UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2023

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

For the transition period from ___________ to ____________

Commission File Number: 333-267203

OPTI-HARVEST, INC.

(Exact name of registrant as specified in its charter)

Delaware

81-3007305

(State

of incorporation)

(I.R.S. Employer

Identification No.)

190 N Canon Dr., Suite 304

Beverly Hills, California

90210

(Address of principal executive offices)

(Zip Code)

(310) 788-0200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were 1412,~~408~~419,~~171~~155 shares of common stock outstanding as of ~~August~~November 1713, 2023.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION F-1 Item 1. Condensed Financial Statements F-1 Condensed Balance Sheets – ~~June~~September 30, 2023 (Unaudited) and December 31, 2022 F-1 Condensed Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (Unaudited) F-2 Condensed Statements of Changes in Stockholders’ Deficiency for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (Unaudited) F-3 Condensed Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (Unaudited) F-5 Notes to Condensed Financial Statements three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (Unaudited) F-6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Item 4. Controls and Procedures 13 PART II – OTHER INFORMATION 1314 Item 1. Legal Proceedings 1314 Item 1A. Risk Factors 14 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Mine Safety Disclosures 1415 Item 5. Other Information 1415 Item 6. Exhibits 15

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This Quarterly Report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are not historical facts but rather are plans and predictions based on current expectations, estimates, and projections about our industry, our beliefs, and assumptions.

We use words such as “may,” “will,” “could,” “should,” “anticipate,” “expect,” “intend,” “project,” “plan,” “believe,” “seek,” “assume,” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements because the matters they describe are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which they were made. Over time, our actual results, performance, or achievements may differ from those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our security holders. Except as required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Factors that could materially affect these forward-looking statements and/or predictions include, among other things: (i) the development and protection of our brands and other intellectual property, (ii) the need to raise capital to meet business requirements, (iii) significant fluctuations in marketing expenses, (iv) the ability to achieve and expand significant levels of revenues, or recognize net income, from the sale of our products, (v) management’s ability to attract and maintain qualified personnel necessary for the development and commercialization of its planned products, (vi) the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees or the overall economy, and (vii) other information that may be detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission (“SEC”). Please consider our forward-looking statements in light of those risks as you read this Quarterly Report.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OPTI-HARVEST, INC.

CONDENSED BALANCE SHEETS

(Amounts rounded to nearest thousands, except share amounts)

	June 30, 2023			December 31, 2022
	September 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current Assets:
Cash	$	~~116~~3,000		$	172,000
Accounts receivable		~~2,000~~-			1,000
Prepaid expense and other current assets		5025,000			101,000
Total Current Assets		~~168~~28,000			274,000
Rental equipment, net of accumulated depreciation of $64,000 and $26,000, respectively		66,000			104,000
Rental equipment, net of accumulated depreciation of $83,000 and $26,000, respectively		47,000			104,000
Property and equipment, net of accumulated depreciation of $1,322,000 and $1,078,000, respectively		789,000			1,033,000
Property and equipment, net of accumulated depreciation of $1,444,000 and $1,078,000, respectively		667,000			1,033,000
Deferred offering costs		-			52,000
Total Assets	$	1742,~~023,~~000		$	1,463,000
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses	$	12,~~990~~130,000		$	2,263,000
Due to related party		2575,000			-
Deferred revenue		5947,000			68,000
Convertible notes payable, net of debt discount of $264,000 and $0, respectively		566,000			3,491,000
Convertible notes payable, net of debt discount of $61,000 and $0, respectively		669,000			3,491,000
Current portion of loan payable (includes a $215,000 past due note payable to a related party), net of debt discount of $561,000 and $0, respectively		279,000			13,000
Current portion of loan payable (includes a $215,000 past due note payable to a related party), net of debt discount of $695,000 and $0, respectively		695,000			13,000
Total Current Liabilities		23,~~919~~616,000			5,835,000
Loan payable, less current portion		4945,000			56,000
Deferred revenue, less current portion		~~7,000~~-			36,000
Total Liabilities		23,~~975~~661,000			5,927,000
Common stock subject to redemption by Company (2,029,306 shares at conversion)		8,118,000			-
Commitments and Contingencies		-			-
Shareholders’ Deficiency
Preferred stock, $0.0001 par value, 1,000,000 shares authorized; 1 share of Series A issued and outstanding at June 30, 2023 and December 31, 2022, respectively		-			-
Preferred stock, $0.0001 par value, 1,000,000 shares authorized; 1 share of Series A issued and outstanding at September 30, 2023 and December 31, 2022, respectively		-			-
Common stock, $0.0001 par value, 100,000,000 shares authorized; 12,312,065 and 11,900,099 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		1,000			1,000
Common stock, $0.0001 par value, 100,000,000 shares authorized; 12,419,155 and 11,900,099 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		1,000			1,000
Additional paid-in-capital		3435,~~626~~822,000			30,675,000
Common stock issuable – 243,370 shares		1,220,000			-
Common stock issuable – 235,606 shares		1,188,000			-
Accumulated deficit		(4548,~~917~~048,000	)		(35,140,000	)
Total Shareholders’ Deficiency		(1011,~~070~~037,000	)		(4,464,000	)
Total Liabilities and Shareholders’ Deficiency	$	1742,~~023,~~000		$	1,463,000

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

F-1

OPTI-HARVEST, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

(Amounts rounded to nearest thousands, except share and per share amounts)

(Unaudited)

	2023			2022			2023			2022
	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenues
Equipment rentals	$	19,000		$	-7,000		$	3857,000		$	-7,000
Product sales		414,000			193,000			923,000			2023,000
Total revenues		2333,000			1910,000			4780,000			2030,000
Cost of revenues
Rental depreciation		19,000		$	-5,000		$	3857,000		$	-5,000
Product sales		314,000			2524,000			721,000			2650,000
Total cost of revenues		2233,000			2529,000			4578,000			2655,000
Gross profit (loss)		~~1,000~~-			(619,000	)		2,000			(625,000	)
Operating expenses
Selling, general and administrative expenses		1,~~589~~459,000			1,~~914~~942,000			35,~~879~~338,000			46,~~120~~062,000
Research and development expenses		~~167~~214,000			~~612~~491,000			~~570~~784,000			1,~~257~~748,000
Total operating expenses		1,~~756~~673,000			2,~~526~~433,000			46,~~449~~122,000			57,~~377~~810,000
Loss from operations		(1,~~755~~673,000	)		(2,~~532~~452,000	)		(46,~~447~~120,000	)		(57,~~383~~835,000	)
Other income (expenses)
Other expenses
Financing costs		~~(1,519,000~~-	)		(~~611~~943,000	)		(1,519,000	)		(~~611~~1,554,000	)
Loss on extinguishment of debt		~~(4,310,000~~-	)		-			(4,310,000	)		-
Interest expense		(~~312~~458,000	)		(~~867~~866,000	)		(~~501~~959,000	)		(12,~~723~~589,000	)
Total other income (expenses)		(6,141,000	)		(1,478,000	)		(6,330,000	)		(2,334,000	)
Total other expenses		(458,000	)		(1,809,000	)		(6,788,000	)		(4,143,000	)
Net income (loss)	$	(7,896,000	)	$	(4,010,000	)	$	(10,777,000	)	$	(7,717,000	)
Net loss	$	(2,131,000	)	$	(4,261,000	)	$	(12,908,000	)	$	(11,978,000	)
Loss per share – basic and diluted	$	(0.6617	)	$	(0.4338	)	$	(01.9007	)	$	(01.6906	)
Loss per share – basic	$	(0.66	)	$	(0.43	)	$	(0.90	)	$	(0.69	)
Weighted average number of shares outstanding – basic and diluted		12,361,637			11,277,434			12,112,810			11,277,434
Weighted average number of shares outstanding – basic and diluted		12,033,435			9,302,611			11,986,334			11,135,938
Weighted average number of shares outstanding – basic		12,033,435			9,302,611			11,986,334			11,135,938

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

F-2

OPTI-HARVEST, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

(Unaudited)

(Amount rounded to nearest thousands, except share amount)

For the Three Months Ended ~~June~~September 30, 2023

	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Deficit			(Deficit)
	Common Stock				Preferred Stock				Common Stock Issuable						Additional Paid In			Accumulated			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Deficit			(Deficit)
Balance, March 31, 2023		11,977,418	$	1,000		1	$	-		-		$	-		$	32,411,000		$	(38,021,000	)	$	(5,609,000	)
Balance, June 30, 2023		12,312,065	$	1,000		1	$	-		243,370		$	1,220,000		$	34,626,000		$	(45,917,000	)	$	(10,070,000	)
Fair value of vested options				-				-					-			~~711~~692,000						~~711~~692,000
Fair value of vested restricted stock units		7,764		-				-		50(7,~~895~~764	)		~~450~~(32,000	)		~~(468~~102,000	)					~~(18~~70,000	)
Fair value of common shares issued for services		1216,~~097~~826		-				-		-			-			5070,000						5070,000
Fair value of warrants issued as a debt discount		-		-				-		-			-			(34,000	)					(34,000	)
Common shares issued with convertible notes and promissory notes		82,500		-				-		-			-			332,000						332,000
Common shares issued as financing costs		187,500		-				-		192,475			770,000			749,000						1,519,000
Net Loss																			(2,131,000	)		(2,131,000	)
Warrant modification cost				-				-		-						250,000						250,000
Balance, September 30, 2023 (Unaudited)		12,419,155	$	1,000		1	$	-		235,606		$	1,188,000		$	35,822,000		$	(48,048,000	)	$	(11,037,000	)
Common shares issued with convertible notes and promissory notes		135,050		-				-		-			-			957,000						957,000
Net Loss																			(7,896,000	)		(7,896,000	)
Balance, June 30, 2023 (Unaudited)		12,312,065	$	1,000		1	$	-		243,370		$	1,220,000		$	34,626,000		$	(45,917,000	)	$	(10,070,000	)

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2023

	Common Stock				Preferred Stock				Common Stock Issuable				Additional Paid In			Accumulated			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			(Deficit)
Balance, December 31, 2022		11,900,099	$	1,000		1	$	-		-	$	-	$	30,675,000		$	(35,140,000	)	$	(4,464,000	)
Fair value of vested options				-				-				-		12,~~441~~133,000						12,~~441~~133,000
Fair value of vested restricted stock units		7,764		-				-		5043,~~895~~131		~~450~~418,000		(~~296~~194,000	)					~~154~~224,000
Fair value of common shares issued for services		6783,~~161~~987		-				-		-		-		~~636~~706,000						~~636~~706,000
Fair value of warrants issued as a debt discount		-		-				-		-		-		76,000						76,000
Common shares issued as financing costs		187,500		-				-		192,475		770,000		749,000						1,519,000
Warrant modification cost				-				-		-				250,000						250,000
Common shares issued with convertible notes and promissory notes		~~138~~220,~~050~~550		-				-		-		-		~~981~~1,313,000						~~981~~1,313,000
Common shares issued on the exercise of warrants		19,255		-										114,000						114,000
Net Loss																	(1012,~~777~~908,000	)		(1012,~~777~~908,000	)
Balance, June 30, 2023 (Unaudited)		12,312,065	$	1,000		1	$	-		243,370	$	1,220,000	$	34,626,000		$	(45,917,000	)	$	(10,070,000	)
Balance, September 30, 2023 (Unaudited)		12,419,155	$	1,000		1	$	-		235,606	$	1,188,000	$	35,822,000		$	(48,048,000	)	$	(11,037,000	)

F-3

For the Three Months Ended ~~June~~September 30, 2022

	Shares		Amount		Shares		Amount		Capital		Deficit			Deficiency
	Common Stock				Preferred Stock				Additional Paid In		Accumulated			Total Shareholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficiency
Balance, March 31, 2022		11,085,405	$	1,000		1	$	-	$	21,799,000	$	(22,897,000	)	$	(1,097,000	)
Balance, June 30, 2022		11,446,760	$	1,000		1	$	-	$	25,078,000	$	(26,907,000	)	$	(1,828,000	)
Fair value of vested options and warrants issue for services		-		-				-		~~686~~643,000					~~686~~643,000
Fair value of vested restricted stock units		-		-				-		75150,000					75150,000
Fair value of common shares issued for services		4038,~~290~~597		-				-		~~356~~341,000					~~356~~341,000
Fair value of common shares issued for financing costs		69106,~~049~~736		-				-		~~611~~943,000					~~611~~943,000
Common shares issued on the exercise of warrants		~~229~~13,~~961~~148		-				-		177,~~356,~~000					177,~~356,~~000
Common shares issued in private offerings		22161,~~055~~168		-				-		~~195~~1,425,000					~~195~~1,425,000
Net Loss												(4,~~010~~261,000	)		(4,~~010~~261,000	)
Balance, June 30, 2022 (Unaudited)		11,446,760	$	1,000		1	$	-	$	25,078,000	$	(26,907,000	)	$	(1,828,000	)
Balance, September 30, 2022 (Unaudited)		11,766,409	$	1,000		1	$	-	$	28,657,000	$	(31,168,000	)	$	(2,510,000	)

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2022

	Common Stock				Preferred Stock				Additional Paid In		Accumulated			Total Shareholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficiency
Balance, December 31, 2021		10,995,066	$	1,000		1	$	-	$	20,346,000	$	(19,190,000	)	$	1,157,000
Beginning balance		10,995,066	$	1,000		1	$	-	$	20,346,000	$	(19,190,000	)	$	1,157,000
Fair value of vested options and warrants issue for services		-		-				-		12,~~402~~045,000					12,~~402~~045,000
Fair value of vested restricted stock units		-		-				-		75225,000					75225,000
Fair value of common shares issued for services		~~109~~148,~~423~~020		-				-		~~968~~1,309,000					~~968~~1,309,000
Fair value of common shares issued for financing costs		69175,~~049~~785		-				-		~~611~~1,554,000					~~611~~1,554,000
Common shares issued on the exercise of warrants		~~251~~264,~~167~~315		-				-		1,~~481~~558,000					1,~~481~~558,000
Common shares issued in private offerings		22183,~~055~~223		-				-		~~195~~1,620,000					~~195~~1,620,000
Net Loss												(711,~~717~~978,000	)		(711,~~717~~978,000	)
Balance, June 30, 2022 (Unaudited)		11,446,760	$	1,000		1	$	-	$	25,078,000	$	(26,907,000	)	$	(1,828,000	)
Balance, September 30, 2022 (Unaudited)		11,766,409	$	1,000		1	$	-	$	28,657,000	$	(31,168,000	)	$	(2,510,000	)
Ending balance		11,~~446~~766,~~760~~409	$	1,000		1	$	-	$	2528,~~078~~657,000	$	(2631,~~907~~168,000	)	$	(12,~~828~~510,000	)

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

F-4

OPTI-HARVEST, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

(Unaudited)

(Amounts rounded to nearest thousands)

	2023			2022
	Six Months Ended June 30,
	Nine Months Ended September 30,
	2023			2022
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities
Net loss	$	(1012,~~777~~908,000	)	$	(711,~~717~~978,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		~~244~~366,000			~~247~~377,000
Depreciation of rental equipment		3857,000			-5,000
Amortization of debt discount		~~277~~678,000			12,~~507~~262,000
Fair value of common stock issued for financing costs		1,519,000			~~611~~1,554,000
Loss on extinguishment of debt		4,~~309~~310,000			-
Fair value of common stock issued for services		~~636~~706,000			~~968~~2,045,000
Fair value of vested options and warrants		12,~~441~~133,000			1,~~402~~309,000
Fair value of vested restricted stock units		~~154~~224,000			75225,000
Changes in operating assets and liabilities
Accounts receivable		(1,000	)		95,000
Inventory		-			(~~486~~405,000	)
Prepaid expenses and other current assets		5176,000			4226,000
Accounts payable and accrued expenses		~~412~~552,000			~~808~~956,000
Deferred revenues		(3857,000	)		-4,000
Net cash used in operating activities		(12,~~735~~343,000	)		(23,~~534~~615,000	)
Cash Flows from Investing Activities
Deposits on purchase of equipment		-			(80,000	)
Purchase of property and equipment		-			(50,000	)
Net cash used in investing activities		-			(80,000	)
Purchase of rental equipment		-			(228,000	)
Net cash used in investing activities		-			(278,000	)
Cash Flows from Financing Activities
Proceeds from sales of common stock		-			~~195~~1,620,000
Proceeds from exercise of warrants		114,000			1,~~481~~558,000
Proceeds from notes payable – related party		180,000			-
Repayment of notes payable – related party		(10,000	)		-
Proceeds from notes payable		~~612~~1,062,000			-
Proceeds from convertible notes payable		713,000			-
Repayment of notes payable		(11,000	)		(9,000	)
Advances from related party		25,000			-
Proceeds from convertible notes payable		712,000			-
Deferred offering costs		52,000			(42,000	)
Repayment of convertible notes payable		-			(100,000	)
Repayment of loans payable		(7,000	)		(6,000	)
Advances from related party		75,000			-
Net cash provided by financing activities		1,679,000			1,628,000
Deferred offering costs		52,000			(51,000	)
Net decrease in cash		(56,000	)		(986,000	)
Net cash provided by financing activities		2,174,000			3,018,000
Net decrease in cash		(169,000	)		(875,000	)
Cash beginning of period		172,000			1,715,000
Cash end of period	$	~~116~~3,000		$	~~729~~840,000
Supplemental disclosures of cash flow information:
Cash paid for interest	$	6,000		$	35,000
Cash paid for income taxes	$	-		$	-
Noncash financing and investing activities:
Fair value of warrants recorded as a debt discount	$	76,000		$	-
Fair value of warrants recorded as a debt discount to convertible notes payable	$	76,000		$	-
Common stock issued as debt discount	$	981,000		$	-
Common stock issued as debt discount to loans payable	$	1,313,000		$	-
Reclass of accrued interest on convertible notes payable to common shares subject to redemption by Company	$	686,000		$	-
Reclass of convertible notes payable to common shares subject to redemption by Company	$	3,373,000		$	-
Exchange of convertible notes payable with notes payable	$	100,000		$	-
Reclassification of vendor deposits to property and equipment	$	-		$	247,000
Reclassification of vendor deposits to inventory	$	-		$	30,000
Issuance of loan payable for vehicle purchase	$	-		$	49,000

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

F-5

OPTI-HARVEST, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

(Amounts rounded to nearest thousands, except share and per share amounts)

Note 1 – Operations and Liquidity

Opti-Harvest, Inc. (“Opti-Harvest” or “the Company”) is an agricultural innovation company with products backed by a portfolio of patented and patent pending technologies focused on solving several critical challenges faced by agribusinesses: maximizing crop yield, accelerating crop growth, optimizing land and water resources, reducing labor costs and mitigating negative environmental impacts.

Our advanced agriculture technology (Opti-Filter™) and precision farming (Opti-View™) platforms, enable commercial growers and home gardeners to harness, optimize and better utilize sunlight, the planet’s most fundamental and renewable natural resource.

Our sustainable agricultural technology platform is powered by the sun. It maximizes a free and renewable resource with no need for additional chemicals or fertilizers.

Opti-Harvest was formed in the State of Delaware on ~~June~~September 20, 2016. Our principal executive offices are located at 190 N Canon Dr., Suite 304, ~~Beverly~~ Beverly Hills, California 90210. Our website address is www.opti-harvest.com.

Effective on February 22, 2023 and ~~June~~September 2, 2023, the Board of Directors and stockholders have approved resolutions authorizing a reverse stock split of the outstanding shares of the Company’s common stock on the basis of 0.6786 shares for every one share of common stock, and one share of common stock for every two shares or common stock, respectively. All shares and per share amounts and information presented herein have been retroactively adjusted to reflect the reverse stock split for all periods presented.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the ~~six~~nine months ended ~~June~~September 30, 2023, the Company recorded a net loss of $1012,~~777~~908,000, used cash in operations of $12,~~735~~343,000, and had a stockholders’ deficit balance of $1011,~~070~~037,000 at ~~June~~September 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2022, has also expressed substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At ~~June~~September 30, 2023, the Company had cash on hand in the amount of $~~116~~3,000. Subsequent to ~~June~~September 30, 2023, the Company received proceeds of $350,000 on the sale of promissory notes ~~and a $10,000 advanced from a related party~~ (see Note 10). The Company believes it has enough cash to sustain operations through ~~August~~December 31, 2023. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.

F-6

Note 2 – Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include depreciable lives of rental equipment and property and equipment, impairment testing of recorded long-term tangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and assumptions used in the determination of the Company’s liquidity.

Inventory

Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and our ability to sell the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. At ~~June~~September 30, 2023 and December 31, 2022, the inventory is fully reserved for slow moving and potentially ~~obsolete~~ obsolete inventory.

Rental Equipment

The rental equipment we purchase is stated at cost and is depreciated over the estimated useful life of the equipment using the straight-line method and is included in rental depreciation within the consolidated statements of operations. Estimated useful lives vary based upon type of equipment. Generally, we depreciate our products over a three-year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives and any salvage value assigned to rental equipment.

Deferred Offering Costs

Deferred offering costs consist principally of legal, accounting, and underwriters’ fees incurred related to equity financing. These offering costs are deferred and then charged against the gross proceeds received once the equity financing occurs or are charged to expense if the financing does not occur.

Revenue Recognition

The Company recognizes revenue in accordance with two different Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) standards: 1) Topic 606 and 2) Topic 842.

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products is transferred to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time.

F-7

All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them.

The Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Under Topic 842, Leases, the Company accounts for owned equipment rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract generally includes rates for monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Because the rental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. In some cases, a rental contract may contain a rental purchase option, whereby the customer has an option to purchase the rented equipment at the end of the term for a specified price. Revenues related to the rental contract will be accounted for as an operating lease as the option to purchase is not reasonably certain to be exercised. Lessees do not provide residual value guarantees on rented equipment.

The Company recently began offering rental contracts as an option to its customers under operating leases. The material terms of the Company’s current rental agreements include a rental period duration between twelve to twenty-four (24) months, with an option to extend for an additional twelve to twenty-four (24) months. There are no minimum purchase commitments, and some rental contracts contain an option to purchase the rented equipment at the end of the term for a specified price. The Company currently requires its customers to pay in advance for the full rental period within the first ninety days of the rental contract period.

As of ~~June~~September 30, 2023, future operating lease income and future lease payments to be received from equipment rentals are as follows:

Years Ending December 31,	~~Future Operating Lease Income~~	Future Operating Lease Income		~~Future Lease Payments~~	Future Lease Payments
2023 (remaining)	$	~~59,000~~$	14,000	$	-$	-
2024		~~7,000~~	33,000		-	-
Total	$	~~66,000~~$	47,000	$	-$	-

Receivables and contract assets and liabilities

The Company manages credit risk associated with its accounts receivables at the customer level. Because the same customers typically generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowances for doubtful accounts address our total revenues from Topic 606 and Topic 842.

The Company does not have material contract assets, impairment losses associated therewith, or material contract liabilities associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers more than recognizable revenue. The Company recognized $3857,000 of revenues during the ~~six~~nine months ended ~~June~~September 30, 2023, that was included in the Company’s deferred revenue balance at December 31, 2022.

F-8

Loss per Common Share

Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive.

For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the calculations of basic and diluted loss per share are the same because potential ~~dilutive~~ dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

	June 30, 2023		June 30, 2022
	September 30, 2023		September 30, 2022
Warrants		2,~~061~~052,~~285~~802		12,~~991~~059,~~898~~334
Options		1,596,831		1,~~550~~564,~~422~~173
Convertible notes		~~288~~265,~~892~~007		~~522~~553,~~218~~437
Commons shares issuable		~~243~~235,~~370~~606		-—
Common stock subject to redemption by Company		2,029,306		-—
Restricted stock units		16,965		67,860
Series A Preferred		1		1
Total		6,~~236~~196,~~650~~518		4,~~152~~244,~~399~~805

Stock Compensation Expense

The Company periodically issues stock options to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.

The fair value of each option or warrant grant is estimated using the Black-Scholes option-pricing model. As the common shares of the Company were not publicly traded, the Company lacked company-specific historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies within the agriculture technology industry with characteristics similar to the Company. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

During the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, common shares of the Company were not publicly traded. As such, during the period, the Company estimated the fair value of common stock using an appropriate valuation methodology, in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities ~~Issued~~ Issued as Compensation. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These ~~estimates~~ estimates and assumptions include a number of objective and subjective factors, including external market conditions, guideline public ~~company~~ company information, the prices at which the Company sold its common stock to third parties in arms’ length transactions, the rights ~~and~~ and preferences of securities senior to the Company’s common stock at the time, and the likelihood of achieving a liquidity event ~~such~~ such as an initial public offering or sale. Significant changes to the assumptions used in the valuations could result in different fair ~~values~~ values of stock options at each valuation date, as applicable.

F-9

Research and Development

Research and development costs include advisors, consultants, legal, software licensing, product design and development, data monitoring and collection, field trial installations, and travel related expenses. Research and development costs are expensed as incurred. During the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, research and development costs were approximately $~~570~~784,000 and $1,~~257~~748,000, respectively.

Fair Value of Financial Instruments

The Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on a recurring basis. Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs used to measure their fair value. ASC 820 defines the following levels of subjectivity associated with the inputs:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s assumptions.

The carrying amounts of financial assets and liabilities, such as cash, accounts receivable, accounts payable and accrued liabilities, and patent purchase obligation approximate their fair values because of the short maturity of these instruments. The carrying values of loan and convertible notes payables approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.

Recent Accounting Pronouncements

In In September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The impact of the new guidance and related codification improvements did not have a material effect to the Company’s financial position, results of operations and cash flows.

In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s financial statement presentation or disclosures.

Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

F-10

Concentration Risks

Cash includes cash on hand and cash in banks and are reported as “Cash” in the balance sheets. The balance of cash on hand is not insured by the Federal Deposit Insurance Corporation. The balance of cash in banks is insured by the Federal Deposit Insurance Corporation for up to $250,000.

Net Sales. The Company performs a regular review of customer activity and associated credit risks and does not require collateral or other arrangements. Three customers accounted for 58%, 17%, and 11% of the Company’s sales during the six months ended June 30, 2023. Five customers accounted for 24%, 21%, 16%, 12% and F-10~~% of the Company’s sales during the six months ended June 30, 2022. No other customers accounted for sales in excess of 10% for the six months ended June 30, 2023 and 2022.~~

~~Accounts~~Net ~~payable~~Sales. AsThe ofCompany ~~June~~performs ~~30,~~a ~~2023,~~regular ~~the~~review ~~Company’s~~of ~~had~~customer ~~two~~activity ~~vendors~~and ~~which~~associated ~~comprised~~credit ~~44%~~risks and ~~15%~~does ofnot ~~total~~require ~~accounts~~collateral ~~payable,~~or other ~~respectively~~arrangements. As ofTwo ~~December~~customers ~~31,~~accounted ~~2022~~for 56%, and 15% of the Company’s ~~had~~sales ~~two~~during ~~vendors~~the ~~which~~nine ~~comprised~~months 53ended September 30, 2023. Three customers accounted for 31%, 14%, and 1310% of ~~total~~the ~~accounts~~Company’s ~~payable~~sales during the nine months ended September 30, ~~respectively~~2022. No other ~~vendors~~customers ~~exceeded~~accounted for sales in excess of 10% offor ~~gross~~the ~~accounts~~nine ~~payable~~months inended ~~either~~September ~~period~~30, 2023 and 2022.

Accounts payable. As of September 30, 2023, the Company’s had two vendors which comprised 43% and 16% of total accounts payable, respectively. As of December 31, 2022, the Company’s had two vendors which comprised 53% and 13% of total accounts payable, respectively. No other vendors exceeded 10% of gross accounts payable in either period.

Vendors. The Company’s uses two vendors to manufacture its products available for sale, inventory, and our products used in field trials for research and development purposes.

Segment Reporting

The Company operates in one segment for the manufacture and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

Note 3 – Rental Equipment

Rental equipment includes the Company’s Opti-Gro, Opti-Shields, and Opti-Panel product lines which are being leased to customers under operating leases. Rental equipment is comprised of the following:

Schedule of Rental Equipment

	June 30, 2023			December 31, 2022
	September 30, 2023			December 31, 2022
Rental equipment	$	130,000		$	130,000
Accumulated depreciation		(6483,000	)		(26,000	)
Net book value	$	6647,000		$	104,000

Depreciation expense for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was $3857,000 and $05,000, respectively.

Note 4 – Property and Equipment

Property and equipment are comprised of the following:

Schedule of Property and Equipment

	June 30, 2023			December 31, 2022
	September 30, 2023			December 31, 2022
Tools and molds	$	1,990,000		$	1,990,000
Computer equipment		8,000			8,000
Vehicles		113,000			113,000
Total cost		2,111,000			2,111,000
Accumulated depreciation		(1,~~322~~444,000	)		(1,078,000	)
Net book value	$	~~789~~667,000		$	1,033,000

Depreciation expense for the six months ended June 30, 2023 and 2022, was $244,000 and $247,000, respectively.

F-11

Depreciation expense for the nine months ended September 30, 2023 and 2022, was $366,000 and $377,000, respectively.

Note 5 – Convertible Notes Payable

Convertible notes payable consists of the following at ~~June~~September 30, 2023 and December 31, 2022:

Schedule of ~~Senior~~ Convertible Notes Payable

	June 30, 2023			December 31, 2022
	September 30, 2023			December 31, 2022
Senior Convertible Notes and Warrants (a)	$	118,000		$	3,491,000
Convertible Notes and Warrants (b)		~~250~~150,000			-
Convertible Note and Restricted Shares (c)		462,000
Total notes payable		~~830~~730,000			3,491,000
Less debt discount		(~~264~~61,000	)		-
Notes payable, net of discount	$	~~566~~669,000		$	3,491,000

(a)

Senior Convertible Notes and Warrants

During the year ended December 31, 2021, the Company sold approximately $3,591,000 of Senior Convertible Promissory Notes (the “Notes”) and 2,437,012 warrants (the “Warrants”). The Notes accrue interest at a rate of twelve percent (12%) per annum.

The holder of the Warrants shall have the right to purchase up to the number of shares that equals the quotient obtained by dividing: (i) the Warrant Coverage Amount, by (ii) the Conversion Price. The “Warrant Coverage Amount” shall mean the amount obtained by multiplying: (A) one hundred percent (100%); by (B) aggregate principal amount of the Holder’s Note(s). The conversion price in effect on any Conversion Date shall be equal to 80% of the offering price per share of common stock in our initial public offering.

Each Note is convertible, in the sole discretion of the holder of the Note, into shares of our common stock at a purchase price equal to 80% of the offering price of the initial public offering price currently estimated to be $4.00 per share. In the event that the initial public offering is not consummated within 12 months of the date of this Note, then the Conversion Price shall be equal to 65% of the offering price per share of common stock in the initial public offering. In the event that the initial public offering is not consummated within 24 months of the date of this Note, then the Conversion Price shall be equal to 50% of the offering price per share of common stock in the initial public offering. Each Note, issued at an original issue discount of 15%, carries interest at a rate of 12% per annum, and any interest payable under the Note shall automatically accrue and be capitalized to the principal amount of the Note, and shall thereafter be deemed to be a part of the principal amount of the Note, unless such interest is paid in cash on or prior to the maturity date of the Note.

The Notes mature 12 months from the date of the Notes, provided, however, that noteholders have the right to call the Notes prior to maturity starting from the earlier of (i) the consummation of the first underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale by the Company of not less than $10 million of its equity securities, as a result of or following which common stock shall be listed on the Nasdaq Stock Market, and (ii) December 15, 2021. Additionally, each Warrant contains a cashless exercise provision, which is effective if the shares underlying the Warrant are not covered by a registration statement 6 months from the date of issuance of the Warrant. On May 16, 2022, the Company entered into an amendment to extend the right to call provision in its senior secured convertible notes from December 15, 2021 to September 15, 2022, in exchange for issuing its senior convertible note holders an aggregate of 138,098 shares of common stock with a fair value of approximately $609,000 at the date of grant, or $4.42 per common share. On September 30, 2022, the Company entered into a second amendment to extend the right to call provision in its senior secured convertible notes from September 15, 2022 to December 31, 2022, in exchange for issuing its senior convertible note holders an aggregate of 213,473 shares of common stock with a fair value of approximately $944,000 at the date of grant, or $4.42 per common share. On December 20, 2022, the Company entered into a third amendment to extend the right to call provision and the maturity date in its senior secured convertible notes from December 31, 2022 to ~~June~~September 30, 2023, in exchange for issuing its senior convertible note holders an aggregate of 213,473 shares of common stock with a fair value of approximately $944,000 at the date of grant, or $4.42 per common share.

F-12

The shares of common stock underlying the Notes and the Warrants are subject to registration rights, and such shares must be registered within 90 days after the effectiveness of the Company’s initial public offering. If the Company fails to register the shares within 90 days, the Company agreed to pay a penalty of a cash payment equal to 0.02857% of the principal amount and interest due and owing under any Note held by the Holder or that number shares of common stock of the Company equal 1% of the shares of common stock underlying any Note and Warrant held by the Holder, in total amount per week paid in, whichever is greater.

Each Note and Warrant holder has (i) the right of first refusal to purchase up to 20% of its pro rata share of new securities the that company offers, which right expires upon the consummation of an underwritten initial public offering by the Company or a change in control of the Company, and (ii) the right to be repaid any and all principal and interest due by the Company from any and all proceeds resulting from any sale of assets and any sale and issuance of debt or equity securities.

Total principal balance owed was $3,491,000 at December 31, 2022. During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company converted $3,373,000 of principal and $~~686~~685,000 of accrued interest into 2,029,306 shares of common stock, leaving a remaining principal balance of $118,000 at ~~June~~September 30, 2023. As of ~~June~~September 30, 2023, approximately 5254,~~460~~ 124 shares of common stock were potentially issuable under the conversion terms of the Notes.

In ~~June~~September 2023, the Noteholders entered into a conversion agreement (the “Agreement”) with the Company in which the ~~Noteholders~~ Noteholders elected to convert $3,373,000 of principal, and $~~686~~685,000 of accrued interest into 2,~~209~~029,306 shares of Common Stock with a fair value of $8,118,000, based upon the fair value of $4.00 per share, resulting in a loss on extinguishment of debt of $4,060,000. The Company further realized an additional $250,000 loss on extinguishment of debt related to the modification of Warrants discussed below, resulting in the recording of an aggregate $4,310,000 loss on extinguishment of debt in the accompanying condensed statement of operations.

The Company also agreed to change the exercise price of the Warrants to 100% of the offering price per share of common stock in our initial public offering and extended the Warrant expiration date to ~~June~~September 30, 2026. The change in warrant terms changed the fair value of the Warrants by $250,000, which was recorded as a component of the loss on the extinguishment of debt in the accompanying condensed statement of operations. The Company is also obligated to issue the Noteholders an aggregate of 379,975 shares of common stock (the “Signing Premium Shares”) with a fair value of approximately $1,519,000 at date of grant as an inducement to enter into a conversion agreement with the Company. The fair value of the Premium Shares of $1,519,000 was recorded as financing costs during the ~~six~~nine months ended ~~June~~ September 30, 2023. As of ~~June~~September 30, 2023, 192,475 shares of common stock for the Premium Shares were not issued and reflected as common stock issuable in the condensed balance sheet. Per the terms of the Agreement, in the absence of the Company’s initial public offering, the Agreement is effective until July 30, 2023, at which time it shall terminate, and the conversion be reversed. The provision herein would require a reversal of the common shares issues on the conversion which prohibits the presentation of this instrument as part of permanent equity. As such the amounts will be reflected as mezzanine financing in the accompanying condensed balance sheet. The Signing Premium Shares issued under the Agreement remain the property of the Noteholder. On August 20, 2023, the Noteholders extended the ~~termination~~ termination date of the Agreement to September 1, 2023, and on November 15, 2023, the Noteholders extended the termination date of the Agreement to December 31, 2023.

F-13

(b)

Convertible Promissory Notes and Warrants

In January and February 2023, the Company sold $250,000 of Convertible Promissory Notes (the “Notes”) and 21,206 warrants (the “Warrants”). In July 2023, a convertible note holder entered into an exchange agreement wherein a $100,000 Convertible Promissory Note was exchanged for a $100,000 note payable (see Note 6). The remaining $150,000 of Notes accrue interest at a rate of ten percent (10%) per annum. The outstanding principal amount of this Notes, together with all accrued but unpaid interest thereon, shall be due and payable on the date that is 12 months from the date of the Notes (the “Initial Maturity Date”); provided, however, that the Company may, at its option, extend such maturity date an additional six (6) months (such option, the “Extension Option” and such extended maturity date, (the “Extended Maturity Date”). The date on which this Note matures, whether the Initial Maturity Date or the Extended Maturity Date, is the “Maturity Date.” The principal amount of this Note shall be subject to increase as follows:

(a) If a Qualified Public Offering does not occur before the Initial Maturity Date, the outstanding principal balance of this Note shall be increased by an amount equal to 10% of the outstanding principal balance of this Note on the Initial Maturity Date (the “Premium”).

F-13

(b) If the Company exercises its Extension Option and a Qualified Public Offering does not occur before the Extended Maturity Date, the outstanding principal balance due and payable to the Lender shall be increased by the Premium plus an additional 2.5% of the outstanding principal balance of the Note as of the Extended Maturity Date.

(c) As used herein, “Qualified Public Offering” means the issuance and sale of shares of comment stock, par value $0.0001 per share, of the Company (the “Common Stock”) to investors in an underwritten public offering or a direct listing by the Company of its Common Stock, in either case pursuant to an effective registration statement under the Securities Act of 1933, as amended.

In the event the Company consummates a Qualified Public Offering, Lender shall have the right, but not the obligation, at any time prior to the Maturity Date or earlier repayment of this Note, to convert all, or any portion, of the outstanding principal balance of this Note into shares of Common Stock at a conversion price equal to 80% of the price at which shares of Common Stock are first sold to the public in a Qualified Public Offering. Upon conversion, the Company will pay all accrued but unpaid interest on this Note in cash. An election to convert the Note shall be made in writing and delivered to the Company no later than five (5) days before the Maturity Date; provided, however, that if the Qualified Public Offering is consummated within five (5) days before the Maturity Date, the notice of election will be delivered no later than five (5) days after the date on which such Qualified Public Offering is consummated.

The Holder shall have the right to purchase up to the number of Shares that equals the amount obtained by dividing: (A) eighty percent (80%) of the aggregate principal amount of the Holder’s Note(s) delivered pursuant to the Note and Warrant Purchase Agreement; by (B) 80% of $4.00, the current midpoint price of the Company’s prospective IPO. For example, $100,000 aggregate principal amount of Note x 80% = $80,000) / ($4.00 current midpoint price of prospective IPO x 80% = $3.20) = 25,000 warrants. The exercise price per share shall be equal to 80% of the offering price per share of common stock of the Company in its first underwritten public offering (the “IPO”) pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale by the Company of not less than $10,000,000 of its equity securities, as a result of or following which the Company shall be a reporting issuer under the Securities and Exchange Act of 1934, as amended, and its common stock shall be listed on the Nasdaq Stock Market. This Warrant shall be exercisable, in whole or in part: (i) after the earlier to occur of: (A) the consummation of the IPO; or (B) six months after the date of this Warrant; and (ii) prior to the Warrant expiration date which is twelve months after the date of this Warrant.

The total of the allocated relative fair value of warrants issued of $76,000 were capitalized and recorded as a debt discount and are amortized over the remaining life of the Notes. Amortization of debt discount was approximately $4856,000 for the ~~six~~nine months ~~June~~September 30, 2023, ~~which~~ which was recorded as a component of interest expense in the accompanying statement of operations, leaving a $3820,000 unamortized debt ~~discount~~ discount balance at ~~June~~September 30, 2023.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company added $11,000 of accrued interest, leaving an accrued interest balance of $11,000 at ~~June~~at September 30, 2023. Accrued interest in included in accounts payable and accrued expenses in the accompanying balance sheets.

Total principal balance owed was $~~250~~150,000 at ~~June~~September 30, 2023. As of ~~June~~September 30, 2023, approximately 7848,~~693~~482 shares of common stock were ~~potentially~~ potentially issuable under the conversion terms of the Notes.

F-14

(c)

Convertible Promissory Notes and Restricted Shares

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company sold a $462,000 of Convertible Promissory Notes (the “Notes”). These Notes will accrue interest at a rate of twelve percent (12%) per annum, compounded annually, until maturity or conversion hereof. The interest payable hereunder shall automatically accrue and be capitalized to the principal amount of this Note (“PIK Interest”), and shall thereafter be deemed to be a part of the principal amount of this Note, unless such interest is paid in cash on or prior to the maturity date of the Notes. The Notes shall be due and payable on the date that is six (6) months from the date of the Notes (the “Initial Maturity Date”); provided, however, that the Company and Lender may, upon mutual written agreement, extend such maturity date an additional six (6) months (such extended maturity date, (the “Extended Maturity Date”). The Lender shall have the right, but not the obligation, at any time to convert all, or any portion, of the outstanding principal balance of the Notes into shares of Common Stock at a conversion price equal to either (i) $3.00 per share, or (ii) the price at which shares of Common Stock are first sold to the public in a Qualified Public Offering. The Company shall issue 10,000 shares of common stock of the Company for each $100,000 invested by an Investor, provided, however, that if an Investor invests a sum of funds which does not round to $100,000, the Company shall issue to such Investor Shares on a pro rata basis, based on an issuance of 20,000 Shares for each $100,000 invested. If the company enters into a subsequent financing with another individual or entity (a “Third Party”) on terms that are more favorable to the Third Party, the agreements between the company and the Investors shall be amended to include such better terms so long as the Notes are outstanding.

The Company issued 46,000 shares of common stock related to the Note at the date of issuance, which the Company determined had a fair value of $370,000, were capitalized and recorded as a debt discount and are being amortized over the remaining life of the Note. During the nine ~~six~~ months ended ~~June~~September 30, 2023, the company recorded $~~144~~329,000 of amortization expense to interest expense, leaving a unamortized debt discount balance was $~~226~~41,000 at ~~June~~September 30, 2023.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company added $1125,000 of accrued interest, leaving an accrued interest balance of $1125,000 at ~~June~~at September 30, 2023. Accrued interest in included in accounts payable and accrued expenses in the accompanying balance sheets.

Total principal balance owed was $462,000 at ~~June~~September 30, 2023. As of ~~June~~September 30, 2023, approximately ~~157~~162,~~738~~401 shares of common stock were ~~potentially~~ potentially issuable under the conversion terms of the Notes.

Note 6 – Notes Payable

Loan payable consists of the following at ~~June~~September 30, 2023 and December 31, 2022:

Schedule of Loans Payable

	June 30, 2023			December 31, 2022
	September 30, 2023			December 31, 2022
Automobile loans (a)	$	6258,000		$	69,000
Unsecured promissory note – related party (b)- past due		215,000			-
Unsecured promissory note and restricted shares (c)		612,000			-
Unsecured promissory note and restricted shares (c) (c)		1,162,000			-
Total notes payable		~~889~~1,435,000			69,000
Less: debt discount		(~~561~~695,000	)		-
Total notes payable, less debt discount		~~328~~740,000			69,000
Notes payable, current portion		(~~279~~695,000	)		(13,000	)
Notes payable, net of current portion	$	4945,000		$	56,000

(a)

Automobile Loans

On November 20, 2020, the Company financed the purchase of a vehicle for $40,000. The loan term is for 59 months, annual interest rate of 4.49%, with monthly principal and interest payments of $745, and secured by the purchased vehicle. The loan balance was $4024,000 at December 31, ~~2020. The loan balance was $24,000 at December 31,~~ 2022. During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company made principal payments of $46,000, leaving a loan balance of $2018,000 at ~~June~~September 30, 2023, of which $8,000 was recorded as the current portion of loan payable on the accompanying balance sheet.

On January 20, 2022, the Company financed the purchase of a second vehicle for $49,000. The loan term is for 71 months, annual interest rate of 15.54%, with monthly principal and interest payments of $1,066, and secured by the purchased vehicle. The loan balance was $45,000 at December 31, 2022. During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company made principal payments of $35,000, leaving a loan ~~balance~~ balance of $4240,000 at ~~June~~September 30, ~~2022~~2023, of which $5,000 was recorded as the current portion of loan payable on the accompanying balance sheet.

F-15

(b)

Unsecured Promissory Note – Related Party (Past Due)

On February 21, 2023, the Company sold $225,000 of Unsecured Promissory Note (the “Note”) to Donald Danks, a former member of the Company’s Board of Directors. The Company received net proceeds of $180,000 after deducting an original issue discount of 20%, or $45,000, which was recorded as a debt discount. The note bears no interest and matures of March 21, 2023 (“Initial Maturity Date”). If a Qualified Public Offering does not occur before the Initial Maturity Date, the outstanding principal amount of this Note, together with all accrued but unpaid interest thereon, shall be paid from funds from any offer and sale of Lender of equity or debt securities whereby Lender obtains gross cash proceeds in an amount not less than Five Hundred Thousand Dollars ($500,000). If a Qualified Public Offering does not occur before the Initial Maturity Date, this Note will accrue interest at a rate of twelve percent (12%) per annum. The Company may prepay the Note, or any portion outstanding, at any time and from time to time prior to Maturity Date without notice and without the payment of any premium, fee, or penalty.

The total of the original issue discount of $45,000 was capitalized and recorded as a debt discount and are amortized over the remaining life of the Note. Amortization of debt discount was $45,000 for the ~~six~~nine months ended ~~June~~September 30, 2023, which was recorded as a component of interest expense in the accompanying condensed statement of operations.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company added $1016,000 of accrued interest, leaving an accrued interest balance of $1016,000 at ~~June~~at September 30, 2023. Accrued interest in included in accounts payable and accrued expenses in the accompanying balance sheets.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company paid $10,000 towards the principal balance leaving a principal balance of $215,000 at ~~June~~at September 30, 2023, which is past due.

(c)

Promissory Notes and Restricted Shares

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company sold approximately $~~612~~1,062,000 of Promissory Notes (the “Note”), and issued a $100,000 Note in exchange of a convertible note (see Note 5), and issued 91174,~~800~~ 300 shares of restricted common stock. The outstanding principal amount shall bear interest from the date of the Note at a rate of twelve percent (12%) per annum (the “Interest Rate”). Interest shall automatically accrue and be capitalized to the principal amount of this Note (“PIK Interest”) and shall thereafter be deemed to be a part of the principal amount of this Note, unless such interest is paid in cash on or prior to the maturity date of this Note. This Note shall become due and payable on the earlier of (i) the consummation of the first underwritten public offering (the “IPO”) of Obligor pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale by Obligor of not less than $8,000,000 of its equity securities, as a result of or following which Obligor shall be a reporting issuer under the Securities and Exchange Act of 1934, as amended, and its common stock (the “Common Stock”) shall be listed on the Nasdaq Stock Market, and (ii) twelve months from the funding of the Principal to Obligor.

The Company issued 92174,~~050~~300 shares of common stock related to the Note, which the Company determined had a fair value of $~~612~~943,~~000~~0000, were capitalized and recorded as a debt discount, and are being amortized over the remaining life of the Note. During the ~~six~~nine months ended ~~June~~ September 30, 2023, the Company amortized $51248,000, which was recorded as a component of interest expense in the accompanying condensed statement of operations, leaving a remaining unamortized debt discount balance of $~~561~~695,000 at ~~June~~September 30, 2023.

Total principal balance owed was $~~612~~1,162,000 at ~~June~~September 30, 2023.

F-16

Note 7 – Shareholders’ Equity

Common Shares Issued on Exercise of Warrants

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company received proceeds of $114,000 on the exercise of 19,255 warrants for the purchase of of 19,255 shares of common stock, at exercise price of $5.90 per share.

F-16

Common Shares Issued as an Inducement for the Conversion of Senior Convertible Notes Payable

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company was obligated to issue the Noteholders (see Note 85) an aggregate of 379,975 shares of of common stock (the “Signing Premium Shares”) with a fair value of approximately $1,519,000 at date of grant as an inducement to enter into a conversion agreement with the Company. The fair value of the Signing Premium Shares of $1,519,000 was recorded as financing costs during the ~~six~~nine months ended ~~June~~September 30, 2023. As of ~~June~~September 30, 2023, 192,475 shares of common stock for the Premium Shares were not issued and reflected as common stock issuable in the condensed balance sheet.

Common Shares Issued for Services

The Company enters into various consulting agreements with third parties (“Consultants”) pursuant to which these Consultants provided business development, sales promotion, introduction to new business opportunities, strategic analysis and sales and marketing activities. In addition, the Company issued shares to a director for board service.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company issued 6783,~~161~~987 shares of common stock for services, with a fair value of approximately $~~636~~706,000 at date of grant.

Common Shares Issued with Notes Payable

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company issued ~~138~~220,~~050~~550 shares of common stock related to its notes payables, with a fair ~~value~~ value of approximately $~~981~~1,313,000 at date of grant (see Notes 5 and 6).

Summary of Restricted Stock Units

On May 17, 2022, the Company granted an aggregate of 67,860 restricted stock units (RSU) to its employees and executives pursuant to the Company’s 2022 Stock Incentive Plan, with an aggregate fair value of $600,000, based on the Company’s current private offering price. The RSUs vest on the earliest of twelve months from the date of grant, or a strategic transaction including the Company being acquired, an initial public offering, or a liquidity event more than $10 million. During the six months ended June 30, 2023, 16,966 of unvested RSUs were forfeited, and the remaining 50,895 of RSUs vested and recorded as common shares issuable as the common shares were not issued as of June 30, 2023.

On December 8, 2022, the Company granted its Chief Executive Officer, Geoffrey Andersen, 16,965 RSU, with a fair value of $150,000, based on the Company’s current private offering price. The RSU was issued per the terms of Mr. Andersen’s employment agreement dated December 8, 2022, and per the Company’s 2022 Stock Incentive Plan. The RSUs vest on the earlier of twelve months from the date of grant, or a strategic transaction including the Company being acquired, an initial public offering, or a liquidity event more than $5 million.

At December 31, 2022, of the 84,825 RSUs granted, and no shares of common stock were vested and issued. During the ~~six~~nine months ended ~~June~~ September 30, 2023, 16,965 of unvested RSUs were forfeited, 507,~~895~~764 RSUs were issued, 43,131 of RSUs vested but remain unissued, and included in common stock issuable, leaving 16,965 of unvested RSUs on ~~June~~September 30, 2023.

As of December 31, 2022, the aggregate amount of unvested compensation related to RSUs was approximately $362,000. During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company recognized $~~154~~224,000 of compensation expense relating to vested RSUs, net of forfeitures. As of ~~June~~ September 30, 2023, the aggregate amount of unvested compensation related to RSUs was approximately $6325,000 which will be recognized as an expense as the options vest in future periods through December 8, 2023.

F-17

Summary of Warrants

A summary of warrants for the ~~six~~nine months ended ~~June~~September 30, 2023, is as follows:

Summary of Warrants

				Weighted
				Average
	Number of			Exercise
	Warrants			Price
Balance outstanding, December 31, 2022		2,059,334		$	4.85
Warrants granted		21,206			3.20
Warrants exercised		(19,255	)		5.90
Warrants expired or forfeited		-(8,483	)		-3.20
Balance outstanding, June 30, 2023		2,061,285		$	6.03
Balance outstanding, September 30, 2023		2,052,802		$	6.06
Balance exercisable, June 30, 2023		2,061,285		$	6.03
Balance exercisable, September 30, 2023		2,052,802		$	6.06

Information relating to outstanding warrants at ~~June~~September 30, 2023, summarized by exercise price, is as follows:

						Outstanding		Exercisable
Exercise Price Per Share		Share		Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$	3.20		2112,~~206~~724		0.5328	$	3.20		2112,~~206~~724	$	3.20
$	4.00		1,218,~~506~~505		32.0075	$	4.00		1,218,~~506~~505	$	4.00
$	5.90		67,860		10.0175	$	5.90		67,860	$	5.90
$	8.84		594,242		0.5025	$	8.84		594,242	$	8.84
$	11.78		159,471		10.0175	$	11.78		159,471	$	11.78
			2,061,285		2.01	$	6.03		2,061,285		6.03
			2,052,802		1.77	$	6.06		2,052,802		6.06

As of ~~June~~September 30, 2023, both the outstanding and exercisable warrants have an intrinsic value of $1710,000. The aggregate intrinsic value ~~was~~ was calculated as the difference between the estimated market value of $4.00 per share as of ~~June~~September 30, 2023, and the exercise price of the outstanding warrants.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company’s extended the expiration date from ~~June~~September 30, 2023 to December 31, 2023 for 594,~~241~~ 242 warrants with an exercise price of $8.84 per share, which were issued with the private sale of its common stock in 2019 to 2021.

During the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the Company recognized $0 and $6480,000 of compensation expense relating to vested warrants, respectively. As of ~~June~~September 30, 2023, no unvested compensation related to these warrants remained.

Warrants Issued with Convertible Notes Payable

In January and February 2023, the Company sold approximately $250,000 of Convertible Promissory Notes and 21,206 warrants (see Note 5). Each Warrant is exercisable at a price equal to 80%, or $3.20, of our initial public offering price, currently anticipated to be $4.00 per share. The aggregate fair value of the warrants was determined to be $76,000, which was determined using a Black-Scholes-Merton option pricing model with the following average assumption: fair value of our stock price of $4.00 per share based on recent prospectus, expected term of one year, volatility of 91%, dividend rate of 0%, and weighted average risk-free interest rate of 4.72%.

F-18

Summary of Options

A summary of stock options for the ~~six~~nine months ended ~~June~~September 30, 2023, is as follows:

Summary of Options

				Weighted
				Average
	Number of			Exercise
	Options			Price
Balance outstanding, December 31, 2022		1,733,823		$	5.04
Options granted		-			-
Options exercised		-			-
Options expired or forfeited		(136,992	)		5.93
Balance outstanding, June 30, 2023		1,596,831		$	6.24
Balance outstanding, September 30, 2023		1,596,831		$	6.24
Balance exercisable, June 30, 2023		901,266		$	6.26
Balance exercisable, September 30, 2023		1,028,503		$	6.34

Information relating to outstanding options at ~~June~~September 30, 2023, summarized by exercise price, is as follows:

						Outstanding		Exercisable
Exercise Price Per Share		Share		Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$	5.90		1,413,185		7.5933	$	5.90		~~791~~875,~~135~~960	$	5.90
$	8.84		183,646		4.4116	$	8.84		~~110~~152,~~131~~543	$	8.84
			1,596,831		76.2095	$	6.24		~~901~~1,~~266~~028,503	$	6.2634

During the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the Company recognized $12,~~441~~133,000 and $1,~~337~~965,000 of compensation expense relating to to vested stock options, respectively. As of ~~June~~September 30, 2023, the aggregate amount of unvested compensation related to stock options was approximately $32,~~666~~855,000 will be recognized as an expense as the options vest in future periods through May 2025.

As of ~~June~~September 30, 2023, the outstanding and exercisable options have no intrinsic value. The aggregate intrinsic value was calculated as the difference between the estimated market value of $4.00 per share as of ~~June~~September 30, 2023, and the exercise price of the outstanding options.

Note 8 – Commitment and Contingencies

We are engaged from time to time in the defense of lawsuits arising out of the ordinary course and conduct of our business. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against our Company, our common stock, our subsidiary or of our Company or our subsidiary’s officers or directors in their capacities as such.

Litigation against Jonathan Destler, our former Chief Executive Officer and former director, and Don Danks, a former director

On September 30, 2022, a Complaint (the “Complaint”), captioned Securities and Exchange Commission vs. David Stephens, Donald Linn Danks, Jonathan Destler and Robert Lazarus, and Daniel Solomita and 8198381 Canada, Inc., as relief defendants, Case No. ‘22CV1483AJB DEB, was filed in the United States District Court, Southern District of California. In general, the Complaint alleges that Jonathan Destler, a co-founder and our former Chairman and Chief Executive Officer, and a current employee, and Donald Danks, a co-founder, former director, and a former employee, were part of a control group that committed securities fraud in connection with the purchase and sale of securities of Loop Industries, Inc., a Nasdaq-listed company.

F-19

On November 22, 2022, an Indictment (the “Indictment”), captioned United States of America v. David Stephens, Donald Danks, Jonathan Destler and Robert Lazarus, Case No. ‘22CR2701 BAS, was filed in the United States District Court, Southern District of California. In general, the Indictment alleges that Mr. Destler and Mr. Danks conspired to and committed securities fraud, based on the same allegations in the Complaint. The indictment also alleges that Donald Danks engaged in money laundering.

Furthermore, the Complaint and the Indictment allege that Mr. Destler and Mr. Danks were part of a control group consisting of four other persons (David Stephens, Jonathan Destler, Don Danks and Robert Lazarus) who used a third person to make an unregistered offering of securities. The third person is a deceased former-stockholder of Opti-Harvest, whose Opti-Harvest shares are now held by his estate.

F-19

Mr. Destler is currently our key employee with respect to our business development because of his material role marketing selling our products. Additionally, the Voting Trust Agreement with Mr. Destler terminates on the first to occur of (i) final disposition of the proceedings related to the Complaint and the Indictment, or (ii) mutual agreement of Opti-Harvest and Mr. Destler. If Mr. Destler loses his criminal litigation, it is possible that Mr. Destler could be incarcerated, in which case our marketing and sales could suffer because of his inability to communicate with potential new and existing customers. Furthermore, final disposition of the proceedings related to the Complaint and the Indictment could possibly also mean that Mr. Destler would have voting control over us while being incarcerated. In such event, Mr. Destler’s separation from daily business activities could cause him to make voting decisions without the knowledge of our daily operations that he has today.

Transfer of Voting Control of Mr. Destler’s Opti-Harvest Shares to Opti-Harvest

Although Mr. Destler (and Mr. Danks, who on January 9, 2023, resigned as an employee of Opti-Harvest) have denied to Opti-Harvest the claims made against them in the Complaint and the Indictment, Mr. Destler agreed to resign his positions as a director, Chief Executive Officer, President and Secretary with Opti-Harvest, and transfer voting control (while retaining ownership) of his shares of common stock and Series A Preferred Stock, to the board of directors of Opti-Harvest. Accordingly, Jeffrey Klausner, Opti-Harvest’s, sole director is the sole trustee of a Voting Trust Agreement, dated December 23, 2022, by and among Opti-Harvest, Inc., Mr. Destler, entities Mr. Destler controls, Mr. Destler’s spouse, and Mr. Klausner, pursuant to which Mr. Klausner, on behalf of Opti-Harvest, votes Mr. Destler’s shares of common stock and Series A Preferred Stock.

It should be noted that the term “Trust” in the title “Voting Trust Agreement” is used for naming convention only, and no trust, as an entity, has been created in connection with the Voting Trust Agreement. Accordingly, Mr. Klausner, as the trustee under the Voting Trust, does not owe any fiduciary duty to Mr. Destler, his affiliated entities, or his spouse, under the Voting Trust Agreement. Mr. Klausner’s sole duty under the Voting Trust Agreement is to vote Mr. Destler’s beneficial ownership in Opti-Harvest securities.

Under the Voting Trust Agreement, Mr. Destler had agreed and consented to the appointment of any member of our board of directors to be appointed a trustee under the Voting Trust Agreement. Therefore, future members of our board of directors may become a trustee under the Voting Trust Agreement. Whether any future member of our board of directors may become a trustee under the Voting Trust Agreement would depend on whether any such new director would want to and agree to becoming a trustee under the Voting Trust Agreement.

The Voting Trust Agreement terminates on the first to occur of (i) final disposition of the proceedings related to the Complaint and the Indictment, or (ii) mutual agreement of Opti-Harvest and Mr. Destler.

Advisory Agreements

During the years ended December 31, 2022 and 2021, the Company entered into various advisory agreements in connection with transactions in which the Company, directly or indirectly through one or more affiliates, raises debt capital or receives a loan from one or more investors identified. The advisory agreements generally expire on the date specified by either the advisory firm or the Company, and with 30 days’ notice of termination. The Company agreed to pay up to six percent (6%) of the capital raised if the funding is in the form of debt, equity, mezzanine structure or subordinated debt structure or any other type of transaction. As of ~~June~~September 30, 2023, no transaction ~~has~~ has occurred related to the advisor agreements.

F-20

DisperSolar LLC (Related Party)

On April 7, 2017 (as amended on December 6, 2018), the Company and DisperSolar LLC (the “Seller”), a California limited liability company, entered into a Patent Purchase Agreement (the “Agreement”) pursuant to which the Company acquired certain patents (intellectual property) of the Seller. The Seller developed the patents for harvesting, transmission, spectral modification and delivery of sunlight to shaded areas of plants. Per the Agreement, the Company was obligated to pay milestone payments, earnout payments, and royalties.

F-20

Earnout Payments

The Company is obligated to pay total earnout payments of $800,000 payable on the on-going basis at a rate of 50% of gross margin and/or license revenue from the date of the first commercial sale of a covered product or the first receipt by the Company of license revenue, until the aggregate combined gross margin and license revenue reach $1.6 million.

Royalties

The Company will pay to Seller royalties as follows:

	(i)	Following the recognition by the Company of the first $1.6 million in aggregate combined gross margin and license revenue, and until the Company pays to Seller an aggregate amount in royalties of $30 million, the Company shall pay to Seller royalties on sales of covered products at a rate of 8% of gross margin.

	(ii)	Once the Company has paid to Seller an aggregate amount in royalties of $30 million, the Company shall pay to Seller royalties on sales of covered products at a rate of 4.75% of gross margin until the earlier of (x) such time as covered products are not covered by any claims of any assigned patent, and (y) the date of the consummation of a Strategic Transaction.

As of ~~June~~September 30, 2023, the Company recorded no earnout or royalties payment obligations as no gross margin was realized.

Strategic Transaction

The Company will pay to Seller 7.6% of all license consideration received by the Company until the date of the consummation of a Strategic Transaction. “Strategic Transaction” means a transaction or a series of related transactions that results in an acquisition of the Company by a third party, including by way of merger, purchase of capital stock or purchase of assets or change of control or otherwise.

Strategic Transaction Consideration. “Strategic Transaction Consideration” means any cash consideration and the fair market value of any non-cash consideration paid to the Company by any acquirer as consideration for the Strategic Transaction, less the costs and expenses incurred by the Company for the purpose of consummating the Strategic Transaction. The Company will pay to Seller a percentage of all license consideration received by the Company as follows:

	(i)	3.8% of the first $50 million of the Strategic Transaction Consideration;

	(ii)	5.7% of the next $100 million of the Strategic Transaction Consideration (i.e. over $50 million and up to $150 million);

	(iii)	7.6% of Strategic Transaction Consideration over $150 million.

F-21

Inventor Royalty (Related Party)

On July 5, 2019, the Company and Nicholas Booth (“Mr. Booth”) entered into a Royalty Agreement. Mr. Booth is a member of Dispersolar, LLC and a named inventor of the acquired patents from Dispersolar, LLC discussed above. Effective July 1, 2021, Mr. Booth was employed by the Company as its Chief Technology Officer.

The Company will pay Mr. Booth a percentage of all License Consideration received by the Company as follows:

(a) Once the Company has paid to DisperSolar an aggregate amount in royalties of $30 million under the Agreement, the Company will pay to Booth a percentage of all royalties on sales of Covered Products at a rate of 0.25% of Gross Margin until the earlier of (x) such time as Covered Products are not covered by any claims of any Assigned Patent, and (y) the date of the consummation of a Strategic Transaction.

F-21

(b) Opti-Harvest will pay to Booth a percentage of all License Consideration received by the Company on the same terms as payable by the Company to DisperSolar under the Agreement, except that the percentages of License Consideration due to Booth shall be as follows:

	(a)	0.4% of all License Consideration received by Opti-Harvest until the date of consummation of a Strategic Transaction;
	(b)	0.2% of the first $50 million of the Strategic Transaction Consideration;
	(c)	0.3% of the next $100 million of the Strategic Transaction Consideration (i.e. over $50 million and up to $150 million); and
	(d)	0.4% of Strategic Transaction Consideration over $150 million.

As of ~~June~~September 30, 2023, no amounts were due for earnouts or royalties.

Both Yosepha Shahak Ravid and Nicholas Booth are members of the Seller, and are named inventors of the acquired patents from the Seller, discussed above. Effective July 1, 2021, Ms. Shahak Ravid, our Chief Science Officer, and Mr. Booth, our Chief Technology Officer, were employed by the Company.

Note 9 – Related Party Transactions

As discussed in Note 8, Mr. Destler agreed to transfer voting control (while retaining ownership) of his shares of common stock and Series A Preferred Stock, to the board of directors of Opti-Harvest. Accordingly, Jeffrey Klausner, Opti-Harvest’s, sole director is the sole trustee of a Voting Trust Agreement, dated December 23, 2022, by and among Opti-Harvest, Inc., Mr. Destler, entities Mr. Destler controls, Mr. Destler’s spouse, and Mr. Klausner, pursuant to which Mr. Klausner, on behalf of Opti-Harvest, votes Mr. Destler’s shares of common stock and Series A Preferred Stock. On January 9, 2023, the Company issued Mr. Klausner 16,965 shares of common stock, with an estimated fair value of $200,000, as consideration for agreeing to act as the trustee for a term of one year under the Voting Trust Agreement.

On ~~June~~March 3031, 2023, Mr. Destler paid a Company vendor $5,000. The $5,000 advance is non-interest bearing and due on demand, and remains outstanding at September 30, 2023.

On April 5, 2023, Mr. Destler advanced the Company $20,000. The $20,000 advance is non-interest bearing and due on demand, and remains outstanding at September 30, 2023.

On July 20, 2023, Geoff Andersen, the Company’s CEO, advanced the Company $10,000. The $10,000 advance is non-interest bearing and due on demand, and remains outstanding at September 30, 2023.

On September 19, 2023, Donald Danks, a former director of the Company, advanced the Company $40,000. The $40,000 advance is non-interest bearing and due on demand, and remains outstanding at September 30, 2023.

Note 10 – Subsequent Events

The Company has evaluated subsequent events occurring from ~~July~~October 1, 2023, through the date of this filing.

Promissory Notes and Restricted Shares

Subsequent to ~~June~~September 30, 2023, the Company sold approximately $350,000 of ~~Convertible~~ Promissory Notes and issued 52,500 shares of restricted common stock. The Promissory Notes and Restricted Shares were issued on the same terms and conditions as described in Note 56.

Related Party Advance

On April 5, 2023, Geoff Andersen, the Company’s CEO, advanced the Company $10,000. The $10,000 advance is non-interest bearing and due on demand.

Common Shares Issued for Services

Subsequent to June 30, 2023, the Company issued 6,536 shares of common stock for services, with a fair value of approximately $27,000 at date of grant.

Common Shares Issued on Vested Restricted Stock Units

Subsequent to June 30, 2023, the Company issued 7,764 shares of common stock for vested restricted stock units.

F-22

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited Condensed Consolidated Financial Statements and notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2022, including the audited Financial Statements and notes thereto. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.

Recent Events

Litigation against Jonathan Destler, our former Chief Executive Officer and former director, and Don Danks, a former director

On September 30, 2022, a Complaint (the “Complaint”), captioned Securities and Exchange Commission vs. David Stephens, Donald Linn Danks, Jonathan Destler and Robert Lazarus, and Daniel Solomita and 8198381 Canada, Inc., as relief defendants, Case No. ‘22CV1483AJB DEB, was filed in the United States District Court, Southern District of California. In general, the Complaint alleges that Jonathan Destler, a co-founder and our former Chairman and Chief Executive Officer, and current employee, and Donald Danks, a co-founder, former director, and former employee, were part of a control group that committed securities fraud in connection with the purchase and sale of securities of Loop Industries, Inc., a Nasdaq-listed company.

Transfer of Voting Control of Mr. Destler’s Opti-Harvest Shares to Opti-Harvest

Opti-Harvest Internal Investigation

The filing of the Complaint and the Indictment caused our board of directors to ask external legal counsel, who is also counsel to Opti-Harvest in its initial public offering, to conduct an investigation to determine whether Mr. Destler and/or Mr. Danks have any plan, agreement, arrangement or understanding to commit any act which could be construed as securities fraud in connection with Opti-Harvest and its initial public offering. Our legal counsel conducted an internal investigation into whether any officer, director or employee of Opti-Harvest has, or is aware of, any plan, agreement, arrangement or understanding to (i) manipulate the price or trading volume of common stock or other securities of Opti-Harvest, or (ii) publish or otherwise disseminate false, untrue, or misleading information, or information with material omissions of fact, about or otherwise regarding Opti-Harvest. Our legal counsel concluded, based verbal interviews with Mr. Destler, Mr. Danks, and each officer and director of Opti-Harvest, and based on written responses from each of officers, our director and our employees (including Mr. Destler and Mr. Danks), that there does not exist any plan, agreement, arrangement or understanding to (i) manipulate the price or trading volume of common stock or other securities of Opti-Harvest, or (ii) publish or otherwise disseminate false, untrue, or misleading information, or information with material omissions of fact, about or otherwise regarding Opti-Harvest.

Appointment of Geoffrey Andersen as Chief Executive Officer

In connection with the filing of the Complaint and the Indictment, and the agreement of Mr. Destler to transfer voting control of his voting securities of Opti-Harvest to Mr. Klausner under the Voting Trust Agreement, our board of directors appointed Geoffrey Andersen as our Chief Executive Officer, effective December 8, 2022. Mr. Andersen had previously, since July 14, 2021, served as a member of our Advisory Board. In his advisory capacity to us, Mr. Andersen worked closely with Opti-Harvest on all facets of growing our business and strategy, including government relations, building financial models, product development, technology development, marketing, and general business strategy, which allowed Mr. Andersen to not only garner a great deal of information about, and be part of, our business and operations, but to also be the lightning rod for our long-term business strategy. This and his 25-year career serving in multiple leadership and business development roles at agriculture-related businesses, led to the board of directors asking Mr. Andersen to serve as our Chief Executive Officer, which he has agreed to do, for a term of two years, stating that he believed in the viability of our business.

Business Overview

Opti-Harvest is an agricultural innovation company with products backed by a portfolio of patented and patent pending technologies focused on solving several critical challenges faced by agribusinesses: maximizing crop yield, accelerating crop growth, optimizing land and water resources, reducing labor costs and mitigating negative environmental impacts.

Our sustainable agricultural technology platform is powered by the sun. It maximizes a free and renewable resource with no need for additional chemicals or fertilizers.

From inception in 2016 through the present date, we have made substantial investments in building our intellectual property portfolio, developing, and optimizing our product designs, and conducting over 65 multi-year field trials to test and measure the effectiveness of our products. Based on our field trials and the positive feedback from our partners, we began commercializing our Opti-Gro and ChromaGro products in the first half of 2021, our Opti-Shield and Opti-Panel products late in the first half of 2022, and we plan to commercialize our Opti-Skylight products in the first half of 2023. Our Opti-View product is currently in our research and development phase with an anticipated commercial offering in the second half of 2023. We remain focused on developing new products and enhancing existing products.

With the recent commercialization of several of our products, we are making significant investments in sales and marketing, tooling to manufacture our products, and infrastructure investments to meet planned customer demand. We will also incur additional expenses generally associated with being a publicly traded company, including the cost of regulatory compliance, director fees, insurances, investor relations, upgraded systems, and enhanced internal controls.

Recent Trends - Market Conditions

During the period ended ~~June~~September 30, 2023, the COVID-19 pandemic continued to impact our operating results and the Company anticipates a residual effect for the balance of the year. In addition, the pandemic could cause reduced demand for our products if, for example, the pandemic results in a recessionary economic environment which negatively effects the consumers who purchase our products. Based on the recent increase in demand for our products, we believe that over the long term, there will continue to be strong demand for our products.

Although the U.S. economy continued to grow during the first half of 2022, the continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and may impact our business in future periods. We have experienced supply chain challenges, including increased lead times, as well as inflation of raw materials, logistics and labor costs due to availability constraints and high demand. Although we regularly monitor companies in our supply chain, and use alternative suppliers when necessary and available, supply chain constraints could cause a disruption in our ability to obtain raw materials required to manufacture our products and adversely affect our operations. We expect the inflationary trends and supply chain pressures to continue throughout the remainder of 2023.

Through ~~June~~September 30, 2023, the Company experienced elevated freight costs as a result of a higher transportation market as the capacity in the ~~freight~~ freight market has not kept up with demand. The Company believes these challenges will continue throughout the year. In addition, the ~~Company~~ Company experienced increases in the pricing of its raw materials and delays in procuring raw materials. The disruption caused by labor shortages, significant raw material cost inflation, logistics issues and increased freight costs, and ongoing port congestion, resulted in suppressed margins. The Company anticipates a continued impact throughout 2023.

Our ability to operate without significant incremental negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect our employees and protect our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities to protect our employees. Since the inception of the COVID-19 pandemic and through ~~June~~September 30, 2023, we maintained the consistency of our operations during the onset of the COVID-19 pandemic. We will continue to innovate in managing our business, coordinating with our employees and suppliers to do our part in the infection prevention and remain flexible in responding to our customers and suppliers. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for example an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our operations.

We have not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic.

Results of Operations for the Three Months Ended ~~June~~September 30, 2023 Compared to the Three Months Ended ~~June~~September 30, 2022

Revenues

Our revenues were $2333,000 and $1910,000 for the three months ended ~~June~~September 30, 2023 and 2022, respectively. Beginning in second half of 2022, we began offering our customers the option to rent our products for a monthly fee per unit, generating $19,000, or 8358% of our revenues during the three months ended ~~June~~September 30, 2023.

Cost of Revenues

Cost of revenues represent the cost to manufacture our products sold, depreciation expense related to our rental equipment sales, and changes in our inventory reserves. Cost of revenues was $2233,000 and $2529,000 for the three months ended ~~June~~September 30, 2023 and 2022, respectively.

Operating Expenses

Operating expenses include selling, general and administrative expenses, research and development costs, and impairment of rental equipment costs.

Our selling, general and administrative expenses decreased approximately $~~325~~483,000 to $1.65 million during the three months ended ~~June~~ September 30, 2023, compared to $1.9 million for the three months ended ~~June~~September 30, 2022. The decrease in selling, general and administrative ~~expenses~~ expenses was primarily due to decreased stock-based compensation expenses of $~~217~~302,000 ~~offset by a $23~~,~~000~~ ~~decrease in sales~~ and ~~marketing~~a ~~expenses. The remaining~~ decrease ~~in our selling, general and administrative expenses~~ of $~~131~~181,000 ~~was~~ from routine fluctuations in our operating accounts to support our operations.

Research and development costs include advisors, consultants, software licensing, product design and development, data monitoring and collection, field trial installations, and travel related expenses. Research and development expenses decreased approximately $~~445~~277,000 to $~~167~~214,000 during the three months ended ~~June~~September 30, 2023, compared to $~~612~~491,000 for the three months ended ~~June~~September 30, 2022. The decrease in ~~research~~ research and development costs was primarily due to decreased field trial and product development costs, as compared to the prior year period.

Financing Costs

~~Financing~~During ~~costs increased $908,000 to $1.5 million during~~ the three months ended ~~June~~September 30, ~~2023, compared to $611,000 for the three months ended June 30,~~ 2022~~. The increase in financing cost was from $1.5 million incurred during the three months ended June 30~~, ~~2023, on the conversion of our senior convertible notes (see Note 5 of our accompany condensed financial statements). During the three month ended June 30, 2022,~~ financing costs of $~~611~~943,000 were for shares issued as consideration for extending the maturity date of our senior convertible notes, which did not occur in the current year period.

Loss on Extinguishment of Debt

In June 2023, the Noteholders entered into a conversion agreement (the “Agreement”) with the Company in which the Noteholders elected to convert $3,373,000 of principal, and $686,000 of accrued interest into 2,209,306 shares of Common Stock with a fair value of $8,118,000, based upon the fair value of $4.00 per share, resulting in a loss on extinguishment of debt of $4,060,000. The Company further realized an additional $250,000 loss on extinguishment of debt related to the modification of Warrants discussed below, resulting in the recording of an aggregate $4,310,000 loss on extinguishment of debt in the accompanying condensed statement of operations (see Note 5 of the accompanying condensed financial statements).

Interest Expense

Interest expense decreased $~~555~~408,000 to $~~312~~458,000 during the three months ended ~~June~~September 30, 2023, compared to $~~867~~866,000 for the three months ended ~~June~~ September 30, 2022. The decrease in interest expense was from a $~~545~~353,000 decrease in debt discount amortization compared to the prior year period, and a decrease in interest expense of $1055,000 due to decreased debt balances as compared to the prior year period.

Net Loss

Net loss ~~increased~~decreased $32.91 million to $72.91 million during the three months ended ~~June~~September 30, 2023, compared to $4.03 million for the three ~~months~~ months ended ~~June~~September 30, 2022. The ~~increase~~decrease in net loss was due to our increased revenue and gross profit, ~~and increased financing costs,~~ offset by decreased operating expenses, and decreased ~~interest~~other ~~expense~~expenses, as discussed above.

Results of Operations for the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 Compared to the ~~Six~~Nine Months Ended ~~June~~September 30, 2022

Revenues

Our revenues were $4780,000 and $2030,000 for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. Beginning in second half of 2022, we we began offering our customers the option to rent our products for a monthly fee per unit, generating $3857,000, or 8171% of our revenues ~~during~~ during the ~~six~~nine months ended ~~June~~September 30, 2023.

Cost of Revenues

Cost of revenues represent the cost to manufacture our products sold, depreciation expense related to our rental equipment sales, and changes in our inventory reserves. Cost of revenues was $4578,000 and $2655,000 for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Operating Expenses

Operating expenses include selling, general and administrative expenses, research and development costs, and impairment of rental equipment costs.

Our selling, general and administrative expenses decreased approximately $~~241~~724,000 to $35.93 million during the ~~six~~nine months ended ~~June~~ September 30, 2023, compared to $46.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in selling, general and administrative expenses was primarily due to decreased stock-based compensation expenses of $~~217~~516,000~~. The remaining decrease in our selling~~, ~~general~~ and ~~administrative~~a ~~expenses~~ decrease of $24208,000 ~~was~~ from routine fluctuations in our operating accounts to support our operations.

Research and development costs include advisors, consultants, software licensing, product design and development, data monitoring and collection, field trial installations, and travel related expenses. Research and development expenses decreased approximately $~~687~~964,000 to $~~570~~784,000 during the ~~six~~nine months ended ~~June~~September 30, 2023, compared to $1.38 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in research and development costs was primarily due to decreased field trial and product development costs, as compared to the prior year period.

Loss from Operations

Loss from operations decreased to approximately $46.51 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to a loss from operations of of $57.48 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in loss from operations was due to primarily to our increase in revenue and gross profit and decreased operating expenses as discussed above.

Financing Costs

Financing costs ~~increased~~decreased $~~908~~35,000 to $1.5 million during the ~~six~~nine months ended ~~June~~September 30, 2023, compared to $~~611,000~~1.6 million for the ~~six~~nine months ended ~~June~~ September 30, 2022. The ~~increase~~decrease in financing cost was from $1.5 million incurred during the ~~three~~nine months ended ~~June~~September 30, 2023, on the conversion of our senior convertible notes (see Note 5 of our accompany condensed financial statements). During the ~~six~~nine months ended ~~June~~September 30, 2022, financing costs of $~~611,000~~1.56 million were for shares issued as consideration for extending the maturity date of our senior convertible notes, which did not occur in the current year period.

Loss on Extinguishment of Debt

In September ~~June~~ 2023, the Noteholders entered into a conversion agreement (the “Agreement”) with the Company in which the Noteholders elected to convert $3,373,000 of principal, and $~~686~~685,000 of accrued interest into 2,~~209~~029,306 shares of Common Stock with a fair value of $8,118,000, based upon the fair value of $4.00 per share, resulting in a loss on extinguishment of debt of $4,060,000. The Company further realized an additional $250,000 loss on extinguishment of debt related to the modification of Warrants discussed below, resulting in the recording of an aggregate $4,310,000 loss on extinguishment of debt in the accompanying condensed statement of operations (see Note 5 of the accompanying condensed financial statements).

Interest Expense

Interest expense decreased $1.26 million to $~~501,000~~1.0 million during the ~~six~~nine months ended ~~June~~September 30, 2023, compared to $12.76 million for the ~~six~~ nine months ended ~~June~~ September 30, 2022. The decrease in interest expense was from a $1.26 million decrease in debt discount amortization compared to the prior year period, offset by an ~~increase~~decrease in interest expense of $451,000 due to ~~increased~~decreased debt balances as compared to the prior year period.

Net Loss

Net loss increased $~~3.1~~930,000 ~~million~~ to $1012.89 million during the ~~six~~nine months ended ~~June~~September 30, 2023, compared to $712.70 million for the ~~six~~nine months ~~ended~~ ~~June~~ended September 30, 2022. The increase in net loss was due to our increased revenue and gross profit, ~~and~~decreased ~~increased~~operating ~~financing costs~~expenses, offset by ~~decreased operating~~increased ~~expenses~~other ~~and decreased interest expense~~expenses, as discussed above.

Liquidity and Capital Resources

The ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan. As a result, management has concluded that there is substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2022, has also expressed substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

At ~~June~~September 30, 2023, we had cash on hand in the amount of $~~116~~3,000. Subsequent to ~~June~~September 30, 2023, wethe Company received proceeds of $350,000 on the sale of promissory notes ~~and a $10,000 advanced from a related party~~ (see Note 10 of the accompanying financial statements). The Company believes it has enough cash to sustain operations through ~~August~~December 31, 2023. Our continuation as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case or equity financing.

The following table summarizes our cash flows for the periods indicated (amounts are rounded to nearest thousands):

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2023			2022
Net cash provided by (used in):
Operating activities	$	(12,~~735~~343,000	)	$	(23,~~534~~615,000	)
Investing activities		-			(80278,000	)
Financing activities		12,~~679~~174,000			13,~~628~~018,000
Net decrease in cash	$	(56169,000	)	$	(~~986~~875,000	)

Net cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2023, totaled $12.73 million, compared to net cash used in ~~operating~~ operating activities for the ~~six~~nine months ended ~~June~~September 30, 2022 of $23.56 million. Net cash used in operations for the ~~six~~nine months ended ~~June~~ September 30, 2023, was $12.73 million, and was to fund our net loss of $1012.89 million, offset by $~~282~~423,000 of depreciation expense, $~~277~~678,000 of debt discount amortization, $1.5 million of financing costs, $4.3 million loss on extinguishment of debt, $23.21 million of stock-based compensation expense, and $~~423~~572,000 of changes in our operating accounts. Net cash used in operating activities for the ~~six~~ nine months ended ~~June~~ September 30, 2022, was to fund our net loss of $712.70 million, offset by $~~247~~382,000 of depreciation expenses, $12.53 million of debt discount amortization, $~~611,000~~1.6 million of financing costs, $23.46 million of stock-based compensation expense, and $~~373~~586,000 of changes in our operating accounts.

We had no cash flows from investing activities during the ~~six~~nine months ended ~~June~~September 30, 2023. Net cash used in investing activities was ~~approximately~~ approximately $80278,000 for the ~~six~~nine months ended ~~June~~September 30, 2022, and was for the purchase of property and equipment and rental equipment.

Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2023, was approximately $12.72 million, which included proceeds of $114,000 on the exercise of warrants, proceeds of approximately $12.50 million received on the issuance of notes payable, a $2575,000 related party ~~advance~~advances, a change in deferred ~~offing~~offering costs of $52,000, offset by the repayment of $10,000 on a related party advance and $711,000 of a loan payable. Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2022, was approximately $13.6 0 million, which included proceeds of $~~195,000~~1.6 ~~from~~million on the ~~sale~~exercise of ~~common stock~~warrants, proceeds of approximately $1.56 million ofreceived ~~proceeds~~in on the private ~~exercise~~placement of ~~warrants~~common stock, ~~payment~~offset ofby deferred offering costs of $4251,000, repayment of convertible notes of $100,000, and repayments of $69,000 of a loan payable.

Off-Balance Sheet Arrangements

At ~~June~~September 30, 2023 and December 31, 2022, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Senior Convertible Notes and Warrants

~~Total~~Each ~~principal~~Note ~~balance~~and ~~owed~~Warrant ~~was~~holder ~~$3,491,000~~has at(i) ~~December~~the ~~31,~~right ~~2022.~~of ~~During~~first ~~the~~refusal ~~six~~to ~~months~~purchase ~~ended~~up ~~June~~to ~~30,~~20% ~~2023,~~of ~~the~~its ~~Company~~pro ~~converted~~rata ~~$3,373,000~~ share of ~~principal~~new ~~and~~securities ~~$686~~the that company offers,~~000~~ ofwhich ~~accrued~~right ~~interest~~expires ~~into~~upon ~~2,029,306~~the ~~shares~~consummation of ~~common~~an ~~stock,~~underwritten ~~leaving~~initial public offering by the Company or a ~~remaining~~change ~~principal~~in ~~balance~~control of the ~~$118~~Company,~~000 at~~ ~~June~~and ~~30,~~(ii) ~~2023.~~the Asright ofto ~~June~~be ~~30,~~repaid ~~2023,~~any ~~approximately~~and ~~52,460~~all ~~shares~~principal ofand ~~common~~interest ~~stock~~due ~~were~~by ~~potentially~~the ~~issuable~~Company ~~under~~from ~~the~~any ~~conversion~~and ~~terms~~all proceeds resulting from any sale of ~~the~~assets ~~Notes~~and any sale and issuance of debt or equity securities.

InTotal principal ~~June~~balance ~~2023,~~owed ~~the~~was ~~Noteholders~~$3,491,000 ~~entered~~at ~~into~~December a31, ~~conversion~~2022. ~~agreement~~During (the ~~“Agreement”)~~nine ~~with~~months ~~the~~ended ~~Company in~~September ~~which~~30, 2023, the ~~Noteholders~~Company ~~elected~~converted ~~to convert~~ $3,373,000 of principal, and $~~686~~685,000 of accrued interest into 2,~~209~~029,306 shares of ~~Common Stock~~common ~~with~~stock, leaving a ~~fair~~remaining ~~value~~principal balance of $8,118,000, at ~~based~~September ~~upon~~30, ~~the~~2023. ~~fair~~As ~~value~~ of ~~$4.00~~September ~~per share~~30, ~~resulting in a loss on extinguishment of debt of $4~~2023,~~060,000.~~ ~~The~~approximately ~~Company further realized an additional $250~~54,~~000~~124 ~~loss~~shares ~~on extinguishment~~ of ~~debt~~common ~~related~~stock towere ~~the~~potentially ~~modification~~issuable ofunder ~~Warrants discussed below, resulting in~~ the ~~recording~~conversion terms of ~~an aggregate $4,310,000 loss on extinguishment of debt in~~ the ~~accompanying condensed statement of operations~~Notes.

~~The~~In September ~~Company~~2023, ~~also~~the ~~agreed~~Noteholders toentered ~~change~~into ~~the~~a ~~exercise~~conversion ~~price~~agreement of (the ~~Warrants~~“Agreement”) towith ~~100% of~~ the ~~offering~~Company ~~price per share of common stock~~ in ~~our~~which ~~initial public offering and extended~~ the ~~Warrant~~Noteholders elected ~~expiration date~~ to ~~June~~convert 30$3,373,000 ~~2026. The change in warrant terms changed the fair value~~ of ~~the~~principal, ~~Warrants~~and by $~~250~~685,000, ~~which was recorded as a component~~ of ~~the~~accrued ~~loss~~interest oninto ~~the extinguishment of debt in the accompanying condensed statement of operations. The Company is also obligated to issue the Noteholders an aggregate of 379~~2,~~975~~029,306 shares of ~~common~~Common ~~stock~~Stock ~~(the “Signing Premium Shares”)~~ with a fair value of ~~approximately~~ $18,~~519~~118,000, atbased ~~date~~upon ~~of grant as an inducement to enter into a conversion agreement with~~ the ~~Company. The~~ fair value of ~~the~~$4.00 ~~Premium Shares~~per ~~of $1~~share,~~519,000~~ ~~was~~resulting ~~recorded~~in asa ~~financing~~loss ~~costs~~on ~~during~~extinguishment ~~the~~of ~~six~~debt ~~months ended June 30, 2023. As~~ of ~~June 30~~$4, ~~2023~~060,000. ~~192,475~~The ~~shares~~Company offurther ~~common~~realized ~~stock~~an ~~for~~additional ~~the~~$250,000 ~~Premium~~loss ~~Shares~~on ~~were~~extinguishment ~~not~~of ~~issued~~debt ~~and~~related ~~reflected~~to ~~as common stock issuable in~~ the ~~condensed~~modification ~~balance sheet. Per the terms~~ of ~~the~~Warrants ~~Agreement~~discussed below, resulting in the ~~absence~~recording of ~~the~~an ~~Company’s~~aggregate ~~initial public offering~~$4, ~~the Agreement is effective until July 30~~310, ~~2023,~~000 atloss ~~which time it shall terminate, and the conversion be reversed. The provision herein would require a reversal of the common shares issues~~ on ~~the~~extinguishment ~~conversion which prohibits the presentation~~ of ~~this~~debt ~~instrument as part of permanent equity. As such the amounts will be reflected as mezzanine financing~~ in the accompanying condensed ~~balance~~statement ~~sheets. The Singing Premium Shares issued under the Agreement remain the property~~ of ~~the Noteholder~~operations. ~~On August 20, 2023, the Noteholders extended the termination date of the Agreement to September 1, 2023.~~

The Company also agreed to change the exercise price of the Warrants to 100% of the offering price per share of common stock in our initial public offering and extended the Warrant expiration date to September 30, 2026. The change in warrant terms changed the fair value of the Warrants by $250,000, which was recorded as a component of the loss on the extinguishment of debt in the accompanying condensed statement of operations. The Company is also obligated to issue the Noteholders an aggregate of 379,975 shares of common stock (the “Signing Premium Shares”) with a fair value of approximately $1,519,000 at date of grant as an inducement to enter into a conversion agreement with the Company. The fair value of the Premium Shares of $1,519,000 was recorded as financing costs during the nine months ended September 30, 2023. As of September 30, 2023, 192,475 shares of common stock for the Premium Shares were not issued and reflected as common stock issuable in the condensed balance sheet. Per the terms of the Agreement, in the absence of the Company’s initial public offering, the Agreement is effective until July 30, 2023, at which time it shall terminate, and the conversion be reversed. The provision herein would require a reversal of the common shares issues on the conversion which prohibits the presentation of this instrument as part of permanent equity. As such the amounts will be reflected as mezzanine financing in the accompanying condensed balance sheet. The Signing Premium Shares issued under the Agreement remain the property of the Noteholder. On August 20, 2023, the Noteholders extended the termination date of the Agreement to September 1, 2023, and on November 15, 2023, the Noteholders extended the termination date of the Agreement to December 31, 2023.

Convertible Promissory Notes and Warrants

In January and February 2023, the Company sold $250,000 of Convertible Promissory Notes (the “Notes”) and 4221,~~413~~206 warrants (the “Warrants”). In July 2023, a convertible note holder entered into an exchange agreement wherein a $100,000 Convertible Promissory Note was exchanged for a $100,000 note payable (see Note 6). The remaining $150,000 of Notes accrue interest at a rate of ten percent (10%) per annum. The outstanding principal amount of this Notes, together with all accrued but unpaid interest thereon, shall be due and payable on the date that is 12 months from the date of the Notes (the “Initial Maturity Date”); provided, however, that the Company may, at its option, extend such maturity date an additional six (6) months (such option, the “Extension Option” and such extended maturity date, (the “Extended Maturity Date”). The date on which this Note matures, whether the Initial Maturity Date or the Extended Maturity Date, is the “Maturity Date.” The principal amount of this Note shall be subject to increase as follows:

8The total of the allocated relative fair value of warrants issued of $76,000 were capitalized and recorded as a debt discount and are amortized over the remaining life of the Notes. Amortization of debt discount was approximately $56,000 for the nine months September 30, 2023, which was recorded as a component of interest expense in the accompanying statement of operations, leaving a $20,000 unamortized debt discount balance at September 30, 2023.

~~The~~During ~~total of~~ the ~~allocated~~nine ~~relative~~months ~~fair~~ended ~~value~~September of30, ~~warrants~~2023, ~~issued~~the ofCompany added $7611,000 ~~were~~of ~~capitalized~~accrued ~~and~~interest, ~~recorded~~leaving asan aaccrued ~~debt~~interest ~~discount~~balance ~~and are amortized over the remaining life~~ of ~~the Notes. Amortization of debt discount was approximately~~ $4811,000 at ~~for~~September ~~the six months June~~ 30, 2023,. ~~which was~~Accrued ~~recorded as a component of~~ interest ~~expense~~ in ~~the~~included ~~accompanying~~in ~~statement~~accounts ofpayable ~~operations,~~and ~~leaving~~accrued aexpenses ~~$38,000~~in ~~unamortized~~the ~~debt~~accompanying ~~discount~~ balance ~~at June 30, 2023~~sheets.

~~During~~Total ~~the~~principal ~~six~~balance ~~months~~owed ~~ended~~was ~~June 30, 2023, the Company added~~ $11150,000 ofat ~~accrued~~September ~~interest~~30, ~~leaving~~2023. anAs ~~accrued interest balance~~ of ~~$11,000~~September ~~at June~~ 30, 2023., ~~Accrued~~approximately ~~interest~~48,482 inshares ~~included~~of incommon ~~accounts~~stock ~~payable~~were potentially ~~and~~issuable ~~accrued~~under ~~expenses~~the inconversion ~~the~~terms ~~accompanying~~of ~~balance~~the ~~sheets~~Notes.

Total principal balance owed was $250,000 at June 30, 2023. As of June 30, 2023, approximately 78,693 shares of common stock were potentially issuable under the conversion terms of the Notes.

Convertible Promissory Notes and Restricted Shares

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company sold a $462,000 of Convertible Promissory Notes (the “~~Note~~Notes”). These Notes ~~Note~~ will accrue interest at a rate of twelve percent (12%) per annum, compounded annually, until maturity or conversion hereof. The interest payable hereunder shall automatically accrue and be capitalized to the principal amount of this Note (“PIK Interest”), and shall thereafter be deemed to be a part of the principal amount of this Note, unless such interest is paid in cash on or prior to the maturity date of the Notes. The Notes shall be due and payable on the date that is six (6) months from the date of the Notes (the “Initial Maturity Date”); provided, however, that the Company and Lender may, upon mutual written agreement, extend such maturity date an additional six (6) months (such extended maturity date, (the “Extended Maturity Date”). The Lender shall have the right, but not the obligation, at any time to convert all, or any portion, of the outstanding principal balance of the Notes into shares of Common Stock at a conversion price equal to either (i) $3.00 per share, or (ii) the price at which shares of Common Stock are first sold to the public in a Qualified Public Offering. The Company shall issue 10,000 shares of common stock of the Company for each $100,000 invested by an Investor, provided, however, that if an Investor invests a sum of funds which does not round to $100,000, the Company shall issue to such Investor Shares on a pro rata basis, based on an issuance of 20,000 Shares for each $100,000 invested. If the company enters into a subsequent financing with another individual or entity (a “Third Party”) on terms that are more favorable to the Third Party, the agreements between the company and the Investors shall be amended to include such better terms so long as the Notes are outstanding.

The Company issued 46,000 shares of common stock related to the Note, which the Company determined had a fair value of $370,000, were capitalized and recorded as a debt discount and are being amortized over the remaining life of the Note. During the six months ended June 30, 2023, the company recorded of $144,000 of amortization expense to interest expense, leaving a unamortized debt discount balance was $226,000 at June 30, 2023.

During the six months ended June 30, 2023, the Company added $11,000 of accrued interest, leaving an accrued interest balance of $11,000 at June 30, 2023. Accrued interest in included in accounts payable and accrued expenses in the accompanying balance sheets.

Total principal balance owed was $462,000 at June 30, 2023. As of June 30, 2023, approximately 157,738 shares of common stock were potentially issuable under the conversion terms of the Notes.

Promissory Notes and Restricted Shares

During the six months ended June 30, 2023, the Company sold approximately $612,000 of Promissory Notes (the “Note”) and issued 91,800 shares of restricted common stock. The outstanding principal amount shall bear interest from the date of the Note at a rate of twelve percent (12%) per annum (the “Interest Rate”). Interest shall automatically accrue and be capitalized to the principal amount of this Note (“PIK Interest”) and shall thereafter be deemed to be a part of the principal amount of this Note, unless such interest is paid in cash on or prior to the maturity date of this Note. This Note shall become due and payable on the earlier of (i) the consummation of the first underwritten public offering (the “IPO”) of Obligor pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale by Obligor of not less than $8,000,000 of its equity securities, as a result of or following which Obligor shall be a reporting issuer under the Securities and Exchange Act of 1934, as amended, and its common stock (the “Common Stock”) shall be listed on the Nasdaq Stock Market, and (ii) twelve months from the funding of the Principal to Obligor.

The Company issued 9146,~~800~~000 shares of common stock related to the Note at the date of issuance, which the Company determined had a fair value of $~~612~~370,000, were capitalized and recorded as a debt discount, and are being amortized over the remaining life of the Note. During the nine ~~six~~ months ended ~~June~~September 30, 2023, the ~~Company~~company ~~amortized~~recorded $51329,000, ~~which was recorded as a component~~ of ~~interest~~amortization expense into ~~the~~interest ~~accompanying condensed statement of operations~~expense, leaving a ~~remaining~~ unamortized debt discount balance ofwas $~~561~~41,000 at ~~June~~September 30, 2023.

~~Total~~During ~~principal~~the ~~balance~~nine ~~owed~~months ~~was~~ended September 30, 2023, the Company added $~~612~~25,000 of accrued interest, leaving an accrued interest balance of $25,000 at ~~June~~September 30, 2023. Accrued interest in included in accounts payable and accrued expenses in the accompanying balance sheets.

Total principal balance owed was $462,000 at September 30, 2023. As of September 30, 2023, approximately 162,401 shares of common stock were potentially issuable under the conversion terms of the Notes.

Promissory Notes and Restricted Shares

During the nine months ended September 30, 2023, the Company sold approximately $1,062,000 of Promissory Notes (the “Note”), and issued a $100,000 Note in exchange of a convertible note (see Note 5) and issued 174,300 shares of restricted common stock. The outstanding principal amount shall bear interest from the date of the Note at a rate of twelve percent (12%) per annum (the “Interest Rate”). Interest shall automatically accrue and be capitalized to the principal amount of this Note (“PIK Interest”) and shall thereafter be deemed to be a part of the principal amount of this Note, unless such interest is paid in cash on or prior to the maturity date of this Note. This Note shall become due and payable on the earlier of (i) the consummation of the first underwritten public offering (the “IPO”) of Obligor pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale by Obligor of not less than $8,000,000 of its equity securities, as a result of or following which Obligor shall be a reporting issuer under the Securities and Exchange Act of 1934, as amended, and its common stock (the “Common Stock”) shall be listed on the Nasdaq Stock Market, and (ii) twelve months from the funding of the Principal to Obligor.

The Company issued 174,300 shares of common stock related to the Note, which the Company determined had a fair value of $943,0000, were capitalized and recorded as a debt discount, and are being amortized over the remaining life of the Note. During the nine months ended September 30, 2023, the Company amortized $248,000, which was recorded as a component of interest expense in the accompanying condensed statement of operations, leaving a remaining unamortized debt discount balance of $695,000 at September 30, 2023.

Total principal balance owed was $1,162,000 at September 30, 2023.

Automobile Loans

On January 20, 2022, the Company financed the purchase of a second vehicle for $49,000. The loan term is for 71 months, annual interest rate of 15.54%, with monthly principal and interest payments of $1,066, and secured by the purchased vehicle. The loan balance was $45,000 at December 31, 2022. During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company made principal payments of $35,000, leaving a loan ~~balance~~ balance of $4240,000 at ~~June~~September 30, 2023, of which $5,000 was recorded as the current portion of loan payable on the accompanying balance sheet.

Unsecured Promissory Note – Related Party

Lease Obligations

Our principal executive offices are located at 190 N. Canon Dr., Beverly Hills, California 90210. We sublease this location on a month-to-month agreement and our rent expense is $2,500 per month.

Earnout and Royalty Obligations

On April 7, 2017, we and DisperSolar LLC (the “Seller”), a California limited liability company, entered into a Patent Purchase Agreement (the “Agreement”) pursuant to which we acquired certain patents (intellectual property) of the Seller (see Note 7 of the accompanying financial statements). The Seller developed the patents for harvesting, transmission, spectral modification and delivery of sunlight to shaded areas of plants.

Under the Agreement, the Company agreed to pay the following for the acquisition of Seller’s intellectual property:

	(i)	Initial Payment: $150,000 deposited into the Seller Account within 10 days of the Effective Date (the “Initial Payment”).

	(ii)	Initial Milestone Payments: Additional payments in the aggregate combined amount up to $350,000 upon reaching defined milestones (the “Milestone Payments”), of which $50,000 was paid in 2017, $200,000 in 2018, and $100,000 in 2021.

	(iii)	Earnout Payments: $800,000 paid on the on-going basis at a rate of 50% of gross margin and/or License Revenue from the date of the first commercial sale of a Covered Product or the first receipt by Purchaser of License Revenue, until the aggregate combined Gross Margin and License Revenue reach $1,600,000.

On December 6, 2018, we and Seller amended the Agreement by increasing the Milestone Payments from $350,000 to $450,000. The $100,000 increase in Milestone Payments was paid in 2019.

As of June 30, 2023, we had an $800,000 earnout obligation payable on the on-going basis at a rate of 50% of gross margin and/or license revenue from the date of the first commercial sale of a covered product or the first receipt by purchaser of license revenue, until the aggregate combined gross margin and license revenue reach $1.6 million.11

As of September 30, 2023, we had an $800,000 earnout obligation payable on the on-going basis at a rate of 50% of gross margin and/or license revenue from the date of the first commercial sale of a covered product or the first receipt by purchaser of license revenue, until the aggregate combined gross margin and license revenue reach $1.6 million.

We will pay to Seller royalties as follows:

	(i)	Following the recognition by us of the first $1.6 million in aggregate combined gross margin and license revenue, and until we pay to Seller an aggregate amount in royalties of $30 million, we shall pay to Seller royalties on sales of covered products at a rate of 8% of gross margin.

	(ii)	Once we paid to Seller an aggregate amount in royalties of $30 million, we shall pay to Seller royalties on sales of covered products at a rate of 4.75% of gross margin until the earlier of (x) such time as covered products are not covered by any claims of any assigned patent, and (y) the date of the consummation of a strategic transaction.

As of ~~June~~September 30, 2023, the Company recorded no earnout or royalty payment obligations as no gross margin was realized.

We will pay to Seller 7.6% of all License Consideration received by us until the date of the consummation of a Strategic Transaction. “Strategic Transaction” means a transaction or a series of related transactions that results in an acquisition of the Company by a third party, including by way of merger, purchase of capital stock or purchase of assets or change of control or otherwise.

Strategic Transaction Consideration. “Strategic Transaction Consideration” means any cash consideration and the fair market value of any non-cash consideration paid to we by any acquirer as consideration for the Strategic Transaction, less the costs and expenses incurred by Purchaser for the purpose of consummating the Strategic Transaction. The Company will pay to Seller a percentage of all License Consideration received by Purchaser as follows:

	(i)	3.8% of the first $50 million of the Strategic Transaction Consideration;
	(ii)	5.7% of the next $100 million of the Strategic Transaction Consideration (i.e. over $50 million and up to $150 million);

	(i)	3.8% of the first $50 million of the Strategic Transaction Consideration;

	(ii)	5.7% of the next $100 million of the Strategic Transaction Consideration (i.e. over $50 million and up to $150 million);

	(iii)	7.6% of Strategic Transaction Consideration over $150 million.

(iii) 7.6% of Strategic Transaction Consideration over $150 million.

Both our Chief Science Officer, Yosepha Shahak Ravid, and our Chief Technology Officer, Nicholas Booth, we employed by us on July 1, 2021, and are control persons of DisperSolar and named inventors of the acquired patents we acquired from DisperSolar under our Patent Purchase Agreement with DisperSolar.

On July 5, 2019, we and Nicholas Booth (“Mr. Booth”) entered into a royalty agreement.

The Company will pay Mr. Booth a percentage of all license consideration received by us as follows:

(0) Once we paid to DisperSolar an aggregate amount in royalties of $30 million under the Agreement, we will pay to Mr. Booth a percentage of all royalties on sales of covered products at a rate of 0.25% of gross margin until the earlier of (x) such time as covered products are not covered by any claims of any assigned patent, and (y) the date of the consummation of a strategic transaction.

(b) Opti-Harvest will pay to Mr. Booth a percentage of all license consideration received by purchaser on the same terms as payable by us to DisperSolar under the Agreement, except that the percentages of license consideration due to Mr. Booth shall be as follows:

(a) 0.4% of all license consideration received by us until the date of consummation of a strategic transaction; (b) 0.2% of the first $50 million of the strategic transaction consideration; (c) 0.3% of the next $100 million of the strategic transaction consideration (i.e. over $50 million and up to $150 million); and (d) 0.4% of strategic transaction consideration over $150 million.

	(a)	0.4% of all license consideration received by us until the date of consummation of a strategic transaction;

	(b)	0.2% of the first $50 million of the strategic transaction consideration;

~~As of June 30, 2023, the Company recorded no earnout or royalty payment obligations as no gross margin was realized.~~12

	(c)	0.3% of the next $100 million of the strategic transaction consideration (i.e. over $50 million and up to $150 million); and

	(d)	0.4% of strategic transaction consideration over $150 million.

As of September 30, 2023, the Company recorded no earnout or royalty payment obligations as no gross margin was realized.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in estimates for reserves of uncollectible accounts, , depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. There were no changes to our critical accounting policies described in the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that impacted our condensed financial statements and related notes included herein.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to Condensed Financial Statements for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 3.

Item 4. Controls and Procedures.

Evaluation of Disclosure control and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of ~~June~~September 30, 2023, the period covered in this Report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended ~~June~~September 30, 2023, that have ~~materially~~ materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Litigation against Jonathan Destler, our former Chief Executive Officer and former director, and Don Danks, a former director

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this Item 1A.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith as a part of this report.

Number		Description

3.1.1		Certificate of Incorporation
3.1.2		Certificate of Amendment
3.1.3		Certificate of Designation
3.1.4		Certificate of Amendment
3.1.5		First Amendment to Certificate of Designation
3.1.6		Certificate of Amendment
3.2		Bylaws
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	OPTI-HARVEST, INC.
Dated: August 21, 2023	By:	/s/ Geoffrey Andersen
Dated: November 20, 2023	By:	/s/ Geoffrey Andersen
	Name:	Geoffrey Andersen
	Title:	Chief Executive Officer (principal executive officer, principal financial officer and principal accounting officer)

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