UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 30, 2008
|
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
to
Commission
File Number: 33-130768
ODYNE
CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
|
Delaware
|
|
13-4050047
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
89
Cabot Court, Suite L, Hauppauge, NY 11788
(Address
of Principal Executive Offices)
(631)
750-1010
(Registrant’s
Telephone Number, Including Area Code)
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
Accelerated Filer
o
|
Accelerated
Filer
o
|
|
|
|
|
Non-accelerated
Filer
o
|
Smaller
Reporting Company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
As
of
August 8, 2008, 35,070,886 shares of the issuer’s Common Stock, par value $.001
per share, were outstanding.
ODYNE
CORPORATION AND SUBSIDIARY
FORM
10-Q
QUARTERLY
PERIOD ENDED JUNE 30, 2008
INDEX
|
|
Page
|
|
PART
I – FINANCIAL INFORMATION
|
|
|
|
|
|
Item 1
– Financial Statements
|
1
|
|
|
|
|
Condensed
Consolidated Balance Sheet (Unaudited)
As
of June 30, 2008 and December
31,
2007
|
1
|
|
|
|
|
Condensed
Consolidated Statements of Operations (Unaudited)
For
the Three Months and Six Months Ended June
30,
2008 and 2007
|
2
|
|
|
|
|
Condensed
Consolidated Statement of Stockholders’ Equity (Unaudited)
For
the Six Months Ended June 30, 2008
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
For
the Six Months Ended June 30, 2008 and 2007
|
4
|
|
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
5
|
|
|
|
|
Item 2
– Management’s Discussion and Analysis of Financial Condition and Results
of Operation
s
|
13
|
|
|
|
|
Item
3 – Quantitative and Qualitative Disclosures About Market Risk
|
18
|
|
|
|
|
Item 4T
– Controls and Procedures
|
18
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
|
|
|
Item 1
– Legal Proceedings
|
19
|
|
|
|
|
Item 1A
– Risk
Factors
|
19
|
|
|
|
|
Item 2
– Unregistered Sales of Equity Securities and Use of
Proceeds
|
19
|
|
|
|
|
Item 3
– Defaults Upon Senior Securities
|
19
|
|
|
|
|
Item 4
– Submission of Matters to a Vote of Security Holders
|
19
|
|
|
|
|
Item 5
– Other Information
|
20
|
|
|
|
|
Item 6
– Exhibits
|
20
|
|
|
|
|
Signatures
|
21
|
PART
I–FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
June 30, 2008
|
|
December 31, 2007
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
5,602,238
|
|
$
|
2,087,217
|
|
|
Accounts
receivable, net of reserves of $143,000
|
|
|
272,183
|
|
|
158,333
|
|
|
Inventory,
net of reserves of $38,000 and $90,000 respectively
|
|
|
354,677
|
|
|
237,423
|
|
|
Prepaid
insurance
|
|
|
59,955
|
|
|
103,168
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
6,289,053
|
|
|
2,586,141
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
125,380
|
|
|
120,019
|
|
|
Deferred
financing costs, net
|
|
|
241,338
|
|
|
386,130
|
|
|
Other
assets
|
|
|
24,000
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
6,679,771
|
|
$
|
3,116,290
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
345,076
|
|
$
|
270,538
|
|
|
Accrued
payroll and other operating expenses
|
|
|
190,056
|
|
|
206,464
|
|
|
Customer
deposits
|
|
|
96,531
|
|
|
171,487
|
|
|
Accrued
losses on contracts in progress
|
|
|
12,572
|
|
|
3,016
|
|
|
Reserve
for warranty
|
|
|
32,086
|
|
|
43,000
|
|
|
Accrued
interest on convertible debentures
|
|
|
79,781
|
|
|
57,863
|
|
|
Current
maturities of capital lease obligations
|
|
|
2,844
|
|
|
4,306
|
|
|
Current
portion of convertible debentures, net of discount
|
|
|
2,901,683
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
$
|
3,660,629
|
|
|
756,674
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current maturities
|
|
|
-
|
|
|
656
|
|
|
Development
funding subject to repayment
|
|
|
238,948
|
|
|
238,948
|
|
|
Convertible
debentures, net of discount
|
|
|
-
|
|
|
2,433,633
|
|
|
TOTAL
LIABILITIES
|
|
|
3,899,577
|
|
|
3,429,911
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 4,994,000 shares authorized, 0 shares issued
and
outstanding
|
|
|
-
|
|
|
-
|
|
|
Series
A Convertible Preferred Stock, $0.001 par value; 6,000 authorized;
2,382
and 2,917 shares issued and outstanding respectively, liquidation
rights $
1,000 per share
|
|
|
2
|
|
|
3
|
|
|
Common
stock, $0.001 par value per share; 95,000,000 shares authorized;
34,787,581 and 22,061,428 shares issued and outstanding, respectively
|
|
|
34,788
|
|
|
22,061
|
|
|
Additional
paid-in-capital
|
|
|
14,216,278
|
|
|
7,767,482
|
|
|
Accumulated
deficit
|
|
|
(11,470,874
|
)
|
|
(8,103,167
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
2,780,194
|
|
|
(313,621
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
$
|
6,679,771
|
|
$
|
3,116,290
|
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$
|
258,374
|
|
$
|
299,274
|
|
$
|
419,014
|
|
$
|
322,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
647,687
|
|
|
464,305
|
|
|
976,845
|
|
|
585,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
LOSS
|
|
|
(389,313
|
)
|
|
(165,031
|
)
|
|
(557,831
|
)
|
|
(262,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
391,394
|
|
|
370,880
|
|
|
780,401
|
|
|
879,234
|
|
|
General
and administrative
|
|
|
684,114
|
|
|
545,869
|
|
|
1,426,090
|
|
|
982,870
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
1,075,508
|
|
|
916,749
|
|
|
2,206,491
|
|
|
1,862,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(1,464,821
|
)
|
|
(1,081,780
|
)
|
|
(2,764,322
|
)
|
|
(2,125,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
20,170
|
|
|
16,159
|
|
|
28,505
|
|
|
43,608
|
|
|
Interest
expense
|
|
|
(318,152
|
)
|
|
(472
|
)
|
|
(631,890
|
)
|
|
(1,027
|
)
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
(297,982
|
)
|
|
15,687
|
|
|
(603,385
|
)
|
|
42,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(1,762,803
|
)
|
$
|
(1,066,093
|
)
|
$
|
(3,367,707
|
)
|
$
|
(2,082,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.12
|
)
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- BASIC AND
DILUTED
|
|
|
34,145,691
|
|
|
19,646,136
|
|
|
28,546,223
|
|
|
18,982,981
|
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIENCY)
For
the Six Months Ended June 30, 2008
(UNAUDITED)
|
|
|
Convertible Preferred Stock
Series
A
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
2,917
|
|
$
|
3
|
|
|
22,061,428
|
|
$
|
22,061
|
|
$
|
7,767,482
|
|
$
|
(8,103,167
|
)
|
$
|
(313,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based payments
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
71,760
|
|
|
-
|
|
|
71,760
|
|
|
Conversions
of Series A Convertible Preferred Stock to common shares
|
|
|
(535
|
)
|
|
(1
|
)
|
|
881,855
|
|
|
882
|
|
|
(881
|
)
|
|
-
|
|
|
-
|
|
|
Sale
of 11,666,666 shares of common stock, net of offering costs of
$696,265
|
|
|
|
|
|
|
|
|
11,666,666
|
|
|
11,667
|
|
|
6,292,068
|
|
|
-
|
|
|
6,303,735
|
|
|
Payment
of interest on convertible debentures
|
|
|
|
|
|
|
|
|
177,632
|
|
|
178
|
|
|
85,849
|
|
|
-
|
|
|
86,027
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(3,367,707
|
)
|
|
(3,367,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2008
|
|
|
2,382
|
|
$
|
2
|
|
|
34,787,581
|
|
$
|
34,788
|
|
$
|
4,216,278
|
|
$
|
(11,470,874
|
)
|
$
|
2,780,194
|
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,367,707
|
)
|
$
|
(2,082,503
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
180,653
|
|
|
27,526
|
|
|
Provision
for obsolete inventory
|
|
|
(52,000
|
)
|
|
-
|
|
|
Amortization
of discount on convertible debentures
|
|
|
468,050
|
|
|
-
|
|
|
Share
based payments- interest on debentures
|
|
|
86,027
|
|
|
-
|
|
|
Share
based payments- compensation
|
|
|
71,760
|
|
|
70,810
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cash
- restricted
|
|
|
-
|
|
|
146,969
|
|
|
Accounts
receivable
|
|
|
(113,850
|
)
|
|
(174,500
|
)
|
|
Inventory
|
|
|
(65,254
|
)
|
|
(151,319
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
43,213
|
|
|
49,636
|
|
|
Accounts
payable
|
|
|
74,538
|
|
|
(2,763
|
)
|
|
Accrued
payroll and other operating expenses
|
|
|
(16,408
|
)
|
|
(28,018
|
)
|
|
Customer
deposits
|
|
|
(74,956
|
)
|
|
(34,921
|
)
|
|
Accrued
losses on contracts in progress
|
|
|
9,556
|
|
|
(12,408
|
)
|
|
Reserve
for warranty
|
|
|
(10,914
|
)
|
|
-
|
|
|
Accrued
interest on convertible debentures
|
|
|
21,918
|
|
|
-
|
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,745,374
|
)
|
|
(2,191,491
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(41,222
|
)
|
|
(47,970
|
)
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(41,222
|
)
|
|
(47,970
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
proceeds from sale of common stock
|
|
|
6,303,735
|
|
|
-
|
|
|
Capital
lease payments
|
|
|
(2,118
|
)
|
|
(3,653
|
)
|
|
Developmment
funding subject to repayment
|
|
|
-
|
|
|
3,642
|
|
|
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
6,301,617
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
3,515,021
|
|
|
(2,239,472
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
–
beginning of period
|
|
|
2,087,217
|
|
|
3,083,942
|
|
|
|
|
|
|
|
|
|
|
|
CASH
–
end of period
|
|
$
|
5,602,238
|
|
$
|
844,470
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
51,776
|
|
$
|
1,027
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Cashless
exercise of warrants
|
|
|
-
|
|
|
282
|
|
|
Conversion
of Series A Convertible preferred stock into Common Stock
|
|
|
882
|
|
|
2,512
|
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – Nature of Operations and Summary of Significant Accounting
Policies
Odyne
Corporation (together with its wholly owned subsidiary, the “Company”) designs,
develops, manufactures and installs Plug-in Hybrid Electric Vehicle (“PHEV”)
propulsion systems for medium and heavy duty trucks and buses using its
proprietary technology.
Principles
of Consolidation
The
consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned subsidiary. All significant inter-company balances
and transactions have been eliminated.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These estimates and assumptions include revenue recognition reserves and
write-downs related to receivables and inventories, the recoverability of
long-term assets, deferred taxes and related valuation allowances and valuation
of equity instruments.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents may
be
invested in money market funds, commercial paper, and certificates of deposits.
Cash equivalents are carried at cost, which approximates fair
value.
Revenue
and Cost Recognition
|
|
·
|
Fixed
Price Production Contracts
|
Revenues
from fixed-price production contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred
to
date to estimated total costs for each contract. The Company considers expended
cost to be the best available measure of progress on these contracts. Cost
of
revenues earned on fixed-price contracts includes direct contract costs such
as
materials, labor, subcontract labor, payroll, payroll taxes, insurance and
other
sundry direct costs, and indirect contract costs such as travel and supplies.
Provisions for estimated losses on contracts in progress are made in the period
in which such losses are determined. The Company’s provision for estimated
losses was $12,572 and $14,531 as of June 30, 2008 and 2007,
respectively.
|
|
·
|
Completed
- Contract Method
|
Under
the
completed contract method, revenue and cost of individual contracts are included
in operations in the period during which they are completed. Losses expected
to
be incurred on contracts in progress are charged to operations in the period
such losses are determined. The aggregate of cost of uncompleted contracts
in
excess of related billings is included in inventory, and the aggregate of
billings on uncompleted contracts in excess of related cost is shown as a
liability. The Company adopted this accounting method effective January 1,
2007
in order to account for short term fixed price contracts.
|
|
·
|
Time
and Materials Contracts
|
Revenues
from time and materials contracts are billed, including profits, as incurred
based on a fixed labor rate plus materials. Cost of revenues from time and
materials contracts includes labor and materials.
Research
and Development
Research
and development expenses include costs incurred for the experimentation, design
and testing of the Company’s PHEV technology. Such costs are expensed as
incurred. Research and development cost includes direct costs such as materials,
labor, subcontract labor, payroll, payroll taxes, insurance and other sundry
direct costs, and indirect costs such as travel, supplies, repairs and
depreciation.
The
Company has received non-refundable development funding from various
governmental and/or energy related agencies, including Long Island Power
Authority, the Electric Power Research Institute and the Greater Long Island
Clean Cities Coalition. These research projects are funded, in part, by third
parties and expensed as incurred. The Company records non refundable development
funds as a reduction of research and development cost. The Company did not
receive any non-refundable development funding during the six months ended
June
30, 2008 and 2007, respectively.
Stock-Based
Compensation
The
Company has adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123(R) “Share Based Payment” (“SFAS 123(R)”). This
statement is a revision of SFAS No. 123, and supersedes Accounting
Principles Board (“APB”) Opinion No. 25, and its related implementation
guidance. SFAS 123(R) addresses all forms of share based payment (“SBP”)
awards including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. Under SFAS 123(R),
SBP awards are measured at fair value on the awards’ grant date, based on
the estimated number of awards that are expected to vest and results in a charge
to operations.
Non-Employee
Stock Based Compensation
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123(R) and Emerging Issues Task Force
(“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services” (“EITF 96-18”), which requires that such equity instruments
be recorded at their fair value on the measurement date. The measurement of
stock-based compensation is subject to periodic adjustment as the underlying
equity instrument vests. Non-employee stock-based compensation charges are
being
amortized over the term of the related service period.
Net
Loss Per Share
Net
loss
per share is presented in accordance with SFAS No. 128 “Earnings Per Share”
(“SFAS 128”). Under SFAS 128, basic net loss per share is computed by dividing
net loss per share available to common stockholders by the weighted average
shares of common stock outstanding for the period and excludes any potentially
dilutive securities. Diluted earnings per share reflects the potential dilution
that would occur upon the exercise or conversion of all dilutive securities
into
common stock. The computation of loss per share for the three and six months
ended June 30, 2008 and 2007 excludes potentially dilutive securities because
their inclusion would be anti-dilutive.
Shares
of
common stock issuable upon conversion or exercise of potentially dilutive
securities at June 30, 2008 and 2007 are as follows:
|
|
|
2008
|
|
2007
|
|
|
Series
A Convertible Preferred Stock
|
|
|
3,970,159
|
|
|
5,128,070
|
|
|
Convertible
Debentures
|
|
|
12,800,000
|
|
|
-
|
|
|
Warrants
|
|
|
23,303,013
|
|
|
4,319,680
|
|
|
Options
|
|
|
4,745,000
|
|
|
545,000
|
|
|
Total
|
|
|
44,818,172
|
|
|
10,022,750
|
|
Recently
Issued Accounting Standards
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and expands disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. In February 2008,
the
FASB issued Staff Position (“FSP”) No. 157-2 which delays the effective date of
SFAS 157 one year for all nonfinancial assets and nonfinancial liabilities,
except those recognized or disclosed at fair value in the financial statements
on a recurring basis. In accordance with FSP 157-2, the Company is currently
evaluating this impact on its consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides
companies with an option to report selected financial assets and liabilities
at
fair value and establishes presentation and disclosure requirements designed
to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159, which was
effective for fiscal years beginning after November 15, 2007, had no impact
on the financial statements.
In
June
2007, the EITF reached a consensus on EITF Issue No. 06-11, “Accounting for
Income Tax Benefits on Dividends on Share-Based Payment Awards” (“EITF 06-11”).
EITF 06-11 addresses share-based payment arrangements with dividend protection
features that entitle employees to receive (a) dividends on equity-classified
non-vested shares, (b) dividend equivalents on equity-classified non-vested
share units, or (c) payments equal to the dividends paid on the underlying
shares while an equity-classified share option is outstanding, when those
dividends or dividend equivalents are charged to retained earnings under SFAS
123(R) and result in an income tax deduction for the employer. A realized income
tax benefit from dividends or dividend equivalents that are charged to retained
earnings are paid to employees for equity-classified non-vested shares,
non-vested equity share units, and outstanding equity share options should
be
recognized as an increase in additional paid in capital. The amount recognized
in additional paid-in capital for the realized income tax benefit from dividends
on those awards should be included in the pool of excess tax benefits available
to absorb potential future tax deficiencies on share-based payments. The Company
does not expect the adoption of this pronouncement to have a material impact
on
its financial position, results of operation and cash flows.
In
December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations” (“SFAS
141(R)”), and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements” (“SFAS 160”). SFAS 141(R) requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquired entity at their fair values on the acquisition date,
with goodwill being the excess value over the net identifiable assets acquired.
SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be
reported as equity in the consolidated financial statements. The calculation
of
earnings per share will continue to be based on income amounts attributable
to
the parent. SFAS 141(R) and SFAS 160 are effective for financial statements
issued for fiscal years beginning after December 15, 2008. Early adoption is
prohibited. There is no impact on the Company of the pending adoption of SFAS
141(R) and SFAS 160 on the consolidated financial statements.
In
April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets.” FSP No. 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful
life
of a recognized intangible asset under SFAS No. 142, “Goodwill and Other
Intangible Assets.” FSP No. 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. Early adoption is
prohibited. There is no impact on the Company of the pending adoption of FSP
No.
142-3 on the consolidated financial statements.
In
June
2008, the FASB ratified the consensus reached on EITF Issue No. 07-05,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock” (“EITF 07-05”). EITF 07-05 clarifies the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception under SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities.” EITF 07-05 is effective for
financial statement issued for fiscal years beginning after December 15, 2008.
Early adoption for an existing instrument is not permitted. The Company is
currently evaluating the impact of the pending adoption of EITF 07-05 on its
consolidated financial statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon
adoption.
NOTE
2 – Liquidity and Capital Resources
The
Company’s net loss amounted to $3,367,707 for the six months ended June 30,
2008. The Company’s accumulated deficit amounted to $11,470,874 at June 30,
2008. The Company also used $2,745,374 of cash in its operating activities
during the six months ended June 30, 2008. As of June 30, 2008 the Company
has
$2,628,424 of working capital available to fund its operations which assumes
payment, in cash of its $3,200,000 of convertible debentures which are due
on
April 26, 2009.
On
March
27, 2008, the Company completed a private placement to institutional accredited
investors, pursuant to the terms of a securities purchase agreement. The Company
received $7,000,000 and $6,303,735 in gross and net proceeds, respectively,
in
connection with this private placement. Under the terms of the agreement, the
Company sold 11,666,667 shares of its common stock at $.60 per share to
accredited private investors (the “Investors”). As part of this transaction, the
Investors also received warrants to purchase 11,666,667 shares of the Company’s
common stock at $.72 per share. The warrants are exercisable for five
years, contain customary change of control buy-out provisions and are not
redeemable. The warrants also contain anti-dilution provisions (including
“full-ratchet” price protection from the future issuance of stock, exclusive of
certain issuances, or securities convertible or exercisable for shares of common
stock below $.72 per share), provided that the exercise price of the warrants
may not be adjusted to less than $.60 per share as a result of the full-ratchet
price protection. As part of this transaction, placement agents received
warrants to purchase 1,050,000 shares of the Company’s common stock at $.72 per
share. The warrants are exercisable for five years, contain customary
change of control buy-out provisions and are not redeemable. The warrants also
contain anti-dilution provisions (including “full-ratchet” price protection from
the future issuance of stock, exclusive of certain issuances, or securities
convertible or exercisable for shares of common stock below $.72 per share).
The
Company believes it may not have sufficient capital resources to sustain
operations through June 30, 2009. The Company must obtain additional capital
and
increase revenue in order to ensure it has the capital resources it needs to
pursue its planned operations. If the Company is unable to obtain additional
capital, it will have to implement cost cutting plan, reduce the size of its
operating structure, and/ or sell assets to conserve its liquidity. Although
the
Company’s completion of its private placement substantially improved its overall
liquidity, the Company must still devote substantially all of its capital
resources to its research and development activities, developing its
manufacturing infrastructure and penetrating possible markets for its PHEV
propulsion system. The Company needs to raise additional funds to achieve full
commercialization of its PHEV system and continue the pursuit of its
business plan. The Company also cannot provide any assurance that it will
ultimately be successful in its efforts to fully commercialize its PHEV
propulsion system.
NOTE
3 – Basis of Presentation and Business Organization
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial statements and the instructions
to Form 10-Q. Accordingly, the financial statements do not include all of the
information and footnotes required by GAAP for complete financial statements.
In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal recurring
nature. These condensed consolidated financial statements should be read in
conjunction with the financial statements for the year ended December 31,
2007 and notes thereto of the Company included in the Annual Report on Form
10-KSB for the fiscal year ended December 31, 2007. The results of
operations for the six months ended June 30, 2008 are not necessarily indicative
of the results for the full fiscal year ending December 31,
2008.
NOTE
4 – Development Funding Subject to Repayment
The
Company entered into a contract for development funding from the New York State
Energy Research & Development Authority. The Company received $-0- and
$3,642 under this contract during the six months ended June 30, 2008 and 2007,
respectively. Funding received under the terms of this agreement is subject
to
repayment based on a percentage of sales of the related invention or discovery
as defined under the terms of the agreement. The company repaid $5,587 and
$ -0-
under this agreement during the six months ended June 30, 2008 and 2007,
respectively. The obligation terminates upon the earlier of 15 years from the
date of the first sale or upon repayment of the amount of funds received under
the agreement. Development funding subject to repayment amounts to $238,948
at
June 30, 2008 and December 31, 2007 and is presented as a liability in the
accompanying balance sheets.
NOTE
5 – Convertible Debentures
On
October 26, 2007, the Company completed a private placement to five accredited
investors (the “Investors”) resulting in gross proceeds of $3,200,000, pursuant
to the terms of a Subscription Agreement. The securities were offered and sold
in Units, consisting of $100,000 principal amount of 10% senior secured
convertible debentures and a warrant, expiring October 26, 2010, to purchase
133,333 shares of common stock at an exercise price of $.75 per share. As
a result of the Company’s March 27, 2008, private placement transaction the
exercise price of the warrants was reduced to $.60 per share. The company paid
$
51,616 in cash and issued 117,632 shares of its common stock for payment of
interest on these debentures during the six months ended June 30 2008. The
maturity date of the debentures is April 26, 2009.
NOTE
6 – Related Parties
On
April
2, 2008 the Company paid $10,753 in interest on its 10% senior secured
convertible debentures to AT Holdings I, LLC, an entity controlled by the
company’s Chief Executive Officer. On July 9, 2008 the Company issued 9,110 of
its common stock in payment of interest on the 10% senior secured convertible
debentures to AT Holdings I, LLC.
NOTE
7 – Commitments
and
Contingencies
Litigation
On
January 16, 2008, a subcontractor commenced an action against the
Company and others in the Supreme Court, Suffolk County seeking to recover
damages based on alleged facts concerning the Company's commercial
relationship with the plaintiff in the latter part of 2006 and the early part
of
2007 which culminated in an Exclusive Sales and Marketing Agreement, whereby
the
plaintiff agreed to serve as the exclusive retrofitting installer of the
Company's plug-in hybrid electric propulsion systems for medium and heavy
trucks and as the exclusive distributor of such vehicles in the New York
metropolitan area. The Company believes that the alleged facts, even
if true, do not provide a legal basis for recovery, and it filed a motion to
dismiss the litigation on the grounds that the complaint fails to state any
viable cause of action. The motion was submitted to the court on February 27,
2008. In response to the motion, on July 3, 2008, the court dismissed five
of the six causes of action brought by the plaintiff. The Company believes
that
it has a reasonable chance of prevailing on the remaining cause of action,
although it cannot predict the outcome of the action.
Employment
Agreements
On
September 19, 2007, the Company entered into an employment agreement with Alan
Tannenbaum as its new Chief Executive Officer and a member of the Board of
Directors. The employment agreement has a term expiring one year after the
initial closing of the Company’s financing transaction which took place on
October 25, 2007. The term may be extended for additional terms of one year
provided the Company gives Mr. Tannenbaum 30 days prior written notice and
the
Mr. Tannenbaum accepts. The employment agreement provided for a base salary
at
the annual rate of $145,000, starting on January 1, 2008, which was subsequently
increased by the Company’s Board of Directors to $147,000 per year.
Under
the
employment agreement, the Company agreed to grant Mr. Tannenbaum stock options
to purchase an aggregate of 3,000,000 shares of the Company’s common stock. Of
such stock options, 300,000 shares were granted on October 25, 2007 at an
exercise price of $.395, the closing market price on that date. Further, options
to purchase 300,000 shares were also granted effective on January 2, 2008,
based
on an exercise price equal to the closing market price of the common stock
on
that date of $.71 The remaining 2,400,000 stock options were issued under a
separate non–qualified stock option agreement, with similar terms and conditions
to the existing plan subject to shareholder approval, which was received on
May
28, 2008. These options have an exercise price of $.32 per share, based on
the
average closing price of the Company’s common stock for the 30 day period prior
to the closing of the company’s October 25, 2007 financing transaction. The
stock based compensation expense associated with these options is included
in
the amounts disclosed in Note 9 hereunder. Each stock option will vest in three
equal installments on the second, third and fourth anniversaries of the grant
date and expire ten years after it is granted.
Cost
Sharing Agreement
On
January 23, 2008 the Company signed an agreement with NYSERDA to develop test
fixtures and procedures to be used in connection with its production activities.
Under the terms of the agreement, NYSERDA will reimburse the Company for
approximately fifty percent of the cost, including labor, material and overhead,
incurred in connection with the project. The total amount of funds available
from NYSERDA for this project is $534,590. For the six months ended June 30,
2008, the Company incurred $159,330 in connection with this agreement for which
it expects to receive $78,868. This amount is included in accounts receivable
on
the accompanying condensed consolidated balance sheet and was recorded as
reduction of research and development expense.
NOTE
8 – Stockholders’ Equity
Conversions
of Series A Convertible Preferred Stock
During
the six months ended June 30, 2008, holders of 535 shares of Series A
Convertible Preferred Stock elected to convert their preferred shares into
881,855 shares of common stock. During the six months ended June 30, 2007,
holders of 1,883 shares of Series A Convertible Preferred Stock elected to
convert their preferred shares into 2,512,471 shares of common
stock.
Private
Placement of Common Stock
On
March
27, 2008, the Company completed a private placement to institutional accredited
investors, pursuant to the terms of a securities purchase agreement. Under
the
terms of the agreement, the Company sold 11,666,667 shares of its common stock
at $.60 per share to accredited private investors (the “Investors”). As part of
this transaction, the Investors also received warrants to purchase 11,666,667
shares of the Company’s common stock at $.72 per share. The warrants are
exercisable for five years, contain customary change of control buy-out
provisions and are not redeemable. The warrants also contain anti-dilution
provisions (including “full-ratchet” price protection from the future issuance
of stock, exclusive of certain issuances, or securities convertible or
exercisable for shares of common stock below $.72 per share), provided that
the
exercise price of the warrants may not be adjusted to less than $.60 per share
as a result of the full-ratchet price protection. As part of this transaction,
placement agents received warrants to purchase 1,050,000 shares of the Company’s
common stock at $.72 per share. The warrants are exercisable for five
years, contain customary change of control buy-out provisions and are not
redeemable. The warrants also contain anti-dilution provisions (including
“full-ratchet” price protection from the future issuance of stock, exclusive of
certain issuances, or securities convertible or exercisable for shares of common
stock below $.72 per share). The securities purchase agreement also contains
representations and warranties by the Company and each Investor typical of
transactions of this type, as well as the right of the Investors to participate
in up to 100% of any subsequent financing by the Company for one year after
the
closing date. The Company received $7,000,000 and $6,303,735 in gross and net
proceeds, respectively, in connection with this private placement.
The
fair
value of warrants issued in this transaction amounted to $2,616,135 using the
Black-Scholes option-pricing model with the following assumptions: fair value
per share of common stock $0.55, term of 5 years, volatility of 41.88%,
risk-free interest rate of 2.61%, and, dividend yield of 0.
Pursuant
to the terms of a registration rights agreement with the Investors, the Company
has agreed to file a registration statement with the U.S. Securities and
Exchange Commission no later than 150 calendar days following March 27, 2008,
covering the resale of the shares and warrant shares, and to use all reasonable
best efforts to cause the registration statement to be declared effective within
240 calendar days after the closing date, and to remain continuously effective
for three years after the closing date.
Common
Stock Purchase Warrants
A
summary
of the status of the Company’s outstanding common stock purchase warrants is as
follows;
|
|
|
Number of
options
|
|
Weighted
average
exercise
price
|
|
|
Outstanding
at January 1, 2008
|
|
|
10,586,346
|
|
$
|
0.73
|
|
|
Granted
|
|
|
12,716,667
|
|
$
|
0.72
|
|
|
Exercised
|
|
|
-
|
|
$
|
-
|
|
|
Outstanding
at June 30, 2008
|
|
|
23,303,013
|
|
$
|
0.72
|
|
Warrants
issued
During
the six months ended June 30, 2008 the company issued warrants in connection
with its March 27, 2008 private placement as follows:
|
Grant Date
|
|
Number of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Unit Fair
Value
|
|
Total Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/27/2008
|
|
|
11,666,667
|
|
$
|
.72
|
|
|
3/26/2013
|
|
$
|
.206
|
|
$
|
2,400,124
|
|
|
2/5/2008
|
|
|
1,050,000
|
|
$
|
.72
|
|
|
3/26/2013
|
|
$
|
.206
|
|
$
|
216,011
|
|
The
fair
value of these awards was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: fair
value
of common stock $0.55; volatility rate 41.88%; risk free interest rate
2.61%; expected term 5 years; dividend yield 0.
NOTE
9 – 2006 Equity Incentive Plan
The
2006
Equity Incentive Plan (the “Plan”) was adopted by the Company’s Board of
Directors on October 16, 2006 and approved by the Company’s stockholders on
October 17, 2006. The plan was amended at the special stockholders meeting
held
on May 28, 2008 to increase the awards available to purchase shares by 3,000,000
shares to an aggregate of 6,000,000 shares of common stock which may be granted
under the Plan to employees, consultants and non-employee directors. Under
the
Plan, the Company is authorized to issue Incentive Stock Options intended to
qualify under Section 422 of the Internal Revenue Code, non-qualified options,
SARS, restricted stock, bonus shares and dividend equivalents.
On
February 13, 2008, the Company granted 140,000 stock options to key employees
at
an exercise price of $.57 per share. The fair value of these awards was
estimated to be $25,984 at the date of grant using the Black-Scholes option
pricing model with the following weighed average assumptions: fair value per
share of common stock $.57 volatility rate 37.33 %; risk free interest rate
2.41%; expected term 4 years; dividend yield 0.
On
April
2, 2008, the Company granted 80,000 stock options to key employees at an
exercise price of $.51 per share. The fair value of these awards was estimated
to be $13,454 at the date of grant using the Black-Scholes option pricing model
with the following weighed average assumptions: fair value per share of common
stock $.51 volatility rate 38.25 %; risk free interest rate 2.38%; expected
term 4 years; dividend yield 0.
On
May
28, 2008, the Company granted 150,000 stock options to key employees at an
exercise price of $.51 per share. The fair value of these awards was estimated
to be $26,228 at the date of grant using the Black-Scholes option pricing model
with the following weighed average assumptions: fair value per share of common
stock $.51 volatility rate 38.28 %; risk free interest rate 3.15%; expected
term 4 years; dividend yield 0.
A
separate non-qualified stock option agreement was approved at the special
stockholders meeting held on May 28, 2008 whereby options to purchase 2,400,000
shares of common stock were approved, which were issued to the Company’s Chief
Executive Officer in connection with his employment agreement dated September
19, 2007 at an exercise price of $0.32 per share. The fair value of these awards
was estimated to be $630,223 at the date of approval using the Black-Scholes
option pricing model with the following weighed average assumptions: fair value
per share of common stock $0.51; volatility rate 38.28%; risk free interest
rate 3.15%; expected term 4 years; dividend yield 0.
A
summary
of option activity for the six months ended June 30, 2008 is as
follows:
|
|
|
|
|
|
|
Weighted
-
|
|
|
|
|
|
|
Weighted
-
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
|
Options
|
|
Shares
|
|
Price
|
|
Term
in Years
|
|
|
Outstanding
January 1, 2008
|
|
|
1,975,000
|
|
$
|
0.56
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,770,000
|
|
|
0.35
|
|
|
9.3
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
-
|
|
|
|
|
|
|
|
|
Outstanding
June 30, 2008
|
|
|
4,745,000
|
|
$
|
0.43
|
|
|
9.2
|
|
At
June
30, 2008, the aggregate intrinsic value of options outstanding, based on the
June 30, 2008 closing price of the Company’s common stock ($.77 per share) was
$1,601,225. There were no options exercisable at June 30, 2008. As described
above, the Company has estimated that based upon assumed employee retention,
80%
of the options granted entitled to vest by their terms, will actually vest
annually.
As
of
June 30, 2008 there was $846,346 of unrecognized compensation cost related
to
non-vested share-based compensation arrangements,. These costs are expected
to
be recognized over a weighted-average period of 3.2 years.
FORWARD
LOOKING STATEMENTS
This
quarterly report on Form 10-Q for the three and six months ended June 30, 2008,
contains “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended. Generally, the words “believes”,
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements which include,
but are not limited to, statements concerning our expectations regarding our
working capital requirements, financing requirements, business prospects, and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. Such statements are subject to certain risks and
uncertainties, including the matters set forth in this quarterly report or
other
reports or documents we file with the U.S. Securities and Exchange Commission,
or SEC, from time to time, which could cause actual results or outcomes to
differ materially from those projected. You should not place undue reliance
on
these forward-looking statements which speak only as of the date hereof. We
undertake no obligation to update these forward-looking statements. In addition,
the forward-looking statements in this quarterly report on Form 10-Q involve
known and unknown risks, uncertainties and other factors that could cause the
actual results, performance or achievements of our company to differ materially
from those expressed in or implied by the forward-looking statements contained
herein.
An
investment in our common stock involves a high degree of risk. Stockholders
and
prospective purchasers should carefully consider the risk factors in our annual
report on Form 10-KSB for the fiscal year ended December 31, 2007, filed
with the SEC on March 31, 2008, and other pertinent information contained in
our
registration statement on Form SB-2, initially filed with the SEC on December
21, 2007, and which became effective on April 25, 2008 as well as other
information contained in our other periodic filings with the SEC. If any of
the
risks described therein actually occur, our business could be materially harmed.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We
completed a reverse merger transaction on October 17, 2006, in which we caused
PHEV Acquisition Corp., a New York corporation and our newly-created,
wholly-owned subsidiary, to be merged with and into Odyne Corporation, a New
York corporation (“Odyne New York”). Until the merger, we engaged in the
business of providing marketing, communications and technical integration advice
to small and medium-sized businesses , which we discontinued following the
merger and succeeded to the business of Odyne New York. The directors and
management of Odyne New York thereupon became our directors and management.
On
October 17, 2006, we changed our corporate name from Technology Integration
Group Inc. to Odyne Corporation (“we,” “us” or “our” include reference to our
wholly-owned subsidiary, Odyne New York).
We
are a
clean technology company that develops and manufactures propulsion systems
for
advanced Plug-in Hybrid Electric Vehicles for medium and heavy-duty trucks
and
buses by integrating our proprietary electric power conversion, electric power
control and energy storage systems with a range of off-the-shelf components
including electric motors and storage batteries. Our Plug-in Hybrid Electric
Vehicle systems (“PHEV”) are either series or parallel configuration hybrids
that are optimized for different applications. Our environmentally friendly
and
cost-effective Plug-in Hybrid Electric Vehicle systems allow vehicles to operate
at lower costs and with lower vehicle emissions.
The
following discussion of our financial condition and results of operations should
be read in conjunction with our financial statements and related notes included
under Item 1 of this report.
Results
of Operations – Three Months Ended June 30, 2008 Compared to Three Months Ended
June 30, 2007
Revenues
Total
revenues were $258,374 and $299,274 for the three months ended June 30, 2008
and
2007, respectively, a decrease of $40,900, or 14%. Revenue for the three months
ended June 30, 2008 was provided primarily by sales of PHEV production systems;
there were no PHEV production systems delivered during the three months ended
June 30, 2007. For the three months ended June 30, 2008 and 2007, revenue
generated from long-term fixed price contracts was $2,312 and $299,274,
respectively. The change in composition of our revenue reflects a shift in
our
emphasis from long-term prototype projects to the manufacture and delivery
of
production systems.
Cost
of Revenues
Cost
of
revenues for the three months ended June 30, 2008 and 2007 were $647,687 and
$464,305, respectively, an increase of $183,382, or 39%. We had a gross loss
on
revenues of $389,313 compared to gross loss on revenues of $165,031 for the
three months ended June 30, 2008 and 2007, respectively. Cost of revenues for
the three months ended June 30, 2008 included direct costs in the amount of
$493,018 and other costs, including allocated general and administrative
expenses, of $154,669. Cost of revenues for the three months ended June 30,
2007
included direct costs in the amount of $385,624 and other costs, including
allocated general and administrative expenses, of $78,681. Direct costs in
the
three months ended June 30, 2008 were adversely affected by production startup
costs associated with the shipment of new PHEV systems.
Research
and Development Expenses
Research
and development expenses were $391,394 and $370,880 for the three months ended
June 30, 2008 and 2007, respectively, an increase of $20,514, or 6%. This
increase included cost associated with the design of testing and validation
procedures for our products.
General
and Administrative Expenses
General
and administrative expenses for the three months ended June 30, 2008 and 2007
were $684,114 and $545,869, respectively, an increase of $138,245, or 25%.
This
increase includes $72,396 in amortization of deferred finance cost, $45,864
in
salaries associated with the hiring of additional office staff and $95,945
in
sales, marketing and promotional activities. Professional fees decreased by
$61,752 for the three months ended June 30, 2008 as compared to the three months
ended June 30, 2007.
Other
Income and Expense
Interest
income was $20,170 and $16,159 for the three months ended June 30, 2008 and
2007, respectively. Interest expense was $318,152 and $472 for the three months
ended June 30, 2008 and 2007, respectively. The increase in interest expense
includes amortization of a discount on convertible debentures in the amount
of
$234,025 and interest expense incurred in connection with our convertible
debentures in the amount of $79,781.
Results
of Operations – Six Months Ended June 30, 2008 Compared to Six Months Ended June
30, 2007
Revenues
Total
revenues were $419,014 and $322,056 for the six months ended June 30, 2008
and
2007, respectively, an increase of $96,958, or 30%. During the six months ended
June 30 2008, revenue was provided primarily by the sale of commercialized
PHEV
production systems. We did not deliver any PHEV production systems during the
six months ended June 30, 2007. For the six months ended June 30, 2008 and
2007,
revenue generated from long-term fixed price contracts was $39,268 and $322,056,
respectively. The change in composition of our revenue reflects a shift in
our
emphasis from long-term prototype projects to the manufacture and delivery
production systems.
Cost
of Revenues
Cost
of
revenues for the six months ended June 30, 2008 and 2007 were $976,845 and
$585,036, respectively, an increase of $391,809, or 67%. We had a gross loss
on
revenues of $557,831 compared to a gross loss on revenues of $262,980 for the
six months ended June 30, 2008 and 2007, respectively. Cost of revenues for
the
six months ended June 30, 2008 included direct costs in the amount of $712,871
and other costs, including allocated general and administrative expenses, of
$263,974. Cost of revenues for the six months ended June 30, 2007 included
direct costs in the amount of $462,895 and other costs, including allocated
general and administrative expenses, of $122,051.
Research
and Development Expenses
Research
and development expenses were $780,401 and $879,234 for the six months ended
June 30, 2008 and 2007, respectively, a decrease of $98,833, or 11%. This
decrease resulted from a shift in some of our resources, primarily labor and
material cost, from research and development to improvements in our production
capabilities.
General
and Administrative Expenses
General
and administrative expenses for the six months ended June 30, 2008 and 2007
were
$1,426,090 and $982,870, respectively, an increase of $443,220, or 45%. This
increase include $144,792 in amortization of deferred finance cost, $154,774
in
salaries associated with the hiring of additional staff and $117,519 in sales,
marketing and promotional activities.
Other
Income and Expense
Interest
income was $28,505 and $43,608 for the six months ended June 30, 2008 and 2007,
respectively. Interest expense was $631,890 and $1,027 for the six months ended
June 30, 2008 and 2007, respectively. The increase in interest expense includes
amortization of a discount on convertible debentures in the amount of $468,050
and interest on our convertible debentures of $159,562.
Liquidity
and Capital Resources
Our
net
loss amounted to $3,367,707 for the six months ended June 30, 2008 and our
accumulated deficit amounted to $11,470,874 at June 30, 2008. We used $2,745,374
of cash in our operating activities during the six months ended June 30, 2008.
As of June 30, 2008, we have $2,628,424 of working capital available to fund
our
operations which assumes payment, in cash of our $3,200,000 of convertible
debentures which are due on April 26, 2009.
On
March
27, 2008, we completed a private placement to institutional accredited
investors, pursuant to the terms of a securities purchase agreement. We received
$7,000,000 and $6,303,735 in gross and net proceeds, respectively, in connection
with this private placement. Under the terms of the agreement, the we sold
11,666,667 shares of our common stock at $.60 per share to accredited private
investors (the “Investors”). As part of this transaction, the Investors also
received warrants to purchase 11,666,667 shares of our common stock at $.72
per
share.
We
believe that we may not have sufficient capital resources to sustain our
operations through June 30, 2009. We must obtain additional capital and increase
revenue in order to ensure we have the capital resources we need to pursue
our
business plan. If we are unable to obtain additional capital, we will have
to
implement a cost cutting plan, reduce the size of our operating structure,
and/
or sell assets to conserve our liquidity. Although the completion of our March
2008 private placement substantially improved our overall liquidity, we must
still devote substantially all of our capital resources to our research and
development activities, developing our manufacturing infrastructure and
penetrating possible markets for our PHEV propulsion system. We will need to
raise additional funds to achieve commercialization of our PHEV system and
continue the pursuit of our business plan. We also cannot provide any assurance
that we will ultimately be successful in our efforts to commercialize our PHEV
propulsion system.
Net
Cash Used in Operating Activities:
Net cash
used in operating activities totaled $2,745,374 for the six months ended June
30, 2008 as compared to net cash used in operating activities of $2,191,491
for
the six months ended June 30, 2007. During the six months ended June 30, 2008,
the major components of cash used in operating activities included our net
loss
from operations of $3,367,707, an increase in our level of inventory and
accounts receivable of $65,254 and $113,850, respectively, and a decrease in
our
customer deposits of $74,956. Items that had a favorable impact on cash used
in
operating activities during the six months ended June 30, 2008 included an
increase in our accounts payable of $74,538 and a charge for non-cash interest
in the amount of $468,050. The net cash used in operating activities of
$2,191,491 for the six months ended June 30, 2007 resulted primarily from our
net loss from operations of $2,082,503. Other significant components of cash
used in operating activities included an increase in the level of our inventory
of $151,319 and an increase our accounts receivable by $174,500. Items that
had
a favorable impact on cash used in operating activities during the six months
ended June 30, 2007 included a reduction in restricted cash of $146,969 and
a
decrease in prepaid expenses of $49,636.
Net
Cash Used in Investing Activities:
We
invested $41,222 in property and equipment during the six months ended June
30,
2008 as compared to $47,970 invested in property and equipment during the six
months ended June 30, 2007.
Net
Cash Provided by Financing Activities:
Net cash
provided by financing activities during the six months ended June 30, 2008
included $6,303,735 of net proceeds we received from the sale of 11,666,666
shares of our common stock and the payment of capital lease obligations in
the
amount of $2,118. Net cash used in financing activities during the six months
ended June 30, 2007 included the payment capital lease obligations of $3,653
and
the receipt of development funding subject to repayment in the amount of $3,642.
On
March
30, 2006, we signed a research and development contract extension with NYSERDA
to develop and install a PHEV system into a refuse vehicle provided by a third
party. Our obligation under this agreement is to design and install the system
and to provide NYSERDA with regular status reports. NYSERDA will provide funding
up to an additional $161,046 for this effort. As of March 31, 2008, we had
not obtained a refuse vehicle from the third party and have not incurred any
costs related to this contract extension.
On
January 23, 2008, we signed a cost sharing agreement with NYSERDA to develop
test fixtures and procedures to be used in connection with our production
activities. Under the terms of the agreement, NYSERDA will reimburse our company
for approximately fifty percent of the cost, including labor, materials and
overhead, incurred in connection with this project. The total amount of funds
available from NYSERDA for this project is $534,590. For the six months ended
June 30, 2008, we incurred $159,330 of costs in connection with this agreement
for which we recorded a receivable in the amount of $78,848.
Impact
of Inflation
We
expect
to be able to pass inflationary increases for raw materials and other costs
on
to our customers through price increases, as required, and do not expect
inflation to be a significant factor in our business.
Seasonality
Although
our operating history is limited, we do not believe our products are
seasonal.
Off-Balance
Sheet Arrangements
There
are
no off-balance sheet arrangements between us and any other entity that have,
or
are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
Critical
Accounting Policies and Estimates
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires our management to exercise its judgment. We exercise considerable
judgment with respect to establishing sound accounting polices and in making
estimates and assumptions that affect the reported amounts of our assets and
liabilities, our recognition of revenues and expenses, and disclosures of
commitments and contingencies at the date of the financial
statements.
On
an
ongoing basis, we evaluate our estimates and judgments. Areas in which we
exercise significant judgment include, but are not necessarily limited to,
recording revenue and cost and cost of sales under production contracts using
the percentage of completion method, establishing loss reserves of contracts
in
progress when necessary, equity transactions (compensatory and financing),
and
allocating costs among different cost centers and departments within our
company. We have adopted certain polices with respect to our recognition of
revenue that we believe are consistent with the guidance provided under SEC
Staff Accounting Bulletin No. 104.
We
base
our estimates and judgments on a variety factors including our historical
experience, knowledge of our business and industry, current and expected
economic conditions, the composition of our products and the regulatory
environment. We periodically re-evaluate our estimates and assumptions with
respect to these judgments and modify our approach when circumstances indicate
that modifications are necessary.
While
we
believe that the factors we evaluate provide us with a meaningful basis for
establishing and applying sound accounting policies, we cannot guarantee that
the results will always be accurate. Since the determination of these estimates
requires the exercise of judgment, actual results could differ from such
estimates.
A
description of significant accounting polices that require us to make estimates
and assumptions in the preparation of our consolidated financial statements
are
as follows:
Revenue
Recognition.
We
account for a portion of our revenues using the percentage of completion method.
Accordingly, we make estimates of costs to complete on these contracts that
we
use as a basis for recording revenue.
We
apply
the revenue recognition principles set forth under American Institute of
Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 81-2
“Accounting for Production Type Contracts” and SEC Staff Accounting Bulletin
(“SAB”) No. 104 “Revenue Recognition” with respect to our revenue.
Income
Taxes
.
We are
required to determine the aggregate amount of income tax expense or loss based
upon tax statutes in jurisdictions in which we conduct business. In making
these
estimates, we adjust our results determined in accordance with generally
accepted accounting principles for items that are treated differently by the
applicable taxing authorities. Deferred tax assets and liabilities, as a result
of these differences, are reflected on our balance sheet for temporary
differences, loss and credit carry forwards that will reverse in subsequent
years. We also establish a valuation allowance against deferred tax assets
when
it is more likely than not that some or all of the deferred tax assets will
not
be realized. Valuation allowances are based, in part, on predictions that our
management must make as to our results in future periods. The outcome of events
could differ over time which would require us to make changes in our valuation
allowance.
Stock-Based
Compensation
We
have
adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123(R) “Share Based Payment” (“SFAS 123(R)”). This
statement is a revision of SFAS Statement No. 123, and supersedes
Accounting Principles Board (“APB”) Opinion No. 25, and its related
implementation guidance. SFAS 123(R) addresses all forms of share based
payment (“SBP”) awards including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. Under
SFAS 123(R), SBP awards are measured at fair value on the awards’
grant date, based on the estimated number of awards that are expected to vest
and results in a charge to operations.
We
are
also required to apply complex accounting principles with respect to accounting
for financing transactions that we have consummated in order to finance the
growth of our business. These transactions, which generally consist of
convertible debt and equity instruments, require us to use significant judgment
in order to assess the fair values of these instruments at their dates of
issuance, which is critical to making a reasonable presentation of our financing
costs and how we finance our business.
ITEM 3.
QUANTITATIVE
AND
QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not
required.
ITEM
4T. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. As of June 30, 2008, the end
of the period covered by this quarterly report on Form 10-Q, we carried out
an evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective.
Changes
in Internal Control Over Financial Reporting
During
the quarter ended June 30, 2008, there has been no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II–OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
On
January 16, 2008, Amity Truck Service Corp. commenced an action against Odyne
Corporation and others in the Supreme Court, Suffolk County seeking to recover
damages based on alleged facts concerning our commercial relationship with
the plaintiff in the latter part of 2006 and the early part of 2007 which
culminated in an Exclusive Sales and Marketing Agreement, whereby the plaintiff
agreed to serve as the exclusive retrofitting installer of our plug-in
hybrid electric propulsion systems for medium and heavy trucks and as the
exclusive distributor of such vehicles in the New York metropolitan area. It
is
our opinion that the alleged facts, even if true, do not provide a legal basis
for recovery, and we filed a motion to dismiss the litigation on the grounds
that the complaint fails to state any viable cause of action. The motion was
submitted to the court on February 27, 2008. In response to the motion, on
July 3, 2008, the court dismissed five of the six causes of action brought
by
the plaintiff. Our management believes that we have a reasonable chance of
prevailing on the remaining cause of action, although it cannot predict the
outcome of the action.
Apart
from the legal proceeding noted in the previous paragraph, we are not party
to
any legal proceedings, nor are we aware of any contemplated or pending legal
proceedings against us.
ITEM 1A.
RISK FACTORS
There
are
no material changes in the risk factors previously disclosed in our annual
report on Form 10-KSB for the year ended December 31, 2007.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In
the
quarter ended June 30, 2008, there were no sales of unregistered securities
other than as reported in prior reports on Form 8-K.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On
May
28, 2008, we held a special meeting of stockholders at the time and place set
forth in the notice of meeting of stockholders and proxy statement previously
distributed to stockholders of record. At the meeting, four proposals were
presented for consideration and voting on by the stockholders in person or
by
proxy. The proposals and the results of voting are set forth
below:
1.
Election
of six directors to the board of directors (constituting the entire membership
of our board), each to hold office until his successor has been elected and
qualified. The following table sets forth the name of each nominee and the
voting with respect to each nominee for director:
|
Name
|
|
For
|
|
Withhold
Authority
|
|
Broker Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Tannenbaum
|
|
|
27,540,049
|
|
|
233,021
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joshua
A. Hauser
|
|
|
24,048,089
|
|
|
230,021
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
H. Auerbach
|
|
|
27,542,549
|
|
|
230,021
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
E. Humenik
|
|
|
24,047,589
|
|
|
230,021
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanley
W. Struble
|
|
|
24,047,589
|
|
|
230,021
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
Charles Tabak
|
|
|
24,047,589
|
|
|
230,021
|
|
|
0
|
|
2.
Approval
of an amendment to our 2006 Equity Incentive Plan increasing the number of
shares of common stock reserved for issuance thereunder by 3,000,000
shares.
|
For
|
|
Against
|
|
Abstain
|
|
|
22,510,245
|
|
|
225,543
|
|
|
27,100
|
|
3.
Ratification
of the adoption by the board of directors of the Non-Qualified Stock Option
Agreement for Alan Tannenbaum, our Chief Executive Officer.
|
For
|
|
Against
|
|
Abstain
|
|
|
22,510,245
|
|
|
225,543
|
|
|
42,973
|
|
4.
Ratification
of the selection of Holtz Rubenstein Reminick LLP as our independent
auditor.
|
For
|
|
Against
|
|
Abstain
|
|
|
22,510,245
|
|
|
225,543
|
|
|
0
|
|
ITEM 5.
OTHER INFORMATION.
None.
ITEM 6.
EXHIBITS
Exhibit
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act.
Exhibit
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act.
Exhibit
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
ODYNE
CORPORATION
|
|
|
|
|
|
August
13, 2008
|
|
By:
|
|
/s/
Alan Tannebaum
|
|
|
|
|
|
Alan
Tannenbaum
Chairman
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
August
13, 2008
|
|
By:
|
|
/s/
Daniel Bartley
|
|
|
|
|
|
Daniel
Bartley
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
Odyne (CE) (USOTC:ODYC)
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