UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | 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:
Odyssey Semiconductor Technologies, Inc.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other Jurisdiction of | (I.R.S. Employer |
(
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None.
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 ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
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 | ☐ |
| | ☒ | 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
As of August 7, 2023, there were
PART I – FINANCIAL INFORMATION
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 (unaudited) | 2022 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Deferred expenses | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Restricted cash | ||||||||
| Property and equipment, net | ||||||||
| Deferred Offering Costs | ||||||||
| Operating ROU Asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Loan payable - short term | ||||||||
| Lease liability - short term portion | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long-term lease liability | ||||||||
| Promissory Note - related party | ||||||||
| Accrued Interest on Promissory Notes | ||||||||
| Loans payable - long term | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | — | — | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding as of June 30, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding as of June 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See notes to these condensed consolidated financial statements.
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
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| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of Revenues |
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| Gross Profit (Loss) |
( |
) | ( |
) | ||||||||||||
| Operating Expenses: |
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| Research and development |
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| Selling, general, and administrative |
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| Total Operating Expenses |
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| Loss From Operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other Income (Expense): |
||||||||||||||||
| Forgiveness of PPP loan and other income |
||||||||||||||||
| Interest income (expense) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Change in Fair Value of Promissory Notes |
( |
) | ( |
) | ||||||||||||
| Net Loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net (Loss) Income Per Share: |
||||||||||||||||
| Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted Average Number of Common Shares Outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
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See notes to these condensed consolidated financial statements.
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE three and six months ended June 30, 2023 and 2022
(Unaudited)
| Common Stock |
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| Additional |
Total |
|||||||||||||||||||
| Paid-In |
Accumulated |
Stockholders’ |
||||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Equity |
||||||||||||||||
| Balance - December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Stock based compensation |
||||||||||||||||||||
| Net loss three months ended 3/31/2023 |
— | ( |
) | ( |
) | |||||||||||||||
| Balance - March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Stock based compensation |
||||||||||||||||||||
| Net loss three months ended 6/30/2023 |
— | ( |
) | ( |
) | |||||||||||||||
| Balance - June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Common Stock |
||||||||||||||||||||
| Additional |
Total |
|||||||||||||||||||
| Paid-In |
Accumulated |
Stockholders’ |
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| Shares |
Amount |
Capital |
Deficit |
Equity |
||||||||||||||||
| Balance - December 31, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss three months ended 3/31/2022 |
— | ( |
) | ( |
) | |||||||||||||||
| Balance - March 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss three months ended 6/30/2022 |
— | ( |
) | ( |
) | |||||||||||||||
| Balance - June 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
See notes to these condensed consolidated financial statements.
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended |
||||||||
| June 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash Flows From Operating Activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Stock-based compensation |
||||||||
| Fair value adjustment to Promissory Note |
||||||||
| Accrued Interest |
||||||||
| Depreciation and amortization |
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| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
||||||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Deferred expenses |
( |
) | ( |
) | ||||
| Accounts payable and accrued expenses |
( |
) | ||||||
| Deferred revenue |
||||||||
| Total Adjustments |
||||||||
| Net Cash Used In Operating Activities |
( |
) | ( |
) | ||||
| Cash Flows Used In Investing Activities: |
||||||||
| Purchases of property and equipment |
( |
) | ||||||
| Lease of property |
( |
) | ||||||
| Net Cash Used In Investing Activities |
( |
) | ||||||
| Cash Flows From Financing Activities: |
||||||||
| Repayment of government loans |
( |
) | ( |
) | ||||
| Payment of deferred offering costs |
( |
) | ||||||
| Net Cash Provided By Financing Activities |
( |
) | ( |
) | ||||
| Net Increase (Decrease) In Cash and Restricted Cash |
( |
) | ( |
) | ||||
| Cash and Restricted Cash - Beginning Of Period |
||||||||
| Cash and Restricted Cash - End Of Period |
$ | $ | ||||||
| Cash and Restricted Cash Consisted of the Following: |
||||||||
| Cash |
$ | $ | ||||||
| Restricted cash |
||||||||
| Cash and Restricted Cash |
$ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: |
||||||||
| Cash paid during the year for: |
||||||||
| Interest |
$ | $ | ||||||
| Non-cash investing and financing activities: |
||||||||
| Operating Lease ROU Asset |
$ | $ | ||||||
See notes to these condensed consolidated financial statements.
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE six months ended June 30, 2023 and 2022
Note 1 – Nature of Operations and Liquidity
Organization and Operations
Odyssey Semiconductor Technologies, Inc. (“Odyssey Technologies”) was incorporated on April 12, 2019 under the laws of the State of Delaware. Odyssey Technologies, through its wholly-owned subsidiary, Odyssey Semiconductor, Inc. (“Odyssey Semiconductor”) and Odyssey Semiconductor’s wholly owned subsidiary, JR2J, LLC (“JR2J”) (collectively, the “Company”), is a semiconductor device company developing high-voltage power switching components and systems based on proprietary Gallium Nitride (“GaN”) processing technology.
Liquidity and Financial Condition
As of June 30, 2023, the Company had a cash balance, working capital and accumulated deficit of $
The Company believes its current cash on hand will not be sufficient to meet its operating obligations and capital requirements for the next twelve months from the issuance of these financial statements. These conditions raise substantial doubt about the entity’s ability to continue as a going concern. Therefore, the Company will need to raise further capital through the sale of additional equity or debt securities or other debt instruments to support its future operations.
The Company requires funding for operating needs and capital expenditures. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully commercialize its products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement its product and service offerings. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its development initiatives or attain profitable operations. If the Company is unable to obtain additional financing on a timely basis, it may have to curtail its development, marketing and promotional activities. Reduction in these efforts would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately, the Company could be forced to discontinue its operations and liquidate.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full year ending December 31, 2023 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related disclosures as of December 31, 2022 and for the year then ended which have been previously filed.
Use of Estimates
Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and the amounts disclosed in the related notes to the financial statements. The Company’s significant estimates used in these financial statements include, but are not limited to, fair value calculations for equity securities, stock-based compensation, the collectability of receivables, the recoverability and useful lives of long-lived assets, and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents in the financial statements. As of June 30, 2023 and December 31, 2022, the Company had
Restricted Cash
Restricted cash was comprised of cash held as a security deposit in connection with the Company’s operating lease. See Note 9 – Right of Use Asset and Operating Lease Liability for additional details.
Deferred Expenses
Deferred expenses consist of labor, materials and other costs that are attributable to customer contracts that the Company has not completed its performance obligation under the contract and, as a result, has not recognized revenue. As of June 30, 2023 and December 31, 2022, deferred expenses were approximately $
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives once the asset is placed in service. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures which extend the economic life are capitalized. Leasehold improvements are depreciated over the lesser of their estimated useful lives or the remaining term of their respective lease. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized in the statement of operations for the respective period.
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
The estimated useful lives of property and equipment are as follows:
| Schedule of estimated useful lives of property and equipment | |
| Asset | Useful lives (years) |
| Computer and office equipment | |
| Lab equipment | |
| Leasehold improvements | shorter of useful life or lease term |
| Machinery | |
| Furniture | |
Offering Costs
Deferred offering costs, which primarily consist of direct, incremental professional fees incurred in connection with a debt or equity financing, are capitalized as non-current assets on the consolidated balance sheets. Once the financing closes, the Company reclassifies such costs as either discounts to notes payable or as a reduction of proceeds received from equity transactions so that such costs are recorded as a reduction of additional paid-in capital. If the completion of a contemplated financing was deemed to be no longer probable, the related deferred offering costs would be charged to general and administrative expense in the consolidated financial statements.
Revenue Recognition
The Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps:
| ● | Step 1: Identify the contract with the customer; | |
| ● | Step 2: Identify the performance obligations in the contract; | |
| ● | Step 3: Determine the transaction price; | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract; and | |
| ● | Step 5: Recognize revenue when the Company satisfies a performance obligation. |
A majority of the Company’s revenues are generated from contracts with customers that require it to design, develop, manufacture, test and integrate complex equipment and to provide engineering and technical services according to customer specifications. These contracts are often priced on a time and material type basis. Revenues on time and material type contracts are generally recognized in each period based on the amount billable to the customer which is based on direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of materials and other direct non-labor costs.
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Contract assets are comprised of unbilled contract receivables related to revenues earned but not yet invoiced to customers.
During the six months ended June 30, 2023 and 2022, there was
The Company generated revenue from government contracts that reimburse the Company for certain allowable costs for funded projects. For contracts with government agencies, when the Company has concluded that it is the principal in conducting the research and development expenses and where the funding arrangement is considered central to the Company’s ongoing operations, the Company classifies the recognized funding received as revenue. The Company has determined that revenue generated from government grants is outside the scope of ASC 606 and, as a result, the Company recognizes revenue upon incurring qualifying, reimbursable expenses.
Research and Development
Research and development expenses are charged to operations as incurred.
Stock-Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares.
The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. Option forfeitures are accounted for at the time of occurrence. The expected term used is the estimated period of time that warrants or options are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee options. For investor warrants and non-employee options, the expected term used is the contractual life of the instrument being valued. The Company uses its trading history to support its historical volatility calculations.
Net (Loss) Income per share of Common Stock
Basic net (loss) income per share of common stock is computed by dividing net (loss) income by the weighted average number of vested shares of common stock outstanding during the period. Diluted net income per share of common stock is computed by dividing net income by the weighted average number of common and dilutive common-equivalent shares outstanding during each period.
The following shares were excluded from the calculation of weighted average dilutive shares of common stock because their inclusion would have been anti-dilutive:
| As of June 30, | ||||||||
| 2023 | 2022 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Total | ||||||||
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. The Company has recorded a full valuation allowance against its deferred tax assets for all periods, due to the uncertainty of future utilization.
The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of June 30, 2023 and December 31, 2022. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses in the consolidated statements of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements accurately reflect our best estimate of the results of operations, financial position and cash flows for the periods presented.
On an ongoing basis, we evaluate our estimates and judgments for all assets and liabilities, including those related to the fair value of stock options for determination of the stock-based compensation expense. The amount of stock based compensation has been a significant expense over the six months ended June 30, 2023 and 2022. The assumptions that go into the Black-Scholes calculation are the major driver of the calculation of the fair value of the stock options at the date of grant. The major assumption of volatility is based upon historical data, and the majority of the other assumptions used in the Black Scholes computation is based upon the terms of the specific stock option grant.
Revenues and cost of sales are important metrics in demonstrating the completion of projects and shipment of products to customers, and the profitability of such revenues. Accordingly, revenue recognition is a critical accounting policy. The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Contract assets are comprised of unbilled contract receivables related to revenues earned but not yet invoiced to customers. We review the status of each project at each period end and determine whether the earnings process is complete and the revenue and costs of sales should be recognized.
Leases
In February 2016, the Financial Accounting Standards Board (the “FASB”) established Accounting Standards Codification (“ASC”) Topic 842, “Leases”, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to now recognize operating leases on the balance sheet and disclose key information about leasing arrangements. ASC Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Lessor accounting under the new standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The Company adopted the new standard on January 1, 2022 using the modified retrospective transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following practical expedients and accounting policies elections related to this standard:
| ● | Short-term lease accounting policy election allowing lessees to not recognize ROU assets and liabilities for leases with a term of 12 months or less; | |
| ● | The option to not separate lease and non-lease components in the Company’s lease contracts; and | |
| ● | The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing the capitalization of initial direct costs for any existing leases. |
Adoption of this standard resulted in the recognition of operating lease right-of-use assets and corresponding lease liabilities of approximately $
Convertible Promissory Notes - Related Party
The Company accounts for convertible Promissory notes issued in 2022 under ASC 815. The Company has made the election under 815-15-25 to account for the Promissory Notes under the fair value option. Using the fair value option, the convertible Promissory Notes are required to be recorded at their initial fair value on the date of issuance, and each balance sheet thereafter. Differences between the face value of the Promissory Note and fair value at issuance are recognized as either an expense in the statement of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the Promissory Notes are recognized as non-cash gains or losses in the statement of operations.
Recently Issued and Adopted Accounting Standards
In August of 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)”. ASU 2020-06 simplifies the process of evaluating certain financial instruments with both equity and debt characteristics. This update limits the number of models needed when evaluating embedded features of a debt instrument in order to improve transparency for the users of the financial statements. The Company has elected early adoption of this standard on January 1, 2022. Adoption of this standard allows the Company to measure the derivative liability at fair market value.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses”. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”). Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022 for public entities qualifying as small reporting companies. Early adoption is permitted. The Company is currently assessing the impact of this update on our consolidated financial statements and do not anticipate a significant impact.
Note 3 - Prepaid Expenses and Other Current Assets
Prepaid expenses consisted of the following:
| June 30, 2023 |
December 31, 2022 |
|||||||
| Insurance |
$ | $ | ||||||
| Tooling |
$ | |||||||
| Other |
$ | |||||||
| Retainers |
$ | |||||||
| Total |
$ | $ | ||||||
Tooling consists of engineering designs and build for packaging semiconductors for samples. Samples shipped during the first quarter of 2023. This total amount is being amortized over 2 years, coinciding with the first shipment of samples.
Note 4 – Property and Equipment
Property and equipment consisted of the following:
| June 30, 2023 |
December 31, 2022 |
|||||||
| Computer and office equipment |
$ | $ | ||||||
| Lab equipment |
$ | |||||||
| Furniture |
$ | |||||||
| Leasehold improvements |
$ | |||||||
| Machinery |
$ | |||||||
| Subtotal |
||||||||
| Accumulated Depreciation |
( |
) | ( |
) | ||||
| Property and Equipment, net |
$ | $ | ||||||
Depreciation and amortization expense related to property and equipment was approximately $
Note 5 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
| June 30, 2023 |
December 31, 2022 |
|||||||
| Accounts Payable |
$ | $ | ||||||
| Credit Cards Payable |
$ | |||||||
| Accrued Bonus |
$ | |||||||
| Accrued Payroll |
$ | |||||||
| Other Accrued Expenses |
$ | |||||||
| Total |
$ | $ | ||||||
Accrued Interest is now included in Note 13 – Convertible Bridge Note as a long-term liability.
Note 6 – Stockholders’ Equity
Authorized Capital
The Company is authorized to issue
Common Stock Transactions
In March 2021, the Company sold
2022 Private Placement
On August 8, 2022 and December 23, 2022, the Company issued secured convertible promissory notes in the amounts of $
Note 7 – Equity Compensation Plan
On June 18, 2019, the Board of Directors and a majority of the Company’s shareholders approved the 2019 Equity Compensation Plan (the “2019 Plan”). The 2019 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, restricted stock, performance shares and performance units to employees, directors and consultants of the Company and its affiliates. The 2019 Plan requires the exercise price of stock options to be not less than the fair value of the Company’s common stock on the date of grant, or 110% of fair value in the case of incentive options granted to a ten-percent stockholder.
On March 11, 2020, the Company granted the following -year options to purchase shares of common stock at an exercise price of $
On May 26, 2020, the Board of Directors and a majority of the Company’s shareholders approved an amendment to the 2019 Plan to (i) increase the number of shares of common stock authorized for issuance under the 2019 Plan by
On July 16, 2020, the Company granted the following year options to purchase shares of common stock at an exercise price of $
On September 16, 2020, the Board of Directors and a majority of the Company’s shareholders approved an amendment to the 2019 Plan to further increase the number of shares of common stock authorized for issuance under the 2019 Plan from 2,500,000 shares to
From June 1 to June 22, 2021, the Company granted and -year options to purchase
On September 22, 2021, upon the resignation of our then Chief Executive Officer and Chairman, a total of
On December 30, 2021, the Company granted and -year options to purchase
On February 9, 2022, subject to the shareholders’ approval, the Board of Directors approved that the aggregate number of shares authorized for issuance as awards under the 2019 Plan shall be
On April 26, 2022, the Company granted to Mr. Davidson an option to purchase
On November 4, 2022 the Company granted to Laura Krauss an option to purchase
On January 26, 2023 the Company granted -year options to purchase
On June 30, 2023,
The stock option activity from January 1, 2022 through June 30, 2023 is as follows:
| Weighted- | Weighted- | |||||||||||
| Average | Average | |||||||||||
| Exercise | Remaining | |||||||||||
| Price per | Contractual | |||||||||||
| Shares | share | Life (years) | ||||||||||
| Balance, January 1, 2022 | ||||||||||||
| Options granted | ||||||||||||
| Options expired or forfeited | ( | ) | — | |||||||||
| Balance, December 31, 2022 | ||||||||||||
| Options granted | ||||||||||||
| Options expired or forfeited | ( | ) | — | |||||||||
| Balance, June 30, 2023 | ||||||||||||
| Vested shares at June 30, 2023 | ||||||||||||
The following table summarizes the outstanding options at June 30, 2023 by exercise price:
| Exercise price | Outstanding options | Exercisable options | ||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
At June 30, 2023, the Company had
The Company has estimated the fair value of all stock option awards as of the date of grant by applying the Black-Scholes option-pricing model. In applying the Black-Scholes option pricing model, the Company used the following weighted average assumptions for issuances during the six months ended June 30, 2023 and 2022:
| 2023 | 2022 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividends | ||||||||
| Grant date fair value of common stock (share) | $ | $ | ||||||
During the six months ended June 30, 2023, the Company recognized stock-based compensation expense related to stock options of approximately $
As of June 30, 2023, there was unamortized stock-based compensation of approximately $
Note 8 - Commitments and Contingencies
Litigations, Claims, and Assessments
From time to time, the Company is involved in various disputes, claims, liens and litigation matters arising out of the normal course of business which could result in a material adverse effect on the Company’s combined financial position, results of operations or cash flows. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. As of June 30, 2023 and June 30, 2022, the Company had
Employment Agreement
On April 7, 2022, the Company entered into a letter agreement with Mark Davidson as Chief Executive Officer of the Company effective as of April 18, 2022. Pursuant to the agreement, the Company agreed to pay Mr. Davidson an annual base salary of $
On September 2, 2022, the Company entered into a letter agreement with Laura Krauss as Controller of the Company effective September 19, 2022. Pursuant to the agreement, the Company agreed to pay Ms. Krauss an annual base salary of $
Note 9 – Right of Use Asset and Operating Lease Liability
The assets and liabilities from operating leases are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its estimated incremental commercial borrowing rate.
Operating Lease
On August 21, 2019, the Company entered into a lease for a
The following table presents information about the amount and timing of liabilities arising from the Company’s operating and finance leases as of June 30, 2023:
| Operating Lease | ||||
| Maturity of Lease Liabilities | Liabilities | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total undiscounted operating lease payments | $ | |||
| Less: Imputed interest | ||||
| Present value of operating lease liabilities | $ | |||
| Short-term portion | ||||
| Long term portion | $ | |||
| Remaining lease term in years | ||||
| Discount rate | % | |||
The Company incurred lease expense for its operating lease of approximately $
The Right of Use Asset at June 30, 2023 of $
Note 10 – Concentrations
During the six months ended June 30, 2023, revenues were generated primarily from
During the six months ended June 30, 2022, revenues were generated primarily from
Note 11 – Government Loans
Paycheck Protection Program Loans
On May 1, 2020, the Company received loan proceeds in the amount of approximately $
On February 24, 2021, the Company received $
Economic Injury Disaster Loan Advance
On May 1, 2020, the Company received an advance in the amount of $
Tomkins County Area Development Loan
On May 27, 2020, the Company received loan proceeds in the amount of $
Equipment Loans
On August 20, 2020, the Company received a loan of $
The loans are summarized as follows:
| June 30, 2023 |
December 31, 2022 |
|||||||
| Principal outstanding |
$ | $ | ||||||
| Deferred loan costs, net of amortization |
( |
) | ( |
) | ||||
| Subtotal |
||||||||
| Less current portion |
( |
) | ( |
) | ||||
| Total long term portion |
$ | $ | ||||||
Interest expense on the above debt instruments was approximately $
Note 12 – Revision of stock compensation expense
During the second quarter of 2022, the Company identified certain adjustments required to correct balances within stock-based compensation, which is included in operating expenses in the accompanying consolidated statements of operations, related to employees, directors and consultants (see Note 7 – Equity Compensation Plan) recorded during the three-month periods from June 2021 to March 2022. The Company had incorrectly calculated the amortization of the stock-based compensation for the periods from June 2021 to March 2022. The error discovered resulted in an understatement of the stock-based compensation expense for the period of March 2022 summarized as follows:
| As previously |
||||||||||||
| reported |
adjustment |
As if restated |
||||||||||
| Three months ended 3/31/2022 |
||||||||||||
| Gross profit (loss) |
( |
) | ( |
) | ( |
) | ||||||
| Operating expenses |
||||||||||||
| Operating loss |
( |
) | ( |
) | ||||||||
| Net loss |
( |
) | ( |
) | ( |
) | ||||||
| Additional paid in capital |
||||||||||||
| Accumulated Deficit |
( |
) | ( |
) | ( |
) | ||||||
Based upon an analysis of Accounting Standards Codification 250 “accounting Changes and Error Corrections (ASC 250), U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 99, “Materiality” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined this error was immaterial to the previously-issued condensed consolidated financial statements, and as such no restatement was necessary. Correcting prior-period financial statements for such immaterial misstatements does not require previously filed reports to be amended. Accordingly, the misstatement was corrected in the period ended June 30, 2022.
For the year ended December 31, 2022, correction of this error increased our stock-based compensation expense, total operating expenses by $
Note 13 – Convertible Promissory Notes – Related Party
The Company issued two secured convertible promissory notes on August 8, 2022 (“Promissory Note I”) and December 23, 2022 (“Promissory Note II”) in the amounts of $
On December 23, 2022, the Company entered into a modification agreement on Promissory Note I which extended its maturity date to June 30, 2025, consistent with the maturity date of Promissory Note II. There were no other significant modifications to the terms of Promissory Note I.
The Promissory Notes bear interest at a rate of ten percent (
The Company accounts for convertible Promissory Notes under ASC 815. The Company has made the election under 815-15-25 to account for the Promissory Notes under the fair value option. Using the fair value option, the Promissory Notes are required to be recorded at their initial fair value on the date of issuance, and each balance sheet thereafter. Differences between the face value of the Promissory Notes and fair value at issuance are recognized as either an expense in the statement of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the Promissory Notes are recognized as non-cash gains or losses in the statement of operations.
The related party convertible Promissory Notes were valued using the Probability-Weighted Expected Returns Method (PWERM), which is considered to be a Level 3 fair value measurement. The inputs used to determine fair market value of the notes are the following:
| December 31, 2022 | June 30, 2023 | |||||||
| Market Rate | % | % | ||||||
| Probability of Maturity | % | % | ||||||
| Maturity Date | | | ||||||
| Probability of Qualified Financing Event | % | % | ||||||
| Qualified Financing Event Date | | | ||||||
| Probability of Corporate Transaction | % | % | ||||||
| Corporate Transaction Event Date | | | ||||||
These assumptions are based on the judgment and experience of management and based on conversations with investment banks and interested investors.
The following table presents the changes in fair value of the Company’s convertible Promissory Notes:
| Face value at December 31, 2022 | $ | |||
| Change in fair value | ||||
| Fair value at December 31, 2022 | ||||
| Change in fair value | ||||
| Fair value at March 31, 2023 | ||||
| Change in fair value | ||||
| Fair value at June 30, 2023 | $ |
Note 14 – Fair Value Measurements
As of June 30, 2023, the convertible Promissory Notes are the only liabilities measured at fair value. The Promissory Notes are classified as level 3 financial instruments.
The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
Note 15 - Subsequent Events
The Company has evaluated events that have occurred after the balance sheet and through August 7, 2023. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.
OVERVIEW
We are a semiconductor device company developing revolutionary high-voltage power switching components and systems based on proprietary Gallium Nitride (GaN) processing technology. The premium power switching device market, which is described as applications where silicon-based (Si) systems perform insufficiently, is projected to reach over $3.5 billion by 2025 and is currently dominated by the semiconductor material silicon carbide (SiC). GaN-based systems outperform Si and SiC based systems in every way due to the superior material properties of GaN. However, the existing GaN products on the market use a lateral structure, limiting their ability to compete with SiC in the most valuable opportunities. Vertical GaN devices have, to-date proven difficult to process using standard semiconductor processing methods that are used to create Si and SiC based devices. We have developed a novel processing modification that allows GaN to be processed in a manner that for the first time, makes high voltage GaN power switching devices viably manufacturable. Our mission is to disrupt the rapidly growing premium power switching device market using our newly developed GaN high voltage power transistor for switching applications.
RECENT DEVELOPMENTS
At the end of March 2023, product samples were delivered to customers as planned. The results validate the leadership performance expected from vertical GaN power devices verses competing technologies.
COMPONENTS OF OUR RESULTS OF OPERATIONS
Revenues
Our revenues are derived from contracts with customers that require us to design, develop, manufacture, test and integrate complex equipment and to provide engineering and technical services according to customer specifications. These contracts are often priced on a time and material type basis. Revenues on time and material type contracts are generally recognized in each period based on the amount billable to the customer which is based on direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of materials and other direct non-labor costs. We bill customers based upon contractual terms, and accordingly, we have deferred revenues and contract assets depending upon whether we can bill in advance of earnings or in arrears, respectively.
Cost of Revenues
Cost of revenues consist of material, labor, a portion of occupancy expenses, and other expenses directly related to our revenue contracts.
Research and Development
Research and development includes expenses, primarily material, labor, a portion of occupancy expenses, and other expenses incurred in connection with the research and development of certain exploratory projects. Research and development expenses are expensed as they are incurred.
Selling, General, and Administrative
Selling, general, and administrative expenses consist of salaries, payroll taxes and other benefits, legal and professional fees, stock-based compensation, rent and office expenses, marketing and travel and other costs associated with our operation.
Other Income
Other income consists primarily of interest income on cash balances, and other miscellaneous items.
RESULTS OF OPERATIONS
Overview
The following table presents certain information from the condensed consolidated statements of operations:
Six months ended June 30, 2023 compared with six months ended June 30, 2022
| For the Six Months Ended |
||||||||||||||||
| June 30, |
Change |
Change % |
||||||||||||||
| 2023 |
2022 |
|||||||||||||||
| Revenues |
$ | 36,900 | $ | 50,519 | $ | (13,619 | ) | -27 | % | |||||||
| Cost of Revenues |
24,433 | 54,096 | (29,663 | ) | -55 | % | ||||||||||
| Gross (Loss) Profit |
12,467 | (3,577 | ) | 16,044 | -449 | % | ||||||||||
| Operating Expenses: |
||||||||||||||||
| Research and development |
1,082,794 | 1,016,889 | 65,905 | 6 | % | |||||||||||
| Selling, general, and administrative |
1,230,214 | 1,435,774 | (205,560 | ) | -14 | % | ||||||||||
| Total Operating Expenses |
2,313,008 | 2,452,663 | (139,655 | ) | -6 | % | ||||||||||
| (Loss) Income from Operations |
(2,300,541 | ) | (2,456,240 | ) | 155,699 | -6 | % | |||||||||
| Other Income: |
||||||||||||||||
| Other income |
11,258 | 2,024 | 9,234 | 456 | % | |||||||||||
| Interest expense |
(185,549 | ) | (7,484 | ) | (178,065 | ) | 2379 | % | ||||||||
| Change in fair value of contingent liability |
(382,000 | ) | — | (382,000 | ) | 0 | % | |||||||||
| Net (Loss) Income |
$ | (2,856,832 | ) | $ | (2,461,700 | ) | $ | (395,132 | ) | 16 | % | |||||
Revenues
Revenues for the six months ended June 30, 2023 and 2022 were approximately $37,000 and $51,000, respectively, which represented a decrease of approximately $14,000, or 27%. We had two commercial customers as of June 30, 2023 and June 30, 2022.. Two projects were started in the quarter ended June 30, 2023 but neither are complete. The timing of revenue recognition is driven by the completion of specified deliverables and the billing of time and materials over periods of time. Accordingly, the recognition of revenue for these contracts will vary from time to time.
Cost of Revenues
Cost of revenues for the six months ended June 30, 2023 and 2022 were approximately $24,000 and $54,000, respectively, which represented a decrease of approximately $30,000, or 55%. The base salary, facility and equipment usage fees to operate the fabrication facility during the 2023 and 2022 periods are relatively consistent and allocated between research and development and cost of revenues based upon the specific projects worked on during the period.
Research and Development
Research and development expenses for the six months ended June 30, 2023 and 2022 were approximately $1,083,000 and $1,017,000, respectively, which represented an increase of approximately $66,000, or 6%. The increase was primarily attributable to the purchase of wafers in 2023.
General and Administrative
Selling, general, and administrative expenses for the six months ended June 30, 2023 and 2022 were approximately $1,230,000 and $1,436,000, respectively, which represented a decrease of approximately $206,000, or 14%. The decrease was primarily attributable to non-recurring charges for consulting fees and stock offering costs of approximately $281,000 and stock compensation expense of approximately $128,000, offset in part by an increase in employee and contractor costs of approximately $205,000.
Other Income and expense items
During the six months ended June 30, 2023, the fair value adjustment of the contingent liability resulted in a $382,000 expense. During the six months ended June 30, 2023, interest expense was approximately $186,000 compared to $7,000 during the six months ended June 30, 2022 due to the addition of the Promissory Notes, which represented an increase of approximately $178,000 or 2379%. Interest accrued on the Promissory Notes for the six months ended June 30, 2023 was approximately $178,500.
Interest income in the six months ended June 30, 2023 and 2022 was insignificant. Other income for the six months ended June 30, 2023 includes the sale of non-capitalized equipment.
Net Loss
Net loss for the six months ended June 30, 2023 and 2022 was approximately $2,857,000 and $2,462,000, respectively, which represented an increase of approximately $395,000, or 16%. The increase was primarily attributable to the fair value adjustment of the contingent liability of $382,000.
Three months ended June 30, 2023 compared with three months ended June 30, 2022
Overview
The following table presents certain information from the condensed consolidated statements of operations:
| For The Three Months ended |
||||||||||||||||
| June 30, |
Change |
Change % |
||||||||||||||
| 2023 |
2022 |
|||||||||||||||
| Revenues |
$ | 8,400 | $ | 20,581 | $ | (12,181 | ) | -59 | % | |||||||
| Cost of Revenues |
2,450 | 23,097 | (20,647 | ) | -89 | % | ||||||||||
| Gross (Loss) Profit |
5,950 | (2,516 | ) | 8,466 | -336 | % | ||||||||||
| Operating Expenses: |
||||||||||||||||
| Research and development |
507,618 | 647,705 | (140,087 | ) | -22 | % | ||||||||||
| Selling, general, and administrative |
598,579 | 677,847 | (79,268 | ) | -12 | % | ||||||||||
| Total Operating Expenses |
1,106,197 | 1,325,552 | (219,355 | ) | -17 | % | ||||||||||
| (Loss) Income from Operations |
(1,100,247 | ) | (1,328,068 | ) | 227,821 | -17 | % | |||||||||
| Other Income: |
||||||||||||||||
| Other income |
11,258 | 11 | 11,247 | 102244 | % | |||||||||||
| Interest expense |
(93,316 | ) | (3,668 | ) | (89,648 | ) | 2444 | % | ||||||||
| Change in fair value of contingent liability |
(189,000 | ) | — | (189,000 | ) | 0 | % | |||||||||
| Net (Loss) Income |
$ | (1,371,305 | ) | $ | (1,331,725 | ) | $ | (39,580 | ) | 3 | % | |||||
Revenues
Revenues for the three months ended June 30, 2023 and 2022 were approximately $8,000 and $21,000 respectively, which represented a decrease of approximately $12,000, or 59%. We completed one contract with a commercial customer during the three months ending June 30, 2023. We had two substantial customers as of June 30, 2022. The timing of revenue recognition is driven by the completion of specified deliverables and the billing of time and materials over periods of time. Accordingly, the recognition of revenue for these contracts will vary from time to time.
Cost of Revenues
Cost of revenues for the three months ended June 30, 2023 and 2022 were approximately $2,000 and $23,000, respectively, which represented a decrease of approximately $21,000, or 89%. Only one revenue generating project was completed in the three months ending June 30, 2023. The cost of revenue decrease resulted from the allocation of expenses based on hours worked on the completed project. The base salary, facility and equipment usage fees to operate the fabrication facility during the 2023 and 2022 periods are relatively consistent. Resources are split between building our internal technology and offering foundry services.
Research and Development
Research and development expenses for the three months ended June 30, 2023 and 2022 were approximately $508,000 and $648,000, respectively, which represented a decrease of approximately $140,000, or 22%. The decrease was primarily attributable to a $93,000 prior period adjustment in 2022 for stock based compensation and the avoidance of $47,000 in repairs and maintenance costs.
General and Administrative
Selling, general, and administrative expenses for the three months ended June 30, 2023 and 2022 were approximately $599,000 and $678,000, respectively, which represented a decrease of approximately $79,000, or 12%. The decrease is related to prior period adjustment of $135,000 in 2022 for stock-based compensation, offset by increases in employee costs of $56,000.
Other Income and expense items
During the three months ended June 30, 2023, the fair value adjustment of the contingent liability resulted in a $189,000 expense. During the three months ended June 30, 2023, interest expense of approximately $93,000 increased approximately $89,000, or 2444% compared to the corresponding 2022 period due to the addition of the convertible Promissory Notes in 2022.
Net Loss
Net loss for the three months ended June 30, 2023 and 2022 was approximately $1,371,000 and $1,332,000, respectively, which represented an increase of approximately $39,000, or 3%. The increase was primarily attributable to the fair value adjustment and interest costs related to the bridge funding offset by a decrease in the net operating loss.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We measure our liquidity in a number of ways, including the following:
| June 30, 2023 |
||||
| Cash |
$ | 735,680 | ||
| Working Capital |
$ | 81,611 | ||
As of June 30, 2023, we had cash and a working capital of $735,680 and $81,611, respectively. We expect our current cash on hand to be insufficient to meet our operating and capital requirements for the next twelve months from the date of this filing. This raises substantial doubt about our ability to continue as a going concern. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures as well as research and development. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve our cash.
Our sources and uses of cash were as follows:
Net cash used in operating activities for the six months ended June 30, 2023 and 2022 was approximately $(1,734,000) and $(1,652,000), respectively. Net cash used in operating activities for the six months ended June 30, 2023 includes cash used to fund a net loss of approximately $2,857,000, reduced by approximately $1,089,000 of non-cash expense, and by $34,000 of net cash provided by changes in the levels of operating assets and liabilities.
No cash was used in investing activities during the six months ended June 30, 2023. Net cash used in investing activities for the six months ended June 30, 2022 was approximately $306,000 primarily attributable to the purchase property and equipment, and leasehold improvements in the laboratory.
Net cash used in financing activities for the six months ended June 30, 2023 and 2022 was $25,000 for payment of deferred offering costs and approximately $37,000 for the repayment of governmental loans. Net cash used in financing activities for the six months ended June 30, 2022 consisted of approximately $37,000 for the repayment of governmental loans.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are included in Note 2 of our financial statements included elsewhere in this report.
RECENTLY ISSUED ACCOUNTING STANDARDS
Our recently issued accounting standards are included in Note 2 of our financial statements included elsewhere in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, 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 all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon 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. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures were effective as of June 30, 2023 to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
As a smaller reporting company, we are not required to provide the information required by this item.
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.
None.
The following exhibits are included and filed with this report.
| Exhibit |
Exhibit Description |
| 3.1 |
|
| 3.2 |
|
| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer |
| 32.1 |
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer * |
| 101 |
Interactive Data Files |
| 101.INS |
Inline XBRL Instance Document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Definition |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * |
Furnished and not filed. |
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on August 7, 2023.
| Person |
Capacity |
Date |
||
| /s/ Mark Davidson |
Chief Executive Officer |
August 7, 2023 |
||
| Mark Davidson |
(Principal Executive Officer) |
|||
| /s/ Laura Krauss |
Chief Accounting Officer |
August 7, 2023 | ||
| Laura Krauss |
(Principal Financial and Accounting Officer) |