of the MICRO2 Sleep and Snore Device and the MICRO2 Night Time Orthotic devices. In December 2017, the Company notified this individual that the individual was in material breach of the contract and in 2018, the Company terminated the contract. In January 2019, the Company settled the dispute and agreed to pay the individual $1,600,000. $400,000 was paid in January 2019 and sixteen (16) quarterly payments of $75,000 are required and commenced in April 2019. The Company recorded the net present value of this obligation in these consolidated financial statements totaling $1,284,825 using the Company’s incremental borrowing rate of 15.04% as the originating event for the settlement occurred in 2018. The balance of the remaining settlement totaled $274,323 as of December 31, 2021. There was no outstanding balance on the commission agreement as of December 31, 2022. The payments under this commission agreement, including interest, totaled $300,000 and were paid in full in 2022. Invoice Fee Deferral During 2018 the Company reached an agreement with a vendor allowing the Company to pay less than 100% of the invoiced amounts. Only upon the sale or merger of the Company or upon a public financing would the remaining portion of the invoices become due. As of December 31, 2021, the Company has accrued $291,479, related to the deferred portions. All invoices were paid in full on close of the merger transaction in December 2022. |
LEASES
LEASES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
LEASES | ||
LEASES | NOTE 6 — LEASES The Company’s previous corporate office lease had a remaining term of approximately one year as of December 31, 2022. On February 28, 2023, the Company abandoned the previous corporate office premises. There is no new cash inflow generated or expected from the sale or sublease of property and leasehold improvements at the location. The Company recorded an impairment loss of $0.2 million on the right of use (“ROU”) operating lease assets and accrued liabilities of $0.1 million in anticipation of expected common area maintenance payments on the lease through December 31, 2023. The impairment loss and the accrued expenses are reflected as other expense in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023. On May 17, 2022, the Company signed a ten-year lease for the Company’s new corporate headquarters. The lease commenced on December 15, 2022. The monthly payment is approximately $0.1 million and is subject to stated annual escalations. The Company received five months of free rent. The Company’s finance leases consist of various machinery, equipment, computer-related equipment, or software and have remaining terms from less than one year to five years . The components of the Company’s lease cost, weighted average lease terms and discount rates are presented in the tables below: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Lease Cost: Operating lease cost $ 223,304 $ 68,709 $ 711,661 $ 206,126 Finance lease cost: Amortization of assets obtained under finance leases $ 285,251 $ 274,712 $ 681,763 $ 597,904 Interest on lease liabilities 126,880 104,409 282,990 223,263 $ 412,131 $ 379,121 $ 964,753 $ 821,167 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of September 30, 2023 Operating leases 10.0 % 9.3 years Finance leases 10.2 % 3.2 years Nine Months Ended September 30, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 355,060 Operating cash flows from finance leases 246,879 Financing cash flows from finance leases 1,026,701 Right-of-use assets consisted of the following as of September 30, 2023: Total Manufacturing equipment $ 5,237,167 Computers and software 700,234 Leasehold improvements 218,244 Total 6,155,645 Less accumulated amortization (2,623,405) Right-of-use assets for finance leases 3,532,240 Right-of-use assets for operating leases 5,154,399 Total right-of-use assets $ 8,686,639 At September 30, 2023, the following table presents maturities of the Company’s finance lease liabilities: Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 576,315 2024 1,287,461 2025 1,057,500 2026 739,115 2027 192,568 Thereafter 47,300 Total minimum lease payments 3,900,259 Less amount representing interest (563,452) Present value of minimum lease payments 3,336,807 Less current portion (1,109,899) Finance lease obligations, less current portion $ 2,226,908 At September 30, 2023, the following table presents maturities of the Company’s operating lease liabilities: Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 379,887 2024 842,553 2025 867,831 2026 893,862 2027 920,679 Thereafter 4,761,873 Total minimum lease payments 8,666,685 Less: amount representing interest (3,107,847) Present value of minimum lease payments 5,558,838 Less: current portion (290,869) Operating lease liabilities, less current portion $ 5,267,969 | NOTE 7 —LEASES Prior to the adoption of ASC 842, rent expense on operating leases was recognized on a straight-line basis over the term of the lease. In addition, certain of the Company’s operating lease agreements for office space also include rent holidays and scheduled rent escalations during the initial lease term. The Company recorded the rent holidays as deferred rent within other liabilities on the consolidated balance sheets. The Company recognized the deferred rent liability and scheduled rent increase on a straight-line basis into rent expense over the lease term commencing on the date the Company took possession of the leased space. The Company’s previous corporate office lease approximately twelve months Company’s any value covenants. for January On May for Company’s approximately annual approximately The Company provided a $200,000 security deposit, which is recorded in other assets on the accompanying consolidated balance sheet. The Company’s largest investor, at the date of the lease agreement, provided an initial two-year guaranty of $1,700,000 for the benefit of the lessor, followed by a one-year rolling guaranty of the lease performance. The Company can replace the guaranty with a letter of credit for $700,000 . The Company recognized a $5.44 million of right of use operating lease liability for this new lease. Company’s new any value covenants. The Company’s finance leases consist of various machinery, equipment, computer-related equipment, or software and have remaining terms from less than one year to five years . The Company reports assets obtained under finance leases in right-of-use assets and the current and non-current portions of its finance leases on the consolidated balance sheet. During June 2022, two finance leases were extended for an additional ten months . The Company evaluated the terms of the extension and determined that a lease modification occurred. The modification did not meet the requirements to be considered a separate contract. The additional amount of the commitments of approximately $239,000 have been recorded in right-of-use assets and finance lease liabilities on the consolidated balance sheets. The components of the Company’s lease cost, weighted average lease terms and discount rates are presented in the tables below: Year ended December 31, 2022 Lease Cost: Operating lease cost $ 324,929 Finance lease cost: Amortization of assets obtained under finance leases $ 772,870 Interest on lease liabilities 288,969 $ 1,061,839 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of December 31, 2022 Operating leases 10.31 % 9.6 years Finance leases 11.17 % 3.5 years Year ended December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ (159,348) Operating cash flows from finance leases 772,870 Financing cash flows from finance leases (1,222,270) Right-of-use assets obtained in exchange for lease liabilities: Acquisition of ROU assets through operating leases $ 5,435,661 Acquisition of property and equipment through finance leases 2,233,834 Addition of ROU assets from finance lease modification 239,000 $ 2,472,834 Right-of-use assets consisted of the following as of December 31, 2022: Total Manufacturing equipment $ 4,673,617 Computers and software 700,234 Leasehold Improvements 218,244 Total 5,592,095 Less: accumulated amortization (1,941,644) Right-of-use assets for finance leases 3,650,451 Right-of-use assets for operating leases 5,632,771 Total right-of-use assets $ 9,283,222 At December 31, 2022, the following table presents maturities of the Company’s finance lease liabilities: Years ending Total 2023 $ 1,275,119 2024 863,280 2025 785,386 2026 597,933 2027 190,283 Thereafter — Total minimum lease payments 3,712,001 Less amount representing interest (622,004) Present value of minimum lease payments 3,089,997 Less current portion (1,008,587) Finance lease obligations, less current portion $ 2,081,410 At December 31, 2022, the following table presents maturities of the Company’s operating lease liabilities: Years ending December 31, Total 2023 $ 794,619 2024 836,280 2025 861,372 2026 887,208 2027 913,824 Thereafter 4,997,184 Total minimum lease payments 9,290,487 Less: amount representing interest (3,549,882) Present value of minimum lease payments 5,740,605 Less: current portion (215,043) Operating lease liabilities, less current portion $ 5,525,562 Total rent expense for the years ended December 31, 2022 and 2021 ended was $325,683 and $250,495, respectively. |
DEBT
DEBT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
DEBT | ||
DEBT | NOTE 7 — DEBT Equipment Financing Obligation The Company’s future principal maturities under the equipment financing obligation are summarized as follows: At September 30, 2023 Total 2023 (remaining three months) $ 13,363 2024 56,995 2025 63,698 2026 64,952 Total principal maturities 199,008 Less: current portion (55,510) Equipment financing obligation, net of current portion $ 143,498 Subordinated Notes The Company received advances under subordinated promissory note agreements for total proceeds of $0.4 million during the nine months ended September 30, 2022. No issuance costs were incurred. Bridge Loans (Unsecured Subordinated Promissory Notes) During the nine months ended September 30, 2022, the Company received proceeds of $5.1 million from unsecured subordinated promissory notes (the “Bridge Loans”). Prior to the closing of our December 2022 merger (the “Business Combination”), the Bridge Loans were converted into Series A Redeemable Convertible Preferred Stock. During March 2022, $0.5 million of the Bridge Loans were repaid. The primary stockholder of the Company was the borrower on this Bridge Loan, and a representative of this primary stockholder is a member of the Company’s board of directors (“Board of Directors”). Convertible Debt Agreements Senior Convertible Notes On December 6, 2022, the Company entered into the Indenture for Senior Secured Convertible Notes due December 6, 2025, dated December 6, 2022 by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association, as trustee and collateral agent (as amended, the “Senior Indenture”), and issued Senior Secured Convertible Notes, due December 6, 2025 (the “Existing Senior Convertible Notes”), with an aggregate principal amount of $16.96 million, pursuant to the senior securities purchase agreement, dated August 26, 2022. In connection with the closing of the offering of the Existing Senior Convertible Notes, the Company issued 36,469 shares of Common Stock and 169,597 warrants (the “Existing Senior Convertible Notes Warrants”) to purchase Common Stock. The Existing Senior Convertible Notes Warrants entitle the note holders to purchase shares of Common Stock, subject to adjustment, at a purchase price per share of $11.50 . The debt bears interest at 9% per annum. Interest is payable in cash quarterly. On June 29, 2023, the Company entered into the First Supplemental Indenture, dated as of June 29, 2023, by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association (the “First Senior Supplemental Indenture”). The First Senior Supplemental Indenture, among other things, (i) effects certain changes to the minimum EBITDA and minimum revenue financial covenants (ii) requires mandatory redemption of the Existing Senior Convertible Notes in consecutive quarterly installments equal to $847,990 in the aggregate on January 1, April 1, July 1 and October 1 of each year, commencing October 1, 2024 , until the earlier of the maturity date of the Existing Senior Convertible Notes or the date the Existing Senior Convertible Notes are no longer outstanding, and (iii) corrects an error in the definition of Conversion Rate. On September 20, 2023, the Company entered into the Second Supplemental Indenture (the “Second Senior Supplemental Indenture”) to the Senior Indenture, by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies , as guarantors, and Wilmington Trust, National Association, as trustee and collateral agent. The Second Senior Supplemental Indenture amends the Senior Indenture to, among other things, permit the sale of the securities underlying the convertible debt (the “Securities”) and the Exchanges. Subordinated Convertible Notes On December 6, 2022, the Company entered into that certain Indenture for Subordinated Secured Convertible Notes due April 6, 2026, dated December 6, 2022 by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association, as trustee and collateral agent (as amended, the “Subordinated Indenture”), and issued the Subordinated Secured Convertible Notes due April 6, 2026 (“Existing Subordinated Convertible Notes” and, together with the Existing Senior Convertible Notes, the “Existing Convertible Notes”), with an aggregate principal amount of approximately $17.45 million, pursuant to the previously disclosed Subordinated Securities Purchase Agreement, dated August 26, 2022. In connection with the closing of the offering, the Company issued 290,244 shares of Common Stock and 1,745,310 warrants (“Subordinated Convertible Notes Warrants” and, together with the Senior Convertible Notes Warrants, the “Convertible Notes Warrants”) to purchase Common Stock to certain Convertible Debt holders. The debt has an interest rate of Prime Rate plus an additional 9% per annum with a term of 3 years . Interest is due quarterly in cash or in kind at the option of the Company. On June 29, 2023, the Company entered into the First Supplemental Indenture, dated as of June 29, 2023, by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association (the " First Subordinated Supplemental Indenture”) , which, among other things, (i) effects certain changes to the minimum EBITDA and minimum revenue financial covenants and (ii) corrects an error in the definition of Conversion Rate. On September 8, 2023, the Company issued 192,381 shares of Common Stock in connection with a notice of conversion from a holder of the Company’s Subordinated Convertible Notes, pursuant to which such holder irrevocably exercised its right to convert $1,000,000 principal amount. The Company recorded the fair value of the principal amount and accrued interest converted of $0.9 million as Common Stock and additional paid-in capital. On September 20, 2023, the Company entered into the Second Supplemental Indenture (the “Second Subordinated Supplemental Indenture”) to the Subordinated Indenture, pursuant to which the Company issued the Existing Subordinated Convertible Notes. The Second Subordinated Supplemental Indenture amends the Subordinated Indenture to, among other things, permit the sale of the Securities and the Exchanges. Financing Transaction On September 20, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”, and the transactions contemplated by the Securities Purchase Agreement, the “Financing Transaction”) with certain third-party and related party investors (the “Investors”), pursuant to which the Company issued (i) an aggregate of 10,426 shares of the Company’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $10.4 million at a per share purchase price of $1,000 , and (ii) (A) with respect to Investors that held the Existing Convertible Notes, new convertible notes on substantially similar terms to such Noteholder Investor’s Existing Convertible Notes other than that such new notes will be convertible into shares of Common Stock, at a conversion price of $1.00 per share subject to the terms and conditions of the applicable new indenture pursuant to which the applicable series of New Notes have been issued by the Company (the “New Notes”), in exchange for such Noteholder Investor’s portion of the principal amount outstanding of the Existing Notes (the “Exchanges”) pursuant to exchange agreements entered into between the Company and each of the Noteholder Investors (together, the “Exchange Agreements”) and/or (B) warrants to purchase shares of Common Stock at an exercise price of $1.00 per share (such warrants, the “Transaction Warrants”) . The Investors include certain members of the Company’s Board of Directors and certain executive officers of the Company, as well as affiliates and investment vehicles for such persons that held the Company’s Existing Convertible Notes. Convertible Noteholders representing approximately $3.4 million in principal amount of the Senior Convertible Notes and approximately $12.1 million in principal amount of the Subordinated Convertible Notes participated in the Financing Transaction . The Financing Transaction closed on multiple dates: September 20, 2023, September 26, 2023, and October 20, 2023. The exchange of the Existing Convertible Notes, including the entrance into the indentures governing the New Notes, occurred on October 11, 2023. In such Exchanges, the Noteholder Investors received principal amount in the new notes equal to up to 300% of the purchase price paid by such Noteholder Investor to purchase its Series A Preferred Stock. Any proceeds in excess of such amount results in the Noteholder Investors purchasing Transaction Warrants. As a result of the Financing Transaction, in September 2023, the Noteholder Investors effectively contributed an aggregate of $6.4 million of cash to the Company in exchange for 6,376 shares of Series A Preferred Stock, Transaction Warrants exercisable into an aggregate of 1,404,524 shares of Common Stock, and the repricing of the conversion feature of their Convertible Notes, while the other Investors contributed an aggregate of $3.2 million of cash to the Company in exchange for 3,150 shares of Series A Preferred Stock and Transaction Warrants exercisable into an aggregate of 3,150,000 shares of Common Stock. Although exchange of the Convertible Notes did not occur until October 11, 2023, the Company determined that from a legal and accounting standpoint, the debt was modified in September 2023 based on the SPA terms and the receipt of the cash proceeds in connection with the first closing. Prior to the Financing Transaction, the Senior Convertible Notes and Subordinated Convertible Notes had conversion rates of $5.50 and $5.20 per share, respectively. The repricing of the Convertible Notes to $1.00 per share made the conversion features of the Convertible Notes substantive again based on the Company’s stock price as of the Initial Closing. Pursuant to the terms of the Securities Purchase Agreement and the Transaction Warrants, until approval is obtained from the Company’s stockholders, the following limitations apply: ● The Series A Preferred Stock cannot be converted into more than 19.95% of the number of shares of Common Stock outstanding as of the date of the SPA; ● The Transaction Warrants are not exercisable; ● The Series A Preferred Stock held by directors and officers of the Company is not convertible into Common Stock; and ● The New Notes are not convertible at the reduced $1.00 conversion rate. As a condition to the Initial Closing, the Company was required to secure contractual commitments to support the Financing Transaction from greater than 50% of stockholders. The Company secured support from stockholders representing 51.2% of the Common Stock then outstanding. The Company assessed the accounting for the Financing Transaction with the Noteholder Investors and concluded that it does not meet the criteria for a troubled debt restructuring or an induced conversion. The Company next considered if the transaction represents a debt modification or extinguishment and concluded the transaction represents a debt extinguishment in accordance with ASC paragraph 470-50-40-10 as both of the following circumstances apply: a. The transaction resulted in a modification of an embedded conversion option, from which the change in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) is at least 10 percent of the carrying amount of the original debt instrument immediately before the modification or exchange. b. The transaction resulted in a modification or an exchange of debt instruments that adds a substantive conversion option. Accordingly, the Company accounted for the transaction as an extinguishment of the original debt and the recognition of new debt, which is initially measured at its fair value. The fair value of the new debt is used to determine the debt extinguishment gain or loss to be recognized. The Company assessed the classification of the Transaction Warrants issued in connection with the Financing Transaction and determined that the Transaction Warrants are equity classified. As discussed in Note 9, the Company determined that the Series A Preferred Stock is mezzanine classified and therefore should be initially recognized at fair value. The following table summarizes the computation of the loss on debt extinguishment recognized during the three months ended September 30, 2023: Amount Fair value - Senior Convertible Notes (pre-financing) $ 2,456,607 Fair value - Subordinated Convertible Notes (pre-financing) 7,616,902 10,073,509 Less consideration transferred to Noteholder Investors: Fees paid to Noteholder Investors (62,620) Fair value of Series A Preferred Stock (7,807,681) Fair value of warrants (787,250) Fair value of Senior Convertible Notes (post-financing) (3,599,388) Fair value of Subordinated Convertible Notes (post-financing) (13,935,613) (26,192,552) Plus consideration received from Noteholder Investors: Cash 6,376,000 Loss on Debt Extinguishment: ($ 9,743,043) The fair values of the Series A Preferred Stock and Transaction Warrants were determined using the assistance of a third-party valuation specialist and include Level 3 fair value inputs. The significant assumptions used related to the Series A Preferred Stock include a risky yield (risk-adjusted discount rate) of 42.0% , volatility rate of 65.0% , risk free rate of 5.0% , and an estimated exit date of April 2026. The assumptions used related to the Transaction Warrants include an asset price of $0.97 , volatility rate of 65.0% , risk free rate of 4.5% , no dividends, and an expected term of 5.0 years. In respect to the non-Noteholder Investors, the fair value of the consideration transferred was also determined to be greater than the proceeds received. The Company determined that based on the participation level by third-party investors, the transaction does not represent a deemed dividend. As such, the Company recognized a financing loss of $2.5 million which is included in other expense in the consolidated statements of operations. The financing loss is computed as follows: Cash proceeds received $ 3,150,000 Less: fair value of Series A Preferred Stock (3,857,308) Less: fair value of warrants (1,765,607) Other financing expense ($ 2,472,915) The Company incurred $1.5 million of legal and other transaction related costs, of which approximately $0.1 million were deemed to be lender costs and included in the computation of the loss on debt extinguishment. The remaining transaction costs were expensed as other expense in the consolidated statements of operations. Fair Value Election The Company has elected to measure the Convertible Notes, including the New Notes, in their entirety at fair value with changes in fair value recognized as non-operating gain or loss in the consolidated statements of operations (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The estimated fair values of the convertible debt were determined using a Monte Carlo Simulation method. We simulated the stock price using a Geometric Brownian Motion until maturity. For each simulation path we calculated the convertible bond value at maturity and then discount that back to the valuation date. The following assumptions were used as of September 30, 2023 and December 31, 2022: Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of September 30, 2023 Price Yield Volatility Interest Rate Senior Convertible Notes $ 1.04 26.70 % 60 % 4.99 % Subordinated Convertible Notes 1.04 36.10 % 60 % 4.91 % Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80 % 45 % 4.23 % Subordinated Convertible Notes 5.56 41.20 % 45 % 4.19 % The following is a summary of changes in fair value of the Convertible Notes for three and nine months ended September 30, 2023: Senior Convertible Notes Subordinated Convertible Notes Beginning fair value, January 1, 2023 $ 13,651,000 $ 10,355,681 Paid-in-kind interest — 723,699 Change in fair value of debt 827,000 1,000,000 Fair value as of March 31, 2023 14,478,000 12,079,380 Paid-in-kind interest — 793,594 Change in fair value of debt (1,549,596) 2,352,026 Fair value as of June 30, 2023 12,928,404 15,225,000 Paid-in-kind interest — 1,010,814 Conversion of Subordinated — (919,568) Increase in fair value of debt in connection 1,142,781 6,318,711 Change in fair value of debt (784,780) (2,914,956) Ending fair value, September 30, 2023 $ 13,286,405 $ 18,720,000 The Convertible Notes are subject to a minimum revenue, cash, and EBITDA financial covenants. Management believes that the Company is in compliance with all financial covenants as of September 30, 2023. From July 1, 2023, the Convertible Notes require the Company to maintain a minimum cash balance of $4.5 million on the first of each calendar month. | NOTE 8 — DEBT Equipment Financing Obligation Two equipment financing arrangements entered into during 2018 2020 At December 31, 2022, the Company’s future principal maturities under the equipment financing obligation are summarized as follows: Years ending Total 2023 $ 58,973 2024 56,995 2025 63,698 2026 64,952 2027 — Total principal maturities 244,618 Less: current portion (58,973) Equipment financing obligation, net of current portion $ 185,645 Line of Credit The Company entered into a Loan and Security Agreement in 2018 with a financial institution. The balance on the line of credit was paid off at the close of merger transaction, there was no credit available as of the year ended December 31, 2022. The balance of the line of credit was $587,816 at December 31, 2021. Interest expense on the line of credit totaled $247,334 and $135,581 for the years ended December 31, 2022 and 2021, respectively. Subordinated Notes Prior to January 2020, the Company received advances under unsecured subordinated promissory note agreements for gross proceeds of $2,208,299, net of issuance costs of $76,701. The Company received advances under unsecured subordinated promissory note agreements for total proceeds of $375,000 and $2,765,000 during the years ended December 31, 2022 and 2021, respectively. No issuance costs were incurred in 2022 and 2021. These advances are subordinate to the line of credit and Subordinated Loan and Security Agreement. $250,000 and $1,440,000 of these advances were made by the Company’s stockholders, directors, and employees as of December 31, 2022 and 2021, respectively. $50,000 and $1,330,000 of these advances were made by the Company’s customers as of December 31, 2022, and 2021, respectively. Amortization of the issuance costs totaled $18,184 and $18,273 for the years ended December 31, 2022 and 2021, respectively. On May 4, 2022, the Company’s Board of Directors amended the terms of the unsecured subordinated promissory note agreements to provide for the automatic conversion of the outstanding loan amounts (including principal, interest and prepayment and change of control premiums, as well as a 5% equity kicker to incentivize lenders to agree to the amendment) into shares of Series A Redeemable Convertible Preferred Stock of the Company immediately prior to the closing of the merger transaction so that such lenders receive shares of common stock at the closing. Noteholders had the option to elect between two forms of the amendments: 1. Interest is received as a cash payment (“Cash Notes”) and paid on a quarterly basis every January 1, April 1, July 1 and October 1. The annual interest rate on these notes is 15% per annum based on a 360-day year. $750,000 of the proceeds related to the Cash Notes. Interest expense totaled $181,067 (including kickers at closing) and $114,062 for the years ended December 31, 2022 and 2021, respectively, for the Cash Notes. 2. Interest is accrued and added to the principal balance (“PIK Notes”) at the commencement of each new calendar year (January 1). The annual interest rate on these notes is 20% per annum based on a 360-day year. $5,440,000 of the proceeds related to the PIK Notes as of December 31, 2021. Interest expense totaled $2,251,260 (including kickers at closing) and $710,443 for the years ended December 31, 2022 and 2021, respectively, for the PIK Notes. Both the Cash and PIK notes have a prepayment penalty that is calculated on the principal and all accrued but unpaid interest at the following rates: Less than one (1) year from the funding date 3 % One (1) year to less than two (2) years from the funding date 2 % Two (2) years to less than three (3) years from the funding date 1 % A change in control event 5 % All note holders elected to convert the bridge loan into Series A Redeemable Convertible Preferred Stock of the Company immediately prior to the closing of the proposed merger. This Series A Redeemable Convertible Preferred Stock was converted to common stock of ProSomnus on close of the merger transaction. Bridge Loan (Unsecured Subordinated Promissory Notes) During February and March 2022, the Company received proceeds of $3,000,000 from unsecured subordinated promissory notes (the “Bridge Loans”). Interest accrues at 15% per annum, and all accrued but unpaid interest is applied and added quarterly to the principal balance (the “Base Amount”). The maturity date is two years from the date of funding or upon a change in control of the Company. The interest is increased to an amount equal to 103% of the Base Amount if the Bridge Loans are repaid upon the closing of a change of control in the Company. The Bridge Loans are subordinate to the line of credit and Subordinated Loan and Security Agreement. During March 2022, $500,000 of the Bridge Loans were repaid. The primary stockholder of the Company was the borrower on this Bridge Loan, and a representative of this primary stockholder is a member of the Company’s Board of Directors. During April 2022, the Company received proceeds of $150,000 from additional Bridge Loans. On May 4, 2022, the Company’s Board of Directors approved a resolution to amend the terms of the Bridge Loans to grant an additional 5% of the Base Amount (the “Bridge Loan Kicker”) to each bridge lender who exercises its option to convert its bridge loan, which Bridge Loan Kicker will be payable in shares of Series A Redeemable Convertible Preferred Stock so that such exercising lenders will receive shares of common stock issuable at the closing thereof. During May and June 2022, the Company and certain holders of the Bridge Loans executed a conversion addendum. Upon notice of the Business Combination Agreement, the holders of the Bridge Loans had up to 10 days to elect to convert into Series A Redeemable Convertible Preferred Stock. Immediately prior to the closing of the Business Combination, the Bridge Loans will automatically convert into the number of Series A Redeemable Convertible Preferred Stock as equal to the repayment amount of the Bridge Loans divided by the Conversion Price. The Conversion Price is defined as the quotient of the aggregate consideration to be paid to all holders of the Series A Redeemable Convertible Preferred Stock divided by the outstanding number of Series A Redeemable Convertible Preferred Stock, including the shares into which the Bridge Loans convert. Holders of Bridge Loans totaling $2,550,000 who elected to convert into Series A redeemable convertible preferred stock, received common stock of ProSomnus on the close of the merger transaction. As of date of conversion, the aggregate amount due, including interest and Bridge Loan Kickers, was $3,052,065 , amounting to 305,206 shares of Series A Redeemable Convertible Preferred Stock, this was converted into 3,052 shares of common stock. Subordinated Loan and Security Agreement In January 2020, the Company entered into a loan and security agreement with a lender and borrowed $3,800,000 (“SMC Loans”). The loan is subordinate to the line of credit. The loan was secured by substantially all assets of the Company, and contained certain financial and non-financial covenants and had a four-year term. The loan was repayable monthly starting February 2021 at an amount equal to 4% of net revenues of the Company until the Company had paid an amount equal to the return cap of $9,500,000. The return cap was subject to a reduction of 30% if fully repaid within 12 months, 22% if fully repaid within 24 months and 11.85% if fully repaid within 36 months. In April 2021, the Company entered into a second loan and security agreement with the same lender and borrowed $2,000,000 (“SMC Loans”). The loan is subordinate to the line of credit. The loan is secured by substantially all assets of the Company, contains certain financial and non-financial covenants and has a three-year term. The loan is repayable monthly starting February 2021 at an amount initially equal to 1.0526% of net revenues of the Company and increasing to 2.105% in the second year of the agreement, until the Company has paid an amount equal to the return cap of $3,902,800 . The return cap is subject to a reduction of 22% if fully repaid within 12 months and 11.85% if fully repaid within 24 months . During the years ended December 31, 2022 and 2021, the Company made revenue share payments totaling $1,580,019 and $602,637 , respectively. The effective interest rates on the subordinated loan and security agreement ranged from 25.8% - 27.2% and 25.8% - 26.2% for the years ended December 31, 2022 and 2021, respectively. The effective interest rate is adjusted to reflect the actual cash flows paid to date and the revised estimate of future cash flows for revenue share payments. The Company records the impact of the change in the cash flows in the current and future periods. The outstanding balance of the subordinated loan and security agreement was paid off as of December 31, 2022. The outstanding balance of the subordinated loan and security agreement for principal plus accrued interest was $6,589,563 as of December 31, 2021, includes the principal amount of $4,876,496 and accrued interest of $2,681,560 . The prior period presentation of this debt was updated to conform to the current period presentation. As of December 31, 2021, the Company had a compensating balance arrangement under the loan and security agreement which required a minimum cash deposit to be maintained in the amount of $500,000. Bridge Loan (Secured subordinated loan) On June 29, 2022, the Company entered into the Second Amendment and Loan Security Agreement (“Second Amendment”) to the subordinated loan and security agreement effective in April 2021. The Second Amendment established a convertible bridge loan advance of up to $2,000,000 to the Company from the lender (“Convertible Bridge Loan Advance”). The interest rate of the Convertible Bridge Loan Advance is 14% and the maturity date is the earlier of the date of the bridge loan conversion event or June 29, 2023. The bridge loan conversion event is the termination of the Merger Agreement (see Note 3) or the occurrence of any event that would result in the termination of the Merger Agreement as defined in the Merger Agreement. If the bridge loan conversion has not occurred, and the Convertible Bridge Loan Advance is not repaid in full on the maturity date, the default interest will bear an additional 6.0% per annum. Interest is paid in arrears at December 29, 2022 and at the maturity date. Prepayment of the Convertible Bridge Loan Advance is permitted in increments of $100,000 at any time, and the prepayment requires the payment of all accrued and unpaid interest as well as a prepayment premium. The prepayment premium is the incremental amount of interest that would have been paid for the term of the convertible bridge advance, this amount was paid in full on close of the merger transaction. Interest expense from the Bridge Loans was $101,548 for the year ended December 31, 2022. The Company recorded the amendment of the subordinated loan and security agreement in accordance with ASC 470-50, Debt-Modifications and Extinguishments , and recorded a loss on extinguishment of debt of $192,731 in the consolidated statements of operations. Upon the occurrence of a bridge loan conversion event, the bridge loan advance balance is calculated at the amount of the principal outstanding plus a 14% premium and is considered to have been outstanding since the second amendment date of June 29, 2022. Extinguishment of Subordinated Loan and Security Agreement and Bridge Loan (Secured subordinated loan) On December 2, 2022, the Company entered into a Securities Exchange Agreement with holders of the Subordinated Loan and Security agreement and the holders of Convertible Bridge Loan Advance. The Company also executed a payment arrangement with other debt holders on December 6, 2022. The Company agreed to the following key terms and conditions with the holders under these arrangements. - - - of the Subordinated Loan and Security Agreement All the warrants issued pursuant to the subordinated loan and security agreements were exercised immediately prior to the merger transaction. The Company issued 161,112 shares of Series B redeemable preferred stock to the warrant holders as a cashless exercise. This Series A Redeemable Convertible Preferred Stock was converted to common stock on the close of the merger transaction. The Company executed on the above terms and conditions on close of the merger transaction. The in the consolidated statement of operations, a of $2,405,111 for Debt-Modifications and Extinguishments. Paycheck Protection Program Loan The Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). On May 6, 2020, the Company entered into a promissory note evidencing an unsecured loan in the aggregate amount of $1,278,150 made to the Company under the PPP (“PPP Loan 1”). On February 2, 2021, the Company entered into a second unsecured promissory note in the aggregate amount of $1,003,112 made to the Company under the PPP (“PPP Loan 2”). The PPP Loan to the Company was being made through Home Loan Investment Bank FSB. The interest rate on the PPP Loan was 1% and the term was two years. In accordance with the updated Small Business guidance, the PPP Loan was modified so that, beginning ten months from the date of the PPP Loan, the Company was required to make monthly payments of principal and interest. The promissory note evidencing the PPP Loan contained customary events of default relating to, among other things, payment defaults or breaching the terms of the PPP Loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. On June 16, 2021, the Company submitted an application for forgiveness of $1,278,150 due on the PPP Loan 1. On June 30, 2021, the Company was notified that the principal balance of the PPP Loan 1 and accrued interest were fully forgiven. On September 16, 2021, the Company submitted an application for forgiveness of $1,003,112 due on the PPP Loan 2. On September 28, 2021, the Company was notified that the principal balance of the PPP Loan 2 and accrued interest were fully forgiven. As a result, the Company recorded a gain in the amount of $2,281,262 to other income in the consolidated statement of operations during the year ended December 31, 2021. As of December 31, 2022 and 2021, the Company had an outstanding balance of $0 and $0, respectively, under the PPP Loans. Convertible Debt Agreements On August 26, 2022, Lakeshore and ProSomnus entered into definitive agreements with certain investors pursuant to which convertible promissory notes with an aggregate principal funding equal to thirty million dollars ($30,000,000) were to be issued to such investors in a private placement to be consummated immediately prior to the consummation of the Business Combination. Senior Convertible Notes On December 6, 2022, the Company entered into that certain Senior Indenture by and between ProSomnus, Inc., ProSomnus Holdings, ProSomnus Sleep Technologies, and Wilmington Trust, National Association, as Trustee and Collateral Agent, and Senior Secured Convertible Notes Due December 6, 2025 (“Senior Convertible Notes”), with an aggregate principal amount of $16.96 million, pursuant to the previously disclosed Senior Securities Purchase Agreement, dated August 26, 2022. In connection with the closing of this Convertible Debt offering, the Company issued 36,469 shares of common stock and 169,597 warrants (“Convertible Notes warrants”) to purchase common stock. These warrants entitle the Holders to purchase shares of common stock of the Company, subject to adjustment, at a purchase price per share of $11.50. The debt has an interest rate of 9% per annum with a term of 3 years. Subordinated Convertible Notes On December 6, 2022, the Company entered into that certain Subordinated Indenture by and between ProSomnus, Inc., ProSomnus Holdings, ProSomnus Sleep Technologies, and Wilmington Trust, National Association, as Trustee and Collateral Agent, and Subordinated Secured Convertible Notes Due April 6, 2026 (“Subordinated Convertible Notes”), with an aggregate principal amount of $17.45 million, pursuant to the previously disclosed Subordinated Securities Purchase Agreement, dated August 26, 2022. In connection with the closing of this Convertible Debt offering, the Company issued 290,244 shares of common stock and 1,745,310 warrants (“Convertible Notes warrants”) to purchase common stock to certain Convertible Debt holders. The debt has an interest rate of Prime Rate plus an additional 9% per annum with a term of 3 years . The Convertible Notes included the following embedded features: Embedded Feature Nature Description (1) Optional redemption – Election of Company Redemption feature (embedded call option) At any time after the later of (i) the eighteen-month anniversary of the initial issue date and (ii) the date that the Senior Debt is no longer outstanding, if the daily volume weighted-average price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days exceeds $18.00, the Company may redeem a portion of or all of the principal amount (including accrued and unpaid interest) + any liquidated damages and any other amounts due in respect of the Notes redeemable in cash. (2) Mandatory redemption – Events of Default Redemption feature (embedded contingent call option) The Company is required to prepay all of the outstanding principal balance and accrued and unpaid interest upon bankruptcy-related events of default. (3) Lenders’ Optional redemption – Events of Default Redemption feature (embedded contingent call option) Holders of at least 25% aggregate principal amount of the Notes can require the Company to pay all of the outstanding principal balance and accrued and unpaid interest upon any event of default that is not bankruptcy related. (4) Lender’s Optional Conversion Conversion feature At each Lenders’ option, subject to specific conditions, it may convert all or any portion of its Notes at an initial conversion rate of 86.95652173913043, which is reduced (and only reduced) at various dates and subject to certain adjustments to the conversion rate in the case of specified events. If a note is converted, the Company will adjust the conversion rate to account for any accrued and unpaid interest on such note plus any Make-Whole Amount related to such note. (5) Lenders’ Optional Conversion Upon Merger Event Other feature Upon a merger event, Note holders of each $1,000 principal amount of Notes are entitled to convert such notes plus accrued interest, plus the Make-Whole Amount related to the in kind and amount of reference property that a holder of a number of shares of common stock equal to the conversion rate in effect immediately prior to such event would have owned or been entitled to receive upon such event (6) Additional interest rate upon certain non-credit related events Other feature Upon an event of default, additional interest will be incurred. Additional interest will also be incurred if the Notes are not freely tradeable (7) Ability to pay interest in kind (PIK Interest)* Other feature The Company has the election to pay interest in cash or in-kind. *The PIK interest feature was only present in the Subordinated Convertible Note, and not available in the Senior Convertible Notes The Company assessed the embedded features within these Convertible Note and determined the following: o The Optional Redemption feature (1) the Mandatory redemption feature (2) and the Lender’s Optional redemption feature (3) met the definition of a derivative and were not clearly and closely related to the host contract and required separate accounting. Further, the redemption features are settled in cash and would therefore not meet the indexed to equity and equity classification scope exception. Thus, these redemption features were concluded to be embedded derivatives that should be bifurcated from the loan and accounted for separately at fair value on a recurring basis through the income statement. o The Lender’s Optional Conversion feature (4) and the Lender’s Optional Conversion Upon Merger (5) event features also met the definition of a derivative and were not clearly and closely related to the host contract and required separate accounting. The economic characteristics of the Lender’s Optional Conversion feature (4) and the Make Whole premium on Lenders’ Optional Conversion Upon Merger Event (5) were based on fair value of the underlying shares. The settlement amount of the interest make-whole is not indexed to the issuer’s equity but it is based on stated interest cash flows. The Lenders Optional Conversion Upon Merger event feature is contingent on merger event, this exercise contingency is allowable as it is not based on market or an observable index. The company noted that features (4) and (5) did not meet the indexed to equity and equity classification scope exception. Thus, these conversion features were concluded to be embedded derivatives that should be bifurcated from the loan and accounted for separately at fair value on a recurring basis through the consolidated statement of operations. o The additional interest rate upon certain non-credit related events (6) are triggered based on timely filing of financial information and the tradability of the Notes, these are not related to the economic characteristics of debt. Therefore, this feature is not clearly and closely related to the debt host. The additional interest payment is settled in cash and hence did not meet the derivative scope exception. However, since the probability of the Convertibles Notes being freely tradeable or Company’s failure to timely file is estimated to be less than 5%, the company concluded that the fair value of this feature is not material. Thus, even though this additional interest feature was concluded to be embedded derivatives, it will not be fair valued separately. o The ability to pay PIK interest feature is clearly and closely related to the debt, and will not be evaluated separately as a derivative feature. The Company determined the Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, if there is a conversion feature that is required to be bifurcated, the cash conversion feature and beneficial conversion feature guidance is not applicable to such conversion feature and the fair value election is allowable provided the debt was not issued at a substantial premium. As the proceeds received at issuance from these Convertible Notes do not exceed the principal amount that will be paid at maturing, there is no substantial premium. Further, ASC 815-15-25 provides that if an entity has a hybrid financial instrument that would require bifurcation of embedded derivatives under ASC 815, the entity may irrevocably elect to initially and subsequently measure a hybrid financial instrument in its entirety at fair value with changes in fair value recognized in earnings. The Company elected to measure the Senior and Subordinated Convertible Notes in their entirety at fair value with changes in fair value recognized as non-operating gain or loss in the consolidated statement of operations at each balance sheet date in accordance with ASC 815-15-25. The estimated fair value of the convertible note payable was determined using a Monte Carlo Simulation method. We simulated the stock price using a Geometric Brownian Motion until maturity. For each simulation path we calculated the convertible bond value at maturity and then discount that back to the valuation date. Finally, the value of the convertible bond is determined by averaging the discounted cash flows of all the simulated paths. The following assumptions were used as of issuance date of December 6, 2022, and as of December 31, 2022. Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free Convertible Notes Issuance - December 6, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 8.69 30.80% 40% 4.07% Subordinated Convertible Notes 8.69 40.20% 40% 4.01% Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80% 45% 4.23% Subordinated Convertible Notes 5.56 41.20% 45% 4.19% The following is a summary of Fair value of Convertible Notes on issuance and as of December 31, 2022. Convertible Fair Value of Notes as of Fair value of Change in Convertible December 31, Convertible Notes fair value of Notes Convertible Notes 2021 on Issuance Convertible Notes December 31, Senior Convertible Notes $ - $ 14,536,000 $ (885,000) $ 13,651,000 Subordinated Convertible Notes - 10,223,000 (69,000) 10,154,000 The change in fair value was offset by $311,919 of interest accrued on Senior and Subordinated debt and $83,000 of issuance costs. An additional net expense of $5,845 was recorded to change in fair value on account of issuance of warrants and an issue discount on Senior and Subordinated debt, that was offset by a gain in fair value on date of issuance of the Senior and Subordinated debt. |
COMMON STOCK WARRANTS
COMMON STOCK WARRANTS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK WARRANTS | ||
COMMON STOCK WARRANTS | NOTE 8 – COMMON STOCK WARRANTS Estimated Fair Value of Outstanding Warrants Classified as Liabilities The estimated fair value of outstanding warrants classified as liabilities is determined at each consolidated balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recently reported balance sheet date is recorded in the consolidated statements of operations as a change in fair value of warrant liability. The fair value of the outstanding warrants accounted for as liabilities as of September 30, 2023 and December 31, 2022 use Level 3 inputs and are calculated using the Black-Scholes option pricing model with the following assumptions: Exercise Asset Dividend Expected Risk-Free Expected As of September 30, 2023 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 1.04 0 % 65 % 4.70 % 4.18 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 5.56 0 % 40 % 4.00 % 4.93 years The changes in fair value of the outstanding warrants classified as liabilities for the three and nine months ended September 30, 2023, are as follows: Convertible Notes Warrants Warrant liability, January 1, 2023 $ 1,991,503 Change in fair value 842,559 Warrant liability, March 31, 2023 2,834,062 Change in fair value (2,106,398) Warrant liability, June 30, 2023 727,664 Change in fair value (593,621) Warrant liability, September 30, 2023 $ 134,043 As of September 30, 2023 and December 31, 2022, there were 9,151,704 and 4,597,180 equity classified warrants outstanding, respectively. | NOTE 9 – COMMON STOCK WARRANTS As of December 31, 2022, the Company has 6,512,087 warrants outstanding. The exercise price for the warrants is $11.50 per share. An aggregate of 1,914,907 warrants were issued by the Company with issuance of Senior and Subordinated Convertible Notes (See Footnote 8 – Debt). Additionally, 4,597,180 warrants were issued to holders of Lakeshare founder shares, and private and public warrant holders, as a result of the Business Combination, detailed as below: ● At the Closing of the Business Combination, 196,256 Private Placement Warrants held by the Sponsor, each exercisable for one ordinary share of Lakeshore at $11.50 per share, automatically converted into warrants to purchase one share of ProSomnus common stock at $11.50 per share. (Private Warrants) ● At the Closing of the Business Combination, 4,100,239 Public Warrants of Lakeshore, originally issued in the initial public offering of Lakeshore, were converted into 4,100,239 common stock warrants of ProSomnus common stock at $11.50 per share. (Public Warrants) ● Pursuant to Amended and Restated Purchaser Support Agreement dated November 28, 2022 between the Company and Lakeshore, at the closing of the Business Combination, the Company issued an additional 300,685 warrants of the Company’s common stock to founders of Lakeshore at substantively identical terms as the Private Placement warrants and the Public warrants. (Additional Private Warrants) As of December 31, 2021, the Company had an aggregate of 322,223 warrants outstanding. These warrants were issued in connection with the loan and security agreement by the Company. (See Footnote 8 – Debt). The following is a summary of the Company’s warrant activity for the year ended December 31, 2022. Outstanding Outstanding Issuance December 31, December 31, Warrant Issuance Period 2021 Granted Exercised Cancelled 2022 Expiration Convertible Notes Warrants - Senior Debt Dec-22 — 169,597 — — 169,597 Dec-27 Convertible Notes Warrants - Subordinated Debt Dec-22 — 1,745,310 — — 1,745,310 Dec-27 Private Warrants Dec-22 — 196,256 — — 196,256 Dec-27 Public Warrants Dec-22 — 4,100,239 — — 4,100,239 Dec-27 Additional Private Warrants Dec-22 — 300,685 — — 300,685 Jan-30 2021 preferred Series B warrants Jan-20 111,111 — (111,111) — — Apr-30 2020 preferred Series B warrants Apr-21 211,112 — (211,112) — — 322,223 6,512,087 (322,223) — 6,512,087 Warrants classified as Liabilities Warrants in connection with the Loan and Security Agreement In connection with the Loan and Security Agreement, the Company issued a warrant to the lender for the purchase of 211,112 shares of Series B redeemable convertible preferred stock, with an exercise price of $1.80 per share (subject to a valuation cap of $150,000,000 in the event of a liquidation) and a term of ten years (“2020 preferred Series B warrants”). The fair value of the warrant at issuance was $228,000. The fair value of such warrant was estimated using the Black-Scholes Model based on the following weighted average assumptions: redeemable convertible preferred share price on date of grant $1.80, expected dividend yield 0%, expected volatility 26%, risk-free interest rate 0.93% and expected life of ten years. In connection with the second loan and security agreement, the Company issued warrants to the lender for the purchase of 111,111 shares of Series B redeemable convertible preferred stock, with an exercise price of $1.80 per share (subject to a valuation cap of $150,000,000 in the event of a liquidation) and a term of ten years (“2021 preferred Series B warrants”). The fair value of the warrant at issuance was $143,333. The fair value of such warrant was estimated using the Black-Scholes Model based on the following weighted average assumptions: redeemable convertible preferred share price on date of grant $1.80, expected dividend yield 0%, expected volatility 27%, risk-free interest rate 1.73% and expected life of ten years. The fair value of warrants was recorded within noncurrent liabilities as a debt discount and a warrant liability, with changes in fair value recognized in the consolidated statements of operations. During the years ended December 31, 2022 and 2021, the Company recognized interest expense of $47,046 and $89,750, respectively, upon amortization of the debt discounts. There was no balance of the debt discount as of December 31, 2022. The debt discount at December 31, 2021 was $242,277. All of the warrants issued pursuant to these loan and security agreements were exercised immediately prior to the merger transaction. The Company issued 161,112 shares of Series B redeemable preferred stock to the warrant holders in a cashless exercise. The Series A Redeemable Convertible Preferred Stock was converted to common stock of ProSomnus on close of the merger transaction. Convertible Notes Warrants In connection with closing of the Senior Convertible notes offering, the Company issued 169,597 warrants to purchase common stock. These warrants entitle the holders to purchase shares of common stock of the Company, subject to adjustment, at a purchase price per share of $11.50 and have a term of five years. Further, in connection with the closing of Subordinated Convertible notes offering, 1,745,310 warrants to purchase common stock to the Convertible Notes holders. These warrants entitle the Holders to purchase shares of common stock of the Company, subject to adjustment, at a purchase price per share of $11.50 and have a term of five years. The Convertible Notes Warrants were classified as a derivative liability because the settlement provisions for the warrants contain adjustments to the settlement amount that do not meet the fixed-for-fixed test, thus these did not qualify as being indexed to the Company’s own common stock and are measured at fair value on a recurring basis. The aggregate fair value of these warrants at issuance was $5,246,845. Estimated Fair Value of Outstanding Warrants Classified as Liabilities The estimated fair value of outstanding warrants classified as liabilities is determined at each consolidated balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent consolidated balance sheet date is recorded in the consolidated statements of operations as a change in fair value of warrant liability. The fair value of the outstanding warrants accounted for as liabilities as of December 6, 2022, December 31, 2022 and December 31, 2021 are calculated using the Black-Scholes option pricing model with the following assumptions: Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of Issuance date - December 6, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 8.69 0% 40% 3.70% 5.00 years Convertible Notes Warrants - Subordinated Debt 11.50 8.69 0% 40% 3.70% 5.00 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 5.56 0% 40% 4.00% 4.93 years Convertible Notes Warrants - Subordinated Debt 11.50 5.56 0% 40% 4.00% 4.93 years Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2021 Price Price Yield Volatility Interest Rate Life 2021 preferred Series B warrants $ 1.80 $ 2.89 0% 20% 1.52% 9.26 years 2020 preferred Series B warrants 1.80 2.89 0% 20% 1.52% 8.10 years Warrants Classified as Equity Private warrants, Public warrants and Additional Private warrants Certain warrants are classified as equity instruments since they do not meet the characteristics of a liability or a derivative and are recorded at fair value on the date of issuance using the Black-Scholes option pricing model. The fair value as determined at the issuance date is recorded as an issuance cost of the related stock. At close of Business Combination, the Company issued an aggregate of 4,597,180 warrants to holders of Lakeshare founder shares, and to the private and public warrant holders, as a result of the Reincorporation Merger and the Business Combination agreements. The Public and Private warrants were issued in June 2021, pursuant to the initial public offering of Lakeshore; each warrant was exercisable for one ordinary share of Lakeshore at $11.50 per share. These automatically converted into warrants to purchase one share of ProSomnus common stock at $11.50 per share on consummation of the Business Combination with an expiry of 5 years, redeemable at $18.00 per share redemption trigger price. ASC 815-10-15-74(a) provides a scope exception from Derivative Accounting Contracts issued or held by that reporting entity that are both: 1. Indexed to its own stock (see Section 815-40-15) 2. Classified in stockholders’ equity in its statement of financial position (see Section 815-40-25). The Company has concluded that the Warrants meet the derivative scope exception in 815-10-15-74(a) as the Warrants are both indexed to the Company’s own stock, and meet the equity classification conditions within ASC 815-40-25. These warrants have been classified as Equity and recorded to additional paid in capital at the grant date fair value on date of issuance. The aggregate fair value of these warrants at issuance was $666,600. The fair value of such warrant was estimated using observable market inputs, the closing price of Lakeshore public warrants was $0.145 as of December 6, 2022. The changes in fair value of the outstanding warrants classified as liabilities for the year ended December 31, 2022 and 2021 were as follows: Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2021 granted exercised warrants 2022 Convertible Notes Warrants - Senior Debt $ - $ 464,696 $ - $ (288,315) $ 176,381 Convertible Notes Warrants - Subordinated Debt - 4,782,149 - (2,967,027) 1,815,122 2020 preferred Series B warrants and 2021 preferred Series B warrants 562,244 - (580,000) 17,756 - Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2020 granted exercised warrants 2021 2020 preferred Series B warrants and 2021 preferred Series B warrants $ 228,000 $ 143,333 $ — $ 190,911 $ 562,244 There were 4,597,180 equity classified warrants granted during the year ended December 31, 2022. |
REDEEMABLE CONVERTIBLE PREFERRE
REDEEMABLE CONVERTIBLE PREFERRED STOCK | 9 Months Ended |
Sep. 30, 2023 | |
REDEEMABLE CONVERTIBLE PREFERRED STOCK | |
REDEEMABLE CONVERTIBLE PREFERRED STOCK | NOTE 9 – REDEEMABLE CONVERTIBLE PREFERRED STOCK Our Board of Directors has designated 25,000 shares of preferred stock as Series A Preferred Stock. The Series A Preferred Stock has no maturity and is not subject to any sinking fund or redemption and will remain outstanding indefinitely unless and until converted by the holder or the Company redeems or otherwise repurchases the Series A Preferred Stock. In September 2023, the Company issued 9,526 shares of Series A Preferred Stock and the corresponding Transaction Warrants to the Investors (see Note 7) in exchange for total cash proceeds of $9.5 million. In October 2023, the Company issued 900 shares of Series A Preferred Stock and the corresponding Transaction Warrants in exchange for total cash proceeds of $0.9 million. Dividends Dividends on each share of Series A Preferred Stock are payable at the rate of 8% (the “Dividend Rate”) of the purchase price of $1,000.00 per share (the “Stated Value”). Dividends are payable semi-annually to holders of record on March 1 and September 1 on March 15 and September 15 of each year, respectively, with the first payment date being March 15, 2024, the dividend for which will reflect the period from closing through March 15, 2024. Dividends are payable in shares of Common Stock (a “PIK Dividend”). The number of dividend shares is equal to the Stated Value of each such share of Series A Preferred Stock multiplied by the dividend rate of 8.0% per annum and divided by $1.00 , as adjusted from time to time for any stock split, stock dividend, recapitalization or otherwise, computed on the basis of a 360-day year and twelve 30-day months. Any fractional shares of a PIK Dividend will be rounded to the nearest whole share. All shares of Common Stock issued in payment of a PIK Dividend will be duly authorized, validly issued, fully paid and non-assessable. Dividends will accumulate whether or not the Company has earnings, there are funds legally available for the payment of those dividends and whether or not those dividends are declared by the Company’s Board of Directors. Conversion Features Each share of Series A Preferred Stock is convertible at any time and in the sole discretion of the holder, into shares of Common Stock at a conversion rate of $1.00 per share (the “Conversion Rate”) plus any accrued but unissued PIK Dividends, when converted , subject to certain restrictions on conversion prior to the Company obtaining stockholder approval. If the Company issues or sells Common Stock at a price below the current conversion rate of $1.00 per share, the conversion rate will be adjusted downward immediately following the dilutive issuance. The new conversion rate will be calculated based on a formula that takes into account the previous conversion rate, number of shares outstanding before and after issuance, and the consideration received by the Company in connection with the dilutive issuance. Certain types of agreements to sell Common Stock at market pricing will be evaluated on a quarterly basis or immediately prior to a Liquidation Event for purposes of determining if they collectively constitute a dilutive issuance. Following receipt of the stockholder approval, the Company can initiate a mandatory conversion at any time when the resale of issued Common Stock is covered under an effective registration statement or can be sold without volume limitations under Rule 144 (or successor rule), as determined by the counsel to the Company. The Series A Preferred Stock will automatically convert into shares of Common Stock at the Conversion Rate, as follows: (i) 50% of the issued and outstanding Series A Preferred Stock will convert into shares of Common Stock if the Volume-weighted average price (VWAP) trading price for the shares of Common Stock are trading on a national exchange is greater than $4.50 per share for twenty of any thirty consecutive trading days, and (ii) the remaining issued and outstanding Series A Preferred Stock will convert into shares of Common Stock if the VWAP trading price for the shares of Common Stock are trading on a national exchange greater than $6.00 per share for twenty of any thirty consecutive trading days. The Company analyzed the embedded conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion options are equity classified. The Company is restricted from issuing shares of Common Stock exceeding 19.95% of the outstanding Common Stock (the “Exchange Cap”), unless approved by the Company’s stockholders, with each holder of Series A Preferred Stock only able to convert their proportional percentage of the shares allowable under the Exchange Cap . The Company is required to call a meeting of stockholders within 90 days of the Initial Closing to vote on the issuance of shares above the Exchange Cap. Voting Rights Each Series A Preferred Stockholder is entitled to the whole number of votes equal to the number of shares of Common Stock into which such holder’s Series A Preferred Stock would be convertible on the record date for the vote or consent of stockholders at a conversion price of $1.04 per share of Common Stock rounded to the nearest whole share. Liquidation Preferences and Redemption Rights The Series A Preferred Stock has senior ranking over Common Stock of the Company , and junior to the Company’s indebtedness, in each case for purposes of dividends, distributions, and payments in a liquidation event . In the event of a liquidation event, holders of Series A Preferred Stock are entitled to receive in cash out of the assets of the Company legally available, whether from capital or from earnings available for distribution to its stockholders, before any amount shall be paid to the holders of Common Stock, an amount in cash per share of Series A Preferred Stock equal to the greater of: (i) 150% of the Stated Value and (ii) the value of the per share consideration paid to the holders of the Common Stock in the Liquidation Event as if the Series A Preferred Stock held by such holder had been converted prior to the liquidation event, subject to certain exceptions as stipulated in the Company’s Certificate of Designations for the Series A Preferred Stock . The Series A Preferred Stock are redeemable upon the occurrence of any transaction or series of related transactions pursuant to which the Company effects (i) any merger or consolidation of the Company where the Company is not the surviving entity, (ii) any sale of all or substantially all of its assets, or (iii) any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (a “Fundamental Transaction”). In the event of a Fundamental Transaction, holders of Series A Preferred Stock are entitled to receive in cash the greatest of: (i) 150% of the Stated Value, (ii) the Stated Value of Series A Preferred Stock, plus to the extent holders of Common Stock will receive cash consideration in exchange for their Common Stock in a Fundamental Transaction, cash consideration equal to the value of any accrued but unpaid dividends, and (iii) the value of the per share consideration paid to the holders of the Common Stock in the Fundamental Transaction as if the Series A Preferred Stock held by such holder had been converted prior to the Fundamental Transaction . As part of the Company’s analysis of the classification of the Series A Preferred Stock, the Company considered the guidance in ASC 480-10-S99-3A and in particular paragraphs 2 and 3f, which require preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable upon the occurrence of an event that is not solely within the control of the issuer. Due to the consideration payable upon a Fundamental Transaction and the liquidation preferences of the Series A Preferred Stock providing for payout on the Series A Preferred Stock prior to payment to the Common Stockholders, the Company cannot avail itself of the limited exception of paragraph ASC 480-10-S99-3A-3f. As a result, the Company concluded that the Series A Preferred Stock are subject to ASR 268, Presentation in Financial Statements of “Redeemable Preferred Stocks,” and should be classified outside of permanent equity. |
COMMON STOCK
COMMON STOCK | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK | ||
COMMON STOCK | NOTE 10 – COMMON STOCK The Company has reserved shares of Common Stock for the following as of September 30, 2023: 2022 Equity Incentive Plan reserve 2,411,283 Reserve for earn-out shares 3,000,000 Reserve for exercise of warrants 12,014,300 Reserve for convertible debt 18,945,919 Employee stock purchase plan 500,000 Total 36,871,502 | NOTE 11 – COMMON STOCK The Company was authorized to issue up to 101,000,000 shares of all classes of stock at a par value of $0.0001 per share as of December 31, 2022. The Company was authorized to issue 36,038,535 shares of all classes of common stock at a par value of $0.0001 per share as of December 31, 2021. At December 31, 2022 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Common Stock* 100,000,000 16,041,464 $ — Preferred Stock 1,000,000 — - Total 101,000,000 16,041,464 $ — *excludes shares issued as an ‘Escrow Reserve’ At December 31, 2021 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Series A 30,415,100 20,179,645 $ 5,355,678 Series B 1,675,600 1,673,092 977,755 Series C 3,947,835 2,713,649 1,192,377 Total 36,038,535 24,566,386 $ 7,525,810 *Represents fully vested Series C Shares The Company has reserved shares of Common Stock for the following as of December 31, 2022: 2022 Equity Incentive Plan reserve 2,411,283 Reserve for Earn-out shares 3,000,000 Reserve for exercise of Public Warrants 4,100,250 Reserve for exercise of Private Warrants 496,941 Total 10,008,474 Immediately following the Business Combination there were 16,041,464 shares of Common stock with a par value of $0.0001 issued and outstanding |
EARN-OUT SHARES
EARN-OUT SHARES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
EARN-OUT SHARES | ||
EARN-OUT SHARES | NOTE 11 - EARN-OUT SHARES In connection with the Business Combination, certain of the Company’s original stockholders are entitled to receive up to 3,000,000 Earn-out shares in three tranches: (1) the first tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of the Company’s Common Stock is $12.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; (2) the second tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of the Company’s Common Stock is $15.00 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; and · (3) the third tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of the Company’s Common Stock is $17.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing. The Earn-out shares will be allocated among the Company’s stockholders in proportion to the number of shares issued to them at the closing that continue to be held by them. Due to the variability in the number of Earn-out shares at settlement which could change upon a control event, the Earn-out arrangement contains a settlement provision that violates the indexation guidance under ASC 815-40 and liability classification is required. The Company recorded the earnout liability initially at fair value, and subsequently remeasures the liability with changes in fair value recorded in the consolidated statement of operations at each reporting period. The changes in fair value of the earnout liability for the three and nine months ended September 30, 2023 are as follows: Earnout Liability Earnout liability, January 1, 2023 $ 12,810,000 Change in fair value (1,500,000) Earnout liability, March 31, 2023 11,310,000 Change in fair value (6,700,000) Earnout liability, June 30, 2023 4,610,000 Change in fair value (3,880,000) Earnout liability, September 30, 2023 $ 730,000 | NOTE 13 - EARN-OUT SHARES In connection with the Business Combination, certain of the Company’s original stockholders are entitled to receive up to 3,000,000 Earn-out shares in three tranches: (1) the first tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of PubCo common stock is $12.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; (2) the second tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of PubCo common stock is $15.00 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; and (3) the third tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of PubCo common stock is $17.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing. The Earn-out shares will be allocated among the Company’s stockholders in proportion to the number of shares issued to them at the closing that continue to be held by them. Due to the variability in the number of Earn-out shares at settlement which could change upon a control event, the Earn-out arrangement contains a settlement provision that violates the indexation guidance under ASC 815-40 and liability classification is required. The Company recorded the earnout liability initially at fair value, and will subsequently remeasure the liability with changes in fair value recorded in the consolidated statement of operations. The Company recorded an Earn-out liability of $22.07 million at issuance and a subsequent expense for change in fair value of Earn-out liability of $9.26 million as of December 31, 2022. The Earn-out liability as of December 31, 2022, was $12.81 million. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
STOCK-BASED COMPENSATION | ||
STOCK-BASED COMPENSATION | NOTE 12 — STOCK-BASED COMPENSATION During May 2023, the Company issued 20,000 shares of Common Stock to a consultant for services received. The fair value of the shares issued of $0.2 million was recognized as a selling, general and administrative expense with a corresponding credit to additional paid-in capital. As of September 30, 2023, the Company has 339,000 shares of Common Stock in escrow for any merger consideration adjustments which are expected to be released from escrow within twelve months from the date of the Business Combination . 2022 Equity Incentive Plan During the nine months ended September 30, 2023, the Company granted 1,478,915 options under the 2022 Equity Incentive plan to certain employees and consultants of the Company. Stock option activity for the nine months ended September 30, 2023 was as follows: Weighted-Average Weighted-Average Remaining Aggregate Shares Exercise Price Contractual Term Intrinsic Value Outstanding at January 1, 2023 — $ — Granted 1,478,915 5.20 Exercised — — Cancelled (98,232) 5.20 Outstanding at September 30, 2023 1,380,683 $ 5.20 9.34 years $ — Exercisable at September 30, 2023 — — — — Vested and expected to vest as of September 30, 2023 1,380,683 $ 5.20 9.34 years $ — As of September 30, 2023, and December 31, 2022, there were no exercisable or vested options. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2023, was $2.91 . The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of the stock options was estimated using the following weighted average assumptions: Nine Months Ended September 30, 2023 Dividend yield 0.0% Expected volatility 55.0% Risk-free interest rate 3.6% Expected life 6.2 years Dividend Rate —The expected dividend rate was assumed to be zero , as the Company had no t previously paid dividends on Common Stock and has no current plans to do so. Expected Volatility —The expected volatility was derived from the historical stock volatilities of several public companies within the Company’s industry that the Company considers to be comparable to the business over a period equivalent to the expected term of the stock option grants. Risk-Free Interest Rate —The risk-free interest rate is based on the interest yield in effect at the date of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term. Expected Term —The expected term represents the period that the Company’s stock options are expected to be outstanding. The expected term of option grants that are considered to be “plain vanilla” are determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. For other option grants not considered to be “plain vanilla,” the Company determined the expected term to be the contractual life of the options. Forfeiture Rate —The Company recognizes forfeitures as they occur. The Company has recorded stock-based compensation expense for the three and nine months ended September 30, 2023 related to the grants of stock option awards to employees and nonemployees in the condensed consolidated statement of operations as follows: Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 Cost of revenue $ 4,478 $ 11,940 Sales and marketing 21,158 87,324 Research and development 52,453 164,260 General and administrative 68,507 452,669 $ 146,596 $ 716,193 As of September 30, 2023, unamortized compensation expense related to unvested stock options was $3.3 million, which is expected to be recognized over a weighted average period of 3.3 years. 2023 Employee Stock Purchase Plan The Company’s Board of Directors previously adopted, and the Company's stockholders approved, the Company’s 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of shares of the Company’s Common Stock at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 500,000 shares of Common Stock were available for purchase at adoption of the 2023 ESPP. The first offering period under the plan commenced on June 15, 2023 . There were no shares issued under the plan for the nine months ended September 30, 2023. As of September 30, 2023, 500,000 shares of Common Stock remained available for issuance under the 2023 ESPP. The Company estimates the fair value of ESPP grants on their grant date using the Black-Scholes option pricing model. The estimated fair value of ESPP grants is amortized on a straight-line basis over the requisite service period of the grants. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The Company utilizes its estimated volatility in the Black-Scholes option pricing model to determine the fair value of ESPP grants. ESPP compensation expense for the nine months ended September 30, 2023, was de minimis. | NOTE 14 — STOCK-BASED COMPENSATION The Company issued 65,000 shares of restricted common C shares with a four A summary of non-vested restricted common C shares as of December 31, 2022, and changes during the year then ended is presented below: Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2021 912,692 $ 0.01 Granted — — Vested (854,507) 0.01 Forfeited (58,185) 0.02 Non-vested restricted common C shares as of December 31, 2022 — — A summary of non-vested restricted common C shares as of December 31, 2021, and changes during the year then ended is presented below: Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2020 1,370,391 $ 0.01 Granted 65,000 0.08 Vested (381,689) 0.01 Forfeited (141,010) 0.02 Non-vested restricted common C shares as of December 31, 2021(1) 912,692 0.01 (1) As of December 31, 2021, there was $10,949 of total unrecognized compensation cost related to non- vested restricted common C shares that is expected to be recognized over a weighted-average period of 1.98 years. The estimated forfeiture rate for restricted common C share was 0% as of December 31, 2021. The fair value of the 381,689 shares that vested during the year ended December 31, 2021, was approximately $4,100 . Total stock compensation expense for the years ended December 31, 2022 and 2021 was $2,156,915 and $4,712 , respectively. Stock compensation expense related to the restricted common C shares was 31, 2022 and 2021, respectively. Stock compensation expense related to the issuance of Series A Redeemable Convertible Preferred Stock to certain employees was for the years ended December 31, 2022 and 2021, respectively. (See Note 12 – Redeemable Convertible Preferred Stock.) For the year ended December 31, 2021, and until immediately prior to the Merger transaction, the fair values of the shares of the Company’s restricted common C stock were estimated on each grant date by the board of directors. In order to determine the fair value, the then board of directors considered, among other things, valuations prepared by an independent third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The fair value of the Company’s restricted common C stock was estimated using a two-step process. First, the Company’s enterprise value was established using generally accepted valuation methodologies, such as guideline public company and guideline company transactions. The enterprise value was allocated among the securities that comprise the capital structure of the Company using the option-pricing method. The option-pricing method treats all levels of the capital structure as call options on the enterprise’s value, with exercise price based on the “breakpoints” between each of the different claims on the securities. The inputs necessary for the option-pricing model include the current equity value (the enterprise value as previously calculated), breakpoints (the various characteristics for each class of equity, including liquidation preferences and priority distributions, in accordance with the Company’s certificate of incorporation, as amended and restated), term, risk-free rate, and volatility. |
NET LOSS ATTRIBUTABLE TO COMMON
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | NOTE 13 — NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS The following table sets forth the computation of the basic and diluted net loss per share attributable to Common Stockholders for the three and nine months ended September 30, 2023: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net loss attributable to Common Stockholders $ (11,238,803) $ (3,548,962) $ (17,226,044) $ (9,353,340) Denominator: Weighted-average common shares outstanding 16,115,254 24,713,218 16,071,719 24,611,666 Net loss per share attributable to Common Stockholders, basic and diluted $ (0.70) $ (0.14) $ (1.07) $ (0.38) * Basic and diluted weighted-average common shares outstanding for the three and nine months ended September 30, 2022, have been computed based on the historical weighted-average common shares outstanding multiplied by the exchange ratio established in the Business Combination. The potential shares of Common Stock that were excluded from the computation of diluted net loss per share attributable to Common Stockholders for the three and nine months ended September 30, 2023 and 2022 because including them would have been antidilutive are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Common Stock upon conversion of redeemable convertible preferred stock A — 4,214,422 — 4,214,422 Common Stock upon conversion of redeemable convertible preferred stock B — 7,288,333 — 7,288,333 Non-vested shares of Series C common stock — 638,972 — 638,972 Warrants to purchase redeemable convertible preferred stock B, as-converted — 322,223 — 322,223 Series A Preferred Stock 9,526,000 — 9,526,000 — Warrants to purchase Common Stock 11,066,611 — 11,066,611 — Options to purchase Common Stock 1,465,817 — 1,465,817 — Senior Convertible Notes 5,858,842 — 5,858,842 — Subordinated Convertible Notes 13,032,835 — 13,032,835 — Total 40,950,105 12,463,950 40,950,105 12,463,950 In October 2023, in connection with the third closing of the Financing Transaction (see Note 7), the Company issued 900 shares of Series A Preferred Stock and warrants that will be exercisable to purchase 900,000 shares of Common Stock to a Noteholder Investor in exchange for cash consideration of $900,000 . | NOTE 17 — NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders during the years ended December 31: 2022 2021 Numerator: Net loss attributable to common stockholders $ (7,145,320) $ (5,977,407) Denominator: Weighted-average common shares outstanding 10,021,632 3,957,783 Net loss per share attributable to common stockholders, basic and diluted $ (0.71) $ (1.51) The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the years ended December 31, 2022 and 2021 because including them would have been antidilutive are as follows: 2022 2021 Series A common stock upon conversion of redeemable convertible preferred stock A — 4,214,422 Series A common stock upon conversion of redeemable convertible preferred stock B — 7,288,333 Non-vested shares of Series C common stock — 912,692 Senior and Subordinated Convertible Notes 3,179,410 — Shares subject to warrants to purchase common stock 6,512,087 322,223 Total 9,691,497 12,737,670 |
BASIS OF ACCOUNTING AND SIGNI_2
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | ||
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and in conjunction with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 14, 2023. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any future periods. The condensed consolidated balance sheet as of December 31, 2022, has been derived from audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. | Basis of Presentation The accompanying consolidated financial statements were prepared on the accrual basis of accounting in accordance with principles generally accepted in the United States of America (“U.S. GAAP”). |
Principles of Consolidation | Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. | Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. |
Liquidity and Management's Plans | Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. The Company expects operating losses and negative cash flows from operations to continue for the foreseeable future. The Company’s ability to continue as a going concern depends on its ability to execute on its plans to achieve revenue growth forecast, control operating costs, and obtain additional financing. The Company has developed a cash flow breakeven plan pursuant to which the Company expects to maintain positive cash balances and compliance with its debt covenants and commitments. The Company has commenced the implementation of its plan and believes the plan, when fully implemented as planned, will mitigate the liquidity risks identified. However, the Company’s operating plan may change as a result of many factors currently unknown and there can be no assurance that the current operating plan or cash flow break even plan will be achieved in the time frame anticipated by the Company. Furthermore, there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis or at all. Based on the Company’s current level of expenditures and management’s future cash flow projections, the Company believes its cash and cash equivalents of $12.0 million and working capital of $6.1 million at September 30, 2023, may not be sufficient for the Company to continue operations as a going concern for at least one year from the issuance date of these condensed consolidated financial statements. Additionally, from July 1, 2023, the Convertible Notes (as defined in Note 7) require the Company to maintain a minimum cash balance of $4.5 million on the first of each calendar month. The Company believes that without the successful and full implementation of its cash flow breakeven plan, these factors raise substantial doubt about its ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. | Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. At December 31, 2022, the Company had a working capital of $14.2 million and cash and cash equivalents of $15.9 million. The Company expects to continue to incur net losses for the foreseeable future as it continues the development of its products. On December 6, 2022, on consummation of the Business Combination, we received $4.92 million of cash held in Lakeshore’s trust account from its initial public offering, $10.25 million of cash in connection with the PIPE Equity financing and approximately $30 million in proceeds from the Convertible Notes offering. These proceeds were used to pay transaction expenses and other liabilities of Lakeshore, pay certain transaction expenses of ProSomnus, and pay off approximately $11.53 million in debt of ProSomnus at closing, with the remaining being deposited in ProSomnus’ cash account. Based on cash flow projections from operating and financing activities and existing balance of cash and cash equivalents and investments, management is of the opinion that the Company has sufficient funds for sustainable operations, and it will be able to meet its payment obligations from operations and debt related commitments for at least one year from the issuance date of these financial statements. Based on the above considerations, the Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations. The Company’s ability to continue as a going concern is dependent on management’s ability to control operating costs and maintain revenue growth forecast. Management believes there is not substantial doubt about the ability of the Company to meet its obligations and operations for twelve months after the issuance of the consolidated financial statements. |
Use of Estimates | Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s significant estimates in these condensed consolidated financial statements relate to the fair values, and the underlying assumptions used to formulate such fair values, of its Series A Preferred Stock, Convertible Notes, earn-out liability, and warrants. Estimates also include the allowance for doubtful accounts receivable, warranty and earned discount accruals, measurements of tax assets and liabilities and stock-based compensation. | Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s most significant estimates in these consolidated financial statements relate to the fair value of Senior and Subordinated convertible notes, fair value of Earnout liability, fair value of warrants, provision for doubtful accounts receivable, the warranty and earned discount accruals, future revenue estimates used to calculate the current and long-term portions due under the subordinated loan agreement, the effective interest rates of the subordinated loan agreement, measurement of tax assets and liabilities and stock-based compensation. |
Concentrations of Credit Risk | Concentrations of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of accounts receivable and cash. The Company sells its products to customers primarily in North America and Europe. To reduce credit risk, management performs periodic credit evaluations of its customers’ financial condition. No customers exceeded more than 10% of the Company’s revenue or accounts receivables as of and for the years ended December 31, 2022 and 2021. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Company believes its credit risk is mitigated due to the high quality of the banks in which it places its deposits. | |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — The valuation is based on quoted prices in active markets for identical instrument. Level 2 Inputs — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model — based valuation techniques for which all significant assumptions are observable in the market. Level 3 Inputs — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company’s financial instruments consist primarily of cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable and accrued expenses, long-term debt instruments, earnout and warrant liabilities. The carrying values of our working capital balances are representative of their fair values due to their short-term maturities. The carrying value of our equipment financing obligation is considered to approximate its fair value because the interest rate is comparable to current rates for financing available to us. Under the fair value option as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments , we have elected to record our convertible debt instruments at fair value. The earnout and warrant liabilities are presented at fair value on the condensed consolidated balance sheets. The following tables provide a summary of the financial instruments that are measured at fair value on a recurring basis: September 30, 2023 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,286,405 $ — $ — $ 13,286,405 Subordinated Convertible Notes 18,720,000 — — 18,720,000 Earnout liability 730,000 — — 730,000 Warrant liability 134,043 — — 134,043 December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earnout liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. | Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — Level 2 Inputs — Level 3 Inputs — no 3 Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. Change in Fair Value of Senior and Subordinated Convertible Notes Under the fair value election as prescribed by ASC 815, the Company will record changes in fair value through the consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period, with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable. The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the consolidated statement of operations. As a result of the merger transaction, the company assumed an Earn-out liability, which is remeasured each reporting period. Given the unobservable nature of the inputs, the fair value measurement of the deferred earn-out is deemed to use Level 3 inputs. The Earn-out liability was accounted for as a liability as of the date of the merger transaction and will be remeasured to fair value until the Earnout Triggering Events are met. The Company believes the carrying amounts of financial instruments including cash and cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable, and revolving line of credit approximate fair value due to their short-term nature. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of September 30, 2023, and December 31, 2022, the Company had $12.0 million and $15.9 million of cash an d no cash equivalents, respectively, which includes restricted cash of $0.7 million at September 30 , 2023 consisting of a letter of credit on hand w ith the Compan y' s financial institution as collateral for an office lease. | Cash and Cash Equivalents The company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of years ended December 31, 2022 and 2021, the Company had $15.9 million and $1.5 million of cash, respectively, and there were no cash equivalents. |
Convertible Notes | Convertible Notes The Company accounts for its Senior Convertible Notes and Subordinated Convertible Notes (as defined below), as derivatives in accordance with, ASC 815-10, Derivatives and Hedging, and ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying condensed consolidated balance sheets and changes in fair value recorded in other expense within the condensed consolidated statements of operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. The Company has analyzed the redemption, conversion, settlement, and other derivative instrument features of its Convertible Notes. ● The Company identified that the (i) redemption features, (ii) lender’s optional conversion feature, (iii) lender’s optional conversion upon merger event feature and (iv) additional interest rate upon certain events feature meet the definition of a derivative. The Company analyzed the scope exception for all the above features under ASC 815-10-15-74(a). ● Based on the further analysis, the Company identified that the (i) lender’s optional conversion feature, (ii) lender’s optional conversion upon merger event feature and (iii) additional interest rate upon certain events feature, do not meet the settlement criteria to be considered indexed to equity. The Company concluded that each of these features should be classified as a derivative liability measured at fair value with the changes in fair value in the condensed consolidated statement of operations. ● The Company also identified that the redemption features are settled in cash and do not meet the indexed to equity and the equity classification scope exception, thus, they must be bifurcated from the Convertible Notes and accounted for separately at fair value on a recurring basis reflecting the changes in fair value in the condensed consolidated statement of operations. The Company determined the Convertible Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the condensed consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has elected to separately present interest expense related to the Convertible Notes within the condensed consolidated statement of operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Convertible Notes are reflected at their respective fair values on the condensed consolidated balance sheets. | Senior and Subordinated Convertible Notes The Company accounts for its derivatives in accordance with, ASC 815-10, Derivatives and Hedging, or ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying Consolidated Balance Sheets and changes in fair value recorded in other expense within the Consolidated Statements of Operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. Upon the consummation of the Business Combination, the Company issued Senior and Subordinated Convertible Notes. The Company analyzed various redemption, conversion and settlement features, and other derivative instrument features of these Convertible Notes offering. ● ● ● The Company determined the Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, if there is a conversion feature that is required to be bifurcated, the cash conversion feature and beneficial conversion feature guidance is not applicable to such conversion feature and the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Senior and Subordinated Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the Consolidated Statement of Operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the Consolidated Statement of Operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Senior and Subordinated Convertible Notes are reflected at their respective fair values on the Consolidated Balance Sheet at December 31, 2022. |
Comprehensive Income | Comprehensive Income Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It consists of net income and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net income. Comprehensive income is equal to the net income for the years ended December 31, 2022 and 2021. | |
Accounts Receivable | Accounts Receivable The Company reports accounts receivables at net realizable value. The Company has not historically assessed finance charges on past due accounts, but retains the right to do so. The allowance for doubtful accounts is estimated based on historical write-off percentages and management’s assessment of specific past due or delinquent customer accounts. The delinquency status of customers is determined by reference to contractual terms. Doubtful accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted and are recorded as recoveries of bad debts, if subsequently collected. The allowance for doubtful accounts amounted to $162,635 and $100,000 as of December 31, 2022 and 2021, respectively. All accounts receivable are primarily from customers located in North America and Europe. | |
Inventory | Inventory Inventory is recorded at the lower of cost or net realizable value under the first-in, first-out method of accounting. Inventories primarily consist of purchased raw materials. The Company regularly reviews whether the net realizable value of its inventory is lower than its carrying value. If the valuation shows that the net realizable value is lower than the carrying value, the Company takes a charge to cost of revenue and directly reduces the carrying value of the inventory. Indicators that could result in inventory write-downs include damaged or slow-moving materials and supplies. | |
Property and Equipment | Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are as follows: Manufacturing equipment 3 to 7 years Computers and software 3 years Furniture 7 years Leasehold Improvements Shorter of remaining lease term or estimated useful life Maintenance and repairs are charged to operations as incurred. Through December 31, 2021, equipment capitalized under capital lease obligations was included in property and equipment. Property and equipment capitalized under capital lease obligations were amortized using a straight-line method over the shorter of the life of the lease or the useful life of the asset, which ranges three and was included in depreciation expense in the consolidated statements of operations. On January 1, 2022 the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”), which impacted the classification of equipment formerly capitalized under capital lease obligations. The equipment related to capital leases, now finance leases, have been reclassified from property and equipment to right-of-use assets on the consolidated balance sheet. Occasionally, the Company enters into finance lease arrangements for various machinery, equipment, computer-related equipment, or software. The Company records amortization of assets leased under finance lease arrangements. | |
Long-lived Assets | Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or the fair value less costs to sell. No such impairments have been identified during the years ended December 31, 2022 and 2021. | |
Redeemable Convertible Preferred Stock | Redeemable Convertible Preferred Stock All Series A and Series B redeemable convertible preferred stock were converted into common shares of the Company on close of the merger transaction in December 2022. Prior to the merger transaction, the Company recorded all shares of redeemable convertible preferred stock at their respective issuance price, less issuance costs on the dates of issuance. The redeemable convertible preferred stock was presented outside of stockholders’ deficit in the consolidated balance sheets. When redeemable convertible preferred stock was considered either then currently redeemable or probable of becoming redeemable, the Company selected a policy to recognize changes in the redemption value immediately, as they would have occurred and adjust the carrying value of redeemable convertible preferred stock to the greater of the redemption value at the end of each reporting period or the initial carrying amount. | |
Warrants | 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 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 own common stock, par value $0.0001 (“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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the liability classified warrants are recognized as other income or expense on the condensed consolidated statements of operations. | 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 own 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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash other income or expense on the consolidated statements of operations. |
Warranty | Warranty The Company offers a warranty guaranteeing the fit and finish of their intraoral devices for three years from the date of initial sale, as well as a guarantee for the unlimited remaking of arches. The accrual for warranty claims and unlimited arch remakes totaled $269,496 and $217,244 at December 31, 2022 and 2021, respectively, and these amounts are recorded in accrued expenses on the consolidated balance sheets. | |
Revenue Recognition | Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● Identifying the contract with a customer: customers submit authorized prescriptions and oral impressions to the Company. Authorized prescriptions constitute the contract with customers. ● Identifying the performance obligations within the contract: The sole performance obligation is the shipment of a completed customized intraoral device. ● Determining the transaction price: Prices are determined by standardized pricing sheets and adjusted for estimated returns, discounts, and allowances. ● Allocating the transaction price to the performance obligations: The full transaction price is allocated to the shipment of the completed intraoral device as it is the only element in the transaction. ● Recognizing revenue as the performance obligation is satisfied at a point in time: revenue is recognized upon transfer of control which occurs upon shipment of the product. The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days . Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. | Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● ● ● ● ● The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days. Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. |
Cost of Revenue | Cost of Revenue Cost of revenue consists primarily of materials and the costs related to the production of the intra-oral device, including employee compensation, other employee-related expenses and allocable manufacturing overhead costs. The Company has a policy to classify initial recruiting, onboarding and training costs of new manufacturing employees as part of research and development expenses in the consolidated statements of operations. Such costs totaled $211,218 and $144,775 for the years ended December 31, 2022 and 2021, respectively. The Company utilizes the practical expedient which permits expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to employees. The Company expenses sales commissions paid to employees as revenue are recognized. | |
Research and Development | Research and Development Research and development costs are charged to operations as incurred. | |
Advertising | Advertising Advertising costs are expensed as incurred and totaled $100,319 and $87,764 for the years ended December 31, 2022 and 2021, respectively. | |
Stock-Based Compensation | Stock-Based Compensation The Company’s stock-based compensation expense is recognized based on the estimated fair value of the restricted stock awards on the date of grant. The grant-date fair value of all stock-based payment awards is recognized as employee compensation expense on a straight-line basis over the requisite service period. The Company recognizes forfeitures of restricted stock awards as they occur. | |
Leases | Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability for all leases, except short term leases with an original term of twelve months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term as the underlying leases for operating leases and the implied rate in the lease agreement for finance leases. Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. The Company’s real estate operating lease agreement requires variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments are recognized in operating expenses when incurred. Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. | Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, for all less. represents for value at liability, any for at value Company’s for for for Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for for renewal renewal rate, at Company’s real at Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. |
Income Taxes | Income Taxes The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes as well as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. Significant judgment may be required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that is more likely than not to be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company follows authoritative guidance regarding uncertain tax positions. The guidance requires that realization of an uncertain income tax position must be more likely than not (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the consolidated financial statements. The guidance further prescribes the benefit to be realized assumes a review by taxing authorities having all relevant information and applying current conventions. The guidance also clarifies the consolidated financial statements classification of tax related penalties and interest and sets forth disclosures regarding unrecognized tax benefits. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. | |
Net Loss per Share Attributable to Common Stockholders | Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to Common Stockholders is calculated by dividing the net loss attributable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the period, without consideration for Common Stock equivalents. Diluted net loss per share attributable to Common Stockholders is the same as basic net loss per share attributable to Common Stockholders, since the effects of potentially dilutive securities are antidilutive. | Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since the effects of potentially dilutive securities are antidilutive. |
Reclassifications | Reclassifications Certain prior year balances have been reclassified in order to conform to the current period presentation. These reclassifications have no impact on previously reported earnings or cash flows. | |
Segment Reporting | Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer and Chief Financial Officer. The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The Company early adopted ASU 2020-06 effective January 1, 2023, which eliminated the need to assess whether a beneficial conversion feature needs to be recognized upon the issuance of new convertible instruments. The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company's consolidated financial statements. | Recent Accounting Pronouncements On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (ASC 842), which superseded previous guidance related to accounting for leases within Topic 842, Leases . The Company elected the practical expedient provided under ASU 2018-11, Leases (ASC 842) Targeted Improvements, which amended ASU 2016-02 to provide entities an optional transition practical expedient to adopt the new standard with a cumulative effect adjustment as of the beginning of the year of adoption with prior year comparative financial information and disclosures remaining as January Topic Topic The Company elected the package of practical expedients permitted under the transition guidance, which allowed forward for any January also with an initial term of 12 months or less off the consolidated balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Adoption of the new standard resulted in the recording of right of use assets and operating lease liabilities of $406,551 and $464,291 , respectively, as of January 1, 2022. Additionally, upon adoption of the new standard, the Company reclassified the equipment of $2,349,591 related to capital leases to right of use assets. Finance lease liabilities of $1,826,973 were reclassified from capital lease obligation. The transition did not have a material impact on the Company’s consolidated results of operations, cash flows or liquidity measures. In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - “ Debt with Conversion and Other Options Derivatives and Hedging-Contracts in Entity’s Own Equity In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. The impact to the company is immaterial. |
BASIS OF ACCOUNTING AND SIGNI_3
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | ||
Schedule of estimated useful lives of property and equipment | Manufacturing equipment 3 to 7 years Computers and software 3 years Furniture 7 years Leasehold Improvements Shorter of remaining lease term or estimated useful life | |
Summary of the financial instruments that are measured at fair value on a recurring basis | September 30, 2023 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,286,405 $ — $ — $ 13,286,405 Subordinated Convertible Notes 18,720,000 — — 18,720,000 Earnout liability 730,000 — — 730,000 Warrant liability 134,043 — — 134,043 December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earnout liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 | December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earn-out liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 December 31, 2021 Fair Value Level 1 Level 2 Level 3 Warrant liability $ 562,244 $ — $ — $ 562,244 |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
PROPERTY AND EQUIPMENT | ||
Schedule of Property and equipment | September 30, 2023 December 31, 2022 Manufacturing equipment $ 3,626,396 $ 2,516,859 Computers and software 1,621,474 1,608,075 Leasehold improvements 822,134 441,956 Furniture — 27,587 6,070,004 4,594,477 Less accumulated depreciation and amortization (2,330,383) (2,190,075) Property and equipment, net $ 3,739,621 $ 2,404,402 | 2022 2021 Manufacturing equipment $ 2,516,859 $ 4,420,281 Computers and software 1,608,075 1,547,549 Furniture 27,587 27,587 Leasehold Improvements 441,956 295,471 4,594,477 6,290,888 Less: accumulated depreciation (2,190,075) (2,934,293) Total Property and equipment, net $ 2,404,402 $ 3,356,595 |
INVENTORY (Tables)
INVENTORY (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
INVENTORY | ||
Schedule of Inventory | September 30, 2023 December 31, 2022 Raw materials $ 1,509,768 $ 561,726 Work-in-process 140,329 78,219 $ 1,650,097 $ 639,945 | 2022 2021 Raw Materials $ 561,726 $ 323,989 Work in progress 78,219 54,780 $ 639,945 $ 378,769 |
ACCRUED EXPENSES (Tables)
ACCRUED EXPENSES (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
ACCRUED EXPENSES | ||
Schedule of accrued compensation and other accrued expenses | September 30, 2023 December 31, 2022 Compensation related accruals $ 3,274,248 $ 2,104,008 Marketing programs 940,930 611,642 Interest 381,595 110,239 Warranty 464,812 269,496 Professional fees 1,873,278 129,169 Inventory purchases and freight 1,242,311 — Other 196,308 481,540 $ 8,373,482 $ 3,706,094 | 2022 2021 Bonus $ 832,918 $ 831,601 Wages 218,974 140,962 Vacation 959,004 569,777 Earned discounts 554,642 499,219 Commission settlement — 274,323 Warranty 269,496 217,244 Other 360,716 264,533 Professional fees 129,169 72,611 Interest 110,239 28,750 401k matching contributions 93,112 100,134 Travel 60,400 — Credit card fees 60,424 34,424 Marketing expenses 57,000 45,000 $ 3,706,094 $ 3,078,578 |
LEASES (Tables)
LEASES (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
LEASES | ||
Schedule of components of lease cost, weighted average lease terms and discount rates | Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Lease Cost: Operating lease cost $ 223,304 $ 68,709 $ 711,661 $ 206,126 Finance lease cost: Amortization of assets obtained under finance leases $ 285,251 $ 274,712 $ 681,763 $ 597,904 Interest on lease liabilities 126,880 104,409 282,990 223,263 $ 412,131 $ 379,121 $ 964,753 $ 821,167 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of September 30, 2023 Operating leases 10.0 % 9.3 years Finance leases 10.2 % 3.2 years Nine Months Ended September 30, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 355,060 Operating cash flows from finance leases 246,879 Financing cash flows from finance leases 1,026,701 | Year ended December 31, 2022 Lease Cost: Operating lease cost $ 324,929 Finance lease cost: Amortization of assets obtained under finance leases $ 772,870 Interest on lease liabilities 288,969 $ 1,061,839 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of December 31, 2022 Operating leases 10.31 % 9.6 years Finance leases 11.17 % 3.5 years Year ended December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ (159,348) Operating cash flows from finance leases 772,870 Financing cash flows from finance leases (1,222,270) Right-of-use assets obtained in exchange for lease liabilities: Acquisition of ROU assets through operating leases $ 5,435,661 Acquisition of property and equipment through finance leases 2,233,834 Addition of ROU assets from finance lease modification 239,000 $ 2,472,834 |
Schedule of right-of-use assets | Total Manufacturing equipment $ 5,237,167 Computers and software 700,234 Leasehold improvements 218,244 Total 6,155,645 Less accumulated amortization (2,623,405) Right-of-use assets for finance leases 3,532,240 Right-of-use assets for operating leases 5,154,399 Total right-of-use assets $ 8,686,639 | Total Manufacturing equipment $ 4,673,617 Computers and software 700,234 Leasehold Improvements 218,244 Total 5,592,095 Less: accumulated amortization (1,941,644) Right-of-use assets for finance leases 3,650,451 Right-of-use assets for operating leases 5,632,771 Total right-of-use assets $ 9,283,222 |
Schedule of maturities of finance lease liabilities | Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 576,315 2024 1,287,461 2025 1,057,500 2026 739,115 2027 192,568 Thereafter 47,300 Total minimum lease payments 3,900,259 Less amount representing interest (563,452) Present value of minimum lease payments 3,336,807 Less current portion (1,109,899) Finance lease obligations, less current portion $ 2,226,908 | Years ending Total 2023 $ 1,275,119 2024 863,280 2025 785,386 2026 597,933 2027 190,283 Thereafter — Total minimum lease payments 3,712,001 Less amount representing interest (622,004) Present value of minimum lease payments 3,089,997 Less current portion (1,008,587) Finance lease obligations, less current portion $ 2,081,410 |
Schedule of future minimum rental payments required under operating lease | Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 379,887 2024 842,553 2025 867,831 2026 893,862 2027 920,679 Thereafter 4,761,873 Total minimum lease payments 8,666,685 Less: amount representing interest (3,107,847) Present value of minimum lease payments 5,558,838 Less: current portion (290,869) Operating lease liabilities, less current portion $ 5,267,969 | Years ending December 31, Total 2023 $ 794,619 2024 836,280 2025 861,372 2026 887,208 2027 913,824 Thereafter 4,997,184 Total minimum lease payments 9,290,487 Less: amount representing interest (3,549,882) Present value of minimum lease payments 5,740,605 Less: current portion (215,043) Operating lease liabilities, less current portion $ 5,525,562 |
DEBT (Tables)
DEBT (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
Debt | ||
Schedule of convertible note | The Convertible Notes included the following embedded features: Embedded Feature Nature Description (1) Optional redemption – Election of Company Redemption feature (embedded call option) At any time after the later of (i) the eighteen-month anniversary of the initial issue date and (ii) the date that the Senior Debt is no longer outstanding, if the daily volume weighted-average price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days exceeds $18.00, the Company may redeem a portion of or all of the principal amount (including accrued and unpaid interest) + any liquidated damages and any other amounts due in respect of the Notes redeemable in cash. (2) Mandatory redemption – Events of Default Redemption feature (embedded contingent call option) The Company is required to prepay all of the outstanding principal balance and accrued and unpaid interest upon bankruptcy-related events of default. (3) Lenders’ Optional redemption – Events of Default Redemption feature (embedded contingent call option) Holders of at least 25% aggregate principal amount of the Notes can require the Company to pay all of the outstanding principal balance and accrued and unpaid interest upon any event of default that is not bankruptcy related. (4) Lender’s Optional Conversion Conversion feature At each Lenders’ option, subject to specific conditions, it may convert all or any portion of its Notes at an initial conversion rate of 86.95652173913043, which is reduced (and only reduced) at various dates and subject to certain adjustments to the conversion rate in the case of specified events. If a note is converted, the Company will adjust the conversion rate to account for any accrued and unpaid interest on such note plus any Make-Whole Amount related to such note. (5) Lenders’ Optional Conversion Upon Merger Event Other feature Upon a merger event, Note holders of each $1,000 principal amount of Notes are entitled to convert such notes plus accrued interest, plus the Make-Whole Amount related to the in kind and amount of reference property that a holder of a number of shares of common stock equal to the conversion rate in effect immediately prior to such event would have owned or been entitled to receive upon such event (6) Additional interest rate upon certain non-credit related events Other feature Upon an event of default, additional interest will be incurred. Additional interest will also be incurred if the Notes are not freely tradeable (7) Ability to pay interest in kind (PIK Interest)* Other feature The Company has the election to pay interest in cash or in-kind. *The PIK interest feature was only present in the Subordinated Convertible Note, and not available in the Senior Convertible Notes | |
Schedule of fair value of convertible notes on issuance | Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of September 30, 2023 Price Yield Volatility Interest Rate Senior Convertible Notes $ 1.04 26.70 % 60 % 4.99 % Subordinated Convertible Notes 1.04 36.10 % 60 % 4.91 % Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80 % 45 % 4.23 % Subordinated Convertible Notes 5.56 41.20 % 45 % 4.19 % Senior Convertible Notes Subordinated Convertible Notes Beginning fair value, January 1, 2023 $ 13,651,000 $ 10,355,681 Paid-in-kind interest — 723,699 Change in fair value of debt 827,000 1,000,000 Fair value as of March 31, 2023 14,478,000 12,079,380 Paid-in-kind interest — 793,594 Change in fair value of debt (1,549,596) 2,352,026 Fair value as of June 30, 2023 12,928,404 15,225,000 Paid-in-kind interest — 1,010,814 Conversion of Subordinated — (919,568) Increase in fair value of debt in connection 1,142,781 6,318,711 Change in fair value of debt (784,780) (2,914,956) Ending fair value, September 30, 2023 $ 13,286,405 $ 18,720,000 | Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free Convertible Notes Issuance - December 6, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 8.69 30.80% 40% 4.07% Subordinated Convertible Notes 8.69 40.20% 40% 4.01% Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80% 45% 4.23% Subordinated Convertible Notes 5.56 41.20% 45% 4.19% Convertible Fair Value of Notes as of Fair value of Change in Convertible December 31, Convertible Notes fair value of Notes Convertible Notes 2021 on Issuance Convertible Notes December 31, Senior Convertible Notes $ - $ 14,536,000 $ (885,000) $ 13,651,000 Subordinated Convertible Notes - 10,223,000 (69,000) 10,154,000 |
Schedule of components of loss on debt extinguishment | Amount Fair value - Senior Convertible Notes (pre-financing) $ 2,456,607 Fair value - Subordinated Convertible Notes (pre-financing) 7,616,902 10,073,509 Less consideration transferred to Noteholder Investors: Fees paid to Noteholder Investors (62,620) Fair value of Series A Preferred Stock (7,807,681) Fair value of warrants (787,250) Fair value of Senior Convertible Notes (post-financing) (3,599,388) Fair value of Subordinated Convertible Notes (post-financing) (13,935,613) (26,192,552) Plus consideration received from Noteholder Investors: Cash 6,376,000 Loss on Debt Extinguishment: ($ 9,743,043) | |
Schedule of other financing expense related to financing transaction | Cash proceeds received $ 3,150,000 Less: fair value of Series A Preferred Stock (3,857,308) Less: fair value of warrants (1,765,607) Other financing expense ($ 2,472,915) | |
Equipment Financing Obligation | ||
Debt | ||
Schedule of payments | At September 30, 2023 Total 2023 (remaining three months) $ 13,363 2024 56,995 2025 63,698 2026 64,952 Total principal maturities 199,008 Less: current portion (55,510) Equipment financing obligation, net of current portion $ 143,498 | Years ending Total 2023 $ 58,973 2024 56,995 2025 63,698 2026 64,952 2027 — Total principal maturities 244,618 Less: current portion (58,973) Equipment financing obligation, net of current portion $ 185,645 |
Subordinated Notes | ||
Debt | ||
Schedule of rates of unpaid interest on Notes | Less than one (1) year from the funding date 3 % One (1) year to less than two (2) years from the funding date 2 % Two (2) years to less than three (3) years from the funding date 1 % A change in control event 5 % |
COMMON STOCK WARRANTS (Tables)
COMMON STOCK WARRANTS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK WARRANTS | ||
Schedule of warrant activity | Outstanding Outstanding Issuance December 31, December 31, Warrant Issuance Period 2021 Granted Exercised Cancelled 2022 Expiration Convertible Notes Warrants - Senior Debt Dec-22 — 169,597 — — 169,597 Dec-27 Convertible Notes Warrants - Subordinated Debt Dec-22 — 1,745,310 — — 1,745,310 Dec-27 Private Warrants Dec-22 — 196,256 — — 196,256 Dec-27 Public Warrants Dec-22 — 4,100,239 — — 4,100,239 Dec-27 Additional Private Warrants Dec-22 — 300,685 — — 300,685 Jan-30 2021 preferred Series B warrants Jan-20 111,111 — (111,111) — — Apr-30 2020 preferred Series B warrants Apr-21 211,112 — (211,112) — — 322,223 6,512,087 (322,223) — 6,512,087 | |
Schedule of assumptions for fair value of the outstanding warrants classified as liabilities | Exercise Asset Dividend Expected Risk-Free Expected As of September 30, 2023 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 1.04 0 % 65 % 4.70 % 4.18 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 5.56 0 % 40 % 4.00 % 4.93 years | Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of Issuance date - December 6, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 8.69 0% 40% 3.70% 5.00 years Convertible Notes Warrants - Subordinated Debt 11.50 8.69 0% 40% 3.70% 5.00 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 5.56 0% 40% 4.00% 4.93 years Convertible Notes Warrants - Subordinated Debt 11.50 5.56 0% 40% 4.00% 4.93 years Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2021 Price Price Yield Volatility Interest Rate Life 2021 preferred Series B warrants $ 1.80 $ 2.89 0% 20% 1.52% 9.26 years 2020 preferred Series B warrants 1.80 2.89 0% 20% 1.52% 8.10 years |
Schedule of change in fair value of the outstanding warrants classified as liabilities | Convertible Notes Warrants Warrant liability, January 1, 2023 $ 1,991,503 Change in fair value 842,559 Warrant liability, March 31, 2023 2,834,062 Change in fair value (2,106,398) Warrant liability, June 30, 2023 727,664 Change in fair value (593,621) Warrant liability, September 30, 2023 $ 134,043 | Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2021 granted exercised warrants 2022 Convertible Notes Warrants - Senior Debt $ - $ 464,696 $ - $ (288,315) $ 176,381 Convertible Notes Warrants - Subordinated Debt - 4,782,149 - (2,967,027) 1,815,122 2020 preferred Series B warrants and 2021 preferred Series B warrants 562,244 - (580,000) 17,756 - Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2020 granted exercised warrants 2021 2020 preferred Series B warrants and 2021 preferred Series B warrants $ 228,000 $ 143,333 $ — $ 190,911 $ 562,244 |
COMMON STOCK (Tables)
COMMON STOCK (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK | ||
Schedule of common stock | At December 31, 2022 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Common Stock* 100,000,000 16,041,464 $ — Preferred Stock 1,000,000 — - Total 101,000,000 16,041,464 $ — *excludes shares issued as an ‘Escrow Reserve’ At December 31, 2021 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Series A 30,415,100 20,179,645 $ 5,355,678 Series B 1,675,600 1,673,092 977,755 Series C 3,947,835 2,713,649 1,192,377 Total 36,038,535 24,566,386 $ 7,525,810 *Represents fully vested Series C Shares | |
Schedule of reserved shares of Common Stock | 2022 Equity Incentive Plan reserve 2,411,283 Reserve for earn-out shares 3,000,000 Reserve for exercise of warrants 12,014,300 Reserve for convertible debt 18,945,919 Employee stock purchase plan 500,000 Total 36,871,502 | The Company has reserved shares of Common Stock for the following as of December 31, 2022: 2022 Equity Incentive Plan reserve 2,411,283 Reserve for Earn-out shares 3,000,000 Reserve for exercise of Public Warrants 4,100,250 Reserve for exercise of Private Warrants 496,941 Total 10,008,474 |
EARN-OUT SHARES (Tables)
EARN-OUT SHARES (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
EARN-OUT SHARES | |
Schedule of changes in fair value of the earnout liability | Earnout Liability Earnout liability, January 1, 2023 $ 12,810,000 Change in fair value (1,500,000) Earnout liability, March 31, 2023 11,310,000 Change in fair value (6,700,000) Earnout liability, June 30, 2023 4,610,000 Change in fair value (3,880,000) Earnout liability, September 30, 2023 $ 730,000 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
STOCK-BASED COMPENSATION | ||
Summary of stock option activity | Weighted-Average Weighted-Average Remaining Aggregate Shares Exercise Price Contractual Term Intrinsic Value Outstanding at January 1, 2023 — $ — Granted 1,478,915 5.20 Exercised — — Cancelled (98,232) 5.20 Outstanding at September 30, 2023 1,380,683 $ 5.20 9.34 years $ — Exercisable at September 30, 2023 — — — — Vested and expected to vest as of September 30, 2023 1,380,683 $ 5.20 9.34 years $ — | |
Summary of fair value of the stock options weighted average assumptions | Nine Months Ended September 30, 2023 Dividend yield 0.0% Expected volatility 55.0% Risk-free interest rate 3.6% Expected life 6.2 years | |
Summary of stock-based compensation expense | Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 Cost of revenue $ 4,478 $ 11,940 Sales and marketing 21,158 87,324 Research and development 52,453 164,260 General and administrative 68,507 452,669 $ 146,596 $ 716,193 | |
Summary of non-vested restricted common C shares | Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2021 912,692 $ 0.01 Granted — — Vested (854,507) 0.01 Forfeited (58,185) 0.02 Non-vested restricted common C shares as of December 31, 2022 — — Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2020 1,370,391 $ 0.01 Granted 65,000 0.08 Vested (381,689) 0.01 Forfeited (141,010) 0.02 Non-vested restricted common C shares as of December 31, 2021(1) 912,692 0.01 (1) As of December 31, 2021, there was $10,949 of total unrecognized compensation cost related to non- vested restricted common C shares that is expected to be recognized over a weighted-average period of 1.98 years. The estimated forfeiture rate for restricted common C share was 0% as of December 31, 2021. |
NET LOSS ATTRIBUTABLE TO COMM_2
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||
Schedule of computation of the basic and diluted net loss per share attributable to common stockholders | Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net loss attributable to Common Stockholders $ (11,238,803) $ (3,548,962) $ (17,226,044) $ (9,353,340) Denominator: Weighted-average common shares outstanding 16,115,254 24,713,218 16,071,719 24,611,666 Net loss per share attributable to Common Stockholders, basic and diluted $ (0.70) $ (0.14) $ (1.07) $ (0.38) | 2022 2021 Numerator: Net loss attributable to common stockholders $ (7,145,320) $ (5,977,407) Denominator: Weighted-average common shares outstanding 10,021,632 3,957,783 Net loss per share attributable to common stockholders, basic and diluted $ (0.71) $ (1.51) |
Schedule of potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Common Stock upon conversion of redeemable convertible preferred stock A — 4,214,422 — 4,214,422 Common Stock upon conversion of redeemable convertible preferred stock B — 7,288,333 — 7,288,333 Non-vested shares of Series C common stock — 638,972 — 638,972 Warrants to purchase redeemable convertible preferred stock B, as-converted — 322,223 — 322,223 Series A Preferred Stock 9,526,000 — 9,526,000 — Warrants to purchase Common Stock 11,066,611 — 11,066,611 — Options to purchase Common Stock 1,465,817 — 1,465,817 — Senior Convertible Notes 5,858,842 — 5,858,842 — Subordinated Convertible Notes 13,032,835 — 13,032,835 — Total 40,950,105 12,463,950 40,950,105 12,463,950 | 2022 2021 Series A common stock upon conversion of redeemable convertible preferred stock A — 4,214,422 Series A common stock upon conversion of redeemable convertible preferred stock B — 7,288,333 Non-vested shares of Series C common stock — 912,692 Senior and Subordinated Convertible Notes 3,179,410 — Shares subject to warrants to purchase common stock 6,512,087 322,223 Total 9,691,497 12,737,670 |
BASIS OF ACCOUNTING AND SIGNI_4
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (Details) | 9 Months Ended | 12 Months Ended | ||
Dec. 06, 2022 USD ($) $ / shares | Sep. 30, 2023 USD ($) $ / shares | Dec. 31, 2022 USD ($) customer segment $ / shares | Dec. 31, 2021 USD ($) customer $ / shares | |
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||||
Working capital | $ 6,100,000 | $ 14,200,000 | ||
Cash and cash equivalents | 12,021,908 | 15,916,141 | $ 1,500,582 | |
Cash | 15,900,000 | 1,500,000 | ||
Cash equivalents | 0 | $ 0 | $ 0 | |
Restricted Cash | $ 700,000 | |||
Number of customers exceeded 10% of sales / accounts receivable | customer | 0 | 0 | ||
Allowance for doubtful accounts | $ 162,635 | $ 100,000 | ||
Impairment of long lived asset | $ 0 | $ 0 | ||
Common stock, par value (in dollars per share) | $ / shares | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Warranty period of the product | 3 years | |||
Accrual for warranty claims | $ 269,496 | $ 217,244 | ||
Warranty guaranteeing the fit and finish product period | 3 years | 3 years | ||
Invoices customers upon shipment product period | 30 days | 30 days | ||
Initial recruiting, onboarding and training costs | $ 211,218 | 144,775 | ||
Advertising costs | 100,319 | $ 87,764 | ||
Proceeds from convertible debt | $ 27,452,121 | |||
Number of operating segments | segment | 1 | |||
Number of reporting segments | segment | 1 | |||
Lakeshore ("Lakeshore") Acquisition I Corp | ||||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||||
Cash held | $ 4,920,000 | |||
Cash in connection | 10,250,000 | |||
Proceeds from convertible debt | 30,000,000 | |||
Transaction expenses | $ 11,530,000 | $ 11,530,000 | ||
Minimum | ||||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||||
Cash | $ 4,500,000 |
BASIS OF ACCOUNTING AND SIGNI_5
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES - Fair value of Financial Instruments (Details) - Recurring - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
Convertible notes payable | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | $ 13,286,405 | $ 13,651,000 | |
Subordinated convertible notes | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | 18,720,000 | 10,355,681 | |
Earn-out liability | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | 730,000 | 12,810,000 | |
Warrant liability | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | 134,043 | 1,991,503 | $ 562,244 |
Level 3 | Convertible notes payable | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | 13,286,405 | 13,651,000 | |
Level 3 | Subordinated convertible notes | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | 18,720,000 | 10,355,681 | |
Level 3 | Earn-out liability | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | 730,000 | 12,810,000 | |
Level 3 | Warrant liability | |||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |||
Fair value | $ 134,043 | $ 1,991,503 | $ 562,244 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
PROPERTY AND EQUIPMENT | ||||||
Property and equipment, gross | $ 6,070,004 | $ 6,070,004 | $ 4,594,477 | $ 6,290,888 | ||
Less accumulated depreciation and amortization | (2,330,383) | (2,330,383) | (2,190,075) | (2,934,293) | ||
Total property and equipment, net | 3,739,621 | 3,739,621 | 2,404,402 | 3,356,595 | ||
Depreciation expense | 400,000 | $ 200,000 | 578,503 | $ 302,932 | 424,359 | 827,568 |
Disposals of Property, Plant and Equipment, | 700,000 | |||||
Accumulated Depreciation on Disposal of Property, Plant and Equipment | 600,000 | |||||
Gain (Loss) on Disposition of Property Plant Equipment | (117,449) | |||||
Manufacturing equipment | ||||||
PROPERTY AND EQUIPMENT | ||||||
Property and equipment, gross | 3,626,396 | 3,626,396 | 2,516,859 | 4,420,281 | ||
Computers and software | ||||||
PROPERTY AND EQUIPMENT | ||||||
Property and equipment, gross | 1,621,474 | 1,621,474 | 1,608,075 | 1,547,549 | ||
Leasehold Improvements | ||||||
PROPERTY AND EQUIPMENT | ||||||
Property and equipment, gross | $ 822,134 | $ 822,134 | 441,956 | 295,471 | ||
Furniture | ||||||
PROPERTY AND EQUIPMENT | ||||||
Property and equipment, gross | $ 27,587 | $ 27,587 |
INVENTORY (Details)
INVENTORY (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
INVENTORY | |||
Raw Materials | $ 1,509,768 | $ 561,726 | $ 323,989 |
Work in progress | 140,329 | 78,219 | 54,780 |
Inventory net | 1,650,097 | 639,945 | 378,769 |
Excess or obsolete inventory reserves | $ 0 | $ 0 | $ 0 |
ACCRUED EXPENSES - Components (
ACCRUED EXPENSES - Components (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
Accrued compensation | |||
Bonus | $ 832,918 | $ 831,601 | |
Wages | 218,974 | 140,962 | |
Vacation | 959,004 | 569,777 | |
Earned discounts | 554,642 | 499,219 | |
Commissions settlement | 274,323 | ||
Compensation related accruals | $ 3,274,248 | 2,104,008 | |
Marketing programs | 940,930 | 611,642 | 45,000 |
Interest | 381,595 | 110,239 | 28,750 |
Warranty | 464,812 | 269,496 | 217,244 |
Professional fees | 1,873,278 | 129,169 | 72,611 |
Inventory purchases and freight | 1,242,311 | ||
Other | 196,308 | 481,540 | 264,533 |
401k matching contributions | 93,112 | 100,134 | |
Travel | 60,400 | ||
Credit card fees | 60,424 | 34,424 | |
Accrued expenses | $ 8,373,482 | $ 3,706,094 | $ 3,078,578 |
LEASES - General (Details)
LEASES - General (Details) | 1 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Feb. 28, 2023 USD ($) | May 17, 2022 USD ($) | Jun. 30, 2022 USD ($) lease | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 USD ($) | Dec. 15, 2022 | |
LEASES | |||||||
Monthly payment | $ 68,000 | ||||||
Maximum monthly payment subject to escalation | $ 88,000 | ||||||
Rent free period | 5 months | ||||||
Impairment loss on the ROU | $ 200,000 | ||||||
Accrued lease liabilities | $ 100,000 | ||||||
Security deposit | $ 200,000 | ||||||
Number of years for which guarantee received | 2 years | ||||||
Amount of guarantee received | $ 1,700,000 | ||||||
Number of years rolling guarantee received | 1 year | ||||||
Letter of credit | $ 700,000 | ||||||
Number of finance leases extended | lease | 2 | ||||||
Finance lease, extension term (in years) | 10 months | ||||||
Additional commitments | $ 239,000 | $ 239,000 | $ 239,000 | ||||
Total rent expense | $ 325,683 | $ 250,495 | |||||
Maximum | |||||||
LEASES | |||||||
Finance lease, Remaining term (in years) | 5 years | ||||||
Minimum | |||||||
LEASES | |||||||
Finance lease, Remaining term (in years) | 1 year | ||||||
Lease for corporate office | |||||||
LEASES | |||||||
Operating lease, Remaining term (in months) | 1 year | ||||||
Lease for corporate headquarters | |||||||
LEASES | |||||||
Operating lease, Lease term (in years) | 10 years | 10 years | |||||
Right of use operating lease liability | $ 5,440,000 |
LEASES - Components of lease co
LEASES - Components of lease cost, weighted average lease terms and discount rates (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Jun. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Lease Cost: | |||||||
Operating lease cost | $ 223,304 | $ 68,709 | $ 711,661 | $ 206,126 | $ 324,929 | ||
Finance lease cost: | |||||||
Amortization of assets obtained under finance leases | 285,251 | 274,712 | 681,763 | 597,904 | 772,870 | ||
Interest on lease liabilities | 126,880 | 104,409 | 282,990 | 223,263 | 288,969 | ||
Finance leases cost | $ 412,131 | $ 379,121 | $ 964,753 | 821,167 | $ 1,061,839 | ||
Weighted average discount rate: | |||||||
Operating leases | 10% | 10% | 10.31% | ||||
Finance leases | 10.20% | 10.20% | 11.17% | ||||
Weighted average remaining lease term: | |||||||
Operating leases | 9 years 3 months 18 days | 9 years 3 months 18 days | 9 years 7 months 6 days | ||||
Finance leases | 3 years 2 months 12 days | 3 years 2 months 12 days | 3 years 6 months | ||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating leases | $ 355,060 | $ 159,348 | |||||
Operating cash flows from finance leases | 246,879 | 772,870 | |||||
Financing cash flows from finance leases | 1,026,701 | 822,315 | 1,222,270 | $ 777,431 | |||
Right-of-use assets obtained in exchange for lease liabilities: | |||||||
Acquisition of ROU assets through operating leases | 5,435,661 | ||||||
Acquisition of property and equipment through finance leases | 1,560,520 | 2,233,834 | |||||
Addition of ROU assets from finance lease modification | $ 239,000 | $ 239,000 | 239,000 | ||||
ROU assets obtained in exchange for finance lease obligations | $ 1,273,511 | $ 2,472,834 |
LEASES - Right-of-use assets (D
LEASES - Right-of-use assets (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
LEASES | ||
Total | $ 6,155,645 | $ 5,592,095 |
Less accumulated amortization | (2,623,405) | (1,941,644) |
Right-of-use assets for finance leases | 3,532,240 | 3,650,451 |
Right-of-use assets for operating leases | 5,154,399 | 5,632,771 |
Total right-of-use assets | 8,686,639 | 9,283,222 |
Manufacturing equipment | ||
LEASES | ||
Total | 5,237,167 | 4,673,617 |
Computers and software | ||
LEASES | ||
Total | 700,234 | 700,234 |
Leasehold Improvements | ||
LEASES | ||
Total | $ 218,244 | $ 218,244 |
LEASES - Maturities of finance
LEASES - Maturities of finance lease liabilities (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
Years ending December 31 | |||
2023 (remaining three months) | $ 576,315 | ||
2024 | 1,287,461 | $ 1,275,119 | |
2025 | 1,057,500 | 863,280 | |
2026 | 739,115 | 785,386 | |
2027 | 192,568 | 597,933 | |
2027 | 190,283 | ||
Thereafter | 47,300 | ||
Total minimum lease payments | 3,900,259 | 3,712,001 | |
Less amount representing interest | (563,452) | (622,004) | |
Present value of minimum lease payments | 3,336,807 | 3,089,997 | |
Less current portion | (1,109,899) | (1,008,587) | $ (926,104) |
Finance lease liabilities, less current portion | $ 2,226,908 | $ 2,081,410 | $ 866,853 |
LEASES - Maturities of operatin
LEASES - Maturities of operating lease liabilities (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Year ending December 31 | ||
2023 (remaining three months) | $ 379,887 | |
2024 | 842,553 | $ 794,619 |
2025 | 867,831 | 836,280 |
2026 | 893,862 | 861,372 |
2027 | 920,679 | 887,208 |
2028 | 913,824 | |
Thereafter | 4,761,873 | |
Thereafter | 4,997,184 | |
Total minimum lease payments | 8,666,685 | 9,290,487 |
Less amount representing interest | (3,107,847) | (3,549,882) |
Present value of minimum lease payments | 5,558,838 | 5,740,605 |
Less current portion | (290,869) | (215,043) |
Operating lease liabilities, less current portion | 5,267,969 | $ 5,525,562 |
Excluding short term lease liability for previous headquarter [Member] | ||
Year ending December 31 | ||
Less current portion | $ (290,869) |
DEBT - Equipment Financing Obli
DEBT - Equipment Financing Obligation (Details) | 12 Months Ended | ||||
Dec. 31, 2022 USD ($) | Dec. 31, 2021 USD ($) | Dec. 31, 2020 agreement | Dec. 31, 2018 agreement | Sep. 30, 2023 USD ($) | |
DEBT | |||||
Number of equipment financing arrangements | agreement | 1 | 1 | |||
Balance of notes | $ 244,618 | $ 299,950 | |||
Balance of interest expense | 30,497 | $ 36,167 | |||
Future principal maturities under the equipment financing obligation | |||||
2023 (remaining three months) | $ 13,363 | ||||
2024 | 58,973 | 56,995 | |||
2025 | 56,995 | 63,698 | |||
2026 | 63,698 | 64,952 | |||
2027 | 64,952 | ||||
Total principal maturities | 244,618 | 199,008 | |||
Less current portion | (58,973) | (55,510) | |||
Equipment financing obligation, net of current portion | $ 185,645 | $ 143,498 |
DEBT - Subordinated Notes (Deta
DEBT - Subordinated Notes (Details) - USD ($) | 9 Months Ended | 12 Months Ended | ||||
Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2019 | Jun. 29, 2022 | |
Debt | ||||||
Conversion of Subordinated Convertible Notes to common stock | $ 919,546 | |||||
Subordinated Notes | ||||||
Debt | ||||||
Gross proceeds | $ 400,000 | $ 375,000 | $ 2,765,000 | $ 2,208,299 | ||
Issuance costs | $ 0 | 0 | 0 | $ 76,701 | ||
Amortization of issuance costs | 18,184 | 18,273 | ||||
Interest rate per annum | 14% | |||||
Interest expense | $ 101,548 | |||||
Unpaid interest at the following rates: | ||||||
Less than one (1) year from the funding date | 3% | |||||
One (1) year to less than two (2) years from the funding date | 2% | |||||
Two (2) years to less than three (3) years from the funding date | 1% | |||||
A change in control event | 5% | |||||
Subordinated Notes | Stockholders, directors, and employees | ||||||
Debt | ||||||
Gross proceeds | $ 250,000 | 1,440,000 | ||||
Subordinated Notes | Customers | ||||||
Debt | ||||||
Gross proceeds | 50,000 | 1,330,000 | ||||
Cash Notes | ||||||
Debt | ||||||
Gross proceeds | $ 750,000 | |||||
Interest rate per annum | 15% | |||||
Interest expense | $ 181,067 | 114,062 | ||||
PIK Notes | ||||||
Debt | ||||||
Gross proceeds | $ 5,440,000 | |||||
Interest rate per annum | 20% | |||||
Interest expense | $ 2,251,260 | $ 710,443 |
DEBT - Unsecured Subordinated P
DEBT - Unsecured Subordinated Promissory Notes (Details) - USD ($) | 1 Months Ended | 2 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||
Dec. 06, 2022 | Dec. 02, 2022 | May 09, 2022 | May 04, 2022 | Apr. 30, 2022 | Mar. 31, 2022 | Apr. 30, 2021 | Jan. 31, 2020 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Debt | |||||||||||||
Repayments of debt | $ 75,000 | $ 75,000 | |||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 919,546 | ||||||||||||
Series A Preferred Stock | |||||||||||||
Debt | |||||||||||||
Conversion of stock | 45,270 | ||||||||||||
Convertible preferred stock | 3,052 | ||||||||||||
The Bridge Loans | |||||||||||||
Debt | |||||||||||||
Proceeds from debt | $ 150,000 | $ 3,000,000 | $ 5,100,000 | ||||||||||
Interest rate per annum | 15% | 15% | |||||||||||
Maturity | 2 years | ||||||||||||
Increase in interest (as a percent) | 103% | ||||||||||||
Repayments of debt | $ 500,000 | ||||||||||||
Additional grant of debt (as a percent) | 5% | ||||||||||||
The Bridge Loans | Series A Preferred Stock | |||||||||||||
Debt | |||||||||||||
Additional grant of debt (as a percent) | 5% | ||||||||||||
Debt elected for conversion | $ 2,550,000 | ||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 3,052,065 | $ 3,052,065 | |||||||||||
Conversion of stock | 305,206 | 305,206 | |||||||||||
Convertible preferred stock | 3,052 | ||||||||||||
The Bridge Loans | Maximum | |||||||||||||
Debt | |||||||||||||
Period to elect for conversion | 10 days | ||||||||||||
Subordinated Loan and Security Agreement | |||||||||||||
Debt | |||||||||||||
Repayments of debt | $ 9,719,135 | $ 9,719,135 | |||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 800,000 | $ 800,000 | |||||||||||
First loan and security agreement with a lender | |||||||||||||
Debt | |||||||||||||
Maturity | 4 years | ||||||||||||
Second loan and security agreement with a lender | |||||||||||||
Debt | |||||||||||||
Maturity | 3 years |
DEBT - Convertible debt agreeme
DEBT - Convertible debt agreements (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||||||
Sep. 20, 2023 USD ($) $ / shares shares | Sep. 08, 2023 USD ($) shares | Jun. 29, 2023 USD ($) | Dec. 06, 2022 USD ($) $ / shares shares | Dec. 02, 2022 USD ($) shares | Aug. 26, 2022 USD ($) shares | May 09, 2022 shares | Oct. 31, 2023 USD ($) shares | Sep. 30, 2023 USD ($) $ / shares shares | Apr. 30, 2021 USD ($) | Jan. 31, 2020 USD ($) | Sep. 30, 2023 USD ($) $ / shares shares | Sep. 30, 2023 USD ($) $ / shares shares | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) $ / shares D | Sep. 19, 2023 $ / shares | Dec. 31, 2021 $ / shares | |
Debt | |||||||||||||||||
Issuance of shares, net of cancellations and issuance costs | $ 163,573 | ||||||||||||||||
Preferred stock, par value (in dollars per share) | $ / shares | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||||||||||
Exercise price of warrants | $ / shares | $ 11.50 | ||||||||||||||||
Loss on debt extinguishment | $ (9,743,043) | $ (9,743,043) | $ (192,731) | $ (2,597,842) | |||||||||||||
Threshold trading days | D | 20 | ||||||||||||||||
Threshold consecutive trading days | D | 30 | ||||||||||||||||
Convertible stock price trigger | $ / shares | $ 18 | ||||||||||||||||
Convertible conversion ratio | 86.95652173913042 | ||||||||||||||||
Principal amount | $ 1,000 | ||||||||||||||||
Aggregate principal amount | 25% | ||||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 919,546 | ||||||||||||||||
Common stock, par value (in dollars per share) | $ / shares | $ 0.0001 | 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 9,526,000 | ||||||||||||||||
Other financing expense | (2,500,000) | ||||||||||||||||
Legal and other related cost | 1,500,000 | ||||||||||||||||
Lender cost | $ 100,000 | ||||||||||||||||
Series A Preferred Stock | |||||||||||||||||
Debt | |||||||||||||||||
Conversion price per share | $ / shares | $ 1 | 1 | $ 1 | ||||||||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 900,000 | $ 9,500,000 | |||||||||||||||
Issuance of redeemable convertible preferred stock | shares | 10,029 | 900 | 9,526 | ||||||||||||||
Securities Purchase Agreement | |||||||||||||||||
Debt | |||||||||||||||||
Initial conversion price | $ / shares | $ 1 | $ 1 | $ 1 | ||||||||||||||
Conversion price per share | $ / shares | $ 1 | ||||||||||||||||
Exercise price of warrants | $ / shares | $ 1 | ||||||||||||||||
Debt instrument purchase price (as percentage) | 300% | ||||||||||||||||
Shareholders approved (as percentage) | 51.20% | ||||||||||||||||
Securities Purchase Agreement | Maximum | |||||||||||||||||
Debt | |||||||||||||||||
Conversion limit until shareholder approval (as percentage) | 19.95% | ||||||||||||||||
Securities Purchase Agreement | Minimum | |||||||||||||||||
Debt | |||||||||||||||||
Shareholder approval required (as percentage) | 50% | ||||||||||||||||
Securities Purchase Agreement | Series A Preferred Stock | |||||||||||||||||
Debt | |||||||||||||||||
Issuance of shares, net of cancellations and issuance costs | $ 10,400,000 | ||||||||||||||||
Issuance of shares, net of cancellations and issuance costs (in shares) | shares | 10,426 | ||||||||||||||||
Preferred stock, par value (in dollars per share) | $ / shares | $ 0.0001 | ||||||||||||||||
Shares issued price per share | $ / shares | $ 1,000 | ||||||||||||||||
Convertible conversion ratio | 1 | ||||||||||||||||
Securities Purchase Agreement | Noteholder Investor | |||||||||||||||||
Debt | |||||||||||||||||
Number of common stock shares, called by warrants | shares | 1,404,524 | 1,404,524 | 1,404,524 | ||||||||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 6,400,000 | ||||||||||||||||
Securities Purchase Agreement | Noteholder Investor | Series A Preferred Stock | |||||||||||||||||
Debt | |||||||||||||||||
Issuance of redeemable convertible preferred stock | shares | 6,376 | ||||||||||||||||
Securities Purchase Agreement | Non-Noteholder Investors | |||||||||||||||||
Debt | |||||||||||||||||
Number of common stock shares, called by warrants | shares | 3,150,000 | 3,150,000 | 3,150,000 | ||||||||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 3,200,000 | $ 3,150,000 | |||||||||||||||
Other financing expense | $ (2,472,915) | ||||||||||||||||
Securities Purchase Agreement | Non-Noteholder Investors | Series A Preferred Stock | |||||||||||||||||
Debt | |||||||||||||||||
Issuance of redeemable convertible preferred stock | shares | 3,150 | ||||||||||||||||
Convertible debt agreements | |||||||||||||||||
Debt | |||||||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 30,000,000 | ||||||||||||||||
Subordinated convertible notes | |||||||||||||||||
Debt | |||||||||||||||||
Equipment financing arrangements to purchase capital equipment | 17,450,000 | ||||||||||||||||
Issuance of shares, net of cancellations and issuance costs (in shares) | shares | 36,469 | ||||||||||||||||
Measurement Input, Asset Price [Member] | Senior Convertible Notes warrants | |||||||||||||||||
Debt | |||||||||||||||||
Warrants measurement input | 0.97 | 0.97 | 0.97 | ||||||||||||||
Measurement Input, Risky Yield [Member] | Series A Preferred Stock | |||||||||||||||||
Debt | |||||||||||||||||
Equity securities, measurement input | 0.420 | 0.420 | 0.420 | ||||||||||||||
Expected Volatility | Series A Preferred Stock | |||||||||||||||||
Debt | |||||||||||||||||
Equity securities, measurement input | 0.650 | 0.650 | 0.650 | ||||||||||||||
Expected Volatility | Senior Convertible Notes warrants | |||||||||||||||||
Debt | |||||||||||||||||
Warrants measurement input | 0.650 | 0.650 | 0.650 | ||||||||||||||
Risk-Free Interest rate | Series A Preferred Stock | |||||||||||||||||
Debt | |||||||||||||||||
Equity securities, measurement input | 0.050 | 0.050 | 0.050 | ||||||||||||||
Risk-Free Interest rate | Senior Convertible Notes warrants | |||||||||||||||||
Debt | |||||||||||||||||
Warrants measurement input | 0.045 | 0.045 | 0.045 | ||||||||||||||
Dividend Yield | Senior Convertible Notes warrants | |||||||||||||||||
Debt | |||||||||||||||||
Warrants measurement input | 0 | 0 | 0 | ||||||||||||||
Expected Life | Senior Convertible Notes warrants | |||||||||||||||||
Debt | |||||||||||||||||
Term of warrants (in years) | 5 years | 5 years | 5 years | ||||||||||||||
Senior Convertible Notes | |||||||||||||||||
Debt | |||||||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 16,960,000 | 16,960,000 | |||||||||||||||
Maturity | 3 years | ||||||||||||||||
Initial conversion price | $ / shares | $ 5.50 | ||||||||||||||||
Interest rate per annum | 9% | ||||||||||||||||
Frequency of periodic payment | quarterly | ||||||||||||||||
Debt installment payments | $ 847,990 | ||||||||||||||||
Debt repayment commencement date | Oct. 01, 2024 | ||||||||||||||||
Senior Convertible Notes | Securities Purchase Agreement | |||||||||||||||||
Debt | |||||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 3,400,000 | ||||||||||||||||
Senior Convertible Notes | Senior Convertible Notes warrants | |||||||||||||||||
Debt | |||||||||||||||||
Number of common stock shares, called by warrants | shares | 169,597 | ||||||||||||||||
Exercise price of warrants | $ / shares | $ 11.50 | ||||||||||||||||
Senior Convertible Notes | Measurement Input, Asset Price [Member] | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | $ / shares | 8.69 | 1.04 | 1.04 | 1.04 | 5.56 | ||||||||||||
Senior Convertible Notes | Measurement Input, Risky Yield [Member] | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | 0.3080 | 0.2670 | 0.2670 | 0.2670 | 0.3180 | ||||||||||||
Senior Convertible Notes | Expected Volatility | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | 0.40 | 0.60 | 0.60 | 0.60 | 0.45 | ||||||||||||
Senior Convertible Notes | Risk-Free Interest rate | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | 0.0407 | 0.0499 | 0.0499 | 0.0499 | 0.0423 | ||||||||||||
Subordinated Convertible Notes | |||||||||||||||||
Debt | |||||||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 17,450,000 | ||||||||||||||||
Maturity | 3 years | 3 years | |||||||||||||||
Initial conversion price | $ / shares | $ 5.20 | ||||||||||||||||
Issuance of shares, net of cancellations and issuance costs (in shares) | shares | 290,244 | ||||||||||||||||
Shares issued in debt conversion | shares | 192,381 | ||||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 1,000,000 | ||||||||||||||||
Fair value of debt converted | $ 900,000 | ||||||||||||||||
Subordinated Convertible Notes | Securities Purchase Agreement | |||||||||||||||||
Debt | |||||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 12,100,000 | ||||||||||||||||
Subordinated Convertible Notes | Senior Convertible Notes warrants | |||||||||||||||||
Debt | |||||||||||||||||
Number of common stock shares, called by warrants | shares | 1,745,310 | ||||||||||||||||
Subordinated Convertible Notes | Prime Rate [Member] | |||||||||||||||||
Debt | |||||||||||||||||
Spread on interest rate | 9% | 9% | |||||||||||||||
Subordinated Convertible Notes | Measurement Input, Asset Price [Member] | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | $ / shares | 8.69 | 1.04 | 1.04 | 1.04 | 5.56 | ||||||||||||
Subordinated Convertible Notes | Measurement Input, Risky Yield [Member] | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | 0.4020 | 0.3610 | 0.3610 | 0.3610 | 0.4120 | ||||||||||||
Subordinated Convertible Notes | Expected Volatility | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | 0.40 | 0.60 | 0.60 | 0.60 | 0.45 | ||||||||||||
Subordinated Convertible Notes | Risk-Free Interest rate | |||||||||||||||||
Debt | |||||||||||||||||
Debt instrument, measurement input | 0.0401 | 0.0491 | 0.0491 | 0.0491 | 0.0419 | ||||||||||||
Subordinated Loan and Security Agreement | |||||||||||||||||
Debt | |||||||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 2,547,879 | ||||||||||||||||
Number of common stock shares, called by warrants | shares | 296,456 | ||||||||||||||||
Issuance of shares, net of cancellations and issuance costs (in shares) | shares | 42,464 | ||||||||||||||||
Subordinated debt | $ 0 | ||||||||||||||||
Loss on debt extinguishment | $ (2,405,111) | ||||||||||||||||
Shares issued in debt conversion | shares | 80,000 | 80,000 | |||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 800,000 | $ 800,000 | |||||||||||||||
First loan and security agreement with a lender | |||||||||||||||||
Debt | |||||||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 3,800,000 | ||||||||||||||||
Maturity | 4 years | ||||||||||||||||
Second loan and security agreement with a lender | |||||||||||||||||
Debt | |||||||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 2,000,000 | ||||||||||||||||
Maturity | 3 years |
DEBT - Computation of the loss
DEBT - Computation of the loss on debt extinguishment (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Extinguishment of Debt [Line Items] | ||||
Fair value | $ 10,073,509 | $ 10,073,509 | ||
Fees paid to Noteholder Investors | (62,620) | |||
Consideration transferred to Noteholder Investors | (26,192,552) | |||
Consideration received from Noteholder Investors | 6,376,000 | |||
Loss on debt extinguishment | (9,743,043) | (9,743,043) | $ (192,731) | $ (2,597,842) |
Series A convertible preferred stock | ||||
Extinguishment of Debt [Line Items] | ||||
Consideration transferred to Noteholder Investors | (7,807,681) | |||
Warrant | ||||
Extinguishment of Debt [Line Items] | ||||
Consideration transferred to Noteholder Investors | (787,250) | |||
Senior Convertible Notes | ||||
Extinguishment of Debt [Line Items] | ||||
Fair value | 2,456,607 | 2,456,607 | ||
Consideration transferred to Noteholder Investors | (3,599,388) | |||
Subordinated Convertible Notes | ||||
Extinguishment of Debt [Line Items] | ||||
Fair value | $ 7,616,902 | 7,616,902 | ||
Consideration transferred to Noteholder Investors | $ (13,935,613) |
DEBT - Other Financing Expense
DEBT - Other Financing Expense (Details) | 1 Months Ended | 9 Months Ended |
Sep. 30, 2023 USD ($) | Sep. 30, 2023 USD ($) | |
Debt Instrument [Line Items] | ||
Cash proceeds received | $ 9,526,000 | |
Other financing expense | (2,500,000) | |
Securities Purchase Agreement | Non-Noteholder Investors | ||
Debt Instrument [Line Items] | ||
Cash proceeds received | $ 3,200,000 | 3,150,000 |
Less fair value of Series A Convertible Preferred Stock | (3,857,308) | (3,857,308) |
Less fair value of warrants | $ (1,765,607) | (1,765,607) |
Other financing expense | $ (2,472,915) |
DEBT - Fair Value of Convertibl
DEBT - Fair Value of Convertible Notes (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
Sep. 30, 2023 USD ($) $ / shares | Jun. 30, 2023 USD ($) | Mar. 31, 2023 USD ($) | Sep. 30, 2023 USD ($) $ / shares | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) $ / shares | Dec. 31, 2021 USD ($) | Jul. 01, 2023 USD ($) | Dec. 06, 2022 $ / shares | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Change in fair value of warrant liability | $ (593,621) | $ (1,857,460) | $ 20,756 | $ (3,234,586) | $ 190,911 | ||||
Minimum cash balance | $ 4,500,000 | ||||||||
Cash and cash equivalents | $ 12,021,908 | $ 12,021,908 | $ 15,916,141 | $ 1,500,582 | |||||
Measurement Input, Asset Price [Member] | Senior Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | $ / shares | 1.04 | 1.04 | 5.56 | 8.69 | |||||
Measurement Input, Asset Price [Member] | Subordinated Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | $ / shares | 1.04 | 1.04 | 5.56 | 8.69 | |||||
Measurement Input, Risky Yield [Member] | Senior Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | 0.2670 | 0.2670 | 0.3180 | 0.3080 | |||||
Measurement Input, Risky Yield [Member] | Subordinated Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | 0.3610 | 0.3610 | 0.4120 | 0.4020 | |||||
Expected Volatility | Senior Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | 0.60 | 0.60 | 0.45 | 0.40 | |||||
Expected Volatility | Subordinated Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | 0.60 | 0.60 | 0.45 | 0.40 | |||||
Risk-Free Interest rate | Senior Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | 0.0499 | 0.0499 | 0.0423 | 0.0407 | |||||
Risk-Free Interest rate | Subordinated Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Debt instrument, measurement input | 0.0491 | 0.0491 | 0.0419 | 0.0401 | |||||
Senior Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Convertible notes, beginning balance | $ 12,928,404 | $ 14,478,000 | $ 13,651,000 | $ 13,651,000 | |||||
Increase in fair value of debt in connection with debt extinguishment transaction | 1,142,781 | $ 14,536,000 | |||||||
Change in fair value of debt | (784,780) | (1,549,596) | 827,000 | (885,000) | |||||
Convertible notes, ending balance | 13,286,405 | 12,928,404 | 14,478,000 | 13,286,405 | 13,651,000 | ||||
Subordinated Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Convertible notes, beginning balance | 15,225,000 | 12,079,380 | 10,355,681 | 10,355,681 | |||||
Paid-in-kind interest | 1,010,814 | 793,594 | 723,699 | ||||||
Increase in fair value of debt in connection with debt extinguishment transaction | 6,318,711 | 10,223,000 | |||||||
Change in fair value of debt | (2,914,956) | 2,352,026 | 1,000,000 | (69,000) | |||||
Convertible notes, ending balance | 18,720,000 | $ 15,225,000 | $ 12,079,380 | $ 18,720,000 | 10,355,681 | ||||
Subordinated Convertible Notes | Subordinated Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Conversion of Subordinated Convertible Notes to common stock | $ (919,568) | ||||||||
Senior and Subordinated Convertible Notes | |||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||
Interest accrued | 311,919 | ||||||||
Issuance costs | 83,000 | ||||||||
Change in fair value of warrant liability | $ 5,845 |
COMMON STOCK WARRANTS (Details)
COMMON STOCK WARRANTS (Details) - $ / shares | 12 Months Ended | ||||
Dec. 06, 2022 | Nov. 28, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | Jun. 30, 2021 | |
COMMON STOCK WARRANTS | |||||
Warrant outstanding | 6,512,087 | 322,223 | |||
Exercise price of warrants | $ 11.50 | ||||
Lakeshore ("Lakeshore") Acquisition I Corp | |||||
COMMON STOCK WARRANTS | |||||
Warrants issued | 4,597,180 | 4,597,180 | |||
Number of shares issuable per warrant | 4,597,180 | 1 | |||
Senior and subordinated convertible notes warrants | |||||
COMMON STOCK WARRANTS | |||||
Exercise price of warrants | $ 11.50 | ||||
Warrants issued | 1,914,907 | ||||
Private placement warrants | |||||
COMMON STOCK WARRANTS | |||||
Exercise price of warrants | $ 11.50 | $ 11.50 | |||
Warrants issued | 196,256 | ||||
Number of shares issuable per warrant | 1 | ||||
Private placement warrants | Lakeshore ("Lakeshore") Acquisition I Corp | |||||
COMMON STOCK WARRANTS | |||||
Warrant outstanding | 196,256 | ||||
Exercise price of warrants | $ 11.50 | ||||
Number of shares issuable per warrant | 1 | ||||
Public warrants | |||||
COMMON STOCK WARRANTS | |||||
Warrant outstanding | 4,100,239 | ||||
Exercise price of warrants | $ 11.50 | ||||
Public warrants | Lakeshore ("Lakeshore") Acquisition I Corp | |||||
COMMON STOCK WARRANTS | |||||
Warrant outstanding | 4,100,239 | ||||
Additional Private Placement Warrants | Lakeshore ("Lakeshore") Acquisition I Corp | |||||
COMMON STOCK WARRANTS | |||||
Warrants issued | 300,685 |
COMMON STOCK WARRANTS - Black-S
COMMON STOCK WARRANTS - Black-Scholes Option Pricing Assumptions (Details) | Sep. 30, 2023 $ / shares | Dec. 31, 2022 $ / shares Y | Dec. 06, 2022 Y $ / shares | Dec. 31, 2021 Y $ / shares | Apr. 30, 2021 $ / shares | Jan. 31, 2020 $ / shares |
COMMON STOCK WARRANTS | ||||||
Exercise Price | $ 11.50 | |||||
Convertible notes warrants - senior debt | ||||||
COMMON STOCK WARRANTS | ||||||
Exercise Price | $ 11.50 | $ 11.50 | ||||
Convertible notes warrants - senior debt | Share Price | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 5.56 | 8.69 | ||||
Convertible notes warrants - senior debt | Dividend Yield | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0 | 0 | ||||
Convertible notes warrants - senior debt | Expected Volatility | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.40 | 0.40 | ||||
Convertible notes warrants - senior debt | Risk-Free Interest rate | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.0400 | 0.0370 | ||||
Convertible notes warrants - senior debt | Expected Life | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | Y | 4.93 | 5 | ||||
Convertible notes warrants - subordinated debt | ||||||
COMMON STOCK WARRANTS | ||||||
Exercise Price | $ 11.50 | $ 11.50 | ||||
Convertible notes warrants - subordinated debt | Share Price | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 5.56 | 8.69 | ||||
Convertible notes warrants - subordinated debt | Dividend Yield | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0 | 0 | ||||
Convertible notes warrants - subordinated debt | Expected Volatility | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.40 | 0.40 | ||||
Convertible notes warrants - subordinated debt | Risk-Free Interest rate | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.0400 | 0.0370 | ||||
Convertible notes warrants - subordinated debt | Expected Life | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | Y | 4.93 | 5 | ||||
Convertible notes warrants | ||||||
COMMON STOCK WARRANTS | ||||||
Exercise Price | $ 11.50 | $ 11.50 | ||||
Convertible notes warrants | Share Price | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 1.04 | 5.56 | ||||
Convertible notes warrants | Dividend Yield | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0 | 0 | ||||
Convertible notes warrants | Expected Volatility | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.65 | 0.40 | ||||
Convertible notes warrants | Risk-Free Interest rate | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.0470 | 0.0400 | ||||
Convertible notes warrants | Expected Life | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 4.18 | 4.93 | ||||
2020 preferred Series B warrants | ||||||
COMMON STOCK WARRANTS | ||||||
Exercise Price | $ 1.80 | $ 1.80 | ||||
2020 preferred Series B warrants | Share Price | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 2.89 | |||||
2020 preferred Series B warrants | Dividend Yield | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0 | |||||
2020 preferred Series B warrants | Expected Volatility | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.20 | |||||
2020 preferred Series B warrants | Risk-Free Interest rate | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.0152 | |||||
2020 preferred Series B warrants | Expected Life | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | Y | 8.10 | |||||
2021 preferred Series B warrants | ||||||
COMMON STOCK WARRANTS | ||||||
Exercise Price | $ 1.80 | $ 1.80 | ||||
2021 preferred Series B warrants | Share Price | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 2.89 | |||||
2021 preferred Series B warrants | Dividend Yield | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0 | |||||
2021 preferred Series B warrants | Expected Volatility | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.20 | |||||
2021 preferred Series B warrants | Risk-Free Interest rate | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | 0.0152 | |||||
2021 preferred Series B warrants | Expected Life | ||||||
COMMON STOCK WARRANTS | ||||||
Measurement input | Y | 9.26 |
COMMON STOCK WARRANTS - Fair Va
COMMON STOCK WARRANTS - Fair Value of Outstanding Warrants (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Sep. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Change in fair value of the outstanding warrants classified as liabilities | |||||||
Change in fair value of warrant liability | $ (593,621) | $ (1,857,460) | $ 20,756 | $ (3,234,586) | $ 190,911 | ||
Warrant or right issued | 9,151,704 | 4,597,180 | |||||
Convertible notes warrants - senior debt | |||||||
Change in fair value of the outstanding warrants classified as liabilities | |||||||
Warrant liability, beginning | $ 176,381 | $ 176,381 | |||||
Fair value of warrants granted | $ 464,696 | ||||||
Change in fair value of warrant liability | (288,315) | ||||||
Warrant liability, ending | 176,381 | ||||||
Convertible notes warrants - subordinated debt | |||||||
Change in fair value of the outstanding warrants classified as liabilities | |||||||
Warrant liability, beginning | 1,815,122 | 1,815,122 | |||||
Fair value of warrants granted | 4,782,149 | ||||||
Change in fair value of warrant liability | (2,967,027) | ||||||
Warrant liability, ending | 1,815,122 | ||||||
Convertible notes warrants | |||||||
Change in fair value of the outstanding warrants classified as liabilities | |||||||
Warrant liability, beginning | 727,664 | $ 2,834,062 | 1,991,503 | 1,991,503 | |||
Change in fair value of warrant liability | (593,621) | (2,106,398) | 842,559 | ||||
Warrant liability, ending | $ 134,043 | $ 727,664 | $ 2,834,062 | $ 134,043 | 1,991,503 | ||
2020 preferred Series B warrants and 2021 preferred Series B warrants | |||||||
Change in fair value of the outstanding warrants classified as liabilities | |||||||
Warrant liability, beginning | $ 562,244 | 562,244 | 228,000 | ||||
Fair value of warrants granted | 143,333 | ||||||
Fair value of warrants exercised | (580,000) | ||||||
Change in fair value of warrant liability | $ 17,756 | 190,911 | |||||
Warrant liability, ending | $ 562,244 |
REDEEMABLE CONVERTIBLE PREFER_2
REDEEMABLE CONVERTIBLE PREFERRED STOCK (Details) | 1 Months Ended | 9 Months Ended | ||||||
May 09, 2022 shares | Oct. 31, 2023 USD ($) shares | Sep. 30, 2023 USD ($) $ / shares shares | Sep. 30, 2023 USD ($) D $ / shares shares | Dec. 31, 2022 $ / shares shares | Dec. 06, 2022 $ / shares | May 31, 2022 $ / shares shares | Dec. 31, 2021 $ / shares shares | |
Temporary Equity [Line Items] | ||||||||
Shares Authorized | shares | 25,000 | 25,000 | 0 | 7,636,950 | ||||
Proceeds from issue of redeemable convertible preferred stock | $ | $ 9,526,000 | |||||||
Redeemable Series A convertible preferred stock, par value (in dollars per share) | $ 0.0001 | |||||||
Share Price | $ 0.145 | |||||||
Series A Preferred Stock | ||||||||
Temporary Equity [Line Items] | ||||||||
Shares Authorized | shares | 25,000 | 25,000 | 5,945 | 26,250 | ||||
Convertible preferred stock dividend rate | 8% | |||||||
Issuance of redeemable convertible preferred stock | shares | 10,029 | 900 | 9,526 | |||||
Proceeds from issue of redeemable convertible preferred stock | $ | $ 900,000 | $ 9,500,000 | ||||||
Redeemable Series A convertible preferred stock, par value (in dollars per share) | $ 1,000 | $ 1,000 | $ 10 | $ 10 | $ 0.0001 | |||
Share Price | 1 | 1 | ||||||
Conversion rate | 1 | $ 1 | ||||||
Percentage of shares to be automatically converted | 50% | |||||||
Trading days | D | 30 | |||||||
Consecutive trading days | D | 30 | |||||||
Common stock allowed to be issued cap percentage | 19.95% | |||||||
Number of days to call shareholders meeting | D | 90 | |||||||
Voting right conversion price | $ 1.04 | |||||||
Liquidation preference percentage | 150% | |||||||
Series A Preferred Stock | Price greater than $4.50 per share | ||||||||
Temporary Equity [Line Items] | ||||||||
Stock price | 4.50 | $ 4.50 | ||||||
Series A Preferred Stock | Price greater than $6 per share | ||||||||
Temporary Equity [Line Items] | ||||||||
Stock price | $ 6 | $ 6 |
COMMON STOCK - Schedule of comm
COMMON STOCK - Schedule of common stock (Details) - shares | Sep. 30, 2023 | Jun. 15, 2023 | Dec. 31, 2022 |
Class of Stock [Line Items] | |||
Total shares authorized | 101,000,000 | ||
Total | 36,871,502 | 10,008,474 | |
Reserve for convertible debt | |||
Class of Stock [Line Items] | |||
Total | 18,945,919 | ||
LAAA - Public warrants (transfer) | |||
Class of Stock [Line Items] | |||
Total | 4,100,250 | ||
LAAA - Private warrants (transfer) | |||
Class of Stock [Line Items] | |||
Total | 496,941 | ||
Warrant | |||
Class of Stock [Line Items] | |||
Total | 12,014,300 | ||
Reserve for earn-out shares | |||
Class of Stock [Line Items] | |||
Total | 3,000,000 | 3,000,000 | |
2022 Equity Incentive Plan reserve | |||
Class of Stock [Line Items] | |||
Total | 2,411,283 | 2,411,283 | |
Employee stock purchase plan | |||
Class of Stock [Line Items] | |||
Total | 500,000 | 500,000 |
EARN-OUT SHARES (Details)
EARN-OUT SHARES (Details) | Dec. 06, 2022 tranche $ / shares shares | May 09, 2022 tranche $ / shares shares |
Common Stock | ||
Share price | $ / shares | $ 0.145 | |
PubCo Merger | ||
Common Stock | ||
Maximum number of shares entitled to receive | 3,000,000 | 3,000,000 |
Number of tranches | tranche | 3 | 3 |
Trading period | 20 days | |
Consecutive trading period | 30 days | |
Term of issuance | 2 years 6 months | |
First tranche | PubCo Merger | ||
Common Stock | ||
Maximum number of shares entitled to receive | 1,000,000 | |
Number of shares issued | 1,000,000 | |
Share price | $ / shares | $ 12.50 | $ 12.50 |
Trading period | 20 days | |
Consecutive trading period | 30 days | |
Term of issuance | 6 months | |
Second tranche | PubCo Merger | ||
Common Stock | ||
Maximum number of shares entitled to receive | 1,000,000 | |
Number of shares issued | 1,000,000 | |
Share price | $ / shares | $ 15 | $ 15 |
Trading period | 20 days | |
Consecutive trading period | 30 days | |
Term of issuance | 6 months | |
Third tranche | PubCo Merger | ||
Common Stock | ||
Maximum number of shares entitled to receive | 1,000,000 | |
Number of shares issued | 1,000,000 | |
Share price | $ / shares | $ 17.50 | $ 17.50 |
Trading period | 20 days | |
Consecutive trading period | 30 days | |
Term of issuance | 6 months |
EARN-OUT SHARES - Schedule of c
EARN-OUT SHARES - Schedule of changes in fair value of the earnout liability (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Sep. 30, 2023 | Dec. 31, 2022 | |
Business Acquisition, Contingent Consideration [Line Items] | |||||
Change in fair value of earnout liability | $ (3,880,000) | $ (12,080,000) | $ (9,260,000) | ||
PubCo Merger | |||||
Business Acquisition, Contingent Consideration [Line Items] | |||||
Earning liability beginning balance | 4,610,000 | $ 11,310,000 | $ 12,810,000 | 12,810,000 | |
Change in fair value of earnout liability | (3,880,000) | (6,700,000) | (1,500,000) | 9,260,000 | |
Earnout liability, ending balance | $ 730,000 | $ 4,610,000 | $ 11,310,000 | $ 730,000 | $ 12,810,000 |
STOCK-BASED COMPENSATION - 2022
STOCK-BASED COMPENSATION - 2022 Equity Incentive Plan (Details) - $ / shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
Number of Options Outstanding | ||
Granted (in shares) | 1,478,915 | |
Cancelled (in shares) | 98,232 | |
Options outstanding, end of period (in shares) | 1,380,683 | |
Exercisable, end of period (in shares) | 0 | 0 |
Vested and expected to vest, end of period (in shares) | 1,380,683 | |
Vested (in shares) | 0 | 0 |
Weighted-average Exercise Price | ||
Granted (in dollars per share) | $ 5.20 | |
Cancelled (in dollars per share) | 5.20 | |
Options outstanding, end of period (in dollars per share) | 5.20 | |
Options vested and expected to vest, end of period (in dollars per share) | $ 5.20 | |
Weighted average Remaining Contractual Life and intrinsic value | ||
Weighted-average remaining life, Options outstanding | 9 years 4 months 2 days | |
Weighted-average remaining life, Option exercisable, end of period | 0 years | |
Weighted-average remaining life, Options vested and expected to vest, end of period | 9 years 4 months 2 days | |
Weighted-average grant date fair value of options granted | $ 2.91 |
STOCK-BASED COMPENSATION - Fair
STOCK-BASED COMPENSATION - Fair value of the stock options weighted average assumptions (Details) | 9 Months Ended |
Sep. 30, 2023 | |
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions and Methodology [Abstract] | |
Dividend yield | 0% |
Expected volatility | 55% |
Risk-free interest rate | 3.60% |
Expected life | 6 years 2 months 12 days |
STOCK-BASED COMPENSATION - Stoc
STOCK-BASED COMPENSATION - Stock-based compensation expense (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Sep. 30, 2023 | Dec. 31, 2021 | |
Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | |||
Stock-based compensation expense | $ 146,596 | $ 716,193 | |
Unamortized compensation expense | 3,300,000 | $ 3,300,000 | |
Unrecognized compensation expense recognized over a weighted-average period | 3 years 3 months 19 days | 1 year 11 months 23 days | |
Cost of revenue | |||
Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | |||
Stock-based compensation expense | 4,478 | $ 11,940 | |
Sales and marketing | |||
Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | |||
Stock-based compensation expense | 21,158 | 87,324 | |
Research and development | |||
Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | |||
Stock-based compensation expense | 52,453 | 164,260 | |
General and administrative | |||
Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | |||
Stock-based compensation expense | $ 68,507 | $ 452,669 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended |
May 31, 2023 | Sep. 30, 2023 | Sep. 30, 2023 | Dec. 31, 2022 | |
STOCK-BASED COMPENSATION | ||||
Issuance of Common Stock - services (in shares) | 20,000 | |||
Issuance of Common Stock - services | $ 200,000 | $ 919,569 | $ 7,159,162 | |
Number of shares in escrow | 339,000 | |||
Term within which escrow shares are to be released | 12 months | |||
Dividend yield | 0% | |||
Common stock dividends paid | $ 0 | |||
Common stock dividends declared | $ 0 |
STOCK-BASED COMPENSATION - 2023
STOCK-BASED COMPENSATION - 2023 Employee Stock Purchase Plan (Details) - shares | 9 Months Ended | ||
Sep. 30, 2023 | Jun. 15, 2023 | Dec. 31, 2022 | |
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |||
Number of shares available for purchase | 36,871,502 | 10,008,474 | |
Number of shares issued | 0 | ||
2023 ESPP | |||
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |||
Number of shares available for purchase | 500,000 | 500,000 |
NET LOSS ATTRIBUTABLE TO COMM_3
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Numerator: | ||||||
Net income (loss) attributable to common stockholders - Basic | $ (11,238,803) | $ (3,548,962) | $ (17,226,044) | $ (9,353,340) | ||
Denominator: | ||||||
Weighted-average common shares outstanding used in basic calculation | 16,115,254 | 24,713,218 | 16,071,719 | 24,611,666 | 10,021,632 | 3,957,783 |
Weighted-average common shares outstanding used in diluted calculation | 16,115,254 | 24,713,218 | 16,071,719 | 24,611,666 | 10,021,632 | 3,957,783 |
Basic earnings per share | $ (0.70) | $ (0.14) | $ (1.07) | $ (0.38) | $ (0.71) | $ (1.51) |
Diluted earnings per share | $ (0.70) | $ (0.14) | $ (1.07) | $ (0.38) | $ (0.71) | $ (1.51) |
Shares excluded from diluted earnings per share due to their anti-dilutive effect | 40,950,105 | 12,463,950 | 40,950,105 | 12,463,950 | 9,691,497 | 12,737,670 |
NET LOSS ATTRIBUTABLE TO COMM_4
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS - Potential Shares of Common Stock Excluded From The Computation Of Diluted Net Loss Per Share (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
May 09, 2022 | Oct. 31, 2023 | Sep. 30, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 40,950,105 | 12,463,950 | 40,950,105 | 12,463,950 | 9,691,497 | 12,737,670 | |||
Proceeds from issue of redeemable convertible preferred stock | $ 9,526,000 | ||||||||
Series A Preferred Stock | |||||||||
Antidilutive securities | |||||||||
Issuance of redeemable convertible preferred stock | 10,029 | 900 | 9,526 | ||||||
Proceeds from issue of redeemable convertible preferred stock | $ 900,000 | $ 9,500,000 | |||||||
Noteholder Investor | Securities Purchase Agreement | |||||||||
Antidilutive securities | |||||||||
Number of common stock shares, called by warrants | 1,404,524 | 1,404,524 | 1,404,524 | ||||||
Proceeds from issue of redeemable convertible preferred stock | $ 6,400,000 | ||||||||
Noteholder Investor | Series A Preferred Stock | Securities Purchase Agreement | |||||||||
Antidilutive securities | |||||||||
Issuance of redeemable convertible preferred stock | 6,376 | ||||||||
Subsequent Event | Noteholder Investor | Series A Preferred Stock | Securities Purchase Agreement | |||||||||
Antidilutive securities | |||||||||
Issuance of redeemable convertible preferred stock | 900 | ||||||||
Number of common stock shares, called by warrants | 900,000 | ||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 900,000 | ||||||||
Common stock upon conversion of redeemable convertible preferred stock A | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 4,214,422 | 4,214,422 | 4,214,422 | ||||||
Common stock upon conversion of redeemable convertible preferred stock B | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 7,288,333 | 7,288,333 | 7,288,333 | ||||||
Non-vested shares of Series C common stock | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 638,972 | 638,972 | 912,692 | ||||||
Warrants to Purchase Redeemable Convertible Preferred Stock B, As-Converted | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 322,223 | 322,223 | |||||||
Series A Convertible Preferred stock | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 9,526,000 | 9,526,000 | |||||||
Warrant | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 11,066,611 | 11,066,611 | |||||||
Options to purchase common stock | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 1,465,817 | 1,465,817 | |||||||
Senior and Subordinated Convertible Notes | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 3,179,410 | ||||||||
Senior Convertible Notes | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 5,858,842 | 5,858,842 | |||||||
Subordinated Convertible Notes | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 13,032,835 | 13,032,835 | |||||||
Shares subject to warrants to purchase common stock | |||||||||
Antidilutive securities | |||||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 6,512,087 | 322,223 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS | Dec. 31, 2021 USD ($) |
Current assets: | |
Cash and cash equivalents | $ 1,500,582 |
Accounts receivable, net of allowance for doubtful accounts of $162,635 and $100,000 as of December 31, 2022 and 2021 respectively | 2,098,982 |
Inventory | 378,769 |
Prepaid expenses and other current assets | 148,207 |
Total current assets | 4,126,540 |
Property and equipment, net | 3,356,595 |
Other assets | 154,797 |
Total assets | 7,637,932 |
Current liabilities: | |
Accounts payable | 955,648 |
Accrued expenses | 3,078,578 |
Revolving line of credit | 587,816 |
Subordinated loan and security agreement | 968,493 |
Equipment financing obligation | 55,333 |
Finance lease liabilities | 926,104 |
Total current liabilities | 6,571,972 |
Subordinated loan and security agreement, net of current portion | 6,589,563 |
Equipment financing obligation, net of current portion | 244,617 |
Finance lease liabilities, net of current portion | 866,853 |
Subordinated notes | 7,331,254 |
Warrant liability | 562,244 |
Deferred rent | 57,741 |
Total noncurrent liabilities | 15,652,272 |
Total liabilities | 22,224,244 |
Commitments and contingencies | |
Stockholders' deficit: | |
Common stock, $0.0001 par value, 500,000,000 and 36,038,535 shares authorized at December 31, 2022 and 2021, respectively; 16,041,464 and 24,566,386 shares issued and outstanding at December 31, 2022 and 2021, respectively | 2,456 |
Additional paid-in capital | 150,425,960 |
Accumulated deficit | (203,649,275) |
Total stockholders' deficit | (53,220,859) |
Total liabilities and stockholders' deficit | 7,637,932 |
Series B redeemable convertible preferred stock | |
Current liabilities: | |
Redeemable convertible preferred stock | 12,389,547 |
Series A redeemable convertible preferred stock | |
Current liabilities: | |
Redeemable convertible preferred stock | $ 26,245,000 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 06, 2022 | May 31, 2022 | Dec. 31, 2021 |
Allowance for doubtful accounts | $ 162,635 | $ 100,000 | |||
Redeemable convertible preferred stock, par value (in dollars per share) | $ 0.0001 | ||||
Redeemable Series A convertible preferred stock, shares authorized | 25,000 | 0 | 7,636,950 | ||
Redeemable convertible preferred stock, shares issued | 9,526 | 0 | |||
Redeemable convertible preferred stock, shares outstanding | 9,526 | 0 | 7,314,578 | ||
Redeemable convertible preferred stock, liquidation preference | $ 14,289 | $ 52,482,999 | |||
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | |
Common stock, shares authorized | 100,000,000 | 100,000,000 | 36,038,535 | ||
Common stock, shares issued | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 | |
Common stock, shares outstanding | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 | |
Series B redeemable convertible preferred stock | |||||
Redeemable convertible preferred stock, par value (in dollars per share) | $ 0.0001 | ||||
Redeemable Series A convertible preferred stock, shares authorized | 7,610,700 | ||||
Redeemable convertible preferred stock, shares issued | 7,288,333 | ||||
Redeemable convertible preferred stock, shares outstanding | 7,288,333 | ||||
Redeemable convertible preferred stock, liquidation preference | $ 26,237,999 | ||||
Series A redeemable convertible preferred stock | |||||
Redeemable convertible preferred stock, par value (in dollars per share) | $ 1,000 | $ 10 | $ 10 | $ 0.0001 | |
Redeemable Series A convertible preferred stock, shares authorized | 25,000 | 5,945 | 26,250 | ||
Redeemable convertible preferred stock, shares issued | 26,245 | ||||
Redeemable convertible preferred stock, shares outstanding | 26,245 | ||||
Redeemable convertible preferred stock, liquidation preference | $ 26,245,000 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||
Revenue | $ 19,393,343 | $ 14,074,649 |
Cost of revenue | 9,127,338 | 6,764,319 |
Gross profit | 10,266,005 | 7,310,330 |
Operating expenses | ||
Research and development | 2,981,271 | 1,889,208 |
Sales and marketing | 8,865,328 | 5,776,084 |
General and administrative | 9,894,899 | 4,467,576 |
Total operating expenses | 21,741,498 | 12,132,868 |
Net loss from operations | (11,475,493) | (4,822,538) |
Other income (expense) | ||
Interest expense | (6,119,806) | (3,245,220) |
Gain on PPP loans | 2,281,262 | |
Change in fair value of earnout liability | 9,260,000 | |
Change in fair value of debt | 553,235 | |
Change in fair value of warrant liability | 3,234,586 | (190,911) |
Loss on debt extinguishment | (2,597,842) | |
Total other income (expense), net | 4,330,173 | (1,154,869) |
Net loss before income taxes | (7,145,320) | (5,977,407) |
Net loss | $ (7,145,320) | $ (5,977,407) |
Net loss per share attributable to common stockholders, basic | $ (0.71) | $ (1.51) |
Net loss per share attributable to common stockholders, diluted | $ (0.71) | $ (1.51) |
Weighted average shares used in computing net loss per share attributable to common stockholders, basic | 10,021,632 | 3,957,783 |
Weighted average shares used in computing net loss per share attributable to common stockholders, diluted | 10,021,632 | 3,957,783 |
CONSOLIDATED STATEMENTS OF REDE
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT - USD ($) | ProSomnus Common Holders Preferred Stock Series A Preferred Stock | ProSomnus Common Holders Series A Preferred Stock | Warrant Preferred Stock Series B redeemable convertible preferred stock | Warrant Additional Paid-In Capital | Warrant | PIPE equity Common Stock Class A common stock | PIPE equity Additional Paid-In Capital | PIPE equity | PIPE debt SPA shares Common Stock Class A common stock | PIPE debt SPA shares Additional Paid-In Capital | PIPE debt SPA shares | Preferred Stock Series B redeemable convertible preferred stock | Preferred Stock Series A Preferred Stock Convertible debt agreements | Preferred Stock Series A Preferred Stock | Common Stock Class A common stock | Common Stock | Additional Paid-In Capital Convertible debt agreements | Additional Paid-In Capital | Accumulated Deficit | Series B redeemable convertible preferred stock | Series A Preferred Stock | Convertible debt agreements | Total |
Beginning balance at Dec. 31, 2020 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2020 | 7,288,333 | 26,245 | |||||||||||||||||||||
Ending balance at Dec. 31, 2021 | $ 12,389,547 | $ 26,245,000 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2021 | 7,288,333 | 26,245 | 7,288,333 | 26,245 | 7,314,578 | ||||||||||||||||||
Beginning balance at Dec. 31, 2020 | $ 2,418 | $ 150,421,286 | $ (197,671,868) | $ (47,248,164) | |||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2020 | 24,184,697 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of restricted stock awards | $ 38 | (38) | |||||||||||||||||||||
Vesting of restricted stock awards (in shares) | 381,689 | ||||||||||||||||||||||
Stock-based compensation expense | 4,712 | $ 0 | 4,712 | ||||||||||||||||||||
Net loss | (5,977,407) | (5,977,407) | |||||||||||||||||||||
Ending balance at Dec. 31, 2021 | $ 2,456 | 150,425,960 | (203,649,275) | (53,220,859) | |||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2021 | 24,566,386 | ||||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 7,288,333 | 26,245 | |||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of restricted stock awards | $ 21 | (21) | |||||||||||||||||||||
Vesting of restricted stock awards (in shares) | 215,536 | ||||||||||||||||||||||
Stock-based compensation expense | 5,000 | 5,000 | |||||||||||||||||||||
Net loss | (9,353,340) | (9,353,340) | |||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 2,477 | 150,430,939 | (213,002,615) | $ (62,569,199) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 26,245 | 24,781,922 | |||||||||||||||||||||
Beginning balance at Dec. 31, 2021 | $ 12,389,547 | $ 26,245,000 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 7,288,333 | 26,245 | 7,288,333 | 26,245 | 7,314,578 | ||||||||||||||||||
Increase (Decrease) in Temporary Equity | |||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 5,945 | 5,945 | 161,112 | 13,081 | 161,112 | ||||||||||||||||||
Merger Recapitalization - Preferred | $ (12,389,563) | $ (26,245,000) | |||||||||||||||||||||
Merger Recapitalization - Preferred (in shares) | (7,449,445) | (45,271) | |||||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2022 | 0 | ||||||||||||||||||||||
Beginning balance at Dec. 31, 2021 | $ 2,456 | 150,425,960 | (203,649,275) | $ (53,220,859) | |||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 24,566,386 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of early exercised options | $ 85 | 2,156,915 | 2,157,000 | ||||||||||||||||||||
Vesting of early exercised options (in shares) | 854,507 | ||||||||||||||||||||||
Issuance of shares, net of cancellations and issuance costs | $ 16 | $ 579,984 | $ 579,984 | $ 183 | $ 10,249,817 | $ 10,250,000 | $ 33 | $ 478,834 | $ 478,867 | $ 13,080,756 | $ 13,080,756 | ||||||||||||
Issuance of stock (in shares) | 1,830,133 | 1,830,133 | 326,713 | ||||||||||||||||||||
Merger Recapitalization - Preferred | $ 721 | 38,635,975 | 38,636,696 | ||||||||||||||||||||
Merger Recapitalization - Preferred (in shares) | 7,208,865 | ||||||||||||||||||||||
Merger Recapitalization - Common | $ 408 | $ (2,541) | (2,132) | ||||||||||||||||||||
Merger Recapitalization - Common (in shares) | 4,084,418 | (25,420,893) | |||||||||||||||||||||
Issuance of Common Stock - services | $ 72 | 7,159,090 | 7,159,162 | ||||||||||||||||||||
Issuance of Common Stock - services (in shares) | 716,223 | ||||||||||||||||||||||
Issuance costs - ProSomnus Inc. | (12,640,679) | $ (12,640,679) | |||||||||||||||||||||
Conversion of LAAA Founder Common Stock | $ 105 | (105) | |||||||||||||||||||||
Conversion of LAAA Founder Common Stock (in shares) | 1,054,390 | ||||||||||||||||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders | $ 82 | (82) | |||||||||||||||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders (in shares) | 820,722 | ||||||||||||||||||||||
Issuance of Warrants | 1,991,503 | ||||||||||||||||||||||
Assumption of SPAC Assets and Liabilities | 2,242,097 | $ 2,242,097 | |||||||||||||||||||||
Earn-out liability | (22,070,000) | (22,070,000) | |||||||||||||||||||||
Stock-based compensation expense | $ 2,145,000 | 2,156,915 | |||||||||||||||||||||
Net loss | (7,145,320) | (7,145,320) | |||||||||||||||||||||
Ending balance at Dec. 31, 2022 | $ 1,604 | $ 1,604 | 190,298,562 | (210,794,595) | (20,494,429) | ||||||||||||||||||
Ending balance (in shares) at Dec. 31, 2022 | 16,041,464 | 16,041,464 | |||||||||||||||||||||
Beginning balance at Jun. 30, 2022 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Beginning balance (in shares) at Jun. 30, 2022 | 7,288,333 | 26,245 | |||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 12,389,547 | $ 26,245,000 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 7,288,333 | 26,245 | |||||||||||||||||||||
Beginning balance at Jun. 30, 2022 | $ 2,469 | 150,429,947 | (209,453,653) | (59,021,237) | |||||||||||||||||||
Beginning balance (in shares) at Jun. 30, 2022 | 24,702,891 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Vesting of restricted stock awards | $ 8 | (8) | |||||||||||||||||||||
Vesting of restricted stock awards (in shares) | 79,031 | ||||||||||||||||||||||
Stock-based compensation expense | 1,000 | 1,000 | |||||||||||||||||||||
Net loss | (3,548,962) | (3,548,962) | |||||||||||||||||||||
Ending balance at Sep. 30, 2022 | $ 2,477 | 150,430,939 | (213,002,615) | $ (62,569,199) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 26,245 | 24,781,922 | |||||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2022 | 0 | ||||||||||||||||||||||
Increase (Decrease) in Temporary Equity | |||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 9,526 | 9,526 | |||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 11,664,989 | $ 11,664,989 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 9,526 | 9,526 | |||||||||||||||||||||
Beginning balance at Dec. 31, 2022 | $ 1,604 | $ 1,604 | 190,298,562 | (210,794,595) | $ (20,494,429) | ||||||||||||||||||
Beginning balance (in shares) at Dec. 31, 2022 | 16,041,464 | 16,041,464 | |||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Issuance of shares, net of cancellations and issuance costs | $ 2 | 163,571 | 163,573 | ||||||||||||||||||||
Issuance of stock (in shares) | 16,166 | ||||||||||||||||||||||
Stock-based compensation expense | 716,193 | 716,193 | |||||||||||||||||||||
Net loss | (17,226,044) | (17,226,044) | |||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 1,629 | 194,650,729 | (228,020,639) | $ (33,368,281) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 16,288,124 | ||||||||||||||||||||||
Increase (Decrease) in Temporary Equity | |||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 9,526 | ||||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 11,664,989 | $ 11,664,989 | |||||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 9,526 | 9,526 | |||||||||||||||||||||
Beginning balance at Jun. 30, 2023 | $ 1,606 | 191,031,730 | (216,781,836) | $ (25,748,500) | |||||||||||||||||||
Beginning balance (in shares) at Jun. 30, 2023 | 16,057,630 | ||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||||||||||||||
Issuance of Common Stock - services | $ 23 | 919,546 | 919,569 | ||||||||||||||||||||
Stock-based compensation expense | 146,596 | 146,596 | |||||||||||||||||||||
Net loss | (11,238,803) | (11,238,803) | |||||||||||||||||||||
Ending balance at Sep. 30, 2023 | $ 1,629 | $ 194,650,729 | $ (228,020,639) | $ (33,368,281) | |||||||||||||||||||
Ending balance (in shares) at Sep. 30, 2023 | 16,288,124 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (7,145,320) | $ (5,977,407) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Gain on PPP loans | (2,281,262) | |
Depreciation | 424,359 | 827,568 |
Reduction of finance right-of-use asset | 772,870 | |
Amortization of operating right-of-use asset | 207,464 | |
Noncash interest | 5,004,260 | 710,444 |
Amortization of debt discount | 145,228 | 140,544 |
Bad debt expense | 138,850 | 105,256 |
Stock-based compensation | 2,157,000 | 4,712 |
Change in Earnout Liability | (9,260,000) | |
Change in fair value of debt | (553,235) | |
Change in fair value of warrant liability | (3,234,586) | 190,911 |
Loss on extinguishment of debt | 2,597,842 | |
Changes in operating assets and liabilities: | ||
Accounts receivable | (883,016) | (745,714) |
Inventory | (261,176) | (167,836) |
Prepaid expenses and other current assets | (1,745,180) | 26,174 |
Other assets | (108,116) | (92,414) |
Accounts payable | 1,145,924 | 180,655 |
Accrued expenses | 517,277 | 2,443,435 |
Operating lease liability | (159,348) | |
Net cash used in operating activities | (10,238,905) | (4,634,934) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | (1,353,662) | (301,302) |
Net cash used in investing activities | (1,353,662) | (301,302) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from PIPE Equity Financing | 9,450,000 | |
Proceeds from SPAC Trust | 4,920,826 | |
Issuance costs paid in closings | (8,243,247) | |
Proceeds from Issuance of Convertible Notes | 27,452,121 | |
Proceeds from line of credit | 24,362,059 | 17,543,950 |
Repayments of line of credit | (24,949,874) | (16,956,135) |
Proceeds from issuance of subordinated notes | 375,000 | 2,765,000 |
Repayments of subordinated notes | (75,000) | |
Principal payments on finance lease obligations | (1,222,270) | (777,431) |
Principal payments on equipment financing obligation | (56,126) | (49,662) |
Proceeds from Paycheck Protection Program loans | 1,003,112 | |
Proceeds from subordinated loan and security agreement | 1,955,067 | |
Repayments of subordinated loan and security agreement | (10,652,314) | (602,637) |
Proceeds from issuance of unsecured subordinated promissory notes | 5,260,908 | |
Repayments of unsecured subordinated promissory notes | (613,956) | |
Net cash provided by (used in) financing activities | 26,008,126 | 4,881,264 |
Net increase (decrease) in cash and cash equivalents | 14,415,559 | (54,972) |
Cash and cash equivalents at beginning of period | 1,500,582 | 1,555,554 |
Cash and cash equivalents at end of period | 15,916,141 | 1,500,582 |
Supplemental disclosure of cash flow information | ||
Cash paid for interest | 1,189,279 | 648,322 |
Cash paid for franchise taxes | 6,480 | 7,652 |
Supplemental disclosure of noncash investing and financing activities: | ||
Acquisition of property and equipment through capital leases | 985,857 | |
Acquisition of property and equipment through finance financing | 2,233,834 | |
Addition of ROU assets from finance lease modification | 239,000 | |
Conversion of Bridge Notes into Equity | $ 13,080,756 | |
Issuance of stock for repayment of Subordinated Loan and Security agreement and Bridge Loan (secured subordinated loan) | 800,000 | |
Issuance of Subordinated convertible notes for repayment of Subordinated Loan and Security agreement and Bridge Loan (secured subordinated loan) | $ 2,547,879 | |
Issuance of common stock warrants in connection with senior and subordinated convertible notes | 1,991,503 | |
Issuance of common stock in exchange for investment banking services | $ 7,159,162 | |
Issuance of redeemable convertible preferred stock warrant in connection with subordinated loan and security agreement | $ 143,333 |
DESCRIPTION OF THE BUSINESS_2
DESCRIPTION OF THE BUSINESS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
DESCRIPTION OF THE BUSINESS | ||
DESCRIPTION OF THE BUSINESS | NOTE 1 — DESCRIPTION OF THE BUSINESS Company Organization ProSomnus, Inc., and its wholly owned subsidiaries, ProSomnus Holdings, Inc. and ProSomnus Sleep Technologies, Inc. (collectively, the “Company”) is an innovative medical technology company that develops, manufactures, and markets its proprietary line of precision intraoral medical devices for treating and managing patients with obstructive sleep apnea (“OSA”). The Company is located in Pleasanton, California and was incorporated as a Delaware company on May 3, 2022. Its accounting predecessor company, ProSomnus Sleep Technologies, Inc. was incorporated as a Delaware company on March 2, 2016. | NOTE 1 — DESCRIPTION OF THE BUSINESS Company Organization ProSomnus, Inc., and its wholly owned subsidiaries, ProSomnus Holdings, Inc., ProSomnus Sleep Technologies, Inc. (collectively, the “Company”) is an innovative medical technology company that develops, manufactures, and markets its proprietary line of precision intraoral medical devices for treating and managing patients with obstructive sleep apnea (“OSA”). The Company is located in Pleasanton, California and was incorporated as Delaware company on May 3, 2022. Its accounting predecessor company, Sleep Technologies, Inc. was incorporated in Delaware on March 2, 2016. On December 6, 2022, Lakeshore Acquisition I Corp. (“Lakeshore”) consummated a series of transactions that resulted in the combination (the “Business Combination”) of Lakeshore with ProSomnus Holdings, Inc. and its wholly-owned subsidiary, Prosomnus Sleep Technologies, Inc., pursuant to an Agreement and Plan of Merger, dated May 9, 2022. Pursuant to the Merger Agreement, Lakeshore merged with and into ProSomnus Holdings, and changed its name to ProSomnus, Inc. The transaction was accounted for as a reverse recapitalization with ProSomnus Sleep Technologies, Inc. being the accounting acquirer and Lakeshore as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the consolidated financial statements represents the accounts of ProSomnus Sleep Technologies, Inc. Prior to the Business Combination, Lakeshore’s units, public shares, and public warrants were listed on The Nasdaq Global Market under the symbols “LAAU,” “LAAA,” and “LAAW,” respectively. On December 6, 2022, the Company’s Class A common stock and public warrants began trading on Nasdaq, under the symbols “OSA” and “OSAAW,” respectively . |
BASIS OF ACCOUNTING AND SIGNI_6
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | ||
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and in conjunction with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 14, 2023. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any future periods. The condensed consolidated balance sheet as of December 31, 2022, has been derived from audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. The Company expects operating losses and negative cash flows from operations to continue for the foreseeable future. The Company’s ability to continue as a going concern depends on its ability to execute on its plans to achieve revenue growth forecast, control operating costs, and obtain additional financing. The Company has developed a cash flow breakeven plan pursuant to which the Company expects to maintain positive cash balances and compliance with its debt covenants and commitments. The Company has commenced the implementation of its plan and believes the plan, when fully implemented as planned, will mitigate the liquidity risks identified. However, the Company’s operating plan may change as a result of many factors currently unknown and there can be no assurance that the current operating plan or cash flow break even plan will be achieved in the time frame anticipated by the Company. Furthermore, there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis or at all. Based on the Company’s current level of expenditures and management’s future cash flow projections, the Company believes its cash and cash equivalents of $12.0 million and working capital of $6.1 million at September 30, 2023, may not be sufficient for the Company to continue operations as a going concern for at least one year from the issuance date of these condensed consolidated financial statements. Additionally, from July 1, 2023, the Convertible Notes (as defined in Note 7) require the Company to maintain a minimum cash balance of $4.5 million on the first of each calendar month. The Company believes that without the successful and full implementation of its cash flow breakeven plan, these factors raise substantial doubt about its ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s significant estimates in these condensed consolidated financial statements relate to the fair values, and the underlying assumptions used to formulate such fair values, of its Series A Preferred Stock, Convertible Notes, earn-out liability, and warrants. Estimates also include the allowance for doubtful accounts receivable, warranty and earned discount accruals, measurements of tax assets and liabilities and stock-based compensation. Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — The valuation is based on quoted prices in active markets for identical instrument. Level 2 Inputs — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model — based valuation techniques for which all significant assumptions are observable in the market. Level 3 Inputs — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company’s financial instruments consist primarily of cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable and accrued expenses, long-term debt instruments, earnout and warrant liabilities. The carrying values of our working capital balances are representative of their fair values due to their short-term maturities. The carrying value of our equipment financing obligation is considered to approximate its fair value because the interest rate is comparable to current rates for financing available to us. Under the fair value option as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments , we have elected to record our convertible debt instruments at fair value. The earnout and warrant liabilities are presented at fair value on the condensed consolidated balance sheets. The following tables provide a summary of the financial instruments that are measured at fair value on a recurring basis: September 30, 2023 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,286,405 $ — $ — $ 13,286,405 Subordinated Convertible Notes 18,720,000 — — 18,720,000 Earnout liability 730,000 — — 730,000 Warrant liability 134,043 — — 134,043 December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earnout liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Cash and Cash Equivalents The Company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of September 30, 2023, and December 31, 2022, the Company had $12.0 million and $15.9 million of cash an d no cash equivalents, respectively, which includes restricted cash of $0.7 million at September 30 , 2023 consisting of a letter of credit on hand w ith the Compan y' s financial institution as collateral for an office lease. Convertible Notes The Company accounts for its Senior Convertible Notes and Subordinated Convertible Notes (as defined below), as derivatives in accordance with, ASC 815-10, Derivatives and Hedging, and ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying condensed consolidated balance sheets and changes in fair value recorded in other expense within the condensed consolidated statements of operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. The Company has analyzed the redemption, conversion, settlement, and other derivative instrument features of its Convertible Notes. ● The Company identified that the (i) redemption features, (ii) lender’s optional conversion feature, (iii) lender’s optional conversion upon merger event feature and (iv) additional interest rate upon certain events feature meet the definition of a derivative. The Company analyzed the scope exception for all the above features under ASC 815-10-15-74(a). ● Based on the further analysis, the Company identified that the (i) lender’s optional conversion feature, (ii) lender’s optional conversion upon merger event feature and (iii) additional interest rate upon certain events feature, do not meet the settlement criteria to be considered indexed to equity. The Company concluded that each of these features should be classified as a derivative liability measured at fair value with the changes in fair value in the condensed consolidated statement of operations. ● The Company also identified that the redemption features are settled in cash and do not meet the indexed to equity and the equity classification scope exception, thus, they must be bifurcated from the Convertible Notes and accounted for separately at fair value on a recurring basis reflecting the changes in fair value in the condensed consolidated statement of operations. The Company determined the Convertible Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the condensed consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has elected to separately present interest expense related to the Convertible Notes within the condensed consolidated statement of operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Convertible Notes are reflected at their respective fair values on the condensed consolidated balance sheets. 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 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 own common stock, par value $0.0001 (“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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the liability classified warrants are recognized as other income or expense on the condensed consolidated statements of operations. Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● Identifying the contract with a customer: customers submit authorized prescriptions and oral impressions to the Company. Authorized prescriptions constitute the contract with customers. ● Identifying the performance obligations within the contract: The sole performance obligation is the shipment of a completed customized intraoral device. ● Determining the transaction price: Prices are determined by standardized pricing sheets and adjusted for estimated returns, discounts, and allowances. ● Allocating the transaction price to the performance obligations: The full transaction price is allocated to the shipment of the completed intraoral device as it is the only element in the transaction. ● Recognizing revenue as the performance obligation is satisfied at a point in time: revenue is recognized upon transfer of control which occurs upon shipment of the product. The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days . Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability for all leases, except short term leases with an original term of twelve months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term as the underlying leases for operating leases and the implied rate in the lease agreement for finance leases. Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. The Company’s real estate operating lease agreement requires variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments are recognized in operating expenses when incurred. Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to Common Stockholders is calculated by dividing the net loss attributable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the period, without consideration for Common Stock equivalents. Diluted net loss per share attributable to Common Stockholders is the same as basic net loss per share attributable to Common Stockholders, since the effects of potentially dilutive securities are antidilutive. Reclassifications Certain prior year balances have been reclassified in order to conform to the current period presentation. These reclassifications have no impact on previously reported earnings or cash flows. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The Company early adopted ASU 2020-06 effective January 1, 2023, which eliminated the need to assess whether a beneficial conversion feature needs to be recognized upon the issuance of new convertible instruments. The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company's consolidated financial statements. | NOTE 2 – BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements were prepared on the accrual basis of accounting in accordance with principles generally accepted in the United States of America (“U.S. GAAP”). Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. At December 31, 2022, the Company had a working capital of $14.2 million and cash and cash equivalents of $15.9 million. The Company expects to continue to incur net losses for the foreseeable future as it continues the development of its products. On December 6, 2022, on consummation of the Business Combination, we received $4.92 million of cash held in Lakeshore’s trust account from its initial public offering, $10.25 million of cash in connection with the PIPE Equity financing and approximately $30 million in proceeds from the Convertible Notes offering. These proceeds were used to pay transaction expenses and other liabilities of Lakeshore, pay certain transaction expenses of ProSomnus, and pay off approximately $11.53 million in debt of ProSomnus at closing, with the remaining being deposited in ProSomnus’ cash account. Based on cash flow projections from operating and financing activities and existing balance of cash and cash equivalents and investments, management is of the opinion that the Company has sufficient funds for sustainable operations, and it will be able to meet its payment obligations from operations and debt related commitments for at least one year from the issuance date of these financial statements. Based on the above considerations, the Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations. The Company’s ability to continue as a going concern is dependent on management’s ability to control operating costs and maintain revenue growth forecast. Management believes there is not substantial doubt about the ability of the Company to meet its obligations and operations for twelve months after the issuance of the consolidated financial statements. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s most significant estimates in these consolidated financial statements relate to the fair value of Senior and Subordinated convertible notes, fair value of Earnout liability, fair value of warrants, provision for doubtful accounts receivable, the warranty and earned discount accruals, future revenue estimates used to calculate the current and long-term portions due under the subordinated loan agreement, the effective interest rates of the subordinated loan agreement, measurement of tax assets and liabilities and stock-based compensation. Concentrations of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of accounts receivable and cash. The Company sells its products to customers primarily in North America and Europe. To reduce credit risk, management performs periodic credit evaluations of its customers’ financial condition. No customers exceeded more than 10% of the Company’s revenue or accounts receivables as of and for the years ended December 31, 2022 and 2021. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Company believes its credit risk is mitigated due to the high quality of the banks in which it places its deposits. Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — Level 2 Inputs — Level 3 Inputs — no 3 Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. Change in Fair Value of Senior and Subordinated Convertible Notes Under the fair value election as prescribed by ASC 815, the Company will record changes in fair value through the consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period, with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable. The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the consolidated statement of operations. As a result of the merger transaction, the company assumed an Earn-out liability, which is remeasured each reporting period. Given the unobservable nature of the inputs, the fair value measurement of the deferred earn-out is deemed to use Level 3 inputs. The Earn-out liability was accounted for as a liability as of the date of the merger transaction and will be remeasured to fair value until the Earnout Triggering Events are met. The Company believes the carrying amounts of financial instruments including cash and cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable, and revolving line of credit approximate fair value due to their short-term nature. Comprehensive Income Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It consists of net income and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net income. Comprehensive income is equal to the net income for the years ended December 31, 2022 and 2021. Cash and Cash Equivalents The company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of years ended December 31, 2022 and 2021, the Company had $15.9 million and $1.5 million of cash, respectively, and there were no cash equivalents. Accounts Receivable The Company reports accounts receivables at net realizable value. The Company has not historically assessed finance charges on past due accounts, but retains the right to do so. The allowance for doubtful accounts is estimated based on historical write-off percentages and management’s assessment of specific past due or delinquent customer accounts. The delinquency status of customers is determined by reference to contractual terms. Doubtful accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted and are recorded as recoveries of bad debts, if subsequently collected. The allowance for doubtful accounts amounted to $162,635 and $100,000 as of December 31, 2022 and 2021, respectively. All accounts receivable are primarily from customers located in North America and Europe. Inventory Inventory is recorded at the lower of cost or net realizable value under the first-in, first-out method of accounting. Inventories primarily consist of purchased raw materials. The Company regularly reviews whether the net realizable value of its inventory is lower than its carrying value. If the valuation shows that the net realizable value is lower than the carrying value, the Company takes a charge to cost of revenue and directly reduces the carrying value of the inventory. Indicators that could result in inventory write-downs include damaged or slow-moving materials and supplies. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are as follows: Manufacturing equipment 3 to 7 years Computers and software 3 years Furniture 7 years Leasehold Improvements Shorter of remaining lease term or estimated useful life Maintenance and repairs are charged to operations as incurred. Through December 31, 2021, equipment capitalized under capital lease obligations was included in property and equipment. Property and equipment capitalized under capital lease obligations were amortized using a straight-line method over the shorter of the life of the lease or the useful life of the asset, which ranges three and was included in depreciation expense in the consolidated statements of operations. On January 1, 2022 the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”), which impacted the classification of equipment formerly capitalized under capital lease obligations. The equipment related to capital leases, now finance leases, have been reclassified from property and equipment to right-of-use assets on the consolidated balance sheet. Occasionally, the Company enters into finance lease arrangements for various machinery, equipment, computer-related equipment, or software. The Company records amortization of assets leased under finance lease arrangements. Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or the fair value less costs to sell. No such impairments have been identified during the years ended December 31, 2022 and 2021. Redeemable Convertible Preferred Stock All Series A and Series B redeemable convertible preferred stock were converted into common shares of the Company on close of the merger transaction in December 2022. Prior to the merger transaction, the Company recorded all shares of redeemable convertible preferred stock at their respective issuance price, less issuance costs on the dates of issuance. The redeemable convertible preferred stock was presented outside of stockholders’ deficit in the consolidated balance sheets. When redeemable convertible preferred stock was considered either then currently redeemable or probable of becoming redeemable, the Company selected a policy to recognize changes in the redemption value immediately, as they would have occurred and adjust the carrying value of redeemable convertible preferred stock to the greater of the redemption value at the end of each reporting period or the initial carrying amount. Senior and Subordinated Convertible Notes The Company accounts for its derivatives in accordance with, ASC 815-10, Derivatives and Hedging, or ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying Consolidated Balance Sheets and changes in fair value recorded in other expense within the Consolidated Statements of Operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. Upon the consummation of the Business Combination, the Company issued Senior and Subordinated Convertible Notes. The Company analyzed various redemption, conversion and settlement features, and other derivative instrument features of these Convertible Notes offering. ● ● ● The Company determined the Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, if there is a conversion feature that is required to be bifurcated, the cash conversion feature and beneficial conversion feature guidance is not applicable to such conversion feature and the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Senior and Subordinated Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the Consolidated Statement of Operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the Consolidated Statement of Operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Senior and Subordinated Convertible Notes are reflected at their respective fair values on the Consolidated Balance Sheet at December 31, 2022. 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 own 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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash other income or expense on the consolidated statements of operations. Warranty The Company offers a warranty guaranteeing the fit and finish of their intraoral devices for three years from the date of initial sale, as well as a guarantee for the unlimited remaking of arches. The accrual for warranty claims and unlimited arch remakes totaled $269,496 and $217,244 at December 31, 2022 and 2021, respectively, and these amounts are recorded in accrued expenses on the consolidated balance sheets. Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● ● ● ● ● The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days. Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. Cost of Revenue Cost of revenue consists primarily of materials and the costs related to the production of the intra-oral device, including employee compensation, other employee-related expenses and allocable manufacturing overhead costs. The Company has a policy to classify initial recruiting, onboarding and training costs of new manufacturing employees as part of research and development expenses in the consolidated statements of operations. Such costs totaled $211,218 and $144,775 for the years ended December 31, 2022 and 2021, respectively. The Company utilizes the practical expedient which permits expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to employees. The Company expenses sales commissions paid to employees as revenue are recognized. Research and Development Research and development costs are charged to operations as incurred. Advertising Advertising costs are expensed as incurred and totaled $100,319 and $87,764 for the years ended December 31, 2022 and 2021, respectively. Stock-Based Compensation The Company’s stock-based compensation expense is recognized based on the estimated fair value of the restricted stock awards on the date of grant. The grant-date fair value of all stock-based payment awards is recognized as employee compensation expense on a straight-line basis over the requisite service period. The Company recognizes forfeitures of restricted stock awards as they occur. Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, for all less. represents for value at liability, any for at value Company’s for for for Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for for renewal renewal rate, at Company’s real at Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. Income Taxes The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes as well as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. Significant judgment may be required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that is more likely than not to be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company follows authoritative guidance regarding uncertain tax positions. The guidance requires that realization of an uncertain income tax position must be more likely than not (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the consolidated financial statements. The guidance further prescribes the benefit to be realized assumes a review by taxing authorities having all relevant information and applying current conventions. The guidance also clarifies the consolidated financial statements classification of tax related penalties and interest and sets forth disclosures regarding unrecognized tax benefits. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since the effects of potentially dilutive securities are antidilutive. Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer and Chief Financial Officer. The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Recent Accounting Pronouncements On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (ASC 842), which superseded previous guidance related to accounting for leases within Topic 842, Leases . The Company elected the practical expedient provided under ASU 2018-11, Leases (ASC 842) Targeted Improvements, which amended ASU 2016-02 to provide entities an optional transition practical expedient to adopt the new standard with a cumulative effect adjustment as of the beginning of the year of adoption with prior year comparative financial information and disclosures remaining as January Topic Topic The Company elected the package of practical expedients permitted under the transition guidance, which allowed forward for any January also with an initial term of 12 months or less off the consolidated balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Adoption of the new standard resulted in the recording of right of use assets and operating lease liabilities of $406,551 and $464,291 , respectively, as of January 1, 2022. Additionally, upon adoption of the new standard, the Company reclassified the equipment of $2,349,591 related to capital leases to right of use assets. Finance lease liabilities of $1,826,973 were reclassified from capital lease obligation. The transition did not have a material impact on the Company’s consolidated results of operations, cash flows or liquidity measures. In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - “ Debt with Conversion and Other Options Derivatives and Hedging-Contracts in Entity’s Own Equity In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. The impact to the company is immaterial. |
MERGER AND REVERSE RECAPITALIZA
MERGER AND REVERSE RECAPITALIZATION | 12 Months Ended |
Dec. 31, 2022 | |
MERGER AND REVERSE RECAPITALIZATION | |
MERGER AND REVERSE RECAPITALIZATION | NOTE 3 - MERGER AND REVERSE RECAPITALIZATION Business Combination Transaction On May 9, 2022, Lakeshore and ProSomnus Holdings, Inc. executed the Merger Agreement. Pursuant to the Merger Agreement, the business combination was effected in two steps: (i) upon approval and adoption of the Merger Agreement by the shareholders of Lakeshore, Lakeshore reincorporated to the State of Delaware by merging with and into LAAA Merger Corp., a Delaware corporation and wholly-owned subsidiary of Lakeshore (“ PubCo Reincorporation Merger Merger Sub Acquisition Merger Stockholders’ Representative Business Combination Merger Transaction Legacy ProSomnus On December 6, 2022, Lakeshore consummated a series of transactions that resulted in the combination (the “ Business Combination ProSomnus Holdings Merger Agreement Sponsor Special Meeting Simultaneous with the closing of the Business Combination, the Company also completed a series of private financings, issuing and selling 1,025,000 shares of its common stock in a private placement to certain PIPE investors (the “ Equity PIPE Offering Senior convertible notes Subordinated convertible notes ”) to certain investors pursuant to previously announced Senior Securities Purchase Agreement and Subordinated Securities Purchase Agreement, each dated August 26, 2022. Pursuant to the terms of the Merger Agreement, the total consideration for the Business Combination and related transactions (the “ Merger Consideration As a result of the Reincorporation Merger and the Business Combination, holders of Lakeshore ordinary shares automatically received common stock of the Company, and holders of Lakeshore warrants automatically received warrants of the Company with substantively identical terms. At the Closing of the Business Combination, 1,054,390 ordinary shares of Lakeshore owned by the Sponsor, which we refer to as the founder shares, automatically converted into an equal number of shares of the Company common stock, and 196,256 Private Placement Warrants held by the Sponsor, each exercisable for one ordinary share of Lakeshore at $11.50 per share, automatically converted into warrants to purchase one share of Surviving Pubco common stock at $11.50 per share with substantively identical terms. An aggregate of 4,597,180 warrants were issued to holders of Lakeshare founder shares, and private and public warrant holders, as a result of the Business Combination, see Footnote 9 – Common Stock Warrants. Additionally, Legacy ProSomnus stockholders (other than holders of ProSomnus Subordinated Debt) are entitled to receive up to 3.0 million Earn-out shares in three tranches: ● the first tranche of 1.0 million Earn-out shares will be issued when the volume-weighted average price per share of PubCo Common Stock is $12.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; ● the second tranche of 1.0 million Earn-out shares will be issued when the volume-weighted average price per share of PubCo Common Stock is $15.00 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; and ● the third tranche of 1.0 million Earn-out shares will be issued when the volume-weighted average price per share of PubCo Common Stock is $17.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing. The Earn-out shares will be allocated among Legacy ProSomnus’s stockholders in proportion to the number of shares issued to them at the closing that continue to be held by them. Concurrently with the execution of the Merger Agreement, in May and September 2022, the Company and certain holders of the Bridge Loans executed a conversion addendum. Upon notice of the Business Combination Agreement, the holders of the Bridge Loans had up to 10 days to elect to convert into Series A Redeemable Convertible Preferred Stock. Immediately prior to the closing of the Business Combination, the Bridge Loans automatically converted into the number of Series A Redeemable Convertible Preferred Stock as equal to the repayment amount of the Bridge Loans divided by the Conversion Price. The Conversion Price is defined as the quotient of the aggregate consideration to be paid to all holders of the Series A Redeemable Convertible Preferred Stock divided by the outstanding number of Series A Redeemable Convertible Preferred Stock, including the shares into which the Bridge Loans convert. Holders of Bridge Loans totaling $2,550,000 elected to convert, immediately prior to the Acquisition Merger. The remaining $100,000 principal amount of the Bridge Loan and accrued and unpaid interest thereon was paid in cash at closing of the Acquisition Merger. In addition, the indebtedness arising under ProSomnus’s loan agreement dated August 9, 2019, by and among ProSomnus Sleep Technologies, Inc. and the lenders signatory thereto, in the aggregate principal amount of $6,490,000 (collectively with the Bridge Loan, the “ProSomnus Subordinated Debt”), also converted into shares of ProSomnus Common Stock immediately prior to the Acquisition Merger. On June 29, 2022, Legacy ProSomnus entered into the Second Amendment and Loan Security Agreement (“Second Amendment”) to the subordinated loan and security agreement effective in April 2021. The Second Amendment established a convertible bridge loan advance of up to $2,000,000 to ProSomnus from the lender (“Convertible Bridge Loan Advance”). The interest rate of the Convertible Bridge Loan Advance was 14% and the maturity date was the earlier of the date of the bridge loan conversion event or June 29, 2023. The bridge loan conversion event was the termination of the Merger Agreement or the occurrence of any event that would result in the termination of the Merger Agreement as defined in the Merger Agreement. If the bridge loan conversion had not occurred, and the Convertible Bridge Loan Advance was not repaid in full on the maturity date, the default interest would bear additional 6.0% per annum. Interest was to be paid in arrears at December 29, 2022 and at the maturity date. Prepayment of the Convertible Bridge Loan Advance was permitted in increments of $100,000 at any time, and the prepayment requires the payment of all accrued and unpaid interest as well as a prepayment premium. The prepayment premium was the incremental amount of interest that would have been paid for the term of the convertible bridge advance and had not yet been paid. ProSomnus had received $2,000,000 from the Convertible Bridge Loan Advance as of November 30, 2022. On December 2, 2022, the Company entered into a Securities Exchange Agreement with holders of the Subordinated Loan and Security agreement and the holders of Convertible Bridge Loan Advance. The Company also executed a payment arrangement with other debt holders on December 6, 2022. The Company agreed to the following key terms and conditions with the holders under these arrangements. - - - All the warrants issued pursuant to the subordinated loan and security agreements were exercised immediately prior to the merger transaction. The Company issued 161,112 shares of Series B redeemable preferred stock to the warrant holders as a cashless exercise. This Series A Redeemable Convertible Preferred Stock was converted to common stock on the close of the merger transaction. The Company executed on the above terms and conditions on close of the merger transaction. The of $2.4 million for Debt-Modifications and Extinguishments. Immediately prior to the closing of the Business Combination, the following transactions occurred: Legacy ProSomnus Series B Convertible Preferred Stock ● 2020 Preferred Series B warrant holders and 2021 Preferred Series B warrant holders exercised their 322,223 warrants, by way of cashless exercise, for 161,112 of Legacy ProSomnus’s Series B convertible preferred stock Legacy ProSomnus Series A Redeemable Convertible Preferred Stock ● The Subordinated Notes automatically converted into the number of Series A Redeemable Convertible Preferred Stock as equal to the repayment amount of the Bridge Loans divided by the Conversion Price. The Company had issued 10,029 shares of Series A Redeemable Convertible Preferred Stock, which got converted into 1,002,869 shares of common stock on the date of the merger transaction based on proceeds of $10.03 million ● Holders of Bridge Loan (Unsecured Subordinated Promissory Notes) elected to convert into Series A Redeemable Preferred Stock. The aggregate amount due, including interest and Bridge Loan Kickers, was $3,052,065 , amounting to 3,052 shares of Series A Redeemable Convertible Preferred Stock, this was converted into 305,206 shares of common stock ● Certain Legacy ProSomnus holders received an aggregate of 5,945 shares of Series A Redeemable Convertible Preferred Stock Legacy ProSomnus Common Stock ● Options to purchase 600,000 shares of Common C stock immediately vested prior to the closing of Business Combination. At the Closing, each issued share of Legacy ProSomnus outstanding immediately prior to the closing, was automatically converted into the right to receive shares of the Company’s Common Stock, par value $0.0001 (“Common Stock”) at a purchase price of $10.00 as defined in the Merger Agreement. The company issued an aggregate of 7,208,865 shares of common stock for Legacy ProSomnus Preferred stock as below: ● All 7,288,333 shares of Legacy ProSomnus’s outstanding Series B convertible preferred stock and the additional 161,112 Preferred B shares from warrant exercise, totalling 7,449,445 shares; were converted into 2,623,800 shares and 58,000 shares of ProSomnus’s common stock, respectively. ● All 45,270 shares of Legacy ProSomnus Series A Redeemable Convertible Preferred Stock were converted into 4,527,065 shares of ProSomnus’s common stock. All 25,420,893 shares of Legacy ProSomnus’s Series A Common stock, Series B Common stock and Series C Common stock were converted into 4,084,418 shares of ProSomnus’s common stock. Immediately prior to the Closing of the Business Combination, the Company issued and sold 1,025,000 shares of common stock (the “PIPE – Equity Shares”) to the PIPE Investors for gross proceeds of $10,250,000. The PIPE – Equity Shares investors also received an additional 805,133 bonus shares; total issuance to PIPE – Equity investors was 1,830,133 shares of the Company. Non-redeeming shareholders of Lakeshore retained an aggregate of 480,637 shares, and, the non-redeeming shareholders that entered into agreements with Lakeshore and ProSomnus to not redeem received an aggregate of 340,085 bonus shares; total issuance to these Lakeshare stockholders was 820,722 shares of the Company. ● 574,035 founder shares were transferred to non-redeeming shareholders that entered into agreements with Lakeshore and ProSomnus to not redeem and new PIPE investors, as a source of bonus shares. ● Underwriters, advisors and convertible notes placement agents totally forfeited $1,640,010 of compensation in exchange of new issuance of 164,010 shares as a source of bonus shares, to be issued to non-redeeming shareholders that entered into agreements with Lakeshore and ProSomnus to not redeem and new PIPE investors. ● The company issued an additional 407,173 of common shares for distribution of bonus shares. In connection with agreements with certain Underwriters, Advisors and Convertible notes placement agents, the Company issued an aggregate of 716,223 shares of Company’s common stock in lieu of cash fees of $7.16 million, net of forfeited compensation, at the close of the Merger transaction. In connection with the Senior and Subordinated Convertible Notes, the Company issued to the holders of Convertible Notes, warrants to purchase an aggregate of 1,914,907 shares of Company’s Common Stock at an exercise price of $11.50 per share, and issued an aggregate of 326,713 shares of Company’s Common Stock. The Merger is accounted for as a reverse recapitalization under accounting principles generally accepted in the United States (“GAAP”). This determination is primarily based on Legacy ProSomnus stockholders comprising a relative majority of the voting power of ProSomnus and having the ability to nominate the members of the Board, Legacy ProSomnus’s operations prior to the acquisition comprising the only ongoing operations of ProSomnus, and Legacy ProSomnus’s senior management comprising a majority of the senior management of ProSomnus. Under this method of accounting, while the legal acquirer in the Merger Agreement is Lakeshore, for financial accounting and reporting purposes under GAAP, ProSomnus will be the accounting acquirer and the Business Combination will be accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of the financial statements of ProSomnus Inc. in many respects. Accordingly, for accounting purposes, the financial statements of ProSomnus Inc. represent a continuation of the financial statements of ProSomnus Inc. with the Business Combination treated as the equivalent of ProSomnus Inc. issuing stock for the net assets of Lakeshore, accompanied by a recapitalization. The net assets of Lakeshore will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be presented as those of ProSomnus Inc. In connection with the Merger, the Company raised $45.17 million of proceeds including the contribution of $4.92 million of cash held in Lakeshore’s trust account from its initial public offering, net of redemptions of Lakeshore’s public stockholders of $24.4 million; $10.25 million of gross proceeds in connection with the PIPE Equity financing and approximately $30 million in gross proceeds from the Convertible Notes (Senior and Subordinated Convertible Notes) offering. These proceeds were used to pay transaction expenses and other liabilities of Lakeshore, pay certain transaction expenses of ProSomnus, and pay off approximately $11.53 million in debt of ProSomnus at closing, with the remaining being deposited in ProSomnus’ cash account. |
PROPERTY AND EQUIPMENT_2
PROPERTY AND EQUIPMENT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
PROPERTY AND EQUIPMENT | ||
PROPERTY AND EQUIPMENT | NOTE 3 — PROPERTY AND EQUIPMENT Property and equipment consist of the following: September 30, 2023 December 31, 2022 Manufacturing equipment $ 3,626,396 $ 2,516,859 Computers and software 1,621,474 1,608,075 Leasehold improvements 822,134 441,956 Furniture — 27,587 6,070,004 4,594,477 Less accumulated depreciation and amortization (2,330,383) (2,190,075) Property and equipment, net $ 3,739,621 $ 2,404,402 Depreciation and amortization expense for property and equipment was $0.4 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $0.6 million and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, the Company disposed of property and equipment of $0.7 million which had an accumulated depreciation and amortization balance of $0.6 million. The resulting $0.1 million loss on disposal is reflected in the condensed consolidated statement of operations as other expense. | NOTE 4 — PROPERTY AND EQUIPMENT On January 1, 2022, the Company adopted ASC 842 for Leases. Adoption of the new standards resulted in a reclassification of $2,349,591 of assets reported as property, plant and equipment prior to adoption, to right of use assets. Property and equipment consisted of the following as of December 31: 2022 2021 Manufacturing equipment $ 2,516,859 $ 4,420,281 Computers and software 1,608,075 1,547,549 Furniture 27,587 27,587 Leasehold Improvements 441,956 295,471 4,594,477 6,290,888 Less: accumulated depreciation (2,190,075) (2,934,293) Total Property and equipment, net $ 2,404,402 $ 3,356,595 Depreciation expense for the |
INVENTORY_2
INVENTORY | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
INVENTORY | ||
INVENTORY | NOTE 4 — INVENTORY Inventory consists of the following: September 30, 2023 December 31, 2022 Raw materials $ 1,509,768 $ 561,726 Work-in-process 140,329 78,219 $ 1,650,097 $ 639,945 The Company did no t have any excess or obsolete inventory reserves at September 30, 2023 and December 31, 2022. | NOTE 5 — INVENTORY Inventory consisted of the following as of December 31: 2022 2021 Raw Materials $ 561,726 $ 323,989 Work in progress 78,219 54,780 $ 639,945 $ 378,769 The company did not have any excess or obsolete inventory reserves as of December 31, 2022 and 2021. |
ACCRUED EXPENSES_2
ACCRUED EXPENSES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
ACCRUED EXPENSES | ||
ACCRUED EXPENSES | NOTE 5 — ACCRUED EXPENSES Accrued expenses consist of the following: September 30, 2023 December 31, 2022 Compensation related accruals $ 3,274,248 $ 2,104,008 Marketing programs 940,930 611,642 Interest 381,595 110,239 Warranty 464,812 269,496 Professional fees 1,873,278 129,169 Inventory purchases and freight 1,242,311 — Other 196,308 481,540 $ 8,373,482 $ 3,706,094 | NOTE 6 — ACCRUED EXPENSES Accrued expenses consisted of the following as of December 31: 2022 2021 Bonus $ 832,918 $ 831,601 Wages 218,974 140,962 Vacation 959,004 569,777 Earned discounts 554,642 499,219 Commission settlement — 274,323 Warranty 269,496 217,244 Other 360,716 264,533 Professional fees 129,169 72,611 Interest 110,239 28,750 401k matching contributions 93,112 100,134 Travel 60,400 — Credit card fees 60,424 34,424 Marketing expenses 57,000 45,000 $ 3,706,094 $ 3,078,578 Commission The Company had an agreement in which it paid commission to an individual for promotional consideration. The agreement required commissions of 15% of sales of the MICRO2 Sleep and Snore Device and the MICRO2 Night Time Orthotic devices. In December 2017, the Company notified this individual that the individual was in material breach of the contract and in 2018, the Company terminated the contract. In January 2019, the Company settled the dispute and agreed to pay the individual $1,600,000. $400,000 was paid in January 2019 and sixteen (16) quarterly payments of $75,000 are required and commenced in April 2019. The Company recorded the net present value of this obligation in these consolidated financial statements totaling $1,284,825 using the Company’s incremental borrowing rate of 15.04% as the originating event for the settlement occurred in 2018. The balance of the remaining settlement totaled $274,323 as of December 31, 2021. There was no outstanding balance on the commission agreement as of December 31, 2022. The payments under this commission agreement, including interest, totaled $300,000 and were paid in full in 2022. Invoice Fee Deferral During 2018 the Company reached an agreement with a vendor allowing the Company to pay less than 100% of the invoiced amounts. Only upon the sale or merger of the Company or upon a public financing would the remaining portion of the invoices become due. As of December 31, 2021, the Company has accrued $291,479, related to the deferred portions. All invoices were paid in full on close of the merger transaction in December 2022. |
LEASES_2
LEASES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
LEASES | ||
LEASES | NOTE 6 — LEASES The Company’s previous corporate office lease had a remaining term of approximately one year as of December 31, 2022. On February 28, 2023, the Company abandoned the previous corporate office premises. There is no new cash inflow generated or expected from the sale or sublease of property and leasehold improvements at the location. The Company recorded an impairment loss of $0.2 million on the right of use (“ROU”) operating lease assets and accrued liabilities of $0.1 million in anticipation of expected common area maintenance payments on the lease through December 31, 2023. The impairment loss and the accrued expenses are reflected as other expense in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023. On May 17, 2022, the Company signed a ten-year lease for the Company’s new corporate headquarters. The lease commenced on December 15, 2022. The monthly payment is approximately $0.1 million and is subject to stated annual escalations. The Company received five months of free rent. The Company’s finance leases consist of various machinery, equipment, computer-related equipment, or software and have remaining terms from less than one year to five years . The components of the Company’s lease cost, weighted average lease terms and discount rates are presented in the tables below: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Lease Cost: Operating lease cost $ 223,304 $ 68,709 $ 711,661 $ 206,126 Finance lease cost: Amortization of assets obtained under finance leases $ 285,251 $ 274,712 $ 681,763 $ 597,904 Interest on lease liabilities 126,880 104,409 282,990 223,263 $ 412,131 $ 379,121 $ 964,753 $ 821,167 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of September 30, 2023 Operating leases 10.0 % 9.3 years Finance leases 10.2 % 3.2 years Nine Months Ended September 30, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 355,060 Operating cash flows from finance leases 246,879 Financing cash flows from finance leases 1,026,701 Right-of-use assets consisted of the following as of September 30, 2023: Total Manufacturing equipment $ 5,237,167 Computers and software 700,234 Leasehold improvements 218,244 Total 6,155,645 Less accumulated amortization (2,623,405) Right-of-use assets for finance leases 3,532,240 Right-of-use assets for operating leases 5,154,399 Total right-of-use assets $ 8,686,639 At September 30, 2023, the following table presents maturities of the Company’s finance lease liabilities: Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 576,315 2024 1,287,461 2025 1,057,500 2026 739,115 2027 192,568 Thereafter 47,300 Total minimum lease payments 3,900,259 Less amount representing interest (563,452) Present value of minimum lease payments 3,336,807 Less current portion (1,109,899) Finance lease obligations, less current portion $ 2,226,908 At September 30, 2023, the following table presents maturities of the Company’s operating lease liabilities: Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 379,887 2024 842,553 2025 867,831 2026 893,862 2027 920,679 Thereafter 4,761,873 Total minimum lease payments 8,666,685 Less: amount representing interest (3,107,847) Present value of minimum lease payments 5,558,838 Less: current portion (290,869) Operating lease liabilities, less current portion $ 5,267,969 | NOTE 7 —LEASES Prior to the adoption of ASC 842, rent expense on operating leases was recognized on a straight-line basis over the term of the lease. In addition, certain of the Company’s operating lease agreements for office space also include rent holidays and scheduled rent escalations during the initial lease term. The Company recorded the rent holidays as deferred rent within other liabilities on the consolidated balance sheets. The Company recognized the deferred rent liability and scheduled rent increase on a straight-line basis into rent expense over the lease term commencing on the date the Company took possession of the leased space. The Company’s previous corporate office lease approximately twelve months Company’s any value covenants. for January On May for Company’s approximately annual approximately The Company provided a $200,000 security deposit, which is recorded in other assets on the accompanying consolidated balance sheet. The Company’s largest investor, at the date of the lease agreement, provided an initial two-year guaranty of $1,700,000 for the benefit of the lessor, followed by a one-year rolling guaranty of the lease performance. The Company can replace the guaranty with a letter of credit for $700,000 . The Company recognized a $5.44 million of right of use operating lease liability for this new lease. Company’s new any value covenants. The Company’s finance leases consist of various machinery, equipment, computer-related equipment, or software and have remaining terms from less than one year to five years . The Company reports assets obtained under finance leases in right-of-use assets and the current and non-current portions of its finance leases on the consolidated balance sheet. During June 2022, two finance leases were extended for an additional ten months . The Company evaluated the terms of the extension and determined that a lease modification occurred. The modification did not meet the requirements to be considered a separate contract. The additional amount of the commitments of approximately $239,000 have been recorded in right-of-use assets and finance lease liabilities on the consolidated balance sheets. The components of the Company’s lease cost, weighted average lease terms and discount rates are presented in the tables below: Year ended December 31, 2022 Lease Cost: Operating lease cost $ 324,929 Finance lease cost: Amortization of assets obtained under finance leases $ 772,870 Interest on lease liabilities 288,969 $ 1,061,839 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of December 31, 2022 Operating leases 10.31 % 9.6 years Finance leases 11.17 % 3.5 years Year ended December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ (159,348) Operating cash flows from finance leases 772,870 Financing cash flows from finance leases (1,222,270) Right-of-use assets obtained in exchange for lease liabilities: Acquisition of ROU assets through operating leases $ 5,435,661 Acquisition of property and equipment through finance leases 2,233,834 Addition of ROU assets from finance lease modification 239,000 $ 2,472,834 Right-of-use assets consisted of the following as of December 31, 2022: Total Manufacturing equipment $ 4,673,617 Computers and software 700,234 Leasehold Improvements 218,244 Total 5,592,095 Less: accumulated amortization (1,941,644) Right-of-use assets for finance leases 3,650,451 Right-of-use assets for operating leases 5,632,771 Total right-of-use assets $ 9,283,222 At December 31, 2022, the following table presents maturities of the Company’s finance lease liabilities: Years ending Total 2023 $ 1,275,119 2024 863,280 2025 785,386 2026 597,933 2027 190,283 Thereafter — Total minimum lease payments 3,712,001 Less amount representing interest (622,004) Present value of minimum lease payments 3,089,997 Less current portion (1,008,587) Finance lease obligations, less current portion $ 2,081,410 At December 31, 2022, the following table presents maturities of the Company’s operating lease liabilities: Years ending December 31, Total 2023 $ 794,619 2024 836,280 2025 861,372 2026 887,208 2027 913,824 Thereafter 4,997,184 Total minimum lease payments 9,290,487 Less: amount representing interest (3,549,882) Present value of minimum lease payments 5,740,605 Less: current portion (215,043) Operating lease liabilities, less current portion $ 5,525,562 Total rent expense for the years ended December 31, 2022 and 2021 ended was $325,683 and $250,495, respectively. |
DEBT_2
DEBT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
DEBT | ||
DEBT | NOTE 7 — DEBT Equipment Financing Obligation The Company’s future principal maturities under the equipment financing obligation are summarized as follows: At September 30, 2023 Total 2023 (remaining three months) $ 13,363 2024 56,995 2025 63,698 2026 64,952 Total principal maturities 199,008 Less: current portion (55,510) Equipment financing obligation, net of current portion $ 143,498 Subordinated Notes The Company received advances under subordinated promissory note agreements for total proceeds of $0.4 million during the nine months ended September 30, 2022. No issuance costs were incurred. Bridge Loans (Unsecured Subordinated Promissory Notes) During the nine months ended September 30, 2022, the Company received proceeds of $5.1 million from unsecured subordinated promissory notes (the “Bridge Loans”). Prior to the closing of our December 2022 merger (the “Business Combination”), the Bridge Loans were converted into Series A Redeemable Convertible Preferred Stock. During March 2022, $0.5 million of the Bridge Loans were repaid. The primary stockholder of the Company was the borrower on this Bridge Loan, and a representative of this primary stockholder is a member of the Company’s board of directors (“Board of Directors”). Convertible Debt Agreements Senior Convertible Notes On December 6, 2022, the Company entered into the Indenture for Senior Secured Convertible Notes due December 6, 2025, dated December 6, 2022 by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association, as trustee and collateral agent (as amended, the “Senior Indenture”), and issued Senior Secured Convertible Notes, due December 6, 2025 (the “Existing Senior Convertible Notes”), with an aggregate principal amount of $16.96 million, pursuant to the senior securities purchase agreement, dated August 26, 2022. In connection with the closing of the offering of the Existing Senior Convertible Notes, the Company issued 36,469 shares of Common Stock and 169,597 warrants (the “Existing Senior Convertible Notes Warrants”) to purchase Common Stock. The Existing Senior Convertible Notes Warrants entitle the note holders to purchase shares of Common Stock, subject to adjustment, at a purchase price per share of $11.50 . The debt bears interest at 9% per annum. Interest is payable in cash quarterly. On June 29, 2023, the Company entered into the First Supplemental Indenture, dated as of June 29, 2023, by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association (the “First Senior Supplemental Indenture”). The First Senior Supplemental Indenture, among other things, (i) effects certain changes to the minimum EBITDA and minimum revenue financial covenants (ii) requires mandatory redemption of the Existing Senior Convertible Notes in consecutive quarterly installments equal to $847,990 in the aggregate on January 1, April 1, July 1 and October 1 of each year, commencing October 1, 2024 , until the earlier of the maturity date of the Existing Senior Convertible Notes or the date the Existing Senior Convertible Notes are no longer outstanding, and (iii) corrects an error in the definition of Conversion Rate. On September 20, 2023, the Company entered into the Second Supplemental Indenture (the “Second Senior Supplemental Indenture”) to the Senior Indenture, by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies , as guarantors, and Wilmington Trust, National Association, as trustee and collateral agent. The Second Senior Supplemental Indenture amends the Senior Indenture to, among other things, permit the sale of the securities underlying the convertible debt (the “Securities”) and the Exchanges. Subordinated Convertible Notes On December 6, 2022, the Company entered into that certain Indenture for Subordinated Secured Convertible Notes due April 6, 2026, dated December 6, 2022 by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association, as trustee and collateral agent (as amended, the “Subordinated Indenture”), and issued the Subordinated Secured Convertible Notes due April 6, 2026 (“Existing Subordinated Convertible Notes” and, together with the Existing Senior Convertible Notes, the “Existing Convertible Notes”), with an aggregate principal amount of approximately $17.45 million, pursuant to the previously disclosed Subordinated Securities Purchase Agreement, dated August 26, 2022. In connection with the closing of the offering, the Company issued 290,244 shares of Common Stock and 1,745,310 warrants (“Subordinated Convertible Notes Warrants” and, together with the Senior Convertible Notes Warrants, the “Convertible Notes Warrants”) to purchase Common Stock to certain Convertible Debt holders. The debt has an interest rate of Prime Rate plus an additional 9% per annum with a term of 3 years . Interest is due quarterly in cash or in kind at the option of the Company. On June 29, 2023, the Company entered into the First Supplemental Indenture, dated as of June 29, 2023, by and among the Company, ProSomnus Holdings and ProSomnus Sleep Technologies, as guarantors, and Wilmington Trust, National Association (the " First Subordinated Supplemental Indenture”) , which, among other things, (i) effects certain changes to the minimum EBITDA and minimum revenue financial covenants and (ii) corrects an error in the definition of Conversion Rate. On September 8, 2023, the Company issued 192,381 shares of Common Stock in connection with a notice of conversion from a holder of the Company’s Subordinated Convertible Notes, pursuant to which such holder irrevocably exercised its right to convert $1,000,000 principal amount. The Company recorded the fair value of the principal amount and accrued interest converted of $0.9 million as Common Stock and additional paid-in capital. On September 20, 2023, the Company entered into the Second Supplemental Indenture (the “Second Subordinated Supplemental Indenture”) to the Subordinated Indenture, pursuant to which the Company issued the Existing Subordinated Convertible Notes. The Second Subordinated Supplemental Indenture amends the Subordinated Indenture to, among other things, permit the sale of the Securities and the Exchanges. Financing Transaction On September 20, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”, and the transactions contemplated by the Securities Purchase Agreement, the “Financing Transaction”) with certain third-party and related party investors (the “Investors”), pursuant to which the Company issued (i) an aggregate of 10,426 shares of the Company’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $10.4 million at a per share purchase price of $1,000 , and (ii) (A) with respect to Investors that held the Existing Convertible Notes, new convertible notes on substantially similar terms to such Noteholder Investor’s Existing Convertible Notes other than that such new notes will be convertible into shares of Common Stock, at a conversion price of $1.00 per share subject to the terms and conditions of the applicable new indenture pursuant to which the applicable series of New Notes have been issued by the Company (the “New Notes”), in exchange for such Noteholder Investor’s portion of the principal amount outstanding of the Existing Notes (the “Exchanges”) pursuant to exchange agreements entered into between the Company and each of the Noteholder Investors (together, the “Exchange Agreements”) and/or (B) warrants to purchase shares of Common Stock at an exercise price of $1.00 per share (such warrants, the “Transaction Warrants”) . The Investors include certain members of the Company’s Board of Directors and certain executive officers of the Company, as well as affiliates and investment vehicles for such persons that held the Company’s Existing Convertible Notes. Convertible Noteholders representing approximately $3.4 million in principal amount of the Senior Convertible Notes and approximately $12.1 million in principal amount of the Subordinated Convertible Notes participated in the Financing Transaction . The Financing Transaction closed on multiple dates: September 20, 2023, September 26, 2023, and October 20, 2023. The exchange of the Existing Convertible Notes, including the entrance into the indentures governing the New Notes, occurred on October 11, 2023. In such Exchanges, the Noteholder Investors received principal amount in the new notes equal to up to 300% of the purchase price paid by such Noteholder Investor to purchase its Series A Preferred Stock. Any proceeds in excess of such amount results in the Noteholder Investors purchasing Transaction Warrants. As a result of the Financing Transaction, in September 2023, the Noteholder Investors effectively contributed an aggregate of $6.4 million of cash to the Company in exchange for 6,376 shares of Series A Preferred Stock, Transaction Warrants exercisable into an aggregate of 1,404,524 shares of Common Stock, and the repricing of the conversion feature of their Convertible Notes, while the other Investors contributed an aggregate of $3.2 million of cash to the Company in exchange for 3,150 shares of Series A Preferred Stock and Transaction Warrants exercisable into an aggregate of 3,150,000 shares of Common Stock. Although exchange of the Convertible Notes did not occur until October 11, 2023, the Company determined that from a legal and accounting standpoint, the debt was modified in September 2023 based on the SPA terms and the receipt of the cash proceeds in connection with the first closing. Prior to the Financing Transaction, the Senior Convertible Notes and Subordinated Convertible Notes had conversion rates of $5.50 and $5.20 per share, respectively. The repricing of the Convertible Notes to $1.00 per share made the conversion features of the Convertible Notes substantive again based on the Company’s stock price as of the Initial Closing. Pursuant to the terms of the Securities Purchase Agreement and the Transaction Warrants, until approval is obtained from the Company’s stockholders, the following limitations apply: ● The Series A Preferred Stock cannot be converted into more than 19.95% of the number of shares of Common Stock outstanding as of the date of the SPA; ● The Transaction Warrants are not exercisable; ● The Series A Preferred Stock held by directors and officers of the Company is not convertible into Common Stock; and ● The New Notes are not convertible at the reduced $1.00 conversion rate. As a condition to the Initial Closing, the Company was required to secure contractual commitments to support the Financing Transaction from greater than 50% of stockholders. The Company secured support from stockholders representing 51.2% of the Common Stock then outstanding. The Company assessed the accounting for the Financing Transaction with the Noteholder Investors and concluded that it does not meet the criteria for a troubled debt restructuring or an induced conversion. The Company next considered if the transaction represents a debt modification or extinguishment and concluded the transaction represents a debt extinguishment in accordance with ASC paragraph 470-50-40-10 as both of the following circumstances apply: a. The transaction resulted in a modification of an embedded conversion option, from which the change in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) is at least 10 percent of the carrying amount of the original debt instrument immediately before the modification or exchange. b. The transaction resulted in a modification or an exchange of debt instruments that adds a substantive conversion option. Accordingly, the Company accounted for the transaction as an extinguishment of the original debt and the recognition of new debt, which is initially measured at its fair value. The fair value of the new debt is used to determine the debt extinguishment gain or loss to be recognized. The Company assessed the classification of the Transaction Warrants issued in connection with the Financing Transaction and determined that the Transaction Warrants are equity classified. As discussed in Note 9, the Company determined that the Series A Preferred Stock is mezzanine classified and therefore should be initially recognized at fair value. The following table summarizes the computation of the loss on debt extinguishment recognized during the three months ended September 30, 2023: Amount Fair value - Senior Convertible Notes (pre-financing) $ 2,456,607 Fair value - Subordinated Convertible Notes (pre-financing) 7,616,902 10,073,509 Less consideration transferred to Noteholder Investors: Fees paid to Noteholder Investors (62,620) Fair value of Series A Preferred Stock (7,807,681) Fair value of warrants (787,250) Fair value of Senior Convertible Notes (post-financing) (3,599,388) Fair value of Subordinated Convertible Notes (post-financing) (13,935,613) (26,192,552) Plus consideration received from Noteholder Investors: Cash 6,376,000 Loss on Debt Extinguishment: ($ 9,743,043) The fair values of the Series A Preferred Stock and Transaction Warrants were determined using the assistance of a third-party valuation specialist and include Level 3 fair value inputs. The significant assumptions used related to the Series A Preferred Stock include a risky yield (risk-adjusted discount rate) of 42.0% , volatility rate of 65.0% , risk free rate of 5.0% , and an estimated exit date of April 2026. The assumptions used related to the Transaction Warrants include an asset price of $0.97 , volatility rate of 65.0% , risk free rate of 4.5% , no dividends, and an expected term of 5.0 years. In respect to the non-Noteholder Investors, the fair value of the consideration transferred was also determined to be greater than the proceeds received. The Company determined that based on the participation level by third-party investors, the transaction does not represent a deemed dividend. As such, the Company recognized a financing loss of $2.5 million which is included in other expense in the consolidated statements of operations. The financing loss is computed as follows: Cash proceeds received $ 3,150,000 Less: fair value of Series A Preferred Stock (3,857,308) Less: fair value of warrants (1,765,607) Other financing expense ($ 2,472,915) The Company incurred $1.5 million of legal and other transaction related costs, of which approximately $0.1 million were deemed to be lender costs and included in the computation of the loss on debt extinguishment. The remaining transaction costs were expensed as other expense in the consolidated statements of operations. Fair Value Election The Company has elected to measure the Convertible Notes, including the New Notes, in their entirety at fair value with changes in fair value recognized as non-operating gain or loss in the consolidated statements of operations (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The estimated fair values of the convertible debt were determined using a Monte Carlo Simulation method. We simulated the stock price using a Geometric Brownian Motion until maturity. For each simulation path we calculated the convertible bond value at maturity and then discount that back to the valuation date. The following assumptions were used as of September 30, 2023 and December 31, 2022: Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of September 30, 2023 Price Yield Volatility Interest Rate Senior Convertible Notes $ 1.04 26.70 % 60 % 4.99 % Subordinated Convertible Notes 1.04 36.10 % 60 % 4.91 % Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80 % 45 % 4.23 % Subordinated Convertible Notes 5.56 41.20 % 45 % 4.19 % The following is a summary of changes in fair value of the Convertible Notes for three and nine months ended September 30, 2023: Senior Convertible Notes Subordinated Convertible Notes Beginning fair value, January 1, 2023 $ 13,651,000 $ 10,355,681 Paid-in-kind interest — 723,699 Change in fair value of debt 827,000 1,000,000 Fair value as of March 31, 2023 14,478,000 12,079,380 Paid-in-kind interest — 793,594 Change in fair value of debt (1,549,596) 2,352,026 Fair value as of June 30, 2023 12,928,404 15,225,000 Paid-in-kind interest — 1,010,814 Conversion of Subordinated — (919,568) Increase in fair value of debt in connection 1,142,781 6,318,711 Change in fair value of debt (784,780) (2,914,956) Ending fair value, September 30, 2023 $ 13,286,405 $ 18,720,000 The Convertible Notes are subject to a minimum revenue, cash, and EBITDA financial covenants. Management believes that the Company is in compliance with all financial covenants as of September 30, 2023. From July 1, 2023, the Convertible Notes require the Company to maintain a minimum cash balance of $4.5 million on the first of each calendar month. | NOTE 8 — DEBT Equipment Financing Obligation Two equipment financing arrangements entered into during 2018 2020 At December 31, 2022, the Company’s future principal maturities under the equipment financing obligation are summarized as follows: Years ending Total 2023 $ 58,973 2024 56,995 2025 63,698 2026 64,952 2027 — Total principal maturities 244,618 Less: current portion (58,973) Equipment financing obligation, net of current portion $ 185,645 Line of Credit The Company entered into a Loan and Security Agreement in 2018 with a financial institution. The balance on the line of credit was paid off at the close of merger transaction, there was no credit available as of the year ended December 31, 2022. The balance of the line of credit was $587,816 at December 31, 2021. Interest expense on the line of credit totaled $247,334 and $135,581 for the years ended December 31, 2022 and 2021, respectively. Subordinated Notes Prior to January 2020, the Company received advances under unsecured subordinated promissory note agreements for gross proceeds of $2,208,299, net of issuance costs of $76,701. The Company received advances under unsecured subordinated promissory note agreements for total proceeds of $375,000 and $2,765,000 during the years ended December 31, 2022 and 2021, respectively. No issuance costs were incurred in 2022 and 2021. These advances are subordinate to the line of credit and Subordinated Loan and Security Agreement. $250,000 and $1,440,000 of these advances were made by the Company’s stockholders, directors, and employees as of December 31, 2022 and 2021, respectively. $50,000 and $1,330,000 of these advances were made by the Company’s customers as of December 31, 2022, and 2021, respectively. Amortization of the issuance costs totaled $18,184 and $18,273 for the years ended December 31, 2022 and 2021, respectively. On May 4, 2022, the Company’s Board of Directors amended the terms of the unsecured subordinated promissory note agreements to provide for the automatic conversion of the outstanding loan amounts (including principal, interest and prepayment and change of control premiums, as well as a 5% equity kicker to incentivize lenders to agree to the amendment) into shares of Series A Redeemable Convertible Preferred Stock of the Company immediately prior to the closing of the merger transaction so that such lenders receive shares of common stock at the closing. Noteholders had the option to elect between two forms of the amendments: 1. Interest is received as a cash payment (“Cash Notes”) and paid on a quarterly basis every January 1, April 1, July 1 and October 1. The annual interest rate on these notes is 15% per annum based on a 360-day year. $750,000 of the proceeds related to the Cash Notes. Interest expense totaled $181,067 (including kickers at closing) and $114,062 for the years ended December 31, 2022 and 2021, respectively, for the Cash Notes. 2. Interest is accrued and added to the principal balance (“PIK Notes”) at the commencement of each new calendar year (January 1). The annual interest rate on these notes is 20% per annum based on a 360-day year. $5,440,000 of the proceeds related to the PIK Notes as of December 31, 2021. Interest expense totaled $2,251,260 (including kickers at closing) and $710,443 for the years ended December 31, 2022 and 2021, respectively, for the PIK Notes. Both the Cash and PIK notes have a prepayment penalty that is calculated on the principal and all accrued but unpaid interest at the following rates: Less than one (1) year from the funding date 3 % One (1) year to less than two (2) years from the funding date 2 % Two (2) years to less than three (3) years from the funding date 1 % A change in control event 5 % All note holders elected to convert the bridge loan into Series A Redeemable Convertible Preferred Stock of the Company immediately prior to the closing of the proposed merger. This Series A Redeemable Convertible Preferred Stock was converted to common stock of ProSomnus on close of the merger transaction. Bridge Loan (Unsecured Subordinated Promissory Notes) During February and March 2022, the Company received proceeds of $3,000,000 from unsecured subordinated promissory notes (the “Bridge Loans”). Interest accrues at 15% per annum, and all accrued but unpaid interest is applied and added quarterly to the principal balance (the “Base Amount”). The maturity date is two years from the date of funding or upon a change in control of the Company. The interest is increased to an amount equal to 103% of the Base Amount if the Bridge Loans are repaid upon the closing of a change of control in the Company. The Bridge Loans are subordinate to the line of credit and Subordinated Loan and Security Agreement. During March 2022, $500,000 of the Bridge Loans were repaid. The primary stockholder of the Company was the borrower on this Bridge Loan, and a representative of this primary stockholder is a member of the Company’s Board of Directors. During April 2022, the Company received proceeds of $150,000 from additional Bridge Loans. On May 4, 2022, the Company’s Board of Directors approved a resolution to amend the terms of the Bridge Loans to grant an additional 5% of the Base Amount (the “Bridge Loan Kicker”) to each bridge lender who exercises its option to convert its bridge loan, which Bridge Loan Kicker will be payable in shares of Series A Redeemable Convertible Preferred Stock so that such exercising lenders will receive shares of common stock issuable at the closing thereof. During May and June 2022, the Company and certain holders of the Bridge Loans executed a conversion addendum. Upon notice of the Business Combination Agreement, the holders of the Bridge Loans had up to 10 days to elect to convert into Series A Redeemable Convertible Preferred Stock. Immediately prior to the closing of the Business Combination, the Bridge Loans will automatically convert into the number of Series A Redeemable Convertible Preferred Stock as equal to the repayment amount of the Bridge Loans divided by the Conversion Price. The Conversion Price is defined as the quotient of the aggregate consideration to be paid to all holders of the Series A Redeemable Convertible Preferred Stock divided by the outstanding number of Series A Redeemable Convertible Preferred Stock, including the shares into which the Bridge Loans convert. Holders of Bridge Loans totaling $2,550,000 who elected to convert into Series A redeemable convertible preferred stock, received common stock of ProSomnus on the close of the merger transaction. As of date of conversion, the aggregate amount due, including interest and Bridge Loan Kickers, was $3,052,065 , amounting to 305,206 shares of Series A Redeemable Convertible Preferred Stock, this was converted into 3,052 shares of common stock. Subordinated Loan and Security Agreement In January 2020, the Company entered into a loan and security agreement with a lender and borrowed $3,800,000 (“SMC Loans”). The loan is subordinate to the line of credit. The loan was secured by substantially all assets of the Company, and contained certain financial and non-financial covenants and had a four-year term. The loan was repayable monthly starting February 2021 at an amount equal to 4% of net revenues of the Company until the Company had paid an amount equal to the return cap of $9,500,000. The return cap was subject to a reduction of 30% if fully repaid within 12 months, 22% if fully repaid within 24 months and 11.85% if fully repaid within 36 months. In April 2021, the Company entered into a second loan and security agreement with the same lender and borrowed $2,000,000 (“SMC Loans”). The loan is subordinate to the line of credit. The loan is secured by substantially all assets of the Company, contains certain financial and non-financial covenants and has a three-year term. The loan is repayable monthly starting February 2021 at an amount initially equal to 1.0526% of net revenues of the Company and increasing to 2.105% in the second year of the agreement, until the Company has paid an amount equal to the return cap of $3,902,800 . The return cap is subject to a reduction of 22% if fully repaid within 12 months and 11.85% if fully repaid within 24 months . During the years ended December 31, 2022 and 2021, the Company made revenue share payments totaling $1,580,019 and $602,637 , respectively. The effective interest rates on the subordinated loan and security agreement ranged from 25.8% - 27.2% and 25.8% - 26.2% for the years ended December 31, 2022 and 2021, respectively. The effective interest rate is adjusted to reflect the actual cash flows paid to date and the revised estimate of future cash flows for revenue share payments. The Company records the impact of the change in the cash flows in the current and future periods. The outstanding balance of the subordinated loan and security agreement was paid off as of December 31, 2022. The outstanding balance of the subordinated loan and security agreement for principal plus accrued interest was $6,589,563 as of December 31, 2021, includes the principal amount of $4,876,496 and accrued interest of $2,681,560 . The prior period presentation of this debt was updated to conform to the current period presentation. As of December 31, 2021, the Company had a compensating balance arrangement under the loan and security agreement which required a minimum cash deposit to be maintained in the amount of $500,000. Bridge Loan (Secured subordinated loan) On June 29, 2022, the Company entered into the Second Amendment and Loan Security Agreement (“Second Amendment”) to the subordinated loan and security agreement effective in April 2021. The Second Amendment established a convertible bridge loan advance of up to $2,000,000 to the Company from the lender (“Convertible Bridge Loan Advance”). The interest rate of the Convertible Bridge Loan Advance is 14% and the maturity date is the earlier of the date of the bridge loan conversion event or June 29, 2023. The bridge loan conversion event is the termination of the Merger Agreement (see Note 3) or the occurrence of any event that would result in the termination of the Merger Agreement as defined in the Merger Agreement. If the bridge loan conversion has not occurred, and the Convertible Bridge Loan Advance is not repaid in full on the maturity date, the default interest will bear an additional 6.0% per annum. Interest is paid in arrears at December 29, 2022 and at the maturity date. Prepayment of the Convertible Bridge Loan Advance is permitted in increments of $100,000 at any time, and the prepayment requires the payment of all accrued and unpaid interest as well as a prepayment premium. The prepayment premium is the incremental amount of interest that would have been paid for the term of the convertible bridge advance, this amount was paid in full on close of the merger transaction. Interest expense from the Bridge Loans was $101,548 for the year ended December 31, 2022. The Company recorded the amendment of the subordinated loan and security agreement in accordance with ASC 470-50, Debt-Modifications and Extinguishments , and recorded a loss on extinguishment of debt of $192,731 in the consolidated statements of operations. Upon the occurrence of a bridge loan conversion event, the bridge loan advance balance is calculated at the amount of the principal outstanding plus a 14% premium and is considered to have been outstanding since the second amendment date of June 29, 2022. Extinguishment of Subordinated Loan and Security Agreement and Bridge Loan (Secured subordinated loan) On December 2, 2022, the Company entered into a Securities Exchange Agreement with holders of the Subordinated Loan and Security agreement and the holders of Convertible Bridge Loan Advance. The Company also executed a payment arrangement with other debt holders on December 6, 2022. The Company agreed to the following key terms and conditions with the holders under these arrangements. - - - of the Subordinated Loan and Security Agreement All the warrants issued pursuant to the subordinated loan and security agreements were exercised immediately prior to the merger transaction. The Company issued 161,112 shares of Series B redeemable preferred stock to the warrant holders as a cashless exercise. This Series A Redeemable Convertible Preferred Stock was converted to common stock on the close of the merger transaction. The Company executed on the above terms and conditions on close of the merger transaction. The in the consolidated statement of operations, a of $2,405,111 for Debt-Modifications and Extinguishments. Paycheck Protection Program Loan The Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). On May 6, 2020, the Company entered into a promissory note evidencing an unsecured loan in the aggregate amount of $1,278,150 made to the Company under the PPP (“PPP Loan 1”). On February 2, 2021, the Company entered into a second unsecured promissory note in the aggregate amount of $1,003,112 made to the Company under the PPP (“PPP Loan 2”). The PPP Loan to the Company was being made through Home Loan Investment Bank FSB. The interest rate on the PPP Loan was 1% and the term was two years. In accordance with the updated Small Business guidance, the PPP Loan was modified so that, beginning ten months from the date of the PPP Loan, the Company was required to make monthly payments of principal and interest. The promissory note evidencing the PPP Loan contained customary events of default relating to, among other things, payment defaults or breaching the terms of the PPP Loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. On June 16, 2021, the Company submitted an application for forgiveness of $1,278,150 due on the PPP Loan 1. On June 30, 2021, the Company was notified that the principal balance of the PPP Loan 1 and accrued interest were fully forgiven. On September 16, 2021, the Company submitted an application for forgiveness of $1,003,112 due on the PPP Loan 2. On September 28, 2021, the Company was notified that the principal balance of the PPP Loan 2 and accrued interest were fully forgiven. As a result, the Company recorded a gain in the amount of $2,281,262 to other income in the consolidated statement of operations during the year ended December 31, 2021. As of December 31, 2022 and 2021, the Company had an outstanding balance of $0 and $0, respectively, under the PPP Loans. Convertible Debt Agreements On August 26, 2022, Lakeshore and ProSomnus entered into definitive agreements with certain investors pursuant to which convertible promissory notes with an aggregate principal funding equal to thirty million dollars ($30,000,000) were to be issued to such investors in a private placement to be consummated immediately prior to the consummation of the Business Combination. Senior Convertible Notes On December 6, 2022, the Company entered into that certain Senior Indenture by and between ProSomnus, Inc., ProSomnus Holdings, ProSomnus Sleep Technologies, and Wilmington Trust, National Association, as Trustee and Collateral Agent, and Senior Secured Convertible Notes Due December 6, 2025 (“Senior Convertible Notes”), with an aggregate principal amount of $16.96 million, pursuant to the previously disclosed Senior Securities Purchase Agreement, dated August 26, 2022. In connection with the closing of this Convertible Debt offering, the Company issued 36,469 shares of common stock and 169,597 warrants (“Convertible Notes warrants”) to purchase common stock. These warrants entitle the Holders to purchase shares of common stock of the Company, subject to adjustment, at a purchase price per share of $11.50. The debt has an interest rate of 9% per annum with a term of 3 years. Subordinated Convertible Notes On December 6, 2022, the Company entered into that certain Subordinated Indenture by and between ProSomnus, Inc., ProSomnus Holdings, ProSomnus Sleep Technologies, and Wilmington Trust, National Association, as Trustee and Collateral Agent, and Subordinated Secured Convertible Notes Due April 6, 2026 (“Subordinated Convertible Notes”), with an aggregate principal amount of $17.45 million, pursuant to the previously disclosed Subordinated Securities Purchase Agreement, dated August 26, 2022. In connection with the closing of this Convertible Debt offering, the Company issued 290,244 shares of common stock and 1,745,310 warrants (“Convertible Notes warrants”) to purchase common stock to certain Convertible Debt holders. The debt has an interest rate of Prime Rate plus an additional 9% per annum with a term of 3 years . The Convertible Notes included the following embedded features: Embedded Feature Nature Description (1) Optional redemption – Election of Company Redemption feature (embedded call option) At any time after the later of (i) the eighteen-month anniversary of the initial issue date and (ii) the date that the Senior Debt is no longer outstanding, if the daily volume weighted-average price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days exceeds $18.00, the Company may redeem a portion of or all of the principal amount (including accrued and unpaid interest) + any liquidated damages and any other amounts due in respect of the Notes redeemable in cash. (2) Mandatory redemption – Events of Default Redemption feature (embedded contingent call option) The Company is required to prepay all of the outstanding principal balance and accrued and unpaid interest upon bankruptcy-related events of default. (3) Lenders’ Optional redemption – Events of Default Redemption feature (embedded contingent call option) Holders of at least 25% aggregate principal amount of the Notes can require the Company to pay all of the outstanding principal balance and accrued and unpaid interest upon any event of default that is not bankruptcy related. (4) Lender’s Optional Conversion Conversion feature At each Lenders’ option, subject to specific conditions, it may convert all or any portion of its Notes at an initial conversion rate of 86.95652173913043, which is reduced (and only reduced) at various dates and subject to certain adjustments to the conversion rate in the case of specified events. If a note is converted, the Company will adjust the conversion rate to account for any accrued and unpaid interest on such note plus any Make-Whole Amount related to such note. (5) Lenders’ Optional Conversion Upon Merger Event Other feature Upon a merger event, Note holders of each $1,000 principal amount of Notes are entitled to convert such notes plus accrued interest, plus the Make-Whole Amount related to the in kind and amount of reference property that a holder of a number of shares of common stock equal to the conversion rate in effect immediately prior to such event would have owned or been entitled to receive upon such event (6) Additional interest rate upon certain non-credit related events Other feature Upon an event of default, additional interest will be incurred. Additional interest will also be incurred if the Notes are not freely tradeable (7) Ability to pay interest in kind (PIK Interest)* Other feature The Company has the election to pay interest in cash or in-kind. *The PIK interest feature was only present in the Subordinated Convertible Note, and not available in the Senior Convertible Notes The Company assessed the embedded features within these Convertible Note and determined the following: o The Optional Redemption feature (1) the Mandatory redemption feature (2) and the Lender’s Optional redemption feature (3) met the definition of a derivative and were not clearly and closely related to the host contract and required separate accounting. Further, the redemption features are settled in cash and would therefore not meet the indexed to equity and equity classification scope exception. Thus, these redemption features were concluded to be embedded derivatives that should be bifurcated from the loan and accounted for separately at fair value on a recurring basis through the income statement. o The Lender’s Optional Conversion feature (4) and the Lender’s Optional Conversion Upon Merger (5) event features also met the definition of a derivative and were not clearly and closely related to the host contract and required separate accounting. The economic characteristics of the Lender’s Optional Conversion feature (4) and the Make Whole premium on Lenders’ Optional Conversion Upon Merger Event (5) were based on fair value of the underlying shares. The settlement amount of the interest make-whole is not indexed to the issuer’s equity but it is based on stated interest cash flows. The Lenders Optional Conversion Upon Merger event feature is contingent on merger event, this exercise contingency is allowable as it is not based on market or an observable index. The company noted that features (4) and (5) did not meet the indexed to equity and equity classification scope exception. Thus, these conversion features were concluded to be embedded derivatives that should be bifurcated from the loan and accounted for separately at fair value on a recurring basis through the consolidated statement of operations. o The additional interest rate upon certain non-credit related events (6) are triggered based on timely filing of financial information and the tradability of the Notes, these are not related to the economic characteristics of debt. Therefore, this feature is not clearly and closely related to the debt host. The additional interest payment is settled in cash and hence did not meet the derivative scope exception. However, since the probability of the Convertibles Notes being freely tradeable or Company’s failure to timely file is estimated to be less than 5%, the company concluded that the fair value of this feature is not material. Thus, even though this additional interest feature was concluded to be embedded derivatives, it will not be fair valued separately. o The ability to pay PIK interest feature is clearly and closely related to the debt, and will not be evaluated separately as a derivative feature. The Company determined the Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, if there is a conversion feature that is required to be bifurcated, the cash conversion feature and beneficial conversion feature guidance is not applicable to such conversion feature and the fair value election is allowable provided the debt was not issued at a substantial premium. As the proceeds received at issuance from these Convertible Notes do not exceed the principal amount that will be paid at maturing, there is no substantial premium. Further, ASC 815-15-25 provides that if an entity has a hybrid financial instrument that would require bifurcation of embedded derivatives under ASC 815, the entity may irrevocably elect to initially and subsequently measure a hybrid financial instrument in its entirety at fair value with changes in fair value recognized in earnings. The Company elected to measure the Senior and Subordinated Convertible Notes in their entirety at fair value with changes in fair value recognized as non-operating gain or loss in the consolidated statement of operations at each balance sheet date in accordance with ASC 815-15-25. The estimated fair value of the convertible note payable was determined using a Monte Carlo Simulation method. We simulated the stock price using a Geometric Brownian Motion until maturity. For each simulation path we calculated the convertible bond value at maturity and then discount that back to the valuation date. Finally, the value of the convertible bond is determined by averaging the discounted cash flows of all the simulated paths. The following assumptions were used as of issuance date of December 6, 2022, and as of December 31, 2022. Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free Convertible Notes Issuance - December 6, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 8.69 30.80% 40% 4.07% Subordinated Convertible Notes 8.69 40.20% 40% 4.01% Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80% 45% 4.23% Subordinated Convertible Notes 5.56 41.20% 45% 4.19% The following is a summary of Fair value of Convertible Notes on issuance and as of December 31, 2022. Convertible Fair Value of Notes as of Fair value of Change in Convertible December 31, Convertible Notes fair value of Notes Convertible Notes 2021 on Issuance Convertible Notes December 31, Senior Convertible Notes $ - $ 14,536,000 $ (885,000) $ 13,651,000 Subordinated Convertible Notes - 10,223,000 (69,000) 10,154,000 The change in fair value was offset by $311,919 of interest accrued on Senior and Subordinated debt and $83,000 of issuance costs. An additional net expense of $5,845 was recorded to change in fair value on account of issuance of warrants and an issue discount on Senior and Subordinated debt, that was offset by a gain in fair value on date of issuance of the Senior and Subordinated debt. |
COMMON STOCK WARRANTS_2
COMMON STOCK WARRANTS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK WARRANTS | ||
COMMON STOCK WARRANTS. | NOTE 8 – COMMON STOCK WARRANTS Estimated Fair Value of Outstanding Warrants Classified as Liabilities The estimated fair value of outstanding warrants classified as liabilities is determined at each consolidated balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recently reported balance sheet date is recorded in the consolidated statements of operations as a change in fair value of warrant liability. The fair value of the outstanding warrants accounted for as liabilities as of September 30, 2023 and December 31, 2022 use Level 3 inputs and are calculated using the Black-Scholes option pricing model with the following assumptions: Exercise Asset Dividend Expected Risk-Free Expected As of September 30, 2023 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 1.04 0 % 65 % 4.70 % 4.18 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 5.56 0 % 40 % 4.00 % 4.93 years The changes in fair value of the outstanding warrants classified as liabilities for the three and nine months ended September 30, 2023, are as follows: Convertible Notes Warrants Warrant liability, January 1, 2023 $ 1,991,503 Change in fair value 842,559 Warrant liability, March 31, 2023 2,834,062 Change in fair value (2,106,398) Warrant liability, June 30, 2023 727,664 Change in fair value (593,621) Warrant liability, September 30, 2023 $ 134,043 As of September 30, 2023 and December 31, 2022, there were 9,151,704 and 4,597,180 equity classified warrants outstanding, respectively. | NOTE 9 – COMMON STOCK WARRANTS As of December 31, 2022, the Company has 6,512,087 warrants outstanding. The exercise price for the warrants is $11.50 per share. An aggregate of 1,914,907 warrants were issued by the Company with issuance of Senior and Subordinated Convertible Notes (See Footnote 8 – Debt). Additionally, 4,597,180 warrants were issued to holders of Lakeshare founder shares, and private and public warrant holders, as a result of the Business Combination, detailed as below: ● At the Closing of the Business Combination, 196,256 Private Placement Warrants held by the Sponsor, each exercisable for one ordinary share of Lakeshore at $11.50 per share, automatically converted into warrants to purchase one share of ProSomnus common stock at $11.50 per share. (Private Warrants) ● At the Closing of the Business Combination, 4,100,239 Public Warrants of Lakeshore, originally issued in the initial public offering of Lakeshore, were converted into 4,100,239 common stock warrants of ProSomnus common stock at $11.50 per share. (Public Warrants) ● Pursuant to Amended and Restated Purchaser Support Agreement dated November 28, 2022 between the Company and Lakeshore, at the closing of the Business Combination, the Company issued an additional 300,685 warrants of the Company’s common stock to founders of Lakeshore at substantively identical terms as the Private Placement warrants and the Public warrants. (Additional Private Warrants) As of December 31, 2021, the Company had an aggregate of 322,223 warrants outstanding. These warrants were issued in connection with the loan and security agreement by the Company. (See Footnote 8 – Debt). The following is a summary of the Company’s warrant activity for the year ended December 31, 2022. Outstanding Outstanding Issuance December 31, December 31, Warrant Issuance Period 2021 Granted Exercised Cancelled 2022 Expiration Convertible Notes Warrants - Senior Debt Dec-22 — 169,597 — — 169,597 Dec-27 Convertible Notes Warrants - Subordinated Debt Dec-22 — 1,745,310 — — 1,745,310 Dec-27 Private Warrants Dec-22 — 196,256 — — 196,256 Dec-27 Public Warrants Dec-22 — 4,100,239 — — 4,100,239 Dec-27 Additional Private Warrants Dec-22 — 300,685 — — 300,685 Jan-30 2021 preferred Series B warrants Jan-20 111,111 — (111,111) — — Apr-30 2020 preferred Series B warrants Apr-21 211,112 — (211,112) — — 322,223 6,512,087 (322,223) — 6,512,087 Warrants classified as Liabilities Warrants in connection with the Loan and Security Agreement In connection with the Loan and Security Agreement, the Company issued a warrant to the lender for the purchase of 211,112 shares of Series B redeemable convertible preferred stock, with an exercise price of $1.80 per share (subject to a valuation cap of $150,000,000 in the event of a liquidation) and a term of ten years (“2020 preferred Series B warrants”). The fair value of the warrant at issuance was $228,000. The fair value of such warrant was estimated using the Black-Scholes Model based on the following weighted average assumptions: redeemable convertible preferred share price on date of grant $1.80, expected dividend yield 0%, expected volatility 26%, risk-free interest rate 0.93% and expected life of ten years. In connection with the second loan and security agreement, the Company issued warrants to the lender for the purchase of 111,111 shares of Series B redeemable convertible preferred stock, with an exercise price of $1.80 per share (subject to a valuation cap of $150,000,000 in the event of a liquidation) and a term of ten years (“2021 preferred Series B warrants”). The fair value of the warrant at issuance was $143,333. The fair value of such warrant was estimated using the Black-Scholes Model based on the following weighted average assumptions: redeemable convertible preferred share price on date of grant $1.80, expected dividend yield 0%, expected volatility 27%, risk-free interest rate 1.73% and expected life of ten years. The fair value of warrants was recorded within noncurrent liabilities as a debt discount and a warrant liability, with changes in fair value recognized in the consolidated statements of operations. During the years ended December 31, 2022 and 2021, the Company recognized interest expense of $47,046 and $89,750, respectively, upon amortization of the debt discounts. There was no balance of the debt discount as of December 31, 2022. The debt discount at December 31, 2021 was $242,277. All of the warrants issued pursuant to these loan and security agreements were exercised immediately prior to the merger transaction. The Company issued 161,112 shares of Series B redeemable preferred stock to the warrant holders in a cashless exercise. The Series A Redeemable Convertible Preferred Stock was converted to common stock of ProSomnus on close of the merger transaction. Convertible Notes Warrants In connection with closing of the Senior Convertible notes offering, the Company issued 169,597 warrants to purchase common stock. These warrants entitle the holders to purchase shares of common stock of the Company, subject to adjustment, at a purchase price per share of $11.50 and have a term of five years. Further, in connection with the closing of Subordinated Convertible notes offering, 1,745,310 warrants to purchase common stock to the Convertible Notes holders. These warrants entitle the Holders to purchase shares of common stock of the Company, subject to adjustment, at a purchase price per share of $11.50 and have a term of five years. The Convertible Notes Warrants were classified as a derivative liability because the settlement provisions for the warrants contain adjustments to the settlement amount that do not meet the fixed-for-fixed test, thus these did not qualify as being indexed to the Company’s own common stock and are measured at fair value on a recurring basis. The aggregate fair value of these warrants at issuance was $5,246,845. Estimated Fair Value of Outstanding Warrants Classified as Liabilities The estimated fair value of outstanding warrants classified as liabilities is determined at each consolidated balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent consolidated balance sheet date is recorded in the consolidated statements of operations as a change in fair value of warrant liability. The fair value of the outstanding warrants accounted for as liabilities as of December 6, 2022, December 31, 2022 and December 31, 2021 are calculated using the Black-Scholes option pricing model with the following assumptions: Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of Issuance date - December 6, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 8.69 0% 40% 3.70% 5.00 years Convertible Notes Warrants - Subordinated Debt 11.50 8.69 0% 40% 3.70% 5.00 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 5.56 0% 40% 4.00% 4.93 years Convertible Notes Warrants - Subordinated Debt 11.50 5.56 0% 40% 4.00% 4.93 years Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2021 Price Price Yield Volatility Interest Rate Life 2021 preferred Series B warrants $ 1.80 $ 2.89 0% 20% 1.52% 9.26 years 2020 preferred Series B warrants 1.80 2.89 0% 20% 1.52% 8.10 years Warrants Classified as Equity Private warrants, Public warrants and Additional Private warrants Certain warrants are classified as equity instruments since they do not meet the characteristics of a liability or a derivative and are recorded at fair value on the date of issuance using the Black-Scholes option pricing model. The fair value as determined at the issuance date is recorded as an issuance cost of the related stock. At close of Business Combination, the Company issued an aggregate of 4,597,180 warrants to holders of Lakeshare founder shares, and to the private and public warrant holders, as a result of the Reincorporation Merger and the Business Combination agreements. The Public and Private warrants were issued in June 2021, pursuant to the initial public offering of Lakeshore; each warrant was exercisable for one ordinary share of Lakeshore at $11.50 per share. These automatically converted into warrants to purchase one share of ProSomnus common stock at $11.50 per share on consummation of the Business Combination with an expiry of 5 years, redeemable at $18.00 per share redemption trigger price. ASC 815-10-15-74(a) provides a scope exception from Derivative Accounting Contracts issued or held by that reporting entity that are both: 1. Indexed to its own stock (see Section 815-40-15) 2. Classified in stockholders’ equity in its statement of financial position (see Section 815-40-25). The Company has concluded that the Warrants meet the derivative scope exception in 815-10-15-74(a) as the Warrants are both indexed to the Company’s own stock, and meet the equity classification conditions within ASC 815-40-25. These warrants have been classified as Equity and recorded to additional paid in capital at the grant date fair value on date of issuance. The aggregate fair value of these warrants at issuance was $666,600. The fair value of such warrant was estimated using observable market inputs, the closing price of Lakeshore public warrants was $0.145 as of December 6, 2022. The changes in fair value of the outstanding warrants classified as liabilities for the year ended December 31, 2022 and 2021 were as follows: Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2021 granted exercised warrants 2022 Convertible Notes Warrants - Senior Debt $ - $ 464,696 $ - $ (288,315) $ 176,381 Convertible Notes Warrants - Subordinated Debt - 4,782,149 - (2,967,027) 1,815,122 2020 preferred Series B warrants and 2021 preferred Series B warrants 562,244 - (580,000) 17,756 - Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2020 granted exercised warrants 2021 2020 preferred Series B warrants and 2021 preferred Series B warrants $ 228,000 $ 143,333 $ — $ 190,911 $ 562,244 There were 4,597,180 equity classified warrants granted during the year ended December 31, 2022. |
FAIR VALUE
FAIR VALUE | 12 Months Ended |
Dec. 31, 2022 | |
FAIR VALUE | |
FAIR VALUE | NOTE 10 – FAIR VALUE At December 31, 2022 and 2021, the warrants related to the Senior and Subordinated convertible notes, warrant liability and the Earnout liability are classified within Level 3 of the valuation hierarchy. (See Footnote 8 – Debt for change in fair value of Senior and Subordinated convertible notes and Footnote 7 – Common Stock warrants for change in fair value of warrants). The following tables provide a summary of the financial instruments that are measured at fair value on a recurring basis as of December 31, 2022 and 2021: December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earn-out liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 December 31, 2021 Fair Value Level 1 Level 2 Level 3 Warrant liability $ 562,244 $ — $ — $ 562,244 A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. |
COMMON STOCK_2
COMMON STOCK | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK | ||
COMMON STOCK | NOTE 10 – COMMON STOCK The Company has reserved shares of Common Stock for the following as of September 30, 2023: 2022 Equity Incentive Plan reserve 2,411,283 Reserve for earn-out shares 3,000,000 Reserve for exercise of warrants 12,014,300 Reserve for convertible debt 18,945,919 Employee stock purchase plan 500,000 Total 36,871,502 | NOTE 11 – COMMON STOCK The Company was authorized to issue up to 101,000,000 shares of all classes of stock at a par value of $0.0001 per share as of December 31, 2022. The Company was authorized to issue 36,038,535 shares of all classes of common stock at a par value of $0.0001 per share as of December 31, 2021. At December 31, 2022 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Common Stock* 100,000,000 16,041,464 $ — Preferred Stock 1,000,000 — - Total 101,000,000 16,041,464 $ — *excludes shares issued as an ‘Escrow Reserve’ At December 31, 2021 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Series A 30,415,100 20,179,645 $ 5,355,678 Series B 1,675,600 1,673,092 977,755 Series C 3,947,835 2,713,649 1,192,377 Total 36,038,535 24,566,386 $ 7,525,810 *Represents fully vested Series C Shares The Company has reserved shares of Common Stock for the following as of December 31, 2022: 2022 Equity Incentive Plan reserve 2,411,283 Reserve for Earn-out shares 3,000,000 Reserve for exercise of Public Warrants 4,100,250 Reserve for exercise of Private Warrants 496,941 Total 10,008,474 Immediately following the Business Combination there were 16,041,464 shares of Common stock with a par value of $0.0001 issued and outstanding |
REDEEMABLE CONVERTIBLE PREFER_3
REDEEMABLE CONVERTIBLE PREFERRED STOCK | 12 Months Ended |
Dec. 31, 2022 | |
REDEEMABLE CONVERTIBLE PREFERRED STOCK | |
REDEEMABLE CONVERTIBLE PREFERRED STOCK | NOTE 12 — REDEEMABLE CONVERTIBLE PREFERRED STOCK During May and December 2022, the Board approved the issuance of an aggregate of 5,945 shares, respectively, of Series A Redeemable Convertible Preferred Stock to certain employees of the Company for no cash consideration but in exchange for their services as members of the Company’s management. The Company recorded stock compensation expense of related to these awards. The Company calculated the grant date fair value of the awards using the valuations prepared by an independent third-party valuation firm, which were approved by the Board or the issuance price of In connection with the Business Combination, the ProSomnus common and redeemable convertible preferred stockholders received 11,300,000 shares of Surviving Pubco common stock as Merger Consideration. As of December 31, 2022, there were no outstanding Series A and B Redeemable Convertible Preferred Stock of the Company. These original holders of such common and redeemable preferred stock also received a contingent right to receive Earn-Out Shares as set forth in the Merger Agreement. See Footnote 13 – Earn-Out Shares. At December 31, 2021, the redeemable convertible preferred stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding amount Series B Redeemable Convertible Preferred Stock 7,610,700 7,288,333 $ 26,237,999 Series A Redeemable Convertible Preferred Stock 26,250 26,245 26,245,000 Total 7,636,950 7,314,578 $ 52,482,999 The Company was authorized to issue 7,636,950 shares of all classes of preferred stock at a par value of $0.0001 per share as of December 31, 2021. |
EARN-OUT SHARES_2
EARN-OUT SHARES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
EARN-OUT SHARES | ||
EARN-OUT SHARES | NOTE 11 - EARN-OUT SHARES In connection with the Business Combination, certain of the Company’s original stockholders are entitled to receive up to 3,000,000 Earn-out shares in three tranches: (1) the first tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of the Company’s Common Stock is $12.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; (2) the second tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of the Company’s Common Stock is $15.00 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; and · (3) the third tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of the Company’s Common Stock is $17.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing. The Earn-out shares will be allocated among the Company’s stockholders in proportion to the number of shares issued to them at the closing that continue to be held by them. Due to the variability in the number of Earn-out shares at settlement which could change upon a control event, the Earn-out arrangement contains a settlement provision that violates the indexation guidance under ASC 815-40 and liability classification is required. The Company recorded the earnout liability initially at fair value, and subsequently remeasures the liability with changes in fair value recorded in the consolidated statement of operations at each reporting period. The changes in fair value of the earnout liability for the three and nine months ended September 30, 2023 are as follows: Earnout Liability Earnout liability, January 1, 2023 $ 12,810,000 Change in fair value (1,500,000) Earnout liability, March 31, 2023 11,310,000 Change in fair value (6,700,000) Earnout liability, June 30, 2023 4,610,000 Change in fair value (3,880,000) Earnout liability, September 30, 2023 $ 730,000 | NOTE 13 - EARN-OUT SHARES In connection with the Business Combination, certain of the Company’s original stockholders are entitled to receive up to 3,000,000 Earn-out shares in three tranches: (1) the first tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of PubCo common stock is $12.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; (2) the second tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of PubCo common stock is $15.00 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing; and (3) the third tranche of 1,000,000 Earn-out shares will be issued when the volume-weighted average price per share of PubCo common stock is $17.50 or greater for 20 trading days in any consecutive 30 trading day period commencing 6 months after the Closing and ending at the third anniversary of the Closing. The Earn-out shares will be allocated among the Company’s stockholders in proportion to the number of shares issued to them at the closing that continue to be held by them. Due to the variability in the number of Earn-out shares at settlement which could change upon a control event, the Earn-out arrangement contains a settlement provision that violates the indexation guidance under ASC 815-40 and liability classification is required. The Company recorded the earnout liability initially at fair value, and will subsequently remeasure the liability with changes in fair value recorded in the consolidated statement of operations. The Company recorded an Earn-out liability of $22.07 million at issuance and a subsequent expense for change in fair value of Earn-out liability of $9.26 million as of December 31, 2022. The Earn-out liability as of December 31, 2022, was $12.81 million. |
STOCK-BASED COMPENSATION_2
STOCK-BASED COMPENSATION | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
STOCK-BASED COMPENSATION | ||
STOCK-BASED COMPENSATION | NOTE 12 — STOCK-BASED COMPENSATION During May 2023, the Company issued 20,000 shares of Common Stock to a consultant for services received. The fair value of the shares issued of $0.2 million was recognized as a selling, general and administrative expense with a corresponding credit to additional paid-in capital. As of September 30, 2023, the Company has 339,000 shares of Common Stock in escrow for any merger consideration adjustments which are expected to be released from escrow within twelve months from the date of the Business Combination . 2022 Equity Incentive Plan During the nine months ended September 30, 2023, the Company granted 1,478,915 options under the 2022 Equity Incentive plan to certain employees and consultants of the Company. Stock option activity for the nine months ended September 30, 2023 was as follows: Weighted-Average Weighted-Average Remaining Aggregate Shares Exercise Price Contractual Term Intrinsic Value Outstanding at January 1, 2023 — $ — Granted 1,478,915 5.20 Exercised — — Cancelled (98,232) 5.20 Outstanding at September 30, 2023 1,380,683 $ 5.20 9.34 years $ — Exercisable at September 30, 2023 — — — — Vested and expected to vest as of September 30, 2023 1,380,683 $ 5.20 9.34 years $ — As of September 30, 2023, and December 31, 2022, there were no exercisable or vested options. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2023, was $2.91 . The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of the stock options was estimated using the following weighted average assumptions: Nine Months Ended September 30, 2023 Dividend yield 0.0% Expected volatility 55.0% Risk-free interest rate 3.6% Expected life 6.2 years Dividend Rate —The expected dividend rate was assumed to be zero , as the Company had no t previously paid dividends on Common Stock and has no current plans to do so. Expected Volatility —The expected volatility was derived from the historical stock volatilities of several public companies within the Company’s industry that the Company considers to be comparable to the business over a period equivalent to the expected term of the stock option grants. Risk-Free Interest Rate —The risk-free interest rate is based on the interest yield in effect at the date of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term. Expected Term —The expected term represents the period that the Company’s stock options are expected to be outstanding. The expected term of option grants that are considered to be “plain vanilla” are determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. For other option grants not considered to be “plain vanilla,” the Company determined the expected term to be the contractual life of the options. Forfeiture Rate —The Company recognizes forfeitures as they occur. The Company has recorded stock-based compensation expense for the three and nine months ended September 30, 2023 related to the grants of stock option awards to employees and nonemployees in the condensed consolidated statement of operations as follows: Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 Cost of revenue $ 4,478 $ 11,940 Sales and marketing 21,158 87,324 Research and development 52,453 164,260 General and administrative 68,507 452,669 $ 146,596 $ 716,193 As of September 30, 2023, unamortized compensation expense related to unvested stock options was $3.3 million, which is expected to be recognized over a weighted average period of 3.3 years. 2023 Employee Stock Purchase Plan The Company’s Board of Directors previously adopted, and the Company's stockholders approved, the Company’s 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of shares of the Company’s Common Stock at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 500,000 shares of Common Stock were available for purchase at adoption of the 2023 ESPP. The first offering period under the plan commenced on June 15, 2023 . There were no shares issued under the plan for the nine months ended September 30, 2023. As of September 30, 2023, 500,000 shares of Common Stock remained available for issuance under the 2023 ESPP. The Company estimates the fair value of ESPP grants on their grant date using the Black-Scholes option pricing model. The estimated fair value of ESPP grants is amortized on a straight-line basis over the requisite service period of the grants. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The Company utilizes its estimated volatility in the Black-Scholes option pricing model to determine the fair value of ESPP grants. ESPP compensation expense for the nine months ended September 30, 2023, was de minimis. | NOTE 14 — STOCK-BASED COMPENSATION The Company issued 65,000 shares of restricted common C shares with a four A summary of non-vested restricted common C shares as of December 31, 2022, and changes during the year then ended is presented below: Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2021 912,692 $ 0.01 Granted — — Vested (854,507) 0.01 Forfeited (58,185) 0.02 Non-vested restricted common C shares as of December 31, 2022 — — A summary of non-vested restricted common C shares as of December 31, 2021, and changes during the year then ended is presented below: Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2020 1,370,391 $ 0.01 Granted 65,000 0.08 Vested (381,689) 0.01 Forfeited (141,010) 0.02 Non-vested restricted common C shares as of December 31, 2021(1) 912,692 0.01 (1) As of December 31, 2021, there was $10,949 of total unrecognized compensation cost related to non- vested restricted common C shares that is expected to be recognized over a weighted-average period of 1.98 years. The estimated forfeiture rate for restricted common C share was 0% as of December 31, 2021. The fair value of the 381,689 shares that vested during the year ended December 31, 2021, was approximately $4,100 . Total stock compensation expense for the years ended December 31, 2022 and 2021 was $2,156,915 and $4,712 , respectively. Stock compensation expense related to the restricted common C shares was 31, 2022 and 2021, respectively. Stock compensation expense related to the issuance of Series A Redeemable Convertible Preferred Stock to certain employees was for the years ended December 31, 2022 and 2021, respectively. (See Note 12 – Redeemable Convertible Preferred Stock.) For the year ended December 31, 2021, and until immediately prior to the Merger transaction, the fair values of the shares of the Company’s restricted common C stock were estimated on each grant date by the board of directors. In order to determine the fair value, the then board of directors considered, among other things, valuations prepared by an independent third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The fair value of the Company’s restricted common C stock was estimated using a two-step process. First, the Company’s enterprise value was established using generally accepted valuation methodologies, such as guideline public company and guideline company transactions. The enterprise value was allocated among the securities that comprise the capital structure of the Company using the option-pricing method. The option-pricing method treats all levels of the capital structure as call options on the enterprise’s value, with exercise price based on the “breakpoints” between each of the different claims on the securities. The inputs necessary for the option-pricing model include the current equity value (the enterprise value as previously calculated), breakpoints (the various characteristics for each class of equity, including liquidation preferences and priority distributions, in accordance with the Company’s certificate of incorporation, as amended and restated), term, risk-free rate, and volatility. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2022 | |
INCOME TAXES | |
INCOME TAXES | NOTE 15 — INCOME TAXES The current tax expense for the years ended December 31, 2022 and 2021 was $6,480 and $7,652, respectively, which have been included in general and administrative expenses in the consolidated statements of operations. These amounts consisted of state and franchise tax expense. A reconciliation of the federal income tax rate to the Company’s effective tax rate as of December 31 is as follows: 2022 2021 Statutory federal income tax rate 21.0 % 21.0 % State taxes, net of federal tax benefit 24.7 % 8.0 % PPP loan forgiveness — % 8.0 % Stock Compensation (6.3) % — % Transaction Costs 7.4 % — % Change in FV Earnout Liab 27.2 % — % Change in FV of Debt 31.2 % — % Change in Warrant Liability 9.5 % — % Other Permanent Differences (0.3) % (0.5) % Change in valuation allowance (114.4) % (36.5) % Income tax provision — % — % The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 related to the following: 2022 2021 Deferred tax assets Net operating losses $ 17,847,721 $ 13,497,030 Reserve and accruals 619,236 554,632 OID Amortization 1,184,396 — Debt Extinguishment Amortization 645,511 — Debt-Related Warrants 1,408,206 Capitalized R&D 557,589 — Lease Liability 1,540,727 — Other 1,388 1,792 Total deferred tax assets 23,804,774 14,053,454 Deferred tax liabilities Depreciation and amortization (270,747) (200,998) Right of Use Asset (1,511,786) — Total deferred tax liabilities (1,782,533) (200,998) Net deferred tax assets 22,022,241 13,852,456 Valuation Allowance (22,022,241) (13,852,456) Net deferred tax asset $ — $ — Realization of deferred tax assets is dependent upon future pretax earnings, the reversal of temporary differences between book and tax income, and the expected tax rates in future periods. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed “more-likely-than-not” to be realized. The Company has recorded a full valuation allowance as of December 31,2022 and December 31, 2021. The change in the valuation allowance was an increase of $8,168,552 and $2,184,631 for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $70,812,501 and $43,017,282, respectively. Of the $70,812,501 of net operating loss carryforwards for federal purposes, $35,193,226 have an unlimited carry-forward period. The remaining federal carryforwards begin to expire in 2028 while the state carryforwards begin to expire in 2036. The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (“IRC Section 382”). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions. A detailed analysis to determine whether an ownership change under Section 382 has not been performed recently to determine if there is any limitation on the utilization of the company’s net operating losses. The Company performed a Section 382 analysis in 2017 and identified a change in ownership during 2017 and therefore a limitation in the ability to utilize the existing NOLs. The calculated limitation was $44 million, and the DTA was reduced by the amount of the limitation that the Company will not be able to utilize in future tax periods. An updated Section 382 study has not been completed through December 31, 2022, and there has not been a determination if there is a cumulative ownership change of more than 50% during the most recent three-year period. The effect of a further Section 382 limitation on the provision and this disclosure is immaterial due to the full valuation allowance against all deferred tax assets, including NOLs, as of December 31, 2022. The Company estimates that there will be no material changes in its uncertain tax positions in the next 12 months. In accordance with FASB ASC 740, the Company has adopted the accounting policy that interest and penalties recognized are classified as part of its income taxes. Total interest and penalties recognized in the consolidated statement of operations was $0 for the years ended December 31, 2022 and 2021. The Company files income tax returns in the US federal, various state, and foreign jurisdictions with varying statutes of limitations. The Company is generally no longer subject to tax examinations for years prior to 2019 for federal purposes and 2018 for state purposes, except in certain limited circumstances. The Company’s NOL and credit carryforwards from all years may be subject to adjustment for three four |
POST-RETIREMENT BENEFITS
POST-RETIREMENT BENEFITS | 12 Months Ended |
Dec. 31, 2022 | |
POST-RETIREMENT BENEFITS | |
POST-RETIREMENT BENEFITS | NOTE 16 — POST-RETIREMENT BENEFITS The Company offers a 401(k) plan to employees and has historically matched employee contributions to the plan up to 3% of the employee’s salary. The matching contributions accrued for the years ended December 31, 2022 and 2021 were $93,112 and $100,134, respectively. |
NET LOSS ATTRIBUTABLE TO COMM_5
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | NOTE 13 — NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS The following table sets forth the computation of the basic and diluted net loss per share attributable to Common Stockholders for the three and nine months ended September 30, 2023: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net loss attributable to Common Stockholders $ (11,238,803) $ (3,548,962) $ (17,226,044) $ (9,353,340) Denominator: Weighted-average common shares outstanding 16,115,254 24,713,218 16,071,719 24,611,666 Net loss per share attributable to Common Stockholders, basic and diluted $ (0.70) $ (0.14) $ (1.07) $ (0.38) * Basic and diluted weighted-average common shares outstanding for the three and nine months ended September 30, 2022, have been computed based on the historical weighted-average common shares outstanding multiplied by the exchange ratio established in the Business Combination. The potential shares of Common Stock that were excluded from the computation of diluted net loss per share attributable to Common Stockholders for the three and nine months ended September 30, 2023 and 2022 because including them would have been antidilutive are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Common Stock upon conversion of redeemable convertible preferred stock A — 4,214,422 — 4,214,422 Common Stock upon conversion of redeemable convertible preferred stock B — 7,288,333 — 7,288,333 Non-vested shares of Series C common stock — 638,972 — 638,972 Warrants to purchase redeemable convertible preferred stock B, as-converted — 322,223 — 322,223 Series A Preferred Stock 9,526,000 — 9,526,000 — Warrants to purchase Common Stock 11,066,611 — 11,066,611 — Options to purchase Common Stock 1,465,817 — 1,465,817 — Senior Convertible Notes 5,858,842 — 5,858,842 — Subordinated Convertible Notes 13,032,835 — 13,032,835 — Total 40,950,105 12,463,950 40,950,105 12,463,950 In October 2023, in connection with the third closing of the Financing Transaction (see Note 7), the Company issued 900 shares of Series A Preferred Stock and warrants that will be exercisable to purchase 900,000 shares of Common Stock to a Noteholder Investor in exchange for cash consideration of $900,000 . | NOTE 17 — NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders during the years ended December 31: 2022 2021 Numerator: Net loss attributable to common stockholders $ (7,145,320) $ (5,977,407) Denominator: Weighted-average common shares outstanding 10,021,632 3,957,783 Net loss per share attributable to common stockholders, basic and diluted $ (0.71) $ (1.51) The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the years ended December 31, 2022 and 2021 because including them would have been antidilutive are as follows: 2022 2021 Series A common stock upon conversion of redeemable convertible preferred stock A — 4,214,422 Series A common stock upon conversion of redeemable convertible preferred stock B — 7,288,333 Non-vested shares of Series C common stock — 912,692 Senior and Subordinated Convertible Notes 3,179,410 — Shares subject to warrants to purchase common stock 6,512,087 322,223 Total 9,691,497 12,737,670 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2022 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 18 — SUBSEQUENT EVENTS No subsequent event which had a material impact on the Company was identified through the date of issuance of the financial statements. |
BASIS OF ACCOUNTING AND SIGNI_7
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | ||
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and in conjunction with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 14, 2023. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any future periods. The condensed consolidated balance sheet as of December 31, 2022, has been derived from audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. | Basis of Presentation The accompanying consolidated financial statements were prepared on the accrual basis of accounting in accordance with principles generally accepted in the United States of America (“U.S. GAAP”). |
Principles of Consolidation | Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. | Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. |
Liquidity and Management's Plans | Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. The Company expects operating losses and negative cash flows from operations to continue for the foreseeable future. The Company’s ability to continue as a going concern depends on its ability to execute on its plans to achieve revenue growth forecast, control operating costs, and obtain additional financing. The Company has developed a cash flow breakeven plan pursuant to which the Company expects to maintain positive cash balances and compliance with its debt covenants and commitments. The Company has commenced the implementation of its plan and believes the plan, when fully implemented as planned, will mitigate the liquidity risks identified. However, the Company’s operating plan may change as a result of many factors currently unknown and there can be no assurance that the current operating plan or cash flow break even plan will be achieved in the time frame anticipated by the Company. Furthermore, there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis or at all. Based on the Company’s current level of expenditures and management’s future cash flow projections, the Company believes its cash and cash equivalents of $12.0 million and working capital of $6.1 million at September 30, 2023, may not be sufficient for the Company to continue operations as a going concern for at least one year from the issuance date of these condensed consolidated financial statements. Additionally, from July 1, 2023, the Convertible Notes (as defined in Note 7) require the Company to maintain a minimum cash balance of $4.5 million on the first of each calendar month. The Company believes that without the successful and full implementation of its cash flow breakeven plan, these factors raise substantial doubt about its ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. | Liquidity and Management’s Plans The Company has incurred recurring losses from operations and recurring negative cash flows from operating activities. At December 31, 2022, the Company had a working capital of $14.2 million and cash and cash equivalents of $15.9 million. The Company expects to continue to incur net losses for the foreseeable future as it continues the development of its products. On December 6, 2022, on consummation of the Business Combination, we received $4.92 million of cash held in Lakeshore’s trust account from its initial public offering, $10.25 million of cash in connection with the PIPE Equity financing and approximately $30 million in proceeds from the Convertible Notes offering. These proceeds were used to pay transaction expenses and other liabilities of Lakeshore, pay certain transaction expenses of ProSomnus, and pay off approximately $11.53 million in debt of ProSomnus at closing, with the remaining being deposited in ProSomnus’ cash account. Based on cash flow projections from operating and financing activities and existing balance of cash and cash equivalents and investments, management is of the opinion that the Company has sufficient funds for sustainable operations, and it will be able to meet its payment obligations from operations and debt related commitments for at least one year from the issuance date of these financial statements. Based on the above considerations, the Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations. The Company’s ability to continue as a going concern is dependent on management’s ability to control operating costs and maintain revenue growth forecast. Management believes there is not substantial doubt about the ability of the Company to meet its obligations and operations for twelve months after the issuance of the consolidated financial statements. |
Use of Estimates | Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s significant estimates in these condensed consolidated financial statements relate to the fair values, and the underlying assumptions used to formulate such fair values, of its Series A Preferred Stock, Convertible Notes, earn-out liability, and warrants. Estimates also include the allowance for doubtful accounts receivable, warranty and earned discount accruals, measurements of tax assets and liabilities and stock-based compensation. | Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could materially affect the results of operations reported in future periods. The Company’s most significant estimates in these consolidated financial statements relate to the fair value of Senior and Subordinated convertible notes, fair value of Earnout liability, fair value of warrants, provision for doubtful accounts receivable, the warranty and earned discount accruals, future revenue estimates used to calculate the current and long-term portions due under the subordinated loan agreement, the effective interest rates of the subordinated loan agreement, measurement of tax assets and liabilities and stock-based compensation. |
Concentrations of Credit Risk | Concentrations of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of accounts receivable and cash. The Company sells its products to customers primarily in North America and Europe. To reduce credit risk, management performs periodic credit evaluations of its customers’ financial condition. No customers exceeded more than 10% of the Company’s revenue or accounts receivables as of and for the years ended December 31, 2022 and 2021. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Company believes its credit risk is mitigated due to the high quality of the banks in which it places its deposits. | |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — The valuation is based on quoted prices in active markets for identical instrument. Level 2 Inputs — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model — based valuation techniques for which all significant assumptions are observable in the market. Level 3 Inputs — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company’s financial instruments consist primarily of cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable and accrued expenses, long-term debt instruments, earnout and warrant liabilities. The carrying values of our working capital balances are representative of their fair values due to their short-term maturities. The carrying value of our equipment financing obligation is considered to approximate its fair value because the interest rate is comparable to current rates for financing available to us. Under the fair value option as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments , we have elected to record our convertible debt instruments at fair value. The earnout and warrant liabilities are presented at fair value on the condensed consolidated balance sheets. The following tables provide a summary of the financial instruments that are measured at fair value on a recurring basis: September 30, 2023 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,286,405 $ — $ — $ 13,286,405 Subordinated Convertible Notes 18,720,000 — — 18,720,000 Earnout liability 730,000 — — 730,000 Warrant liability 134,043 — — 134,043 December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earnout liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. | Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 Inputs — Level 2 Inputs — Level 3 Inputs — no 3 Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. Change in Fair Value of Senior and Subordinated Convertible Notes Under the fair value election as prescribed by ASC 815, the Company will record changes in fair value through the consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period, with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable. The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the consolidated statement of operations. As a result of the merger transaction, the company assumed an Earn-out liability, which is remeasured each reporting period. Given the unobservable nature of the inputs, the fair value measurement of the deferred earn-out is deemed to use Level 3 inputs. The Earn-out liability was accounted for as a liability as of the date of the merger transaction and will be remeasured to fair value until the Earnout Triggering Events are met. The Company believes the carrying amounts of financial instruments including cash and cash equivalents, accounts receivable (net of allowance for doubtful accounts), accounts payable, and revolving line of credit approximate fair value due to their short-term nature. |
Comprehensive Income | Comprehensive Income Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It consists of net income and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net income. Comprehensive income is equal to the net income for the years ended December 31, 2022 and 2021. | |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of September 30, 2023, and December 31, 2022, the Company had $12.0 million and $15.9 million of cash an d no cash equivalents, respectively, which includes restricted cash of $0.7 million at September 30 , 2023 consisting of a letter of credit on hand w ith the Compan y' s financial institution as collateral for an office lease. | Cash and Cash Equivalents The company considers all demand deposits with an original maturity to the Company of 90 days or less as cash and cash equivalents. The Company places its cash and cash equivalents with high credit-quality financial institutions. As of years ended December 31, 2022 and 2021, the Company had $15.9 million and $1.5 million of cash, respectively, and there were no cash equivalents. |
Accounts Receivable | Accounts Receivable The Company reports accounts receivables at net realizable value. The Company has not historically assessed finance charges on past due accounts, but retains the right to do so. The allowance for doubtful accounts is estimated based on historical write-off percentages and management’s assessment of specific past due or delinquent customer accounts. The delinquency status of customers is determined by reference to contractual terms. Doubtful accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted and are recorded as recoveries of bad debts, if subsequently collected. The allowance for doubtful accounts amounted to $162,635 and $100,000 as of December 31, 2022 and 2021, respectively. All accounts receivable are primarily from customers located in North America and Europe. | |
Inventory | Inventory Inventory is recorded at the lower of cost or net realizable value under the first-in, first-out method of accounting. Inventories primarily consist of purchased raw materials. The Company regularly reviews whether the net realizable value of its inventory is lower than its carrying value. If the valuation shows that the net realizable value is lower than the carrying value, the Company takes a charge to cost of revenue and directly reduces the carrying value of the inventory. Indicators that could result in inventory write-downs include damaged or slow-moving materials and supplies. | |
Property and Equipment | Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are as follows: Manufacturing equipment 3 to 7 years Computers and software 3 years Furniture 7 years Leasehold Improvements Shorter of remaining lease term or estimated useful life Maintenance and repairs are charged to operations as incurred. Through December 31, 2021, equipment capitalized under capital lease obligations was included in property and equipment. Property and equipment capitalized under capital lease obligations were amortized using a straight-line method over the shorter of the life of the lease or the useful life of the asset, which ranges three and was included in depreciation expense in the consolidated statements of operations. On January 1, 2022 the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”), which impacted the classification of equipment formerly capitalized under capital lease obligations. The equipment related to capital leases, now finance leases, have been reclassified from property and equipment to right-of-use assets on the consolidated balance sheet. Occasionally, the Company enters into finance lease arrangements for various machinery, equipment, computer-related equipment, or software. The Company records amortization of assets leased under finance lease arrangements. | |
Long-lived Assets | Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or the fair value less costs to sell. No such impairments have been identified during the years ended December 31, 2022 and 2021. | |
Redeemable Convertible Preferred Stock | Redeemable Convertible Preferred Stock All Series A and Series B redeemable convertible preferred stock were converted into common shares of the Company on close of the merger transaction in December 2022. Prior to the merger transaction, the Company recorded all shares of redeemable convertible preferred stock at their respective issuance price, less issuance costs on the dates of issuance. The redeemable convertible preferred stock was presented outside of stockholders’ deficit in the consolidated balance sheets. When redeemable convertible preferred stock was considered either then currently redeemable or probable of becoming redeemable, the Company selected a policy to recognize changes in the redemption value immediately, as they would have occurred and adjust the carrying value of redeemable convertible preferred stock to the greater of the redemption value at the end of each reporting period or the initial carrying amount. | |
Senior and Subordinated Convertible Notes | Convertible Notes The Company accounts for its Senior Convertible Notes and Subordinated Convertible Notes (as defined below), as derivatives in accordance with, ASC 815-10, Derivatives and Hedging, and ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying condensed consolidated balance sheets and changes in fair value recorded in other expense within the condensed consolidated statements of operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. The Company has analyzed the redemption, conversion, settlement, and other derivative instrument features of its Convertible Notes. ● The Company identified that the (i) redemption features, (ii) lender’s optional conversion feature, (iii) lender’s optional conversion upon merger event feature and (iv) additional interest rate upon certain events feature meet the definition of a derivative. The Company analyzed the scope exception for all the above features under ASC 815-10-15-74(a). ● Based on the further analysis, the Company identified that the (i) lender’s optional conversion feature, (ii) lender’s optional conversion upon merger event feature and (iii) additional interest rate upon certain events feature, do not meet the settlement criteria to be considered indexed to equity. The Company concluded that each of these features should be classified as a derivative liability measured at fair value with the changes in fair value in the condensed consolidated statement of operations. ● The Company also identified that the redemption features are settled in cash and do not meet the indexed to equity and the equity classification scope exception, thus, they must be bifurcated from the Convertible Notes and accounted for separately at fair value on a recurring basis reflecting the changes in fair value in the condensed consolidated statement of operations. The Company determined the Convertible Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the condensed consolidated statement of operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has elected to separately present interest expense related to the Convertible Notes within the condensed consolidated statement of operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Convertible Notes are reflected at their respective fair values on the condensed consolidated balance sheets. | Senior and Subordinated Convertible Notes The Company accounts for its derivatives in accordance with, ASC 815-10, Derivatives and Hedging, or ASC 815-15, Embedded Derivatives, depending on the nature of the derivative instrument. ASC 815 requires each contract that is not a derivative in its entirety be assessed to determine whether it contains embedded derivatives that are required to be bifurcated and accounted for as a derivative financial instrument. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings, the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. Embedded derivatives are measured at fair value and remeasured at each subsequent reporting period, and recorded within convertible notes, net on the accompanying Consolidated Balance Sheets and changes in fair value recorded in other expense within the Consolidated Statements of Operations. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. Upon the consummation of the Business Combination, the Company issued Senior and Subordinated Convertible Notes. The Company analyzed various redemption, conversion and settlement features, and other derivative instrument features of these Convertible Notes offering. ● ● ● The Company determined the Notes contained multiple embedded derivatives that are required to be bifurcated, two of which are conversion features. As per ASC 815, if there is a conversion feature that is required to be bifurcated, the cash conversion feature and beneficial conversion feature guidance is not applicable to such conversion feature and the fair value election is allowable provided the debt was not issued at a substantial premium. The Company concluded that the Senior and Subordinated Convertible Notes were not issued at a premium and hence the Company elected the fair value option under ASC 815-15-25. The Company elected to record changes in fair value through the Consolidated Statement of Operations as a fair value adjustment of the convertible debt each reporting period (with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in other comprehensive income, if applicable). The Company has also elected not to separately present interest expense related to the Senior and Subordinated Promissory Notes and the entire change in fair value of the instrument will be recorded as a fair value adjustment of convertible debt within the Consolidated Statement of Operations. Thus, the multiple embedded derivatives do not need to be separately bifurcated and fair valued. The Senior and Subordinated Convertible Notes are reflected at their respective fair values on the Consolidated Balance Sheet at December 31, 2022. |
Warrants | 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 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 own common stock, par value $0.0001 (“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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the liability classified warrants are recognized as other income or expense on the condensed consolidated statements of operations. | 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 own 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 reporting 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 at their initial fair value on the date of issuance, and then remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash other income or expense on the consolidated statements of operations. |
Warranty | Warranty The Company offers a warranty guaranteeing the fit and finish of their intraoral devices for three years from the date of initial sale, as well as a guarantee for the unlimited remaking of arches. The accrual for warranty claims and unlimited arch remakes totaled $269,496 and $217,244 at December 31, 2022 and 2021, respectively, and these amounts are recorded in accrued expenses on the consolidated balance sheets. | |
Revenue Recognition | Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● Identifying the contract with a customer: customers submit authorized prescriptions and oral impressions to the Company. Authorized prescriptions constitute the contract with customers. ● Identifying the performance obligations within the contract: The sole performance obligation is the shipment of a completed customized intraoral device. ● Determining the transaction price: Prices are determined by standardized pricing sheets and adjusted for estimated returns, discounts, and allowances. ● Allocating the transaction price to the performance obligations: The full transaction price is allocated to the shipment of the completed intraoral device as it is the only element in the transaction. ● Recognizing revenue as the performance obligation is satisfied at a point in time: revenue is recognized upon transfer of control which occurs upon shipment of the product. The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days . Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. | Revenue Recognition The Company creates customized precision milled intraoral devices. When devices are sold, they include an assurance-type warranty guaranteeing the fit and finish of the product for a period of 3 years from the date of sale. The Company recognizes revenue upon meeting the following criteria: ● ● ● ● ● The Company does not require collateral or any other form of security from customers. Inbound shipping and handling costs related to sales are billed to customers. We charge for inbound shipping/handling and the costs are classified as Cost of Revenue. Outbound shipping costs are not billed to customers and are included in sales and marketing expenses. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Standalone selling price for the various intraoral device models are determined using the Company’s standard pricing sheet. The Company invoices customers upon shipment of the product and invoices are due within 30 days. Amounts that have been invoiced are recorded in accounts receivable and revenue as all revenue recognition criteria have been met. Given the nominal value of each transaction, the Company does not offer a financing component related to its revenue arrangements. |
Cost of Revenue | Cost of Revenue Cost of revenue consists primarily of materials and the costs related to the production of the intra-oral device, including employee compensation, other employee-related expenses and allocable manufacturing overhead costs. The Company has a policy to classify initial recruiting, onboarding and training costs of new manufacturing employees as part of research and development expenses in the consolidated statements of operations. Such costs totaled $211,218 and $144,775 for the years ended December 31, 2022 and 2021, respectively. The Company utilizes the practical expedient which permits expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to employees. The Company expenses sales commissions paid to employees as revenue are recognized. | |
Research and Development | Research and Development Research and development costs are charged to operations as incurred. | |
Advertising | Advertising Advertising costs are expensed as incurred and totaled $100,319 and $87,764 for the years ended December 31, 2022 and 2021, respectively. | |
Stock-Based Compensation | Stock-Based Compensation The Company’s stock-based compensation expense is recognized based on the estimated fair value of the restricted stock awards on the date of grant. The grant-date fair value of all stock-based payment awards is recognized as employee compensation expense on a straight-line basis over the requisite service period. The Company recognizes forfeitures of restricted stock awards as they occur. | |
Leases | Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability for all leases, except short term leases with an original term of twelve months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term as the underlying leases for operating leases and the implied rate in the lease agreement for finance leases. Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. The Company’s real estate operating lease agreement requires variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments are recognized in operating expenses when incurred. Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. | Leases The Company assesses at contract inception whether a contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, for all less. represents for value at liability, any for at value Company’s for for for Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for for renewal renewal rate, at Company’s real at Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. |
Income Taxes | Income Taxes The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes as well as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. Significant judgment may be required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that is more likely than not to be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company follows authoritative guidance regarding uncertain tax positions. The guidance requires that realization of an uncertain income tax position must be more likely than not (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the consolidated financial statements. The guidance further prescribes the benefit to be realized assumes a review by taxing authorities having all relevant information and applying current conventions. The guidance also clarifies the consolidated financial statements classification of tax related penalties and interest and sets forth disclosures regarding unrecognized tax benefits. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. | |
Net Loss per Share Attributable to Common Stockholders | Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to Common Stockholders is calculated by dividing the net loss attributable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the period, without consideration for Common Stock equivalents. Diluted net loss per share attributable to Common Stockholders is the same as basic net loss per share attributable to Common Stockholders, since the effects of potentially dilutive securities are antidilutive. | Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since the effects of potentially dilutive securities are antidilutive. |
Segment Reporting | Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer and Chief Financial Officer. The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The Company early adopted ASU 2020-06 effective January 1, 2023, which eliminated the need to assess whether a beneficial conversion feature needs to be recognized upon the issuance of new convertible instruments. The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company's consolidated financial statements. | Recent Accounting Pronouncements On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (ASC 842), which superseded previous guidance related to accounting for leases within Topic 842, Leases . The Company elected the practical expedient provided under ASU 2018-11, Leases (ASC 842) Targeted Improvements, which amended ASU 2016-02 to provide entities an optional transition practical expedient to adopt the new standard with a cumulative effect adjustment as of the beginning of the year of adoption with prior year comparative financial information and disclosures remaining as January Topic Topic The Company elected the package of practical expedients permitted under the transition guidance, which allowed forward for any January also with an initial term of 12 months or less off the consolidated balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Adoption of the new standard resulted in the recording of right of use assets and operating lease liabilities of $406,551 and $464,291 , respectively, as of January 1, 2022. Additionally, upon adoption of the new standard, the Company reclassified the equipment of $2,349,591 related to capital leases to right of use assets. Finance lease liabilities of $1,826,973 were reclassified from capital lease obligation. The transition did not have a material impact on the Company’s consolidated results of operations, cash flows or liquidity measures. In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - “ Debt with Conversion and Other Options Derivatives and Hedging-Contracts in Entity’s Own Equity In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. The impact to the company is immaterial. |
BASIS OF ACCOUNTING AND SIGNI_8
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of estimated useful lives of property and equipment | Manufacturing equipment 3 to 7 years Computers and software 3 years Furniture 7 years Leasehold Improvements Shorter of remaining lease term or estimated useful life |
PROPERTY AND EQUIPMENT (Table_2
PROPERTY AND EQUIPMENT (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
PROPERTY AND EQUIPMENT | ||
Schedule of Property and equipment | September 30, 2023 December 31, 2022 Manufacturing equipment $ 3,626,396 $ 2,516,859 Computers and software 1,621,474 1,608,075 Leasehold improvements 822,134 441,956 Furniture — 27,587 6,070,004 4,594,477 Less accumulated depreciation and amortization (2,330,383) (2,190,075) Property and equipment, net $ 3,739,621 $ 2,404,402 | 2022 2021 Manufacturing equipment $ 2,516,859 $ 4,420,281 Computers and software 1,608,075 1,547,549 Furniture 27,587 27,587 Leasehold Improvements 441,956 295,471 4,594,477 6,290,888 Less: accumulated depreciation (2,190,075) (2,934,293) Total Property and equipment, net $ 2,404,402 $ 3,356,595 |
INVENTORY (Tables)_2
INVENTORY (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
INVENTORY | ||
Schedule of Inventory | September 30, 2023 December 31, 2022 Raw materials $ 1,509,768 $ 561,726 Work-in-process 140,329 78,219 $ 1,650,097 $ 639,945 | 2022 2021 Raw Materials $ 561,726 $ 323,989 Work in progress 78,219 54,780 $ 639,945 $ 378,769 |
ACCRUED EXPENSES (Tables)_2
ACCRUED EXPENSES (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
ACCRUED EXPENSES | ||
Schedule of accrued compensation and other accrued expenses | September 30, 2023 December 31, 2022 Compensation related accruals $ 3,274,248 $ 2,104,008 Marketing programs 940,930 611,642 Interest 381,595 110,239 Warranty 464,812 269,496 Professional fees 1,873,278 129,169 Inventory purchases and freight 1,242,311 — Other 196,308 481,540 $ 8,373,482 $ 3,706,094 | 2022 2021 Bonus $ 832,918 $ 831,601 Wages 218,974 140,962 Vacation 959,004 569,777 Earned discounts 554,642 499,219 Commission settlement — 274,323 Warranty 269,496 217,244 Other 360,716 264,533 Professional fees 129,169 72,611 Interest 110,239 28,750 401k matching contributions 93,112 100,134 Travel 60,400 — Credit card fees 60,424 34,424 Marketing expenses 57,000 45,000 $ 3,706,094 $ 3,078,578 |
LEASES (Tables)_2
LEASES (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
LEASES | ||
Schedule of components of lease cost, weighted average lease terms and discount rates | Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Lease Cost: Operating lease cost $ 223,304 $ 68,709 $ 711,661 $ 206,126 Finance lease cost: Amortization of assets obtained under finance leases $ 285,251 $ 274,712 $ 681,763 $ 597,904 Interest on lease liabilities 126,880 104,409 282,990 223,263 $ 412,131 $ 379,121 $ 964,753 $ 821,167 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of September 30, 2023 Operating leases 10.0 % 9.3 years Finance leases 10.2 % 3.2 years Nine Months Ended September 30, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 355,060 Operating cash flows from finance leases 246,879 Financing cash flows from finance leases 1,026,701 | Year ended December 31, 2022 Lease Cost: Operating lease cost $ 324,929 Finance lease cost: Amortization of assets obtained under finance leases $ 772,870 Interest on lease liabilities 288,969 $ 1,061,839 Lease term and discount rate Weighted average discount rate: Weighted average remaining lease term: As of December 31, 2022 Operating leases 10.31 % 9.6 years Finance leases 11.17 % 3.5 years Year ended December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ (159,348) Operating cash flows from finance leases 772,870 Financing cash flows from finance leases (1,222,270) Right-of-use assets obtained in exchange for lease liabilities: Acquisition of ROU assets through operating leases $ 5,435,661 Acquisition of property and equipment through finance leases 2,233,834 Addition of ROU assets from finance lease modification 239,000 $ 2,472,834 |
Schedule of right-of-use assets | Total Manufacturing equipment $ 5,237,167 Computers and software 700,234 Leasehold improvements 218,244 Total 6,155,645 Less accumulated amortization (2,623,405) Right-of-use assets for finance leases 3,532,240 Right-of-use assets for operating leases 5,154,399 Total right-of-use assets $ 8,686,639 | Total Manufacturing equipment $ 4,673,617 Computers and software 700,234 Leasehold Improvements 218,244 Total 5,592,095 Less: accumulated amortization (1,941,644) Right-of-use assets for finance leases 3,650,451 Right-of-use assets for operating leases 5,632,771 Total right-of-use assets $ 9,283,222 |
Schedule of maturities of finance lease liabilities | Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 576,315 2024 1,287,461 2025 1,057,500 2026 739,115 2027 192,568 Thereafter 47,300 Total minimum lease payments 3,900,259 Less amount representing interest (563,452) Present value of minimum lease payments 3,336,807 Less current portion (1,109,899) Finance lease obligations, less current portion $ 2,226,908 | Years ending Total 2023 $ 1,275,119 2024 863,280 2025 785,386 2026 597,933 2027 190,283 Thereafter — Total minimum lease payments 3,712,001 Less amount representing interest (622,004) Present value of minimum lease payments 3,089,997 Less current portion (1,008,587) Finance lease obligations, less current portion $ 2,081,410 |
Schedule of future minimum rental payments required under operating lease | Nine months ended September 30, 2023 Total 2023 (remaining three months) $ 379,887 2024 842,553 2025 867,831 2026 893,862 2027 920,679 Thereafter 4,761,873 Total minimum lease payments 8,666,685 Less: amount representing interest (3,107,847) Present value of minimum lease payments 5,558,838 Less: current portion (290,869) Operating lease liabilities, less current portion $ 5,267,969 | Years ending December 31, Total 2023 $ 794,619 2024 836,280 2025 861,372 2026 887,208 2027 913,824 Thereafter 4,997,184 Total minimum lease payments 9,290,487 Less: amount representing interest (3,549,882) Present value of minimum lease payments 5,740,605 Less: current portion (215,043) Operating lease liabilities, less current portion $ 5,525,562 |
DEBT (Tables)_2
DEBT (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
Debt | ||
Schedule of convertible note | The Convertible Notes included the following embedded features: Embedded Feature Nature Description (1) Optional redemption – Election of Company Redemption feature (embedded call option) At any time after the later of (i) the eighteen-month anniversary of the initial issue date and (ii) the date that the Senior Debt is no longer outstanding, if the daily volume weighted-average price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days exceeds $18.00, the Company may redeem a portion of or all of the principal amount (including accrued and unpaid interest) + any liquidated damages and any other amounts due in respect of the Notes redeemable in cash. (2) Mandatory redemption – Events of Default Redemption feature (embedded contingent call option) The Company is required to prepay all of the outstanding principal balance and accrued and unpaid interest upon bankruptcy-related events of default. (3) Lenders’ Optional redemption – Events of Default Redemption feature (embedded contingent call option) Holders of at least 25% aggregate principal amount of the Notes can require the Company to pay all of the outstanding principal balance and accrued and unpaid interest upon any event of default that is not bankruptcy related. (4) Lender’s Optional Conversion Conversion feature At each Lenders’ option, subject to specific conditions, it may convert all or any portion of its Notes at an initial conversion rate of 86.95652173913043, which is reduced (and only reduced) at various dates and subject to certain adjustments to the conversion rate in the case of specified events. If a note is converted, the Company will adjust the conversion rate to account for any accrued and unpaid interest on such note plus any Make-Whole Amount related to such note. (5) Lenders’ Optional Conversion Upon Merger Event Other feature Upon a merger event, Note holders of each $1,000 principal amount of Notes are entitled to convert such notes plus accrued interest, plus the Make-Whole Amount related to the in kind and amount of reference property that a holder of a number of shares of common stock equal to the conversion rate in effect immediately prior to such event would have owned or been entitled to receive upon such event (6) Additional interest rate upon certain non-credit related events Other feature Upon an event of default, additional interest will be incurred. Additional interest will also be incurred if the Notes are not freely tradeable (7) Ability to pay interest in kind (PIK Interest)* Other feature The Company has the election to pay interest in cash or in-kind. *The PIK interest feature was only present in the Subordinated Convertible Note, and not available in the Senior Convertible Notes | |
Schedule of fair value of convertible notes on issuance | Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of September 30, 2023 Price Yield Volatility Interest Rate Senior Convertible Notes $ 1.04 26.70 % 60 % 4.99 % Subordinated Convertible Notes 1.04 36.10 % 60 % 4.91 % Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80 % 45 % 4.23 % Subordinated Convertible Notes 5.56 41.20 % 45 % 4.19 % Senior Convertible Notes Subordinated Convertible Notes Beginning fair value, January 1, 2023 $ 13,651,000 $ 10,355,681 Paid-in-kind interest — 723,699 Change in fair value of debt 827,000 1,000,000 Fair value as of March 31, 2023 14,478,000 12,079,380 Paid-in-kind interest — 793,594 Change in fair value of debt (1,549,596) 2,352,026 Fair value as of June 30, 2023 12,928,404 15,225,000 Paid-in-kind interest — 1,010,814 Conversion of Subordinated — (919,568) Increase in fair value of debt in connection 1,142,781 6,318,711 Change in fair value of debt (784,780) (2,914,956) Ending fair value, September 30, 2023 $ 13,286,405 $ 18,720,000 | Monte Carlo Simulation Assumptions Asset Risky Expected Risk-Free Convertible Notes Issuance - December 6, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 8.69 30.80% 40% 4.07% Subordinated Convertible Notes 8.69 40.20% 40% 4.01% Asset Risky Expected Risk-Free As of December 31, 2022 Price Yield Volatility Interest Rate Senior Convertible Notes $ 5.56 31.80% 45% 4.23% Subordinated Convertible Notes 5.56 41.20% 45% 4.19% Convertible Fair Value of Notes as of Fair value of Change in Convertible December 31, Convertible Notes fair value of Notes Convertible Notes 2021 on Issuance Convertible Notes December 31, Senior Convertible Notes $ - $ 14,536,000 $ (885,000) $ 13,651,000 Subordinated Convertible Notes - 10,223,000 (69,000) 10,154,000 |
Equipment Financing Obligation | ||
Debt | ||
Schedule of payments | At September 30, 2023 Total 2023 (remaining three months) $ 13,363 2024 56,995 2025 63,698 2026 64,952 Total principal maturities 199,008 Less: current portion (55,510) Equipment financing obligation, net of current portion $ 143,498 | Years ending Total 2023 $ 58,973 2024 56,995 2025 63,698 2026 64,952 2027 — Total principal maturities 244,618 Less: current portion (58,973) Equipment financing obligation, net of current portion $ 185,645 |
Subordinated Notes | ||
Debt | ||
Schedule of rates of unpaid interest on Notes | Less than one (1) year from the funding date 3 % One (1) year to less than two (2) years from the funding date 2 % Two (2) years to less than three (3) years from the funding date 1 % A change in control event 5 % |
COMMON STOCK WARRANTS (Tables_2
COMMON STOCK WARRANTS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK WARRANTS | ||
Schedule of warrant activity | Outstanding Outstanding Issuance December 31, December 31, Warrant Issuance Period 2021 Granted Exercised Cancelled 2022 Expiration Convertible Notes Warrants - Senior Debt Dec-22 — 169,597 — — 169,597 Dec-27 Convertible Notes Warrants - Subordinated Debt Dec-22 — 1,745,310 — — 1,745,310 Dec-27 Private Warrants Dec-22 — 196,256 — — 196,256 Dec-27 Public Warrants Dec-22 — 4,100,239 — — 4,100,239 Dec-27 Additional Private Warrants Dec-22 — 300,685 — — 300,685 Jan-30 2021 preferred Series B warrants Jan-20 111,111 — (111,111) — — Apr-30 2020 preferred Series B warrants Apr-21 211,112 — (211,112) — — 322,223 6,512,087 (322,223) — 6,512,087 | |
Schedule of assumptions for fair value of the outstanding warrants classified as liabilities | Exercise Asset Dividend Expected Risk-Free Expected As of September 30, 2023 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 1.04 0 % 65 % 4.70 % 4.18 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants $ 11.50 $ 5.56 0 % 40 % 4.00 % 4.93 years | Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of Issuance date - December 6, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 8.69 0% 40% 3.70% 5.00 years Convertible Notes Warrants - Subordinated Debt 11.50 8.69 0% 40% 3.70% 5.00 years Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2022 Price Price Yield Volatility Interest Rate Life Convertible Notes Warrants - Senior Debt $ 11.50 $ 5.56 0% 40% 4.00% 4.93 years Convertible Notes Warrants - Subordinated Debt 11.50 5.56 0% 40% 4.00% 4.93 years Black-Scholes Fair Value Assumptions Exercise Asset Dividend Expected Risk-Free Expected As of December 31, 2021 Price Price Yield Volatility Interest Rate Life 2021 preferred Series B warrants $ 1.80 $ 2.89 0% 20% 1.52% 9.26 years 2020 preferred Series B warrants 1.80 2.89 0% 20% 1.52% 8.10 years |
Schedule of change in fair value of the outstanding warrants classified as liabilities | Convertible Notes Warrants Warrant liability, January 1, 2023 $ 1,991,503 Change in fair value 842,559 Warrant liability, March 31, 2023 2,834,062 Change in fair value (2,106,398) Warrant liability, June 30, 2023 727,664 Change in fair value (593,621) Warrant liability, September 30, 2023 $ 134,043 | Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2021 granted exercised warrants 2022 Convertible Notes Warrants - Senior Debt $ - $ 464,696 $ - $ (288,315) $ 176,381 Convertible Notes Warrants - Subordinated Debt - 4,782,149 - (2,967,027) 1,815,122 2020 preferred Series B warrants and 2021 preferred Series B warrants 562,244 - (580,000) 17,756 - Warrant Warrant liability, Fair value of Fair value Change in liability, December 31, warrants of fair value of December 31, Warrant Issuance 2020 granted exercised warrants 2021 2020 preferred Series B warrants and 2021 preferred Series B warrants $ 228,000 $ 143,333 $ — $ 190,911 $ 562,244 |
FAIR VALUE (Tables)
FAIR VALUE (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
FAIR VALUE | ||
Summary of the financial instruments that are measured at fair value on a recurring basis | September 30, 2023 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,286,405 $ — $ — $ 13,286,405 Subordinated Convertible Notes 18,720,000 — — 18,720,000 Earnout liability 730,000 — — 730,000 Warrant liability 134,043 — — 134,043 December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earnout liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 | December 31, 2022 Fair Value Level 1 Level 2 Level 3 Senior Convertible Notes $ 13,651,000 $ — $ — $ 13,651,000 Subordinated Convertible Notes 10,355,681 — — 10,355,681 Earn-out liability 12,810,000 — — 12,810,000 Warrant liability 1,991,503 — — 1,991,503 December 31, 2021 Fair Value Level 1 Level 2 Level 3 Warrant liability $ 562,244 $ — $ — $ 562,244 |
COMMON STOCK (Tables)_2
COMMON STOCK (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
COMMON STOCK | ||
Schedule of common stock | At December 31, 2022 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Common Stock* 100,000,000 16,041,464 $ — Preferred Stock 1,000,000 — - Total 101,000,000 16,041,464 $ — *excludes shares issued as an ‘Escrow Reserve’ At December 31, 2021 the common stock consisted of the following: Shares Shares issued Liquidation Authorized and outstanding Amount Series A 30,415,100 20,179,645 $ 5,355,678 Series B 1,675,600 1,673,092 977,755 Series C 3,947,835 2,713,649 1,192,377 Total 36,038,535 24,566,386 $ 7,525,810 *Represents fully vested Series C Shares | |
Schedule of reserved shares of Common Stock | 2022 Equity Incentive Plan reserve 2,411,283 Reserve for earn-out shares 3,000,000 Reserve for exercise of warrants 12,014,300 Reserve for convertible debt 18,945,919 Employee stock purchase plan 500,000 Total 36,871,502 | The Company has reserved shares of Common Stock for the following as of December 31, 2022: 2022 Equity Incentive Plan reserve 2,411,283 Reserve for Earn-out shares 3,000,000 Reserve for exercise of Public Warrants 4,100,250 Reserve for exercise of Private Warrants 496,941 Total 10,008,474 |
REDEEMABLE CONVERTIBLE PREFER_4
REDEEMABLE CONVERTIBLE PREFERRED STOCK (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
REDEEMABLE CONVERTIBLE PREFERRED STOCK | |
Schedule of redeemable convertible preferred stock | Shares Shares issued Liquidation Authorized and outstanding amount Series B Redeemable Convertible Preferred Stock 7,610,700 7,288,333 $ 26,237,999 Series A Redeemable Convertible Preferred Stock 26,250 26,245 26,245,000 Total 7,636,950 7,314,578 $ 52,482,999 |
STOCK-BASED COMPENSATION (Tab_2
STOCK-BASED COMPENSATION (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
STOCK-BASED COMPENSATION | |
Summary of non-vested restricted common C shares | Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2021 912,692 $ 0.01 Granted — — Vested (854,507) 0.01 Forfeited (58,185) 0.02 Non-vested restricted common C shares as of December 31, 2022 — — Weighted-Average Grant Date Fair Value Shares per Share Non-vested restricted common C shares as of December 31, 2020 1,370,391 $ 0.01 Granted 65,000 0.08 Vested (381,689) 0.01 Forfeited (141,010) 0.02 Non-vested restricted common C shares as of December 31, 2021(1) 912,692 0.01 (1) As of December 31, 2021, there was $10,949 of total unrecognized compensation cost related to non- vested restricted common C shares that is expected to be recognized over a weighted-average period of 1.98 years. The estimated forfeiture rate for restricted common C share was 0% as of December 31, 2021. |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
INCOME TAXES | |
Schedule of reconciliation of the federal income tax rate to the Company's effective tax rate | A reconciliation of the federal income tax rate to the Company’s effective tax rate as of December 31 is as follows: 2022 2021 Statutory federal income tax rate 21.0 % 21.0 % State taxes, net of federal tax benefit 24.7 % 8.0 % PPP loan forgiveness — % 8.0 % Stock Compensation (6.3) % — % Transaction Costs 7.4 % — % Change in FV Earnout Liab 27.2 % — % Change in FV of Debt 31.2 % — % Change in Warrant Liability 9.5 % — % Other Permanent Differences (0.3) % (0.5) % Change in valuation allowance (114.4) % (36.5) % Income tax provision — % — % |
Schedule of significant components of the Company's net deferred tax assets and liabilities | 2022 2021 Deferred tax assets Net operating losses $ 17,847,721 $ 13,497,030 Reserve and accruals 619,236 554,632 OID Amortization 1,184,396 — Debt Extinguishment Amortization 645,511 — Debt-Related Warrants 1,408,206 Capitalized R&D 557,589 — Lease Liability 1,540,727 — Other 1,388 1,792 Total deferred tax assets 23,804,774 14,053,454 Deferred tax liabilities Depreciation and amortization (270,747) (200,998) Right of Use Asset (1,511,786) — Total deferred tax liabilities (1,782,533) (200,998) Net deferred tax assets 22,022,241 13,852,456 Valuation Allowance (22,022,241) (13,852,456) Net deferred tax asset $ — $ — |
NET LOSS ATTRIBUTABLE TO COMM_6
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||
Schedule of computation of the basic and diluted net loss per share attributable to common stockholders | Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net loss attributable to Common Stockholders $ (11,238,803) $ (3,548,962) $ (17,226,044) $ (9,353,340) Denominator: Weighted-average common shares outstanding 16,115,254 24,713,218 16,071,719 24,611,666 Net loss per share attributable to Common Stockholders, basic and diluted $ (0.70) $ (0.14) $ (1.07) $ (0.38) | 2022 2021 Numerator: Net loss attributable to common stockholders $ (7,145,320) $ (5,977,407) Denominator: Weighted-average common shares outstanding 10,021,632 3,957,783 Net loss per share attributable to common stockholders, basic and diluted $ (0.71) $ (1.51) |
Schedule of potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Common Stock upon conversion of redeemable convertible preferred stock A — 4,214,422 — 4,214,422 Common Stock upon conversion of redeemable convertible preferred stock B — 7,288,333 — 7,288,333 Non-vested shares of Series C common stock — 638,972 — 638,972 Warrants to purchase redeemable convertible preferred stock B, as-converted — 322,223 — 322,223 Series A Preferred Stock 9,526,000 — 9,526,000 — Warrants to purchase Common Stock 11,066,611 — 11,066,611 — Options to purchase Common Stock 1,465,817 — 1,465,817 — Senior Convertible Notes 5,858,842 — 5,858,842 — Subordinated Convertible Notes 13,032,835 — 13,032,835 — Total 40,950,105 12,463,950 40,950,105 12,463,950 | 2022 2021 Series A common stock upon conversion of redeemable convertible preferred stock A — 4,214,422 Series A common stock upon conversion of redeemable convertible preferred stock B — 7,288,333 Non-vested shares of Series C common stock — 912,692 Senior and Subordinated Convertible Notes 3,179,410 — Shares subject to warrants to purchase common stock 6,512,087 322,223 Total 9,691,497 12,737,670 |
BASIS OF ACCOUNTING AND SIGNI_9
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (Details) | 9 Months Ended | 12 Months Ended | ||
Dec. 06, 2022 USD ($) | Sep. 30, 2023 USD ($) | Dec. 31, 2022 USD ($) customer segment | Dec. 31, 2021 USD ($) customer | |
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||||
Working capital | $ 6,100,000 | $ 14,200,000 | ||
Cash and cash equivalents | 12,021,908 | 15,916,141 | $ 1,500,582 | |
Cash | 15,900,000 | 1,500,000 | ||
Cash equivalents | $ 0 | $ 0 | $ 0 | |
Number of customers exceeded 10% of sales / accounts receivable | customer | 0 | 0 | ||
Allowance for doubtful accounts | $ 162,635 | $ 100,000 | ||
Impairment of long lived asset | $ 0 | 0 | ||
Warranty period of the product | 3 years | |||
Accrual for warranty claims | $ 269,496 | 217,244 | ||
Warranty guaranteeing the fit and finish product period | 3 years | 3 years | ||
Invoices customers upon shipment product period | 30 days | 30 days | ||
Initial recruiting, onboarding and training costs | $ 211,218 | 144,775 | ||
Advertising costs | 100,319 | $ 87,764 | ||
Proceeds from convertible debt | $ 27,452,121 | |||
Number of operating segments | segment | 1 | |||
Number of reporting segments | segment | 1 | |||
Lakeshore ("Lakeshore") Acquisition I Corp | ||||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||||
Cash held | $ 4,920,000 | |||
Cash in connection | 10,250,000 | |||
Proceeds from convertible debt | 30,000,000 | |||
Transaction expenses | $ 11,530,000 | $ 11,530,000 |
BASIS OF ACCOUNTING AND SIGN_10
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES - Property and Equipment (Details) | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
Minimum | ||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||
Estimated useful life of property and equipment | 3 years | |
Maximum | ||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||
Estimated useful life of property and equipment | 7 years | |
Manufacturing equipment | Minimum | ||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||
Estimated useful life of property and equipment | 3 years | |
Manufacturing equipment | Maximum | ||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||
Estimated useful life of property and equipment | 7 years | |
Computers and software | ||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||
Estimated useful life of property and equipment | 3 years | |
Furniture | ||
DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ||
Estimated useful life of property and equipment | 7 years |
BASIS OF ACCOUNTING AND SIGN_11
BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES - Recent Accounting Pronouncements (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Jan. 01, 2022 |
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | |||
Operating lease right-of-use assets | $ 5,154,399 | $ 5,632,771 | |
Operating lease liabilities | 5,558,838 | 5,740,605 | |
Amount reclassified from the equipment related to capital leases to right of use assets | 3,532,240 | 3,650,451 | |
Finance lease liabilities | $ 3,336,807 | $ 3,089,997 | |
Accounting Standards Update 2016-02 | |||
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | |||
Operating lease right-of-use assets | $ 406,551 | ||
Operating lease liabilities | 464,291 | ||
Amount reclassified from the equipment related to capital leases to right of use assets | 2,349,591 | ||
Finance lease liabilities | $ 1,826,973 |
MERGER AND REVERSE RECAPITALI_2
MERGER AND REVERSE RECAPITALIZATION (Details) - USD ($) | 9 Months Ended | 12 Months Ended | |||||||
Dec. 06, 2022 | Dec. 05, 2022 | Aug. 26, 2022 | Sep. 30, 2023 | Dec. 31, 2022 | Jun. 29, 2022 | Dec. 31, 2021 | Apr. 30, 2021 | Jan. 31, 2020 | |
Business Acquisition [Line Items] | |||||||||
Merger Recapitalization - Preferred | $ 38,636,696 | ||||||||
Merger Recapitalization - Common | (2,132) | ||||||||
Conversion of LAAA Founder Common Stock (in shares) | 1,054,390 | ||||||||
Earn-out liability | (22,070,000) | ||||||||
Assumption of SPAC Assets and Liabilities | $ 2,242,097 | ||||||||
Exercise price of warrants | $ 11.50 | ||||||||
Issuance of Warrants | 1,991,503 | ||||||||
Proceeds from Issuance of Convertible Notes | $ 27,452,121 | ||||||||
Proceeds from SPAC Trust | $ 4,920,826 | ||||||||
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||
Subordinated Loan and Security Agreement | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 42,464 | ||||||||
Debt Instrument, Face Amount | $ 2,547,879 | ||||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 296,456 | ||||||||
First loan and security agreement with a lender | |||||||||
Business Acquisition [Line Items] | |||||||||
Debt Instrument, Face Amount | $ 3,800,000 | ||||||||
Second loan and security agreement with a lender | |||||||||
Business Acquisition [Line Items] | |||||||||
Debt Instrument, Face Amount | $ 2,000,000 | ||||||||
Convertible Bridge Loan Advance | |||||||||
Business Acquisition [Line Items] | |||||||||
Debt Instrument, Face Amount | $ 2,000,000 | ||||||||
Senior Convertible Notes | |||||||||
Business Acquisition [Line Items] | |||||||||
Debt Instrument, Face Amount | $ 16,960,000 | $ 16,960,000 | |||||||
Subordinated Convertible Notes | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 290,244 | ||||||||
Debt Instrument, Face Amount | $ 17,450,000 | ||||||||
PIPE Equity | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 1,025,000 | 1,830,133 | |||||||
LAAA - Public warrants (transfer) | |||||||||
Business Acquisition [Line Items] | |||||||||
Exercise price of warrants | $ 11.50 | ||||||||
Private placement warrants | |||||||||
Business Acquisition [Line Items] | |||||||||
Warrants issued | 196,256 | ||||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 1 | ||||||||
Exercise price of warrants | $ 11.50 | $ 11.50 | |||||||
Common Stock | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 16,166 | ||||||||
Merger Recapitalization - Common | $ (2,541) | ||||||||
Merger Recapitalization - Common (in shares) | (25,420,893) | ||||||||
Additional Paid-In Capital | |||||||||
Business Acquisition [Line Items] | |||||||||
Merger Recapitalization - Preferred | $ 38,635,975 | ||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders | (82) | ||||||||
Conversion of LAAA Founder Common Stock | (105) | ||||||||
Earn-out liability | (22,070,000) | ||||||||
Assumption of SPAC Assets and Liabilities | 2,242,097 | ||||||||
Series B redeemable convertible preferred stock | Preferred Stock | |||||||||
Business Acquisition [Line Items] | |||||||||
Merger Recapitalization - Preferred | $ (12,389,563) | ||||||||
Merger Recapitalization - Preferred (in shares) | (7,449,445) | ||||||||
Series A redeemable convertible preferred stock | Preferred Stock | |||||||||
Business Acquisition [Line Items] | |||||||||
Merger Recapitalization - Preferred | $ (26,245,000) | ||||||||
Merger Recapitalization - Preferred (in shares) | (45,271) | ||||||||
Class A common stock | Common Stock | |||||||||
Business Acquisition [Line Items] | |||||||||
Merger Recapitalization - Preferred | $ 721 | ||||||||
Merger Recapitalization - Preferred (in shares) | 7,208,865 | ||||||||
Merger Recapitalization - Common | $ 408 | ||||||||
Merger Recapitalization - Common (in shares) | 4,084,418 | ||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders | $ 82 | ||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders (in shares) | 820,722 | ||||||||
Conversion of LAAA Founder Common Stock (in shares) | 1,054,390 | ||||||||
Conversion of LAAA Founder Common Stock | $ 105 | ||||||||
Class A common stock | Common Stock | PIPE Equity | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 1,830,133 | ||||||||
Class A common stock | Common Stock | PIPE Debt SPA Shares | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 326,713 | ||||||||
Series C common stock | |||||||||
Business Acquisition [Line Items] | |||||||||
Common stock, par value (in dollars per share) | $ 0.0001 | ||||||||
PubCo Merger | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 1,025,000 | ||||||||
Lakeshore ("Lakeshore") Acquisition I Corp | |||||||||
Business Acquisition [Line Items] | |||||||||
Issuance of stock (in shares) | 820,722 | ||||||||
Shares entered into non-redemption agreements (in shares) | 480,000 | ||||||||
Stock Repurchased During Period, Shares | 2,380,246 | ||||||||
Stock Repurchased During Period, Value | $ 24,370,000 | $ 24,400,000 | |||||||
Warrants issued | 4,597,180 | 4,597,180 | |||||||
Proceeds from Issuance of Convertible Notes | $ 30,000,000 | ||||||||
Business Combination, Consideration Transferred, Liabilities Incurred | 11,530,000 | $ 11,530,000 | |||||||
Lakeshore ("Lakeshore") Acquisition I Corp | Private placement warrants | |||||||||
Business Acquisition [Line Items] | |||||||||
Exercise price of warrants | $ 11.50 | ||||||||
PubCo Merger | |||||||||
Business Acquisition [Line Items] | |||||||||
Business Combination, Consideration Transferred | $ 113,000,000 | ||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders (in shares) | 11,300,000 | ||||||||
PubCo Merger | Lakeshore ("Lakeshore") Acquisition I Corp | |||||||||
Business Acquisition [Line Items] | |||||||||
Business Acquisition, Share Price | $ 10.238 |
MERGER AND REVERSE RECAPITALI_3
MERGER AND REVERSE RECAPITALIZATION - Earnout Shares (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
Dec. 06, 2022 USD ($) tranche $ / shares shares | Dec. 05, 2022 USD ($) | May 09, 2022 USD ($) tranche $ / shares shares | Sep. 30, 2023 USD ($) | Jun. 30, 2023 USD ($) | Mar. 31, 2023 USD ($) | Sep. 30, 2023 USD ($) | Dec. 31, 2022 USD ($) | |
Common Stock | ||||||||
Amount of loans elected to convert | $ | $ 13,080,756 | |||||||
Share price | $ / shares | $ 0.145 | |||||||
Change in Earnout Liability | $ | $ (3,880,000) | $ (12,080,000) | (9,260,000) | |||||
PubCo Merger | ||||||||
Common Stock | ||||||||
Maximum number of shares entitled to receive | shares | 3,000,000 | 3,000,000 | ||||||
Number of tranches | tranche | 3 | 3 | ||||||
Trading period | 20 days | |||||||
Consecutive trading period | 30 days | |||||||
Term of issuance | 2 years 6 months | |||||||
Earnout liability | $ | $ 22,070,000 | 730,000 | $ 4,610,000 | $ 11,310,000 | $ 730,000 | 12,810,000 | ||
Change in Earnout Liability | $ | $ (3,880,000) | $ (6,700,000) | $ (1,500,000) | $ 9,260,000 | ||||
ProSomnus Subordinated Debt Conversion [Member] | ||||||||
Common Stock | ||||||||
Amount of loans elected to convert | $ | $ 6,490,000 | |||||||
Convertible Bridge Notes | ||||||||
Common Stock | ||||||||
Number of days to elect to convert shares | 10 days | |||||||
Repayment of debt | $ | $ 100,000 | |||||||
Convertible Bridge Notes | Bridge Loan Debt Conversion [Member] | ||||||||
Common Stock | ||||||||
Amount of loans elected to convert | $ | $ 2,550,000 | |||||||
First tranche | PubCo Merger | ||||||||
Common Stock | ||||||||
Maximum number of shares entitled to receive | shares | 1,000,000 | |||||||
Number of shares issued | shares | 1,000,000 | |||||||
Share price | $ / shares | $ 12.50 | $ 12.50 | ||||||
Trading period | 20 days | |||||||
Consecutive trading period | 30 days | |||||||
Term of issuance | 6 months | |||||||
Second tranche | PubCo Merger | ||||||||
Common Stock | ||||||||
Maximum number of shares entitled to receive | shares | 1,000,000 | |||||||
Number of shares issued | shares | 1,000,000 | |||||||
Share price | $ / shares | $ 15 | $ 15 | ||||||
Trading period | 20 days | |||||||
Consecutive trading period | 30 days | |||||||
Term of issuance | 6 months | |||||||
Third tranche | PubCo Merger | ||||||||
Common Stock | ||||||||
Maximum number of shares entitled to receive | shares | 1,000,000 | |||||||
Number of shares issued | shares | 1,000,000 | |||||||
Share price | $ / shares | $ 17.50 | $ 17.50 | ||||||
Trading period | 20 days | |||||||
Consecutive trading period | 30 days | |||||||
Term of issuance | 6 months |
MERGER AND REVERSE RECAPITALI_4
MERGER AND REVERSE RECAPITALIZATION - Debt Conversions (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||||||
Sep. 08, 2023 | Jun. 29, 2023 | Dec. 06, 2022 | Dec. 05, 2022 | Dec. 02, 2022 | Aug. 26, 2022 | Jun. 29, 2022 | May 09, 2022 | Oct. 31, 2023 | Nov. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Apr. 30, 2021 | Jan. 31, 2020 | |
Common Stock | ||||||||||||||||
Amount of loans elected to convert | $ 13,080,756 | |||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 919,546 | |||||||||||||||
Repayments of debt | $ 75,000 | 75,000 | ||||||||||||||
Gain (loss) on extinguishment of debt | $ (9,743,043) | $ (9,743,043) | $ (192,731) | (2,597,842) | ||||||||||||
PubCo Merger | ||||||||||||||||
Common Stock | ||||||||||||||||
Maximum number of shares entitled to receive | 3,000,000 | 3,000,000 | ||||||||||||||
ProSomnus Subordinated Debt Conversion [Member] | ||||||||||||||||
Common Stock | ||||||||||||||||
Amount of loans elected to convert | $ 6,490,000 | |||||||||||||||
Subordinated Loan and Security Agreement | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | $ 2,547,879 | |||||||||||||||
Issuance of stock (in shares) | 42,464 | |||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 800,000 | $ 800,000 | ||||||||||||||
Debt conversion | 80,000 | 80,000 | ||||||||||||||
Debt instrument converted bonus | 65,604 | 65,604 | ||||||||||||||
Number of common stock shares, called by warrants | 296,456 | |||||||||||||||
Repayments of debt | $ 9,719,135 | $ 9,719,135 | ||||||||||||||
Gain (loss) on extinguishment of debt | (2,405,111) | |||||||||||||||
Subordinated debt | $ 0 | |||||||||||||||
First loan and security agreement with a lender | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | $ 3,800,000 | |||||||||||||||
Second loan and security agreement with a lender | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | $ 2,000,000 | |||||||||||||||
Convertible Bridge Loan Advance | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | $ 2,000,000 | |||||||||||||||
Interest rate per annum | 14% | |||||||||||||||
Additional interest rate | 6% | |||||||||||||||
Debt installment payments | $ 100,000 | |||||||||||||||
Proceeds from debt | $ 2,000,000 | |||||||||||||||
Senior Convertible Notes | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | $ 16,960,000 | $ 16,960,000 | ||||||||||||||
Interest rate per annum | 9% | |||||||||||||||
Debt installment payments | $ 847,990 | |||||||||||||||
Subordinated Convertible Notes | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | $ 17,450,000 | |||||||||||||||
Issuance of stock (in shares) | 290,244 | |||||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 1,000,000 | |||||||||||||||
Debt conversion | 192,381 | |||||||||||||||
Subordinated Convertible Notes | Prime Rate [Member] | ||||||||||||||||
Common Stock | ||||||||||||||||
Spread on interest rate | 9% | 9% | ||||||||||||||
Convertible Bridge Notes | ||||||||||||||||
Common Stock | ||||||||||||||||
Number of days to elect to convert shares | 10 days | |||||||||||||||
Repayment of debt | $ 100,000 | |||||||||||||||
Convertible Bridge Notes | Bridge Loan Debt Conversion [Member] | ||||||||||||||||
Common Stock | ||||||||||||||||
Amount of loans elected to convert | $ 2,550,000 | |||||||||||||||
Convertible Bridge Notes | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | 30,000,000 | |||||||||||||||
Subordinated convertible notes | ||||||||||||||||
Common Stock | ||||||||||||||||
Aggregate amount borrowed | $ 17,450,000 | |||||||||||||||
Issuance of stock (in shares) | 36,469 | |||||||||||||||
Convertible Preferred Stock [Member] | ||||||||||||||||
Common Stock | ||||||||||||||||
Issuance of stock (in shares) | 7,208,865 | |||||||||||||||
Series A Redeemable Convertible Preferred Stock [Member] | ||||||||||||||||
Common Stock | ||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 10,029 | 900 | 9,526 | |||||||||||||
Series B Redeemable Convertible Preferred Stock [Member] | ||||||||||||||||
Common Stock | ||||||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 161,112 | |||||||||||||||
Series B Redeemable Convertible Preferred Stock [Member] | Subordinated Loan and Security Agreement | ||||||||||||||||
Common Stock | ||||||||||||||||
Warrants holders cashless price | 161,112 | 161,112 | ||||||||||||||
First tranche | PubCo Merger | ||||||||||||||||
Common Stock | ||||||||||||||||
Maximum number of shares entitled to receive | 1,000,000 | |||||||||||||||
Second tranche | PubCo Merger | ||||||||||||||||
Common Stock | ||||||||||||||||
Maximum number of shares entitled to receive | 1,000,000 | |||||||||||||||
Third tranche | PubCo Merger | ||||||||||||||||
Common Stock | ||||||||||||||||
Maximum number of shares entitled to receive | 1,000,000 |
MERGER AND REVERSE RECAPITALI_5
MERGER AND REVERSE RECAPITALIZATION - Transactions prior (Details) - USD ($) | 1 Months Ended | 2 Months Ended | 3 Months Ended | 9 Months Ended | 11 Months Ended | 12 Months Ended | ||||||||||
Dec. 06, 2022 | Dec. 05, 2022 | Dec. 02, 2022 | Aug. 26, 2022 | May 09, 2022 | Oct. 31, 2023 | Sep. 30, 2023 | May 31, 2023 | Jun. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2023 | Dec. 05, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | Apr. 30, 2021 | Jan. 31, 2020 | |
Business Acquisition [Line Items] | ||||||||||||||||
Class of Warrant or Right, Exercised | (322,223) | |||||||||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 9,526,000 | |||||||||||||||
Aggregate amount of Bridge Loan (Unsecured Subordinate Promissory Notes( | $ 919,546 | |||||||||||||||
Vested | 381,689 | |||||||||||||||
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | ||||||||||
Redeemable convertible preferred stock, shares outstanding | 9,526 | 9,526 | 9,526 | 0 | 7,314,578 | |||||||||||
Common stock, shares outstanding | 16,041,464 | 16,288,124 | 16,288,124 | 16,288,124 | 16,041,464 | 24,566,386 | ||||||||||
Gross proceed form issuance of common stock - PIPE Equity | $ 163,573 | |||||||||||||||
New issuance shares for bonus shares purpose | 407,173 | |||||||||||||||
Issuance of Common Stock - services (in shares) | 20,000 | |||||||||||||||
Common stock in lieu of cash fees | $ 200,000 | $ 919,569 | $ 7,159,162 | |||||||||||||
Exercise price of warrants | $ 11.50 | |||||||||||||||
Proceeds from Issuance of Convertible Notes | $ 27,452,121 | |||||||||||||||
Subordinated Loan and Security Agreement | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Aggregate amount of Bridge Loan (Unsecured Subordinate Promissory Notes( | $ 800,000 | $ 800,000 | ||||||||||||||
Issuance of stock (in shares) | 42,464 | |||||||||||||||
Restricted common C shares | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Vested | 254,507 | 854,507 | 381,689 | |||||||||||||
Class A common stock | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Common stock, shares outstanding | 20,179,645 | |||||||||||||||
Series C common stock | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Options to purchase common stock | 600,000 | |||||||||||||||
Common stock, par value (in dollars per share) | $ 0.0001 | |||||||||||||||
Purchase price | $ 10 | |||||||||||||||
Common stock, shares outstanding | 2,713,649 | |||||||||||||||
Series A, Series B, and Series C common stock | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Conversion of stock | 4,084,418 | |||||||||||||||
Common stock, shares outstanding | 25,420,893 | 25,420,893 | ||||||||||||||
Convertible Preferred Stock [Member] | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Issuance of stock (in shares) | 7,208,865 | |||||||||||||||
Series A Redeemable Convertible Preferred Stock [Member] | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Issuance of redeemable convertible preferred stock | 10,029 | 900 | 9,526 | |||||||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 900,000 | $ 9,500,000 | ||||||||||||||
Convertible preferred stock | 3,052 | |||||||||||||||
Convertible Preferred Stock, shares issued upon conversion | 4,527,065 | |||||||||||||||
Conversion of stock | 45,270 | |||||||||||||||
Redeemable convertible preferred stock, shares outstanding | 26,245 | |||||||||||||||
Series A Redeemable Convertible Preferred Stock [Member] | The Bridge Loans | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Aggregate amount of Bridge Loan (Unsecured Subordinate Promissory Notes( | $ 3,052,065 | $ 3,052,065 | ||||||||||||||
Convertible preferred stock | 3,052 | |||||||||||||||
Conversion of stock | 305,206 | 305,206 | ||||||||||||||
Series B Redeemable Convertible Preferred Stock [Member] | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Class of Warrant or Right, Exercised | 161,112 | |||||||||||||||
Issuance of redeemable convertible preferred stock | 161,112 | |||||||||||||||
Conversion of stock | 7,449,445 | |||||||||||||||
Redeemable convertible preferred stock, shares outstanding | 7,288,333 | |||||||||||||||
Legacy Series B Convertible Preferred Stock [Member] | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Convertible Preferred Stock, shares issued upon conversion | 2,623,800 | |||||||||||||||
Conversion of stock | 7,288,333 | |||||||||||||||
Lakeshore ("Lakeshore") Acquisition I Corp | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Issuance of stock (in shares) | 820,722 | |||||||||||||||
Total bonus shares issued on clos of Merger transaction | 1,145,218 | |||||||||||||||
Number of shares retained | 480,637 | |||||||||||||||
Warrants issued | 4,597,180 | 4,597,180 | ||||||||||||||
Goodwill | $ 0 | |||||||||||||||
Proceeds from redemptions of Lakeshore's public stockholders | $ 24,370,000 | 24,400,000 | ||||||||||||||
Proceeds from PIPE Equity financing | 10,250,000 | |||||||||||||||
Proceeds from Issuance of Convertible Notes | 30,000,000 | |||||||||||||||
Transaction expenses | $ 11,530,000 | 11,530,000 | ||||||||||||||
Underwriters, Advisors And Convertible Notes Placement Agents | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Share compensation forfeited in exchange of new issuance of shares | $ 1,640,010 | |||||||||||||||
New issuance shares for bonus shares purpose | 164,010 | |||||||||||||||
Issuance of Common Stock - services (in shares) | 716,223 | |||||||||||||||
Common stock in lieu of cash fees | $ 7,160,000 | |||||||||||||||
2020 preferred Series B warrants and 2021 preferred Series B warrants | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Class of Warrant or Right, Exercised | 322,223 | |||||||||||||||
2020 preferred Series B warrants | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Class of Warrant or Right, Exercised | (211,112) | |||||||||||||||
Exercise price of warrants | $ 1.80 | $ 1.80 | ||||||||||||||
2021 preferred Series B warrants | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Class of Warrant or Right, Exercised | (111,111) | |||||||||||||||
Exercise price of warrants | $ 1.80 | $ 1.80 | ||||||||||||||
ProSomnus Common Holders | Series A Redeemable Convertible Preferred Stock [Member] | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Issuance of redeemable convertible preferred stock | 5,945 | |||||||||||||||
ProSomnus Common Holders | Series B Convertible Preferred Stock [Member] | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Convertible Preferred Stock, shares issued upon conversion | 58,000 | |||||||||||||||
PIPE Equity | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Issuance of stock (in shares) | 1,025,000 | 1,830,133 | ||||||||||||||
Gross proceed form issuance of common stock - PIPE Equity | $ 10,250,000 | |||||||||||||||
Total bonus shares issued on clos of Merger transaction | 10,250,000 | |||||||||||||||
PIPE Equity | Lakeshore ("Lakeshore") Acquisition I Corp | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Total bonus shares issued on clos of Merger transaction | 805,133 | |||||||||||||||
Proceeds from PIPE Equity financing | $ 10,250,000 | |||||||||||||||
Senior and subordinated convertible notes warrants | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Issuance of stock (in shares) | 326,713 | |||||||||||||||
Warrants issued | 1,914,907 | |||||||||||||||
Exercise price of warrants | $ 11.50 | |||||||||||||||
Senior and subordinated convertible notes warrants | Series A Redeemable Convertible Preferred Stock [Member] | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Proceeds from issue of redeemable convertible preferred stock | $ 10,030,000 | |||||||||||||||
Convertible preferred stock | 10,029 | |||||||||||||||
Convertible Preferred Stock, shares issued upon conversion | 1,002,869 | |||||||||||||||
Senior and subordinated convertible notes warrants | Lakeshore ("Lakeshore") Acquisition I Corp | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Proceeds from Issuance of Convertible Notes | $ 30,000,000 | |||||||||||||||
PIPE Debt SPA Shares | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Gross proceed form issuance of common stock - PIPE Equity | $ 478,867 | |||||||||||||||
Non redeemable shareholders | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Number of Founder Shares Transferred, Shares | 574,035 | |||||||||||||||
Non redeemable shareholders | Lakeshore ("Lakeshore") Acquisition I Corp | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Total bonus shares issued on clos of Merger transaction | 340,085 | |||||||||||||||
PubCo Merger | ||||||||||||||||
Business Acquisition [Line Items] | ||||||||||||||||
Gross proceeds from merger transaction | $ 45,170,000 |
PROPERTY AND EQUIPMENT (Detai_2
PROPERTY AND EQUIPMENT (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | Jan. 01, 2022 | |
PROPERTY AND EQUIPMENT | |||||||
Property and equipment, gross | $ 6,070,004 | $ 6,070,004 | $ 4,594,477 | $ 6,290,888 | |||
Less: accumulated depreciation | (2,330,383) | (2,330,383) | (2,190,075) | (2,934,293) | |||
Total property and equipment, net | 3,739,621 | 3,739,621 | 2,404,402 | 3,356,595 | |||
Depreciation expense | 400,000 | $ 200,000 | 578,503 | $ 302,932 | 424,359 | 827,568 | |
Amount reclassified from the equipment related to capital leases to right of use assets | 3,532,240 | 3,532,240 | 3,650,451 | ||||
Accounting Standards Update 2016-02 | |||||||
PROPERTY AND EQUIPMENT | |||||||
Amount reclassified from the equipment related to capital leases to right of use assets | $ 2,349,591 | ||||||
Manufacturing equipment | |||||||
PROPERTY AND EQUIPMENT | |||||||
Property and equipment, gross | 3,626,396 | 3,626,396 | 2,516,859 | 4,420,281 | |||
Computers and software | |||||||
PROPERTY AND EQUIPMENT | |||||||
Property and equipment, gross | 1,621,474 | 1,621,474 | 1,608,075 | 1,547,549 | |||
Furniture | |||||||
PROPERTY AND EQUIPMENT | |||||||
Property and equipment, gross | 27,587 | 27,587 | |||||
Leasehold Improvements | |||||||
PROPERTY AND EQUIPMENT | |||||||
Property and equipment, gross | $ 822,134 | $ 822,134 | $ 441,956 | $ 295,471 |
INVENTORY (Details)_2
INVENTORY (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
INVENTORY | |||
Raw Materials | $ 1,509,768 | $ 561,726 | $ 323,989 |
Work in progress | 140,329 | 78,219 | 54,780 |
Inventory net | 1,650,097 | 639,945 | 378,769 |
Excess or obsolete inventory reserves | $ 0 | $ 0 | $ 0 |
ACCRUED EXPENSES - Components_2
ACCRUED EXPENSES - Components (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
Accrued compensation | |||
Bonus | $ 832,918 | $ 831,601 | |
Wages | 218,974 | 140,962 | |
Vacation | 959,004 | 569,777 | |
Earned discounts | 554,642 | 499,219 | |
Commissions settlement | 274,323 | ||
Warranty | $ 464,812 | 269,496 | 217,244 |
Other | 196,308 | 481,540 | 264,533 |
Professional fees | 1,873,278 | 129,169 | 72,611 |
Interest | 381,595 | 110,239 | 28,750 |
401k matching contributions | 93,112 | 100,134 | |
Travel | 60,400 | ||
Credit card fees | 60,424 | 34,424 | |
Marketing expenses | 940,930 | 611,642 | 45,000 |
Accrued expenses | $ 8,373,482 | $ 3,706,094 | $ 3,078,578 |
ACCRUED EXPENSES (Details)
ACCRUED EXPENSES (Details) | 1 Months Ended | 12 Months Ended | |||
Apr. 30, 2019 USD ($) item | Jan. 31, 2019 USD ($) | Dec. 31, 2022 USD ($) | Dec. 31, 2018 USD ($) | Dec. 31, 2021 USD ($) | |
Accrued expenses | |||||
Amount paid | $ 300,000 | ||||
Number of quarterly payments | item | 16 | ||||
Amount of each quarterly payment | $ 75,000 | ||||
Net present value of obligation | $ 1,284,825 | ||||
Incremental borrowing rate | 15.04% | ||||
Remaining settlement | $ 0 | $ 274,323 | |||
Percentage of accrued invoice fee | 100% | ||||
Accrued invoice fee | $ 291,479 | ||||
Commission Agreement | |||||
Accrued expenses | |||||
Commission percentage | 15% | ||||
Amount agreed to pay | $ 1,600,000 | ||||
Amount paid | $ 400,000 |
LEASES - General (Details)_2
LEASES - General (Details) | 1 Months Ended | 9 Months Ended | 12 Months Ended | |||
May 17, 2022 USD ($) | Jun. 30, 2022 USD ($) lease | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 USD ($) | Dec. 15, 2022 | |
LEASES | ||||||
Monthly payment | $ 68,000 | |||||
Maximum monthly payment subject to escalation | $ 88,000 | |||||
Rent free period | 5 months | |||||
Security deposit | $ 200,000 | |||||
Number of years for which guarantee received | 2 years | |||||
Amount of guarantee received | $ 1,700,000 | |||||
Number of years rolling guarantee received | 1 year | |||||
Letter of credit | $ 700,000 | |||||
Number of finance leases extended | lease | 2 | |||||
Finance lease, extension term (in years) | 10 months | |||||
Additional commitments | $ 239,000 | $ 239,000 | $ 239,000 | |||
Total rent expense | $ 325,683 | $ 250,495 | ||||
Maximum | ||||||
LEASES | ||||||
Finance lease, Remaining term (in years) | 5 years | |||||
Minimum | ||||||
LEASES | ||||||
Finance lease, Remaining term (in years) | 1 year | |||||
Lease for corporate office | ||||||
LEASES | ||||||
Operating lease, Remaining term (in months) | 1 year | |||||
Lease for corporate headquarters | ||||||
LEASES | ||||||
Operating lease, Lease term (in years) | 10 years | 10 years | ||||
Right of use operating lease liability | $ 5,440,000 |
LEASES - Components of lease _2
LEASES - Components of lease cost, weighted average lease terms and discount rates (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Jun. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Lease Cost: | |||||||
Operating lease cost | $ 223,304 | $ 68,709 | $ 711,661 | $ 206,126 | $ 324,929 | ||
Finance lease cost: | |||||||
Amortization of assets obtained under finance leases | 285,251 | 274,712 | 681,763 | 597,904 | 772,870 | ||
Interest on lease liabilities | 126,880 | 104,409 | 282,990 | 223,263 | 288,969 | ||
Finance leases cost | $ 412,131 | $ 379,121 | $ 964,753 | 821,167 | $ 1,061,839 | ||
Weighted average discount rate: | |||||||
Operating leases | 10% | 10% | 10.31% | ||||
Finance leases | 10.20% | 10.20% | 11.17% | ||||
Weighted average remaining lease term: | |||||||
Operating leases | 9 years 3 months 18 days | 9 years 3 months 18 days | 9 years 7 months 6 days | ||||
Finance leases | 3 years 2 months 12 days | 3 years 2 months 12 days | 3 years 6 months | ||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating leases | $ (355,060) | $ (159,348) | |||||
Operating cash flows from finance leases | 246,879 | 772,870 | |||||
Financing cash flows from finance leases | (1,026,701) | (822,315) | (1,222,270) | $ (777,431) | |||
Right-of-use assets obtained in exchange for lease liabilities: | |||||||
Acquisition of ROU assets through operating leases | 5,435,661 | ||||||
Acquisition of property and equipment through finance financing | 1,560,520 | 2,233,834 | |||||
Addition of ROU assets from finance lease modification | $ 239,000 | $ 239,000 | 239,000 | ||||
ROU assets obtained in exchange for finance lease obligations | $ 1,273,511 | $ 2,472,834 |
LEASES - Right-of-use assets _2
LEASES - Right-of-use assets (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
LEASES | ||
Total | $ 6,155,645 | $ 5,592,095 |
Less accumulated amortization | (2,623,405) | (1,941,644) |
Right-of-use assets for finance leases | 3,532,240 | 3,650,451 |
Right-of-use assets for operating leases | 5,154,399 | 5,632,771 |
Total right-of-use assets | 8,686,639 | 9,283,222 |
Manufacturing equipment | ||
LEASES | ||
Total | 5,237,167 | 4,673,617 |
Computers and software | ||
LEASES | ||
Total | 700,234 | 700,234 |
Leasehold Improvements | ||
LEASES | ||
Total | $ 218,244 | $ 218,244 |
LEASES - Maturities of financ_2
LEASES - Maturities of finance lease liabilities (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
Years ending December 31 | |||
2023 | $ 1,287,461 | $ 1,275,119 | |
2024 | 1,057,500 | 863,280 | |
2025 | 739,115 | 785,386 | |
2026 | 192,568 | 597,933 | |
2027 | 190,283 | ||
Total minimum lease payments | 3,900,259 | 3,712,001 | |
Less amount representing interest | (563,452) | (622,004) | |
Present value of minimum lease payments | 3,336,807 | 3,089,997 | |
Less current portion | (1,109,899) | (1,008,587) | $ (926,104) |
Finance lease liabilities, less current portion | $ 2,226,908 | $ 2,081,410 | $ 866,853 |
LEASES - Maturities of operat_2
LEASES - Maturities of operating lease liabilities (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Year ending December 31 | ||
2023 | $ 842,553 | $ 794,619 |
2024 | 867,831 | 836,280 |
2025 | 893,862 | 861,372 |
2026 | 920,679 | 887,208 |
2027 | 913,824 | |
Thereafter | 4,997,184 | |
Total minimum lease payments | 8,666,685 | 9,290,487 |
Less amount representing interest | (3,107,847) | (3,549,882) |
Present value of minimum lease payments | 5,558,838 | 5,740,605 |
Less current portion | (290,869) | (215,043) |
Operating lease liabilities, less current portion | $ 5,267,969 | $ 5,525,562 |
DEBT - Equipment Financing Ob_2
DEBT - Equipment Financing Obligation (Details) | 12 Months Ended | ||||
Dec. 31, 2022 USD ($) | Dec. 31, 2021 USD ($) | Dec. 31, 2020 agreement | Dec. 31, 2018 agreement | Sep. 30, 2023 USD ($) | |
DEBT | |||||
Number of equipment financing arrangements | agreement | 1 | 1 | |||
Outstanding balance of notes | $ 244,618 | $ 199,008 | |||
Balance of notes | 244,618 | $ 299,950 | |||
Balance of interest expense | 30,497 | $ 36,167 | |||
Future principal maturities under the equipment financing obligation | |||||
2023 | 58,973 | 56,995 | |||
2024 | 56,995 | 63,698 | |||
2025 | 63,698 | 64,952 | |||
2026 | 64,952 | ||||
Total principal maturities | 244,618 | 199,008 | |||
Less current portion | (58,973) | (55,510) | |||
Equipment financing obligation, net of current portion | $ 185,645 | $ 143,498 |
DEBT - Line of Credit (Details)
DEBT - Line of Credit (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
Line of Credit | ||
Revolving line of credit | $ 587,816 | |
Line of Credit | ||
Line of Credit | ||
Revolving line of credit | $ 0 | 587,816 |
Interest expense | $ 247,334 | $ 135,581 |
DEBT - Equipment Financing Ob_3
DEBT - Equipment Financing Obligation (Details) - USD ($) | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2019 | Jun. 29, 2022 | |
Subordinated Notes | |||||
Debt | |||||
Gross proceeds | $ 400,000 | $ 375,000 | $ 2,765,000 | $ 2,208,299 | |
Issuance costs | $ 0 | 0 | 0 | $ 76,701 | |
Amortization of issuance costs | 18,184 | 18,273 | |||
Interest rate per annum | 14% | ||||
Interest expense | $ 101,548 | ||||
Unpaid interest at the following rates: | |||||
Less than one (1) year from the funding date | 3% | ||||
One (1) year to less than two (2) years from the funding date | 2% | ||||
Two (2) years to less than three (3) years from the funding date | 1% | ||||
A change in control event | 5% | ||||
Subordinated Notes | Stockholders, directors, and employees | |||||
Debt | |||||
Gross proceeds | $ 250,000 | 1,440,000 | |||
Subordinated Notes | Customers | |||||
Debt | |||||
Gross proceeds | 50,000 | 1,330,000 | |||
Cash Notes | |||||
Debt | |||||
Gross proceeds | $ 750,000 | ||||
Interest rate per annum | 15% | ||||
Interest expense | $ 181,067 | 114,062 | |||
PIK Notes | |||||
Debt | |||||
Gross proceeds | $ 5,440,000 | ||||
Interest rate per annum | 20% | ||||
Interest expense | $ 2,251,260 | $ 710,443 |
DEBT - Unsecured Subordinated_2
DEBT - Unsecured Subordinated Promissory Notes (Details) - USD ($) | 1 Months Ended | 2 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||
Dec. 06, 2022 | Dec. 02, 2022 | May 09, 2022 | May 04, 2022 | Apr. 30, 2022 | Mar. 31, 2022 | Apr. 30, 2021 | Jan. 31, 2020 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Debt | |||||||||||||
Repayments of debt | $ 75,000 | $ 75,000 | |||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 919,546 | ||||||||||||
Series A redeemable convertible preferred stock | |||||||||||||
Debt | |||||||||||||
Conversion of stock | 45,270 | ||||||||||||
Convertible preferred stock | 3,052 | ||||||||||||
The Bridge Loans | |||||||||||||
Debt | |||||||||||||
Proceeds from debt | $ 150,000 | $ 3,000,000 | $ 5,100,000 | ||||||||||
Interest rate per annum | 15% | 15% | |||||||||||
Maturity | 2 years | ||||||||||||
Increase in interest (as a percent) | 103% | ||||||||||||
Repayments of debt | $ 500,000 | ||||||||||||
Additional grant of debt (as a percent) | 5% | ||||||||||||
The Bridge Loans | Series A redeemable convertible preferred stock | |||||||||||||
Debt | |||||||||||||
Additional grant of debt (as a percent) | 5% | ||||||||||||
Debt elected for conversion | $ 2,550,000 | ||||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 3,052,065 | $ 3,052,065 | |||||||||||
Conversion of stock | 305,206 | 305,206 | |||||||||||
Convertible preferred stock | 3,052 | ||||||||||||
The Bridge Loans | Maximum | |||||||||||||
Debt | |||||||||||||
Period to elect for conversion | 10 days | ||||||||||||
Subordinated Loan and Security Agreement | |||||||||||||
Debt | |||||||||||||
Repayments of debt | $ 9,719,135 | $ 9,719,135 | |||||||||||
Conversion of Subordinated Convertible Notes to common stock | $ 800,000 | $ 800,000 | |||||||||||
First loan and security agreement with a lender | |||||||||||||
Debt | |||||||||||||
Maturity | 4 years | ||||||||||||
Second loan and security agreement with a lender | |||||||||||||
Debt | |||||||||||||
Maturity | 3 years |
DEBT - Secured Subordinated loa
DEBT - Secured Subordinated loan (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||
Dec. 06, 2022 | Dec. 02, 2022 | Aug. 26, 2022 | Jun. 29, 2022 | May 09, 2022 | Oct. 31, 2023 | Nov. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Debt | ||||||||||||
Gain (loss) on extinguishment of debt | $ (9,743,043) | $ (9,743,043) | $ (192,731) | $ (2,597,842) | ||||||||
Outstanding balance of notes | $ 199,008 | $ 199,008 | 244,618 | |||||||||
Repayments of debt | $ 75,000 | 75,000 | ||||||||||
Proceeds from convertible debt | $ 27,452,121 | |||||||||||
Convertible notes payable | ||||||||||||
Debt | ||||||||||||
Proceeds from convertible debt | $ (30,000,000) | |||||||||||
Series A redeemable convertible preferred stock | ||||||||||||
Debt | ||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 10,029 | 900 | 9,526 | |||||||||
Conversion of convertible securities | 1,002,869 | |||||||||||
Series B Redeemable Convertible Preferred Stock | ||||||||||||
Debt | ||||||||||||
Issuance of Series A Convertible Preferred Stock (in shares) | 161,112 | |||||||||||
Secured subordinated loan | ||||||||||||
Debt | ||||||||||||
Interest rate per annum | 14% | |||||||||||
Additional interest rate | 6% | |||||||||||
Debt installment payments | $ 100,000 | |||||||||||
Gain (loss) on extinguishment of debt | $ 192,731 | |||||||||||
Percent of conversion premium | 14% | |||||||||||
Interest expense | $ 101,548 | |||||||||||
Secured subordinated loan | Maximum | ||||||||||||
Debt | ||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 2,000,000 | |||||||||||
Convertible Bridge Loan Advance | ||||||||||||
Debt | ||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 2,000,000 | |||||||||||
Interest rate per annum | 14% | |||||||||||
Additional interest rate | 6% | |||||||||||
Debt installment payments | $ 100,000 | |||||||||||
Proceeds from debt | $ 2,000,000 | |||||||||||
Subordinated Debt | ||||||||||||
Debt | ||||||||||||
Equipment financing arrangements to purchase capital equipment | $ 2,547,879 | |||||||||||
Gain (loss) on extinguishment of debt | (2,405,111) | |||||||||||
Interest expense | $ 47,046 | $ 89,750 | ||||||||||
Debt conversion | 80,000 | 80,000 | ||||||||||
Debt instrument converted bonus | 65,604 | 65,604 | ||||||||||
Number of common stock shares, called by warrants | 296,456 | |||||||||||
Repayments of debt | $ 9,719,135 | $ 9,719,135 | ||||||||||
Subordinated Debt | Series B Redeemable Convertible Preferred Stock | ||||||||||||
Debt | ||||||||||||
Warrants holders cashless price | 161,112 | 161,112 |
DEBT - Paycheck Protection Prog
DEBT - Paycheck Protection Program Loan (Details) - USD ($) | 12 Months Ended | ||||||
Sep. 16, 2021 | Jun. 16, 2021 | Feb. 02, 2021 | Dec. 31, 2022 | Sep. 30, 2023 | Dec. 31, 2021 | May 06, 2020 | |
Debt | |||||||
Gain on forgiveness of loan | $ 2,281,262 | ||||||
Outstanding balance of notes | 244,618 | $ 199,008 | |||||
Paycheck Protection Program Loan | |||||||
Debt | |||||||
Interest rate | 1% | ||||||
Term of debt (in years) | 2 years | ||||||
Outstanding balance of notes | $ 0 | $ 0 | |||||
PPP Loan 1 | |||||||
Debt | |||||||
Aggregate amount borrowed | $ 1,278,150 | ||||||
Forgiveness of loan | $ 1,278,150 | ||||||
PPP Loan 2 | |||||||
Debt | |||||||
Aggregate amount borrowed | $ 1,003,112 | ||||||
Forgiveness of loan | $ 1,003,112 |
DEBT - Subordinated Loan and Se
DEBT - Subordinated Loan and Security Agreement (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Aug. 26, 2022 USD ($) shares | Apr. 30, 2021 USD ($) $ / shares shares | Jan. 31, 2020 USD ($) $ / shares shares | Sep. 30, 2023 USD ($) | Sep. 30, 2023 USD ($) | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) $ / shares | Dec. 31, 2021 USD ($) Y $ / shares | |
Debt | ||||||||
Compensating balance | $ 500,000 | $ 500,000 | ||||||
Exercise price of warrants | $ / shares | $ 11.50 | |||||||
Balance of debt discount | $ 0 | 242,277 | ||||||
Change in fair value of the outstanding warrants classified as liabilities | ||||||||
Change in fair value of warrant liability | $ (593,621) | $ (1,857,460) | $ 20,756 | (3,234,586) | 190,911 | |||
2020 preferred Series B warrants and 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Fair value of the warrant at issuance | 562,244 | |||||||
Change in fair value of the outstanding warrants classified as liabilities | ||||||||
Warrant liability, beginning | $ 562,244 | 562,244 | 228,000 | |||||
Fair value of warrants granted | 143,333 | |||||||
Fair value of exercised | (580,000) | |||||||
Change in fair value of warrant liability | 17,756 | 190,911 | ||||||
Warrant liability, ending | $ 562,244 | |||||||
2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Warrants issued to purchase shares | shares | 211,112 | |||||||
Exercise price of warrants | $ / shares | $ 1.80 | $ 1.80 | ||||||
Valuation cap in case of liquidation | $ 150,000,000 | |||||||
Term of warrants (in years) | 10 years | |||||||
Fair value of the warrant at issuance | $ 228,000 | |||||||
Change in fair value of the outstanding warrants classified as liabilities | ||||||||
Warrant liability, ending | $ 228,000 | |||||||
2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Warrants issued to purchase shares | shares | 111,111 | |||||||
Exercise price of warrants | $ / shares | $ 1.80 | $ 1.80 | ||||||
Valuation cap in case of liquidation | $ 150,000,000 | |||||||
Term of warrants (in years) | 10 years | |||||||
Fair value of the warrant at issuance | $ 143,333 | |||||||
Change in fair value of the outstanding warrants classified as liabilities | ||||||||
Warrant liability, ending | $ 143,333 | |||||||
Fair Value of Series B Redeemable Convertible Preferred Stock | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 2.89 | |||||||
Fair Value of Series B Redeemable Convertible Preferred Stock | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 2.89 | |||||||
Dividend Yield | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0 | |||||||
Dividend Yield | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0 | |||||||
Expected Volatility | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.20 | |||||||
Expected Volatility | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.20 | |||||||
Risk-Free Interest rate | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.0152 | |||||||
Risk-Free Interest rate | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.0152 | |||||||
Expected Life | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | Y | 8.10 | |||||||
Expected Life | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | Y | 9.26 | |||||||
Weighted Average [Member] | Fair Value of Series B Redeemable Convertible Preferred Stock | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | $ / shares | 1.80 | |||||||
Weighted Average [Member] | Fair Value of Series B Redeemable Convertible Preferred Stock | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | $ / shares | 1.80 | |||||||
Weighted Average [Member] | Dividend Yield | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0 | |||||||
Weighted Average [Member] | Dividend Yield | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0 | |||||||
Weighted Average [Member] | Expected Volatility | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.26 | |||||||
Weighted Average [Member] | Expected Volatility | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.27 | |||||||
Weighted Average [Member] | Risk-Free Interest rate | 2020 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.0093 | |||||||
Weighted Average [Member] | Risk-Free Interest rate | 2021 preferred Series B warrants | ||||||||
Debt | ||||||||
Measurement input | 0.0173 | |||||||
Subordinated Loan and Security Agreement | ||||||||
Debt | ||||||||
Aggregate amount borrowed | $ 2,547,879 | |||||||
Issuance of stock (in shares) | shares | 42,464 | |||||||
Outstanding balance of notes | $ 6,589,563 | |||||||
Interest expense | $ 47,046 | $ 89,750 | ||||||
Subordinated Loan and Security Agreement | Minimum | ||||||||
Debt | ||||||||
Effective interest rate (in percent) | 25.80% | 25.80% | ||||||
Subordinated Loan and Security Agreement | Maximum | ||||||||
Debt | ||||||||
Effective interest rate (in percent) | 27.20% | 26.20% | ||||||
First loan and security agreement with a lender | ||||||||
Debt | ||||||||
Aggregate amount borrowed | $ 3,800,000 | |||||||
Maturity | 4 years | |||||||
Monthly loan repayable equal to percentage of net revenues | 4% | |||||||
Amount of return cap | $ 9,500,000 | |||||||
First loan and security agreement with a lender | If fully repaid with in 12 months | ||||||||
Debt | ||||||||
Team of return cap | 12 months | |||||||
Return cap (in percent) | 30% | |||||||
First loan and security agreement with a lender | If fully repaid with in 24 months | ||||||||
Debt | ||||||||
Team of return cap | 24 months | |||||||
Return cap (in percent) | 22% | |||||||
First loan and security agreement with a lender | If fully repaid with in 36 months | ||||||||
Debt | ||||||||
Team of return cap | 36 months | |||||||
Return cap (in percent) | 11.85% | |||||||
Second loan and security agreement with a lender | ||||||||
Debt | ||||||||
Aggregate amount borrowed | $ 2,000,000 | |||||||
Maturity | 3 years | |||||||
Monthly loan repayable equal to percentage of net revenues | 1.0526% | |||||||
Monthly loan repayable equal to percentage of net revenues ins second year | 2.105% | |||||||
Amount of return cap | $ 3,902,800 | |||||||
Revenue share payments | $ 1,580,019 | $ 602,637 | ||||||
Second loan and security agreement with a lender | If fully repaid with in 12 months | ||||||||
Debt | ||||||||
Team of return cap | 12 months | |||||||
Return cap (in percent) | 22% | |||||||
Second loan and security agreement with a lender | If fully repaid with in 24 months | ||||||||
Debt | ||||||||
Team of return cap | 24 months | |||||||
Return cap (in percent) | 11.85% | |||||||
Subordinated Loan and Security Agreement, Principal [Member] | ||||||||
Debt | ||||||||
Outstanding balance of notes | 4,876,496 | |||||||
Subordinated Loan and Security Agreement, Interest [Member] | ||||||||
Debt | ||||||||
Outstanding balance of notes | $ 2,681,560 |
DEBT - Convertible debt agree_2
DEBT - Convertible debt agreements (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Dec. 06, 2022 USD ($) $ / shares shares | Aug. 26, 2022 USD ($) shares | Apr. 30, 2021 USD ($) | Jan. 31, 2020 USD ($) | Sep. 30, 2023 USD ($) | Sep. 30, 2023 USD ($) | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) D $ / shares | |
Debt | ||||||||
Exercise price of warrants | $ / shares | $ 11.50 | |||||||
Loss on debt extinguishment | $ (9,743,043) | $ (9,743,043) | $ (192,731) | $ (2,597,842) | ||||
Threshold trading days | D | 20 | |||||||
Threshold consecutive trading days | D | 30 | |||||||
Convertible stock price trigger | $ / shares | $ 18 | |||||||
Convertible conversion ratio | 86.95652173913042 | |||||||
Principal amount | $ 1,000 | |||||||
Aggregate principal amount | 25% | |||||||
Convertible debt agreements | ||||||||
Debt | ||||||||
Equipment financing arrangements to purchase capital equipment | $ 30,000,000 | |||||||
Subordinated convertible notes | ||||||||
Debt | ||||||||
Equipment financing arrangements to purchase capital equipment | 17,450,000 | |||||||
Issuance of stock (in shares) | shares | 36,469 | |||||||
Senior Convertible Notes | ||||||||
Debt | ||||||||
Equipment financing arrangements to purchase capital equipment | $ 16,960,000 | 16,960,000 | ||||||
Maturity | 3 years | |||||||
Interest rate per annum | 9% | |||||||
Senior Convertible Notes | Senior Convertible Notes warrants | ||||||||
Debt | ||||||||
Number of common stock shares, called by warrants | shares | 169,597 | |||||||
Exercise price of warrants | $ / shares | $ 11.50 | |||||||
Subordinated Convertible Notes | ||||||||
Debt | ||||||||
Equipment financing arrangements to purchase capital equipment | $ 17,450,000 | |||||||
Maturity | 3 years | 3 years | ||||||
Issuance of stock (in shares) | shares | 290,244 | |||||||
Subordinated Convertible Notes | Senior Convertible Notes warrants | ||||||||
Debt | ||||||||
Number of common stock shares, called by warrants | shares | 1,745,310 | |||||||
Subordinated Convertible Notes | Prime Rate [Member] | ||||||||
Debt | ||||||||
Spread on interest rate | 9% | 9% | ||||||
Subordinated Loan and Security Agreement | ||||||||
Debt | ||||||||
Equipment financing arrangements to purchase capital equipment | $ 2,547,879 | |||||||
Number of common stock shares, called by warrants | shares | 296,456 | |||||||
Issuance of stock (in shares) | shares | 42,464 | |||||||
Subordinated debt | $ 0 | |||||||
Loss on debt extinguishment | $ (2,405,111) | |||||||
First loan and security agreement with a lender | ||||||||
Debt | ||||||||
Equipment financing arrangements to purchase capital equipment | $ 3,800,000 | |||||||
Maturity | 4 years | |||||||
Second loan and security agreement with a lender | ||||||||
Debt | ||||||||
Equipment financing arrangements to purchase capital equipment | $ 2,000,000 | |||||||
Maturity | 3 years |
DEBT - Fair Value of Converti_2
DEBT - Fair Value of Convertible Notes (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
Sep. 30, 2023 USD ($) $ / shares | Jun. 30, 2023 USD ($) | Mar. 31, 2023 USD ($) | Sep. 30, 2023 USD ($) $ / shares | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) $ / shares | Dec. 31, 2021 USD ($) | Dec. 06, 2022 $ / shares | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Change in fair value of warrant liability | $ (593,621) | $ (1,857,460) | $ 20,756 | $ (3,234,586) | $ 190,911 | |||
Measurement Input, Asset Price [Member] | Senior Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | $ / shares | 1.04 | 1.04 | 5.56 | 8.69 | ||||
Measurement Input, Asset Price [Member] | Subordinated Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | $ / shares | 1.04 | 1.04 | 5.56 | 8.69 | ||||
Measurement Input, Risky Yield [Member] | Senior Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | 0.2670 | 0.2670 | 0.3180 | 0.3080 | ||||
Measurement Input, Risky Yield [Member] | Subordinated Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | 0.3610 | 0.3610 | 0.4120 | 0.4020 | ||||
Expected Volatility | Senior Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | 0.60 | 0.60 | 0.45 | 0.40 | ||||
Expected Volatility | Subordinated Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | 0.60 | 0.60 | 0.45 | 0.40 | ||||
Risk-Free Interest rate | Senior Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | 0.0499 | 0.0499 | 0.0423 | 0.0407 | ||||
Risk-Free Interest rate | Subordinated Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Debt Instrument, Measurement Input | 0.0491 | 0.0491 | 0.0419 | 0.0401 | ||||
Senior Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Convertible notes, beginning balance | $ 12,928,404 | $ 14,478,000 | $ 13,651,000 | $ 13,651,000 | ||||
Fair value of convertible notes on issuance | 1,142,781 | $ 14,536,000 | ||||||
Change in fair value of convertible notes | (784,780) | (1,549,596) | 827,000 | (885,000) | ||||
Convertible notes, ending balance | 13,286,405 | 12,928,404 | 14,478,000 | 13,286,405 | 13,651,000 | |||
Subordinated Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Convertible notes, beginning balance | 15,225,000 | 12,079,380 | 10,355,681 | 10,355,681 | ||||
Fair value of convertible notes on issuance | 6,318,711 | 10,223,000 | ||||||
Change in fair value of convertible notes | (2,914,956) | 2,352,026 | 1,000,000 | (69,000) | ||||
Convertible notes, ending balance | $ 18,720,000 | $ 15,225,000 | $ 12,079,380 | $ 18,720,000 | 10,355,681 | |||
Senior and Subordinated Convertible Notes | ||||||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||
Interest accrued | 311,919 | |||||||
Issuance costs | 83,000 | |||||||
Change in fair value of warrant liability | $ 5,845 |
COMMON STOCK WARRANTS (Detail_2
COMMON STOCK WARRANTS (Details) - $ / shares | 12 Months Ended | ||||
Dec. 06, 2022 | Nov. 28, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | Jun. 30, 2021 | |
Class of Warrant or Right [Line Items] | |||||
Warrant outstanding | 6,512,087 | 322,223 | |||
Exercise price of warrants | $ 11.50 | ||||
Lakeshore ("Lakeshore") Acquisition I Corp | |||||
Class of Warrant or Right [Line Items] | |||||
Warrants issued | 4,597,180 | 4,597,180 | |||
Number of shares issuable per warrant | 4,597,180 | 1 | |||
Senior and subordinated convertible notes warrants | |||||
Class of Warrant or Right [Line Items] | |||||
Exercise price of warrants | $ 11.50 | ||||
Warrants issued | 1,914,907 | ||||
Private placement warrants | |||||
Class of Warrant or Right [Line Items] | |||||
Exercise price of warrants | $ 11.50 | $ 11.50 | |||
Warrants issued | 196,256 | ||||
Number of shares issuable per warrant | 1 | ||||
Private placement warrants | Lakeshore ("Lakeshore") Acquisition I Corp | |||||
Class of Warrant or Right [Line Items] | |||||
Warrant outstanding | 196,256 | ||||
Exercise price of warrants | $ 11.50 | ||||
Number of shares issuable per warrant | 1 | ||||
Public warrants | |||||
Class of Warrant or Right [Line Items] | |||||
Warrant outstanding | 4,100,239 | ||||
Exercise price of warrants | $ 11.50 | ||||
Public warrants | Lakeshore ("Lakeshore") Acquisition I Corp | |||||
Class of Warrant or Right [Line Items] | |||||
Warrant outstanding | 4,100,239 | ||||
Additional Private Placement Warrants | Lakeshore ("Lakeshore") Acquisition I Corp | |||||
Class of Warrant or Right [Line Items] | |||||
Warrants issued | 300,685 |
COMMON STOCK WARRANTS - Warrant
COMMON STOCK WARRANTS - Warrant Activity (Details) | 12 Months Ended |
Dec. 31, 2022 shares | |
Class of Warrant or Right [Line Items] | |
Warrants Outstanding | 322,223 |
Class of Warrant or Right, Granted | 6,512,087 |
Class of Warrant or Right, Exercised | (322,223) |
Warrants Outstanding | 6,512,087 |
Convertible notes warrants - senior debt | |
Class of Warrant or Right [Line Items] | |
Class of Warrant or Right, Granted | 169,597 |
Warrants Outstanding | 169,597 |
Convertible notes warrants - subordinated debt | |
Class of Warrant or Right [Line Items] | |
Class of Warrant or Right, Granted | 1,745,310 |
Warrants Outstanding | 1,745,310 |
Private Warrants | |
Class of Warrant or Right [Line Items] | |
Class of Warrant or Right, Granted | 196,256 |
Warrants Outstanding | 196,256 |
Public Warrants | |
Class of Warrant or Right [Line Items] | |
Class of Warrant or Right, Granted | 4,100,239 |
Warrants Outstanding | 4,100,239 |
Additional Private Warrants | |
Class of Warrant or Right [Line Items] | |
Class of Warrant or Right, Granted | 300,685 |
Warrants Outstanding | 300,685 |
2021 preferred Series B warrants | |
Class of Warrant or Right [Line Items] | |
Warrants Outstanding | 111,111 |
Class of Warrant or Right, Exercised | (111,111) |
Warrants Outstanding | 0 |
2020 preferred Series B warrants | |
Class of Warrant or Right [Line Items] | |
Warrants Outstanding | 211,112 |
Class of Warrant or Right, Exercised | (211,112) |
COMMON STOCK WARRANTS - Loan an
COMMON STOCK WARRANTS - Loan and Security Agreement (Details) - USD ($) | 12 Months Ended | ||||
Dec. 31, 2022 | Dec. 31, 2021 | Apr. 30, 2021 | Dec. 31, 2020 | Jan. 31, 2020 | |
Class of Warrant or Right [Line Items] | |||||
Exercise price of warrants | $ 11.50 | ||||
Debt discount | $ 0 | $ 242,277 | |||
Warrant outstanding | 6,512,087 | 322,223 | |||
Series B Redeemable Convertible Preferred Stock | |||||
Class of Warrant or Right [Line Items] | |||||
Issuance of Series A Convertible Preferred Stock (in shares) | 161,112 | ||||
Subordinated Loan and Security Agreement | |||||
Class of Warrant or Right [Line Items] | |||||
Interest expense | $ 47,046 | $ 89,750 | |||
2020 preferred Series B warrants and 2021 preferred Series B warrants | |||||
Class of Warrant or Right [Line Items] | |||||
Fair value of the warrant at issuance | $ 562,244 | $ 228,000 | |||
2020 preferred Series B warrants | |||||
Class of Warrant or Right [Line Items] | |||||
Warrants issued to purchase shares | 211,112 | ||||
Exercise price of warrants | $ 1.80 | $ 1.80 | |||
Term of warrants (in years) | 10 years | ||||
Valuation cap in case of liquidation | $ 150,000,000 | ||||
Fair value of the warrant at issuance | $ 228,000 | ||||
Warrant outstanding | 211,112 | ||||
2021 preferred Series B warrants | |||||
Class of Warrant or Right [Line Items] | |||||
Warrants issued to purchase shares | 111,111 | ||||
Exercise price of warrants | $ 1.80 | $ 1.80 | |||
Term of warrants (in years) | 10 years | ||||
Valuation cap in case of liquidation | $ 150,000,000 | ||||
Fair value of the warrant at issuance | $ 143,333 | ||||
Warrant outstanding | 0 | 111,111 |
COMMON STOCK WARRANTS - Convert
COMMON STOCK WARRANTS - Convertible Notes Warrants (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2022 | Sep. 30, 2023 | Dec. 06, 2022 | |
Class of Warrant or Right [Line Items] | |||
Exercise price of warrants | $ 11.50 | ||
Convertible notes warrants - senior debt | |||
Class of Warrant or Right [Line Items] | |||
Warrants issued | 169,597 | ||
Exercise price of warrants | $ 11.50 | $ 11.50 | |
Term of warrants (in years) | 5 years | ||
Convertible notes warrants - subordinated debt | |||
Class of Warrant or Right [Line Items] | |||
Warrants issued | 1,745,310 | ||
Exercise price of warrants | $ 11.50 | $ 11.50 | |
Term of warrants (in years) | 5 years | ||
Convertible notes warrants | |||
Class of Warrant or Right [Line Items] | |||
Exercise price of warrants | $ 11.50 | $ 11.50 | |
Fair value of warrants | $ 5,246,845 |
COMMON STOCK WARRANTS - Black_2
COMMON STOCK WARRANTS - Black-Scholes Option Pricing Assumptions (Details) | Dec. 31, 2022 Y $ / shares | Dec. 06, 2022 Y $ / shares | Dec. 31, 2021 Y $ / shares | Apr. 30, 2021 $ / shares | Jan. 31, 2020 $ / shares |
COMMON STOCK WARRANTS | |||||
Exercise Price | $ 11.50 | ||||
Convertible notes warrants - senior debt | |||||
COMMON STOCK WARRANTS | |||||
Exercise Price | $ 11.50 | $ 11.50 | |||
Convertible notes warrants - senior debt | Share Price | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 5.56 | 8.69 | |||
Convertible notes warrants - senior debt | Dividend Yield | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0 | 0 | |||
Convertible notes warrants - senior debt | Expected Volatility | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.40 | 0.40 | |||
Convertible notes warrants - senior debt | Risk-Free Interest rate | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.0400 | 0.0370 | |||
Convertible notes warrants - senior debt | Expected Life | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | Y | 4.93 | 5 | |||
Convertible notes warrants - subordinated debt | |||||
COMMON STOCK WARRANTS | |||||
Exercise Price | $ 11.50 | $ 11.50 | |||
Convertible notes warrants - subordinated debt | Share Price | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 5.56 | 8.69 | |||
Convertible notes warrants - subordinated debt | Dividend Yield | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0 | 0 | |||
Convertible notes warrants - subordinated debt | Expected Volatility | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.40 | 0.40 | |||
Convertible notes warrants - subordinated debt | Risk-Free Interest rate | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.0400 | 0.0370 | |||
Convertible notes warrants - subordinated debt | Expected Life | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | Y | 4.93 | 5 | |||
2020 preferred Series B warrants | |||||
COMMON STOCK WARRANTS | |||||
Exercise Price | $ 1.80 | $ 1.80 | |||
2020 preferred Series B warrants | Share Price | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 2.89 | ||||
2020 preferred Series B warrants | Dividend Yield | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0 | ||||
2020 preferred Series B warrants | Expected Volatility | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.20 | ||||
2020 preferred Series B warrants | Risk-Free Interest rate | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.0152 | ||||
2020 preferred Series B warrants | Expected Life | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | Y | 8.10 | ||||
2021 preferred Series B warrants | |||||
COMMON STOCK WARRANTS | |||||
Exercise Price | $ 1.80 | $ 1.80 | |||
2021 preferred Series B warrants | Share Price | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 2.89 | ||||
2021 preferred Series B warrants | Dividend Yield | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0 | ||||
2021 preferred Series B warrants | Expected Volatility | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.20 | ||||
2021 preferred Series B warrants | Risk-Free Interest rate | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | 0.0152 | ||||
2021 preferred Series B warrants | Expected Life | |||||
COMMON STOCK WARRANTS | |||||
Measurement input | Y | 9.26 |
COMMON STOCK WARRANTS - Private
COMMON STOCK WARRANTS - Private warrants, Public warrants and Additional Private warrants (Details) - USD ($) | 9 Months Ended | 12 Months Ended | ||
Dec. 06, 2022 | Sep. 30, 2023 | Dec. 31, 2022 | Jun. 30, 2021 | |
Class of Warrant or Right [Line Items] | ||||
Share price | $ 0.145 | |||
Fair value of class of warrant or right | $ 666,600 | |||
Warrant or right issued | 9,151,704 | 4,597,180 | ||
Public and Private Placement Warrants | ||||
Class of Warrant or Right [Line Items] | ||||
Number of shares issuable per warrant | 1 | |||
Share price | $ 11.50 | |||
Term of warrants (in years) | 5 years | |||
Warrant convertible in stock redeemable, stock price trigger | $ 18 | |||
Lakeshore ("Lakeshore") Acquisition I Corp | ||||
Class of Warrant or Right [Line Items] | ||||
Warrants issued | 4,597,180 | 4,597,180 | ||
Number of shares issuable per warrant | 4,597,180 | 1 | ||
Share price | $ 11.50 |
COMMON STOCK WARRANTS - Fair _2
COMMON STOCK WARRANTS - Fair Value of Outstanding Warrants (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Change in fair value of the outstanding warrants classified as liabilities | |||||
Change in fair value of warrant liability | $ (593,621) | $ (1,857,460) | $ 20,756 | $ (3,234,586) | $ 190,911 |
Convertible notes warrants - senior debt | |||||
Change in fair value of the outstanding warrants classified as liabilities | |||||
Warrant liability, beginning | 176,381 | ||||
Fair value of warrants granted | 464,696 | ||||
Change in fair value of warrant liability | (288,315) | ||||
Warrant liability, ending | 176,381 | ||||
Convertible notes warrants - subordinated debt | |||||
Change in fair value of the outstanding warrants classified as liabilities | |||||
Warrant liability, beginning | $ 1,815,122 | ||||
Fair value of warrants granted | 4,782,149 | ||||
Change in fair value of warrant liability | (2,967,027) | ||||
Warrant liability, ending | 1,815,122 | ||||
2020 preferred Series B warrants and 2021 preferred Series B warrants | |||||
Change in fair value of the outstanding warrants classified as liabilities | |||||
Warrant liability, beginning | $ 562,244 | 562,244 | 228,000 | ||
Fair value of warrants granted | 143,333 | ||||
Fair value of exercised | (580,000) | ||||
Change in fair value of warrant liability | $ 17,756 | 190,911 | |||
Warrant liability, ending | $ 562,244 |
FAIR VALUE - Fair Value on a Re
FAIR VALUE - Fair Value on a Recurring Basis (Details) - Recurring - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
Convertible notes payable | |||
FAIR VALUE | |||
Fair value | $ 13,286,405 | $ 13,651,000 | |
Convertible notes payable | Level 3 | |||
FAIR VALUE | |||
Fair value | 13,286,405 | 13,651,000 | |
Subordinated convertible notes | |||
FAIR VALUE | |||
Fair value | 18,720,000 | 10,355,681 | |
Subordinated convertible notes | Level 3 | |||
FAIR VALUE | |||
Fair value | 18,720,000 | 10,355,681 | |
Earn-out liability | |||
FAIR VALUE | |||
Fair value | 730,000 | 12,810,000 | |
Earn-out liability | Level 3 | |||
FAIR VALUE | |||
Fair value | 730,000 | 12,810,000 | |
Warrant liability | |||
FAIR VALUE | |||
Fair value | 134,043 | 1,991,503 | $ 562,244 |
Warrant liability | Level 3 | |||
FAIR VALUE | |||
Fair value | $ 134,043 | $ 1,991,503 | $ 562,244 |
COMMON STOCK (Details)
COMMON STOCK (Details) - $ / shares | Sep. 30, 2023 | Mar. 05, 2023 | Dec. 31, 2022 | Dec. 06, 2022 | Dec. 31, 2021 |
Class of Stock [Line Items] | |||||
Common stock, shares authorized | 100,000,000 | 100,000,000 | 36,038,535 | ||
Shares authorized | 101,000,000 | ||||
Par value per share | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | |
Common stock, shares issued | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 | |
Common stock, shares outstanding | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 | |
Series A | |||||
Class of Stock [Line Items] | |||||
Common stock, shares authorized | 30,415,100 | ||||
Common stock, shares issued | 20,179,645 | ||||
Common stock, shares outstanding | 20,179,645 | ||||
Series B | |||||
Class of Stock [Line Items] | |||||
Common stock, shares authorized | 1,675,600 | ||||
Common stock, shares issued | 1,673,092 | ||||
Common stock, shares outstanding | 1,673,092 | ||||
Series C | |||||
Class of Stock [Line Items] | |||||
Common stock, shares authorized | 3,947,835 | ||||
Par value per share | $ 0.0001 | ||||
Common stock, shares issued | 2,713,649 | ||||
Common stock, shares outstanding | 2,713,649 | ||||
Warrant | |||||
Class of Stock [Line Items] | |||||
Common stock, shares issued | 6,512,087 | ||||
Escrow Reserve [Member] | |||||
Class of Stock [Line Items] | |||||
Common stock, shares issued | 339,000 | ||||
Subsequent Event [Member] | Merger Consideration Adjustment [Member] | |||||
Class of Stock [Line Items] | |||||
Common stock, shares issued | 0 |
COMMON STOCK - Schedule of co_2
COMMON STOCK - Schedule of common stock (Details) - $ / shares | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 06, 2022 | Dec. 31, 2021 |
Class of Stock [Line Items] | ||||
Common stock, shares authorized | 100,000,000 | 100,000,000 | 36,038,535 | |
Preferred stock, shares authorized | 975,000 | 1,000,000 | ||
Total shares authorized | 101,000,000 | |||
Common stock, shares issued | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 |
Common stock, shares outstanding | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 |
Par value per share | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Total | 36,871,502 | 10,008,474 | ||
Series A | ||||
Class of Stock [Line Items] | ||||
Common stock, shares authorized | 30,415,100 | |||
Common stock, shares issued | 20,179,645 | |||
Common stock, shares outstanding | 20,179,645 | |||
Series B | ||||
Class of Stock [Line Items] | ||||
Common stock, shares authorized | 1,675,600 | |||
Common stock, shares issued | 1,673,092 | |||
Common stock, shares outstanding | 1,673,092 | |||
Series C | ||||
Class of Stock [Line Items] | ||||
Common stock, shares authorized | 3,947,835 | |||
Common stock, shares issued | 2,713,649 | |||
Common stock, shares outstanding | 2,713,649 | |||
Par value per share | $ 0.0001 | |||
LAAA - Public warrants (transfer) | ||||
Class of Stock [Line Items] | ||||
Total | 4,100,250 | |||
LAAA - Private warrants (transfer) | ||||
Class of Stock [Line Items] | ||||
Total | 496,941 | |||
PubCo Merger | ||||
Class of Stock [Line Items] | ||||
Total | 3,000,000 | 3,000,000 | ||
2022 Equity Incentive Plan reserve | ||||
Class of Stock [Line Items] | ||||
Total | 2,411,283 | 2,411,283 |
REDEEMABLE CONVERTIBLE PREFER_5
REDEEMABLE CONVERTIBLE PREFERRED STOCK - Common Stock (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 06, 2022 | Dec. 31, 2021 |
Common Stock | ||||
Par value per share | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Shares Authorized | 100,000,000 | 100,000,000 | 36,038,535 | |
Shares issued | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 |
Shares outstanding | 16,288,124 | 16,041,464 | 16,041,464 | 24,566,386 |
Liquidation Amount | $ 7,525,810 | |||
Series A | ||||
Common Stock | ||||
Shares Authorized | 30,415,100 | |||
Shares issued | 20,179,645 | |||
Shares outstanding | 20,179,645 | |||
Liquidation Amount | $ 5,355,678 | |||
Series B | ||||
Common Stock | ||||
Shares Authorized | 1,675,600 | |||
Shares issued | 1,673,092 | |||
Shares outstanding | 1,673,092 | |||
Liquidation Amount | $ 977,755 | |||
Series C | ||||
Common Stock | ||||
Par value per share | $ 0.0001 | |||
Shares Authorized | 3,947,835 | |||
Shares issued | 2,713,649 | |||
Shares outstanding | 2,713,649 | |||
Liquidation Amount | $ 1,192,377 |
REDEEMABLE CONVERTIBLE PREFER_6
REDEEMABLE CONVERTIBLE PREFERRED STOCK - Redeemable Convertible Preferred Stock (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 8 Months Ended | 9 Months Ended | 12 Months Ended | |||||
May 09, 2022 | Oct. 31, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | May 31, 2022 | |
Redeemable Convertible Preferred Stock | ||||||||||
Redeemable convertible preferred stock, par value (in dollars per share) | $ 0.0001 | |||||||||
Shares Authorized | 25,000 | 0 | 25,000 | 0 | 7,636,950 | |||||
Redeemable convertible preferred stock, shares issued | 9,526 | 0 | 9,526 | 0 | ||||||
Stock-based compensation expense | $ 146,596 | $ 1,000 | $ 716,193 | $ 5,000 | $ 2,156,915 | $ 4,712 | ||||
Redeemable convertible preferred stock, shares outstanding | 9,526 | 0 | 9,526 | 0 | 7,314,578 | |||||
Redeemable convertible preferred stock, liquidation preference | $ 14,289 | $ 14,289 | $ 52,482,999 | |||||||
Stock-based compensation | $ 716,193 | $ 5,000 | $ 2,157,000 | $ 4,712 | ||||||
Preferred stock shares outstanding | 0 | 0 | 0 | 0 | ||||||
PubCo Merger | ||||||||||
Redeemable Convertible Preferred Stock | ||||||||||
Issuance of Common Stock - Lakeshore Public Stock Holders (in shares) | 11,300,000 | |||||||||
Series B Redeemable Convertible Preferred Stock | ||||||||||
Redeemable Convertible Preferred Stock | ||||||||||
Redeemable convertible preferred stock, par value (in dollars per share) | $ 0.0001 | |||||||||
Shares Authorized | 7,610,700 | |||||||||
Redeemable convertible preferred stock, shares issued | 7,288,333 | |||||||||
Issuance of redeemable convertible preferred stock | 161,112 | |||||||||
Redeemable convertible preferred stock, shares outstanding | 7,288,333 | |||||||||
Redeemable convertible preferred stock, liquidation preference | $ 26,237,999 | |||||||||
Series A redeemable convertible preferred stock | ||||||||||
Redeemable Convertible Preferred Stock | ||||||||||
Redeemable convertible preferred stock, par value (in dollars per share) | $ 1,000 | $ 10 | $ 1,000 | $ 10 | $ 0.0001 | $ 10 | ||||
Shares Authorized | 25,000 | 25,000 | 26,250 | 5,945 | ||||||
Redeemable convertible preferred stock, shares issued | 26,245 | |||||||||
Stock-based compensation expense | $ 2,145,000 | $ 0 | ||||||||
Issuance of redeemable convertible preferred stock | 10,029 | 900 | 9,526 | |||||||
Redeemable convertible preferred stock, shares outstanding | 26,245 | |||||||||
Redeemable convertible preferred stock, liquidation preference | $ 26,245,000 | |||||||||
Stock-based compensation | $ 2,145,000 | |||||||||
Series A and B Redeemable Convertible Preferred Stock | ||||||||||
Redeemable Convertible Preferred Stock | ||||||||||
Preferred stock shares outstanding | 0 | 0 |
EARN-OUT SHARES (Details)_2
EARN-OUT SHARES (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Dec. 06, 2022 tranche $ / shares shares | May 09, 2022 USD ($) tranche $ / shares shares | Sep. 30, 2023 USD ($) | Jun. 30, 2023 USD ($) | Mar. 31, 2023 USD ($) | Sep. 30, 2023 USD ($) | Dec. 31, 2022 USD ($) | |
Common Stock | |||||||
Share price | $ / shares | $ 0.145 | ||||||
Change in Earnout Liability | $ | $ (3,880,000) | $ (12,080,000) | $ (9,260,000) | ||||
PubCo Merger | |||||||
Common Stock | |||||||
Maximum number of shares entitled to receive | 3,000,000 | 3,000,000 | |||||
Number of tranches | tranche | 3 | 3 | |||||
Trading period | 20 days | ||||||
Consecutive trading period | 30 days | ||||||
Term of issuance | 2 years 6 months | ||||||
Earnout liability | $ | $ 22,070,000 | 730,000 | $ 4,610,000 | $ 11,310,000 | $ 730,000 | 12,810,000 | |
Change in Earnout Liability | $ | $ (3,880,000) | $ (6,700,000) | $ (1,500,000) | $ 9,260,000 | |||
First tranche | PubCo Merger | |||||||
Common Stock | |||||||
Maximum number of shares entitled to receive | 1,000,000 | ||||||
Number of shares issued | 1,000,000 | ||||||
Share price | $ / shares | $ 12.50 | $ 12.50 | |||||
Trading period | 20 days | ||||||
Consecutive trading period | 30 days | ||||||
Term of issuance | 6 months | ||||||
Second tranche | PubCo Merger | |||||||
Common Stock | |||||||
Maximum number of shares entitled to receive | 1,000,000 | ||||||
Number of shares issued | 1,000,000 | ||||||
Share price | $ / shares | $ 15 | $ 15 | |||||
Trading period | 20 days | ||||||
Consecutive trading period | 30 days | ||||||
Term of issuance | 6 months | ||||||
Third tranche | PubCo Merger | |||||||
Common Stock | |||||||
Maximum number of shares entitled to receive | 1,000,000 | ||||||
Number of shares issued | 1,000,000 | ||||||
Share price | $ / shares | $ 17.50 | $ 17.50 | |||||
Trading period | 20 days | ||||||
Consecutive trading period | 30 days | ||||||
Term of issuance | 6 months |
STOCK-BASED COMPENSATION (Det_2
STOCK-BASED COMPENSATION (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 11 Months Ended | 12 Months Ended | ||||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 05, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 06, 2022 | |
SHARE BASED PAYMENTS | ||||||||
Vested | 381,689 | |||||||
Stock-based compensation expense | $ 146,596 | $ 1,000 | $ 716,193 | $ 5,000 | $ 2,156,915 | $ 4,712 | ||
Series A redeemable convertible preferred stock | ||||||||
SHARE BASED PAYMENTS | ||||||||
Stock-based compensation expense | $ 2,145,000 | $ 0 | ||||||
Restricted common C shares | ||||||||
SHARE BASED PAYMENTS | ||||||||
Number of shares issued | 0 | 65,000 | ||||||
Vesting period | 4 years | |||||||
Vested | 254,507 | 854,507 | 381,689 | |||||
Stock-based compensation expense | $ 11,915 | $ 4,712 | ||||||
2019 restricted common C shares | ||||||||
SHARE BASED PAYMENTS | ||||||||
Number of shares vesting upon change in control transactions | 600,000 |
STOCK-BASED COMPENSATION - Non-
STOCK-BASED COMPENSATION - Non-vested restricted common C shares (Details) | 9 Months Ended | 11 Months Ended | 12 Months Ended | |
Sep. 30, 2023 | Dec. 05, 2022 $ / shares shares | Dec. 31, 2022 $ / shares shares | Dec. 31, 2021 USD ($) $ / shares shares | |
Restricted common C shares | ||||
Vested | (381,689) | |||
Weighted-Average Grant Date Fair Value Per Share | ||||
Total unrecognized compensation cost related to non- vested restricted common C shares | $ | $ 10,949 | |||
Unrecognized compensation expense related to unvested restricted common C shares recognized over a weighted-average period | 3 years 3 months 19 days | 1 year 11 months 23 days | ||
Estimated forfeiture rate for restricted common share on percentage | 0 | |||
Fair value of shares vested | $ | $ 4,100 | |||
Restricted common C shares | ||||
Restricted common C shares | ||||
Outstanding at the beginning | 912,692 | 912,692 | 1,370,391 | |
Granted | 65,000 | |||
Vested | (254,507) | (854,507) | (381,689) | |
Forfeited | (58,185) | (141,010) | ||
Outstanding at the end | 912,692 | |||
Weighted-Average Grant Date Fair Value Per Share | ||||
Outstanding at the beginning (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 | $ 0.01 | |
Granted (in dollars per share) | $ / shares | 0.08 | |||
Vested (in dollars per share) | $ / shares | 0.01 | 0.01 | ||
Forfeited (in dollars per share) | $ / shares | $ 0.02 | 0.02 | ||
Outstanding at the end (in dollars per share) | $ / shares | $ 0.01 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
INCOME TAXES | ||
Current tax expense | $ 6,480 | $ 7,652 |
Reconciliation of the federal income tax rate to the Company's effective tax rate | ||
Statutory federal income tax rate | 21% | 21% |
State taxes, net of federal tax benefit | 24.70% | 8% |
PPP loan forgiveness | 8% | |
Stock Compensation | (6.30%) | |
Transaction Costs | 7.40% | |
Change in FV Earnout Liability | 27.20% | |
Change in FV of Debt | 31.20% | |
Change in Warrant Liability | 9.50% | |
Other permanent difference | (0.30%) | (0.50%) |
Change in valuation allowance | (114.40%) | (36.50%) |
Income tax provision | 0% | 0% |
INCOME TAXES - Deferred tax ass
INCOME TAXES - Deferred tax assets and liabilities (Details) - USD ($) | Dec. 31, 2022 | Dec. 31, 2021 |
Deferred tax assets | ||
Net operating losses | $ 17,847,721 | $ 13,497,030 |
Reserve and accruals | 619,236 | 554,632 |
OID Amortization | 1,184,396 | |
Debt Extinguishment Amortization | 645,511 | |
Debt-Related Warrants | 1,408,206 | |
Capitalized R&D | 557,589 | |
Lease Liability | 1,540,727 | |
Other | 1,388 | 1,792 |
Total deferred tax assets | 23,804,774 | 14,053,454 |
Deferred tax liabilities | ||
Depreciation and amortization | (270,747) | (200,998) |
Right of Use Asset | (1,511,786) | 0 |
Total deferred tax liabilities | (1,782,533) | (200,998) |
Net deferred tax assets | 22,022,241 | 13,852,456 |
Valuation Allowance | (22,022,241) | (13,852,456) |
Net deferred tax asset | $ 0 | $ 0 |
INCOME TAXES - Additional infor
INCOME TAXES - Additional information (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2017 | |
Operating loss carryforwards | |||
Operating loss carryforwards with ultimate carry forward period | $ 35,193,226 | ||
Increase in valuation allowance | $ 8,168,552 | 2,184,631 | |
Interest and penalties | $ 0 | 0 | |
Minimum | |||
Operating loss carryforwards | |||
NOL and Credit carryforwards adjustment period | 3 years | ||
Maximum | |||
Operating loss carryforwards | |||
Operating loss carryforwards | $ 44,000,000 | ||
NOL and Credit carryforwards adjustment period | 4 years | ||
Federal | |||
Operating loss carryforwards | |||
Operating loss carryforwards | 70,812,501 | ||
State | |||
Operating loss carryforwards | |||
Operating loss carryforwards | $ 43,017,282 |
POST-RETIREMENT BENEFITS (Detai
POST-RETIREMENT BENEFITS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
POST-RETIREMENT BENEFITS | ||
Employee contribution to the plan (Percentage) | 3% | |
401k matching contributions | $ 93,112 | $ 100,134 |
NET LOSS ATTRIBUTABLE TO COMM_7
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Numerator: | ||||||
Net loss | $ (11,238,803) | $ (3,548,962) | $ (17,226,044) | $ (9,353,340) | $ (7,145,320) | $ (5,977,407) |
Denominator: | ||||||
Weighted average shares used in computing net loss per share attributable to common stockholders, basic | 16,115,254 | 24,713,218 | 16,071,719 | 24,611,666 | 10,021,632 | 3,957,783 |
Weighted average shares used in computing net loss per share attributable to common stockholders, diluted | 16,115,254 | 24,713,218 | 16,071,719 | 24,611,666 | 10,021,632 | 3,957,783 |
Net loss per share attributable to common stockholders, basic | $ (0.70) | $ (0.14) | $ (1.07) | $ (0.38) | $ (0.71) | $ (1.51) |
Net loss per share attributable to common stockholders, diluted | $ (0.70) | $ (0.14) | $ (1.07) | $ (0.38) | $ (0.71) | $ (1.51) |
NET LOSS ATTRIBUTABLE TO COMM_8
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS - Potential shares of common stock (Details) - shares | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | Dec. 31, 2021 | |
Antidilutive securities | ||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 40,950,105 | 12,463,950 | 40,950,105 | 12,463,950 | 9,691,497 | 12,737,670 |
Series A common stock upon conversion of redeemable convertible preferred stock A | ||||||
Antidilutive securities | ||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 4,214,422 | 4,214,422 | 4,214,422 | |||
Series A common stock upon conversion of redeemable convertible preferred stock B | ||||||
Antidilutive securities | ||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 7,288,333 | 7,288,333 | 7,288,333 | |||
Non-vested shares of Series C common stock | ||||||
Antidilutive securities | ||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 638,972 | 638,972 | 912,692 | |||
Senior and Subordinated Convertible Notes | ||||||
Antidilutive securities | ||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 3,179,410 | |||||
Shares subject to warrants to purchase common stock | ||||||
Antidilutive securities | ||||||
Potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been antidilutive | 6,512,087 | 322,223 |