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As filed with the Securities and Exchange Commission on February 10, 2022

 

Registration No. 333-

 


 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 

Form S-1

 

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

 

Odyssey Semiconductor Technologies, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   3674   84-1766761
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

 

9 Brown Road

 Ithaca, NY 14850

Telephone: (607) 351-9768

 

(Address, including zip code, and telephone number,

including area code, of principal executive offices)

 

Richard Brown

Interim Chief Executive Officer

Odyssey Semiconductor Technologies, Inc.

9 Brown Road

Ithaca, NY 14850

Telephone: (607) 351-9768

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies to:

 

Mitchell Lampert, Esq. Brett R. Hanson, Esq.
Anna Jinhua Wang, Esq. Emily Humbert, Esq.
Robinson & Cole LLP Fox Rothschild LLP
1055 Washington Blvd. 222 S. Ninth Street, Suite 2000
Stamford, CT 06901 Two22 Building
Telephone: (203) 462-7559 Minneapolis, MN 55402-3338
  Telephone: (612) 607-7100

 

Approximate date of commencement of proposed sale to public: As soon as practicable on or after the effective date of this registration statement.

 

1

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

2

 

 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Preliminary Prospectus Subject to Completion, dated February 10, 2022

 

Odyssey Semiconductor Technologies, Inc.

 

Shares of Common Stock

 

This is a firm commitment underwritten public offering of              shares of common stock, par value $.0001 per share (the “Common Stock”), of Odyssey Semiconductor Technologies, Inc. (“Odyssey” or the “Company”), based on an assumed public offering price of $       per share, based on the last reported sales price of our Common Stock on                , 2022.

 

Our Common Stock is presently quoted on the OTCQB Market (the “OTCQB”) under the stock ticker symbol of “ODII” since August 27, 2020. There is currently limited trading activity of our Common Stock. We plan to apply to list our Common Stock on the Nasdaq Capital Market under the symbol of “ODII”. No assurance can be given that our listing application will be approved. If our Common Stock is not approved for listing on Nasdaq Capital Market, we will not consummate this offering. 

 

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.

 

Investing in our Common Stock is highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 13 of this prospectus for a discussion of information that should be considered before making a decision to purchase our Common Stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

   Per   
   Share  Total
Public offering price  $   $ 
Underwriting discounts and commissions (1)  $   $ 
Proceeds to us, before expenses  $   $ 

  

  (1) See “Underwriting” for additional information regarding underwriting compensation. Does not include a non-accountable expense allowance equal to 1.0% of the public offering payable to Maxim Group LLC.

 

We have granted the underwriter an option to purchase up to an additional $[●] of shares of Common Stock (equal to 15% of the shares of Common Stock sold in the offering) from us at the public offering price less the underwriting discounts and commissions, and on the same terms and conditions as set forth above, for 45 days after the date of this prospectus. If the underwriter exercises the option in full, the total public offering price will be $[●], the total underwriting discounts and commissions will be $[●], and the total proceeds, before expenses, to us will be $[●].

 

 The underwriters expect to deliver the shares of Common Stock to the purchasers on or about , 2022.

 

Sole Book Running Manager

 

Maxim Group LLC

 

The date of this prospectus is February 10, 2022.

 

3

 

 

TABLE OF CONTENTS

 

    Page 
     
PROSPECTUS SUMMARY   5
     
THE OFFERING   10
     
SUMMARY FINANCIAL DATA   11
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   13
     
RISK FACTORS   13
     
USE OF PROCEEDS   32
     
DIVIDEND POLICY   32
     
CAPITALIZATION   32
     
DILUTION   33
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   34
     
BUSINESS   42
     
MANAGEMENT   50
     
EXECUTIVE COMPENSATION   56
     
DIRECTOR COMPENSATION   61
     
PRINCIPAL STOCKHOLDERS   62
     
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   63
     
DESCRIPTION OF CAPITAL STOCK   65
     
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS   66
     
SHARES ELIGIBLE FOR FUTURE SALE   66
     
UNDERWRITING   68
     
LEGAL MATTERS   71
     
EXPERTS   71
     
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES   72
     
WHERE YOU CAN FIND ADDITIONAL INFORMATION   72
     
INDEX TO FINANCIAL STATEMENTS   F-1

 

4

 

 

You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with information different from or in addition to that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

Additional risks and uncertainties not presently known or that are currently deemed immaterial may also impair our business operations. The risks and uncertainties described in this document and other risks and uncertainties which we may face in the future will have a greater impact on those who purchase our Common Stock. These purchasers will purchase our Common Stock at a specified fixed price, at the market price or at a privately negotiated price, and will run the risk of losing their entire investments.

 

For investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

PROSPECTUS SUMMARY  

 

This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider in making your investment decision. Before investing in our Common Stock, you should read the entire prospectus carefully, including our consolidated financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

When used herein, unless the context requires otherwise, references to the “Company,” “we,” “our” and “us” refer to Odyssey Semiconductor Technologies, Inc., a Delaware corporation, collectively with its wholly-owned subsidiary, Odyssey Semiconductor, Inc, a Delaware corporation.

 

About the Company

 

Odyssey Semiconductor Technologies, Inc. (the “Company”) was formed as a Delaware corporation on April 12, 2019. The Company acquired its wholly-owned subsidiary, Odyssey Semiconductor, Inc., a Delaware corporation (“Odyssey Semiconductor”), on June 21, 2019 through a share exchange. Odyssey Semiconductor, formed on April 11, 2019, commenced business operations on June 17, 2019 when it acquired its wholly-owned subsidiary, JR2J LLC (“JR2J”), from its founders, Richard Brown and James Shealy, in exchange for shares of Odyssey Semiconductor.

 

The Company is a semiconductor device company developing 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 currently perform less efficiently, is projected to reach over $3.5 billion by 2025 and is currently dominated by the semiconductor materials silicon (Si) and silicon carbide (SiC). GaN-based systems outperform Si and SiC based systems in every way due to the superior material properties of GaN. However, GaN devices have, to-date proven difficult to process using standard semiconductor processing methods that are used to create Si and SiC based devices. We have developed a novel processing modification that allows GaN to be processed in a manner that for the first time, makes high voltage GaN power switching devices both technically viable as well as reliable and manufacturable. Our mission is to disrupt the rapidly growing premium power switching device market using with our newly developed GaN high voltage power transistor for switching applications.

 

5

 

 

Overview of The Semiconductor Industry

 

The semiconductor industry was formed in 1960 when the production of semiconductors became a viable option. The global semiconductor market has grown rapidly, from over $1 billion in 1964 to $425.96 billion in 2020 and projected to grow to $803.15 billion by 2028.

 

The application of semiconductors has expanded extensively from radio in the 1960s to crucial electronic components nowadays to all manufactured products with computing or power management capabilities, ranging from computers and personal electronics to automotive goods and heavy machinery. Semiconductor devices mounted inside many electronics appliances are important electronic components that support our everyday lives.

 

Integrated circuits (ICs) and electronic discrete components such as diodes (which are two-terminal electronic components that conduct current primarily in one direction) and transistors (which are devices possessing an amplification function) are made of semiconductors.

 

The semiconductor industry is divided into six broad categories based on the end-use application:

 

  Data processing: This comprises chips used in servers, computers, printers, and related hardware. This is the largest segment where semiconductors are used. However, growth in this segment has moderated, and no breakthrough innovation is expected in the near future.
  Communications: This comprises chips used in wired and wireless communication equipment such as smartphones, tablets, and broadband equipment. This segment is growing at a faster pace.
  Consumer electronics: This comprises chips used in household appliances, LCD TVs, and gaming consoles.
  Industrial: This comprises chips used in scanning devices such as bar code scanners and point-of-sale terminals, medical devices such as patient monitors and ultrasound imaging, and power supply equipment.
  Automotive: This comprises chips used in electronic automotive components such as power steering and lighting.
  Military and civil aerospace: This is a specialized segment where integrated circuits related to a particular application are built.

 

Advantage and Market Focus of the Company

 

Semiconductors are materials which have a conductivity between conductors (generally metals), which has full conductivity, and nonconductors or insulators (such as most ceramics), which has negligible conductivity. The conductivity of a semiconductor material may be altered in useful ways by the deliberate, controlled introduction of impurities into the crystal structure of the material to modulate its electrical, optical and structural properties. This process is known as doping.

 

Silicon (Si) is traditionally the most common semiconductor material. However, Si-based systems have proven to perform inadequately. We described the applications where Si-based systems perform inadequately as the premium power switching device market, which was $571 million in 2018 and is projected to pass $5 billion by 2029. This growth is largely driven by the rapid adoption of electric vehicles (EV) and hybrid electric vehicles (HEV) and the growing number of installations of renewables such as solar and wind power as well as increased demand for more efficient industrial motor drives.

 

The premium power switching device market is currently dominated by the semiconductor material SiC. GaN-based systems outperform Si and SiC based systems in every way due to the superior material properties of GaN. However, GaN devices have, to-date proven difficult to process using standard semiconductor processing methods that are used to create Si and SiC based devices. While GaN can be implanted with ions through doping process like any other semiconductor, unlike Si or SiC, the temperature required to activate the ions in GaN destroys the crystal, making implant and activate scheme impractical in the GaN material. The Company is working on developing proprietary technology that allows activation of dopants in the GaN. This proprietary technology allows GaN to be processed in a manner that for the first time makes high voltage GaN power switching devices viably manufacturable.

 

6

 

 

The Company expects that its GaN power products will overlap the current market for SiC power switching market. Furthermore, the Company expects that its GaN power products will exceed switching speeds and operating voltages currently attainable reliably with SiC.

 

GaN is both less expensive to produce and offers significant performance advantages over SiC in system efficiency and system size. Currently there are no GaN devices in the market with ratings more than 1,000 V, which will be our strength area, however, our products will address voltages as low as 650 V.

 

 

 

Competition

 

There are many horizontal-conduction (meaning the current flows horizontally, along the surface of the wafer), high-electron-mobility transistor (HEMT) products emerging from industry. HEMT transistors are able to operate at higher frequencies than ordinary transistors, up to millimeter wave frequencies, and are used in high-frequency products such as cell phones, satellite television receivers, voltage converters, and radar equipment. However, horizontal-conduction device technology has difficulty scaling beyond 650 V.

 

In contrast to horizontal-conduction devices, vertical-conduction (meaning the current flows from the top surface of the wafer to the bottom surface) devices could easily have scaling beyond 650 V; however, there are currently few discrete parts available with ratings above 650 V, and none above 1,000 V. The Company believes it is uniquely poised to enter into the >1,000 V device market and above with its vertical conduction device technology.

 

We expect that our competitors will include a number of larger companies, particularly in the SiC area (such as STMicro, WolfSpeed, Texas Instruments (TI), On Semiconductor, and etc.) which have more substantial research and development budgets than us. Even smaller companies which are more targeted in their development efforts, such as Nexgen Power Systems, Inc., may be our potential competitors. If we are unable to compete effectively with our competitors, our products or technologies may be rendered obsolete or noncompetitive, which could materially adversely affect our business and results of operations.

 

7

 

 

Implications of Being an Emerging Growth Company

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an “emerging growth company,” we have chosen to take advantage of the extended transition period for complying with new or revised accounting standards, which will allow us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. Accordingly, our financial statements may not be comparable to companies that comply with all public company accounting standards which could impact the valuation of our securities.

 

Corporate Information

 

Our office address is 9 Brown Road, Ithaca, NY 14850; telephone: (607) 351-9768.

 

Our corporate website address is https://www.odysseysemi.com/. Information accessed through our website is not incorporated into this prospectus and is not a part of this prospectus.

 

Summary of Risk Factors

 

Investing in our Common Stock involves a high degree of risk. Below is a summary of material factors that make an investment in our Common Stock speculative or risky. Importantly, this summary does not address all the risks that we face. These risks include, but are not limited to, the following and are discussed more fully in the section titled “Risk factors”:

 

Risks Relating to Our Business, Growth Prospects and Operating Results

 

  We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and could have a material adverse impact on us. The recent coronavirus outbreak could materially and adversely affect our business.
  We are recently formed and are currently operating at a loss. Our lack of operating history makes it difficult to evaluate our business and prospects and may increase the risks associated with an investment in our shares of Common Stock.
  Our business depends substantially on the continuing efforts of our executive officers and our business may be severely disrupted if we lose their services.
  We may be unable to attract and retain highly skilled personnel.
  There may be limitations on the effectiveness of our internal controls. Failure of our internal control over financial reporting could harm our business and financial results.
  Our management team has limited experience managing a public company.
  We depend on a limited number of customers and the loss of one or more of these customers could have a material adverse effect on our business, financial condition and results of operations.
  If we do not have access to capital on favorable terms, on the timeline we anticipate, or at all, our financial condition and results of operations could be materially adversely affected.
  We may not obtain insurance coverage to adequately cover all significant risk exposures.
  If product liability lawsuits are brought against us, we may incur substantial liabilities.
  We will be dependent on the services of third-party suppliers and contract manufacturers.
  We may be subject to litigation from time to time during the normal course of business, which may adversely affect our business, financial condition and results of operations.
     

Risks Related to the Semiconductor Industry

 

  The semiconductor industry is highly competitive, and our inability to compete effectively could materially adversely affect our business and results of operations.
  The semiconductor industry has experienced rapid consolidation and our inability to compete with large competitors or failure to identify attractive opportunities to consolidate may materially adversely affect our business.
  The semiconductor industry is highly cyclical, and significant downturns or upturns in customer demand can materially adversely affect our business and results of operations.

 

8

 

 

  Rapid innovation and short product life cycles in the semiconductor industry can result in price erosion of older products, which may materially adversely affect our business and results of operations.
  Shortages or increased prices of raw materials could materially adversely affect our results of operations.
  If we are unable to protect the intellectual property we use, our business, results of operations and financial condition could be materially adversely affected.
  We may be unable to maintain manufacturing efficiency, which could have a material adverse effect on our results of operations.
  If we are unable to identify and make the substantial research and development investments required to remain competitive in our business, our business, financial condition and results of operations may be materially adversely affected.
  Our products are based on novel Gallium Nitride (GaN) processing technology, which makes it difficult to predict the time and cost of product development.
  Changes in tariffs or other government trade policies may materially adversely affect our business and results of operations, including by reducing demand for our products.

 

Risk related to our Common Stock

 

  We may not be able to maintain a listing of our Common Stock on Nasdaq.
  If our Common Stock fails to maintain a listing on a national exchange such as Nasdaq, it may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.
  The shares of our Common Stock may experience dilution by exercises of outstanding warrants and options.
  There are a significant number of shares of Common Stock eligible for sale, which could depress the market price of such shares.
  You will experience immediate and substantial dilution as a result of this offering.
  We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could make our Common Stock less attractive to investors.
  Our officers and directors have significant control over shareholder matters.
  Our officers have broad discretion in the use of proceeds.
  We do not currently intend to pay dividends on our Common Stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Stock.

 

9

 

 

The Offering

 

Common Stock to be offered:   [●] shares of Common Stock ([●] shares if the underwriters exercise their over-allotment option in full)
     
Assumed public offering price:   $ per share, based on the last reported sales price of our Common Stock on , 2022
     
Common stock outstanding immediately before this offering:   12,726,911 shares of Common Stock (1)
     
Common stock to be outstanding after this offering:   [●] shares (or [●] shares if the underwriters exercise their over-allotment option in full) (2)  
     
Over-allotment option:   We have granted to the underwriters a 45-day option to purchase from us up to an additional 15% of the shares of Common Stock sold in the offering, solely to cover over-allotments, if any, at the initial public offering price, less the underwriting discounts.
     
Underwriter’s warrants     We have agreed to issue to the underwriter warrants to purchase a number of shares of Common Stock equal in the aggregate to 5% of the total number of shares issued in this offering. The underwriter’s warrants will be exercisable at a per share exercise price equal to 110% of the public offering price per share of Common Stock sold in this offering. The underwriter’s warrants are exercisable at any time and from time to time, in whole or in part, during the four-and-a-half-year period commencing six months after the closing of this offering. The registration statement of which this prospectus forms a part also registers the issuance of the shares of Common Stock issuable upon exercise of the underwriter’s warrants. See “Underwriting” for more information.
     
Use of Proceeds:   We estimate that the net proceeds from this offering will be approximately $[●] million (or approximately $[●] if the underwriters exercise their over-allotment option in full), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital, funding the expansion of our business. See “Use of Proceeds” on page 32 of this prospectus.
     
Proposed trading market and symbol:   Our Common Stock is presently quoted on the OTCQB under the stock ticker symbol of “ODII”. In connection with this offering, we plan to file an application to list our shares of Common Stock under the symbol “ODII” on the Nasdaq Capital Market. No assurance can be given that our listing application will be approved. The closing of this offering is contingent upon the successful listing of our Common Stock as on the Nasdaq Capital Market.  
     
Risk Factors:     An investment in our company is highly speculative and involves a significant degree of risk. See “Risk Factors” starting on page 13 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our Common Stock.  
     
Lock-up:   We, all of our directors, officers and holders of three percent (3%) or more of our shares of Common Stock have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our Common Stock or securities convertible into or exercisable or exchangeable for our Common Stock for a period of six months after the closing of this offering. See “Underwriting” for more information.

 

(1) As of February 10, 2022, excludes: (i) 155,966 shares of Common Stock underlying warrants, each exercisable at a price of $1.50 per share, issued to Katalyst Securities LLC, the placement agent in our August 2019 Private Placement; (ii) 89,730 shares of our Common Stock underlying warrants, each exercisable at a price of $4.00 per share, issued to GP Nurmenkari Inc., the placement agent in our March 2021 Private Placement; and (iii) 1,398,246 shares of Common Stock issuable upon exercise of options granted under our 2019 Equity Compensation Plan. 
   
(2) Excludes: (i) all the warrants and options included in footnote (1) above, and (ii) Underwriter’s Warrants issued pursuant to this offering.

 

10

 

 

SUMMARY FINANCIAL DATA

 

The following tables set forth our summary historical financial data as of, and for the periods ended on, the dates indicated. The summary statements of operations data for the years ended December 31, 2020 and the summary balance sheet data as of December 31, 2020 are derived from our audited financial statements and notes that are included elsewhere in this prospectus. The summary statements of operations data for the nine months ended September 30, 2021 and the summary balance sheet data as of September 30, 2021 are derived from our unaudited interim financial statements and notes that are included elsewhere in this prospectus. We have prepared the unaudited financial statements in accordance with generally accepted accounting principles (GAAP) and on the same basis as the audited financial statements, and have included all adjustments, consisting of only normal recurring adjustments that, in our opinion, we consider necessary for a fair statement of the financial information set forth in those statements. Our historical results are not necessarily indicative of our results in any future period and results from our interim period may not necessarily be indicative of the results of the entire year.

 

The following summary financial data should be read together with the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this prospectus. The summary financial data in this section are not intended to replace our financial statements and the related notes and are qualified in their entirety by the financial statements and related notes included elsewhere in this prospectus.

 

   For The Nine Months Ended September 30,
   2021
(unaudited)
  2020
(unaudited)
Revenues  $693,074   $1,102,071 
           
Cost of Revenues   792,239    1,106,569 
           
Gross Loss   (99,165)   (4,498)
           
Operating Expenses:          
           
Research and development   1,073,737    430,592 
Selling, general, and administrative   1,658,994    869,643 
           
Total Operating Expenses   2,732,681    1,300,235 
           
Loss from Operations   (2,831,846)   (1,304,733)
           
Other Income (Expense):          
Forgiveness of PPP loan and other income   238,719    1 
Interest expense   (14,407)    
 Total Other Income (Expense)   224,312    1 
           
Net Loss  $(2,607,534)  $(1,304,732)

 

   For the years ended
   December 31,
   2020  2019
Revenues  $1,374,420   $719,851 
Cost of Revenues   1,453,005    589,640 
Gross (Loss) Profit   (78,585)   130,211 
Operating Expenses:          
Research and development   607,148    155,527 
Selling, general, and administrative   1,354,069    1,434,089 
Total Operating Expenses   1,961,217    1,589,616 
Loss From Operations   (2,039,802)   (1,459,405)
Other Income (expense):          
Interest income (expense), net   (3,306)   1,236 
Net Loss  $(2,043,108)  $(1,458,169)

 

11

 

 

    September 30,   December 31,
    2021 (unaudited)   2020
Assets                
                 
Current Assets:                
Cash   $ 3,409,429     $ 272,705  
Contract assets           62,273  
Accounts receivable     48,045       10,877  
Deferred expenses     4,941       185,084  
Prepaid expenses and other current assets     35,261       33,569  
                 
Total Current Assets     3,497,676       564,508  
Restricted cash     103,188       103,149  
Property and equipment, net     894,967       986,407  
                 
Total Assets   $ 4,495,831     $ 1,654,064  
                 
Liabilities and Stockholders’ Equity                
                 
Current Liabilities:                
Accounts payable and accrued expenses   $ 119,205     $ 187,046  
Loan payable – short term     77,278       53,858  
Deferred revenue     30,000       260,447  
                 
Total Current Liabilities     226,483       501,351  
                 
Loans payable – long term     554,853       621,600  
Total liabilities     781,336       1,122,951  
                 
Stockholders’ Equity:                
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively      —        —  
                 
Common stock, $0.0001 par value, 45,000,000 shares authorized, 12,726,911 and 11,429,661 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively     1,272       1,143  
Additional paid-in capital     9,837,157       4,046,370  
Accumulated deficit     (6,123,934 )     (3,516,400 )
                 
Total Stockholders’ Equity     3,714,495       531,113  
                 
Total Liabilities and Stockholders’ Equity   $ 4,495,831     $ 1,654,064  

 

12

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements,” which include information relating to management’s current view with respect to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Such forward-looking statements may include projections with respect to market size and acceptance, revenues and earnings, marketing and sales strategies, and business operations. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

 

  our limited operating history;
  our current and future capital requirements;
  our dependence on business and consumer requirements for the products that we offer;
  our ability to develop products to satisfy changing customer demands or regulatory requirements;
  our ability to maintain and/or protect the validity of our intellectual property;
  our ability to retain key executive members;
  our ability to attract and retain highly skilled personnel
  our dependence on a limited number of customers;
  the accuracy of our estimates regarding expenses and capital requirements;
  our ability to adequately support growth;
  the competitive nature of the semiconductor industry;
  our ability to identify and make the substantial research and development investments; and
  the availability and affordability of raw materials.

 

All forward-looking statements included in this prospectus are based on information available to us on the date of this prospectus. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this prospectus.

 

The market in which the Company intends to operate in is a highly competitive business environment. The Company’s business is and will continue to be affected by government regulation, economic, political and social conditions, and consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the ability to protect intellectual property rights. The Company’s actual results could differ materially from management’s expectations because of changes in such factors. Other factors and risks could also cause actual results to differ from those contained in forward-looking statements. Due to such uncertainties and the risk factors set forth herein, prospective investors are cautioned not to place undue reliance upon such forward-looking statements.

 

RISK FACTORS

 

An investment in our Common Stock is speculative and involves a high degree of risk, including the risk of a loss of your entire investment. You should carefully consider the risks and uncertainties described below and the other information contained in this prospectus before purchasing shares of our Common Stock. If any of the following risks actually materialize, our business, financial condition, prospects and/or operations could suffer. In such event, the value of our Common Stock could decline, and you could lose all or a substantial portion of the money that you pay for our Common Stock. The risks and uncertainties described below are not the only ones we are facing. Additional risks and uncertainties not presently known to us or that we deem immaterial may also impair our business operations or financial condition.

 

13

 

 

Risks Relating to Our Business, Growth Prospects and Operating Results

 

We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and could have a material adverse impact on us. The recent coronavirus outbreak could materially and adversely affect our business.

 

An outbreak of a new respiratory illness caused by coronavirus disease 2019 (“ COVID-19”) has resulted in millions of infections and hundreds of thousands of deaths worldwide as of the date of filing of this prospectus, and continues to spread across the globe, including within the United States. The outbreak of COVID-19 or by other epidemics could materially and adversely affect our business, financial condition and results of operations. If the spread of the virus worsens in regions in which we have material operations or sales, our business activities originating from affected areas, including sales, manufacturing and supply chain related activities, and could be adversely affected. Disruptive activities could include the temporary closure of our facilities and those used in our supply chain processes, restrictions on the shipment of our products, business closures in impacted areas, and restrictions on our employees’ and consultants’ ability to travel and to meet with customers. If workers at one or more of our offices or the offices of our suppliers or manufacturers become ill or are quarantined and in either or both events are therefore unable to work, our operations could be subject to disruption. Further, if our manufacturers become unable to obtain necessary raw materials or components, we may incur higher supply costs or our manufacturers may be required to reduce production levels, either of which may negatively affect our financial condition or results of operations.

 

As events are rapidly changing, we do not know how long the COVID-19 pandemic and the measures that have been introduced to respond to it will disrupt our operations or the full extent of that disruption. Further, once we are able to restart normal business hours and operations doing so may take time and will involve costs and uncertainty. We also cannot predict how long the effects of COVID-19 and the efforts to contain it will continue to impact our business after the pandemic is under control. Governments could take additional restrictive measures to combat the pandemic that could further impact our business or the economy in the geographies in which we operate. It is also possible that the impact of the pandemic and response on our suppliers, customers and markets will persist for some time after governments ease their restrictions. These measures have negatively impacted, and may continue to impact, our business and financial condition as the responses to control COVID-19 continue.

 

We are recently formed and are currently operating at a loss. Our lack of operating history makes it difficult to evaluate our business and prospects and may increase the risks associated with an investment in our shares of Common Stock.

 

The Company was recently formed in 2019 and is currently operating at a loss. Therefore, the Company is subject to the risks involved with any speculative early-stage enterprise. There is no assurance that the Company will successfully offer, market and distribute its products or services. The Company may continue to experience net losses and negative cash flows from operations or become only marginally profitable. The time required to reach substantial profitability is highly uncertain. There is no assurance that the Company will be able to achieve substantial profitability or that profitability, if achieved, can be sustained on an ongoing basis. There is no assurance that actual cash requirements will not exceed our estimates. Such risks for the Company include, but are not limited to:

 

  an evolving, unpredictable and unproven business model;
  an intensely competitive developing market;
  rapidly changing technology and unpredictable characteristics of materials and processes;
  managing growth;
  dependence on key personnel;
  limited operating capital and limited access to credit; and
  other unforeseen changes and developments.

 

14

 

 

In order to address these risks, the Company must, among other things:

 

  implement and successfully execute its business strategy;
  provide superior customer service;
  respond to competitive developments;
  attract, retain and motivate qualified personnel; and
  respond to unforeseen and changing circumstances.

 

The Company cannot assure investors that it will succeed in addressing these risks.

 

Our business depends substantially on the continuing efforts of our executive officers and our business may be severely disrupted if we lose their services.

 

Our future success depends substantially on the continued services of our executive officers. We do not maintain key man life insurance on any of our executive officers and directors. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Under such circumstances our business may be severely disrupted and we may incur additional expenses attempting to recruit and retain new officers.

 

We may be unable to attract and retain highly skilled personnel.

 

Our success depends on our ability to attract, motivate and retain highly skilled personnel, including research, technical, marketing, management and staff personnel. In the semiconductor industry, the competition for qualified personnel, particularly experienced design engineers and other technical employees, is intense, particularly when the business cycle is improving. During such periods, competitors may try to recruit our most valuable technical employees. Moreover, there can be no assurance that we will be able to retain our current personnel or recruit the key personnel we require. Loss of the services of, or failure to effectively recruit, qualified personnel, including senior managers, could have a material adverse effect on our competitive position and on our business.

 

There may be limitations on the effectiveness of our internal controls. Failure of our internal control over financial reporting could harm our business and financial results.

 

Proper systems of internal controls over financial accounting and disclosure are critical to the operation of a public company. Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.

 

As we are a start-up company and a new public company, we are at the very early stages of establishing, and we may be unable to effectively establish such systems. This would leave us without the ability to reliably assimilate and compile financial information about the Company and significantly impair our ability to prevent error and detect fraud, all of which would have a negative impact on the Company from many perspectives. Moreover, we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us.

 

15

 

 

In connection with the evaluation of our internal control over financial reporting as of December 31, 2020 that was undertaken by management in connection with the preparation of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and as of September 30, 2021 for our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, management determined that our lack of segregation of duties constituted a material weakness as of December 31, 2020 and September 30, 2021. In addition, we do not have a Chief Financial Officer and sufficient resources in the Company’s accounting function, which restricts the Company’s ability to gather, analyze and properly review information related to financial reporting. Those functions are currently performed by our Interim Chief Executive Officer, Richard Brown. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. The Company is considering various remediation methods to mitigate such material weakness, but has not yet adopted or implemented any plan to remedy such deficiency.

 

We may be unable to complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Common Stock.

 

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other things, the effectiveness of our internal control over financial reporting for each fiscal year. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.

 

If we are unable to assert that our internal control over financial reporting is effective, or, if applicable, our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Common Stock to decline, and we may be subject to investigation or sanctions by the SEC. We will also be required to disclose changes made in our internal control and procedures on a quarterly basis.

 

However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no longer an “emerging growth company” as defined in the recently enacted JOBS Act, if we continue to take advantage of the exemptions contained in the JOBS Act. We will remain an “emerging growth company” for up to five years, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the following December 30.

 

At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in our internal control over financial reporting in the future. Any of the foregoing occurrences, should they come to pass, could negatively impact the public perception of our company, which could have a negative impact on our stock price.

 

Our management team has limited experience managing a public company.

 

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage the Company as a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and operating results.

 

16

 

 

We depend on a limited number of customers and the loss of one or more of these customers could have a material adverse effect on our business, financial condition and results of operations.

 

During the period ended September 30, 2021 and the year ended December 31, 2020, approximately 28% and 85% of revenues respectively were generated from one governmental entity pursuant to our contract with such entity, which contract was completed in 2021. One client accounted for approximately 32% of revenues for the nine months ended September 30, 2021. No other client accounted for more than 10% of revenues. 0% and 100% of contract assets as of September 30, 2021 and December 31, 2020, respectively, are also related to this governmental client. Deferred costs and deferred revenues at September 30, 2021 and December 31, 2020 relate to several different clients, of which one client represents more than 75% of both categories at December 30, 2020.

 

Due to the concentration of revenues from a limited number of customers, if we do not receive the payments expected from any of these major customers, our revenue, results of operation and financial condition will be negatively impacted.

 

In addition, we cannot assure that any of our customers in the future will not cease purchasing products or services from us in favor of products or services produced by other suppliers, significantly reduce orders or seek price reductions in the future, and any such event could have a material adverse effect on our revenue, profitability, and results of operations.

 

Furthermore, if a significant portion of our revenue is derived from customers in certain industries, a downturn or lower sales to customers in such industries could materially adversely affect our business and results of operations.

 

If we do not have access to capital on favorable terms, on the timeline we anticipate, or at all, our financial condition and results of operations could be materially adversely affected.

 

We currently anticipate that our current cash on hand, grant revenue and customer payments will be sufficient to fund our operations for the next 12 months. However, we anticipate that we will routinely incur significant costs to conduct research and development, implement new manufacturing and information technologies, to increase our productivity and efficiency, to upgrade equipment and to expand production capacity. There can be no assurance that we will realize a return on the capital expended. We also anticipate incurring material amounts of debt to fund these requirements in the future. Significant volatility or disruption in the global financial markets may result in us not being able to obtain additional financing on favorable terms, on the timeline we anticipate, or at all, and we may not be able to refinance, if necessary, any outstanding debt when due, all of which could have a material adverse effect on our financial condition. We currently have no commitments for any additional capital and there can be no assurance that we will receive any such commitments, or that any commitments for capital will be on terms that are acceptable to us. Any inability to obtain additional funding on favorable terms, on the timeline we anticipate, or at all, may cause us to curtail our operations significantly, reduce planned capital expenditures and research and development, or obtain funds through arrangements that management does not currently anticipate, including disposing of our assets and relinquishing rights to certain technologies, the occurrence of any of which may significantly impair our ability to remain competitive. If our operating results falter, our cash flow or capital resources prove inadequate, or if interest rates increase significantly, we could face liquidity problems that could materially and adversely affect our results of operations and financial condition.

 

If our estimates related to expenditures and/or expected revenue are inaccurate, our business may fail.

 

The success of our business is dependent in part upon the accuracy of our management’s estimates of expenditures and revenue for the next 12 months and beyond. If such estimates are inaccurate or we encounter unforeseen expenses and delays or significant unexpected reduction of revenue, we may not be able to carry out our business plan, which could result in the failure of our business.

 

If the Company cannot effectively manage growth by implementing and improving its operational and financial systems, the Company’s business, prospects, financial condition and results of operations could be materially adversely affected.

 

In order to maximize the potential growth in the Company’s market opportunities, the Company may have to expand rapidly and significantly. The impetus for expansion could place a significant strain on the management, operational and financial resources of the Company. In order to manage growth, the Company will be required to implement and continually improve its operational and financial systems, expand operations, attract and retain superior management and train, manage and expand its employee base. The Company can give no assurance that it will effectively manage its operations that its system, procedures, or controls will adequately support operations or that management of the Company will successfully implement its business plan. If the Company cannot effectively manage growth, the Company’s business, prospects, financial condition and results of operations could be materially adversely affected.

 

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We may not obtain insurance coverage to adequately cover all significant risk exposures.

 

We will be exposed to liabilities that are unique to the products we provide. There can be no assurance that we will acquire or maintain insurance for certain risks, that the amount of our insurance coverage will be adequate to cover all claims or liabilities, or that we will not be forced to bear substantial costs resulting from risks and uncertainties of business. It also may not be possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations.

 

If product liability lawsuits are brought against us, we may incur substantial liabilities.

 

We face a potential risk of product liability as a result of any of the products that we develop, manufacture and/or offer for sale. For example, we may be sued if any product we develop, manufacture and/or sell allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

  decreased demand for products that we may offer for sale;
  injury to our reputation;
  costs to defend the related litigation;
  a diversion of management’s time and our resources;
  substantial monetary awards to trial participants or patients; and
  product recalls, withdrawals or labeling, marketing or promotional restrictions.

 

We currently do not maintain any product liability insurance. We may obtain product liability insurance in the future. However, there is no guarantee that we will be able to obtain product liability insurance or that such insurance will be affordable or sufficient. If we are unable to obtain or retain sufficient product liability insurance coverage, it could prevent or inhibit the commercialization of products we develop. Even if we obtain product liability insurance in the future, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

 

Warranty claims, product liability claims and product recalls could harm our business, results of operations and financial condition.

 

Manufacturing semiconductors is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Minute impurities in our manufacturing materials, contaminants in the manufacturing environment, manufacturing equipment failures, and other defects can cause our products to be non-compliant with customer requirements or otherwise nonfunctional. We face an inherent business risk of exposure to warranty and product liability claims in the event that our products fail to perform as expected or such failure of our products results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of our designed products are or are alleged to be defective, we may be required to participate in their recall. A successful warranty or product liability claim against us in excess of our available insurance coverage, if any, and established reserves, or a requirement that we participate in a product recall, could have material adverse effects on our business, results of operations and financial condition. Additionally, in the event that our products fail to perform as expected or such failure of our products results in a recall, our reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could materially adversely affect our business, results of operations and financial condition.

 

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Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and claims for consequential damages against our customers from their customers), we may face claims for damages that are disproportionate to the revenue and profits we receive from the products involved. We plan to attempt to limit our liability through our standard terms and conditions of sale and other customer contracts in certain instances; however, there is no assurance that such limitations will be effective. To the extent that we are liable for damages in excess of the revenue and profits we received from the products involved, our results of operations and financial condition could be materially adversely affected.

 

A significant product defect or product recall could materially and adversely affect our brand image, causing a decline in our sales and profitability, and could reduce or deplete our financial resources.

 

Provided we are successful in developing and selling our products, any product defect could materially harm our brand image and could force us to conduct a product recall. This could damage our relationships with our customers. A product recall would be particularly harmful to us because we will likely have limited financial and administrative resources to effectively manage a product recall and it would detract management’s attention from implementing our core business strategies. As a result, a significant product defect or product recall could cause a decline in our sales and profitability and could reduce or deplete our financial resources.

 

We will be dependent on the services of third-party suppliers and contract manufacturers, and any disruption in or deterioration of the quality of the services delivered by such third parties could materially adversely affect our business and results of operations.

 

We plan to use third-party contractors for certain of our manufacturing activities. Our agreements with these manufacturers may require us to commit to purchase services based on forecasted product needs, which may be inaccurate, and, in some cases, require longer-term commitments. We may be also dependent upon a limited number of highly specialized third-party suppliers for required components and materials for certain of our key technologies. Arranging for replacement manufacturers and suppliers can be time consuming and costly, and the number of qualified alternative providers can be extremely limited. Our business operations, productivity and customer relations could be materially adversely affected if these contractual relationships were disrupted or terminated, the cost of such services increased significantly, the quality of the services provided deteriorated or our forecasted needs proved to be materially incorrect.

 

Natural disasters and other business disruptions could cause significant harm to our business operations and facilities and could adversely affect our supply chain and our customer base, any of which may materially adversely affect our business, results of operation, and financial condition.

 

We expect that our manufacturing and other facilities, as well as the operations of our third-party suppliers, are susceptible to losses and interruptions caused by floods, hurricanes, earthquakes, typhoons, and similar natural disasters, as well as power outages, telecommunications failures, industrial accidents, and similar events. The occurrence of natural disasters in any of the regions in which we or our suppliers will operate could severely disrupt the operations of our businesses by negatively impacting our supply chain, our ability to deliver products, and the cost of our products. Such events can negatively impact revenue and earnings and can significantly impact cash flow, both from decreased revenue and from increased costs associated with the event. In addition, these events could cause consumer confidence and spending to decrease. We may in the future carry insurance to generally compensate for losses of the type noted above, however, even if we obtain such insurance it may not be adequate to cover all losses that may be incurred or continue to be available in the affected area at commercially reasonable rates and terms. To the extent any losses from natural disasters or other business disruptions are not covered by insurance, any costs, write-downs, impairments and decreased revenue can materially adversely affect our business, our results of operations and our financial condition.

 

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We may be subject to litigation from time to time during the normal course of business, which may adversely affect our business, financial condition and results of operations.

 

From time to time in the normal course of business or otherwise, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to business operation are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our products and business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations.

 

There is no assurance on the future successful completion of strategic transactions by us to successfully implement our business strategies.

 

Our ability to complete future strategic transactions could be important to the successful implementation of our business strategies, including our strategies to strengthen our geographic diversity and broaden its customer base. Successful completion of an acquisition or other similar transaction depends on a number of factors that are not entirely within our control, including our ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all necessary regulatory approvals. In seeking to acquire a target company, we may face competition from other companies interested in acquiring the target company that have significantly greater financial and other resources than us. If we need to finance a transaction, we may not be able to obtain the necessary financing on satisfactory terms and within the timeframe that would permit the transaction to proceed. If any of these factors prevents us from completing one or more strategic transactions, we may not be able to expand our business in the manner and on the schedule that we plan. In addition, we may incur significant costs arising from our efforts to engage in strategic transactions. These costs may exceed the returns that we realize from a given transaction. Moreover, these expenditures may not result in the successful completion of a transaction.

 

Even if we complete one or more strategic transactions, we may be unable to integrate successfully the personnel and operations of a new business or achieve the operational synergies or other benefits that we had anticipated. Moreover, we might fail to discover liabilities of a business or operating or other problems prior to completing a transaction. We could experience adverse accounting and financial consequences, such as the need to make large provisions against the acquired assets or to write down acquired assets. We might also experience a dilutive effect on our earnings. Depending on how any such transaction is structured, there may be an adverse impact on our capital structure. Further, an acquisition could disrupt our ongoing business, distract management and employees or lead to increased expenses.

 

Risks Related to the Semiconductor Industry

 

The semiconductor industry is highly competitive, and our inability to compete effectively could materially adversely affect our business and results of operations.

 

The semiconductor industry is highly competitive, and our ability to compete successfully depends on elements both within and outside of our control. We will face significant competition from major global semiconductor companies as well as smaller companies focused on specific market niches. In addition, companies not currently in direct competition with us may introduce competing products in the future.

 

Our inability to compete effectively could materially adversely affect our business and results of operations. Products or technologies developed by competitors that are larger and have more substantial research and development budgets, or that are smaller and more targeted in their development efforts, may render our products or technologies obsolete or noncompetitive. We also may be unable to market and sell our products if they are not competitive on the basis of price, quality, technical performance, features, system compatibility, customized design, innovation, availability, delivery timing and reliability. If we fail to compete effectively on developing strategic relationships with customers and customer sales and technical support, our sales and revenue may be materially adversely affected. Competitive pressures may limit our ability to raise prices, and any inability to maintain revenue or raise prices to offset increases in costs could have a significant adverse effect on our gross margin. Reduced sales and lower gross margins would materially adversely affect our business and results of operations.

 

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The semiconductor industry has experienced rapid consolidation and our inability to compete with large competitors or failure to identify attractive opportunities to consolidate may materially adversely affect our business.

 

The semiconductor industry is characterized by the high costs associated with developing marketable products and manufacturing technologies as well as high levels of investment in production capabilities. As a result, the semiconductor industry has experienced, and may continue to experience, significant consolidation among companies and vertical integration among customers. Larger competitors resulting from consolidations may have certain advantages over us, including, but not limited to: substantially greater financial and other resources with which to withstand adverse economic or market conditions and pursue development, engineering, manufacturing, marketing and distribution of their products; longer independent operating histories; presence in key markets; patent protection; and greater name recognition. In addition, we may be at a competitive disadvantage to our peers if we fail to identify attractive opportunities to acquire companies to expand our business. Consolidation among our competitors and integration among our customers could erode our market share, negatively impact our capacity to compete and require us to restructure our operations, any of which would have a material adverse effect on our business.

 

Downturns or volatility in general economic conditions could have a material adverse effect on our business and results of operations.

 

In recent years, worldwide semiconductor industry sales have tracked the impact of the financial crisis, subsequent recovery and persistent economic uncertainty. We believe that the state of economic conditions in the United States is particularly uncertain due to the global pandemic as well as recent and expected shifts in legislative and regulatory conditions concerning, among other matters, international trade and taxation, and that an uneven recovery or a renewed global downturn may put pressure on our sales due to reductions in customer demand as well as customers deferring purchases. Volatile and/or uncertain economic conditions can adversely impact sales and profitability and make it difficult for us and our competitors to accurately forecast and plan our future business activities. To the extent we incorrectly plan for favorable economic conditions that do not materialize or take longer to materialize than expected, we may face oversupply of our products relative to customer demand. Reduced customer spending may in the future drive us and our competitors, to reduce product pricing, which will result in a negative effect on gross profit. Moreover, volatility in revenue as a result of unpredictable economic conditions may alter our anticipated working capital needs and interfere with our short-term and long-term strategies. To the extent that our sales, profitability and strategies are negatively affected by downturns or volatility in general economic conditions, our business and results of operations may be materially adversely affected.

 

The semiconductor industry is highly cyclical, and significant downturns or upturns in customer demand can materially adversely affect our business and results of operations.

 

The semiconductor industry is highly cyclical and, as a result, is subject to significant downturns and upturns in customer demand for semiconductors and related products. We cannot accurately predict the timing of future downturns and upturns in the semiconductor industry or how severe and prolonged these conditions might be. Significant downturns often occur in connection with, or in anticipation of, maturing product cycles (for semiconductors and for the end-user products in which they are used) or declines in general economic conditions and can result in reduced product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices, any of which could materially adversely affect our operating results as a result of increased operating expenses outpacing decreased revenue, reduced margins, underutilization of our manufacturing capacity and/or asset impairment charges. On the other hand, significant upturns can cause us to be unable to satisfy demand in a timely and cost efficient manner. In the event of such an upturn, we may not be able to expand our workforce and operations in a sufficiently timely manner, procure adequate resources and raw materials, or locate suitable third-party suppliers to respond effectively to changes in demand for our existing products or to the demand for new products requested by our customers, and our business and results of operations could be materially and adversely affected.

 

21

 

 

Rapid innovation and short product life cycles in the semiconductor industry can result in price erosion of older products, which may materially adversely affect our business and results of operations.

 

The semiconductor industry is characterized by rapid innovation and short product life cycles, which often results in price erosion, especially with respect to products containing older technology. Products are frequently replaced by more technologically advanced substitutes and, as demand for older technology falls, the price at which such products can be sold drops, in some cases precipitously. In addition, our and our competitors’ excess inventory levels can accelerate general price erosion.

 

Shortages or increased prices of raw materials could materially adversely affect our results of operations.

 

Our manufacturing processes will rely on many raw materials. Generally, we expect that our agreements with suppliers of raw materials will impose no minimum or continuing supply obligations, and we will obtain our raw materials and supplies from a large number of sources on a just-in-time basis. From time to time, suppliers of raw materials may extend lead times, limit supplies or increase prices due to capacity constraints or other factors beyond our control. Shortages could occur in various essential raw materials due to interruption of supply or increased demand. If we are unable to obtain adequate supplies of raw materials in a timely manner, the costs of our raw materials increase significantly, their quality deteriorates or they give rise to compatibility or performance issues in our products, our results of operations could be materially adversely affected.

 

Our facilities and processes may be interdependent and an operational disruption at any particular facility could have a material adverse effect on our ability to produce our products, which would materially adversely affect our business and results of operations.

 

We may utilize an integrated manufacturing platform in which multiple facilities may each produce one or more components necessary for the assembly of a single product. If we do, an operational disruption at a facility toward the front-end of our manufacturing process may have a disproportionate impact on our ability to produce our products. For example, if our multiple facilities rely predominantly on one third-party for manufacturing at the front-end of its manufacturing process, in the event of any operational disruption, natural or man-made disaster or other extraordinary event at such third-party facility, we may be unable to effectively source replacement components on acceptable terms from qualified third parties, in which case our ability to produce our products could be materially disrupted or delayed.

 

Conversely, if our facilities are single source facilities that only produce one of our end-products, a disruption at any such facility would materially delay or cease production of the related product. In the event of any such operational disruption, we may experience difficulty in beginning production of replacement components or products at new facilities (for example, due to construction delays) or transferring production to other existing facilities (for example, due to capacity constraints or difficulty in transitioning to new manufacturing processes), any of which could result in a loss of future revenues and materially adversely affect our business and results of operations.

 

If we are unable to protect the intellectual property we use, our business, results of operations and financial condition could be materially adversely affected.

 

The enforceability of any patents, trademarks, copyrights, software licenses and other intellectual property (“IP”) we own may be uncertain in certain circumstances. Effective IP protection may be unavailable, limited or not applied for in the U.S. and internationally. The various laws and regulations governing registered and unregistered IP assets, patents, trade secrets, trademarks, mask works and copyrights to protect products and technologies are subject to legislative and regulatory change and interpretation by courts. With respect to our IP generally, we cannot assure you that:

 

  any of the U.S. or foreign patents and pending patent applications that we may employ in our business will not lapse or be invalidated, circumvented, challenged, abandoned or licensed to others;
  any of our pending or future patent applications will be issued or have the coverage originally sought;
  any of the trademarks, copyrights, trade secrets, know-how or mask works that we employ or will employ in our business will not lapse or be invalidated, circumvented, challenged, abandoned or licensed to others; or
  any of our pending or future trademark, copyright, or mask work applications will be issued or have the coverage originally sought.

 

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If we seek to enforce our rights, we may be subject to claims that the IP right is invalid, is otherwise not enforceable or is licensed to the party against whom we are asserting a claim. In addition, our assertion of IP rights may result in the other party seeking to assert alleged IP rights of its own against us, which may materially adversely impact our business. An unfavorable ruling in these sorts of matters could include money damages or an injunction prohibiting us from manufacturing or selling one or more products, which could in turn negatively affect our business, results of operations or cash flows.

 

In addition, some of our products and technologies may not be covered by any patents or pending patent applications. We intend to protect our proprietary technologies, including technologies that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors’ rights agreements with our collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that persons or institutions will not assert rights to IP arising out of our research. Should we be unable to protect our IP, competitors may develop products or technologies that duplicate our products or technologies, benefit financially from innovations for which we bore the costs of development and undercut the sales and marketing of our products, all of which could have a material adverse effect on our business, results of operations and financial condition.

 

If our technologies are subject to claims of infringement on the intellectual property rights of third parties, efforts to address such claims could have a material adverse effect on our results of operations.

 

We may from time to time be subject to claims that we may be infringing third-party IP rights. If necessary or desirable, we may seek licenses under such IP rights. However, we cannot assure you that we will obtain such licenses or that the terms of any offered licenses will be acceptable to us. The failure to obtain a license from a third-party for IP we use could cause us to incur substantial liabilities or to suspend the manufacture or shipment of products or our use of processes requiring such technologies. Further, we may be subject to IP litigation, which could cause us to incur significant expense, materially adversely affect sales of the challenged product or technologies and divert the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor. In the event of an adverse outcome in any such litigation, we may be required to:

 

  pay substantial damages;
  indemnify customers or distributors;
  cease the manufacture, use, sale or importation of infringing products;
  expend significant resources to develop or acquire non-infringing technologies;
  discontinue the use of processes; or
  obtain licenses, which may not be available on reasonable terms, to the infringing technologies.

 

The outcome of IP litigation is inherently uncertain and, if not resolved in our favor, could materially and adversely affect our business, financial condition and results of operations.

 

We may be unable to maintain manufacturing efficiency, which could have a material adverse effect on our results of operations.

 

We believe that our success will materially depend on our ability to maintain or improve our margin levels related to manufacturing. Semiconductor manufacturing requires advanced equipment and significant capital investment, leading to high fixed costs, which include depreciation expense. Manufacturing semiconductor components also involves highly complex processes that we and our competitors are continuously modifying to improve yields and product performance. In addition, impurities, waste or other difficulties in the manufacturing process can lower production yields. Our manufacturing efficiency will be an important factor in our future profitability, and we cannot assure you that we will be able to manufacture efficiently, increase manufacturing efficiency to the same extent as our competitors, or be successful in our manufacturing rationalization plans. If we are unable to utilize manufacturing and testing facilities at expected levels, or if production capacity increases while revenue does not, the fixed costs and other operating expenses associated with these facilities will not be fully absorbed, resulting in higher average unit costs and lower gross profits, which could have a material adverse effect on our results of operations.

 

23

 

 

The failure to successfully implement cost reduction initiatives, including through restructuring activities, could materially adversely affect our business and results of operations.

 

From time to time, we may implement cost reduction initiatives in response to significant downturns in our industry, including relocating manufacturing to lower cost regions, transitioning higher-cost external supply to internal manufacturing, working with our material suppliers to lower costs, implementing personnel reductions and voluntary retirement programs, reducing employee compensation, temporary shutdowns of facilities with mandatory vacation and aggressively streamlining our overhead.

 

We cannot assure you that any cost reduction initiatives will be successfully or timely implemented or that they will materially and positively impact profitability.

 

If we are unable to identify and make the substantial research and development investments required to remain competitive in our business, our business, financial condition and results of operations may be materially adversely affected.

 

The semiconductor industry requires substantial investment in research and development in order to develop and bring to market new and enhanced technologies and products. The development of new products is a complex and time-consuming process and often requires significant capital investment and lead time for development and testing. We cannot assure you that we will have sufficient resources to maintain the level of investment in research and development that is required to remain competitive.

 

In addition, the lengthy development cycle for our products will limit our ability to adapt quickly to changes affecting the product markets and requirements of our customers and end-users. There can be no assurance that we will win competitive bid selection processes, known as “design wins,” for new products. In addition, design wins do not guarantee that we will make customer sales or that we will generate sufficient revenue to recover design and development investments, as expenditures for technology and product development are generally made before the commercial viability for such developments can be assured. There is no assurance that we will realize a return on the capital expended to develop new products, that a significant investment in new products will be profitable or that we will have margins as high as we anticipate at the time of investment or have experienced historically. To the extent that we underinvest in our research and development efforts, or that our investments and capital expenditures in research and development do not lead to sales of new products, we may be unable to bring to market technologies and products that are attractive to our customers, and as a result our business, financial condition and results of operations may be materially adversely affected.

 

We may be unable to develop new products to satisfy changing customer demands or regulatory requirements, which may materially adversely affect our business and results of operations.

 

The semiconductor industry is characterized by rapidly changing technologies, evolving regulatory and industry standards and certifications, changing customer needs and frequent new product introductions. Our success will be largely dependent on our ability to accurately predict, identify and adapt to changes affecting the requirements of our customers in a timely and cost-effective manner. Additionally, the emergence of new industry or regulatory standards and certification requirements may adversely affect the demand for our products. We plan to focus our new product development efforts on market segments and applications that we anticipate will experience growth, but there can be no assurance that we will be successful in identifying high-growth areas or develop products that meet industry standards or certification requirements in a timely manner. A fundamental shift in technologies, the regulatory climate or consumption patterns and preferences in our existing product markets or the product markets of our customers or end-users could make our current products obsolete, prevent or delay the introduction of new products that we planned to make or render our current or new products irrelevant to our customers’ needs. If our new product development efforts fail to align with the needs of our customers, including due to circumstances outside of our control like a fundamental shift in the product markets of our customers and end users or regulatory changes, our business and results of operations could be materially adversely affected.

 

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Uncertainties regarding the timing and amount of customer orders could lead to excess inventory and write-downs of inventory that could materially adversely affect our financial condition and results of operations.

 

We expect that our sales will be typically made pursuant to individual purchase orders or customer agreements, and we do not expect to have long-term supply arrangements with our customers requiring a commitment to purchase. We expect that the agreements with our customers may allow them to cancel orders prior to shipment for standard products and, generally prior to start of production for custom products without incurring a penalty. We anticipate to routinely generate inventory based on customers’ estimates of end-user demand for their products, which is difficult to predict. In times of under supply for certain products, some customers could respond by inflating their demand signals. As markets level off and supply capacity begins to match actual market demands, we could experience an increased risk of inventory write-downs, which may materially adversely affect our results of operations and our financial condition. In addition, our customers may change their inventory practices on short notice for any reason. Furthermore, short customer lead times are standard in the industry due to overcapacity. The cancellation or deferral of product orders, the return of previously sold products, or overproduction of products due to the failure of anticipated orders to materialize could result in excess obsolete inventory, which could result in write-downs of inventory or the incurrence of significant cancellation penalties under our arrangements with our raw materials and equipment suppliers. Unsold inventory, canceled orders and cancellation penalties may materially adversely affect our results of operations, and inventory write-downs, which may materially adversely affect our financial condition.

 

Our customers may require our products to undergo a lengthy and expensive qualification process without any assurance of product sales.

 

Prior to purchasing our products, our customers may require that our products undergo an extensive qualification process, which involves testing of the products in the customer’s system as well as rigorous reliability testing. This qualification process may continue for a few months or longer. However, qualification of a product by a customer does not ensure any sales of the product to that customer. Even after successful qualification and sales of a product to a customer, a subsequent revision to the product or software, changes in the product’s manufacturing process or the selection of a new supplier by us may require a new qualification process, which may result in delays and in us holding excess or obsolete inventory. After our products are qualified, it can take an additional few months or more before the customer commences volume production of components or devices that incorporate our products. Despite these uncertainties, we will devote substantial resources, including design, engineering, sales, marketing and management efforts, toward qualifying our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, such failure or delay would preclude or delay sales of such product to the customer, which may impede our growth and cause our business to suffer.

 

Our products are based on novel Gallium Nitride (GaN) processing technology, which makes it difficult to predict the time and cost of product development.

 

Our products are based on novel GaN processing technology. Our future success depends on the successful development of high-voltage power switching components and systems based on GaN processing technology. There can be no assurance that any development problems we experience in the future related to our products will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and manufacturing process, which may prevent us from commercializing our products on a timely or profitable basis, if at all.

 

Our potential future global operations may subject us to risks inherent in doing business on a global level that could adversely impact our business, financial condition and results of operations.

 

We anticipate that a certain amount of our total revenue may be derived from countries outside of the United States, and we might maintain certain operations in these regions. In addition, we may rely on a number of contract manufacturers whose operations are primarily located in outside of the United States. Risks inherent in doing business on a global level include, among others, the following:

 

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  economic and geopolitical instability (including as a result of the threat or occurrence of armed international conflict or terrorist attacks);
  changes in regulatory requirements, international trade agreements, tariffs, customs, duties and other trade barriers;
  licensing requirements for the import or export of certain products;
  exposure to different legal standards, customs, business practices, tariffs, duties and other trade barriers, including changes with respect to price protection, competition practices, IP, anti-corruption and environmental compliance, trade and travel restrictions, pandemics, import and export license requirements and restrictions, and accounts receivable collections;
  transportation and other supply chain delays and disruptions;
  power supply shortages and shutdowns;
  difficulties in staffing and managing foreign operations, including collective bargaining agreements and workers councils, exposure to foreign labor laws and other employment and labor issues;
  currency fluctuations;
  currency convertibility and repatriation;
  taxation of our earnings and the earnings of our personnel;
  limitations on the repatriation of earnings and potential additional taxation of foreign profits in the U.S.;
  potential violations by our international employees or third-party agents of international or U.S. laws relevant to foreign operations (e.g., the Foreign Corrupt Practices Act (“FCPA”));
  difficulty in enforcing intellectual property rights;
  other risks relating to the administration of or changes in, or new interpretations of, the laws, regulations and policies of the jurisdictions in which we conduct our business; and
  the effect that the global pandemic has on the countries in which we may contract to do business.

 

 

We cannot assure you that we will be successful in overcoming the risks that relate to or arise from operating in international markets, the materialization of any of which could materially adversely affect our business, financial condition and results of operations.

 

Changes in tariffs or other government trade policies may materially adversely affect our business and results of operations, including by reducing demand for our products.

 

The imposition of tariffs and trade restrictions as a result of international trade disputes or changes in trade policies may adversely affect our sales and profitability. For example, the U.S. government imposed, among other actions, new or higher tariffs on specified imported products originating from China in response to what it characterizes as unfair trade practices, and China has responded by imposing and proposing new or higher tariffs on specified products including some semiconductors fabricated in the United States. There can be no assurance that a broader trade agreement will be successfully negotiated between the United States and China to reduce or eliminate these tariffs. These tariffs, and the related geopolitical uncertainty between the United States and China, may cause decreased end-market demand for our products from distributors and other customers, which could have a material adverse effect on our business and results of operations. For example, certain of our future foreign customers may respond to the imposition of tariffs or threat of tariffs on products we produce by delaying purchase orders, purchasing products from our competitors or developing their own products. Ongoing international trade disputes and changes in trade policies could also impact economic activity and lead to a general contraction of customer demand. In addition, tariffs on components that we may import from China or other nations that have imposed, or may in the future impose, tariffs will adversely affect our profitability unless we are able to exclude such components from the tariffs or we raise prices for our products, which may result in our products becoming less attractive relative to products offered by our competitors. Future actions or escalations by either the United States or China that affect trade relations may also impact our business, or that of our suppliers or customers, and we cannot provide any assurances as to whether such actions will occur or the form that they may take. To the extent that our sales or profitability are negatively affected by any such tariffs or other trade actions, our business and results of operations may be materially adversely affected.

 

Changes in government trade policies could limit our ability to sell our products to certain customers, which may materially adversely affect our sales and results of operations.

 

The U.S. Congress or U.S. regulatory authorities may take administrative, legislative or regulatory action that could materially interfere with our ability to make sales, particularly in China. We could experience unanticipated restrictions on our ability to sell to certain foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action. For example, the U.S. Department of Commerce could ban the export of U.S. products to foreign customers. The terms and duration of any such restrictions may not be known to us in advance and may be subject to ongoing modifications. Even to the extent such restrictions are subsequently lifted, any financial or other penalties imposed on affected foreign customers could have a negative impact on future orders. Such foreign customers may also respond to sanctions or the threat of sanctions by developing their own solutions or adopting alternative solutions or competitors’ solutions. The loss or temporary loss of customers as a result of such future regulatory limitations could materially adversely affect our sales, business and results of operations.

 

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Environmental and health and safety liabilities and expenditures could materially adversely affect our results of operations and financial condition.

 

Our future manufacturing operations may be subject to various environmental laws and regulations relating to the management, disposal and remediation of hazardous substances and the emission and discharge of pollutants into the air, water and ground, and we may be identified as either a primary responsible party or a potentially responsible party at sites where we or our predecessors operated or disposed of waste in the past. Our operations may also be subject to laws and regulations relating to workplace safety and worker health, which, among other requirements, regulate employee exposure to hazardous substances. We do not currently maintain environmental insurance to cover certain claims related to historical contamination and future releases of hazardous substances. Moreover, we cannot assure you that even if such insurance is purchased, that it will cover any or all of our material environmental costs. In addition, the nature of our future operations may expose us to the continuing risk of environmental and health and safety liabilities including:

 

  changes in U.S. and international environmental or health and safety laws or regulations, including, but not limited to, future laws or regulations imposed in response to climate change concerns;
  the manner in which environmental or health and safety laws or regulations will be enforced, administered or interpreted;
  our ability to enforce and collect under indemnity agreements and insurance policies relating to environmental liabilities;
  the cost of compliance with future environmental or health and safety laws or regulations or the costs associated with any future environmental claims, including the cost of clean-up of currently unknown environmental conditions; or
  the cost of fines, penalties or other legal liability, should we fail to comply with environmental or health and safety laws or regulations. 

 

To the extent that we face unforeseen environmental or health and safety compliance costs or remediation expenses or liabilities that are not covered by insurance, we may bear the full effect of such costs, expense and liabilities, which could materially adversely affect our results of operations and financial condition.

 

We may be subject to disruptions or breaches of our secured network that could irreparably damage our reputation and our business, expose us to liability and materially adversely affect our results of operations.

 

We may routinely collect and store sensitive data, including IP and other proprietary information about our business and our customers, suppliers and business partners. The secure processing, maintenance and transmission of this information will be critical to our operations and business strategy. We may be subject to disruptions or breaches of our secured network caused by computer viruses, illegal hacking, criminal fraud or impersonation, acts of vandalism or terrorism or employee error. Our security measures and/or those of our third-party service providers and/or customers may not detect or prevent such security breaches. The costs to us to reduce the risk of or alleviate cyber security breaches and vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions and delays that may materially impede our sales, manufacturing, distribution or other critical functions. Any such compromise of our information security could result in the misappropriation or unauthorized publication of our confidential business or proprietary information or that of other parties with which we do business, an interruption in our operations, the unauthorized transfer of cash or other of our assets, the unauthorized release of customer or employee data or a violation of privacy or other laws. In addition, computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our systems, or that otherwise exploit any security vulnerabilities, and any such attack, if successful, could expose us to liability to customer claims. Any of the foregoing could irreparably damage our reputation and business, which could have a material adverse effect on our results of operations.

 

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Sales through distributors and other third parties will expose us to risks that, if realized, could have a material adverse effect on our results of operations.

 

We may sell a significant portion of our products through distributors. Distributors may sell products that compete with our products, and we may need to provide financial and other incentives to focus distributors on the sale of our products. We may rely on one or more key distributors for a product, and the loss of these distributors could reduce our revenue. Distributors may face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable and financial results. Violations of the FCPA or similar laws by distributors or other third-party intermediaries could have a material impact on our business. Failure to manage risks related to our use of distributors may reduce sales, increase expenses, and weaken our competitive position, any of which could have a material adverse effect on our results of operations.

 

The failure to comply with the terms and conditions of our contracts could result in, among other things, damages, fines or other liabilities.

 

We expect to have a diverse customer base consisting of both private sector clients and public sector clients, including the U.S. government. Sales to our private sector clients are generally expected to be based on stated contractual terms, the terms and conditions on our website or terms contained in purchase orders on a transaction-by-transaction basis. Sales to our public sector clients are generally expected to be derived from sales to federal, state and local governmental departments and agencies through various contracts and programs, which may require compliance with regulations covering many areas of our operations, including, but not limited to, accounting practices, IP rights, information handling, and security. Noncompliance with contract terms, particularly with respect to highly-regulated public sector clients, or with government procurement regulations could result in fines or penalties against us, termination of such contracts or civil, criminal and administrative liability to the Company. With respect to public sector clients, the government’s remedies may also include suspension or debarment from future government business. The effect of any of these possible actions or the adoption of new or modified procurement regulations or practices could materially adversely affect our business, financial position and results of operations.

 

Risk related to our Common Stock

 

We may not be able to maintain a listing of our Common Stock on Nasdaq.

 

Assuming that our Common Stock is listed on Nasdaq Capital Market, we must meet certain financial and liquidity criteria to maintain such listing. If we violate Nasdaq’s listing requirements, or if we fail to meet any of Nasdaq’s listing standards, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our Common Stock from Nasdaq may materially impair our shareholders’ ability to buy and sell our Common Stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our Common Stock. The delisting of our Common Stock could significantly impair our ability to raise capital and the value of your investment.

 

If our Common Stock fails to maintain a listing on a national exchange such as Nasdaq, it may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

  

The Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The OTCQB does not meet such requirements and if the price of our Common Stock is less than $5.00, our Common Stock will be deemed penny stocks. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. If our Common Stock becomes de-listed from Nasdaq in the future, these disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.

 

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FINRA sales practice requirements may also limit an investor’s ability to buy and sell our Common Stock, which could depress the price of our Common Stock.

 

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability that such speculative low-priced securities will not be suitable for at least some customers. Thus, if we are unable to maintain a listing of our Common Stock on Nasdaq, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit an investor’s ability to buy and sell shares of Common Stock, have an adverse effect on the market for our Common Stock, and thereby depress the price of our Common Stock. In addition, it has been more difficult in recent years for holders of “penny stocks” to deposit their shares with brokerage firms, which may limit any shareholder’s ability to sell shares of our stock should it become a “penny stock”.

 

The shares of our Common Stock may experience dilution by exercises of outstanding warrants and options.

 

As of the date hereof, we have outstanding warrants to purchase an aggregate of 155,966 shares of our Common Stock at a price of $1.50 per share, warrants to purchase an aggregate of 89,730 shares of our Common Stock at a price of $4.00 per share, and outstanding options granted under our 2019 Equity Compensation Plan to purchase 1,398,246 shares of Common Stock. In addition, there are 2,886,129 shares available to be issued in the future under the Amended and Restated 2019 Equity Compensation Plan. The exercise of such outstanding options and warrants, as well as any future issuance of other warrants and options, will result in substantial dilution of the investment of our shareholders. In addition, our shareholders may experience additional dilution if we issue Common Stock in the future for additional capital raises. Any of such dilution may have adverse effect on the price of our Common Stock.

 

There are a significant number of shares of Common Stock eligible for sale, which could depress the market price of such shares.

 

We previously filed a registration statement on Form S-1 (Registration No. 333-234741), which is currently effective registering the resale of a total of 1,794,977 shares of Common Stock, and a registration statement on Form S-1 (Registration No. 333-257178), which is currently effective registering the resale of a total of 1,341,355 shares of Common Stock. The availability of such a large number of shares of Common Stock for sale in the public market could harm the market price of the stock. Further, other shares may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect as well.

 

You will experience immediate and substantial dilution as a result of this offering.

 

As of September 30, 2021, our net tangible book value was approximately $3,714,000, or approximately $0.29 per share. Since the effective price per share of our Common Stock being offered in this offering is substantially higher than the net tangible book value per share of our Common Stock, you will suffer substantial dilution with respect to the net tangible book value of the Common Stock that you purchase in this offering. Based on the assumed public offering price of $[ ] per share being sold in this offering and our net tangible book value per share as of September 30, 2021, if you purchase shares of Common Stock in this offering, you will suffer immediate and substantial dilution of $[ ] per share (or $[ ] per share if the underwriters exercise the over-allotment option to purchase additional shares of common stock in full) with respect to the net tangible book value of the Common Stock. See the section titled “Dilution” for a more detailed discussion of the dilution you will incur if you purchase securities in this offering.

 

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We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could make our Common Stock less attractive to investors.

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an “emerging growth company,” we have chosen to take advantage of the extended transition period for complying with new or revised accounting standards, which will allow us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. Accordingly, our financial statements may not be comparable to companies that comply with all public company accounting standards which could impact the valuation of our securities.

 

We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. We cannot predict if investors will find our Common Stock less attractive if we choose to rely on these exemptions. If some investors find our Common Stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

 

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company particularly after we are no longer an “emerging growth company.”

 

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. We are just beginning the process of compiling the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. In that regard, we currently do not have an internal audit function, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.

 

However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an “emerging growth company.”

 

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After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

 

We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

 

Our officers and directors have significant control over shareholder matters.

 

Our officers and directors own, or can own subject to exercise within a 60-day period from the date hereof, approximately 46.95% of the Company’s outstanding Common Stock, and thus collectively have significant control over shareholder matters, such as election of directors, amendments to our Articles of Incorporation, and approval of significant corporate transactions. As a result, the Company’s minority shareholders may have little or no effective control over our affairs.

 

Our officers have broad discretion in the use of proceeds.

 

The executive officers of the Company will have broad discretion in allocating the net proceeds of the offering, including for any of the purposes described in the section entitled “Use of Proceeds”, which creates uncertainty for shareholders and could adversely affect the Company’s business, prospects, financial condition and results of operations. You will not have the opportunity as part of your investment decision to assess whether our management is using the net proceeds appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. Because of the number and variability of factors that will determine our use of our net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Pending their use, we may invest our net proceeds from this offering in short-term, investment-grade, interest-bearing securities. The net proceeds may be used for corporate or other purposes with which you do not agree or that do not improve our profitability or increase our share price. The net proceeds from this offering may also be placed in investments that do not produce income or that lose value.

 

We do not currently intend to pay dividends on our Common Stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Stock.

 

We have never declared or paid cash dividends on our Common Stock and do not anticipate paying any cash dividends to holders of our Common Stock in the foreseeable future. Consequently, investors must rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

 

Upon dissolution of the Company, you may not recoup all or any portion of your investment.

 

In the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets of the Company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be distributed to the stockholders of Common Stock on a pro rata basis. There can be no assurance that we will have available assets to pay to the holders of Common Stock, or any amounts, upon such a liquidation, dissolution or winding-up of our Company. In this event, you could lose some or all of your investment.

 

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our securities could be negatively affected.

 

Any trading market for our Common Stock may be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our securities could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price and market trading volume of our securities could be negatively affected.

 

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We are authorized to issue “blank check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our securities.

 

Our certificate of incorporation authorizes us to issue up to 5,000,000 shares of blank check preferred stock. Any preferred stock that we issue in the future may rank ahead of our securities in terms of dividend priority or liquidation premiums and may have greater voting rights than our securities. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of Common Stock, which could dilute the value of our securities to current stockholders and could adversely affect the market price, if any, of our securities. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. Although we have no present intention to issue any shares of authorized preferred stock, there can be no assurance that we will not do so in the future.

 

USE OF PROCEEDS

 

We estimate that the net proceeds to us from this offering will be approximately $[●], after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, we estimate that our net proceeds will be approximately $[●], after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We plan to use the net proceeds from this offering for general corporate purposes, including working capital, capital expenditures and operating expenses. We will have broad discretion over how to use the remaining proceeds from this offering. The foregoing represents our current intentions to use and allocate the net proceeds of this offering based upon our present plans and business conditions. Our management, however, will have broad discretion in the way that we use the net proceeds of this offering. See “Risk Factors— Risk Related To Our Common Stock - Our officers have broad discretion in the use of proceeds.”

 

The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. We have not yet determined the exact amount of net proceeds to be used specifically for any particular purpose or the timing of these expenditures. Pending their use, we intend to invest the net proceeds to us from this offering in short-term and long-term, investment-grade, interest-bearing instruments.

 

DIVIDEND POLICY

 

We have never paid any cash dividends on our Common Stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors deems relevant. In addition, the terms of any future debt or credit financings may preclude us from paying dividends.

 

CAPITALIZATION

 

The following table sets forth our cash and our capitalization as of September 30, 2021:

 

● on an actual basis;
   
on a pro forma basis to reflect the sale of [ ] shares by us in this offering at an assumed price to the public of $[ ] per share, resulting in net proceeds to us of $[ ] after deducting (i) underwriter commissions and non-accountable expenses of $[ ] and (ii) our estimated other offering expenses of $[ ]; and
   

  

on a pro forma basis to reflect the sale of [ ] shares by us in this offering, assuming the underwriters elect to exercise the over-allotment option in full, at an assumed price to the public of $[ ] per share, resulting in net proceeds to us of $[ ] after deducting (i) underwriter commissions and non-accountable expenses of $[ ] and (ii) our estimated other offering expenses of $[ ].

 

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The as adjusted information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the actual public offering price of our Common Stock and other terms of this offering determined at pricing.

 

You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock” and our financial statements and related notes included elsewhere in this prospectus.

 

   As of September 30, 2021:
(unaudited)
   Actual  Pro Forma  Post-Offering
Pro Forma
without
Over-Allotment
Option
  Post-Offering
Pro Forma with
Over-Allotment
Option
Cash and cash equivalents  $3,409,429   $    $    $  
Total liabilities  $781,336   $    $    $  
Shareholders’ equity:                    
Common stock, par value $0.0001 per share; 45,000,000 authorized shares, 12,726,911 shares issued and outstanding, actual; [●]authorized shares;[●] shares issued and outstanding, as adjusted (prior to this offering)   1,272                
Preferred stock, par value $0.0001 per share; 45,000,000 authorized shares, 0 share issued and outstanding, actual; [●] authorized shares; 0 share issued and outstanding, as adjusted (prior to this offering)                   
Additional paid-in capital   9,837,157                
Accumulated deficit   (6,123,934)               
Total shareholders’ equity   3,714,495                
Total liabilities and shareholders’ equity  $4,495,831   $    $    $  

 

If the underwriters exercise their over-allotment option in full, as adjusted cash additional paid-in capital, total stockholders’ equity, total capitalization and shares of Common Stock outstanding as of September, 2021 would be $[●], $[●], $[●] and [●] shares, respectively.

 

Except as otherwise indicated herein, the number of shares of Common Stock outstanding before this offering and that will be outstanding after this offering is based on 12,726,911 shares of Common Stock outstanding as of September 30, 2021 and excludes: (i) 155,966 shares of Common Stock underlying warrants, each exercisable at a price of $1.50 per share; (ii) 89,730 shares of our Common Stock underlying warrants, each exercisable at a price of $4.00 per share; and (iii) 1,398,246 shares of Common Stock issuable upon exercise of options granted under our 2019 Equity Compensation Plan.

  

DILUTION

 

If you invest in this offering, your ownership interest will be diluted to the extent of the difference between the public offering price per share of our Common Stock and the as adjusted net tangible book value per share of our Common Stock immediately after the closing of this offering.

 

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Our net tangible book value as of September 30, 2021 was approximately $3,714,000 or $0.29 per share. Net tangible book value per share is determined by dividing our total tangible assets, less total liabilities, by the number of shares of our Common Stock outstanding as of September 30, 2021. Dilution with respect to net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of Common Stock in this offering and the net tangible book value per share of our Common Stock immediately after this offering.

 

After giving effect to the sale of $[●] of shares of our Common Stock in this offering at the assumed offering price of $[ ], and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters’ over-allotment option in full, our as adjusted net tangible book value as of September 30, 2021 would have been approximately $[ ], or $[ ] per share. This represents an immediate increase in net tangible book value of $[ ] per share to existing stockholders. Investors purchasing our Common Stock in this offering will have paid $[ ] more than the as adjusted net tangible book value per share after this offering. The following table illustrates this on a per share basis:

 

Assumed public offering price per share           $ [ ]  
Net tangible book value per share as of September 30, 2021   $ 0.29          
Increase per share attributable to new investors   $ [ ]          
As adjusted net tangible book value per share after this offering   $ [ ]          
As adjusted net tangible book value per share to investors purchasing shares in this offering           $ [ ]  
Dilution in net tangible book value per share to new investors           $ [ ]  
Dilution as a percentage of purchase price in the offering              [ ] %

 

If the underwriters exercise their over-allotment option in full in this offering, the as adjusted net tangible book value after the offering would be $[ ] per share, the increase in as adjusted net tangible book value per share to existing stockholders would be $[ ] per share and the dilution per share to new investors would be $[ ] per share, in each case assuming a public offering price of $[ ] per share.

 

Except as otherwise indicated herein, the number of shares of Common Stock outstanding before this offering and that will be outstanding after this offering is based on 12,726,911 shares of Common Stock outstanding as of September 30, 2021 and excludes: (i) 155,966 shares of Common Stock underlying warrants, each exercisable at a price of $1.50 per share; (ii) 89,730 shares of our Common Stock underlying warrants, each exercisable at a price of $4.00 per share; and (iii) 1,398,246 shares of Common Stock issuable upon exercise of options granted under our 2019 Equity Compensation Plan.

 

To the extent that any outstanding options or warrants are exercised, new options, warrants or restricted stock units are issued under our stock-based compensation plans, or new shares of preferred stock are issued, or we issue additional shares of Common Stock in the future, there will be dilution to investors participating in this offering.

 

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.” When used herein, unless the context requires otherwise, references to the “Company,” “we,” “our” and “us” refer to Odyssey Semiconductor Technologies, Inc., a Delaware corporation, collectively with its wholly-owned subsidiary, Odyssey Semiconductor, Inc, a Delaware corporation. Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated. Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.

 

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OVERVIEW

 

Odyssey Semiconductor Technologies, Inc. (the “Company”) was formed as a Delaware corporation on April 12, 2019. The Company acquired its wholly-owned subsidiary, Odyssey Semiconductor, Inc., a Delaware corporation (“Odyssey Semiconductor”), on June 21, 2019. Odyssey Semiconductor commenced business operations on June 17, 2019 when it acquired its wholly-owned subsidiary, JR2J LLC (“JR2J”), from its founders, Richard Brown and James Shealy, in exchange for shares of Odyssey Semiconductor.

 

We are a semiconductor device company developing revolutionary high-voltage power switching components and systems based on proprietary Gallium Nitride (GaN) processing technology. The premium power switching device market, which is described as applications where silicon-based (Si) systems perform insufficiently, is projected to reach over $3.5 billion by 2025 and is currently dominated by the semiconductor material silicon carbide (SiC). GaN-based systems outperform Si and SiC based systems in every way due to the superior material properties of GaN. However, GaN devices have, to-date proven difficult to process using standard semiconductor processing methods that are used to create Si and SiC based devices. We have developed a novel processing modification that allows GaN to be processed in a manner that for the first time, makes high voltage GaN power switching devices viably manufacturable. Our mission is to disrupt the rapidly growing premium power switching device market using our newly developed GaN high voltage power transistor for switching applications.

 

RECENT DEVELOPMENTS

 

On September 22, 2021, Alex Behfar resigned as our Chief Executive Officer, Chairman of the Board of Directors and a Director. On the same day, Richard Brown was appointed as our Interim Chief Executive Officer and John Edmunds as our Chairman. As of the date of such resignation, Mr. Behfar owned stock options to purchase 2,671,785 shares of Common Stock, of which 1,911,160 unvested options were forfeited.

 

On October 6, 2021, in connection with Mr. Behfar’s resignation, the Company entered into a separation agreement with Mr. Behfar. Pursuant to the separation agreement, among other things, Mr. Behfar agreed to certain waiver and release of claims in favor of the Company, and the Company agreed to pay Mr. Behfar certain severance consideration, including payment of three months of health insurance premium and acceleration of vesting of 25,000 non-qualified stock options (granted on September 25, 2019 and exercisable at $1.50 per share) which were to vest as of September 25, 2021.

 

Governmental Assistance

 

Paycheck Protection Program

 

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

 

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 was payable in 60 monthly installments of $3,300 commencing May 2022. On November 15, 2021, the entire loan balance was forgiven.

 

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Economic Injury Disaster Loan Advance

 

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

 

Tomkins County Area Development Loan

 

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

 

Equipment Loans

 

On August 21, 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 3, 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.

 

Consulting Service

 

On October 18, 2019, the Company entered into an exclusive two-year consulting agreement with Akash Systems, Inc. (“Akash”), pursuant to which the Company agreed to provide certain consulting services to Akash in connection with process development and fabrication of GaN-on-Diamond high-electron-mobility transistors and monolithic microwave integrated circuits. Pursuant to the agreement, Akash guaranteed to supply substrate wafers for the Company to process at least one wafer per month from the Company for a total of 24 wafers during the term of the agreement, at a price of $85,000 per wafer for the service. The Company delivered 2 processed wafers as of September 30, 2020, after which Akash did not provide substrate wafers with satisfactory quality to the Company for processing and the contract expired as of October 18, 2021.

 

COMPONENTS OF OUR RESULTS OF OPERATIONS

 

Revenues

 

Our revenues are derived from contracts with customers that require us to design, develop, manufacture, test and integrate complex equipment and to provide engineering and technical services according to customer specifications. These contracts are often priced on a time and material type basis. Revenues on time and material type contracts are generally recognized in each period based on the amount billable to the customer which is based on direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of materials and other direct non-labor costs. We bill customers based upon contractual terms, and accordingly, we have deferred revenues and contract assets depending upon whether we can bill in advance of earnings or in arrears, respectively.

 

Cost of Revenues

 

Cost of revenues consist of material, labor, a portion of occupancy expenses, and other expenses directly related to our revenue contracts.

 

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Research and Development

 

Research and development includes expenses, primarily material, labor, a portion of occupancy expenses, and other expenses incurred in connection with the research and development of certain exploratory projects. Research and development expenses are expensed as they are incurred.

 

Selling, General, and Administrative

 

Selling, general, and administrative expenses consist of salaries, payroll taxes and other benefits, legal and professional fees, stock-based compensation, rent and office expenses, marketing and travel and other costs associated with our operation.

 

Other Income

 

Other income (expense) consists primarily of interest income on cash balances, and other miscellaneous items.

 

RESULTS OF OPERATIONS

 

Nine months ended September 30, 2021 compared with nine months ended September 30, 2020

 

Overview

 

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

 

   For The Nine Months Ended September 30  Difference $  Difference %
   2021  2020      
             
Revenues  $693,074   $1,102,071   $(408,997)   -37%
                     
Cost of Revenues   792,239    1,106,569   $(314,330)   -28%
                     
Gross Loss   (99,165)   (4,498)  $(94,667)   2105%
                     
Operating Expenses:                    
                     
Research and development   1,073,737    430,592   $643,145    149%
Selling, general, and administrative   1,658,944    869,643   $789,301    91%
                     
Total Operating Expenses   2,732,681    1,300,235   $1,432,446    110%
                     
Loss From Operations   (2,831,846)   (1,304,733)  $(1,527,113)   117%
                     
Other Income:                    
Forgiveness of PPP loan and other income   238,719    1   $238,718    1000%
Interest expense   (14,407)      $(14,407)    
                     
Net Loss  $(2,607,534)  $(1,304,732)  $(1,299,802)   100%

 

Revenues

 

Revenues for the nine months ended September 30, 2021 and 2020 were approximately $693,000 and $1,102,000, respectively, which represented a decrease of $409,000, or 37%. The timing of revenue recognition is driven by the completion of specified deliverables and the billing of time and materials over periods of time. Accordingly, the recognition of revenue for these contracts will vary from time to time. In the nine months ended September 30, 2021, we recognized substantially all of our revenue under three customer contracts. During the nine months ended September 30, 2020, the Company also recognized substantially all of our revenue from one of our government contract customers. The customer contracts with governmental entities have concluded. We have a few other customers and several outstanding proposals to new customers.

 

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Cost of Revenues

 

Cost of revenues for the nine months ended September 30, 2021 and 2020 were approximately $792,000 and $1,107,000, respectively, which represented a decrease of $314,000, or 28%. The base salary, facility and equipment usage fees to operate the fabrication facility during the 2021 and 2020 periods are allocated between research and development and cost of revenues based upon the specific projects worked on during the period. During the nine months ended September 30, 2021, we also incurred a loss of $60,000 on one government customer contract due to costs exceeding the contract revenues. We have operated at a gross loss for the past year as our revenues are not yet significant to cover our fixed costs of the facility.

 

Research and Development

 

Research and development expenses for the nine months ended September 30, 2021 and 2020 were approximately $1,074,000 and $431,000, respectively, which represented an increase of $643,000, or 149%. The increase was primarily attributable to an overall increase in our focus on research and development activities, which resulted in increased wage allocation of approximately $230,000 as well as increased rent, facility fees, equipment usage costs and general lab supplies.

 

General and Administrative

 

Selling, general, and administrative expenses for the nine months ended September 30, 2021 and 2020 were approximately $1,659,000 and $870,000, respectively, which represented an increase of $789,000, or 91%. The increase was primarily driven by an increase in stock-based compensation costs related to options granted to the Chief Executive Officer (including performance awards that related to the private placement that occurred in March 2021) and board members of approximately $866,000 as compared to the 2020 period. Legal and professional fees were approximately $254,000 in the 2021 period as compared to $336,000 for the 2020 period.

 

Other Income

 

Other income for the nine months ended September 30, 2021 includes the forgiveness of our PPP loan of $239,000. Other income (expense) for the nine months ended September 30, 2021 includes to the sale of miscellaneous tools, and in 2020 was insignificant.

 

Net (Loss) Income

 

Net (loss) income for the nine months ended September 30, 2021 and 2020 was approximately $(2,607,000) and $(1,304,000), respectively, which represented a decrease of $(1,303,000), or 100%. The decrease was primarily attributable to the increase in research and development and general and administrative expenses of approximately $1,432,000 driven in turn by an increase in non-cash stock compensation expense of $794,000.

 

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

 

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Overview

 

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

 

   For The three months Ended September 30,  Difference $  Difference %
   2021  2020      
             
Revenues  $174,952   $636,070   $(461,118)   -72%
                     
Cost of Revenues   47,969    495,915   $(447,946)   -90%
                     
Gross Profit   126,983    140,155   $(13,172)   -9%
                     
Operating Expenses:                    
Research and development   454,658    107,323   $347,335    324%
Selling, general, and administrative   403,441    339,090   $64,351    19%
                     
Total Operating Expenses   858,099    446,413   $411,686    92%
                     
Loss From Operations   (731,116)   (306,258)  $(424,858)   391%
                     
Other Income:                    
Forgiveness of PPP loan and other income   25,013       $25,013     
Interest expense   (4,560)   -893   $(3,667)   411%
Net Loss  $(710,663)  $(307,151)  $(403,512)   131%

 

 Revenues

 

Revenues for the three months ended September 30, 2021 and 2020 were approximately $175,000 and $636,000, respectively, which represented a decrease of $461,000, or 72%. We had several clients as of September 30, 2020 and two government contracts with clients concluded as of September 30, 2021. The timing of revenue recognition is driven by the completion of specified deliverables and the billing of time and materials over periods of time. Accordingly, the recognition of revenue for these contracts will vary from time to time. In the three months ended September 30, 2021 and 2020, we recognized 0% and 88% respectively of our revenue under one of these government contracts. The government contracts concluded prior to September 30, 2021.

 

Cost of Revenues

 

Cost of revenues for the three months ended September 30, 2021 and 2020 were approximately $48,000 and $496,000, respectively, which represented a decrease of $448,000, or 90%. The decrease was attributable to decrease labor and allocated facilities costs associated with our client projects in 2021, as major client projects finished in earlier quarters.

 

Research and Development

 

Research and development expenses for the three months ended September 30, 2021 and 2020 were approximately $455,000 and $107,000, respectively, which represented an increase of $347,000, or 324%. The increase was primarily attributable to an overall increase in our focus on research and development activities, which resulted in increased wage allocation as well as increased rent, facility fees, equipment usage costs and general lab supplies.

 

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General and Administrative

 

Selling, general, and administrative expenses for the three months ended September 30, 2021 and 2020 were approximately $403,000 and $339,000, respectively, which represented an increase of $64,000, or 19%. The 2021 period had an increase of approximately $192,000 in stock-based compensation due to awards issued to the then Chief Executive Officer and board members as compared to $56,000 in the corresponding 2020 period.

 

Other Income

 

Other income (expense) for the three months ended September 30, 2021 and 2020 was insignificant.

 

Net (Loss) Income

 

Net (loss) income for the three months ended September 30, 2021 and 2020 was approximately $(711,000) and $(307,000), respectively, which represented a decrease of $(404,000), or 131%. The increase in the loss was primarily attributable to the increase in research and development and general and administrative expenses of approximately $412,000 – driven in part by an increase of $82,000 in stock compensation expense.

 

Year ended December 31, 2020 Compared with year ended December 31, 2019

 

Overview

 

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

 

   For the year ended      
   December 31,  Change  Change %
   2020  2019      
Revenues  $1,374,420   $719,851   $654,569    91%
                     
Cost of Revenues   1,453,005    589,641    863,365    146%
                     
Gross (Loss) Profit   (78,585)   130,211    (208,796)   (160)%
                     
Operating Expenses:                    
Research and development   607,148    155,527    451,622    290%
Selling, general, and administrative   1,354,069    1,434,089    (80,020)   (6)%
                     
Total Operating Expenses   1,961,217    1,589,616    371,602    23%
                     
(Loss) Income from Operations   (2,039,802)   (1,459,405)   (580,397)   40%
                     
Other Income:                    
Interest income (expense), net   (3,306)   1,236    (4,542)   (367)%
                     
Net (Loss)  $(2,043,108)  $(1,458,169)  $(584,939)   40%

 

Revenues

 

Revenues for the year ended December 31, 2020 and 2019 were approximately $1,374,000 and $720,000, respectively, which represented an increase of $654,000, or 91%. We had two principal clients as of December 31, 2020 (Akash and the government contract) as well as several smaller clients. The timing of revenue recognition is driven by the completion of specified deliverables and the billing of time and materials over periods of time. Accordingly, the recognition of revenue for these contracts will vary from time to time. In both the years ended December 30, 2020 and 2019, we recognized 93% and 28% of our revenue from these two principal clients. The Company remainder of the revenue recognized for both the years ended December 31, 2020 and 2019 was for delivery of products to other clients.

 

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Cost of Revenues

 

Cost of revenues for the year ended December 31, 2020 and 2019 were approximately $1,453,000 and $590,000, respectively, which represented an increase of $863,000, or 146%. The increase was attributable to increased labor costs and supplies associated with our revenue generating projects in the 2020 period. Also, there was an increase in facility and equipment usage fees during the 2020 period as compared to the 2019 period in order to support the same revenue generating projects and reflect the increased infrastructure built over the past few quarters. We also shift personnel from client projects to internal research and development projects depending on the timing of client deliverables. We do not yet have a sufficient volume of client projects to fully utilize all of the fixed and variable operating expenses of the facility booked, thereby generating a gross loss for 2020.

 

Research and Development

 

Research and development expenses for the year ended December 31, 2020 and 2019 were approximately $607,000 and $156,000, respectively, which represented an increase of $451,000, or 289%. The increase was primarily attributable to an overall increase in our focus on research and development activities, which resulted in increased wage allocation as well as increased rent, facility fees, equipment usage costs and general lab supplies.

 

General and Administrative

 

Selling, general, and administrative expenses for the year ended December 31, 2020 and 2019 were approximately $1,354,000 and $1,434,000, respectively, which represented a decrease of $80,000, or 6%. The 2020 period expense was primarily attributable to payroll and employee related expenses, and legal and professional fees. During 2020, the Company also wrote-off approximately $111,000 in previously deferred offering costs, as a component of general and administrative expenses. In 2019, the Company subcontracted all of our labor and did not have employees until September 2019, however there was a non-cash charge of approximately $525,000 related to a stock-based compensation charge. By comparison, the total non-cash compensation expense was approximately $623,000 for the year ended December 31, 2020 compared to $571,000 during the year ended December 31, 2019. During the 2019 period, the Company also incurred significant costs associated with the reverse recapitalization transaction. The Company has attempted to carefully manage general and administrative expenses.

 

Other Income (expense)

 

Other income (expense) for the year ended December 31, 2020 was primarily attributable to interest on the government loans, while in 2019 other income (expense) was insignificant.

 

Net (Loss) Income

 

Net (loss) income for the year ended December 31, 2020 and 2019 was approximately $(2,043,000) and $(1,458,000), respectively, which represented an increase of $(585,000), or 40%. The decrease was primarily attributable to an increase in research and development expenses of approximately $451,000 and a decrease in gross profit of $209,000 due to the faster growth of fixed costs as compared to the growth in revenues, partially offset by an $80,000 decrease in general and administrative costs. This reflects the establishment of the fabrication lab and increased emphasis on internal research projects.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity

 

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

 

   September 30, 2021  December 31, 2020
Cash  $3,409,429   $273,000 
Working Capital  $3,271,191   $63,000 

 

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As of September 30, 2021, we had cash and working capital of $3,409,429 and $3,271,191, respectively. We received approximately $194,000 in funding from the PPP2 government loan in February 2021, which was forgiven on November 15, 2021. We expect our current cash on hand to be sufficient to meet our operating and capital requirements for at least the next twelve months from the date of this filing. Thereafter, we may need to raise further capital, through the sale of additional equity or debt securities, to support our future operations. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures as well as research and development. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve our cash.

 

Our sources and uses of cash were as follows:

 

Net cash (used in) provided by operating activities for the nine months ended September 30, 2021 and 2020 was approximately $(1,665,000) and $(583,000), respectively. Net cash used in operating activities for the nine months ended September 30, 2021 includes cash used to fund a net loss of approximately $2,608,000, reduced by $1,037,000 of non-cash expenses, and reduced by $95,000 of net cash provided by changes in the levels of operating assets and liabilities.

 

Net cash provided by operating activities for the nine months ended September 30, 2020 included cash provided by net loss of approximately $(1,304,000) partially offset by $402,000 of non-cash expenses and reduced by $319,000 of net cash used in changes in the levels of operating assets and liabilities.

 

Net cash used in investing activities for the nine months ended September 30, 2021 and 2020 was approximately $(33,000) and $(610,000), respectively. Net cash used in investing activities for the nine months ended September 30, 2020 was primarily attributable to the purchase property and equipment, and leasehold improvements in the laboratory.

 

Net cash provided by financing activities for the nine months ended September 30, 2021 and 2020 was approximately $4,834,000 and $869,000, respectively. Net cash used in financing activities for the nine months ended September 30, 2021 was primarily attributable to expenditures to the private placement of our common stock which yielded approximately $4.6 million in net proceeds, and the proceeds from the PPP2 loan and proceeds from the exercise of stock options. Net cash used in financing activities for the nine months ended September 30, 2020 was primarily attributable proceeds under government loan programs of $684,000 and proceeds from the exercise of stock options of $231,000.

 

CRITICAL ACCOUNTING POLICIES

 

Our critical accounting policies are included in Note 2 of our financial statements included elsewhere in this registration statement.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

Our recently issued accounting standards are included in Note 2 of our financial statements included elsewhere in this registration statement.

 

BUSINESS

 

Background

 

Odyssey Semiconductor Technologies, Inc. (the “Company”), formed as a Delaware corporation on April 12, 2019, is a semiconductor device company developing revolutionary high-voltage power switching components and systems based on proprietary Gallium Nitride (GaN) processing technology. The Company acquired its wholly-owned subsidiary, Odyssey Semiconductor, Inc., a Delaware corporation (“Odyssey Semiconductor”), on June 21, 2019. Odyssey Semiconductor commenced business operations on June 17, 2019 when it acquired its wholly-owned subsidiary, JR2J LLC (“JR2J”), from its founders Richard Brown and James Shealy in exchange for shares of Odyssey Semiconductor.

 

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Overview of The Semiconductor Industry

 

The semiconductor industry was formed in 1960 when the production of semiconductors became a viable option. The global semiconductor market has grown rapidly, from over $1 billion in 19641 to $425.96 billion in 2020 and projected to grow to $803.15 billion by 20282.

 

The application of semiconductors has expanded extensively from radio in the 1960s to crucial electronic components nowadays to all manufactured products with computing or power management capabilities, ranging from computers and personal electronics to automotive goods and heavy machinery. Semiconductor devices mounted inside many electronics appliances are important electronic components that support our everyday lives.

 

Integrated circuits (ICs) and electronic discrete components such as diodes (which are two-terminal electronic components that conduct current primarily in one direction) and transistors (which are devices possessing an amplification function) are made of semiconductors.

 

The semiconductor industry is divided into six broad categories based on the end-use application:

 

  Data processing: This comprises chips used in servers, computers, printers, and related hardware. This is the largest segment where semiconductors are used. However, growth in this segment has moderated, and no breakthrough innovation is expected in the near future.
  Communications: This comprises chips used in wired and wireless communication equipment such as smartphones, tablets, and broadband equipment. This segment is growing at a faster pace.
  Consumer electronics: This comprises chips used in household appliances, LCD TVs, and gaming consoles.
  Industrial: This comprises chips used in scanning devices such as bar code scanners and point-of-sale terminals, medical devices such as patient monitors and ultrasound imaging, and power supply equipment.
  Automotive: This comprises chips used in electronic automotive components such as power steering and lighting.
  Military and civil aerospace: This is a specialized segment where integrated circuits related to a particular application are built.

 

Advantage and Market Focus of the Company

 

Semiconductors are materials which have a conductivity between conductors (generally metals), which has full conductivity, and nonconductors or insulators (such as most ceramics), which has negligible conductivity. The conductivity of a semiconductor material may be altered in useful ways by the deliberate, controlled introduction of impurities into the crystal structure of the material to modulate its electrical, optical and structural properties. This process is known as “doping”.

 


1 Pines, Lawrence. \Who Are Advanced Micro Devicesf Main Competitors?. Investopedia. Accessed September 30, 2019. https://www.investopedia.com/articles/markets/041816/who-are-advanced-micro-devices-main-competitors-amd.asp
2 https://www.fortunebusinessinsights.com/semiconductor-market-102365
 

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Silicon (Si) is traditionally the most common semiconductor material. However, Si-based systems have proven to perform inadequately. We described the applications where Si-based systems perform inadequately as the premium power switching device market, which was $571 million in 2018 and is projected to pass $5 billion by 2029.3 This growth is largely driven by the rapid adoption of electric vehicles (EV) and hybrid electric vehicles (HEV) and the growing number of installations of renewables such as solar and wind power as well as increased demand for more efficient industrial motor drives.

 

The premium power switching device market is currently dominated by the semiconductor material silicon carbide (SiC). GaN-based systems outperform Si and SiC based systems in every way due to the superior material properties of GaN. However, GaN devices have, to-date proven difficult to process using standard semiconductor processing methods that are used to create Si and SiC based devices. While GaN can be implanted with ions through doping process like any other semiconductor, unlike Si or SiC, the temperature required to activate the ions in GaN destroys the crystal, making implant and activate scheme impractical in the GaN material. The Company has developed proprietary technology that allows activation of dopants in the GaN. This proprietary technology allows GaN to be processed in a manner that for the first time makes high voltage GaN power switching devices viably manufacturable.

 

The Company expects that its GaN power products will completely overlap the current market for SiC power switching market. Furthermore, the Company expects that its GaN power products will exceed switching speeds and operating voltages currently attainable reliably with SiC.

 

GaN is both less expensive to produce and offers significant performance advantages over SiC in system efficiency and system size. Currently there are no GaN devices in the market with ratings more than 1,000 V, which will be our strength area, however, our products will address voltages as low as 650 V.

 

 

  

What Is A Switch-Mode Power Converter

 

Broadly speaking, switch-mode power converters are used to efficiently transform one voltage to another for the purpose of supplying power to and from different systems.

 

Simple case - Power converter (brick) converts power at 120 V wall plug to power to 18.5 V to safely charge laptops/phones:

 


3 Omdia: \GaN & SiC power semiconductor markets set to pass $1 billion mark in 2021. published July 22, 2020 

 

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Advanced case - Power converters charge 400 V batteries from 120 V wall plug / Power motor at 400 V from variable battery voltage / Charge batteries from regenerative braking to 400 V:

 

 

 

What Is A Power Switch

 

A power switch is a semiconductor device that can switch large voltages and currents at high frequency. It is the heart of any power converter. An ideal power switch presents little resistance in the “on” state, infinite resistance in the “off” state, and can switch between “on” and “off” at high speed with no stored charge.

 

Different semiconductor materials are better suited to making power switches. For a given operating voltage, GaN is 1000 times less resistive than Si, and 10 times less resistive than SiC. Lower resistance results in switches that reduce power loss. Moreover, GaN devices take up less area than Si or SiC, which lowers their capacitance, which allows a faster system switching speed.

 

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Inductors and transformers typically are the largest components in the system. GaN based solutions are approximately 1/4 of the size of SiC based solutions. Smaller passive components are cheaper than larger variants because of the requirement of less materials such as copper.

 

The system size of a power converter is inversely related to the switching speed at which it operates. As switching speed increases, the size of the surrounding passive components become much smaller. GaN power converter circuits are approximately 4x smaller than SiC solutions for equivalent power ratings.

 

 

 

Examples of Passive Components Accompanying Switches

 

Furthermore, replacing SiC devices with GaN devices has the potential to reduce power loss by 40-70% compared to SiC. The diagram below compares the level of power losses with the use of Si, Sic and GaN based systems:

 

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In summary, GaN-based solutions are smaller in size, cost less and yield greater efficiency comparing to Si-based or SiC-based solutions.

 

Comparing SiC and GaN Solutions for EVs

 

Our proprietary vertically conducting GaN devices are approximately 10 times smaller in chip size compared to devices fabricated from SiC, since the resistance of GaN is approximately one-tenth of that of SiC. As such, the cost of making vertically conducting devices are significantly lower than SiC devices.

 

 

 

The Company expects that a significant market exists for GaN solutions, especially in the EV market. For example, there are 24 units of SiC metal-oxide-semiconductor field-effect transistor (MOSFET) used in each Tesla Model 3 module. There were over 800,000 Tesla Model 3 units delivered as of December 2020, which represents about 19,200,000 SiC MOSFETs. It is estimated that by 2025 each year there will be approximately 8.4 million EVs and 25 million HEVs to be sold.4

 

In November 2020, Yole provided the following forecast on the power SiC market that the market is growing at a 30% Compound Annual Growth Rate (CAGR) and will grow to $2.5 billion by 2025. The largest segment in this market is for automotive (e.g., EV) and estimated to be $1.55 billion in 2025. Our products will completely overlap those of SiC power devices and as such, our Total Available Market will be at least equal that of the power SiC market.

 


4 https://www.jpmorgan.com/global/research/electric-vehicles

 

47

 

 

Competition and Challenges

 

There are many horizontal-conduction (meaning the current flows horizontally, along the surface of the wafer), high-electron-mobility transistor (HEMT) products emerging from industry. HEMT transistors are able to operate at higher frequencies than ordinary transistors, up to millimeter wave frequencies, and are used in high-frequency products such as cell phones, satellite television receivers, voltage converters, and radar equipment. However, horizontal-conduction device technology has difficulty scaling beyond 650 V.

 

 

 

In contrast to horizontal-conduction devices, vertical-conduction (meaning the current flows from the top surface of the wafer to the bottom surface) devices could easily have scaling beyond 650 V; however, there are currently few discrete parts available with ratings above 650 V, and none above 1,000 V. The Company believes it is uniquely poised to enter into the >1,000 V device market and above with its vertical conduction device technology.

 

 

 

Demonstration of Vertical Conduction

 

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We expect that our competitors will include a number of larger companies, particularly in the SiC area (such as STMicro, WolfSpeed, Texas Instruments (TI), Infineon, On Semiconductor, and etc.) which have more substantial research and development budgets than us. Even smaller companies which are more targeted in their development efforts, such as Nexgen Power Systems, Inc., may be our potential competitors. If we are unable to compete effectively with our competitors, our products or technologies may be rendered obsolete or noncompetitive, which could materially adversely affect our business and results of operations.

 

Intellectual Property

 

The Company had filed three patent applications related to its technology. These are patent application numbers: 16/813337; 16/813362; and 16/814886.

 

The Company is continuing to actively prepare and submit new patent applications based on its proprietary technology. Furthermore, the Company continues to perform research and development that will likely result in additional patent applications in the future.

 

Research & Development, and Commercialization of Our Technology

 

We perform research and development on GaN power switching devices as well as provide consulting services to third parties with regard to similar foundry processing which may involve materials other than GaN. We plan to meet the following milestones for the commercialization of our GaN technology:

 

  From inception to 2021:

 

  o Continue developing medium to high voltage GaN-based vertical conduction devices

 

  o Confirm specifications and packaging plans for samples of first product with customers

 

  o Write and submit patent applications

 

  2022:

 

  o Complete initial development of first GaN-based vertical conduction product
     
  o Continue to write and submit patent applications
     
  o Provide customers with engineering samples of first product
     
  o Hire new CEO and develop sales and marketing capability
     
  o Ship first GaN-based vertical conduction product to customers (first quarter of 2022)
     
  o Start qualifications under qualified under Joint Electron Device Engineering Council (“JEDEC”) standards

 

  o Provide customers with engineering samples of second product

 

  From 2023:

 

  o Expand the production of the first product

 

  o Ship second product

 

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 We plan to market our products in the following market verticals:

 

  Industrial motor drives: It is estimated that motor drives consume 45% of all power generated in the world.5 Energy consumption can be drastically reduced by using variable-frequency drives (VFDs) on induction motors. The compound annual growth rate (CAGR) of the VFD market is estimated to be 6.7% to 2025, by which year the market size of the market is estimated to be $33.1 billion.6

 

  EV / HEV power systems: It is projected that electric vehicles will account for over 22% of all vehicle sales by 2030.7 We estimate that adoption of GaN-based drive systems could potentially increase efficiency by 15%. The CAGR of the EV power electronics market is estimated to be 4.48% from 2017-2022, and the market size is estimated to be $5.49 billion by 2022.8

 

  Grid connected renewable power systems: Solar power accounted for 29% of all new electric generating capacity brought online in 2018.9 We believe that GaN-based power conversion systems will reduce system size and increase efficiency and reliability. The CAGR of the Photovoltaic (PV) power electronics market is estimated to be 3.9% by 2026 with a market share of $10.37 billion.10

 

 The Company has incurred $607,148 in research expenses during the year ended December 31, 2020.

 

Employees

 

As of September 30, 2021, we have 11 full time employees and 1 part-time employee. No employees are subject to collective bargaining agreements.

 

Principal Offices

 

Our principal offices are located at 9 Brown Road, Ithaca, NY 14850.

 

We lease one (1) 10,000 sq.ft. facility in the State of New York for our operations. Our lease expires on November 30, 2025.

 

MANAGEMENT

 

Executive Officers and Directors

 

All directors hold office for one-year terms until the election and qualification of their successors. Officers are appointed by our board of directors and serve at the discretion of the board, subject to applicable employment agreements. The following table sets forth information regarding our executive officers and the members of our board of directors.

  


5 CleanTechnica. \Electric Motors Use 45% of Global Electricity, Europe Responding {+ Electric Motor Efficiency Infographic},. June 16, 2011.

https://cleantechnica.com/2011/06/16/electric-motors-consume-45-of-global-electricity-europe-responding-electric-motor-efficiency-infographic/.

6 https://www.grandviewresearch.com/industry-analysis/variable-frequency-speed-drives-vfd-vsd-market 7https://www.prnewswire.com/in/news-releases/electric-vehicles-market-sales-will-surge-to-4-million-units-in-2020-12-million-units-in-2025-and-21-million-units-in-2030-858019212.html

8 https://www.marketsandmarkets.com/Market-Reports/automotive-power-electronics-market-226516353.html

9 https://www.seia.org/research-resources/solar-market-insight-report-2018-q3

10 https://www.prnewswire.com/news-releases/pv-inverter-market-size-worth-10-37-billion-by-2026-cagr-3-9-grand-view-research-inc-300902312.html

 

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Name   Age   Position
Richard Brown   39   Interim Chief Executive Officer, Chief Technical Officer and Director
         
James Shealy   65   Secretary and Treasurer
         
John Edmunds   64   Chairman of the Board and Director
         
Richard Ogawa   59   Director
         
Michael Thompson   64   Director

  

Richard Brown joined the Company as Chief Executive Officer, Chairman and a Director on June 21, 2019. He resigned from the positions of Chief Executive Officer and Chairman, and was appointed as Chief Technical Officer of the Company as of March 11, 2020. He was appointed our Interim Chief Executive Officer on September 13, 2021. He received his B.S., M.S., and Ph.D. from Cornell University, all in Electrical and Computer Engineering in 2004, 2007, and 2010, respectively. His Ph.D. research was focused on advanced dielectrics for the passivation of microwave AlGaN/GaN HEMTs. After graduation, he was a founding member of the company that became Avogy, Inc., where he worked on the development of vertical GaN power devices for 2 years. Prior to the founding of Odyssey Semiconductor, Inc., the wholly-owned subsidiary of the Company, he co-owned JR2J, LLC, a semiconductor device prototyping business, as well as working as a visiting scientist at Cornell University researching GaN based HEMTs. Mr. Brown has over 18 years of semiconductor device experience, most of it specializing in topics relating to GaN devices. We believe that Mr. Brown’s technical experience in the semiconductor industry and extensive knowledge of the Company from his current role as our Interim Chief Executive Officer and Chief Technical Officer qualify him to serve on our board of directors.

 

James Shealy has been Secretary and Treasurer of the Company since June 21, 2019. He is a co-founder of the Odyssey Semiconductor, Inc., the wholly-owned subsidiary of the Company, and JR2J. He received his BS from North Carolina State University in 1978, his M.S. from Rensselaer Polytechnic in 1980, and his Ph.D. from Cornell University in 1983. After earning his doctorate, Mr. Shealy held a dual appointment at Cornell University as a research associate and at General Electric as a principal staff scientist. In 1983 he co-founded, and has chaired, the biennial international workshop on OMVPE (organometallic vapor phase epitaxy), a technique used for growing semiconductor crystals. He joined the faculty in 1987 and is active in developing Cornell’s laboratory research in compound semiconductor materials and related graduate courses.

 

John Edmunds has been a Director and Chairman of the Audit Committee since June 22, 2021, and became Chairman of the Board since September 22, 2021. Mr. Edmunds served as Chief Financial Officer and Chief Accounting Officer of Inphi Corporation since January 2008. He previously served as Chief Financial Officer of Trident Microsystems, a semiconductor company, from June 2004 to January 2008. Mr. Edmunds also served as Senior Vice President and Chief Financial Officer for Oak Technology, Inc. from January 2000 until it was acquired by Zoran Corporation in August 2003. He continued to serve as Vice President of Finance for Zoran until June 2004. Mr. Edmunds started his career as a C.P.A. with Coopers & Lybrand in San Francisco and San Jose in 1980s. He holds a B.S. degree in finance and accounting from the University of California, Berkeley. We believe that Mr. Edmunds’ financial experience qualifies him to be Chairman of our Audit Committee and that his financial and technical experience in the semiconductor industry and his leadership roles in other technology companies qualify him to serve on our board of directors. Since September 2001, Mr. Edmunds has also been serving as the interim part-time Chief Financial Officer of Mythic Inc., a late stage private artificial intelligence semiconductor company called in Redwood City, California.

 

Richard Ogawa joined the Board of Directors of the Company on June 21, 2019 and joined our Audit Committee on June 22, 2021. Mr. Ogawa currently also serves on the board of directors of Amesite Inc., an SEC reporting company in the artificial intelligence software industry, since February 2018. He has been General Counsel at Inphi Corporation since Jan 2013, responsible for overseeing legal matters as well as corporate, intellectual property, and government affairs. Mr. Ogawa is a Registered United States Patent Attorney and a Member of the California State Bar with more than 25 years of experience specializing in technology companies. Prior to Inphi, from January 1993 to January 2010, he was a Partner at Townsend and Townsend and Crew, a law firm focused on intellectual property. He is the founder and owner of Ogawa Professional Corporation, his own law firm, focusing on startup companies. Since February 2008, he has been General Counsel for Soraa Laser Diode, Inc., a venture funded company by Khosla Ventures and acquired by Kyocera Corporation in 2022, and since December 2009 has been General Counsel for MCube, Inc., a venture funded company by Kleiner Perkins Caufield & Byers. He also held a variety of engineering and management positions at NEC Electronics from December 1984 to December 1992. He received a B.S. in Chemical Engineering from the University of California, Davis in 1984, and a J.D. from McGeorge George School of Law, University of the Pacific in 1991. We believe that Mr. Ogawa’s many years of legal expertise in technology companies qualifies him to serve on our board of directors and Audit Committee.

 

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Michael Thompson joined the Board of Directors of the Company on June 21, 2019. He received his B.S. in Applied Physics from CalTech in 1979 and M.S./Ph.D. degrees in Applied and Engineering Physics from Cornell in 1984. After completing his Ph.D, he joined the faculty in the Department of Materials Science at Cornell University continuing his work on the interaction of materials with intense laser sources. He has co-authored over 100 journal publications, is co-inventor on 25 patents, and has founded or co-founded three startup companies. He was the recipient of the 2009 SEMI Award for technical contributions to the semiconductor industry. For the past 28 years, Dr. Thompson’s research has focused extensively on the behavior of semiconductor materials under pulsed and continuous-wave laser exposure. In the late 1990’s, he was involved in the development of melt-annealing methods to fabricate thin-film transistors on glass and flexible substrates. Over the past decade, he helped to develop the use of CW lasers for non-melt laser annealing (LSA – Laser Spike Annealing) of ultra-shallow junctions in advanced VLSI nodes. His group currently is active in exploring new applications for LSA both within and beyond the microelectronics community. Areas of research include dopant activation and deactivation in compound semiconductors (InGaAs, GaN, GaO2), thin-film amorphous oxide semiconductors (IGZO), metastable phase formation in metallic glasses and complex oxides during LSA quench, mesoscale structuring of organic and inorganic materials in the millisecond timescale, and development of novel processes for EUV and DSA lithography. He is also currently the director of the ACCESS (AFRL Cornell Center for Epitaxial SolutionS) center focused on understanding fundamental materials issues in GaO2 power devices. We believe that Mr. Thompson’s extensive technical experience in the semiconductor industry qualifies him to serve on our board of directors.

 

Advisory Board Member

 

Name   Age   Position
Khurram Khan Afridi   55   Advisory Board Member

 

Khurram Khan Afridi was appointed as an Advisory Board Member of the Company as of June 7, 2021. Mr. Afridi is an Associate Professor of Electrical and Computer Engineering at Cornell University. He received a Bachelor of Science degree in electrical engineering from California Institute of Technology (1989), and Master of Science (1992) and PhD (1998) degrees in electrical engineering and computer science from Massachusetts Institute of Technology (MIT). His research interests are in power electronics and energy systems incorporating power electronic controls. Prior to joining Cornell, he was an Assistant Professor and the Goh Faculty Fellow at the University of Colorado (CU) Boulder (2014-2018), a visiting faculty at MIT’s EECS Department (2009-2014), and the Chief Operating Officer (2000-2010) and Chief Technology Officer (1997-2000) of Techlogix, Inc.. From 2004 to 2008 he led the development of LUMS School of Science and Engineering (SSE) as Project Director. He has also worked for the NASA Jet Propulsion Laboratory, Lutron Electrronics Co., Koninklijke Philips N.V (Philips), and Schlumberger Limited. He is an associate editor of the IEEE Journal of Emerging and Selected Topics in Power Electronics, and was the Technical Program Committee (TPC) chair for the IEEE Wireless Power Transfer Conference (WPTC) in 2015. He received the Carnation Merit Award from Caltech (1988), the BMW Scientific Award from BMW AG (1999), the Werner-von-Siemens Chair for Power Electronics from LUMS SSE (2008), the Dean’s Professional Progress Award from CU Boulder (2015), the ECEE Department Outstanding Overall Performance Award from CU Boulder (2016), and the National Science Foundation CAREER Award from NSF (2016). He is co-author of five IEEE prize papers.

 

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Significant Employee

 

In addition to the officers, directors and an advisory board member disclosed above, the Company also has the following significant employee:

 

Name   Age   Position
Alfred Schremer   64   Vice President of Research and Development

 

Alfred Schremer has 40 years of experience working in the field III-V semiconductors with applications in RF- and opto-electronics. He earned his PhD in Electrical Engineering from Cornell University, investigating various aspects of semiconductor laser physics, using lasers he fabricated from epitaxial materials he grew using facilities within the School of Electrical Engineering. He joined BinOptics Corporation at its inception in 2001, serving in various roles from Lab Manager to Director of Research, refining the etched facet laser processes which led to the enabling of low-cost wafer scale manufacturing of Fabry-Perot and distributed feedback lasers for the data and telecom markets. In December 2014, BinOptics was acquired by MACOM Technology Solutions Inc., where Mr. Schremer served as a Director of Engineering, supporting manufacturing and development of etched facet lasers.

 

Employment and Consulting Agreements

 

On July 1, 2019, through its wholly-owned subsidiary, Odyssey Semiconductor, the Company entered into an agreement with Al Schremer as Vice President of Research and Development. Pursuant to the agreement, the Company agreed to pay Mr. Schremer an annual salary of $100,000 and a one-time grant of options to purchase 100,000 shares of the Company’s Common Stock.

 

Other than Al Schremer, we have not entered into any other employment agreement with our management or significant employees.

 

On April 1, 2019, JR2J, our indirect wholly-owned subsidiary, entered into a one-year independent contractor agreement with Richard Ogawa, pursuant to which Mr. Ogawa agreed to serve as a director of the Company post-Share Exchange, and provide services related to intellectual property development, intellectual property strategies and licensing of intellectual property. This Agreement automatically renews for additional terms of one-year unless terminated in accordance with the Agreement. In consideration for Mr. Ogawa’s services to the Company, on September 25, 2019, the Company granted Mr. Ogawa a 10-year option under the 2019 Plan to purchase 275,000 shares of Common Stock at a price of $1.50 per share, half of which vested on September 25, 2020 and the balance of which vested on September 25, 2021.

 

On May 16, 2019, Odyssey Semiconductor, our wholly-owned subsidiary, entered into a one-year independent contractor agreement with Alex Behfar, pursuant to which Mr. Behfar agreed to serve as a director of the Company post-Share Exchange, and provide services related to corporate development and business strategy, and intellectual property strategies. In consideration for Mr. Behfar’s services to the Company, on September 25, 2019, the Company granted Mr. Behfar a 10-year option under the 2019 Plan to purchase 50,000 shares of Common Stock at a price of $1.50 per share, half of which vested on September 25, 2020 and the balance of which vested on September 22, 2021. Mr. Behar was appointed Chief Executive Officer on September 16, 2020. Mr. Behfar tendered his resignation as Chief Executive Officer, Chairman of the Board of Directors and Director of the Company, effective as of September 22, 2021.

 

On June 7, 2021, Khurram Khan Afridi was appointed as an Advisory Board Member to bring his extensive expertise in power systems to the Company and work with the Company in setting up the expectations from customers in areas such as electric vehicles and solar energy. Mr. Afridi agreed to be at the facility of the Company for one hour per week. In connection with such appointment, Mr. Afridi was granted 10-year options to purchase 50,000 shares of Common Stock at a price of $3.55 per share.

 

In connection with John Edmunds’s appointment as a Director and Chairman of Audit Committee of the Company on June 22, 2021, the Company agreed to pay Mr. Edmunds (i) an annual cash compensation of $20,000; (ii) a one-time grant on June 22, 2021 of non-qualified stock options under the Company 2019 Equity Compensation Plan to purchase 70,246 shares of Common Stock of the Company at $2.90 per share; (iii) an annual grant of non-qualified stock options under the 2019 Plan to purchase a number of shares of common stock of the Corporation that have a value of $60,000, calculated using the fair market value of Common Stock of the Company as determined by the Board as of the date of grant, with an exercise price equal to the closing bid price of Common Stock of the Company as of the date of grant; provided that Mr. Edmunds shall have served on the Board for at least six months prior to the date of grant; and (iv) reimbursement for reasonable out-of-pocket costs and travel expenses in connection with his attendance at meetings of the Board and Audit Committee.

 

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Legal Proceedings

 

There are no outstanding lawsuits or judgments against the Company or any consent decrees or injunctions to which the Company is subject or by which any of its assets are bound and there are no claims, proceedings, actions or lawsuits in existence, or to our knowledge threatened or asserted, against the Company or with respect to any of its assets that would materially and adversely affect the business, property or financial condition of the Company.

 

Corporate Governance

 

Governance Structure

 

We chose to appoint a separate Chairman of the Board who is not our Chief Executive Officer. Our board of directors has made this decision based on their belief that an independent Chairman of the Board can act as a balance to the Chief Executive Officer.

 

The Board’s Role in Risk Oversight

 

The board of directors oversees that the assets of our company are properly safeguarded, that the appropriate financial and other controls are maintained, and that our business is conducted wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities is the board’s oversight of the various risks facing our company. In this regard, our board seeks to understand and oversee critical business risks. Our board does not view risk in isolation. Risks are considered in virtually every business decision and as part of our business strategy. Our board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for our company to be competitive on a global basis and to achieve its objectives.

 

While the board oversees risk management, company management is charged with managing risk. Management communicates routinely with the board and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management.

 

Our board administers its risk oversight function as a whole by making risk oversight a matter of collective consideration. Much of this work has been delegated to committees, which will meet regularly and report back to the full board. The audit committee oversees risks related to our financial statements, the financial reporting process, accounting and legal matters, the compensation committee evaluates the risks and rewards associated with our compensation philosophy and programs, and the nominating and corporate governance committee evaluates risk associated with management decisions and strategic direction.

 

Independent Directors

 

Nasdaq’s rules generally require that a majority of an issuer’s board of directors must consist of independent directors. Our board of directors currently consists of four (4) directors, of which John Edmunds, Richard Ogawa and Michael Thompson are independent within the meaning of Nasdaq’s rules.

 

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Committees of the Board of Directors

 

Our board has established an audit committee with its own charter approved by the board. The board has also approved the establishment of a compensation committee and a nominating and corporate governance committee, each with its own charter approved by the board, to be effective as of the effective date of the registration statement of which this prospectus is a part. The committee charters have been filed as exhibits to the registration statement of which this prospectus is a part. Upon completion of this offering, we intend to make each committee’s charter available on our website at https://www.odysseysemi.com/.

 

In addition, our board of directors may, from time to time, designate one or more additional committees, which shall have the duties and powers granted to it by our board of directors.

 

Audit Committee

 

John Edmunds and Michael Thompson, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and Nasdaq’s rules. Mr. Edmunds currently serves on our audit committee as a member and the chairman. The board has also approved the appointment of Mr. Thompson on our audit committee, to be effective as of the effective date of the registration statement of which this prospectus is a part. Our board has determined that Mr. Edmunds qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.

 

The audit committee is responsible for, among other things: (i) retaining and overseeing our independent accountants; (ii) assisting the board in its oversight of the integrity of our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and regulatory requirements; (iii) reviewing and approving the plan and scope of the internal and external audit; (iv) pre-approving any audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to our independent auditors; (vi) reviewing with our chief executive officer and principal financial officer and independent auditors the adequacy and effectiveness of our internal controls; (vii) reviewing hedging transactions; and (viii) reviewing and assessing annually the audit committee’s performance and the adequacy of its charter.

 

Compensation Committee

 

John Edmunds and Michael Thompson, each of whom satisfies the “independence” requirements of Rule 10C-1 under the Exchange Act and Nasdaq’s rules, will serve on our compensation committee to be effective as of the effective date of the registration statement of which this prospectus is a part, with Mr. Edmunds serving as the chairman. The members of the compensation committee are also “outside directors” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and “non-employee directors” within the meaning of Section 16 of the Exchange Act. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers.

 

The compensation committee is responsible for, among other things: (i) reviewing and approving the remuneration of our executive officers; (ii) making recommendations to the board regarding the compensation of our independent directors; (iii) making recommendations to the board regarding equity-based and incentive compensation plans, policies and programs; and (iv) reviewing and assessing annually the compensation committee’s performance and the adequacy of its charter.

 

The charter of the compensation committee has been adopted by the board, to be effective as of the effective date of the registration statement of which this prospectus is a part.

 

Nominating and Corporate Governance Committee

 

Richard Ogawa and John Edmunds, each of whom satisfies the “independence” requirements of Nasdaq’s rules, will serve on our nominating and corporate governance committee, with Mr. Ogawa serving as the chairman. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.

 

The nominating and corporate governance committee will be responsible for, among other things: (i) identifying and evaluating individuals qualified to become members of the board by reviewing nominees for election to the board submitted by shareholders and recommending to the board director nominees for each annual meeting of shareholders and for election to fill any vacancies on the board; (ii) advising the board with respect to board organization, desired qualifications of board members, the membership, function, operation, structure and composition of committees (including any committee authority to delegate to subcommittees), and self-evaluation and policies; (iii) advising on matters relating to corporate governance and monitoring developments in the law and practice of corporate governance; (iv) overseeing compliance with the our code of business conduct; and (v) approving any related party transactions.

 

The charter of the nominating and corporate governance committee has been adopted by the board, to be effective as of the effective date of the registration statement of which this prospectus is a part.

 

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The nominating and corporate governance committee’s methods for identifying candidates for election to our board of directors (other than those proposed by our shareholders, as discussed below) will include the solicitation of ideas for possible candidates from a number of sources - members of our board of directors, our executives, individuals personally known to the members of our board of directors, and other research. The nominating and corporate governance committee may also, from time-to-time, retain one or more third-party search firms to identify suitable candidates.

 

In making director recommendations, the nominating and corporate governance committee may consider some or all of the following factors: (i) the candidate’s judgment, skill, experience with other organizations of comparable purpose, complexity and size, and subject to similar legal restrictions and oversight; (ii) the interplay of the candidate’s experience with the experience of other board members; (iii) the extent to which the candidate would be a desirable addition to the board and any committee thereof; (iv) whether or not the person has any relationships that might impair his or her independence; and (v) the candidate’s ability to contribute to the effective management of our company, taking into account the needs of our company and such factors as the individual’s experience, perspective, skills and knowledge of the industry in which we operate.

 

A shareholder may nominate one or more persons for election as a director at an annual meeting of shareholders if the shareholder complies with the notice and information provisions contained in our bylaws. Such notice must be in writing to our Company not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one-hundred-twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made or as otherwise required by the Exchange Act. In addition, shareholders furnishing such notice must be a holder of record on both (i) the date of delivering such notice and (ii) the record date for the determination of shareholders entitled to vote at such meeting.

 

Code of Business Conduct

 

We have adopted a code of business conduct that applies to all of our directors, officers and employees. Such code of business conduct addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations of the code.

 

A copy of the code of business conduct has been filed as an exhibit to the registration statement of which this prospectus is a part. We are required to disclose any amendment to, or waiver from, a provision of our code of business conduct applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure as well as by SEC filings, as permitted or required by applicable SEC rules. Any such disclosure will be posted to our website within four (4) business days following the date of any such amendment to, or waiver from, a provision of our code of business conduct.

  

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table presents information regarding the total compensation awarded to, earned by, or paid to our chief executive officer and the other most highly-compensated executive officers (other than the chief executive officer) who were serving as executive officers during the years ended December 31, 2021 and 2020.

 

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Name and Principal Position  Year  Salary
($)
  Bonus
($)
  Option Awards
($)(3)
  Non-equity 
incentive plan compensation
($)
  Nonqualified deferred compensation earnings 
($)
  All Other Compensation
($)
  Total
($)
Alex Behfar (1)   2021    20    0    0    0    0   0   20 
Former Chairman and Former Chief Executive Officer   2020    10    0    3,483,928    0    0   0   4,406,125 
Richard J. Brown (2)   2021    150,000    0    137,295    0    0   0   287,295 
Interim Chief Executive Officer and Chief Technical Officer   2020    150,000    0    0    0    0   0   150,000 
James R. Shealy   2021    60,000    0    109,836    0    0   0   169,836 
Secretary and Treasurer   2020    55,625    0    0    0    0   0   55,625 

 

(1) Mr. Behfar was appointed as the Company’s Acting Chief Executive Officer and Executive Chairman on March 11, 2020, and as Chief Executive Officer and Chairman on September 16, 2020. Mr. Behfar tendered his resignation as Chief Executive Officer, Chairman of the Board of Directors and Director of the Company, effective as of September 22, 2021. This table includes compensation paid to Mr. Behfar from January 1, 2020 to March 11, 2020 as a non-employee director, and for the remainder of 2020 as an executive officer and director. Mr. Behfar received $10.00 cash compensation earned in 2020. Starting January 1, 2021 until his resignation on September 22, 2021, he received a cash compensation of $1.00 per month.
   
(2) Mr. Brown was Chief Executive Officer and Chairman of the Company from June 21, 2019 to March 11, 2020, Chief Technical Officer since March 11, 2020, and also Interim Chief Executive Officer since September 13, 2021.
   

(3)

 

The amounts reported in the “Option Awards” column reflect the aggregate fair value of stock-based compensation awarded during the year computed in accordance with the provisions of FASB ASC Topic 718.

 

2019 Equity Compensation Plan

 

General

 

On June 18, 2019, our Board of Directors adopted an Equity Compensation Plan (the “2019 Plan”). The 2019 Plan was approved by the stockholders on the same day. On May 26, 2020, the Board of Directors and a majority of the Company’s shareholders approved an amendment to the 2019 Plan to (i) increase the number of shares of Common Stock authorized for issuance under the 2019 Plan from 1,326,000 to 2,500,000 shares; (ii) increase the maximum aggregate number of shares, options and/or other awards that may be granted to any one person during any calendar year from 500,000 to 1,300,000; and (iii) clarify the availability of cashless exercise as a form of consideration. On September 16, 2020, the Board of Directors and a majority of the Company’s shareholders approved the second amendment to the 2019 Plan to (i) increase the number of shares of Common Stock authorized for issuance under the 2019 Plan from 2,500,000 to 4,600,000; (ii) increase the maximum aggregate number of shares, options and/or other awards that may be granted to any one person during any calendar year from 1,300,000 to 2,950,000.

 

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As of the date hereof, a total of 4,360,656 options have been granted under the 2019 Plan, of which 1,398,246 options are outstanding, 315,625 options have been exercised. There are 2,886,129 shares are available to be issued in the future under the 2019 Plan.

 

The general purpose of the 2019 Plan is to provide an incentive to our employees, directors, consultants and advisors by enabling them to share in the future growth of our business. Our Board of Directors believes that the granting of stock options, restricted stock awards, unrestricted stock awards and similar kinds of equity-based compensation promotes continuity of management and increases incentive and personal interest in the welfare of our Company by those who are primarily responsible for shaping and carrying out our long range plans and securing our growth and financial success.

 

Our Board of Directors believes that the 2019 Plan will advance our interests by enhancing our ability to (a) attract and retain employees, consultants, directors and advisors who are in a position to make significant contributions to our success; (b) reward our employees, consultants, directors and advisors for these contributions; and (c) encourage employees, consultants, directors and advisors to take into account our long-term interests through ownership of our shares.

 

Description of the 2019 Equity Compensation Plan

 

The following description of the principal terms of the 2019 Plan, as amended, is a summary and is qualified in its entirety by the full text of the amended 2019 Plan, which was filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2020 filed on April 8, 2021.

 

Administration. The 2019 Plan will be administered by our Board of Directors. Our Board of Directors may grant options to purchase shares of our Common Stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of our Common Stock, performance shares, performance units, other cash-based awards and other stock-based awards. The Board of Directors also has broad authority to determine the terms and conditions of each option or other kind of equity award, adopt, amend and rescind rules and regulations for the administration of the 2019 Plan and amend or modify outstanding options, grants and awards.

 

EligibilityPersons eligible to receive options, stock appreciation rights or other awards under the 2019 Plan are employees, consultants, advisors and directors of our Company and our subsidiaries. As of the date hereof, 12 full-time employees, one part-time employee, and two non-employee directors are eligible to participate in the 2019 Plan. The Board of Directors may at any time and from time to time grant awards under the 2019 Plan to eligible persons on a discretionary basis.

 

Shares Subject to the 2019 PlanThe aggregate number of shares of Common Stock available for issuance in connection with options and awards granted under the 2019 Plan, as amended, is 4,600,000, subject to customary adjustments for stock splits, stock dividends or similar transactions. Incentive Stock Options may be granted under the 2019 Plan with respect to all of those shares. If any option or stock appreciation right granted under the 2019 Plan terminates without having been exercised in full or if any award is forfeited, or if shares of Common Stock are withheld to cover withholding taxes on options or other awards, the number of shares of Common Stock as to which such option or award was forfeited, or which were withheld, will be available for future grants under the 2019 Plan. The maximum aggregate number of shares of Common Stock with respect to one or more awards that may be granted to any employee, director or consultant during any calendar year shall be 2,950,000 and the maximum aggregate amount of cash that may be paid in cash during any calendar year with respect to one or more awards payable in cash shall be $200,000.

 

Terms and Conditions of Options. Options granted under the 2019 Plan may be either “incentive stock options” that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or “nonstatutory stock options” that do not meet the requirements of Section 422 of the Code. Incentive stock options may be granted only to employees. Each option grant will be evidenced by an award agreement that will specify the terms and conditions as determined by the Board of Directors. The Board of Directors will determine the exercise price of options granted under the 2019 Plan. The exercise price of stock options may not be less than the fair market value, on the date of grant, per share of our Common Stock issuable upon exercise of the option (or 110% of fair market value in the case of incentive options granted to a ten-percent stockholder).

 

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If on the date of grant the Common Stock is listed on a stock exchange or is quoted on the automated quotation system of Nasdaq, the fair market value shall generally be the closing sale price on the last trading day before the date of grant. If no such prices are available, the fair market value shall be determined in good faith by the Board of Directors based on the advice of a qualified valuation expert.

 

No option may be exercisable for more than ten years (five years in the case of an incentive stock option granted to a ten-percent stockholder) from the date of grant. Options granted under the 2019 Plan will be exercisable at such time or times as the Board of Directors prescribes at the time of grant. No employee may receive incentive stock options that first become exercisable in any calendar year in an amount exceeding $100,000.

 

Generally, the option price may be paid (a) in cash or by bank check, (b) through delivery of shares of our Common Stock having a fair market value equal to the purchase price, (c) through cashless exercise, or (d) a combination of these methods.

 

No option may be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime an option may be exercised only by the recipient. Options granted under the 2019 Plan will be exercisable at such time or times as the Board of Directors prescribes at the time of grant. No employee may receive incentive stock options that first become exercisable in any calendar year in an amount exceeding $100,000.

 

Stock Appreciation Rights. The Board of Directors may grant stock appreciation rights under the 2019 Plan in such amounts as the Board of Directors in its sole discretion will determine. Each stock appreciation right grant will be evidenced by an award agreement that will specify the terms and conditions as determined by the Board of Directors. The exercise price per share of a stock appreciation right will be determined by the Board of Directors, but will not be less than 100% of the fair market value of a share of our Common Stock on the date of grant. The maximum term of any SAR granted under the 2019 Plan is ten years from the date of grant. Generally, each SAR stock appreciation right will entitle a participant upon exercise to an amount equal to:

 

  the excess of the fair market value on the exercise date of one share of our Common Stock over the exercise price, multiplied by
     
  the number of shares of Common Stock covered by the stock appreciation right.

 

Payment may be made in shares of our Common Stock, in cash, or partly in Common Stock and partly in cash, all as determined by the Board of Directors.

 

Restricted Stock and Restricted Stock Units. The Board of Directors may award restricted common stock and/or restricted stock units under the 2019 Plan in such amounts as the Board of Directors in its sole discretion will determine. The Board of Directors will determine the restrictions and conditions applicable to each award of restricted stock or restricted stock units, as evidenced in an award agreement, which may include performance-based conditions. Dividends and other distributions with respect to restricted stock may be paid to the holder of the shares as and when dividends are paid to stockholders, unless otherwise provided in the award agreement. Unless the Board of Directors determines otherwise, holders of restricted stock will have the right to vote the shares.

 

Performance Shares and Performance Units. The Board of Directors may award performance shares and/or performance units under the 2019 Plan in such amounts as the Board of Directors in its sole discretion will determine. Each performance unit will have an initial value that is established by the Board of Directors on or before the date of grant. Each performance share will have an initial value equal to the fair market value of a share on the date of grant. The Board of Directors at its discretion will set performance objectives or other vesting provisions. The Board of Directors will determine the restrictions and conditions applicable to each award of performance shares and performance units, as evidenced in an award agreement.

 

Effect of Certain Corporate Transactions. In the event of a change in control (as defined in the 2019 Plan), the Board of Directors has the discretion and without the need for the consent of any recipient of an award to take the following actions as to an outstanding award: (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation; (ii) awards will terminate upon or immediately prior to the consummation of such change in control; (iii) outstanding awards will vest and become exercisable, or restrictions applicable to an award will lapse, in whole or in part prior to or upon consummation of such change in control, and terminate upon or immediately prior to the effectiveness of such change in control; (iv) an award is terminated in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such award; (v) an award is replaced with other rights or property selected by the Board of Directors in its sole discretion; or (vi) any combination of the foregoing.

 

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Amendment, Termination. The Board of Directors may at any time amend, alter, amend the terms of awards in any manner not inconsistent with the 2019 Plan, provided that no amendment shall adversely affect the rights of a participant with respect to an outstanding award without the participant’s consent. In addition, our board of directors may at any time amend, suspend, or terminate the 2019 Plan, provided that (i) no such amendment, suspension or termination shall materially and adversely affect the rights of any participant under any outstanding award without the consent of such participant and (ii) to the extent necessary to comply with any applicable law or stock exchange rule, the Company will obtain stockholder consent of amendment to the plan.

 

Tax Withholding

 

As and when appropriate, we have the right to require each optionee purchasing shares of Common Stock and each grantee receiving an award of shares of Common Stock under the 2019 Plan to pay any federal, state or local taxes required by law to be withheld.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table presents information regarding the outstanding options held by each of our directors and named executive officers as of December 31, 2021. None of our directors or named executive officers held any outstanding restricted stock unit or other equity awards as of December 31, 2021.

 

Option Awards
Number of Securities
Underlying Unexercised Options
Name  Grant
Date
  Exercisable
(#)
  Unexercisable
(#)
  Exercise price
($)
  Expiration
Date
                
Richard Ogawa  9/25/2019   275,000        $1.50  9/25/2029
Michael Thompson  11/5/2019   25,000        $1.50  11/5/2029
James Shealy  11/5/2019   11,583    18,417   $1.50  11/5/2024
Richard Ogawa  5/30/2021       50,000   $3.93   5/30/2031
Michael Thompson  5/30/2021       50,000   $3.93   5/30/2031
John Edmunds  6/16/2021       70,246   $2.90   6/16/2031
Richard Ogawa  12/30/2021   2,500    17,500   $1.77   12/30/2031
Michael Thompson  12/30/2021   2,500    17,500   $1.77   12/30/2031
John Edmunds  12/30/2021   2,500    17,500   $1.77   12/30/2031
Richard Ogawa  12/30/2021   2,917    32,083   $1.77   12/30/2031
John Edmunds  12/30/2021   1,667    18,333   $1.77   12/30/2031
Richard Brown  12/30/2021       100,000   $1.77   12/30/2026
James Shealy  12/30/2021       80,000   $1.77   12/30/2026
                      
total      323,667    471,579         

 

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The grant of options and other awards under the 2019 Plan is discretionary, and we cannot determine now the specific number or type of options or awards to be granted in the future to any particular person or group.

 

Director Compensation

 

The table below shows the compensation paid to our directors during the years ended December 31, 2021 and 2020.

 

Name  Year  Fees Earned or
Paid in Cash
  Option Awards(2)  Total
John Edmunds(1)   2021   $   $ 196,428    $196,428 
    2020   $   $    $ 
Richard Ogawa   2021   $   $ 216,195    $216,195 
    2020   $   $    $ 
Michael Thompson   2021   $   $ 159,449    $159,449 
    2020   $   $    $ 

 

(1)John Edmunds was appointed onto the Board on June 22, 2021. He was not a director of the Company during 2020.
(2)The amounts reported in the “Option Awards” column reflect the aggregate fair value of stock-based compensation awarded during the year computed in accordance with the provisions of FASB ASC Topic 718.

 

On April 1, 2019, JR2J, our indirect wholly-owned subsidiary, entered into a one-year independent contractor agreement with Richard Ogawa, pursuant to which Mr. Ogawa agreed to provide services related to intellectual property development, intellectual property strategies and licensing of intellectual property. This Agreement automatically renews for additional terms of one-year unless terminated in accordance with the Agreement. In consideration for Mr. Ogawa’s services to the Company, on September 25, 2019, the Company granted Mr. Ogawa a 10-year option under the 2019 Plan to purchase 275,000 shares of Common Stock at a price of $1.50 per share, half of which vested on September 25, 2020 and the balance of which vested on September 25, 2021.

 

In connection with John Edmunds’ appointment as a Director and Chairman of Audit Committee of the Company on June 22, 2021, we have agreed to pay Mr. Edmunds (i) an annual cash compensation of $20,000; (ii) a one-time grant on June 22, 2021 of non-qualified stock options under the Company 2019 Equity Compensation Plan to purchase 70,246 shares of Common Stock of the Company at $2.90 per share; (iii) an annual grant of non-qualified stock options under the 2019 Plan to purchase a number of shares of Common Stock of the Corporation that have a value of $60,000, calculated using the fair market value of Common Stock of the Company as determined by the Board as of the date of grant, with an exercise price equal to the closing bid price of Common Stock of the Company as of the date of grant; provided that Mr. Edmunds shall have served on the Board for at least six months prior to the date of grant; and (iv) reimbursement for reasonable out-of-pocket costs and travel expenses in connection with his attendance at meetings of the Board and Audit Committee.

 

Other than the above-mentioned cash compensation paid to Mr. Edmunds as Chairman of the Board and Chairman of Audit Committee of the Company, our non-employee directors do not receive any cash compensation for serving on the Board of the Company.

 

During the year ended December 31, 2020, our non-employee directors did not receive any option grants.

 

During the year ended December 31, 2021, the Company granted the following options to our non-employee directors: (i) on June 2, 2021, 10-year non-qualified stock options to purchase 50,000 shares of Common Stock at a price of $3.93 per share to each of Richard Ogawa and Michael Thompson; (ii) on December 30, 2021, 10-year non-qualified stock options to purchase 20,000 shares of Common Stock at a price of $1.77 per share to each of John Edmunds, Richard Ogawa and Michael Thompson; and (iii) on December 30, 2021, 10-year non-qualified stock options to purchase 20,000 shares and 35,000 shares of Common Stock at a price of $1.77 per share to John Edmunds (for providing service to the Company as Chairman of the Board) and Richard Ogawa, respectively.

 

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In addition, we have agreed to reimburse the directors of travel and other expenses in connection with their performance of duties as directors of the Company.

 

Other than disclosed above, we do not have other agreements or arrangements with our non-employee directors to compensate them for serving on our board.

 

PRINCIPAL STOCKHOLDERS

 

The following table sets forth the number of shares of Common Stock beneficially owned as of February 10, 2022 by:

 

  each of our named executive officers;
     
  each of our directors;
     
  all of our directors and current executive officers as a group; and
     
  each of our stockholders who is known by us to beneficially own more than 5% of our Common Stock

 

Beneficial ownership is determined based on the rules and regulations of the Commission. A person has beneficial ownership of shares if such individual has the power to vote and/or dispose of shares. This power may be sole or shared and direct or indirect. Applicable percentage ownership in the following table is based on the total of 12,726,911 shares of Common Stock issued and outstanding as of the date hereof. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock that are subject to options or warrants held by that person and exercisable as of, or within 60 days hereof. These shares, however, are not counted as outstanding for the purposes of computing the percentage ownership of any other person(s). Except as may be indicated in the footnotes to this table and pursuant to applicable community property laws, each person named in the table has sole voting and dispositive power with respect to the shares of Common Stock set forth opposite that person’s name. Unless indicated below, the address of each individual listed below is c/o Odyssey Semiconductor Technologies, Inc., 9 Brown Road, Ithaca, NY 14850.

 

   Common Stock Beneficially Owned Prior to this Offering(1)  Common Stock Beneficially Owned After this Offering(2)
Name and Address of Beneficial Owner  Amount and Nature of Beneficial Ownership  Percent of class  Amount and Nature of Beneficial Ownership  Percent of class
Richard J. Brown, Interim Chief Executive Officer, Chief Technical Officer and Director   2,731,251(1)   21.46    2,731,251    [ ] 
James R. Shealy, Secretary and Treasurer   2,743,750(2)   21.56    2,743,750    [ ] 
John Edmunds, Chairman of the Board and Director   142,085(3)   1.11    17,085    [ ] 
Richard Ogawa, Director   328,335(4)   2.52    328,335    [ ] 
Michael Thompson, Director   30,000(5)   *    30,000    [ ] 
All Executive Officers and Directors (5 persons)   5,975,421    46.95    5,975,421    [ ] 
Greater than 5% Stockholders                  [ ] 
Mark Tompkins   2,816,033(6)   22.13    2,816,033    [ ] 

 

* Less than 1%.

 

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  (1) Includes (i) 2,658,334 shares of Common Stock issued in connection with the Share Exchange; (ii) 66,667 shares of Common Stock purchased at a private placement in June 2019; and (iii) 6,250 shares of Common Stock purchased at a private placement in March 2021.
     
  (2) Includes (i) 2,658,333 shares of Common Stock issued in connection with the Share Exchange; (ii) 66,667 shares of Common Stock purchased at a private placement in June 2019; and (iii) 18,750 shares of Common Stock purchased at a private placement in March 2021.
     
  (3) Includes (i) 125,000 shares of Common Stock purchased on the open market in October 2021; (ii) vested options to purchase 5,417 shares of Common Stock at the price of $1.77 per share, granted under the Company’s 2019 Plan; (iii) options exercisable within 60 days to purchase an aggregate of 2,500 shares of Common Stock at the price of $1.77 per share; and (iv) options exercisable within 60 days to purchase an aggregate of 1,667 shares of Common Stock at the price of $1.77 per share. In addition, Mr. Edmunds also owns the following: (i) options to purchase 70,246 shares of Common Stock at the price of $2.90 per share, which will vest over 4 years in equal annual installments starting from June 22, 2022; (ii) options to purchase 17,500 shares of Common Stock at the price of $1.77 per share, which will vest quarterly in 6 equal installments starting from June 30, 2022; and (iii) options to purchase 18,333 shares of Common Stock at the price of $1.77 per share, which will vest quarterly in 8 equal installments starting from April 30, 2022.
     
  (4) Includes (i) 16,667 shares of Common Stock purchased at a private placement in August 2019; (ii) 20,000 shares of Common Stock purchased at a private placement in March 2021; (iii) vested options to purchase 275,000 shares of Common Stock at the price of $1.50 per share, granted under the Company’s 2019 Plan; (iv) vested options to purchase 2,500 shares of Common Stock at the price of $1.77 per share; and (v) vested options to purchase 2,917 shares of Common Stock at the price of $1.77 per share. In addition, Mr. Ogawa also owns (i) options to purchase 50,000 shares of Common Stock at $3.93 per share, half of which will vest as of June 2, 2022 and the other half June 2, 2023; (ii) options to purchase 17,500 shares of Common Stock at the price of $1.77 per share, which will vest quarterly in 6 equal installments starting from June 30, 2022; and (iii) options to purchase 32,083 shares of Common Stock at the price of $1.77 per share, which will vest quarterly in 8 equal installments starting from April 30, 2022.
     
  (5) Includes (i) vested options to purchase 25,000 shares of Common Stock at the price of $1.50 per share, granted under the Company’s 2019 Plan; and (ii) vested options to purchase 2,500 shares of Common Stock at the price of $1.77 per share. Mr. Thompson also owns (i) options to purchase 50,000 shares of Common Stock at $3.93 per share, half of which will vest as of June 2, 2022 and the other half June 2, 2023; and (ii) options to purchase 17,500 shares of Common Stock at the price of $1.77 per share, which will vest quarterly in 6 equal installments starting from June 30, 2022.
     
  (6)  Includes (i) 2,741,033 shares of Common Stock; and (ii) 75,000 shares of Common Stock held by Montrose Capital Partners Limited, over which Mr. Tompkins has voting, dispositive or investment powers. Mr. Tompkins’ address is Apt. 1, Via Guidino 23, 6900 Lugano-Paradiso, Switzerland. 

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Unless described below, since April 12, 2019 (inception), there are no transactions or series of similar transactions to which we were a party or will be a party, in which:

 

  the amounts involved exceeded or will exceed the lesser of $120,000 or 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years; and
     
  any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

On April 1, 2019, JR2J, our indirect wholly-owned subsidiary, entered into a one-year independent contractor agreement with Richard Ogawa, pursuant to which Mr. Ogawa agreed to serve as a director of the Company post-Share Exchange, and provide services related to intellectual property development, intellectual property strategies and licensing of intellectual property. This Agreement automatically renews for additional terms of one-year unless terminated in accordance with the Agreement. In consideration for Mr. Ogawa’s services to the Company, on September 25, 2019, the Company granted Mr. Ogawa a 10-year option under the 2019 Plan to purchase 275,000 shares of Common Stock at a price of $1.50 per share, half of which vested on September 25, 2020 and the balance of which vested on September 25, 2021.

 

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On May 16, 2019, Odyssey Semiconductor, our wholly-owned subsidiary, entered into a one-year independent contractor agreement with Alex Behfar, pursuant to which Mr. Behfar agreed to serve as a director of the Company post-Share Exchange, and provide services related to corporate development and business strategy, and intellectual property strategies. In consideration for Mr. Behfar’s services to the Company, on September 25, 2019, the Company granted Mr. Behfar a 10-year option under the 2019 Plan to purchase 50,000 shares of Common Stock at a price of $1.50 per share, half of which vested on September 25, 2020 and the remaining on September 22, 2021. This agreement was terminated when Mr. Behfar resigned from the positions of Chief Executive Officer, Chairman of the Board of Directors and a Director of the Company on September 22, 2021.

 

On June 17, 2019, Odyssey Semiconductor entered into a Contribution Agreement (the “Contribution Agreement”) with Richard Brown and James Shealy, who collectively owned 100% of the membership interests of JR2J. Pursuant to the Contribution Agreement, Messrs. Brown and Shealy contributed their membership interests in JR2J to Odyssey Semiconductor, in exchange for a total of 5,316,667 shares of Common Stock of Odyssey Semiconductor. Following the transactions contemplated under the Contribution Agreement, JR2J became the wholly-owned subsidiary of Odyssey Semiconductor.

 

On June 18, 2019, Odyssey Semiconductor issued 350,000 shares of immediately vested Common Stock to Jeffrey Shealy for cash proceeds of $350 in connection with services provided by Mr. Shealy. On June 21, 2019, the Company acquired 100% of the shares of Odyssey Semiconductor through a share exchange with stockholders of Odyssey Semiconductor, pursuant to which Mr. Shealy exchanged 350,000 shares of common stock of Odyssey Semiconductor to the same number of shares of the Company’s Common Stock. Jeffrey Shealy is brother of James Shealy, an officer and a principal owner of the Company. The shares issued to Mr. Shealy had an issuance date fair value (based upon a contemporaneous private offering of our Common Stock at $1.50 per share) of $1.50 per share, or $525,000 in total.

 

On March 11, 2020, in connection with his appointment as the Company’s Acting Chief Executive Officer and Executive Chairman, Mr. Behfar was granted options to purchase 375,000 shares of Common Stock at the price of $1.50 per share, that vest ratably on a monthly basis over two years and options to purchase 125,000 shares of Common Stock at the price of $1.50 per share, which vested in March 2021. On July 17, 2020, Mr. Behfar was granted options to purchase 600,000 shares of Common Stock at the price of $1.50 per share that vest ratably on a monthly basis over 20 months and options to purchase 200,000 shares of Common Stock at the price of $1.50 per share which vested on March 30, 2021. On September 16, 2020, in connection with his appointment as the Company’s Chief Executive Officer and Chairman, Mr. Behfar was granted options to purchase 1,637,410 shares of Common Stock at the price of $1.50 per share that will vest ratably on a monthly basis over 24 months starting from March 11, 2022. Upon Mr. Behfar’s resignation as Chief Executive Officer, Chairman of the Board of Directors and Director of the Company, effective as of September 22, 2021, a total of 1,911,160 unvested options were forfeited.

 

In connection with Mr. Edmunds’s appointment as a Director and Chairman of Audit Committee of the Company, the Company agreed to pay Mr. Edmunds (i) an annual cash compensation of $20,000; (ii) a one-time grant on June 22, 2021 of non-qualified stock options under the Company 2019 Equity Compensation Plan to purchase 70,246 shares of Common Stock of the Company at $2.90 per share; (iii) an annual grant of non-qualified stock options under the 2019 Plan to purchase a number of shares of Common Stock of the Company that have a value of $60,000, calculated using the fair market value of Common Stock of the Company as determined by the Board as of the date of grant, with an exercise price equal to the closing bid price of Common Stock of the Company as of the date of grant; provided that Mr. Edmunds shall have served on the Board for at least six months prior to the date of grant; and (iv) reimbursement for reasonable out-of-pocket costs and travel expenses in connection with his attendance at meetings of the Board and Audit Committee.

 

On December 30, 2021, the board of directors approved the following grants to our officers and directors under the 2019 Plan: (i) 10-year non-qualified stock options to purchase 20,000 shares of Common Stock at a price of $1.77 per share to each of John Edmunds, Richard Ogawa and Michael Thompson, non-employee directors of the Company; (ii) 10-year non-qualified stock options to purchase 20,000 shares and 35,000 shares of Common Stock at a price of $1.77 per share to John Edmunds (for providing service to the Company as Chairman of the Board) and Richard Ogawa, respectively; and (iii) 5-year options to purchase 100,000 shares and 80,000 shares of Common Stock at a price of $1.77 per share to Richard Brown and James Shealy, respectively.

 

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

 

DESCRIPTION OF CAPITAL STOCK

 

Our authorized capitalization consists of 50,000,000 shares, which include (i) 45,000,000 shares of Common Stock, par value $.0001 per share, of which 12,726,911 shares of Common Stock are issued and outstanding as at the date of this prospectus, and (ii) 5,000,000 shares of preferred stock, par value $.0001 per share, of which no shares are issued and outstanding.

 

Common Stock

 

Each share of Common Stock entitles the holder thereof to one (1) vote on all matters submitted to a vote of the holders of Common Stock. Holders of shares of Common Stock are not entitled to cumulative voting rights in the election of directors. Holders of shares of Common Stock are entitled to receive such dividends as the board of directors may, from time to time, declare out of Company funds legally available for the payment of dividends. Upon any liquidation, dissolution or winding up of the Company, holders of shares of Common Stock are entitled to receive pro rata all of the assets of the Company available for distribution to shareholders.

 

Shareholders do not have any pre-emptive rights to subscribe for or purchase any stock or other securities of the Company. The Common Stock is not convertible or redeemable. Neither the Company’s Certificate of Incorporation nor its By-Laws provide for pre-emptive rights.

 

Preferred Stock

 

The Preferred Stock of the Company shall be issued by the Board of Directors in one or more classes or one or more series within any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board of Directors may determine from time to time.

 

Warrants

 

As of the date of this prospectus, we had issued (i) five-year warrants to purchase an aggregate of 155,966 shares of Common Stock at an exercise price of $1.50 per share to the placement agent in the August 2019 Private Placement, and (ii) five-year warrants to purchase an aggregate of 89,730 shares of Common Stock at an exercise price of $4.00 per share to the placement agent in the March 2021 Private Placement.

 

Underwriter’s Warrants 

 

Upon the closing of this offering, there will be up to [ ] shares of Common Stock issuable upon exercise of the representative’s warrants, assuming a public offering price of $[ ] per share. See “Underwriting—Underwriter’s Warrants” below for a description of the Underwriter’s Warrants.

 

Options

 

As of the date of this prospectus, there are 1,398,246 outstanding options to purchase our Common Stock with exercise prices within the range of $1.50 to $3.93 per share.

 

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Transfer Agent and Registrar

 

Vstock Transfer, LLC is the transfer agent and registrar for our Common Stock.

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

We received approval from the OTCQB Market to trade our Common Stock under the ticker symbol of “ODII” as of August 27, 2020. There is currently limited trading volume for our Common Stock. We plan to apply to list our Common Stock on the Nasdaq Capital Market under the symbol of “ODII”. No assurance can be given that our listing application will be approved.

  

Future sales of substantial amounts of our shares in the public market could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.

 

Holders

 

As of the date of this prospectus, there are 73 record holders of our Common Stock.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table summarized the compensation plan under which equity securities of the Company are authorized for issuance as of the end of fiscal year 2021.

 

Plan category  Number of securities to be issued upon exercise of outstanding options, warrants and rights  Weighted-average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
   (a)  (b)  (c)
Equity compensation plans approved by security holders   2019 Equity Compensation Plan   1,643,942   $2.23    2,886,129 
Equity compensation plans not approved by security holders            
Total   1,643,942   $2.23    2,886,129 

 

SHARES ELIGIBLE FOR FUTURE SALE

 

Based on our shares outstanding as of September 30, 2021, on the closing of this offering, a total of [ ] shares of Common Stock will be outstanding if the underwriters do not exercise the over-allotment option. Of these shares, all of the Common Stock sold in this offering by us, plus any shares sold by us on the exercise of the underwriters’ option to purchase additional Common Stock, plus 2,147,120 shares of Common stock currently outstanding and held by public shareholders will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.

 

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The remaining shares of Common Stock will be, and shares of Common Stock underlying stock options and warrants currently outstanding, will be on issuance, “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 under the Securities Act, which is summarized below. Restricted securities may also be sold outside of the United States to non-U.S. persons in accordance with Rule 904 of Regulation S.

 

As a result of the lock-up agreements described below and subject to the provisions of Rules 144 under the Securities Act, a large number of restricted shares of our Common Stock that are beneficially owned by our executive officers, directors and holders of our 3% or more of our Common Stock will be available for sale in the public market upon expiration of the six month lock-up agreements.

 

Rule 144

 

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, an eligible stockholder is entitled to sell such shares without complying with the manner of sale, volume limitation, or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. To be an eligible stockholder under Rule 144, such stockholder must not be deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and must have beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144, subject to the expiration of the lock-up agreements described below.

 

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell shares upon expiration of the lock-up agreements described below. Beginning 90 days after the date of this prospectus, within any three-month period, such stockholders may sell a number of shares that does not exceed the greater of: 1% of the number of common stock then outstanding, or the average weekly trading volume of our common stock on the Nasdaq Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Form S-8 Registration Statement

 

We intend to file a registration statement on Form S-8 under the Securities Act with the SEC to register the offer and sale of shares of our common stock that are issuable under our 2019 Plan. Such registration statement will become effective immediately on filing. Shares covered by these registration statements will then be eligible for sale in the public markets, subject to vesting restrictions, any applicable lock-up agreements described below, and Rule 144 limitations applicable to affiliates.

 

Lock-up Arrangements

 

Pursuant to certain “lock-up” agreements, we, our executive officers, directors and holders of our 3% or more of our common stock and securities exercisable for or convertible into our common stock outstanding immediately upon the closing of this offering have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consent of the underwriters, for a period of six months from the date of effectiveness of the offering.

 

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UNDERWRITING

 

Maxim Group LLC (“Maxim” or the “underwriter”) is acting as the lead managing underwriter and sole book running manager in connection with this offering and we have entered into an underwriting agreement with Maxim on the date of this prospectus. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriter, the underwriter has agreed to purchase from us, on a firm commitment basis, shares, at the public offering price per share less the underwriting discounts set forth on the cover page of this prospectus.

 

The underwriting agreement provides that the underwriter is obligated to purchase all the shares in the offering if any are purchased, other than those covered by the over-allotment option described below. The underwriting agreement also provides that if the underwriter defaults, the offering may be terminated.

 

Over-Allotment Option

 

We have granted to Maxim a 45-day option to purchase up to an aggregate of additional shares of common stock (equal to 15% of the number of shares sold in the offering), at the public offering price per share, less underwriting discounts and commissions. If any of these additional shares are purchased, Maxim will offer the additional shares on the same terms as those on which the shares are being offered. The option may be exercised only to cover any over-allotments of our shares.

 

Underwriting Discounts and Commissions

 

Maxim proposes initially to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at those prices less a concession not in excess of $ per share. An underwriting discount or spread of 7.0% of the public offering price shall be provided to Maxim. We have also agreed to pay Maxim a non-accountable expense allowance equal to 1.0% of the public offering price. If all of the shares offered by us are not sold at the public offering price, Maxim may change the public offering price and other selling terms by means of a supplement to this prospectus.

 

The following table shows the public offering price, underwriting discount, non-accountable expense allowance, and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriter of the over-allotment option.

 

    Per Share    Total
Without
Over-
Allotment
Option
   Total With
Full Over-
Allotment
Option
Public offering price  $   $   $  
Underwriting discount (7.0%)  $   $   $  
Non-accountable expense allowance (1.0%)  $   $   $  
Proceeds, before expenses, to us  $   $   $  

 

We have agreed to be responsible and pay for all expenses related to the offering including all filing fees, legal fees and communication expenses relating to the registration of the securities to be sold in the offering (including the over-allotment securities). Upon Maxim’s request, we will provide funds to pay all fees, expenses and disbursements in excess of the $25,000 advance provided to Maxim upon execution of the engagement letter for reasonable out-of-pocket expenses. The maximum amount of legal fees, costs and expenses incurred by Maxim that we shall be responsible for shall not exceed $125,000. The underwriting agreement, however, provides that in the event the offering is terminated, any advance expense deposits paid to the underwriter will be returned to the extent that offering expenses are not actually incurred in accordance with Financial Industry Regulatory Authority (“FINRA”) Rule 5110(f)(2)(C).

 

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Underwriter’s Warrant

 

We have agreed to issue to Maxim (or its permitted assignees) warrants to purchase up to a total of shares of common stock (5.0% of the shares of common stock sold in this offering). The warrants will be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days following the closing of this offering and expiring five (5) years from the closing of this offering, which period is in compliance with applicable FINRA rules. The warrants are exercisable at a per share price equal to $ per share, or 110% of the public offering price per share in the offering (based on the assumed public offering price of $ per share). The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1)(A) of FINRA. Maxim (or permitted assignees under Rule 5110(e)(2)(B)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the registration statement of which this prospectus is a part. In addition, the warrants provide for registration rights upon request, in certain cases. The demand registration rights provided will not be greater than five years from the effective date of the registration statement of which this prospectus in compliance with applicable FINRA rules. The piggyback registration rights provided will not be greater than seven (7) years from the effective date of the registration statement of which this prospectus is a part in compliance with applicable FINRA rules. We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than fees and expenses associated with a second demand right and underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.

 

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Right of First Refusal

 

Subject to the closing of this offering and certain conditions set forth in the underwriting agreement, for a period of eighteen (18) months after the closing of the offering, the underwriter shall have a right of first refusal to act as sole managing underwriter and book-runner or as sole placement agent for any and all future public or private equity, equity-linked or debt (excluding commercial bank debt) offerings undertaken during such period by us, or any of our successors or subsidiaries.

 

Tail Financing Payments

 

If we terminate our engagement agreement with Maxim, other than for cause, and we subsequently complete any public or private financing any time during the eighteen (18) months after such termination with any investors directly introduced to the Company by Maxim, then Maxim shall be entitled to receive the same compensation for such offering as it would have been entitled to in connection with this offering.

 

Lock-Up Agreements

 

Our officers, directors and certain holders or 3% or more of the outstanding shares of our common stock as of the effective date of the registration statement of which this prospectus forms a part, have entered into customary “lock up” agreements in favor of Maxim pursuant to which such persons and entities have agreed, for a period of six months after the offering is completed, that they shall neither offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any our securities without Maxim’s prior written consent, including the issuance of shares of common stock upon the exercise of currently outstanding options approved by Maxim.

 

Indemnification

 

We have agreed to indemnify Maxim against certain liabilities, including liabilities under the Securities Act, and liabilities arising from breaches of representations and warranties contained in the underwriting agreement and to contribute to payments that the underwriter may be required to make for these liabilities.

 

Price Stabilization, Short Positions and Penalty Bids

 

In connection with this offering, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriter may over-allot in connection with this offering by selling more shares than are set forth on the cover page of this prospectus. This creates a short position in our common stock for its own account. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares common stock over-allotted by the underwriter is not greater than the number of shares of common stock that it may purchase in the over-allotment option. In a naked short position, the number of shares of common stock involved is greater than the number of shares common stock in the over-allotment option. To close out a short position, the underwriter may elect to exercise all or part of the over-allotment option. The underwriter may also elect to stabilize the price of our common stock or reduce any short position by bidding for, and purchasing, common stock in the open market.

 

The underwriter may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in this offering because the underwriter repurchases that security in stabilizing or short covering transactions.

 

Finally, the underwriter may bid for, and purchase, shares of our common stock in market making transactions, including “passive” market making transactions as described below.

 

These activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriter is not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market, or otherwise.

 

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In connection with this offering, the underwriter and selling group members, if any, or their affiliates may engage in passive market making transactions in our common stock immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:

 

  a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent bid price by persons who are not passive market makers;

 

  net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and

 

   passive market making bids must be identified as such.

 

Certain Relationships

 

Maxim or its affiliates may engage in transactions with, and may perform, from time to time, investment banking and financial advisory services for us in the ordinary course of their business and for which they would receive customary fees and expenses. However, except as disclosed in this prospectus, we have no present arrangements with the underwriter for any further services.

 

International Selling Restrictions

 

Other than in the United States, no action has been taken by us or the underwriter that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

Electronic Distribution

 

A prospectus in electronic format may be made available on the web sites maintained by the underwriter, or selling group members, if any, participating in this offering and the underwriter may distribute prospectuses electronically. The underwriter may agree to allocate a number of shares to selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriter and selling group members that will make internet distributions on the same basis as other allocations.

 

Discretionary Accounts

 

The underwriter does not intend to confirm sales to any accounts over which it has discretionary authority without first receiving a written consent from those accounts.

 

LEGAL MATTERS

 

Robinson & Cole, LLP, 1055 Washington Boulevard, Stamford, CT 06901 has acted as our counsel in connection with the preparation of this prospectus and the issuance of an opinion relating to the validity of the securities offered in this prospectus. Fox Rothschild LLP, Minneapolis, Minnesota, has acted as counsel to the Underwriter in connection with this Offering.

 

EXPERTS

 

The balance sheets of the Company and its subsidiaries as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years ended December 31, 2020 and 2019, and the related notes, included in this registration statement have been audited by Marcum LLP, an independent registered public accounting firm, as set forth in their report thereon, appearing elsewhere in this registration statement, and are included in reliance on such report of such firm given upon their authority as experts in accounting and auditing.

 

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 DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES

 

Our directors and officers are indemnified to the fullest extent permitted under Delaware law. At present, the Company has purchased director and officer liability insurance to cover certain liabilities our directors and officers may incur in connection with their services to us for up to certain amount.

  

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling persons the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of ours in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the Common Stock offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our Common Stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus, although not necessarily complete, include the material provisions of such document, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.

 

The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the SEC, which are publicly available through the SEC’s web site at http://www.sec.gov.

 

Prior to the effectiveness of the registration statement, we have voluntarily filed periodic reports with the SEC. Upon the effectiveness of the registration statement, we will be subject to the informational requirements of the Exchange Act, and, in accordance with the Exchange Act, will file reports, proxy and information statements and other information with the SEC. Such annual, quarterly and special reports, proxy and information statements and other information can be inspected and copied at the locations set forth above. We also anticipate making these documents publicly available, free of charge, on our website at www.odysseysemi.com as soon as reasonably practicable after filing such documents with the SEC. Information on, or accessible through, our website is not part of this prospectus.

 

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Index to Financials

 

ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC.

 

INDEX TO FINANCIAL STATEMENTS

  

  Page
   
   
Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020 F-2
   
Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021 and 2020 F-3
   
Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2021 and 2020 F-4
   
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 F-5
   
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 F-7
   
Notes to Unaudited Condensed Consolidated Financial Statements F-8
   
For the Years Ended December 31, 2020 and 2019  
   
Report of Independent Registered Public Accounting Firm F-20
   
Consolidated Balance Sheets as of December 31, 2020 and 2019 F-21
   
Consolidated Statements of Operations For The Years Ended December 31, 2020 and 2019 F-22
   
Consolidated Statements of Changes in Stockholders’ Equity For The Years Ended December 31, 2020 and 2019 F-23
   
Consolidated Statements of Cash Flows For The Years Ended December 31, 2020 and 2019 F-24
   
Notes to Consolidated Financial Statements F-25

 

F-1

 

 

ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

           
   September 30,  December 31,
   2021
(unaudited)
  2020
Assets          
           
Current Assets:          
Cash  $3,409,429   $272,705 
Contract assets       62,273 
Accounts receivable   48,045    10,877 
Deferred expenses   4,941    185,084 
Prepaid expenses and other current assets   35,261    33,569 
           
Total Current Assets   3,497,676    564,508 
Restricted cash   103,188    103,149 
Property and equipment, net   894,967    986,407 
           
Total Assets  $4,495,831   $1,654,064 
           
Liabilities and Stockholders’ Equity          
           
Current Liabilities:          
Accounts payable and accrued expenses  $119,205   $187,046 
Loan payable – short term   77,278    53,858 
Deferred revenue   30,000    260,447 
          
Total Current Liabilities   226,483    501,351 
           
Loans payable – long term   554,853    621,600 
Total liabilities   781,336    1,122,951 
Commitments and contingencies (Note 8)        
           
Stockholders’ Equity:          
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively        
           
Common stock, $0.0001 par value, 45,000,000 shares authorized, 12,726,911 and 11,429,661 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively   1,272    1,143 
Additional paid-in capital   9,837,157    4,046,370 
Accumulated deficit   (6,123,934)   (3,516,400)
           
Total Stockholders’ Equity   3,714,495    531,113 
           
Total Liabilities and Stockholders’ Equity  $4,495,831   $1,654,064 

 

See notes to these condensed consolidated financial statements.

 

F-2

 

 

ODYSSEY SEMICONDUCTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

       
   For The Nine Months Ended September 30,
   2021  2020
       
Revenues  $693,074   $1,102,071 
           
Cost of Revenues   792,239    1,106,569 
           
Gross Loss   (99,165)   (4,498)
           
Operating Expenses:          
           
Research and development   1,073,737    430,592 
Selling, general, and administrative   1,658,994    869,643 
           
Total Operating Expenses   2,732,681    1,300,235 
           
Loss from Operations   (2,831,846)   (1,304,733)
           
Other Income (Expense):          
Forgiveness of PPP loan and other income   238,719    1 
Interest expense   (14,407)    
 Total Other Income (Expense)   224,312    1 
           
Net Loss  $(2,607,534)  $(1,304,732)
           
Net Loss Per Share:          
Basic  $(0.21)  $(0.12)
Diluted  $(0.21)  $(0.12)
           
Weighted Average Number of Common Shares Outstanding:          
Basic   12,320,979    11,173,008 
Diluted   12,320,979    11,173,008 

 

See notes to these condensed consolidated financial statements.

 

F-3

 

 

       
   For The three months Ended September 30,
   2021  2020
       
Revenues  $