UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
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þ
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Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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| For the quarterly period ended September 30, 2008 | ||
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o
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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| For the transition period from to |
Commission
File No. 333-152940
DAIS ANALYTIC
CORPORATION
(Exact
name of Registrant as specified in its charter)
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New
York
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14-1760865
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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11552
Prosperous Drive, Odessa, FL 33556
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (727) 375-8484
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.
Yes o
No þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer or a smaller reporting company.
See the definitions of “accelerated filer”, “large accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer: o
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Accelerated
filer: o
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Non-accelerated
filer: o
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Smaller
reporting company: þ
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|||
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(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o
No þ
As of
December 17, 2008, there were 11,857,175 outstanding shares of common
stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our Registration Statement
on Form S-1,as amended, filed with the Securities and Exchange Commission on
November 12, 2008 (SEC file No. 333-152940), to the extent stated in this Form
10-Q, are incorporated by reference into Parts I, II, III and IV of this Form
10-Q.
Dais
Analytic Corporation
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Page
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No.
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Part
I. Financial Information
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Item
1.
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Financial
Statements
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||||
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Condensed
Balance Sheets
September 30,
2008 (Unaudited) and December 31, 2007
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3
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||||
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Condensed
Statements of Operations
Three
and nine months ended September 30, 2008 and 2007 (Unaudited)
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5
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||||
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Condensed
Statements of Changes in Stockholders’ Deficit
Nine
months ended September 30, 2008 (Unaudited)
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6
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||||
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Condensed
Statements of Cash Flows
Nine
months ended September 30, 2008 and 2007 (Unaudited)
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7
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||||
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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9
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||||
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Item
2.
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Management’s
Discussion and Analysis of Results of Operations, Financial Condition and
Liquidity and Capital Resources
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15
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Item
3.
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Controls
and Procedures
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19
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Part
II. Other Information
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Item
1.
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Legal
Proceedings
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19
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Item
1A.
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Risk
Factors
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20
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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21
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Item
3.
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Default
on senior Securities
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21
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Item
4.
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Submission
if Matters to a Vote of Security Holders
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21
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Item
5.
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Other
Information
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21
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Item
6.
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Exhibits
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22
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Signature
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23
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Dais
Analytic Corporation
Condensed
Balance Sheets
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September
30,
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||||||||
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2008
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December
31,
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|||||||
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(Unaudited)
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2007
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|||||||
| Assets | ||||||||
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Current
assets:
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||||||||
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Cash and cash
equivalents
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$ | 377,339 | $ | 504,232 | ||||
| Cash in escrow | 1,000,000 | |||||||
| Accounts receivable | 205,206 | 18,928 | ||||||
| Inventory | 121,791 | 73,629 | ||||||
| Loan costs, net of accumulated amortization | 24,610 | 86,760 | ||||||
| Prepaid expenses and other current assets | 51,974 | 11,739 | ||||||
| Total current assets | 780,920 | 1,695,288 | ||||||
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Property
and equipment, net of accumulated depreciation of
$305,086 and $298,765 at
September 30, 2008 and December
31, 2007, respectively
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25,434 | 16,600 | ||||||
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Other
assets:
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||||||||
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Deposits
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2,280 | 2,280 | ||||||
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Patents, net of
accumulated amortization of $94,073
and
$87,127 at September 30, 2008
and
December
31, 2007, respectively
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44,850 | 51,796 | ||||||
| Total other assets | 47,130 | 54,076 | ||||||
| $ | 853,484 | $ | 1,765,964 | |||||
The
accompanying notes are an integral part of the financial
statements.
Dais
Analytic Corporation
Condensed
Balance Sheets
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September
30,
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|||||||
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2008
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December
31,
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|||||||
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(Unaudited)
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2007
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|||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
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Accounts
payable, including related party payables of $95,310
and $91,320 at September
30, 2008 and December
31, 2007, respectively
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$ | 350,812 | $ | 456,341 | ||||
| Accrued compensation and related benefits | 6,041 | |||||||
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Accrued compensation and related benefits, related
party
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1,131,139 | 1,089,472 | ||||||
| Current portion of deferred revenue | 84,145 | 84,145 | ||||||
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Current
portion of notes payable, net of unamortized discount
of $704,199 and
$2,379,131 at September 30, 2008
and December 31, 2007, respectively, including
related party payable of $624
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2,246,425 | 271,493 | ||||||
| Accrued expenses, other | 307,845 | 122,245 | ||||||
| Total current liabilities | 4,120,366 | 2,029,737 | ||||||
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Long-term
liabilities:
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||||||||
| Deferred revenue, net of current portion | 316,155 | 377,914 | ||||||
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Stockholders’
deficit:
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||||||||
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Series
A preferred stock; $.01 par value; 10,000,000 shares authorized;
0 shares issued
and
outstanding
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||||||||
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Common stock; $.01
par value; 100,000,000 and 50,000,000 shares
authorized;
12,114,398
and 8,742,797 shares issued; 11,857,185
and 8,505,584 shares
outstanding
at September
30, 2008 and December 31, 2007, respectively
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121,144 | 87,428 | ||||||
| Capital in excess of par value | 25,440,177 | 23,389,320 | ||||||
| Prepaid services paid for with common stock | (36,125 | ) | ||||||
| Deferred non-cash offering costs | (171,631 | ) | (55,000 | ) | ||||
| Accumulated deficit | (27,664,490 | ) | (22,797,323 | ) | ||||
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Treasury
stock at cost, 257,213 and 237,213 shares at September
30, 2008 and
December 31, 2007, respectively
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(1,272,112 | ) | (1,266,112 | ) | ||||
| Total stockholders’ deficit | (3,583,037 | ) | (641,687 | ) | ||||
| $ | 853,484 | $ | 1,765,964 | |||||
The
accompanying notes are an integral part of the financial
statements.
Dais
Analytic Corporation
Condensed
Statements of Operations
(Unaudited)
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Three
Months Ended
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Nine
Months Ended
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|||||||||||||||
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September
30,
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September
30,
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|||||||||||||||
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2008
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2007
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2008
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2007
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Revenue:
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||||||||||||||||
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Sales
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$ | 239,691 | $ | 240,461 | $ | 695,208 | $ | 694,445 | ||||||||
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License fees
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21,036 | 21,036 | 63,108 | 63,108 | ||||||||||||
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Interest income
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2,613 | 18,895 | ||||||||||||||
| 263,340 | 261,497 | 777,211 | 757,553 | |||||||||||||
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Expenses:
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Cost of goods sold
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203,313 | 169,013 | 581,303 | 523,350 | ||||||||||||
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Selling, general and
administrative
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785,947 | 434,526 | 2,544,350 | 1,375,610 | ||||||||||||
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Interest expense
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828,070 | 10,275 | 2,518,725 | 503,971 | ||||||||||||
| 1,817,330 | 613,814 | 5,644,378 | 2,402,931 | |||||||||||||
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Loss before provision for income
taxes
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(1,553,990 | ) | (352,317 | ) | (4,867,167 | ) | (1,645,378 | ) | ||||||||
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Provision
for income taxes
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Net
loss
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$ | (1,553,990 | ) | $ | (352,317 | ) | $ | (4,867,167 | ) | $ | (1,645,378 | ) | ||||
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Net loss per common share, basic
and fully diluted
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$ | (0.13 | ) | $ | (0.06 | ) | $ | (0.48 | ) | $ | (0.36 | ) | ||||
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Weighted average number of
common shares
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11,763,840 | 6,232,676 | 10,066,489 | 4,621,854 | ||||||||||||
The
accompanying notes are an integral part of the financial
statements.
Dais
Analytic Corporation
Condensed
Statements of Changes in Stockholders’ Deficit
For
the Nine Months Ended September 30, 2008
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Series
A
Preferred
Stock
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Common
Stock
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Shares
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Amount
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Shares
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Amount
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Capital
in Excess of Par Value
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Accumulated
Deficit
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Deferred Non- |
Prepaid
Services Paid for with
Common
Stock
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Treasury
Stock
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Stockholders’
Deficit
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|||||||||||||||||||||||||
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Balance,
December 31, 2007
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8,742,797 | $ | 87,428 | $ | 23,389,320 | $ | (22,797,323 | ) | $ | (55,000 | ) | $ | (1,266,112 | ) | $ | (641,687 | ) | |||||||||||||||||
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Issuance
of common stock for conversion
of notes payable and related
accrued
interest (unaudited)
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439,293 | 4,393 | 104,147 | 108,540 | ||||||||||||||||||||||||||||||
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Value
of beneficial conversion feature for
the conversion of notes payable
and
related accrued interest and
for
issuance of convertible
debt
(unaudited)
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266,814 | 266,814 | ||||||||||||||||||||||||||||||||
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Offering
costs (unaudited)
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(17,340 | ) | (17,340 | ) | ||||||||||||||||||||||||||||||
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Write
off of offering costs (unaudited)
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55,000 | 55,000 | ||||||||||||||||||||||||||||||||
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Return
of shares issued for services (unaudited)
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(6,000 | ) | (6,000 | ) | ||||||||||||||||||||||||||||||
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Issuance
of common stock for services, net of amortization of
$14,875
(unaudited)
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100,000 | 1,000 | 50,000 | $ | (36,125 | ) | 14,875 | |||||||||||||||||||||||||||
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Issuance
of warrants with convertible
debt (unaudited)
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298,005 | 298,005 | ||||||||||||||||||||||||||||||||
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Issuance
of warrants and options
(unaudited)
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1,205,923 | 1,205,923 | ||||||||||||||||||||||||||||||||
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Issuance
of common stock and warrants
for offering costs
(unaudited)
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392,308 | 3,923 | 167,708 | (171,631 | ) | |||||||||||||||||||||||||||||
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Issuance
of common (unaudited)
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2,440,000 | 24,400 | (24,400 | ) | ||||||||||||||||||||||||||||||
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Net
loss
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(4,867,167 | ) | (4,867,167 | ) | ||||||||||||||||||||||||||||||
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Balance,
September 30, 2008 (unaudited)
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12,114,398 | $ | 121,144 | $ | 25,440,177 | $ | (27,664,490 | ) | $ | (171,631 | ) | $ | (36,125 | ) | $ | (1,272,112 | ) | $ | (3,583,037 | ) | ||||||||||||||
The accompanying
notes are an integral part of the financial
statements.
Dais
Analytic Corporation
Condensed
Statements of Cash Flows
(Unaudited)
|
Nine Months Ended September
30,
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||||||||
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2008
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2007
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|||||||
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Operating
activities
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||||||||
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Net loss
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$ | (4,867,167 | ) | (1,645,378 | ) | |||
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Adjustments to
reconcile net loss to net cash used by
operating activities:
|
||||||||
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Depreciation
and amortization
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13,267 | 9,340 | ||||||
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Amortization
of deferred loan costs
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78,810 | 23,540 | ||||||
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Amortization
of discount on convertible notes
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1,169,825 | |||||||
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Amortization
of the beneficial conversion feature on
convertible notes
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1,005,107 | |||||||
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Write
off of deferred noncash offering costs
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55,000 | |||||||
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Issuance
of common stock for services and amortization of common stock issued for
services
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14,875 | 217,000 | ||||||
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Issuance
of common stock warrants for conversion of notes
payable
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43,111 | |||||||
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Issuance
of stock options and warrants to employees and
consultants
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1,205,923 | 300,298 | ||||||
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Value
of beneficial conversion feature for conversion of notes payable
and related accrued interest
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21,708 | 438,560 | ||||||
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(Increase)
decrease in:
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||||||||
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Accounts receivable
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(198,456 | ) | (4,633 | ) | ||||
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Inventory
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(48,162 | ) | (13,566 | ) | ||||
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Prepaid expenses and other current assets
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(28,057 | ) | (27,492 | ) | ||||
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Increase
(decrease) in:
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||||||||
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Accounts payable and accrued expenses
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82,611 | 107,447 | ||||||
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Accrued compensation and related benefits
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35,626 | 121,668 | ||||||
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Deferred
revenue
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(61,759 | ) | (63,108 | ) | ||||
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Net
cash used by operating activities
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(1,477,738 | ) | (536,324 | ) | ||||
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Investing
activities
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||||||||
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Purchase
of property and equipment
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(15,155 | ) | (799 | ) | ||||
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Financing
activities
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||||||||
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Proceeds
from issuance of notes payable
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500,000 | 425,000 | ||||||
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Proceeds
received from escrow
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1,000,000 | |||||||
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Payments
on notes payable
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(100,000 | ) | (125,000 | ) | ||||
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Payments
for loan costs
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(34,000 | ) | ||||||
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Proceeds
from advance from related party
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51,000 | |||||||
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Repayments
of advance from related party
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(51,000 | ) | ||||||
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Issuance
of common stock for cash
|
51,000 | |||||||
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Net
cash provided by financing activities
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1,366,000 | 351,000 | ||||||
The
accompanying notes are an integral part of the financial
statements.
Dais
Analytic Corporation
Condensed
Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
|
2008
|
2007
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|||||||
| Net increase (decrease) in cash and cash equivalents | (126,893 | ) | (186,123 | ) | ||||
| Cash and cash equivalents, beginning of period | 504,232 | 204,799 | ||||||
| Cash and cash equivalents, end of period | $ | 377,339 | $ | 18,676 | ||||
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Supplemental
disclosures of cash flow information and
noncash investing and
financing activities:
|
||||||||
| Cash paid during the year for interest | $ | 10,100 | $ | 22,387 | ||||
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During
the nine months ended September 30, 2008, the Company issued 439,293
shares of common stock in conversion of $100,000 of notes payable and
$8,540 of accrued interest.
|
|
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During
the nine months ended September 30, 2008 the Company issued 492,308 shares
of common stock valued at $222,631 as payment for
services.
|
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During
the nine months ended September 30, 2008, the Company issued convertible
notes payable with a beneficial conversion feature of $245,106 and a
discount equivalent to the relative fair value of the accompanying
warrants of $254,894.
|
|
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During
the nine months ended September 30, 2007, the Company issued 3,220,318
shares of common stock in conversion of $840,547 of notes payable and
$40,984 of accrued interest.
|
|
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During
the nine months ended September 30, 2007, the Company issued 230,000
shares of common stock for services valued at
$217,000.
|
The
accompanying notes are an integral part of the financial
statements.
Dais
Analytic Corporation
Notes
to Condensed Financial Statements
Nine
months ended September 30, 2008
(Unaudited)
1. Background
Information
Dais
Analytic Corporation (the “Company”), a New York corporation, has developed and
is commercializing applications using its nano-structure polymer technology. The
first commercial product is an energy recovery ventilator (“ERV”) (cores and
systems) for use in commercial Heating, Ventilating, and Air Conditioning (HVAC)
applications. In addition to direct sales, the Company licenses its
nano-structured polymer technology to strategic partners in the aforementioned
application and is in various stages of development with regard to other
applications employing its base technologies. The Company was
incorporated in April of 1993 with its corporate headquarters located in Odessa,
Florida.
2. Going
Concern
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. For the nine month’s ended
September 30, 2008, the Company incurred a net loss of $4,867,167. As
of September 30, 2008, the Company has an accumulated deficit of $27,664,490,
negative working capital of $3,339,446 and a stockholder’s deficit of
$3,583,037. In view of these matters, there is substantial doubt that
the Company will continue as a going concern. The recoverability of
recorded property and equipment, intangible assets, and other asset amounts
shown in the accompanying financial statements is dependent upon the Company’s
ability to continue as a going concern and to achieve a level of
profitability. The Company intends on financing its future activities
and its working capital needs largely from the sale of public equity securities
with some additional funding from other traditional financing sources, including
term notes and proceeds from sub-licensing agreements until such time that funds
provided by operations are sufficient to fund working capital
requirements. However, there can be no assurance that the Company
will be successful in its efforts. The financial statements of the
Company do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classifications of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
3. Significant
Accounting Policies
In the
opinion of management, all adjustments consisting only of normal recurring
adjustments necessary for a fair statement of (a) the results of operations for
the three and nine month periods ended September 30, 2008 and 2007, (b) the
financial position at September 30, 2008, and (c) cash flows for the nine month
periods ended September 30, 2008 and 2007, have been made.
The
unaudited interim financial statements and notes are presented as permitted by
Form 10-Q. Accordingly, certain information and note disclosures normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
although the company generally believes that the disclosures are adequate to
make the information presented not misleading. The accompanying financial
statements and notes should be read in conjunction with the audited financial
statements and notes of the Company for the fiscal year ended December 31, 2007
included in the Company’s Registration Statement on Form S-1,as amended, filed
with the Securities and Exchange Commission on November 12, 2008. The results of
operations for the three and nine month periods ended September 30, 2008 and
2007 are not necessarily indicative of the results that may be expected for any
future quarters or for the entire year ending December 31,
2008.
The
significant accounting policies followed are:
|
|
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.
|
Dais
Analytic Corporation
Notes
to Condensed Financial Statements
Nine
months ended September 30, 2008
(Unaudited)
3. Significant
Accounting Policies (continued)
Direct
loan costs incurred with the issuance of notes payable are deferred and
amortized to interest expense over the life of the related notes
payable. For the three months ended September 30, 2008, the Company
incurred amortization from direct loan costs of $26,068. The Company
did not incur amortization of direct loan costs for the three months ended
September 30, 2007. For the nine months ended September 30, 2008 and
2007 the Company incurred amortization of direct loan costs of $78,810 and
$23,540, respectively.
Stock
issuance costs are recorded as a reduction of the related proceeds through a
charge to stockholders’ equity.
|
|
Inventory
consists of raw materials and is stated at the lower of cost, determined
by first-in, first-out method, or market. Market is determined
based on the net realizable value, with appropriate consideration given to
obsolescence, excessive levels, deterioration and other
factors.
|
|
|
Revenue
derived from the sale of licenses is deferred and recognized as revenue on
a straight-line basis over the life of the license, or until the license
arrangement is terminated. The Company recognized revenue of
$21,036 and $63,108 from license agreements for each of the three- and
nine-month periods ended September 30, 2008 and 2007,
respectively.
|
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based
Payment” (SFAS 123R). SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized as compensation
expense in the financial statements based on their fair values. That expense
will be recognized over the period during which an employee is required to
provide services in exchange for the award, known as the requisite service
period (usually the vesting period). The Company adopted SFAS 123R effective
beginning January 1, 2006 using the Modified Prospective Application Method.
Under this method, SFAS 123R applies to new awards and to awards modified,
repurchased or cancelled after the effective date. Prior to the
adoption of SFAS 123(R) the Company accounted for stock option grants using the
intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock
Issued to Employees,” and accordingly, recognized no compensation expense for
stock option grants.
The value
of each grant under SFAS 123(R) is estimated at the grant date using the
Black-Scholes option model with the following assumptions for options granted
during the nine months ended September 30, 2008 and 2007:
|
Nine
Months Ended
September
30, 2008
|
Nine
Months Ended
September
30, 2007
|
|||
|
Dividend
rate
|
0%
|
0%
|
||
|
Risk
free interest rate
|
2.64% –
3.98%
|
3.32%
- 5.13%
|
||
|
Term
|
5 –
10 years
|
5 –
10 years
|
||
|
Volatility
|
80% –
114%
|
71%
– 90%
|
The basis
for the above assumptions are as follows: the dividend rate is based
upon the Company’s history of dividends; the risk-free interest rate for periods
within the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of grant; the expected term was calculated based on
the Company’s historical pattern of options granted that are expected to be
outstanding; and expected volatility was calculated by review of a peer
company’s historical activity.
SFAS No.
123R requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Based on historical experience of forfeitures, the Company
estimated forfeitures at zero percent for the period ended September 30, 2008
and 2007 and incorporated this rate in the estimated fair value of employee
option grants during 2008 and 2007.
Dais
Analytic Corporation
Notes
to Condensed Financial Statements
Nine
months ended September 30, 2008
(Unaudited)
3. Significant
Accounting Policies (continued)
As of
September 30, 2008, there was $511,948 of unrecognized stock-based compensation
expense related to nonvested stock options. This expense will be
recognized over a weighted average period of 1.l8 years.
The
following table represents our nonvested share-based payment activity for the
nine months ended September 30, 2008:
|
Weighted
Average
|
||||||||
|
Number
of
|
Grant
Date
|
|||||||
|
Options
|
Fair
Value
|
|||||||
|
Nonvested
options - December 31, 2007
|
1,036,198 | |||||||
|
Granted
|
6,272,308 | $ | 0.31 | |||||
|
Vested
|
(5,365,276 | ) | ||||||
|
Forfeited
|
- | |||||||
|
Nonvested
options - September 30, 2008
|
1,943,230 | |||||||
| The aggregate intrinsic value of options and warrants outstanding and exercisable at September 30, 2008, based on the Company’s closing stock price of $0.17 as of the last business day of the period ended September 30, 2008, was $134,378 and $125,044, respectively. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options. | |
|
|
Basic
and diluted earnings per share are computed based on the weighted-average
common shares and common share equivalents outstanding during the
period. Common share equivalents consist of stock options and
warrants. The weighted average number of antidilutive common
share equivalents excluded from the computation of diluted earnings per
share for the three and nine month periods ended September 30, 2008
was 25,311,455 and 19,996744, respectively. The weighted average
number of antidilutive common share equivalents excluded from the
computation of diluted earnings per share for the three and nine month
periods ended September 30, 2007 was 7,017,565 and 6,462,120,
respectively.
|
|
|
In
December 2007, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 160, "Non-controlling Interests in Consolidated Financial
Statements – An amendment of ARB No. 51".SFAS 160 requires companies with
non-controlling interests to disclose such interests clearly as a portion
of equity but separate from the parent's equity. The non-controlling
interest's portion of net income must also be separately presented in the
statement of operations. SFAS 160 is effective for fiscal years beginning
after December 15, 2008. The adoption of this statement is not expected to
have a material effect on the Company's financial position or results of
operations.
|
|
|
Other
recent accounting pronouncements issued by FASB (including EITF), the
AICPA and the SEC did not or are not believed by management to have a
material impact on the Company’s present or future financial
statements.
|
Dais
Analytic Corporation
Notes
to Condensed Financial Statements
Nine
months ended September 30, 2008
(Unaudited)
4. Notes
Payable
Notes
payable consist of the following at September 30, 2008:
|
Convertible
notes payable; interest at 9%; with notes
maturing 12 months from date of issue beginning
December 2008, secured by certain patents heldby
the Company, net of unamortized discount
and
beneficial conversion feature
|
$ | 2,245,801 | ||
|
Note
payable to a related party; non-interest
bearing;due
on demand; unsecured
|
624 | |||
| 2,246,425 | ||||
| Less amounts currently due | 2,246,425 | |||
| $ | 0 |
Convertible
Notes Payable
During
the nine months ended September 30, 2008, the Company issued convertible
promissory notes and warrants to purchase common stock to individuals in
exchange for proceeds totaling $500,000. At September 30, 2008, the
Company had $2,950,000 convertible promissory notes outstanding (the
“Convertible Notes”). The Convertible Notes contain an embedded
conversion feature. As such, in accordance with EITF Issue No. 98-5,
“Accounting for Securities with Beneficial Conversion Feature or Contingently
Adjustable Conversion Ratio,” and EITF Issue No. 00-27, “Application of Issue
No. 98-5 to Certain Convertible Instruments,” the difference between the
conversion price and the Company’s estimated fair market value of its stock
price on the commitment date of the notes was calculated to be $245,106 for
notes issued during the nine months ended September 30, 2008 and $1,138,331 for
notes issued for the year ended December 31, 2007. In accordance with
EITF 98-5, the discount assigned to the beneficial conversion feature was
limited to the amount of proceeds allocated to the Convertible Notes. The
Company is amortizing the beneficial conversion feature over the life of the
convertible debt. During the three and nine month periods ended
September 30, 2008, the Company recognized interest expense from the
amortization of the beneficial conversion feature of $337,820 and $1,005,107,
respectively.
Warrants
to purchase 14,750,000 shares of the Company’s common stock accompanying the
Convertible Notes are, subject to certain limitations, exercisable at $0.25 per
share, vest immediately, and expire in December 2012. Pursuant to APB No. 14,
the Company valued the warrants issued in 2008 and 2007 at their relative fair
values of $254,894 and $1,311,669, respectively. The Company considered EITF
00-19 and concluded that the warrants should be recorded as a component of
permanent equity. To recognize the relative fair value of the
warrants, the Company discounted the notes and increased additional paid in
capital. The discount is amortized as interest expense over the term of the
notes. During the three and nine month periods ended September 30,
2008, the Company recognized interest expense of $397,659 and $1,169,825,
respectively, from the amortization of the discount.
The Convertible Notes bear interest at nine percent per
annum and mature beginning in December 2008 through January 2009. At maturity,
the lender has the option of receiving payment of any principal and accrued
interest due under the Convertible Notes in either cash or common stock of the
Company. If the lender opts for payment in the form of common stock, the stock
will be issued at the rate of one share per $0.20 of principal and interest. The
Company may, at any time prior to maturity, pay all interest and principal due
in cash. Accrued interest on the notes was $202,078 at September 30, 2008. As of the
date hereof the Company does not anticipate having adequate resources to repay
the Convertible Notes in cash. Accordingly, the Company has initiated
and is currently negotiating terms, which may secure the note holders’
agreement, to either extend the maturity dates of or convert the Convertible
Notes. The issuance of additional warrants, interest, or other forms of
consideration or any combination thereof may be provided to the note holder(s)
by the Company under the terms of such
negotiation.
The
following table presents a reconciliation of the proceeds received from the
financing to the carrying value of the Convertible Notes:
|
Principal
balance of convertible notes
|
$ | 2,950,000 | ||
| Relative fair value of the warrants | (1,566,563 | ) | ||
|
Beneficial
conversion feature
|
(1,383,437) | |||
| Amortization of the discount | 1,210,646 | |||
| Amortization of the beneficial conversion feature | 1,035,155 | |||
| Carrying value at September 30, 2008 | $ | 2,245,801 |
Dais
Analytic Corporation
Notes
to Condensed Financial Statements
Nine
months ended September 30, 2008
(Unaudited)
5. Related
Party Transactions
The
Company rents a building that is owned by two stockholders of the Company, one
of which is the Chief Executive Officer. Rent expense is $3,800 per
month. The Company recognized rent expense of $12,198 in each of the
three-month periods ended September 30, 2008 and 2007 and $36,594 in each of the
nine-month periods ended September 30, 2008 and 2007. These amounts
are not necessarily indicative of the amounts that would have been incurred had
comparable transactions been entered into with independent parties.
The
Company also has accrued compensation due to the Chief Executive Officer and the
Company’s in-house legal counsel for deferred salaries earned and unpaid as of
September 30, 2008 of $1,131,139.
The
Company regularly grants equity awards to management and the Board of Directors
as compensation for their services under the compensation plan described in Note
7. In addition, during the nine months ended September 30, 2008, the
Company granted the Chief Executive Officer a fully vested warrant to purchase
3,000,000 shares of the Company’s common stock. The fair value of
this warrant of approximately $687,000 is included in selling, general and
administrative expenses for the nine months ended September 30,
2008.
6. Authorized
Shares
During
the period ended September 30, 2008, the Company’s board of directors approved a
proposal to amend the Articles of Incorporation to increase the number of
authorized shares of common stock from 50,000,000 to 100,000,000
shares.
7. Stock
Options and Warrants
At
September 30, 2008, the Company has a stock option plan (the “2000 Plan”) that
provides for the granting of options to qualified employees of the Company,
independent contractors, consultants, directors and other
individuals. As of December 31, 2007, the Company’s Board of
Directors approved and made available 6,093,882 shares of common stock to be
issued pursuant to said plan. During the period ended September 30,
2008, the Company’s Board of Directors approved and made available an additional
5,000,000 shares of Company’s common stock for issuance under the 2000
Plan. The 2000 Plan permits grants of options of common shares
authorized and approved by the Company’s Board of Directors for issuance prior
to enactment of the 2000 Plan.
The
following summarizes the information relating to outstanding stock options and
warrants and the activity during 2008 and 2007:
|
Number
of
Shares
|
Per
Share Option/Warrant Price
|
Weighted
Average Exercise Price
|
|||
|
Shares
under option/warrant at January
1, 2007
|
6,026,029
|
$0.05-$5.50
|
$0.62
|
||
|
Exercised
|
(60,000)
|
$0.05
|
$0.05
|
||
|
Terminated
|
(1,064,585)
|
$0.05-$5.50
|
$2.25
|
||
|
Granted
|
14,167,637
|
$0.21-$0.55
|
$0.26
|
||
|
Shares
under option/warrant at December
31, 2007
|
19,069,081
|
$0.05-$5.50
|
$0.26
|
||
|
Terminated
|
(20,333)
|
$0.10
|
$0.10
|
||
|
Exercised
|
|||||
|
Granted
|
10,400,808
|
$0.21-$0.55
|
$0.29
|
||
|
Shares
under option/warrant at September
30, 2008
|
29,449,556
|
$0.05-$5.50
|
$0.27
|
||
|
Options/warrants
exercisable at
September 30, 2008
|
27,506,326
|
$0.05-$5.50
|
$0.27
|
Dais
Analytic Corporation
Notes
to Condensed Financial Statements
Nine
months ended September 30, 2008
(Unaudited)
7. Stock
Options and Warrants (continued)
The
weighted average fair value at the date of grant of the options and warrants was
$0.23 and $0.21 for the nine months ended September 30, 2008 and 2007,
respectively.
The
warrants and options expire at various dates ranging January 2009 to August
2018. A further summary of information related to stock options and
warrants outstanding and exercisable at September 30, 2008 is as
follows:
|
Range
of Exercise
Price
Per Share
|
Shares
Under Option/Warrant
|
Weighted
Average Exercise Price Per Share
|
Weighted
Average Remaining Contractual Life in Years
|
|||
|
Outstanding:
|
||||||
|
$0.05-0.75
|
29,420,599
|
$0.27
|
4.55
|
|||
|
$2.50-5.50
|
28,957
|
$3.94
|
1.74
|
|||
|
$0.05-5.50
|
29,449,556
|
$0.27
|
4.55
|
|||
|
Exercisable:
|
||||||
|
$0.05-0.75
|
27,477,369
|
$0.27
|
4.23
|
|||
|
$2.50-5.50
|
28,957
|
$3.94
|
1.74
|
|||
|
$0.05-5.50
|
27,506,326
|
$0.27
|
3.95
|
8. Commitments
and Contingencies
The
Company has employment agreements with some of its key employees and
executives. These agreements provide for minimum levels of
compensation during current and future years. In addition, these
agreements call for grants of stock options and for payments upon termination of
the agreements.
In May of
2006, the United States Patent Office (“USPTO”) informed the Company that an
interference proceeding had been initiated between the Company’s patent number
US 6,413,298 and a pending patent application assigned to another corporation. A
final ruling by the USPTO in favor of the Company was issued in September
2008.
The
Company entered into a six month financial and strategic consulting agreement
dated September 1, 2005 with a financial consulting company. (“Consulting
Company”) by which the Consulting Company agreed to assist the Company in the
procurement of equity and debt financing for business expansion and development
up to a maximum of $20,000,000. In exchange for these services, two
of the shareholders of the Company assigned their outstanding convertible notes,
valued at $627,723, to the Consulting Company. The Company accounted
for this transaction as a capital contribution by the stockholders for the
forgiveness of their notes. In turn, the Consulting Company received
an option to purchase shares of the Company’s stock which vested over the
Consulting Company’s service period. On December 23, 2005, the Company
terminated the Consulting Agreement for lack of performance by the Consulting
Company. During the nine month period ended September 30, 2008, the
Consulting Company assigned its rights to the vested portion of the option with
a fair value of $244,000 to a third-party and released the Company from
liability. The third party exercised this option into 2,440,000
shares of the Company’s common stock during June 2008. The Company
has no further obligations of any nature to the Consulting Company.
The
Company entered into an agreement with the holders of the Convertible Notes to
file a registration statement within a defined timeframe. The Company
will incur penalties and damages of up to approximately $236,000 if it does not
file an effective registration statement pursuant to the terms of this
agreement. As of September 30, 2008, the Company has recorded a
liability of $73,500 related to this agreement.
In June
2008, the Company hired a consultant to assist in evaluating possible
environmental credit opportunities. A portion of any such credits
obtained, or revenue generated from the sale thereof, is payable by the Company
to the consultant.
Dais
Analytic Corporation
Form 10-Q
For
the Quarter Ended September 30, 2008
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
The
following discussion of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and the notes
thereto included elsewhere in this quarterly report on Form 10-Q and in our
Registration Statement on Form S-1, as amended, filed with the Securities and
Exchange Commission on November 12, 2008 (SEC file No.
333-152940).
CAUTIONARY
NOTE REGARDING FORWARD- LOOKING STATEMENTS
Certain
information in this Form 10-Q, as well as in our other public filings, our
websites, press releases and oral statements made by our representatives, is
forward-looking information based on our current expectations, beliefs,
assumptions or plans and involve risks and uncertainties. This report contains
“forward looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact in this announcement are forward-looking statements.
Forward-looking statements may include , or be proceeded or followed by the
forward-looking words or phrases such as “anticipate”, “believe”, “could”,
“expect”, “intend”, “estimate”, “hope”, “may”, “plan”,
“anticipate”, “potential”, “should”, “will”, and “would”
or any similar language or variation of words with similar
meanings. These forward-looking statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance
or achievements to differ materially from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. Specific factors that might cause such a difference
include, but are not limited to, risks and uncertainty discussed in this report,
those that are or may be discussed from time to time in our public announcements
and filings with the SEC, such as our Registration Statement on Form S-1, as
amended, filed with the Securities and Exchange Commission
on November 12, 2008 (SEC File No.333-152940) including,
those contained in the sections titled “Risk Factors” and “ Management’s
Discussion and Analysis of Financial Condition and Results of Operation”, and
our future Forms 8-K, 10-Q and 10-K. Undue reliance should not be placed on such
statements, which speak only as of the date of this document or the date of any
document that may be incorporated by reference into this document. Unless
otherwise required by applicable securities law, we do not undertake and
specifically decline any obligation to update or revise these forward-looking
statements to reflect events or circumstances occurring after the date of the
filing of this report.
Results
of Operations
The
following table sets forth, for the periods indicated, certain data derived from
our Condensed Statements of Operations and certain of such data expressed as a
percentage of revenues (in thousands, except percentage amounts):
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Revenues
|
$
|
263,340
|
$
|
261,497
|
$
|
777,211
|
$
|
757,553
|
||||||||
|
Percentage
of revenues
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||
|
Cost
of goods sold
|
$
|
203,313
|
$
|
169,013
|
$
|
581,303
|
$
|
523,350
|
||||||||
|
Percentage
of revenues
|
77.2
|
%
|
64.6
|
%
|
74.8
|
%
|
69.1
|
%
|
||||||||
|
Selling,
general and administrative expenses
|
$
|
785,947
|
$
|
434,526
|
$
|
2,544,350
|
$
|
1,375,610
|
||||||||
|
Percentage
of revenues
|
327.4
|
%
|
181.6
|
%
|
298.5
|
%
|
166.2
|
%
|
||||||||
|
Interest
Expense
|
$
|
828,070
|
$
|
10,275
|
$
|
2,518,725
|
$
|
503,971
|
||||||||
|
Percentage
of revenues
|
314.4
|
%
|
3.9
|
%
|
324.1
|
%
|
66.5
|
%
|
||||||||
|
Net
loss
|
$
|
(1,553,990
|
)
|
$
|
(352,317)
|
$
|
(4,867,167)
|
$
|
(1,645,378)
|
|||||||
|
Percentage
of revenues
|
(590.1)
|
%
|
(134.7)
|
%
|
(626.2)
|
%
|
(217.2)
|
%
|
||||||||
Dais
Analytic Corporation
Form 10-Q
For
the Quarter Ended September 30, 2008
Summary
of Third Quarter Results of Operations
REVENUES:
Total revenues for the three months ended September 30, 2008 and 2007
were $263,340 and $261,497 respectively, an increase of $1,843 or 0.7%. The
increase in revenues is primarily attributable to interest earned of $2,613 on
proceeds from the private offering that closed from December 2007 to January
2008. During the three months ended September 30, 2008 and 2007, two
and four customers accounted for approximately 69.5% and 79.4% of revenues,
respectively.
COST OF GOODS SOLD:
Cost of goods sold increased
$34,300 to $203,313 and represented 78.0% of revenues, excluding interest
income, for the three months ended September 30, 2008 compared to $169,013 or
64.6% of revenues for the three months ended September 30, 2007. The
increase in 2008 is primarily attributable to an increase in the cost of
materials of approximately $40,000, or 15.4% of revenues, excluding interest
income. The offsetting decrease of approximately $6,000 is due to a decrease in
direct labor costs.
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses
of $785,947 for the three months ended September 30, 2008 increased $351,421
from $434,526 in the same period of 2007. This increase is due to a
variety of factors, including: compensation expense of approximately $83,000
recognized during the three-montb period ended September 30, 2008 for various
option and warrant awards granted subsequent to September 30, 2007, an increase
in payroll expense of approximately $115,000 for new employees, an increase in
audit fees of approximately 37,000, an increase in professional fees of
approximately $30,000 related primarily to the interference proceeding discussed
in Note 8 to the Condensed Financial Statements, an increase in travel costs of
approximately 46,000, an increase in research and development costs of
approximately $21,000 and other miscellaneous increases of approximately
19,000.
INTEREST EXPENSE:
Interest expense was $828,070 for the three months ended September 30,
2008 compared to $10,275 for the same period of 2007, an increase of
$817,795. During the three months ended September 30, 2008, interest
expense was comprised of amounts related to convertible notes issued from
December 2007 to January 2008, including approximately $66,000 of interest
payable to the note holders, loan cost amortization of approximately $26,000,
and approximately $736,000 for the amortization of the note discount and
embedded beneficial conversion feature, described in Note 4 to the Condensed
Financial Statements. During the three months ended September 30,
2007, interest expense was comprised primarily of interest due on the Robb
notes.
NET LOSS:
Net loss for the nine months ended September 30, 2008 increased by
$1,201,673 to $1,553,990 from $352,317 for the nine months ended September 30,
2007. The increase in net loss is primarily due to the increases in cost of
sales, selling, general and administrative expenses and interest expense
discussed above.
Summary
of Year to Date Results of Continuing Operations
REVENUES:
Total revenues for the nine months ended September 30, 2008 and 2007 were
$777,211 and $757,553 respectively, an increase of $19,658, or 2.6%. The
increase in revenues is primarily attributable to interest earned during 2008 of
$18,895 on proceeds from the private offering that closed from December 2007 to
January 2008. During the nine months ended September 30, 2008 and
2007, three customers accounted for approximately 50.7% and 64.3% of revenues,
respectively.
COST OF GOODS SOLD:
Cost of goods sold increased
$57,593 to $581,303 and represented 76.7% of revenues, excluding interest
income, for the nine months ended September 30, 2008 compared to $523,350 or
69.1% of revenues for the nine months ended September 30, 2007. The
increase in 2008 is primarily attributable to an increase in the cost of
materials of approximately $71,000, or 9.3% of revenues, excluding interest
income. The offsetting decrease of approximately $13,000 is due to a decrease in
direct labor costs.
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES: Selling,
general and administrative expenses of $2,544,350 for the nine months ended
September 30, 2008 increased $1,168,740 from $1,375,610 in the same period of
2007. This increase is due to a variety of factors, including:
compensation expense of approximately $687,000 recognized during 2008 for a
warrant granted to an executive as discussed in Note 5 to the Condensed
Financial Statements, compensation expense of approximately $226,000 recognized
in 2008 for various option and warrant awards granted subsequent to September
30, 2007, an increase in payroll expense of approximately $216,000 for new
employees, an increase in audit fees of approximately 103,000 and an increase in
travel costs of approximately
66,000. These increases are partially offset by decreases in consulting and
professional fees of approximately $135,000 due to the completion in 2006 of
one-time consulting contracts.
Dais
Analytic Corporation
Form 10-Q
For
the Quarter Ended September 30, 2008
INTEREST EXPENSE:
Interest expense was $2,518,725 for the nine months ended September 30,
2008 compared to $503,971 for the same period of 2007, an increase of
$2,014,754. During the nine months ended September 30, 2008, interest
expense was comprised of amounts related to convertible notes issued from
December 2007 to January 2008, including approximately $196,000 of interest
payable to the note holders, loan cost amortization of approximately $79,000,
and approximately $2,175,000 for the amortization of the note discount and
embedded beneficial conversion feature, described in Note 4 to the Condensed
Financial Statements. During the nine months ended September 30,
2008, the Company also recognized approximately $65,000 of interest expense from
the induced conversion of notes payable to the Robb Charitable
Trust. During the nine months ended September 30, 2007, interest
expense was comprised of amounts related to convertible notes issued from
October 2005 to February 2007, including approximately $41,000 of interest
payable to the note holders, loan cost amortization of approximately $24,000,
and approximately $439,000 for the induced conversion of the notes into
3,258,323 shares of common stock.
NET LOSS:
Net loss for the nine months ended September 30, 2008 increased by
$3,221,789 to $4,867,167 from $1,645,378 for the nine months ended September 30,
2007. The increase in net loss is primarily due to the increases in cost of
sales, selling, general and administrative expenses and interest expense
discussed above.
Liquidity
and Capital Resources
The
Company finances its operations primarily through sales of its ConsERV products,
sales of its common and preferred stock, the issuance of convertible promissory
notes and license agreements.
Our
historical revenues have not been sufficient to sustain our
operations. We have not achieved profitability in any year since
inception and we expect to continue to incur net losses and negative free cash
flow until we can produce sufficient revenues to cover our costs, which is not
expected for several years. Furthermore, even if we achieve our
projection of selling a greater number of ConsERV™ units, we anticipate that we
will continue to incur losses until we can cost-effectively produce and sell our
products to a wider market. Our profitability will require the
successful commercialization of our ConsERV products and any future products we
develop. No assurances can be given when this will occur.
At
September 30, 2008, we had outstanding debt on 9% convertible secured promissory
notes of $2,950,000 plus related interest. The notes mature commencing
December 2008 through January 2009. We do not have adequate funds to repay the
notes upon maturity, and do not expect to attain adequate funds for repayment
from operations by the respective maturity dates. The notes are
secured by all of the Company’s patents and the majority of the Company’s
patent applications.
The
Company may not be able to secure additional financing to repay the notes on
acceptable terms, if at all. As a result, we may be unable to pay the
notes as they become due. As an alternative, management may attempt to
renegotiate the repayment terms of the notes and seek extension of the maturity
dates. There is no guarantee that any re-negotiated terms we may be
able to secure would be favorable to the Company. Unfavorable terms, in either a
financing transaction or debt renegotiation, would adversely impact our
business, financial condition and/or results of operations. In the event
(i) we are unable to secure additional financing sufficient to pay the notes,
(ii) the notes are not converted into shares of our common stock pursuant to
their terms, or (iii) we are not able to negotiate extensions to the maturity
dates of the notes, note holders will have the option to foreclose on all of our
patents and those patent applications securing the notes, which would likely
result in the failure of our business.
Any
future financing may result in substantial dilution to existing shareholders,
and future debt financing, if available, may include restrictive covenants or
may require us to grant a lender a security interest in any of our assets not
already subject to an existing security interest. To the extent that we attempt
to raise additional funds through third party collaborations and/or licensing
arrangements, we may be required to relinquish some rights to our technologies
or products currently in various stages of development, or grant licenses or
other rights on terms that are not favorable to us. Any failure by us to timely
procure additional financing or investment adequate to fund our ongoing
operations, including planned product development initiatives, clinical studies
and commercialization efforts, will have material adverse consequences on our
financial condition, results of operations and cash flows.
Dais
Analytic Corporation
Form 10-Q
For
the Quarter Ended September 30, 2008
We expect
that cash and cash equivalents of approximately $377,000 at
September 30, 2008 will be sufficient to fund our working capital
requirements through December 31, 2008. We plan to raise additional capital of
approximately $13.8 to $18.4 million, net of offering costs, during the next
nine to twelve months, the proceeds of which will be used to pay down existing
debt, secure new patents for innovative applications of our core technology,
purchase equipment, and fund our working capital requirements for the year
ending December 31, 2009.
Our
ability to continue as a going concern is highly dependent on our ability to
obtain additional sources of cash flow sufficient fund our working capital
requirements, including repayment of our debt obligations. We intend to finance
our operations, including the repayment of notes payable, primarily through
private sales of debt and equity securities, licensing revenues, and sales of
non-core uses of our technology. Any failure by us to timely secure the
cash flow adequate to fund our debt obligations and ongoing operations will have
a materially adverse consequence on our financial condition, results of
operations and cash flows.
Statement
of Cash Flows
The
following table sets forth, for the periods indicated, selected consolidated
cash flow information (in thousands):
|
Nine
months ended
September 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
flows used in operating activities
|
$ | (1,477,738 | ) | $ | (536,324 | ) | ||
|
Cash
flows used in investing activities
|
(15,155 | ) | (799 | ) | ||||
|
Cash
flows provided by financing activities
|
1,366,000 | 351,000 | ||||||
|
Net
decrease in cash and cash equivalents
|
$ | (126,893 | ) | $ | (186,823 | ) | ||
Cash and
cash equivalents and cash held in escrow were $377,339 and $1,504,232 at
September 30, 2008 and December 31, 2007, respectively. Cash is
primarily used to fund our working capital requirements and net operating
losses. At December 31, 2007, cash held in escrow represented $1,000,000 of
proceeds from the private offering, which was released from escrow when the
transaction closed in January 2008.
Net cash
used in operating activities was $1,477,738 million for the nine months
ended September 30, 2008 as compared to $536,324 million for the same
period in 2007. During the nine months ended September 30, 2008, we
used additional cash to fund operations of approximately $603,000 and working
capital requirements of approximately 339,000 compared to the same period in
2007.
During
the nine months ended September 30, 2008, financing activities provided
$1,366,000 of cash from net proceeds received from our private placement
offering of $1,466,000, partially offset by payments on our outstanding notes
payable of $100,000.
INFLATION
Our
management believes that inflation has not had a material effect on our results
of operations.
OFF-BALANCE
SHEET ARRANGEMENTS
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Dais
Analytic Corporation
Form 10-Q
For
the Quarter Ended September 30, 2008
CONTRACTUAL
OBLIGATIONS
As of
September 30, 2008, we have contractual obligations of $3,055,636 as
indicated below:
|
Less
than 1
|
||||||||||||||||
|
Contractual
Obligations
|
Total
|
Year
|
1-3
Years
|
3-5
Years
|
||||||||||||
|
Long-term
debt
|
$
|
2,950,000
|
$
|
2,950,000
|
$
|
-
|
$
|
-
|
||||||||
|
Purchase
Obligations
|
105,636
|
105,636
|
-
|
-
|
||||||||||||
|
Total
|
$
|
3,055,636
|
$
|
3,055,636
|
$
|
-
|
$
|
-
|
||||||||
ITEM
3. CONTROLS AND PROCEDURES
Evaluation
of disclosure controls and procedures
Our Chief
Executive Officer and Chief Financial Officer (collectively the “Certifying
Officers”) maintain a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed, is accumulated and communicated to management timely. The
Certifying Officers have concluded that the disclosure controls and procedures
are effective at the “reasonable assurance” level. Under the supervision and
with the participation of management, as of the end of the period covered by
this report, the Certifying Officers evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act). Furthermore, the Certifying
Officers concluded that our disclosure controls and procedures in place are
designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is (i) recorded, processed,
summarized and reported on a timely basis in accordance with applicable
Commission rules and regulations; and (ii) accumulated and communicated to our
management, including our Certifying Officers and other persons that perform
similar functions, if any, to allow us to make timely decisions regarding
required disclosure in our periodic filings.
Part
II — OTHER INFORMATION
Item 1. Legal
Proceedings
The
status of our legal proceedings, as disclosed in our Registration Statement on
Form S-1, as amended, filed with the Securities and Exchange Commission on
November 12, 2008 (SEC File No. 333-152940), remains
unchanged.
The
Company is party to lawsuits from time to time arising in the ordinary course of
its businesses. The Company provides for costs relating to these
matters when a loss is probable and the amount is reasonably estimable. The
effect of the outcome of these matters on the Company's future results of
operations cannot be predicted because any such effect depends on future results
of operations and the amount and timing of the resolution of such
matters.
Dais
Analytic Corporation
Form 10-Q
For
the Quarter Ended September 30, 2008
Item 1A. Risk
Factors
Our
business, its financial condition, operating results, liquidity, cash flows,
convertible notes and the trading price of its common stock, can be
impacted by a number of factors, any one of which could cause our actual results
to vary materially and adversely from recent results or from our anticipated
future results. For
a discussion identifying additional risk factors and important factors that
could cause actual results to differ materially and adversely from those
anticipated, see the discussion below and "Risk Factors" in our Registration
Statement on Form S-1, as amended, filed with the Securities and Exchange
Commission on November 12, 2008 (SEC File No.333-152940). This
information should be considered carefully together with all other information
in this report and
other reports and materials we file or have filed with the Securities and
Exchange Commission.
Disruptions
in the credit markets have created uncertainty, which could adversely affect our
business.
The
financial markets in the United States, Europe, South America and Asia have been
experiencing extreme disruption in recent months. As widely reported, these
markets have experienced, among other things, extreme volatility in security
prices, commodities and currencies; severely diminished liquidity and credit
availability, rating downgrades and declining valuations of certain investments.
The current tightening of credit in financial markets could adversely affect our
ability to secure the additional financing necessary to repay our existing
convertible notes in a timely manner and/or to continue operations. Given the
current state of the financial markets, the Company may not
be able to secure sufficient additional financing to repay the notes and
continue operations on acceptable terms, if at all. As a result, we
may be unable to pay the notes as they become due and/or be unable to continue
operation of the company, either of which may likely result in the failure of
our business.
In
addition, the tightening of the credit in financial markets may also adversely
affect our customers' ability to obtain financing for operations, result in a
decrease in the demand for our products and negatively impact our collection of
trade receivables from our customers. Continuation or worsening of the current
economic conditions, a prolonged global, national or regional economic recession
or other similar events could have a material adverse effect on the demand for
our products and on our sales, pricing and profitability. We are unable to
predict the likely duration and severity of the current disruption in financial
markets and adverse economic conditions in the U.S. and other countries and the
impact these events may have on our operations and the industry in
general.
As
company is now quoted on the Over-The- Counter Bulletin Board we
must meet and remain current as to reporting
requirements.
Companies that are quoted on the OTC Bulletin Board,
while not subject to listing requirements per se, must be registered with the
Commission under Section 13 or 15(d) of the Exchange Act, and must remain
current in their reporting requirements in order to remain eligible for
quotation. Companies that are quoted on the Pink OTC Markets, Inc’s Pink Sheet
have no such requirements. This move has and will cause company to incur
significant increased costs as a result of operating as a public company, and
our management will be required to devote substantial time to new compliance
initiatives. If we were unable to continue to comply with the new rules, we
could be delisted from trading on the Over- the-Counter Bulletin Board and
thereafter trading in our common stock, if any, may be conducted through the
Pink OTC Markets, Inc’s Pink Sheet. As a consequence of such delisting, an
investor would likely find it more difficult to dispose of, or to obtain
quotations as to the price of, our common stock. Delisting of our common stock
from the Over-the–Counter Bulletin Board could also result in significantly
lower prices per share of our common stock than would otherwise prevail. There
is not currently an active trading market for our common stock, meaning that the
number of persons interested in purchasing shares of our common stock at or near
ask prices at any given time may be relatively small or non-existent, and there
can be no assurance that an active trading market may ever develop or, if
developed, that it will be maintained. As a consequence, our stock may be
characterized by a lack of liquidity, sporadic trading, larger spreads between
bid and ask quotations, and other conditions that may affect shareholders’
ability to re-sell our securities. Moreover, there may be periods of
several days or more when trading activity in our shares is minimal or
non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous sales without
an adverse effect on share price. Unless an active trading market for our common
stock is developed and maintained, shareholders may be unable to sell their
common stock and any attempted sale of such shares may have the effect of
lowering the market price of our common stock and a shareholder’s investment
could be a partial or complete loss.
The trading price
of our common stock may be negatively affected by our recent listing on the
Over-The-Counter Bulletin Board which entails additional regulatory
requirements.
The
trading price of our common stock on the Over-The-Counter Bulletin Board will
continue to be below $5.00 per share. As a result of this exchange relocation,
trading in our common stock would be subject to the requirements of certain
rules promulgated under the Exchange Act of 1934. These rules require additional
disclosure by broker-dealers in connection with any trades generally involving
any non-NASDAQ equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such rules require the delivery, before
any penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally institutions). For
these types of transactions, the broker-dealer must determine the suitability of
the penny stock for the purchaser and receive the purchaser’s written consent to
the transaction before sale. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting transactions
in our common stock. As a consequence, the market liquidity of our common stock
could be severely affected or limited by these regulatory
requirements.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
Other
than as disclosed in “Recent Sales of Unregistered Securities” of our
Registration Statement, as amended, filed with the Securities and Exchange
Commission on November 12, 2008 (SEC No. 333-152940) we have
not issued securities during the period pertaining to this Form 10Q
filing.
Item 3. Defaults
Upon Senior Securities
Not
Applicable in this reporting period
Item 4. Submission
of Matters to a Vote of Security Holders
Not
Applicable in this reporting period
Item 5. Other
Information
Not
Applicable in this reporting period
Item 6. Exhibits
|
No.
|
Exhibit
|
|
3.1
|
Certificate
of Incorporation of The Dais Corporation filed April 8,
1993(1)
|
|
3.2
|
Certificate
of Amendment of the Certificate of Incorporation of The Dais Corporation
filed February 21, 1997(1)
|
|
3.3
|
Certificate
of Amendment of the Certificate of Incorporation of The Dais Corporation
filed June 25, 1998(1)
|
|
3.4
|
Certificate
of Amendment of the Certificate of Incorporation of Dais Analytic
Corporation filed December 13, 1999(1)
|
|
3.5
|
Certificate
of Amendment of the Certificate of Incorporation of Dais Analytic
Corporation filed September 26, 2000(1)
|
|
3.6
|
Certificate
of Amendment of the Certificate of Incorporation of Dais Analytic
Corporation filed September 28, 2000(1)
|
|
3.7
|
Certificate
of Amendment of the Certificate of Incorporation of Dais Analytic
Corporation filed August 28, 2007(1)
|
|
3.8
|
Certificate
of Amendment of the Certificate of Incorporation of Dais Analytic
Corporation filed March 20, 2008(1)
|
|
3.9
|
Bylaws
of The Dais Corporation(1)
|
|
4.1
|
Form
of Non-Qualified Stock Option Agreement(1)
|
|
4.2
|
Form
of Non-Qualified Option Agreement(1)
|
|
4.3
|
Form
of Warrant (Daily Financing) (1)
|
|
4.4
|
Form
of Warrant (Financing) (1)
|
|
4.5
|
Form
of Warrant (Robb Trust Note and Additional Financing)
(1)
|
|
4.6
|
Form
of Placement Agent Warrant (Financing) (1)
|
|
4.7
|
Form
of 9% Secured Convertible Note (Financing) (1)
|
|
4.8
|
Form
of Note (Robb Trust Note) (1)
|
|
4.9
|
Form
of Amendment to Note (Robb Trust Note) (1)
|
|
10.1
|
2000
Equity Compensation Plan (Incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-1(1)
|
|
10.2
|
Form
of Employee Non-Disclosure and Non-Compete
Agreement(1)
|
|
10.3
|
Amended
and Restated Employment Agreement between Dais Analytic Corporation and
Timothy N. Tangredi dated July 29, 2008(1)
|
|
10.4
|
Amended
and Restated Employment Agreement between Dais Analytic Corporation and
Patricia K. Tangredi dated July 29, 2008(1)
|
|
10.5
|
Commercial
Lease Agreement between Ethos Business Venture LLC and Dais Analytic
Corporation dated March 18, 2005(1)
|
|
10.6
|
First
Amendment of Lease Agreement between Ethos Business Venture LLC and Dais
Analytic Corporation dated November 15, 2005(1)
|
|
10.7
|
Form
of Subscription Agreement (Daily Financing) (1)
|
|
10.8
|
Form
of Subscription Agreement (Financing) (1)
|
|
10.9
|
Form
of Registration Rights Agreement (Financing)(1)
|
|
10.10
|
Form
of Secured Patent Agreement (Financing) (1)
|
|
10.11
|
Placement
Agent Agreement between Dais Analytic Corporation and Legend
Merchant Group, Inc., dated October 5, 2007(1)
|
|
31.1
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14 of the Exchange Act of 1934 — Timothy N. Tangredi |
|
31.2
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14 of the Exchange Act of 1934 — Brooke Evans |
|
32.1
|
Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Session 1350 – Timothy N. Tangredi and Brooke
Evans
|
(1)
Incorporated by reference to our Registration Statement on Form S-1 (File No.
333-152940), as filed November 12, 2008.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
DAIS
ANALYTIC CORPORATION
(Registrant)
|
|||
|
/s/
TIMOTHY N. TANGREDI
|
Dated:
|
December
17, 2008
|
|
|
Timothy
N. Tangredi
|
|||
|
President
and Chief Executive Officer
|
|||
|
(Principal
Executive Officer)
|
|||
|
/s/
BROOKE EVANS
|
Dated:
|
December
17, 2008
|
|
|
Brooke
Evans
|
|||
|
Chief
Financial Officer and Treasurer
|
|||
|
(Principal
Financial and Accounting Officer)
|
-23-