Exhibit 10.1
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:
(Exact name of registrant as specified in its charter)
| (State or other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
(
(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.
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).
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 November 17, 2021, there were shares of the registrant’s common stock, $0.0001 par value, issued and outstanding.
Table of Contents
| 3 |
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 (unaudited) | 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Contract assets | ||||||||
| Accounts receivable | ||||||||
| Deferred expenses | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Restricted cash | ||||||||
| Property and equipment, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Loan payable - short term | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Loans payable - long term | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | |
|
||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | |
|
||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See notes to these condensed consolidated financial statements.
| 4 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For The Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Loss | ( | ) | ( | ) | ||||
| Operating Expenses: | ||||||||
| Research and development | ||||||||
| Selling, general, and administrative | ||||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income (Expense): | ||||||||
| Forgiveness of PPP loan and other income | ||||||||
| Interest expense | ( | ) | ||||||
| Total Other Income (Expense) | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See notes to these condensed consolidated financial statements.
| 5 |
| For The three months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses: | ||||||||
| Research and development | ||||||||
| Selling, general, and administrative | ||||||||
| Total Operating Expenses | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Income (expense): | ||||||||
| Other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total Other Income (Expense) | ( | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See notes to these condensed consolidated financial statements.
| 6 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
| Sale of shares of common stock | ||||||||||||||||||||
| Costs of stock sale | — | ( | ) | ( | ) | |||||||||||||||
| Net loss three months ended March 31, 2021 | — | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2021 | ( | ) | ||||||||||||||||||
| — | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss three months ended June 30, 2021 | — | ( | ) | ( | ) | |||||||||||||||
| Balance June 30, 2021 | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss three months ended September 30, 2021 | — | ( | ) | ( | ) | |||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance December 31, 2019 | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss three months ended March 31, 2020 | — | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2020 | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss three months ended June 30, 2020 | — | ( | ) | ( | ) | |||||||||||||||
| Balance June 30, 2020 | ( | ) | ||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss three months ended September 30, 2020 | — | ( | ) | ( | ) | |||||||||||||||
| Balance September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See notes to these condensed consolidated financial statements.
| 7 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For The Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Forgiveness of PPP loan and other | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Contract assets | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Net Cash from Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from sale of common stock, net of costs | ||||||||
| Proceeds from government loans | ||||||||
| Repayment of government loans | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Payment of deferred offering costs | ( | ) | ||||||
| Payment of deferred loan 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 | $ | $ | ||||||
See notes to these condensed consolidated financial statements.
| 8 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
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 September 30, 2021, the Company had a cash
balance, working capital and accumulated deficit of approximately $
The Company believes its current cash on hand is sufficient to meet its operating obligations and capital requirements for at least twelve months from the issuance of these financial statements. Thereafter, the Company may 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’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.
| 9 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 2 - Summary of Significant Accounting Policies
There have been no material changes to the significant accounting policies included in the condensed consolidated financial statements as of September 30, 2021 and for the year then ended, which were previously filed, except as disclosed in this note.
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 September 30, 2021 and for the nine months ended September 30, 2021 and 2020. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the operating results for the full year ending December 31, 2021 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related disclosures included in the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2020 which have been filed with the Securities and Exchange Commission on April 8, 2021, as amended on Form 10-K/A on May 28, 2021.
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 September
30, 2021 and December 31, 2020, the Company had
| 10 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 2 - Summary of Significant Accounting Policies – continued
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.
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:
| Asset | Useful lives (years) |
| Computer and office equipment | |
| Lab equipment | |
| Leasehold improvements | |
| Machinery | |
| Furniture |
Fair Value of Stock Options and Warrants
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.
| 11 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 2 - Summary of Significant Accounting Policies – continued
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 nine months ended September 30, 2021 and 2020, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.
The Company generates
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. During the nine months ended
September 30, 2021 and 2020, the Company recognized approximately $
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 September 30, 2021 and December 31, 2020, deferred expenses were
approximately $
| 12 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 2 - Summary of Significant Accounting Policies – continued
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.
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 September 30, | ||||||||
| 2021 | 2020 | |||||||
| 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 September 30, 2021 and December 31, 2020. 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.
| 13 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 2 - Summary of Significant Accounting Policies – continued
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” (“ASU 2018-11”) in July 2018, and ASU No. 2018-20 “Leases (Topic 842) - Narrow Scope Improvements for Lessors” (“ASU 2018-20”) in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Pursuant to ASU 2019-10 the effective date for ASC 842 was deferred an additional year. The Company expects to recognize operating lease right-of-use assets and lease liabilities on the balance sheet upon adoption of this ASU. The Company is currently evaluating these ASUs and their impact on its consolidated financial statements.
Note 3 - Prepaid Expenses and Other Current Assets
Prepaid expenses consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Insurance | $ | $ | ||||||
| Total | $ | $ | ||||||
Note 4 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll | ||||||||
| Credit cards payable | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 14 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 5 – Property and Equipment
Property and equipment consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| 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 6 – Stockholders’ Equity
Authorized Capital
The Company is authorized to issue shares of common stock, $ par value per share, and shares of preferred stock, $ 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 through September 30, 2021.
Common Stock Transactions
In March 2021, the Company sold shares
of common stock at $
| 15 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
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, 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 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 shares of common stock that vests ratably on a monthly basis over two years and (ii) an option to purchase
shares of common stock that vests based on performance criteria to be mutually agreed to by the Board and the executive.
On May 26, 2020, the
On July 16, 2020,
the Company granted the following ten-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 increase the number of shares of common stock authorized for issuance under the 2019 Plan from shares to shares.
On September 22, 2020,
the Company granted a ten-year options to purchase shares shares of common stock at an exercise price of $
From June 1 to June 22,
2021, the Company granted five and ten-year options to purchase
shares of common stock at an exercise price of $
On September 22, 2021, upon the resignation of our then Chief Executive Officer and Chairman, a total of 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 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.
| 16 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 7 – Equity Compensation Plan – continued
The stock option activity from January 1, 2021 through September 30, 2021 is as follows:
| Shares | Weighted-Average Exercise Price per share | Weighted-Average Remaining Contractual Life (years) | ||||||||||
| Balance, January 1, 2021 | $ | |||||||||||
| Options granted | ||||||||||||
| Options exercised | ( | ) | — | |||||||||
| Options converted | — | |||||||||||
| Options forfeited or expired | ( | ) | — | |||||||||
| Balance, September 30, 2021 | $ | |||||||||||
| Vested shares at September 30, 2021 | ||||||||||||
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 assumptions for 2021 and 2020 issuances:
| Risk-free interest rate | % | % | ||||||
| Expected term | years | years | ||||||
| Expected volatility | % | % | ||||||
| Expected dividends | % | |||||||
| Grant date fair value of common stock | $ | /share | $ | /share |
During the nine months ended September 30,
2021, the Company recognized stock-based compensation expense related to stock options of approximately $ ($
| 17 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 7 – Equity Compensation Plan – continued
During the three months ended September 30,
2021, the Company recognized stock-based compensation expense related to stock options of approximately $ ($
As of September 30, 2021, there was unamortized stock-based compensation of approximately $ which the Company expects to recognize over years. At September 30, 2021, the intrinsic value of outstanding and vested stock options was approximately $ and $, 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 September 30, 2021 and December 31, 2020, 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 $
Note 9 – Concentrations
During the nine months
ended September 30, 2021, approximately
During the three
and nine months ended September 30, 2020, substantially all revenues were generated from a government entity pursuant to our contract
with a governmental entity and amounted to approximately
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ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 10 – Government Loans
Paycheck Protection Program Loan
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 $
| 19 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2021 AND 2020
Note 10 – Government Loans - continued
The loans are summarized as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| 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 11 – Restatement of stock compensation expense
In calculating our stock based compensation expense for the quarter ended June 30, 2021, we identified errors in our previously issued financial statements as of June 30, 2021 related to the measurement of vested stock options. We assessed the materiality of this error in accordance with the 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”), using both the rollover method and the iron curtain method, as defined in SAB 108, and concluded the error were immaterial to the prior period but, if corrected in the current period, would have been material to the current quarter. Under SAB 108, such prior-period misstatements which, if corrected in the current period would be material to the current period, must be corrected by adjusting the prior-period financial statements. Correcting prior-period financial statements for such immaterial misstatements does not require previously filed reports to be amended.
For the three and six
months ended June 30, 2021, correction of this error decreased our stock based compensation expense, general and administrative
expenses, total operating expenses and net loss by $
Note 12 - Subsequent Events
The Company has evaluated events that have occurred after the balance sheet and through November 17, 2021. 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.
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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 report, as well as our Annual Report on Form 10-K for the year ended December 31, 2020 filed on April 8, 2021, as amended on Form 10-K/A on May 28, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions, are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements, except as required by law. Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated. When used herein, unless the context requires otherwise, references to the “Company,” “we,” “our” and “us” refer to Odyssey Semiconductor Technologies, Inc., a Delaware corporation, collectively with its wholly-owned subsidiary, Odyssey Semiconductor, Inc, a Delaware corporation.
OVERVIEW
Odyssey Semiconductor Technologies, Inc. (the “Company”) was formed as a Delaware corporation on April 12, 2019. The Company acquired its wholly-owned subsidiary, Odyssey Semiconductor, Inc., a Delaware corporation (“Odyssey Semiconductor”), on June 21, 2019.
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.
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RECENT DEVELOPMENTS
On September 22, 2021, Alex Behfar resigned as our Chief Executive Officer, Chairman of the Board of Directors and a Director. On the same day, Richard Brown was appointed as our Interim Chief Executive Officer and John Edmunds as our Chairman. As of the date of such resignation, Mr. Behfar owned stock options to purchase 2,672,000 shares of common stock, of which 1,911,000 unvested options were forfeited.
On October 6, 2021, in connection with Mr. Behfar’s resignation, the Company entered into a separation agreement with Mr. Behfar. Pursuant to the separation agreement, among other things, Mr. Behfar agreed to certain waiver and release of claims in favor of the Company, and the Company agreed to pay Mr. Behfar certain severance consideration, including payment of three months of health insurance premium and acceleration of vesting of 25,000 non-qualified stock options (granted on September 25, 2019 and exercisable at $1.50 per share) which were to vest as of September 25, 2021.
Governmental Assistance
Paycheck Protection Program
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 (“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. On March 6, 2021, the entire loan balance was forgiven.
The unforgiven portion of the PPP loan, if any, is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, there can be no assurance that the Company will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.
On February 24, 2021, the Company received $193,625 pursuant to a promissory note issued under the Paycheck Protection Program Part 2 (“PPP2”). Interest accrues at 1% per annum and the note is payable in 60 monthly installments of $3,300 commencing May 2022.
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 against certain assets of the Company.
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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 2, 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 August 28, 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.
Consulting Service
On October 18, 2019, the Company entered into an exclusive two-year consulting agreement with Akash Systems, Inc. (“Akash”), pursuant to which the Company agreed to provide certain consulting services to Akash in connection with process development and fabrication of GaN-on-Diamond high-electron-mobility transistors and monolithic microwave integrated circuits. Pursuant to the agreement, Akash guarantees to purchase at least one wafer per month from the Company for a total of 24 wafers during the term of the agreement, at a price of $85,000 per wafer. The Company delivered 2 wafers as of September 30, 2020, and the contract expired as of October 18, 2021.
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.
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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 (expense) consists primarily of interest income on cash balances, forgiveness of PPP loan and other miscellaneous items.
RESULTS OF OPERATIONS
Nine months ended September 30, 2021 compared with nine months ended September 30, 2020
Overview
The following table presents certain information from the condensed consolidated statements of operations:
| For The Nine Months Ended September 30 | Difference $ | Difference % | ||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Revenues | $ | 693,074 | $ | 1,102,071 | $ | (408,997 | ) | -37 | % | |||||||
| Cost of Revenues | 792,239 | 1,106,569 | $ | (314,330 | ) | -28 | % | |||||||||
| Gross Loss | (99,165 | ) | (4,498 | ) | $ | (94,667 | ) | 2105 | % | |||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 1,073,737 | 430,592 | $ | 643,145 | 149 | % | ||||||||||
| Selling, general, and administrative | 1,658,944 | 869,643 | $ | 789,301 | 91 | % | ||||||||||
| Total Operating Expenses | 2,732,681 | 1,300,235 | $ | 1,432,446 | 110 | % | ||||||||||
| Loss From Operations | (2,831,846 | ) | (1,304,733 | ) | $ | (1,527,113 | ) | 117 | % | |||||||
| Other Income: | ||||||||||||||||
| Forgiveness of PPP loan and other income | 238,719 | 1 | $ | 238,718 | 1000 | % | ||||||||||
| Interest expense | (14,407 | ) | — | $ | (14,407 | ) | — | |||||||||
| Net Loss | $ | (2,607,534 | ) | $ | (1,304,732 | ) | $ | (1,299,802 | ) | 100 | % | |||||
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Revenues
Revenues for the nine months ended September 30, 2021 and 2020 were approximately $693,000 and $1,102,000, respectively, which represented a decrease of $409,000, or 37%. 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. In the nine months ended September 30, 2021, we recognized substantially all of our revenue under three customer contracts. During the nine months ended September 30, 2020, the Company also recognized substantially all of our revenue from one of our government contract customers. The customer contracts with governmental entities have concluded. We have a few other customers and several outstanding proposals to new customers.
Cost of Revenues
Cost of revenues for the nine months ended September 30, 2021 and 2020 were approximately $792,000 and $1,107,000, respectively, which represented a decrease of $314,000, or 28%. The base salary, facility and equipment usage fees to operate the fabrication facility during the 2021 and 2020 periods are and allocated between research and development and cost of revenues based upon the specific projects worked on during the period. During the nine months ended September 30, 2021, we also incurred a loss of $60,000 on one government customer contract due to costs exceeding the contract revenues. 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 nine months ended September 30, 2021 and 2020 were approximately $1,074,000 and $431,000, respectively, which represented an increase of $643,000, or 149 %. The increase was primarily attributable to an overall increase in our focus on research and development activities, which resulted in increased wage allocation of approximately $230,000 as well as increased rent, facility fees, equipment usage costs and general lab supplies.
General and Administrative
Selling, general, and administrative expenses for the nine months ended September 30, 2021 and 2020 were approximately $1,659,000 and $870,000, respectively, which represented an increase of $789,000, or 91%. The increase was primarily driven by an increase in stock-based compensation costs related to options granted to the Chief Executive Officer (including performance awards that related to the private placement that occurred in March 2021) and board members of approximately $866,000 as compared to the 2020 period. Legal and professional fees were approximately $254,000 in the 2021 period as compared to $336,000 for the 2020 period.
Other Income
Other income for the nine months ended September 30, 2021 includes the forgiveness of our PPP loan of $ 239,000. Other income (expense) for the nine months ended September 30, 2021 includes to the sale of miscellaneous tools, and in 2020 was insignificant.
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Net (Loss) Income
Net (loss) income for the nine months ended September 30, 2021 and 2020 was approximately $(2,607,000) and $(1,304,000), respectively, which represented a decrease of $(1,303,000), or 100%. The decrease was primarily attributable to the increase in research and development and general and administrative expenses of approximately $1,432,000 driven in turn by an increase in non-cash stock compensation expense of $794,000.
Three months ended September 30, 2021 compared with three months ended September 30, 2020
Overview
The following table presents certain information from the condensed consolidated statements of operations:
| For The three months Ended September 30, | Difference $ | Difference % | ||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Revenues | $ | 174,952 | $ | 636,070 | $ | (461,118 | ) | -72 | % | |||||||
| Cost of Revenues | 47,969 | 495,915 | $ | (447,946 | ) | -90 | % | |||||||||
| Gross Profit | 126,983 | 140,155 | $ | (13,172 | ) | -9 | % | |||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 454,658 | 107,323 | $ | 347,335 | 324 | % | ||||||||||
| Selling, general, and administrative | 403,441 | 339,090 | $ | 64,351 | 19 | % | ||||||||||
| Total Operating Expenses | 858,099 | 446,413 | $ | 411,686 | 92 | % | ||||||||||
| Loss From Operations | (731,116 | ) | (306,258 | ) | $ | (424,858 | ) | 391 | % | |||||||
| Other Income: | ||||||||||||||||
| Forgiveness of PPP loan and other income | 25,013 | — | $ | 25,013 | — | |||||||||||
| Interest expense | (4,560 | ) | -893 | $ | (3,667 | ) | 411 | % | ||||||||
| Net Loss | $ | (710,663 | ) | $ | (307,151 | ) | $ | (403,512 | ) | 131 | % | |||||
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Revenues
Revenues for the three months ended September 30, 2021 and 2020 were approximately $175,000 and $636,000, respectively, which represented a decrease of $461,000, or 72%. We had several clients as of September 30, 2020 and two government contracts with clients concluded as of September 30, 2021. 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. In the three months ended September 30, 2021 and 2020, we recognized 0% and 88% respectively of our revenue under one of these government contracts. The government contracts have concluded prior to September 30, 2021.
Cost of Revenues
Cost of revenues for the three months ended September 30, 2021 and 2020 were approximately $48,000 and $496,000, respectively, which represented a decrease of $448,000, or 90%. The decrease was attributable to decrease labor and allocated facilities costs associated with our client projects in 2021, as major client projects finished in earlier quarters.
Research and Development
Research and development expenses for the three months ended September 30, 2021 and 2020 were approximately $455,000 and $107,000, respectively, which represented an increase of $347,000, or 324%. The increase was primarily attributable to an overall increase in our focus on research and development activities, which resulted in increased wage allocation as well as increased rent, facility fees, equipment usage costs and general lab supplies.
General and Administrative
Selling, general, and administrative expenses for the three months ended September 30, 2021 and 2020 were approximately $403,000 and $339,000, respectively, which represented an increase of $64,000, or 19%. The 2021 period had an increase of approximately $192,000 in stock-based compensation due to awards issued to the then Chief Executive Officer and board members as compared to $56,000 in the corresponding 2020 period.
Other Income
Other income (expense) for the three months ended September 30, 2021 and 2020 was insignificant.
Net (Loss) Income
Net (loss) income for the three months ended September 30, 2021 and 2020 was approximately $(711,000) and $(307,000), respectively, which represented a decrease of $(404,000), or 131%. The increase in the loss was primarily attributable to the increase in research and development and general and administrative expenses of approximately $412,000 – driven in part by an increase of $82,000 in stock compensation expense.
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We measure our liquidity in a number of ways, including the following:
| September 30, 2021 | ||||
| Cash | $ | 3,409,429 | ||
| Working Capital | $ | 3,271,191 | ||
As of September 30, 2021, we had cash and working capital of $3,409,429 and $3,271,191, respectively. We received approximately $194,000 in funding from the PPP2 government loan in February 2021 – see “RECENT DEVELOPMENTS – Governmental Assistance” above. We expect our current cash on hand to be sufficient to meet our operating and capital requirements for at least the next twelve months from the date of this filing. Thereafter, we may need to raise further capital, through the sale of additional equity or debt securities, to support our future operations. 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 nine months ended September 30, 2021 and 2020 was approximately $(1,665,000) and $(583,000), respectively. Net cash used in operating activities for the nine months ended September 30, 2021 includes cash used to fund a net loss of approximately $2,608,000, reduced by $1,037,000 of non-cash expenses, and reduced by $95,000 of net cash provided by changes in the levels of operating assets and liabilities.
Net cash provided by operating activities for the nine months ended September 30, 2020 included cash provided by net loss of approximately $(1,304,000) partially offset by $402,000 of non-cash expenses and reduced by $319,000 of net cash used in changes in the levels of operating assets and liabilities.
Net cash used in investing activities for the nine months ended September 30, 2021 and 2020 was approximately $(33,000) and $(610,000), respectively. Net cash used in investing activities for the nine months ended September 30, 2020 was primarily attributable to the purchase property and equipment, and leasehold improvements in the laboratory.
Net cash provided by financing activities for the nine months ended September 30, 2021 and 2020 was approximately $4,834,000 and $869,000, respectively. Net cash used in financing activities for the nine months ended September 30, 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. Net cash used in financing activities for the nine months ended September 30, 2020 was primarily attributable proceeds under government loan programs of $684,000 and proceeds from the exercise of stock options of $231,000.
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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 registration statement.
RECENTLY ISSUED ACCOUNTING STANDARDS
Our recently issued accounting standards are included in Note 2 of our financial statements included elsewhere in this registration.
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.
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In connection with the preparation of this Quarterly Report on Form 10-Q, we carried out an evaluation based on the criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, under the supervision and with the participation of management, including our chief executive officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, due to a material weakness in our internal control over financial reporting that we previously identified relating to a lack of segregation of duties as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, management concluded that our disclosure controls and procedures were ineffective as of September 30, 2021.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. The Company is considering various remediation methods to mitigate such material weakness, but has not yet adopted or implemented any plan to remedy such deficiency.
Based upon that continuing evaluation of our disclosure controls and procedures, management is actively engaged in the planning for, and implementation of, remediation efforts to address our material weakness and improve our internal control over financial reporting and disclosure controls and procedures. We are developing new procedures that we are implementing and testing in the fourth quarters of 2021. We hope to complete the implementation, remediation and test of the new procedures by the end of the year.
Changes in Internal Controls over Financial Reporting
As of the September 30, 2021, 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 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.
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Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are included and filed with this report.
| * | 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 November 17, 2021.
| Odyssey Semiconductor Technologies, Inc. | ||
| By: | /s/ Richard Brown | |
| Richard Brown | ||
| Interim Chief Executive Officer | ||
32
Exhibit 10.1
EXHIBIT 31.1
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard Brown, certify that:
1. I have reviewed this Quarter Report on Form 10-Q for the fiscal quarter ended September 30, 2021 of Odyssey Semiconductor Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 18, 2021
| /s/ Richard Brown | |
| Richard Brown | |
| Interim Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) |
EXHIBIT 32.1
Certifications Pursuant to 18 U.S.C §1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Interim Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) of Odyssey Semiconductor Technologies, Inc. (the “Company”), hereby certifies, based on my knowledge, that:
1. This Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 18, 2021
| /s/ Richard Brown | |
| Richard Brown | |
| Interim Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.