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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

  


 

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

  

For the quarterly period ended March 31, 2022

  

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: 333-234741

 

Odyssey Semiconductor Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   84-1766761
(State or other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)

 

9 Brown Road 

 Ithaca, NY 14850

(607) 882-2754

 

(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 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 for 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 

 

As of May 23, 2022, there were 12,726,911 shares of the registrant’s common stock, $0.0001 par value, issued and outstanding.

 

 

  

Table of Contents

 

  Page 
PART I- FINANCIAL INFORMATION 3
Item 1: Condensed Consolidated Financial Statements for the three months ended March 31, 2022 and 2021 3
Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021 3
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 4
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2022 and 2021 5
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3: Quantitative and Qualitative Disclosures about Market Risk 21
Item 4: Controls and Procedures 22
PART II - OTHER INFORMATION  22
Item 1: Legal Proceedings 22
Item 1A: Risk Factors 22
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3: Defaults Upon Senior Securities 22
Item 4: Mine Safety Disclosures 22
Item 5: Other Information 23
Item 6: Exhibits 23
SIGNATURES 24

 

2

 

part I – FINANCIAL INFORMATION

Item 1. Financial Statements

  

ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

                 
    March 31,   December 31,
    2022 (Unaudited)   2021
Assets        
Current Assets:        
Cash   $ 1,573,880     $ 2,598,213  
Accounts receivable     170       6,170  
Deferred expenses     18,753       7,870  
Prepaid expenses and other current assets     386,418       225,260  
                 
Total Current Assets     1,979,221       2,837,513  
Restricted cash     103,213       103,201  
Property and equipment, net     933,171       853,290  
Operating ROU Asset     477,018        
                 
Total Assets   $ 3,492,623     $ 3,794,004  
                 
Liabilities and Stockholders' Equity                
                 
Current Liabilities:                
Accounts payable and accrued expenses   $ 240,768     $ 147,947  
Loan payable - short term     74,739       74,134  
Lease liability – short term portion     177,453          
Deferred revenue     75,000       10,000  
                 
 Total Current Liabilities     567,960       232,081  
                 
Long-Term Lease Liability     460,352        
Loans payable - long term     326,773       345,459  
Total liabilities     1,355,085       577,540  
Commitments and contingencies            
                 
Stockholders' Equity:                
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021            
Common stock, $0.0001 par value, 45,000,000 shares authorized, 12,726,911 shares issued and outstanding as of March 31, 2022 and December 31, 2021     1,272       1,272  
Additional paid-in capital     9,924,394       9,873,345  
Accumulated deficit     (7,788,128 )     (6,658,153 )
                 
Total Stockholders' Equity     2,137,538       3,216,464  
                 
Total Liabilities and Stockholders' Equity   $ 3,492,623     $ 3,794,004  

 

See notes to these condensed consolidated financial statements.

 

3

 

 

ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited)

 

                 
    For The Three Months Ended March 31,
    2022   2021
         
Revenues   $ 29,938     $ 230,969  
                 
Cost of Revenues     30,999       382,853  
                 
Gross Loss     (1,061 )     (151,884 )
                 
Operating Expenses:                
Research and development     369,184       153,037  
Selling, general, and administrative     757,927       796,474  
                 
Total Operating Expenses     1,127,111       949,511  
                 
Loss From Operations     (1,128,172 )     (1,101,395 )
                 
Other Income (Expense):                
Forgiveness of PPP loan and other income     2,013       210,680  
Interest expense     (3,816 )     (4,396 )
Net Loss   $ (1,129,975 )   $ (895,111 )
                 
Net Loss Per Share:                
 Basic   $ (0.09 )   $ (0.08 )
 Diluted   $ (0.09 )   $ (0.08 )
                 
Weighted Average Number of Common Shares Outstanding:                
Basic     12,726,911       11,354,130  
Diluted     12,726,911       11,354,130  

  

See notes to these condensed consolidated financial statements.

 

4

 

  

 ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Unaudited)

  

                          
   Common Stock         
   Shares  Amount  Additional Paid-In Capital  Accumulated Deficit  Total Stockholders’ Equity
Balance - December 31, 2021   12,726,911    1,272    9,873,345    (6,658,153)   3,216,464 
                          
Stock based compensation           51,049        51,049 
Net loss three months ended 12/31/2021               (1,129,975)   (1,129,975)
Balance - March 31, 2022   12,726,911    1,272    9,924,394    (7,788,128)   2,137,538 

 

    Common Stock            
    Shares   Amount   Additional Paid-In Capital   Accumulated Deficit   Total Stockholders’ Equity
                     
Balance - December 31, 2020     11,429,661       1,143       4,046,370       (3,516,400 )     531,113  
Stock based compensation                 678,918             678,918  
Exercise of stock options     45,625       4       68,434             68,438  
Sale of shares of common stock     1,251,625       125       5,006,375             5,006,500  
Costs of stock sale                 (407,445 )           (407,445 )
Net loss three months ended 3/31/2021                       (895,111 )     (895,111 )
Balance - March 31, 2021     12,726,911       1,272       9,392,652       (4,411,511 )     4,982,413  

 

See notes to these condensed consolidated financial statements.

 

5

 

 

 ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

 (Unaudited)

 

           
   For The Three Months Ended
   March 31,
   2022  2021
Cash Flows From Operating Activities:      
 Net loss   $(1,129,975)  $(895,111)
 Adjustments to reconcile net loss to net cash used in operating activities:          
 Stock-based compensation   51,049    678,918 
 Forgiveness of PPP loan indebtedness       (210,680)
 Depreciation and amortization   42,469    40,978 
Changes in operating assets and liabilities:          
 Contract assets       62,273 
 Accounts receivable   6,000    10,707 
 Prepaid expenses and other current assets   16,295    (6,151)
 Deferred expenses   (10,883)   (75,327)
 Accounts payable and accrued expenses   92,821    93,747 
 Deferred revenue   65,000    99,311 
           
 Total Adjustments   262,751    693,776 
           
 Net Cash Used In Operating Activities   (867,224)   (201,335)
           
Cash Flows Used In Investing Activities:          
Purchases of property and equipment   (122,122)   (21,161)
Lease of property      (16,666)    
           
Net Cash Used In Investing Activities   (138,788)   (21,161)
           
Cash Flows From Financing Activities:          
Proceeds from sale of common stock, net of costs       5,006,500 
Proceeds from government loans       193,625 
Repayment of government loans   (18,309)   (3,561)
Proceeds from exercise of stock options       68,438 
Payment of deferred offering costs       (407,445)
           
Net Cash Provided By (Used In )Financing Activities   (18,309)   4,857,557 
           
Net Increase (Decrease) In Cash and Restricted Cash   (1,024,321)   4,635,061 
           
Cash and Restricted Cash - Beginning of Period   2,701,414    375,854 
           
Cash and Restricted Cash - End of Period  $1,677,093   $5,010,915 
           
Cash and Restricted Cash Consisted of the Following:          
 Cash     $1,573,880   $4,907,753 
 Restricted cash   103,213    103,162 
Cash and Restricted Cash  $1,677,093   $5,010,915 
           
Supplemental Disclosures of Cash Flow Information:          
 Cash paid during the year for:          
  Interest  $3,588   $1,600 
  Income taxes  $   $ 
           
 Non-cash investing and financing activities:          
  Operating Lease ROU Asset  $680,683   $ 

 

See notes to these condensed consolidated financial statements.

 

6

 

 

ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

 

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.

 

COVID-19

  

The extent of the impact and effects of the recent outbreak of the coronavirus (COVID-19) on the operation and financial performance of our business will depend on future developments, including the duration and spread of the outbreak, related travel advisories and restrictions, the consequential potential of staff shortages, and project development delays, all of which are highly uncertain and cannot be predicted. If demand for the Company’s services or the Company’s ability to service customers are impacted for an extended period, especially as it relates to major customers, our financial condition and results of operations may be materially adversely affected.

  

Liquidity and Financial Condition

  

As of March 31, 2022, the Company had a cash balance, working capital and accumulated deficit of approximately $1,600,000, $1,400,000 and $7,800,000, respectively. During the three months ended March 31, 2022, the Company generated a net loss of approximately $1,100,000.

 

The Company believes its current cash on hand will not be sufficient to meet its operating obligations and capital requirements for at least twelve months from the issuance of these financial statements. This raises substantial doubt about our 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 has engaged with an investment bank to assist with the fund raise; however, there can no assurance that a financing can be completed on terms acceptable to the Company. The Company has also taken preliminary steps to file a registration statement on Form S-1 with the SEC for a proposed public offering and a listing application with Nasdaq, but there is no assurance that the offering and the listing application will be successful. In addition, the Company is also exploring the possibility of a small bridge loan to cover operating cash needs for several quarters or more and to provide some flexibility to the timing of a more permanent fund raising effort.

 

The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital 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, which 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.

 

7

 

 

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 March 31, 2022 and for the three months ended March 31, 2022 and 2021. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full year ending December 31, 2022 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, 2021 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 March 31, 2022 and December 31, 2021, the Company had no cash equivalents. The Company has cash on deposits in several financial institutions which, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions.

  

Restricted Cash

  

Restricted cash was comprised of cash held as a security deposit in connection with the Company’s operating lease. See Note 8 – Commitments and Contingencies - Operating Lease 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 March 31, 2022 and December 31, 2021, deferred expenses were approximately $19,000 and $8,000, respectively.

  

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.

 

8

 

  

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 5
Lab equipment 5
Leasehold improvements shorter of useful life or lease term
Machinery 7-15
Furniture 7

  

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.

  

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 $680,000 on the consolidated balance sheet as of January 1, 2022. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included in Note 8, Leases.

  

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.

   

9

 

  

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 three months ended March 31, 2022 and 2021, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

  

The Company generated revenue from government contracts that reimburse the Company for certain allowable costs for funded projects. Such projects were completed in 2021. 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. During the three months ended March 31, 2022 and 2021, the Company recognized approximately $0 and $225,000, respectively, of grant revenue.

  

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 does not yet have a trading history to support its historical volatility calculations. Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility of comparable entities over a period of time equivalent to the expected life of the instrument being valued.

  

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.

  

10

 

 

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 March 31,
    2022  2021
Warrants    245,696    245,696 
Options    1,398,246    3,211,785 
Total    1,643,942    3,457,481 

  

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 March 31, 2022 and December 31, 2021. 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 three months ended March 31, 2022 and 2021. 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.

 

11

 

  

Recently Issued Accounting Standards

  

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:

  

        
 

March 31,

2022

  December 31, 2021
      
Insurance $26,071   $30,666 
Legal Fees  4,480    16,180 
Deposit for equipment purchase  25,288    25,288 
Operating ROU asset – short term portion  177,453     
Deposit for leased equipment purchase (Note 11)  153,126    153,126 
Total $386,418   $225,260 

  

In December 2021, the Company made a deposit of $153,126 to purchase equipment (included in prepaid expenses in the accompanying balance sheet). The remainder of the purchase price was to be financed through a long-term lease. Terms and finalization of the lease has not yet occurred, and the Company has requested a refund of its deposit from the initial lessor who did not follow through with lease financing based on their original lease proposal.

 

Note 4 – Property and Equipment

  

Property and equipment consisted of the following:

 

        
 

March 31,

2022

  December 31, 2021
      
Computer and office equipment $2,807   $2,807 
Lab equipment  15,606    15,606 
Furniture  43,705    43,705 
Leasehold improvements  543,118    450,374 
Machinery  657,017    627,641 
Subtotal  1,262,254    1,140,133 
Accumulated Depreciation  (329,083)   (286,842)
          
Property and Equipment, net $933,171   $853,290 

   

Depreciation and amortization expense related to property and equipment was approximately $42,000 and $40,000 for the three months ended March 31, 2022 and 2021, respectively.

   

12

 

  

Note 5 - Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of the following:

 

        
  March 31, 2022  December 31, 2021
      
Accounts payable $90,268   $67,970 
Accrued payroll  75,055    29,994 
Credit cards payable  67,041    36,690 
Accrued interest and other  8,404    13,293 
Total $240,768   $147,947 

  

Note 6 – Stockholders’ Equity

 

Authorized Capital

  

The Company is authorized to issue 45,000,000 shares of common stock, $0.0001 par value per share, and 5,000,000 shares of preferred stock, $0.0001 par value per share. The holders of the Company’s common stock are entitled to one vote per share. No preferred shares have been issued as of the date hereof.

  

Common Stock Transactions

  

In March 2021, the Company sold 1,251,625 shares of common stock at $4.00 per share for gross proceeds of $5,006,500 in connection with a private placement of securities. The costs associated with such issuance were $407,445 in cash and warrants to purchase 89,730 shares of Common Stock of the Company with a term of 5 years and an exercise price of $4.00 per share. An aggregate of $480,000 of proceeds were raised from related parties (including an aggregate of $430,000 from Alex Behfar’s family member, Richard Brown, Richard Ogawa and James Shealy), representing approximately 10% of the total gross proceeds.

  

Note 7 – Equity Compensation Plan

  

On June 18, 2019, the Board of Directors and a majority of the Company’s shareholders, respectively, approved the 2019 Equity Compensation Plan (the “2019 Plan”). Under the 2019 Plan, 1,326,000 shares of common stock of the Company were authorized for issuance. 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 10 ten-year options to purchase shares of common stock at an exercise price of $1.50 per share to the Company’s then newly appointed Executive Chairman and Acting Chief Executive Officer under the 2019 Plan: (i) an option to purchase 965,850 shares of common stock that vests ratably on a monthly basis over two years and (ii) an option to purchase 321,950 shares of common stock that vests based on performance criteria to be mutually agreed to by the Board and the executive. The grant was reduced to 500,000 options, including 375,000 options and 125,000 options respectively under the two categories, due to limitations under the 2019 Plan. The terms of the 125,000 performance-based options were established in the quarter ended December 31, 2021. The terms of the performance-based options were met during the quarter ended March 31, 2021.

  

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 1,174,000 shares, such that a total of 2,500,000 shares of common stock are now authorized for issuance under the 2019 Plan; (ii) increase the maximum aggregate number of shares, options and/or other awards that may be granted to any one person during any calendar year from 500,000 to 1,300,000; and (iii) clarify the availability of cashless exercise as a form of consideration.

  

13

 

  

On July 16, 2020, the Company granted the following 10 ten-year options to purchase shares of common stock at an exercise price of $1.50 per share to the Company’s then Executive Chairman and Acting Chief Executive Officer under the 2019 Plan: (i) an option to purchase 600,000 shares of common stock that vests ratably on a monthly basis over one year and (ii) an option to purchase 200,000 shares of common stock that vests based on specified performance criteria.

  

On September 16, 2020, the Board of Directors and a majority of the Company’s shareholders approved an amendment to the 2019 Plan to increase the number of shares of common stock authorized for issuance under the 2019 Plan from 2,500,000 shares to 4,600,000 shares.

 

On September 22, 2020, the Company granted a 10 ten-year option to purchase shares 1,637,410 shares of common stock at an exercise price of $1.50 per share to the Company’s then Chairman and Chief Executive Officer under the 2019 Plan that vests ratably on a monthly basis over two years commencing March 11, 2022.

  

From June 1 to June 22, 2021, the Company granted five and 10 ten-year options to purchase 388,246 shares of common stock at an exercise price of $2.90 to $3.93 per share to employees, an advisory board member and board members under the 2019 Plan that vest over two to five years.

  

On September 22, 2021, upon the resignation of our then Chief Executive Officer and Chairman, a total of 1,911,160 unvested options that he received on September 25, 2019, March 11, 2020, July 16, 2020 and September 22, 2020 were forfeited as of such date. On such date, the Company also provided the acceleration of 25,000 unvested stock options issued on September 25, 2019, which were to vest as of September 25, 2021. The impact of the modification of the stock option was not material.

  

On December 30, 2021, the Company granted five and 10 ten-year options to purchase 445,000 shares of common stock at an exercise price of $1.77 per share to employees, an advisory board member and board members under the 2019 Plan that vest over one to four years.

 

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 4,600,000 shares plus an annual increase on the first day of each fiscal year for the rest of the term of the Plan in an amount equal to the lesser of (i) 5% of the outstanding shares of common stock of the Company on the last day of the immediately preceding year or (iii) an amount determined by the Board of Directors.

  

The stock option activity from January 1, 2021 through March 31, 2022 is as follows (note there were no options granted, exercised, expired or forfeited in the three months ended March 31, 2022):

 

             
  Shares  Weighted-Average Exercise
Price per share
  Weighted-Average Remaining
Contractual Life (years)
         
Balance, December 31, 2020  3,257,410   $1.5    9.1 
Options granted  833,246    2.7    6.7 
Options exercised  (45,625)   1.5     
Options converted           
Options expired  (735,625)   1.5     
Options forfeited  (1,911,160)   1.5     
Balance, December 31, 2021 and March 31, 2022  1,398,246    2.2    6.0 
Vested shares at March 31, 2022  483,500    1.5    2.4 

 

The following table summarizes the outstanding options at March 31, 2022 by exercise price.

 

14

 

 

            
Exercise price  Outstanding options  Exercisable options
$1.50    565,000    450,167 
$3.93    388,246    0 
$1.77    445,000    33,333 
      1,398,246    483,500 

  

At March 31, 2022, the Company has 2,886,129 options available to grant under the 2019 Plan.

  

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 year of 2021:

  

     
   2021
Risk-free interest rate   1.2%
Expected term   7.0 years 
Expected volatility   91%
Expected dividends   0 
Grant date fair value of common stock  $1.91/share

  

During the three months ended March 31, 2022, the Company recognized stock-based compensation expense related to stock options of approximately $51,000, of which approximately $7,000 was recorded as part of research and development expenses and $44,000 was included within general and administrative expenses on the consolidated statements of operations. During the three months ended March 31, 2021, the Company recognized stock-based compensation expense related to stock options of approximately $678,000 ($643,000 of which was included within general and administrative expenses, $3,000 of which was included in research and development expenses, $32,000 of which was included within cost of revenues).

  

As of March 31, 2022, there was unamortized stock-based compensation of approximately $1,500,000 which the Company expects to recognize over approximately 2.3 years. At March 31, 2022, the intrinsic value of outstanding and vested stock options was approximately $223,000 and $155,000, respectively.

 

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 March 31, 2022 and March 31, 2021, the Company had no outstanding claims or litigation and had no liabilities recorded for loss contingencies.

  

Operating Lease

  

On August 21, 2019, the Company entered into a lease for a 10,000 square foot facility consisting of lab and office space. The lease requires monthly payments of $16,667 and expires on November 30, 2025. The Company has arranged for a $100,000 letter of credit in favor of the landlord in lieu of a security deposit, which was included as restricted cash on the consolidated balance sheet as of March 31, 2022 and December 31, 2021.

  

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,

  

15

 

 

The following table presents information about the amount and timing of liabilities arising from the Company’s operating and finance leases as of March 31, 2022 (in thousands):

  

     
Maturity of Lease Liabilities 

Operating Lease Liabilities

2022  $150,000 
2023   200,000 
2024   200,000 
2025   183,337 
Total undiscounted operating lease payments  $733,337 
Less: Imputed interest   95,533 
Present value of operating lease liabilities  $637,805 
  Short-term portion   177,453 
   Long term portion   460,352 
      
Weighted average remaining lease term in years   4.9 
Weighted average discount rate   6.50%

  

The Company incurred lease expense for its operating lease of approximately $50,000 for the three months ended March 31, 2022.

 

The minimum lease payments for the years ending December 31 are approximately as follows: $200,000 in each of 2022 through 2024 and $183,000 in 2025.

 

The Right of Use Asset at March 31, 2022 of $654,471 is being amortized over the lease term – with $177,453 classified as a short-term asset and $477,018 classified as a long term asset.

 

Note 9 – Concentrations

  

During the three months ended March 31, 2022, revenues were generated from two customers. At March 31, 2022, deferred costs and deferred revenues are attributable to one customer contract.

 

During the quarter ended March 31, 2021, substantially all revenues were generated from one customer pursuant to our contract with a governmental entity and amounted to approximately 84% of total revenues.

 

Note 10 – Government Loans

 

Paycheck Protection Program Loans

 

On May 1, 2020, the Company received loan proceeds in the amount of approximately $211,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, as amended (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of such qualifying business. The loans and accrued interest are forgivable after certain time periods further defined in the CARES Act (the “Covered Period”) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the Covered Period. The outstanding balance was included in long-term loans payable at December 31, 2021. On March 6, 2021, the entire loan balance was forgiven.

  

16

 

 

On February 24, 2021, the Company received $193,625 pursuant to a promissory note issued under the Paycheck Protection Program Part 2 (“PPP2”). Interest was to accrue at 1% per annum and the note is payable in 60 monthly installments of $3,300 commencing May 2022; however, on November 15, 2021, the entire loan balance was forgiven.

  

Economic Injury Disaster Loan Advance

  

On May 1, 2020, the Company received an advance in the amount of $10,000 from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. Such advance amount will reduce the Company’s PPP loan forgiveness amount described above. The Company received an additional $138,900 under this program on August 30, 2020. The loan is payable in monthly payments of $678 including interest at 3.75% payable over 30 years.

 

Tomkins County Area Development Loan

 

On May 27, 2020, the Company received loan proceeds in the amount of $50,000 from the Tomkins County Area Development (“TCAD”) Emergency Relief Loan Fund. The loan matures after four years and bears interest in the amount of 2.5% per annum, with one year of no interest or principal payments, followed by three years of monthly payments of principal and interest in the amount of $1,443 per month. The loan is collateralized by certain assets of the Company. The outstanding balance is included in long term loans payable.

  

Equipment Loans

  

On August 20, 2020, the Company received a loan of $100,000 from Broome County Industrial Development Agency (5 year facility, 2.5% annual interest rate, monthly payment of $1,775); on September 1, 2020, the Company received a loan of $100,000 from Southern Tier Region Economic Development Corporation (5 year facility, 5.0% annual interest rate, monthly payment of $2,072) ; and on September 10, 2020, the Company received a loan of $75,000 from TCAD (5 year facility, 2.5% annual interest rate, monthly payment of $1,331). These loans were used to acquire equipment used in the laboratory, and are secured by the underlying assets of the Company.

  

The loans are summarized as follows:

  

        
  March 31, 2022  December 31, 2021
      
Principal outstanding $404,780   $423,089 
Deferred loan costs, net of amortization  (3,268)   (3,496)
Subtotal  401,512    419,593 
Less current portion  (74,739)   (74,134)
          
Total long term portion $326,773   $345,459 

  

Interest expense on the above debt instruments was approximately $3,800 and $4,400 for the three months ended March 31, 2022 and 2021, respectively.

  

Note 11 - Subsequent Events

  

The Company has evaluated events that have occurred after the balance sheet and through May 23, 2022. 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, except as follows

  

On April 18, 2022, Mark Davidson was appointed as Chief Executive Officer of the Company. In connection with Mr. Davidson’s appointment as Chief Executive Officer of the Company, the Company agreed to pay Mr. Davidson an annual cash compensation of $300,000. For 2022, Mr. Davidson will be eligible for an annual target bonus of up to $150,000 that will be prorated for nine (9) months (i.e. $112,500) based on his achievements of performance goals to be finalized and approved by the Board of Directors within the first two months of his employment. Such annual bonus will be paid in stock compensation until such time that the Company has sufficient cash flow. His eligibility for future bonuses will be determined by the Board of Directors in accordance with the Company’s future bonus plans and programs. In addition, the Company agreed to grant to Mr. Davidson an option to purchase a number of shares equivalent to 5.0% ownership of the Company on a fully-diluted basis using the treasury stock method as of March 31, 2022 (or 5.0% of 12,910,125 shares, or 650,000 shares), at the fair market value of the Company’s common stock as determined by the Board on the date it approves such grant. The option will vest at the rate of 25% per year on the anniversary date from the first day of his employment starting from April 1, 2023. The option will be subject to acceleration in vesting in connection with the occurrence of a change of control event during the term of Mr. Davidson’s employment.

 

17

 

  

 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, 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

 

On April 18, 2022, Mark Davidson was appointed as Chief Executive Officer of the Company. In connection with Mr. Davidson’s appointment as Chief Executive Officer of the Company, the Company agreed to pay Mr. Davidson an annual cash compensation of $300,000. For 2022, Mr. Davidson will be eligible for an annual target bonus of up to $150,000 that will be prorated for nine (9) months (i.e. $112,500) based on his achievements of performance goals to be finalized and approved by the Board of Directors within the first two months of his employment. Such annual bonus will be paid in stock compensation until such time that the Company has sufficient cash flow. His eligibility for future bonuses will be determined by the Board of Directors in accordance with the Company’s future bonus plans and programs. In addition, the Company agreed to grant to Mr. Davidson an option to purchase a number of shares equivalent to 5.0% ownership of the Company on a fully-diluted basis using the treasury stock method as of March 31, 2022 (or 5.0% of 12,910,125 shares, or 650,000 shares), at the fair market value of the Company’s common stock as determined by the Board on the date it approves such grant. The option will vest at the rate of 25% per year on the anniversary date from the first day of his employment starting from April 1, 2023. The option will be subject to acceleration in vesting in connection with the occurrence of a change of control event during the term of Mr. Davidson’s employment.

  

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.

 

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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. In the first quarter of 2021, this category also includes the forgiveness of the PPP loan.

  

RESULTS OF OPERATIONS

  

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

 

Overview

  

The following table presents certain information from the condensed consolidated statements of operations:

  

   2022  2021
       
Revenues  $29,938   $230,969 
           
Cost of Revenues   30,999    382,853 
           
Gross Loss   (1,061)   (151,884)
           
Operating Expenses:          
Research and development   369,184    153,037 
Selling, general, and administrative   757,927    796,474 
           
Total Operating Expenses   1,127,111    949,511 
           
Loss From Operations   (1,128,172)   (1,101,395)
           
Other Income:          
Forgiveness of PPP loan and other income   2,013    210,680 
Interest expense   (3,816)   (4,396)
Net Loss  $(1,129,975)  $(895,111)

  

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Revenues

 

Revenues for the three months ended March 31, 2022 and 2021 were approximately $30,000 and $231,000, respectively, which represented a decrease of $201,000, or 87%. We have two commercial customers as of March 31, 2022. For the quarter ended March 31, 2021, we recognized revenue under one of our completed government contracts, which amounted to $225,000. 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 March 31, 2022 and 2021 were approximately $31,000 and $383,000, respectively, which represented a decrease of $352,000, or 92%. The decrease was attributable to labor costs being re-directed to research and development projects, as compared to the completion of the government grant assignment in the quarter ended March 31,2021. We have operated at a gross loss for the past year as our revenues are not yet significant to cover our fixed costs of the facility.

  

Research and Development

  

Research and development expenses for the three months ended March 31, 2022 and 2021 were approximately $369,000 and $153,000, respectively, which represented an increase of $216,000, or 141%. The increase was primarily attributable to utilization of the facility employees, equipment usage costs and general lab supplies on research and development projects vs. customer assignments.

 

General and Administrative

 

Selling, general, and administrative expenses for the three months ended March 31, 2022 and 2021 were approximately $758,000 and $796,000, respectively, which represented a decrease of $39,000, or 5%. The decrease was primarily attributable to a decrease in stock-based compensation of $628,000 primarily resulting from the performance criteria of certain stock options to our Chief Executive Officer having been met in the first quarter of 2021, offset in part by an increase of legal and professional fees of approximately $300,000.

 

Other Income

  

Interest income in the three months ended March 31, 2022 and 2021 was insignificant. Other income for the three months ended March 31, 2021 represents the forgiveness of our PPP loan.

  

Net Loss

  

Net loss for the three months ended March 31, 2022 and 2021 was approximately $(1,130,000) and $(895,000), respectively, which represented a decrease of $(235,000), or 26%. The decrease was primarily attributable to the decrease in loss from operation of approximately $27,000 and the decrease in other income of $235,000, principally driven by the forgiveness of PPP loan in 2021.

  

LIQUIDITY AND CAPITAL RESOURCES

  

Liquidity

  

We measure our liquidity in a number of ways, including the following:

 

   March 31, 2021
Cash  $1,677,093 
Working Capital  $1,411,261 

  

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As of March 31, 2022, we had cash and working capital of $1,677,093 and $1,411,261, respectively. We received the proceeds of the private placement of our securities and PPP loans in 2021. 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. The Company has engaged with an investment bank to assist with the fund raise; however, there can no assurance that a financing can be completed on terms acceptable to the Company. The Company has also taken preliminary steps to file a registration statement on Form S-1 with the SEC for a proposed public offering and a listing application with Nasdaq, but there is no assurance that the offering and the listing application will be successful. In addition, the Company is also exploring the possibility of a small bridge loan to cover operating cash needs for several quarters or more and to provide some flexibility to the timing of a more permanent fund raising effort. 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) provided by operating activities for the three months ended March 31, 2022 and 2021 was approximately $(867,000) and $(201,000), respectively. Net cash used in operating activities for the three months ended March 31, 2022 includes cash used to fund a net loss of approximately $1,130,000, reduced by approximately $94,000 of non-cash income/expenses, partially offset by $169,000 of net cash provided by changes in the levels of operating assets and liabilities. Net cash provided by operating activities for the three months ended March 31, 2021 included cash used to fund a net loss of approximately $895,000, reduced by $509,000 of non-cash expenses, partially offset by $185,000 of net cash used in changes in the levels of operating assets and liabilities.

 

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 was approximately $139,000 and $21,000, respectively, primarily attributable to the purchase property and equipment, and leasehold improvements in the laboratory.

  

Net cash provided by (used in) financing activities for the three months ended March 31, 2022 and 2021 was approximately $(18,000) and $4,856,000 respectively. we have not received any external financing in 2022. Net provided by financing activities for the three months ended March 31, 2021 was primarily attributable to expenditures to the private placement of our common stock which yielded approximately $4.6 million in net proceeds, and the proceeds from the PPP2 loan and proceeds from the exercise of stock options.

 

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. 

 

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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 not effective as of March 31, 2022 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

 

As of the end of the period covered by this report, there have been no changes in the internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting subsequent to the date of management’s last evaluation despite the fact that virtually all of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls over financial reporting to minimize any related impact on their effectiveness.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

  

None.

  

Item 1A. Risk Factors

  

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.

 

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Item 5. Other Information

 

None.

  

Item 6. Exhibits

  

The following exhibits are included and filed with this report.

  

Exhibit   Exhibit Description
3.1   Certificate of Incorporation of Odyssey Semiconductor Technologies, Inc. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 filed on November 15, 2019, File No. 333- 234741)
3.2   Bylaws of Odyssey Semiconductor Technologies, Inc. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 filed on November 15, 2019, File No. 333- 234741)
10.1   Offer Letter to Mark Davidson, dated April 7, 2022, by Odyssey Semiconductor Technologies, Inc. (Filed herewith)
31.1   Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Principal Financial and Accounting Officer
32.1   Section 1350 Certification of Principal Executive Officer and Principal Financial and Accounting Officer *
101   Interactive Data Files
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Definition

 

* Furnished and not filed.

 

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SIGNATURES

 

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 May 23, 2022.

  

  Odyssey Semiconductor Technologies, Inc.
     
  By: /s/ Mark Davidson
    Mark Davidson
    Chief Executive Officer

 

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