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 August 15, 2022, there were shares of the registrant’s common stock, $0.0001 par value, issued and outstanding.
Table of Contents
| 2 |
part I – FINANCIAL INFORMATION
Item 1. Financial Statements
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
2022 (unaudited) | 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Deferred expenses | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Restricted cash | ||||||||
| Property and equipment, net | ||||||||
| Operating ROU Asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Loan payable - short term | ||||||||
| Lease liability - short term portion | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long-term lease liability | ||||||||
| Loans payable - long term | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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 June 30, | For The Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit (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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (Loss) Income Per Share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
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 AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Net loss three months ended 3/31/2022 | — | ( | ) | ( | ) | |||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Net loss three months ended 6/30/2022 | — | ( | ) | ( | ) | |||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ 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 3/31/2021 | — | ( | ) | ( | ) | |||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Net loss three months ended 6/30/2021 | — | ( | ) | ( | ) | |||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See notes to these condensed consolidated financial statements.
| 5 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For The Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| 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 indebtedness | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| Lease of property | ( | ) | ||||||
| Net Cash Used In 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 (Used In) 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 | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Operating Lease ROU Asset | $ | $ | ||||||
See notes to these condensed consolidated financial statements.
| 6 |
ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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, supply chain delays, 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 June 30, 2022, the Company had a cash balance, working capital and accumulated deficit of approximately $
| 7 |
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, but there is no assurance that the offering will be successful. The Company received $
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.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 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 June 30, 2022 and December 31, 2021, the Company had
| 8 |
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 June 30, 2022 and December 31,
2021, deferred expenses were approximately $
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives, once the asset is placed in service. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures which extend the economic life are capitalized. Leasehold improvements are depreciated over the lesser of their estimated useful lives or the remaining term of their respective lease. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized in the statement of operations for the respective period.
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
The estimated useful lives of property and equipment are as follows:
| Schedule of estimated useful lives of property and equipment | |
| Asset | Useful lives (years) |
| Computer and office equipment | |
| Lab equipment | |
| Leasehold improvements | |
| Machinery | |
| Furniture | |
Offering Costs
Deferred offering costs, which primarily consist of direct, incremental professional fees incurred in connection with a debt or equity financing, are capitalized as non-current assets on the consolidated balance sheets. Once the financing closes, the Company reclassifies such costs as either discounts to notes payable or as a reduction of proceeds received from equity transactions so that such costs are recorded as a reduction of additional paid-in capital. If the completion of a contemplated financing was deemed to be no longer probable, the related deferred offering costs would be charged to general and administrative expense in the consolidated financial statements.
| 9 |
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
$
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.
| 10 |
During the six months ended June 30, 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 six months ended June 30, 2022 and 2021, the Company recognized approximately $
Research and Development
Research and development expenses are charged to operations as incurred.
Stock-Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares.
The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. Option forfeitures are accounted for at the time of occurrence. The expected term used is the estimated period of time that warrants or options are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee options. For investor warrants and non-employee options, the expected term used is the contractual life of the instrument being valued. The Company uses its trading history to support its historical volatility calculations.
Basic net (loss) income per share of common stock is computed by dividing net (loss) income by the weighted average number of vested shares of common stock outstanding during the period. Diluted net income per share of common stock is computed by dividing net income by the weighted average number of common and dilutive common-equivalent shares outstanding during each period.
The following shares were excluded from the calculation of weighted average dilutive shares of common stock because their inclusion would have been anti-dilutive:
| As of June 30, | |||||||||
| 2022 | 2021 | ||||||||
| 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.
| 11 |
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
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements accurately reflect our best estimate of the results of operations, financial position and cash flows for the periods presented.
On an ongoing basis, we evaluate our estimates and judgments for all assets and liabilities, including those related to the fair value of stock options for determination of the stock-based compensation expense. The amount of stock based compensation has been a significant expense over the six months ended June 30, 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.
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.
| 12 |
Note 3 - Prepaid Expenses and Other Current Assets
Prepaid expenses consisted of the following:
June 30, 2022 | December 31, 2021 | |||||||
| Insurance | $ | $ | ||||||
| Legal Fees | ||||||||
| Deposit for equipment purchase | ||||||||
| Deposit for leased equipment purchase (Note 11) | ||||||||
| Total | $ | $ | ||||||
In
December 2021, the Company made a deposit of $
Note 4 – Property and Equipment
Property and equipment consisted of the following:
June 31, 2022 | December 31, 2021 | |||||||
| Computer and office equipment | $ | $ | ||||||
| Lab equipment | ||||||||
| Furniture | ||||||||
| Leasehold improvements | ||||||||
| Machinery | ||||||||
| Subtotal | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Property and Equipment, net | $ | $ | ||||||
Depreciation
and amortization expense related to property and equipment was approximately $
Note 5 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
| 13 |
| June 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Credit cards payable | ||||||||
| Accrued interest and other | ||||||||
| Total | $ | $ | ||||||
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. preferred shares have been issued as of the date hereof.
Common Stock Transactions
In
March 2021, the Company sold shares of common stock at $ per share for gross proceeds of $
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”). 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 $
From
June 1 to June 22, 2021, the Company granted five and 10 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.
| 14 |
On
December 30, 2021, the Company granted five and ten-year options to purchase shares of common stock at an exercise
price of $
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 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) % 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.
On April 26, 2022, the Company granted to Mr. Davidson an option to purchase 650,000 shares of the Company’s common stock at $1.66 per share. 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.
The stock option activity from January 1, 2021 through June 30, 2022 is as follows:
| Shares | Weighted-Average Exercise Price per share | Weighted-Average Remaining Contractual Life (years) | ||||||||||
| Balance, December 31, 2020 | $ | |||||||||||
| Options granted | ||||||||||||
| Options exercised | ( | ) | — | |||||||||
| Options expired | ( | ) | — | |||||||||
| Options forfeited | ( | ) | — | |||||||||
| Balance, December 31, 2021 | ||||||||||||
| Options granted | ||||||||||||
| Balance, June 30, 2022 | ||||||||||||
| Vested shares at June 30, 2022 | $ | |||||||||||
The following table summarizes the outstanding options at June 30, 2022 by exercise price.
| 15 |
| Exercise price | Outstanding options | Exercisable options | ||||||||
| $ | 1.66 | |||||||||
| $ | 1.50 | |||||||||
| $ | 1.77 | |||||||||
| $ | 3.93 | |||||||||
| $ | 2.90 | |||||||||
| $ | 3.55 | |||||||||
At June 30, 2022, the Company has 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 six months ended June 30, 2022 and 2021:
| 2022 | 2021 | ||||
| Risk-free interest rate | % | % | |||
| Expected term | years | years | |||
| Expected volatility | % | % | |||
| Expected dividends | |||||
| Grant date fair value of common stock | $ | $
| |||
During the six months ended June 30, 2022, the Company recognized stock-based compensation expense related to stock options of approximately $, of which approximately $ was recorded as part of research and development expenses and $ was included within general and administrative expenses and $ of which was included within cost of revenues on the consolidated statements of operations. See Note 11 for further discussion. During the six months ended June 30, 2021, the Company recognized stock-based compensation expense related to stock options of approximately $ ($ of which was included within general and administrative expenses, $ of which was included in research and development expenses, $ of which was included within cost of revenues).
As of June 30, 2022, there was unamortized stock-based compensation of approximately $ which the Company expects to recognize over approximately years. At June 30, 2022, the intrinsic value of outstanding and vested stock options was nil.
Note 8 - Commitments and Contingencies
Litigations, Claims, and Assessments
From time to time, the Company is involved in various disputes, claims, liens and litigation matters arising out of the normal course of business which could result in a material adverse effect on the Company’s combined financial position, results of operations or cash flows. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. As of June 30, 2022 and June 30, 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 |
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,
The following table presents information about the amount and timing of liabilities arising from the Company’s operating and finance leases as of June 30, 2022 (in thousands):
| Maturity of Lease Liabilities | Operating Lease Liabilities | |||
| 2022 (remainder of year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total undiscounted operating lease payments | $ | |||
| Less: Imputed interest | ||||
| Present value of operating lease liabilities | $ | |||
| Short-term portion | ||||
| Long term portion | $ | |||
| Remaining lease term in years | ||||
| Discount rate | % | |||
The
Company incurred lease expense for its operating lease of approximately $
The
Right of Use Asset at June 30, 2022 of $
Employment Agreement
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 $
Note 9 – Concentrations
During the six months ended June 30, 2022, revenues were generated from two customers. At June 30, 2022, substantially all deferred costs and deferred revenues are attributable to one customer contract.
During
the six months ended June 30, 2021, substantially all revenues were generated from two governmental customers pursuant to our
contracts with such entities and amounted to approximately
| 17 |
Note 10 – Government Loans
Paycheck Protection Program Loans
On
May 1, 2020, the Company received loan proceeds in the amount of approximately $
On
February 24, 2021, the Company received $
Economic Injury Disaster Loan Advance
On
May 1, 2020, the Company received an advance in the amount of $
Tomkins County Area Development Loan
On
May 27, 2020, the Company received loan proceeds in the amount of $
Equipment Loans
On
August 20, 2020, the Company received a loan of $
| 18 |
The loans are summarized as follows:
June 30, 2022 | December 31, 2021 | |||||||
| 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 – Revision of stock compensation expense
During the second quarter of 2022, the Company identified certain adjustments required to correct balances within stock-based compensation, which is included in operating expenses in the accompanying consolidated statements of operations, related to employees, directors and consultants (see Note 7 – Equity Compensation Plan) recorded during the three-month periods from June 2021 to March 2022. The Company had incorrectly calculated the amortization of the stock-based compensation for the periods from June 2021 to March 2022. The error discovered resulted in an understatement of the stock-based compensation expense for the periods June 2021 to March 2022 summarized as follows:
| 19 |
| As previously | ||||||||||||
| reported | adjustment | As if restated | ||||||||||
| Three months ended 6/30/2021 | ||||||||||||
| Gross profit (loss) | ( |
) | ( |
) | ( |
) | ||||||
| Operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ||||||
| Additional paid in capital | ||||||||||||
| Accumulated Deficit | ( |
) | ( |
) | ( |
) | ||||||
| Six months ended 6/30/2021 | ||||||||||||
| Gross profit (loss) | ( |
) | ( |
) | ( |
) | ||||||
| Operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ||||||
| Additional paid in capital | ||||||||||||
| Accumulated Deficit | ( |
) | ( |
) | ( |
) | ||||||
| Three months ended 9/30/2021 | ||||||||||||
| Gross profit (loss) | ( |
) | ||||||||||
| Operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ||||||
| Additional paid in capital | 78,207 | 9,915,364 | ||||||||||
| Accumulated Deficit | ( |
) | (78,207 | ) | (6,202,141 | ) | ||||||
| Nine months ended 9/30/2021 | ||||||||||||
| Gross profit (loss) | ( |
) | ( |
) | ( |
) | ||||||
| Operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ||||||
| Additional paid in capital | ||||||||||||
| Accumulated Deficit | ( |
) | ( |
) | ( |
) | ||||||
| Year ended 12/31/2021 | ||||||||||||
| Gross profit (loss) | ( |
) | ( |
) | ( |
) | ||||||
| Operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ||||||
| Additional paid in capital | ||||||||||||
| Accumulated Deficit | ( |
) | ( |
) | ( |
) | ||||||
| Three months ended 3/31/2022 | ||||||||||||
| Gross profit (loss) | ( |
) | ( |
) | ( |
) | ||||||
| Operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ||||||
| Additional paid in capital | ||||||||||||
| Accumulated Deficit | ( |
) | ( |
) | ( |
) | ||||||
| 20 |
Based upon an analysis of Accounting Standards Codification 250 “accounting Changes and Error Corrections (ASC 250), U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 99, “Materiality” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined this error was immaterial to the previously-issued condensed consolidated financial statements, and as such no restatement was necessary. Correcting prior-period financial statements for such immaterial misstatements does not require previously filed reports to be amended. Accordingly, the misstatement was corrected in the period ended June 30, 2022.
Note 12 - Subsequent Events
The Company has evaluated events that have occurred after the balance sheet and through August 15, 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 August 8, 2022, the Company issued a secured convertible promissory note in the amount of $1,250,000 (the “Promissory Note”) to a trust of which the Company’s Chairman, John Edmunds, is the trustee, pursuant to certain Subscription Agreement (the “Subscription Agreement”) and Registration Rights Agreement (the “Registration Rights Agreement”).
The Promissory Note was issued as part of a private placement (the “Offering”) for sale up to $3,750,000 of secured convertible promissory notes (collectively, the “Promissory Notes”) for a period until August 15, 2022, unless extended at the option of the Company in its sole discretion for a period of thirty (30) business days.
The Promissory Notes bear interest at a rate of ten percent (10%) per annum, on a non-compounding basis, and are due and payable on the earlier of (i) the date upon which the Promissory Notes are converted into equity securities of the Company, or (ii) at maturity in twelve (12) months. All interest due shall be paid in shares of the Company’s common stock, which shall be valued at a price equal to the average of the last 20 trading days’ closing price of the Company’s common stock, commencing on the date immediately preceding the date of conversion for purposes of the interest computation. The Promissory Notes may be convertible anytime at the discretion of the holders into shares of common stock of the Company at a price equal to the average of the last 20 trading days’ closing price, or automatically converted upon the closing of a public offering of the Company’s common stock with aggregate proceeds of at least $5 million at a 15% discount to the per share public offering price.
Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement to register the resale of the shares of common stock issuable upon the conversion of the Promissory Notes within 60 calendar days after the final closing of the Offering and cause the registration statement to be declared effective by the Securities and Exchange Commission within 90 calendar days after the filing of the registration statement. In addition, the Company agrees to keep such registration statement effective for a period of two (2) years after its effective date or for such shorter period ending on the date on which all securities registered thereunder have been sold.
| 21 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.
OVERVIEW
We are a semiconductor device company developing revolutionary high-voltage power switching components and systems based on proprietary Gallium Nitride (GaN) processing technology. The premium power switching device market, which is described as applications where silicon-based (Si) systems perform insufficiently, is projected to reach over $3.5 billion by 2025 and is currently dominated by the semiconductor material silicon carbide (SiC). GaN-based systems outperform Si and SiC based systems in every way due to the superior material properties of GaN. However, the existing GaN products on the market use a lateral structure, limiting their ability to compete with SiC in the most valuable opportunities. Vertical GaN devices have, to-date proven difficult to process using standard semiconductor processing methods that are used to create Si and SiC based devices. We have developed a novel processing modification that allows GaN to be processed in a manner that for the first time, makes high voltage GaN power switching devices viably manufacturable. Our mission is to disrupt the rapidly growing premium power switching device market using our newly developed GaN high voltage power transistor for switching applications.
RECENT DEVELOPMENTS
During the second quarter of 2022, we validated our approach for building high-voltage GaN power switches, and will be building high-power, high-voltage prototypes in Q3 and Q4 for internal evaluation and initial customer sampling.
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 granted to Mr. Davidson an option to purchase 650,000 shares of the Company’s common stock at $1.66 per share.. 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.
| 22 |
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 six months of 2021, this category also includes the forgiveness of the PPP loan.
RESULTS OF OPERATIONS
Six months ended June 30, 2022 Compared with Six months ended June 30, 2021
| For The Six Months Ended | ||||||||||||||||
| Jun 30, | Change | Change % | ||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Revenues | $ | 50,519 | $ | 518,122 | $ | (467,603 | ) | -90 | % | |||||||
| Cost of Revenues | 54,096 | 744,270 | (690,174 | ) | -93 | % | ||||||||||
| Gross (Loss) Profit | (3,577 | ) | (226,148 | ) | 222,571 | -98 | % | |||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 1,016,889 | 619,079 | 397,810 | 64 | % | |||||||||||
| Selling, general, and administrative | 1,435,774 | 1,568,826 | (133,052 | ) | -8 | % | ||||||||||
| Total Operating Expenses | 2,452,663 | 2,187,905 | 264,758 | 12 | % | |||||||||||
| (Loss) Income From Operations | (2,456,240 | ) | (2,414,053 | ) | (42,187 | ) | 2 | % | ||||||||
| Other Income: | ||||||||||||||||
| Other income | 2,024 | 213,706 | (211,682 | ) | -99 | % | ||||||||||
| Interest expense | (7,484 | ) | (9,847 | ) | 2,363 | -24 | % | |||||||||
| Net (Loss) Income | $ | (2,461,700 | ) | $ | (2,210,194 | ) | $ | (251,506 | ) | 11 | % | |||||
Overview
The following table presents certain information from the condensed consolidated statements of operations:
| 23 |
Revenues
Revenues for the six months ended June 30, 2022 and 2021 were approximately $50,000 and $518,000, respectively, which represented a decrease of $468,000, or 90%. We had two commercial customers as of June 30, 2022. For the six months ended June 30, 2021, we recognized revenue under two of our completed government contracts, which amounted to $418,000. 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 six months ended June 30, 2022 and 2021 were approximately $54,000 and $744,000, respectively, which represented a decrease of $690,000, or 93%. The base salary, facility and equipment usage fees to operate the fabrication facility during the 2022 and 2021 periods are relatively consistent and allocated between research and development and cost of revenues based upon the specific projects worked on during the period. We are currently focusing our resources on building our internal technology and have a couple of small customer pilot projects related to such technology. 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. We also incurred additional unrecoverable costs in the first half of 2021 as we completed our government contracts.
Research and Development
Research and development expenses for the six months ended June 30, 2022 and 2021 were approximately $1,017,000 and $619,000, respectively, which represented an increase of $398,000, or 64%. 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 six months ended June 30, 2022 and 2021 were approximately $1,436,000 and $1,569,000, respectively, which represented a decrease of $133,000, or 8%. The decrease was primarily attributable to a decrease in stock-based compensation of $833,000 primarily resulting from the performance criteria of certain stock options to our Chief Executive Officer having been met in the first half of 2021, offset in part by an increase of legal and professional fees of approximately $250,000, a substantial portion of which related to costs associated with fund raising activities which have not yet come to fruition and have not been capitalized, and an increase in recruiting fees and related salary of a combined $178,000 related to our new CEO.
Other Income
Interest income in the six months ended June 30, 2022 and 2021 was insignificant. Other income for the six months ended June 30, 2021 represents the forgiveness of our PPP loan.
Net Loss
Net loss for the six months ended June 30, 2022 and 2021 was approximately $(2,462,000) and $(2,210,000), respectively, which represented a decrease of $(251,000), or 11%. The decrease was primarily attributable to the decrease in loss from operation of approximately $190,000 and the decrease in other income of $212,000, principally driven by the forgiveness of PPP loan in 2021.
| 24 |
Three months ended June 30, 2022 Compared with three months ended June 30, 2021
Overview
The following table presents certain information from the condensed consolidated statements of operations:
| For The Three Months Ended | ||||||||||||||||
| June 30, | Change | Change % | ||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Revenues | $ | 20,581 | $ | 287,153 | $ | (266,572 | ) | -93 | % | |||||||
| Cost of Revenues | 23,097 | 361,417 | (338,320 | ) | -94 | % | ||||||||||
| Gross (Loss) Profit | (2,516 | ) | (74,264 | ) | 71,748 | -101 | % | |||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 647,705 | 466,042 | 181,663 | 39 | % | |||||||||||
| Selling, general, and administrative | 677,847 | 772,352 | (94,505 | ) | -12 | % | ||||||||||
| Total Operating Expenses | 1,325,552 | 1,238,394 | 87,158 | 7 | % | |||||||||||
| (Loss) Income From Operations | (1,328,068 | ) | (1,312,658 | ) | (15,410 | ) | 1 | % | ||||||||
| Other Income: | ||||||||||||||||
| interest and other income | 11 | 3,026 | (3,015 | ) | -100 | % | ||||||||||
| Interest expense | (3,668 | ) | (5,451 | ) | 1,783 | -33 | % | |||||||||
| Net (Loss) Income | $ | (1,331,725 | ) | $ | (1,315,083 | ) | $ | (16,642 | ) | 1 | % | |||||
Revenues
Revenues for the three months ended June 30, 2022 and 2021 were approximately $21,000 and $287,000, respectively, which represented a decrease of $267,000, or 93%. We had two clients as of June 30, 2022. The timing of revenue recognition is driven by the completion of specified deliverables and the billing of time and materials over periods of time. Accordingly, the recognition of revenue for these contracts will vary from time to time.
Cost of Revenues
Cost of revenues for the three months ended June 30, 2022 and 2021 were approximately $23,000 and $361,000, respectively, which represented a decrease of $338,000, or 94%. The decrease was attributable to increased labor costs associated with our internal research and development projects in 2021, as major client projects finished. We are currently focusing our resources on building our internal technology and have a couple of small customer pilot projects related to such technology. 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. We also incurred additional unrecoverable costs in the three months ended June 30, 2021 as we completed our government contract.
Research and Development
Research and development expenses for the three months ended June 30, 2022 and 2021 were approximately $648,000 and $466,000, respectively, which represented an increase of $182,000, or 39%. The increase was primarily attributable to an overall increase in our focus on internal research and development activities, which resulted in increased wage allocation as well as increased rent, facility fees, equipment usage costs and general lab supplies.
| 25 |
General and Administrative
Selling, general, and administrative expenses for the three months ended June 30, 2022 and 2021 were approximately $678,000 and $772,000, respectively, which represented a decrease of $94,000, or 12%. During 2022, a higher percentage of costs related to payroll and facilities costs were allocated from general and administrative costs to research and development, reflecting the increased focus on the internal R&D programs. This was partially offset by an increase of $81,000 in stock-based compensation in the three months ended June 30, 2022 due to recognition of expense related to awards issued to the former Chief Executive Officer and board members as compared to the corresponding 2021 period. In addition, there was an increase of legal and professional fees of approximately $250,000 in the three months ended June 30, 2022, a substantial portion of which related to costs associated with fund raising activities which have not yet come to fruition and have not been capitalized, and an increase in recruiting fees and related salary of a combined $178,000 related to our new CEO.
Other Income
Other income (expense) for the three months ended June 30, 2022 and 2021 was insignificant.
Net (Loss) Income
Net (loss) income for the three months ended June 30, 2022 and 2021 was approximately $(1,332,000) and $(1,315,000), respectively, which represented a decrease of $(17,000), or 1%. The decrease in the loss was primarily attributable to the decrease in non-cash compensation charge of approximately $697,000 in the 2022 period.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We measure our liquidity in a number of ways, including the following:
| June 30, 2022 | ||||
| Cash | $ | 604,255 | ||
| Working Capital | $ | 221,019 | ||
As of June 30, 2022, we had cash and working capital of $604,255 and $221,019, respectively. We received proceeds of a private placement of our securities in early August 2022 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, but there is no assurance that the offering will be successful. 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.
| 26 |
Our sources and uses of cash were as follows:
Net cash (used in) provided by operating activities for the six months ended June 30, 2022 and 2021 was approximately $(1,652,000) and $(1,098,000), respectively. Net cash used in operating activities for the six months ended June 30, 2022 includes cash used to fund a net loss of approximately $2,462,000, reduced by approximately $601,000 of non-cash income/expenses, partially offset by $209,000 of net cash provided by changes in the levels of operating assets and liabilities. Net cash provided by operating activities for the six months ended June 30, 2021 included cash used to fund a net loss of approximately $2,210,000, reduced by $1,087,000 of non-cash expenses, partially offset by $25,000 of net cash used in changes in the levels of operating assets and liabilities.
The relative increase in the use of cash in operations over the comparable 2021 six month period was fueled by 1) an increase in legal fees of $ 250,000 primarily to prepare for a potential public stock offering and up-listing 2) a lack of foundry service profit of 171,000, 3) an increase in fees used on consultants for Government and investor relations of $140,000, 4) recruiting fees for the new CEO of $ 100,000, and 5) an increase in salaries partially attributable to the new CEO for 3 months of approximately $78,000.
Net cash used in investing activities for the six months ended June 30, 2022 and 2021 was approximately $306,000 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 six months ended June 30, 2022 and 2021 was approximately $(37,000) and $4,849,000 respectively. Net provided by financing activities for the six months ended June 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. We make payments under our governmental loans of approximately $7,300 each month.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are included in Note 2 of our financial statements included elsewhere in this report.
RECENTLY ISSUED ACCOUNTING STANDARDS
Our recently issued accounting standards are included in Note 2 of our financial statements included elsewhere in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
| 27 |
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 June 30, 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.
| 28 |
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.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are included and filed with this report.
| * | Furnished and not filed. |
| 29 |
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 August 15, 2022.
| Odyssey Semiconductor Technologies, Inc. | ||
| By: | /s/ Mark Davidson | |
| Mark Davidson | ||
| Chief Executive Officer | ||
30
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, Mark Davidson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2022 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: August 15, 2022
| /s/ Mark Davidson | |
| Mark Davidson | |
| 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, 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 June 30, 2022 (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: August 15, 2022
| /s/ Mark Davidson | |
| Mark Davidson | |
| 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.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value per share | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value per share | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 45,000,000 | 45,000,000 |
| Common stock, shares issued | 12,726,911 | 12,726,911 |
| Common stock, shares outstanding | 12,726,911 | 12,726,911 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Income Statement [Abstract] | ||||
| Revenues | $ 20,581 | $ 287,153 | $ 50,519 | $ 518,122 |
| Cost of Revenues | 23,097 | 361,417 | 54,096 | 744,270 |
| Gross Profit (Loss) | (2,516) | (74,264) | (3,577) | (226,148) |
| Operating Expenses: | ||||
| Research and development | 647,705 | 466,042 | 1,016,889 | 619,079 |
| Selling, general, and administrative | 677,847 | 772,352 | 1,435,774 | 1,568,826 |
| Total Operating Expenses | 1,325,552 | 1,238,394 | 2,452,663 | 2,187,905 |
| Loss From Operations | (1,328,068) | (1,312,658) | (2,456,240) | (2,414,053) |
| Other Income (Expense): | ||||
| Forgiveness of PPP loan and other income | 11 | 3,026 | 2,024 | 213,706 |
| Interest expense | (3,668) | (5,451) | (7,484) | (9,847) |
| Net Loss | $ (1,331,725) | $ (1,315,083) | $ (2,461,700) | $ (2,210,194) |
| Net (Loss) Income Per Share: | ||||
| Basic | $ (0.10) | $ (0.10) | $ (0.19) | $ (0.18) |
| Diluted | $ (0.10) | $ (0.10) | $ (0.19) | $ (0.18) |
| Weighted Average Number of Common Shares Outstanding: | ||||
| Basic | 12,726,911 | 12,726,911 | 12,726,911 | 12,103,599 |
| Diluted | 12,726,911 | 12,726,911 | 12,726,911 | 12,103,599 |
Nature of Operations and Liquidity |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Nature of Operations and Liquidity | 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, supply chain delays, 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 June 30, 2022, the Company had a cash balance, working capital and accumulated deficit of approximately $600,000, $221,000 and $9,100,000, respectively. During the six months ended June 30, 2022, the Company generated a net loss of approximately $2,462,000.
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, but there is no assurance that the offering will be successful. The Company received $1.25 million proceeds on a bridge financing in August 2022 – See Note 12.
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.
|
Summary of Significant Accounting Policies |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 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 June 30, 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 June 30, 2022 and December 31, 2021, deferred expenses were approximately $62,000 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.
The estimated useful lives of property and equipment are as follows:
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:
Adoption of this standard resulted in the recognition of operating lease right-of-use assets and corresponding lease liabilities of approximately $694,000 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:
A majority of the Company’s revenues are generated from contracts with customers that require it to design, develop, manufacture, test and integrate complex equipment and to provide engineering and technical services according to customer specifications. These contracts are often priced on a time and material type basis. Revenues on time and material type contracts are generally recognized in each period based on the amount billable to the customer which is based on direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of materials and other direct non-labor costs.
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Contract assets are comprised of unbilled contract receivables related to revenues earned but not yet invoiced to customers.
During the six months ended June 30, 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 six months ended June 30, 2022 and 2021, the Company recognized approximately $0 and $418,000, 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 uses its trading history to support its historical volatility calculations.
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:
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. The Company has recorded a full valuation allowance against its deferred tax assets for all periods, due to the uncertainty of future utilization.
The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of June 30, 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 six months ended June 30, 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.
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.
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Prepaid Expenses and Other Current Assets |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid Expenses and Other Current Assets | Note 3 - Prepaid Expenses and Other Current Assets
Prepaid expenses consisted of the following:
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.
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Property and Equipment |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment | Note 4 – Property and Equipment
Property and equipment consisted of the following:
Depreciation and amortization expense related to property and equipment was approximately $91,000 and $82,000 for the six months ended June 30, 2022 and 2021, respectively.
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Accounts Payable and Accrued Expenses |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable and Accrued Expenses | Note 5 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
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Stockholders’ Equity |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Equity [Abstract] | |
| Stockholders’ Equity | 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. preferred shares have been issued as of the date hereof.
Common Stock Transactions
In March 2021, the Company sold shares of common stock at $ 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.
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Equity Compensation Plan |
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| Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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”). 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. 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.
From June 1 to June 22, 2021, the Company granted five and 10 ten-year options to purchase 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 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.
On December 30, 2021, the Company granted five and ten-year options to purchase 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 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) % 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.
On April 26, 2022, the Company granted to Mr. Davidson an option to purchase 650,000 shares of the Company’s common stock at $1.66 per share. 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.
The stock option activity from January 1, 2021 through June 30, 2022 is as follows:
The following table summarizes the outstanding options at June 30, 2022 by exercise price.
At June 30, 2022, the Company has 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 six months ended June 30, 2022 and 2021:
During the six months ended June 30, 2022, the Company recognized stock-based compensation expense related to stock options of approximately $, of which approximately $ was recorded as part of research and development expenses and $ was included within general and administrative expenses and $ of which was included within cost of revenues on the consolidated statements of operations. See Note 11 for further discussion. During the six months ended June 30, 2021, the Company recognized stock-based compensation expense related to stock options of approximately $ ($ of which was included within general and administrative expenses, $ of which was included in research and development expenses, $ of which was included within cost of revenues).
As of June 30, 2022, there was unamortized stock-based compensation of approximately $ which the Company expects to recognize over approximately years. At June 30, 2022, the intrinsic value of outstanding and vested stock options was nil.
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Note 8 - Commitments and Contingencies
Litigations, Claims, and Assessments
From time to time, the Company is involved in various disputes, claims, liens and litigation matters arising out of the normal course of business which could result in a material adverse effect on the Company’s combined financial position, results of operations or cash flows. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. As of June 30, 2022 and June 30, 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 June 30, 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,
The following table presents information about the amount and timing of liabilities arising from the Company’s operating and finance leases as of June 30, 2022 (in thousands):
The Company incurred lease expense for its operating lease of approximately $100,000 for the six months ended June 30, 2022 and 2021.
The Right of Use Asset at June 30, 2022 of $614,620 is being amortized over the lease term.
Employment Agreement
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.
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Concentrations |
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Jun. 30, 2022 | |
| Risks and Uncertainties [Abstract] | |
| Concentrations | Note 9 – Concentrations
During the six months ended June 30, 2022, revenues were generated from two customers. At June 30, 2022, substantially all deferred costs and deferred revenues are attributable to one customer contract.
During the six months ended June 30, 2021, substantially all revenues were generated from two governmental customers pursuant to our contracts with such entities and amounted to approximately 81% of total revenues. Such contracts were completed during 2021.
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Government Loans |
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| Government Loans | 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.
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.
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:
Interest expense on the above debt instruments was approximately $7,000 and $10,000 for the six months ended June 30, 2022 and 2021, respectively.
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Revision of stock compensation expense |
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| Compensation Related Costs [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revision of stock compensation expense | Note 11 – Revision of stock compensation expense
During the second quarter of 2022, the Company identified certain adjustments required to correct balances within stock-based compensation, which is included in operating expenses in the accompanying consolidated statements of operations, related to employees, directors and consultants (see Note 7 – Equity Compensation Plan) recorded during the three-month periods from June 2021 to March 2022. The Company had incorrectly calculated the amortization of the stock-based compensation for the periods from June 2021 to March 2022. The error discovered resulted in an understatement of the stock-based compensation expense for the periods June 2021 to March 2022 summarized as follows:
Based upon an analysis of Accounting Standards Codification 250 “accounting Changes and Error Corrections (ASC 250), U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 99, “Materiality” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined this error was immaterial to the previously-issued condensed consolidated financial statements, and as such no restatement was necessary. Correcting prior-period financial statements for such immaterial misstatements does not require previously filed reports to be amended. Accordingly, the misstatement was corrected in the period ended June 30, 2022.
For the three and six months ended June 30, 2022, correction of this error increased our stock-based compensation expense, total operating expenses and net loss for periods through March 31, 2022 by $262,523. The stock-based compensation for the quarter ended June 30, 2022 decreased from $226,250 to $196,227. Loss per share increased in the three and six months ended June 30, 2021 by $0.01 in both periods. Further, additional paid in capital and accumulated deficit at June 30, 2022 also increased by $262,523.
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Subsequent Events |
6 Months Ended |
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Jun. 30, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 12 - Subsequent Events
The Company has evaluated events that have occurred after the balance sheet and through August 15, 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 August 8, 2022, the Company issued a secured convertible promissory note in the amount of $1,250,000 (the “Promissory Note”) to a trust of which the Company’s Chairman, John Edmunds, is the trustee, pursuant to certain Subscription Agreement (the “Subscription Agreement”) and Registration Rights Agreement (the “Registration Rights Agreement”). The Promissory Note was issued as part of a private placement (the “Offering”) for sale up to $3,750,000 of secured convertible promissory notes (collectively, the “Promissory Notes”) for a period until August 15, 2022, unless extended at the option of the Company in its sole discretion for a period of thirty (30) business days.
The Promissory Notes bear interest at a rate of ten percent (10%) per annum, on a non-compounding basis, and are due and payable on the earlier of (i) the date upon which the Promissory Notes are converted into equity securities of the Company, or (ii) at maturity in twelve (12) months. All interest due shall be paid in shares of the Company’s common stock, which shall be valued at a price equal to the average of the last 20 trading days’ closing price of the Company’s common stock, commencing on the date immediately preceding the date of conversion for purposes of the interest computation. The Promissory Notes may be convertible anytime at the discretion of the holders into shares of common stock of the Company at a price equal to the average of the last 20 trading days’ closing price, or automatically converted upon the closing of a public offering of the Company’s common stock with aggregate proceeds of at least $5 million at a 15% discount to the per share public offering price.
Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement to register the resale of the shares of common stock issuable upon the conversion of the Promissory Notes within 60 calendar days after the final closing of the Offering and cause the registration statement to be declared effective by the Securities and Exchange Commission within 90 calendar days after the filing of the registration statement. In addition, the Company agrees to keep such registration statement effective for a period of two (2) years after its effective date or for such shorter period ending on the date on which all securities registered thereunder have been sold.
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Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 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.
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| Use of Estimates | 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.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents in the financial statements. As of June 30, 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.
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| Restricted Cash | 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.
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| Deferred Expenses | Deferred Expenses
Deferred expenses consist of labor, materials and other costs that are attributable to customer contracts that the Company has not completed its performance obligation under the contract and, as a result, has not recognized revenue. As of June 30, 2022 and December 31, 2021, deferred expenses were approximately $62,000 and $8,000, respectively.
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| Property and Equipment | 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:
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| Offering Costs | 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.
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| Leases | 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:
Adoption of this standard resulted in the recognition of operating lease right-of-use assets and corresponding lease liabilities of approximately $694,000 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.
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| Revenue Recognition | 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:
A majority of the Company’s revenues are generated from contracts with customers that require it to design, develop, manufacture, test and integrate complex equipment and to provide engineering and technical services according to customer specifications. These contracts are often priced on a time and material type basis. Revenues on time and material type contracts are generally recognized in each period based on the amount billable to the customer which is based on direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of materials and other direct non-labor costs.
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Contract assets are comprised of unbilled contract receivables related to revenues earned but not yet invoiced to customers.
During the six months ended June 30, 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 six months ended June 30, 2022 and 2021, the Company recognized approximately $0 and $418,000, respectively, of grant revenue.
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| Research and Development | Research and Development
Research and development expenses are charged to operations as incurred.
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| Stock-Based Compensation | Stock-Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares.
The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. Option forfeitures are accounted for at the time of occurrence. The expected term used is the estimated period of time that warrants or options are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee options. For investor warrants and non-employee options, the expected term used is the contractual life of the instrument being valued. The Company uses its trading history to support its historical volatility calculations.
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| Net (Loss) Income per share of Common Stock |
Basic net (loss) income per share of common stock is computed by dividing net (loss) income by the weighted average number of vested shares of common stock outstanding during the period. Diluted net income per share of common stock is computed by dividing net income by the weighted average number of common and dilutive common-equivalent shares outstanding during each period.
The following shares were excluded from the calculation of weighted average dilutive shares of common stock because their inclusion would have been anti-dilutive:
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| Income Taxes | Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. The Company has recorded a full valuation allowance against its deferred tax assets for all periods, due to the uncertainty of future utilization.
The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of June 30, 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 six months ended June 30, 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.
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| Recently Issued Accounting Standards | 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.
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of estimated useful lives of property and equipment |
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| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share |
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Prepaid Expenses and Other Current Assets (Tables) |
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Prepaid expenses and other current assets |
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Property and Equipment (Tables) |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment |
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Accounts Payable and Accrued Expenses (Tables) |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Payable and Accrued Expenses |
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Equity Compensation Plan (Tables) |
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| Schedule of stock option activity |
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| Schedule Of Outstanding Options |
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| Schedule of Valuation Assumptions |
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Commitments and Contingencies (Tables) |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Finance Lease, Liability, Fiscal Year Maturity |
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Government Loans (Tables) |
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| Schedule of loans |
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Revision of stock compensation expense (Tables) |
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| Compensation Related Costs [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of stock based compensation |
|
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Nature of Operations and Liquidity (Details Narrative) |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Cash and Cash Equivalents, at Carrying Value | $ 600,000 |
| Working capital | 221,000 |
| Retained Earnings, Appropriated | 9,100,000 |
| Net Income (Loss) Available to Common Stockholders, Basic | 2,462,000 |
| Proceeds from financing received | $ 1,250,000 |
Summary of Significant Accounting Policies (Details 1) - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 2,293,942 | 3,795,727 |
| Warrant [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 245,696 | 245,696 |
| Options Held [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 2,048,246 | 3,550,031 |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
Jan. 02, 2022 |
|
| Accounting Policies [Abstract] | ||||
| Cash equivalents | $ 0 | $ 0 | ||
| Deferred expenses | 62,000 | 8,000 | ||
| operating lease right-of-use assets | 614,620 | 0 | $ 694,000 | |
| Grant revenue | 0 | $ 418,000 | ||
| Uncertain tax positions | $ 0 | $ 0 | ||
Prepaid Expenses and Other Current Assets (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Insurance | $ 60,294 | $ 30,666 |
| Legal Fees | 0 | 16,180 |
| Deposit for equipment purchase | 25,288 | 25,288 |
| Deposit for leased equipment purchase (Note 11) | 153,126 | 153,126 |
| Total | $ 238,708 | $ 225,260 |
Prepaid Expenses and Other Current Assets (Details Narrative) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Deposits on Flight Equipment | $ 153,126 | $ 153,126 |
Property and Equipment (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 1,429,015 | $ 1,140,132 |
| Accumulated Depreciation | (377,778) | (286,842) |
| Property and equipment, net | 1,051,237 | 853,290 |
| Office Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 2,807 | 2,807 |
| Lab Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 15,606 | 15,606 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 43,705 | 43,705 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 687,632 | 450,374 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 679,265 | $ 627,640 |
Property and Equipment (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Impaired Assets to be Disposed of by Method Other than Sale [Line Items] | ||
| Depreciation and amortization expense | $ 91,392 | $ 82,598 |
| Property, Plant and Equipment [Member] | ||
| Impaired Assets to be Disposed of by Method Other than Sale [Line Items] | ||
| Depreciation and amortization expense | $ 91,000 | $ 82,000 |
Accounts Payable and Accrued Expenses (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accounts payable | $ 212,864 | $ 67,970 |
| Accrued expenses | 106,836 | 29,994 |
| Credit cards payable | 25,266 | 36,690 |
| Accrued interest and other | 8,404 | 13,293 |
| Total | $ 353,370 | $ 147,947 |
Stockholders’ Equity (Details Narrative) - USD ($) |
1 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
| Common stock, shares authorized | 45,000,000 | 45,000,000 | ||
| Common stock, par value per share | $ 0.0001 | $ 0.0001 | ||
| Preferred stock, shares authorized | 5,000,000 | 5,000,000 | ||
| Preferred stock, par value per share | $ 0.0001 | $ 0.0001 | ||
| Preferred stock, shares issued | 0 | 0 | ||
| Proceeds from stock of sold | $ 0 | $ 4,599,055 | ||
| Common Stock [Member] | Private Placement [Member] | ||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
| Number of stock sold | 1,251,625 | |||
| Share price | $ 4.00 | |||
| Proceeds from stock of sold | $ 5,006,500 | |||
| Proceeds from warrant exercised | $ 407,445 | |||
| Number of warrant purchased | 89,730 | |||
| Warrant term | 5 years | |||
| Exercise Price | $ 4.00 | |||
| Proceeds from related parties | $ 480,000 | |||
Equity Compensation Plan (Details 2) - $ / shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Equity [Abstract] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | 2.77% | 1.10% |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Term | 7 years | 7 years 6 months |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 100.40% | 81.00% |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Dividend Rate | 0.00% | 0.00% |
| Grant date fair value of common stock | $ 1.38 | $ 2.45 |
Commitments and Contingencies (Details) |
Jun. 30, 2022
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2022 (remainder of year) | $ 100,000 |
| 2023 | 200,000 |
| 2024 | 200,000 |
| 2025 | 183,337 |
| Total undiscounted operating lease payments | 683,337 |
| Less: Imputed interest | 85,382 |
| Present value of operating lease liabilities | 597,955 |
| Short-term portion | 180,353 |
| Long term portion | $ 417,602 |
| Weighted average remaining lease term in years | 3 years 4 months 24 days |
| Weighted average discount rate | 6.50% |
Commitments and Contingencies (Details Narrative) - USD ($) |
1 Months Ended | 6 Months Ended | |
|---|---|---|---|
Apr. 18, 2022 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Commitments and Contingencies Disclosure [Abstract] | |||
| Monthly payments | $ 16,667 | ||
| Lease expiration date | Nov. 30, 2025 | ||
| Letter of credit | $ 100,000 | ||
| Operating lease expense | 100,000 | $ 100,000 | |
| Right of Use Asset | $ 614,620 | ||
| Annual cash compensation | $ 300,000 | ||
| Bonus | $ 150,000 | ||
Concentrations (Details Narrative) |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Revenue Benchmark [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 81.00% |
Government Loans (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Government Loans | ||
| Principal outstanding | $ 386,325 | $ 423,089 |
| Deferred loan costs, net of amortization | (3,040) | (3,496) |
| Subtotal | 383,285 | 419,593 |
| Less current portion | (75,350) | (74,134) |
| Total long term portion | $ 307,935 | $ 345,459 |
Revision of stock compensation expense (Details) - USD ($) |
3 Months Ended | 6 Months Ended | 9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 |
Mar. 31, 2022 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Gross profit (loss) | $ (2,516) | $ (74,264) | $ (3,577) | $ (226,148) | ||||
| Operating expenses | 1,325,552 | 1,238,394 | 2,452,663 | 2,187,905 | ||||
| Operating loss | (1,328,068) | (1,312,658) | (2,456,240) | (2,414,053) | ||||
| Net loss | (1,331,725) | (1,315,083) | (2,461,700) | (2,210,194) | ||||
| Additional paid in capital | 10,383,144 | 10,383,144 | $ 9,873,345 | |||||
| Accumulated Deficit | $ (9,119,853) | $ (9,119,853) | (6,658,153) | |||||
| Previously Reported [Member] | ||||||||
| Gross profit (loss) | $ (1,061) | $ 126,983 | (74,264) | (226,148) | $ (99,165) | (83,257) | ||
| Operating expenses | 1,127,111 | 858,099 | 1,238,394 | 2,187,905 | 2,732,681 | 3,474,593 | ||
| Operating loss | (1,128,172) | (731,116) | (1,312,658) | (2,414,053) | (2,831,846) | (3,557,850) | ||
| Net loss | (1,129,975) | (710,663) | (1,315,083) | (2,210,194) | (2,607,534) | (3,141,753) | ||
| Additional paid in capital | 9,924,394 | 9,837,157 | 9,929,130 | 9,929,130 | 9,837,157 | 9,873,345 | ||
| Accumulated Deficit | (7,788,128) | (6,123,934) | (5,726,594) | (5,726,594) | (6,123,934) | (6,658,153) | ||
| Revision of Prior Period, Adjustment [Member] | ||||||||
| Gross profit (loss) | (1,507) | (1,173) | (369) | (369) | (1,542) | (2,431) | ||
| Operating expenses | 98,961 | 77,034 | 24,253 | 24,253 | 101,287 | 159,625 | ||
| Operating loss | 100,468 | 78,207 | 24,622 | 24,622 | 102,829 | 162,056 | ||
| Net loss | (100,468) | (78,207) | (24,622) | (24,622) | (102,829) | (162,056) | ||
| Additional paid in capital | 262,523 | 102,829 | 24,622 | 24,622 | 102,829 | 162,056 | ||
| Accumulated Deficit | (262,523) | (102,829) | (24,622) | (24,622) | (102,829) | (162,056) | ||
| As Restated [Member] | ||||||||
| Gross profit (loss) | (2,568) | 125,810 | (74,633) | (226,517) | (100,707) | (85,688) | ||
| Operating expenses | 1,226,072 | 935,133 | 1,262,647 | 2,212,158 | 2,833,968 | 3,634,218 | ||
| Operating loss | (1,027,704) | (652,909) | (1,288,036) | (2,389,431) | (2,729,017) | (3,395,794) | ||
| Net loss | (1,230,443) | (788,870) | (1,339,705) | (2,234,816) | (2,710,363) | (3,303,809) | ||
| Additional paid in capital | 10,186,917 | 9,939,986 | 9,953,752 | 9,953,752 | 9,939,986 | 10,035,401 | ||
| Accumulated Deficit | $ (8,050,651) | $ (6,226,763) | $ (5,751,216) | $ (5,751,216) | $ (6,226,763) | $ (6,820,209) | ||
Revision of stock compensation expense (Details Narrative) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Compensation Related Costs [Abstract] | |
| Stock based compensation description | For the three and six months ended June 30, 2022, correction of this error increased our stock-based compensation expense, total operating expenses and net loss for periods through March 31, 2022 by $262,523. The stock-based compensation for the quarter ended June 30, 2022 decreased from $226,250 to $196,227. Loss per share increased in the three and six months ended June 30, 2021 by $0.01 in both periods. Further, additional paid in capital and accumulated deficit at June 30, 2022 also increased by $262,523. |
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