Company Quick10K Filing
Dais Analytic
Price0.00 EPS-0
Shares530 P/E-0
MCap0 P/FCF-0
Net Debt-0 EBIT-2
TEV-0 TEV/EBIT0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-07-06
10-K 2019-12-31 Filed 2020-06-02
10-Q 2019-09-30 Filed 2019-12-02
10-Q 2019-06-30 Filed 2019-08-19
10-Q 2019-03-31 Filed 2019-05-20
10-K 2018-12-31 Filed 2019-04-10
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-04-02
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-21
10-Q 2017-03-31 Filed 2017-05-22
10-K 2016-12-31 Filed 2017-04-17
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-04-01
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-10
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-13
10-K 2009-12-31 Filed 2010-03-30
8-K 2020-08-05 Amendment
8-K 2020-05-15
8-K 2020-03-30
8-K 2020-03-10
8-K 2019-12-05
8-K 2019-11-07
8-K 2019-05-22
8-K 2019-02-26
8-K 2018-11-01
8-K 2018-04-17

DLYT 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. Background Information
Note 2. Going Concern and Management's Plans
Note 3. Significant Accounting Policies
Note 4. Accrued Expenses, Other
Note 5. Related Party Transactions
Note 6. Equity Transactions
Note 7. Notes Payable
Note 8. Convertible Notes Payable
Note 9. Derivative Liabilities
Note 10. Commitments and Contingencies
Note 11. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 dlyt_ex311.htm
EX-31.2 dlyt_ex312.htm
EX-32.1 dlyt_ex321.htm
EX-32.2 dlyt_ex322.htm

Dais Analytic Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
2.90.3-2.3-4.8-7.4-10.02012201420172020
Assets, Equity
1.61.00.4-0.3-0.9-1.52012201420172020
Rev, G Profit, Net Income
2.21.60.90.3-0.4-1.02012201420172020
Ops, Inv, Fin

10-Q 1 dlyt_10q.htm FORM 10-Q dlyt_10q.htm

  

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2020

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______ to _______

 

Commission File No. 000-53554

 

DAIS CORPORATION

(Exact name of Registrant as specified in its charter)

  

New York

 

14-1760865

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

11552 Prosperous Drive, Odessa, Florida

 

33556

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code: (727) 375-8484

 

Securities registered pursuant to Section 12(b) of the Act:

  

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

N/A

 

N/A

 

N/A

 

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 ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     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 or an emerging growth company. See the definitions of “large accelerated filer”, "accelerated filer”, “smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

There were 278,128 shares of the Registrant's $0.01 par value common stock outstanding as of August 14, 2020.

   

 

 

     

DAIS CORPORATION

 

TABLE OF CONTENTS

 

 

 

 

Page No.

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

Condensed Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

 

 

 

Condensed Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited)

 

 

 

Condensed Statement of Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019 (unaudited)

 

 

 

Condensed Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)

 

 

 

Notes to Condensed Financial Statements (unaudited)

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

27 

 

Item 4.

Controls and Procedures

 

27 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

 

28 

 

Item 1A.

Risk Factors

 

28 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

28 

 

Item 3.

Defaults Upon Senior Securities

 

28 

 

Item 4.

Mine Safety Disclosures

 

28 

 

Item 5.

Other Information

 

28 

 

Item 6.

Exhibits

 

29 

 

 

 

 

 

 

SIGNATURES

 

30 

 

  

 
2

 

    

PART I – FINANCIAL INFORMATION

   

ITEM 1. FINANCIAL STATEMENTS

 

DAIS CORPORATION

CONDENSED BALANCE SHEETS

  

 

 

June 30,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$ 83,107

 

 

$ 4,083

 

Accounts receivable, net

 

 

35,605

 

 

 

12,883

 

Other receivables

 

 

8,594

 

 

 

34,144

 

Inventory

 

 

61,903

 

 

 

91,281

 

Prepaid expenses

 

 

87,004

 

 

 

32,362

 

Total Current Assets

 

 

276,213

 

 

 

174,753

 

Property and equipment, net

 

 

17,259

 

 

 

30,957

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Deposits

 

 

4,780

 

 

 

4,780

 

Patents, net

 

 

151,554

 

 

 

146,135

 

Total Other Assets

 

 

156,334

 

 

 

150,915

 

TOTAL ASSETS

 

$ 449,806

 

 

$ 356,625

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable, including related party payables of $272,774 and $280,247 at June 30, 2020 and December 31, 2019, respectively

 

$ 944,931

 

 

$ 952,415

 

Accrued expenses, other, including interest due to related party of $558,302 and $444,476 at June 30, 2020 and December 31, 2019, respectively

 

 

1,247,294

 

 

 

1,034,745

 

Accrued compensation and related benefits

 

 

2,068,114

 

 

 

2,019,777

 

Customer deposits

 

 

57,725

 

 

 

91,742

 

Notes payable to related parties

 

 

1,957,600

 

 

 

1,822,600

 

Current portion of deferred revenue

 

 

373,656

 

 

 

398,656

 

Derivative liabilities

 

 

2,026,219

 

 

 

2,349,471

 

Notes payable

 

 

54,000

 

 

 

 

 

Convertible notes payable, net of unamortized debt discount and deferred debt issuance costs

 

 

1,453,960

 

 

 

1,346,213

 

Total Current Liabilities

 

 

10,183,499

 

 

 

10,015,619

 

Notes payable – due after one year

 

 

294,750

 

 

 

 

 

Note payable - related party – due after one year

 

 

10,000

 

 

 

10,000

 

Total Liabilities

 

 

10,488,249

 

 

 

10,025,619

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Preferred stock, undesignated; $0.01 par value; 7,990,000 shares authorized; no shares issued and outstanding

 

 

-

 

 

 

-

 

Preferred stock, Series A; $0.01 par value; 2,000,000 shares authorized; no shares issued and outstanding

 

 

-

 

 

 

-

 

Preferred stock, Series B; $0.01 par value; 10,000 shares authorized; 10 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

-

 

 

 

-

 

Common stock; $0.01 par value; 1,100,000,000 shares authorized; 278,757 shares issued and 278,128 shares outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

2,788

 

 

 

2,788

 

Capital in excess of par value

 

 

45,976,660

 

 

 

45,976,660

 

Accumulated deficit

 

 

(54,555,779 )

 

 

(54,186,330 )

 

 

 

(8,576,331 )

 

 

(8,206,882 )

Treasury stock at cost, 629 shares at June 30, 2020 and December 31, 2019, respectively

 

 

(1,462,112 )

 

 

(1,462,112 )

Total Stockholders’ Deficit

 

 

(10,038,443 )

 

 

(9,668,994 )

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$ 449,806

 

 

$ 356,625

 

  

See accompanying Notes to Unaudited Condensed Financial Statements

  

 
3

Table of Contents

     

DAIS CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

     

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$ 193,074

 

 

$ 200,258

 

 

$ 468,032

 

 

$ 570,098

 

Royalty and license fees

 

 

12,500

 

 

 

12,500

 

 

 

25,000

 

 

 

25,000

 

 

 

 

205,574

 

 

 

212,758

 

 

 

493,032

 

 

 

595,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

 

126,745

 

 

 

184,949

 

 

 

268,219

 

 

 

358,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS MARGIN

 

 

78,829

 

 

 

27,809

 

 

 

224,813

 

 

 

236,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, net of government grant proceeds of $18,824, $10,489, $57,334 and $33,407, respectively

 

 

33,931

 

 

 

64,066

 

 

 

74,226

 

 

 

115,835

 

Selling, general and administrative

 

 

260,839

 

 

 

310,313

 

 

 

516,744

 

 

 

745,148

 

TOTAL OPERATING EXPENSES

 

 

294,770

 

 

 

374,379

 

 

 

590,970

 

 

 

860,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(215,941 )

 

 

(346,570 )

 

 

(366,157 )

 

 

(624,692 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(234,494 )

 

 

(629,073 )

 

 

(588,490 )

 

 

(1,101,448 )

Change in fair value of derivative liabilities

 

 

1,911,951

 

 

 

178,231

 

 

 

585,198

 

 

 

202,493

 

Gain on extinguishment of debt

 

 

-

 

 

 

45,476

 

 

 

-

 

 

 

53,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL OTHER INCOME (EXPENSE), NET

 

 

1,677,457

 

 

 

(405,366 )

 

 

(3,292 )

 

 

(845,406 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$ 1,461,516

 

 

$ (751,936 )

 

$ (369,449 )

 

$ (1,470,098 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER COMMON SHARE, BASIC

 

$ 5.26

 

 

$ (7.90 )

 

$ (1.33 )

 

$ (17.19 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE, DILUTED

 

$ (0.02 )

 

$ (7.90 )

 

$ (1.33 )

 

$ (17.19

)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC

 

 

278,128

 

 

 

95,167

 

 

 

278,128

 

 

 

85,523

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, DILUTED

 

 

16,964,471

 

 

 

95,167

 

 

 

278,128

 

 

 

85,523

 

 

See accompanying Notes to Unaudited Condensed Financial Statements

  

 
4

Table of Contents

     

DAIS CORPORATION

CONDENSED STATEMENT OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Capital in Excess of Par

 

 

Accumulated

 

 

Treasury

 

 

Total Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Value

 

 

Deficit

 

 

Stock

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

10

 

 

$ -

 

 

 

278,757

 

 

$ 2,788

 

 

$ 45,976,660

 

 

$ (54,186,330 )

 

$ (1,462,112 )

 

$ (9,668,994 )

Net loss for the three months ended March 31, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,830,965 )

 

 

-

 

 

 

(1,830,965 )

Balance at March 31, 2020

 

 

10

 

 

 

-

 

 

 

278,757

 

 

 

2,788

 

 

 

45,976,660

 

 

 

(56,017,295 )

 

 

(1,462,112 )

 

 

(11,499,959 )

Net income for the three months ended June 30, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,461,516

 

 

 

-

 

 

 

1,461,516

 

Balance at June 30, 2020

 

 

10

 

 

$ -

 

 

 

278,757

 

 

$ 2,788

 

 

$ 45,976,660

 

 

$ (54,555,779 )

 

 

(1,462,112 )

 

$ (10,038,443 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

10

 

 

$ -

 

 

 

74,910

 

 

$ 749

 

 

$ 44,797,156

 

 

$ (50,137,190 )

 

$ (1,462,112 )

 

$ (6,801,397 )

Shares issued upon conversion of debt

 

 

-

 

 

 

-

 

 

 

4,427

 

 

 

44

 

 

 

88,490

 

 

 

-

 

 

 

-

 

 

 

88,534

 

Adjustment for fractions

 

 

-

 

 

 

-

 

 

 

277

 

 

 

3

 

 

 

(3 )

 

 

-

 

 

 

-

 

 

 

-

 

Warrants issued for finance cost

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,320

 

 

 

-

 

 

 

-

 

 

 

25,320

 

Net loss for the three months ended March 31, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(718,162 )

 

 

-

 

 

 

(718,162 )

Balance at March 31, 2019

 

 

10

 

 

 

-

 

 

 

79,614

 

 

 

796

 

 

 

44,910,963

 

 

 

(50,855,352 )

 

 

(1,462,112 )

 

 

(7,405,705 )

Shares issued upon conversion of debt

 

 

-

 

 

 

-

 

 

 

46,436

 

 

 

465

 

 

 

379,144

 

 

 

-

 

 

 

-

 

 

 

379,609

 

Shares issued for finance cost

 

 

-

 

 

 

-

 

 

 

550

 

 

 

5

 

 

 

9,995

 

 

 

-

 

 

 

-

 

 

 

10,000

 

Warrants issued for finance cost

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

141,844

 

 

 

-

 

 

 

-

 

 

 

141,844

 

Net loss for the three months ended June 30, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(751,936 )

 

 

-

 

 

 

(751,936 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

10

 

 

$ -

 

 

 

126,600

 

 

$ 1,266

 

 

$ 45,441,946

 

 

$ (51,607,288 )

 

$ (1,462,112 )

 

$ (7,626,188 )

 

See accompanying Notes to Unaudited Condensed Financial Statements

  

 
5

Table of Contents

    

DAIS CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

  

 

 

For the Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (369,449 )

 

$ (1,470,098 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of deferred debt issue costs

 

 

5,848

 

 

 

26,824

 

Depreciation and amortization

 

 

22,349

 

 

 

25,031

 

Change in fair value of derivative liability

 

 

(585,198 )

 

 

(202,493 )

Non-cash interest expenses

 

 

261,946

 

 

 

527,316

 

Amortization of debt discount

 

 

101,899

 

 

 

350,385

 

Gain on extinguishment of debt

 

 

-

 

 

 

(53,549 )

Legal fees paid through proceeds of notes payable

 

 

-

 

 

 

75,000

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(22,722 )

 

 

25,860

 

Inventory

 

 

29,378

 

 

 

(58,446 )

Other receivables

 

 

25,550

 

 

 

(12,774 )

Prepaid expenses/Other assets

 

 

(54,642 )

 

 

(35,241 )

Increase (decrease) in:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(7,484 )

 

 

206,291

 

Accrued expenses

 

 

260,886

 

 

 

283,399

 

Customer deposits

 

 

(34,017 )

 

 

50,064

 

Deferred revenue

 

 

(25,000 )

 

 

(25,000 )

Net cash used in operating activities

 

 

(390,656 )

 

 

(287,431 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Increase in patent costs

 

 

(14,070 )

 

 

(3,947 )

Net cash used in investing activities

 

 

(14,070 )

 

 

(3,947 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from notes payable - related parties

 

 

135,000

 

 

 

169,000

 

Proceeds from notes payable

 

 

348,750

 

 

 

142,500

 

Repayment of note

 

 

-

 

 

 

(33,680 )

Net cash provided by financing activities

 

 

483,750

 

 

 

277,820

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

79,024

 

 

 

(13,558 )

Cash, beginning of period

 

 

4,083

 

 

 

29,300

 

Cash, end of period

 

$ 83,107

 

 

$ 15,742

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ 9,111

 

NON-CASH FINANCING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Issuance of common stock upon conversion of notes and accrued interest

 

$ -

 

 

$ 468,143

 

Notes and accrued interest converted to common stock

 

$ -

 

 

$ 191,926

 

Debt costs deducted from proceeds of note

 

$ -

 

 

$ 16,250

 

Issuance of shares for finance cost

 

$ -

 

 

$ 10,000

 

Issuance of warrants for debt modification

 

$ -

 

 

$ 167,164

 

Initial derivative liability at issuance of notes

 

$ -

 

 

$ 524,999

 

Initial debt discount at issuance of notes

 

$ -

 

 

$ 221,250

 

 

See accompanying Notes to Unaudited Condensed Financial Statements

  

 
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Dais Corporation

Notes to Condensed Financial Statements

June 30, 2020 and 2019

(Unaudited)

 

Note 1. Background Information

 

Dais Corporation (“Dais”, “us,” “we,”, the “Company”), a New York corporation, is a nano-structured polymer technology materials company having developed and now commercializing products using its family of nanomaterial called Aqualyte. The first commercial product is called ConsERV, a fixed plate energy recovery ventilator which we believe is useful in meeting building indoor fresh air requirements while saving energy and lowering emissions for most forms of heating, ventilation and air conditioning (HVAC) equipment. The second commercial product is NanoClear, a water clean-up process useful in the creation of potable water from most forms of contaminated water including industrial process wastewater (petrochemical, steel, etc.) sea, brackish, or wastewater. We continue to develop other nano-structured polymer technology applications in HVAC/Refrigeration, energy, food services and wastewater treatment industries.The Company was incorporated in April 1993 and its corporate headquarters is in Odessa, Florida.

 

The Company is dependent on third parties to manufacture the key components needed for its nanostructured materials and some portion of the value-added products made with these materials. Accordingly, a suppliers’ failure to supply components in a timely manner, or to supply components that meet the Company’s quality, quantity and cost requirements or technical specifications, or the inability to obtain alternative sources of these components on a timely basis or on acceptable terms, would create delays in production of the Company’s products and/or increase its unit costs of production. Certain of the components or the processes of the Company’s suppliers are proprietary. If the Company was ever required to replace any of its suppliers, it should be able to obtain comparable components from alternative suppliers at comparable costs, but this would create a delay in production and may briefly affect the Company’s operations.

 

Basis of Presentation

 

The Company’s accompanying condensed financial statements are unaudited, but in the opinion of management reflect all adjustments necessary to fairly state the Company’s financial position, results of operations, stockholders’ deficit and cash flows as of and for the dates and periods presented. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.

 

The unaudited financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in 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 ensure that the information presented is 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, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 2, 2020. The results of operations for the three and six month periods ended June 30, 2020 are not necessarily indicative of the results that may be expected for any future quarters or for the entire year ending December 31, 2020.

 

Note 2. Going Concern and Management’s Plans

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. For the six months ended June 30, 2020, the Company generated a net loss of $369,449 and has incurred significant losses since inception. As of June 30, 2020, the Company has an accumulated deficit of $54,555,779, total stockholders’ deficit of $10,038,443, negative working capital of $9,907,286 and cash of $83,107. The Company used $390,656 and $287,431 of cash in operations during the six months ended June 30, 2020 and 2019, respectively, which was funded primarily by proceeds from loans from related parties and equity financings. There is no assurance that any such financing will be available in the future. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently pursuing the following sources of short and long-term working capital:

  

 
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1.

The Company is actively working with targeted third parties who have or are interested in licensing, purchasing the rights to, or establishing a joint venture to commercialize applications of the Company’s technology;

 

 

 

 

2.

The Company continues to seek capital from key strategic and/or government (grant) related sources. These sources may, pursuant to any agreements that may be developed in conjunction with such funding, assist in the product definition and design, roll-out and channel penetration of products; and

 

 

 

 

3.

The Company is actively working with newer investors, private equity companies, purchase order financing parties, and its existing debt holders to restructure its existing debt, and obtain short and long-term working and growth capital.

 

Any failure by the Company to timely procure additional financing or investment adequate to fund the ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on the Company’s financial condition, results of operations and cash flows as could any unfavorable terms. There are no assurances the Company will be able to obtain the financing and planned product development commercialization. Accordingly, the Company may not have the ability to continue as a going concern. 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.

 

Note 3. Significant Accounting Policies

 

The significant accounting policies followed are:

 

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.

 

Significant estimates underlying the Company’s reported financial position and results of operations include the allowance for doubtful accounts, fair value of derivative liabilities, valuation allowance on deferred taxes and the warranty reserve.

 

Revenue recognition - The Company recognizes revenue in accordance with Financial Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606). The Company analyzes its contracts to assess that they are within the scope and in accordance with ASC 606. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, whether for goods and services or licensing, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions. Generally, the Company recognizes revenue for its products upon shipment to customers, provided no significant obligations remain and collection is probable.

 

In certain instances, the Company’s ConsERV system product may carry a limited warranty of up to one year for all parts contained therein except for the energy recovery ventilator core produced and sold by the Company. The distributor of the ConsERV system may carry a limited warranty of up to ten years. The limited warranty includes replacement of defective parts for the ConsERV system and includes workmanship and material failure for the ConsERV core. The Company recorded an accrual of $91,531 for future warranty expenses at June 30, 2020 and December 31, 2019, which is included in accrued expenses, other.

 

Royalty revenue is recognized as earned. The Company recognized royalty revenue of $0 for the three and six months ended June 30, 2020 and 2019, respectively. Revenue derived from the sale of licenses is deferred and recognized as license fee revenue on a straight-line basis over the life of the license, or until the license arrangement is terminated. The Company recognized license fee revenue of $12,500 and $12,500 for the three months ended June 30, 2020 and 2019, respectively and $25,000 and $25,000 for the six months ended June 30, 2020 and 2019, respectively.

 

 
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The Company accounts for revenue arrangements with multiple elements under the provisions of ASC Topic 605-25, “Revenue Recognition-Multiple-Element Arrangements.” In order to account for these agreements, the Company must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on if certain criteria are met, including whether the delivered element has stand-alone value to the licensee. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units.

 

In December 2017, the Company and Zhejiang MENRED Environmental Tech Co, Ltd., Zhejiang Province, China (“Menred”), entered into a License and Supply Agreement (the “Agreement”), effective December 21, 2017. Pursuant to the Agreement, the Company licensed certain intellectual property and improvements to Menred, for use in the manufacture and sale of energy recovery ventilators (“ERV”) and certain other HVAC systems for installation in commercial, residential or industrial buildings in China. Menred also agreed to purchase its requirements of certain products from the Company for Menred’s use, pursuant to the terms and conditions of the Agreement. Menred will also pay royalties, as defined, to the Company on a quarterly basis, based on price and production volume as provided by Menred. No royalties are due within the first year of the Agreement. Also pursuant to the Agreement, the Company is required to purchase 50,000 square meters of Product from Menred for delivery as an annual minimum with a 10,000 square meter minimum order quantity per delivery. The Agreement has a ten-year term with mutually agreed upon five-year extensions.

 

Shipping and handling fees billed to customers are included in revenue. Shipping and handling fees associated with freight are generally included in cost of revenue.

 

Cash and cash equivalents - For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company had no uninsured balances at June 30, 2020 and December 31, 2019. The Company has never experienced any losses related to these balances. The company does not have any cash equivalents.

 

Concentrations At June 30, 2020, one customer accounted for 100% of accounts receivable. At December 31, 2019, one customer accounted for 77% of accounts receivable. For the six months ended June 30, 2020, three customers accounted for 75% of total revenue. For the six months ended June 30, 2019, four customers accounted for 75% of total revenue.

 

Fair Value of Financial Instruments - The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, deferred revenue, customer deposits and notes payable are carried at historical cost. At June 30, 2020 and December 31, 2019 the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.

 

Inventory - Inventory consists of raw materials, work-in-process and finished goods 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. At June 30, 2020 and December 31, 2019, the Company had $25,092 and $85,456 of raw materials, $3,723 and $4,101 of in-process inventory and $33,088 and $1,724 of finished goods inventory, respectively. A reserve is recorded for any inventory deemed excessive or obsolete. No reserve is recorded at June 30, 2020 and December 31, 2019, respectively.

 

Property and equipment - Property and equipment is recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 7 years. Leasehold improvements are amortized over the shorter of their estimated useful lives of 5 years or the related lease term. Depreciation expense was $7,315 and $2,856 for the three months ended June 30, 2020 and 2019, respectively, and $13,698 and $12,722 for the six months ended June 30, 2020 and 2019, respectively. Gains and losses upon disposition are reflected in the Statement of Operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred. There were no dispositions of property and equipment in 2020 or 2019.

 

Intangible assets - Identified intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company’s existing intangible assets consist solely of patents. Patents are amortized over their estimated useful or economic lives of 17 years. Patent amortization expense was $4,313 and $5,805 for the three months ended June 30, 2020 and 2019, respectively and $8,651 and $12,309 for the six months ended June 30, 2020 and 2019, respectively. Based on current capitalized costs, total patent amortization expense is estimated to be approximately $17,000 per year for the next five years and thereafter.

 

Research and development expenses and funding proceeds - Expenditures for research and development are expensed as incurred. The Company incurred research and development costs of $52,755 and $74,555 for the three months ended June 30, 2020 and 2019, respectively and $131,560 and $149,242 for the six months ended June 30, 2020 and 2019, respectively. The Company accounts for proceeds received from government funding for research as a reduction in research and development costs. The Company recorded proceeds against research and development expenses on the Statements of Operations of $18,824 and $10,489 for the three months ended June 30, 2020 and 2019, respectively and $57,334 and $33,407 for the six months ended June 30, 2020 and 2019, respectively

 

Derivative Liability - The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change.

 

 
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Fair Value Measurements - The Company accounts for financial instruments in accordance with ASC 820 “Fair value Measurement and Disclosures”. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).

 

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

 

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

    

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company has recorded a derivative liability for its convertible notes which contain variable conversion prices. The table below summarizes the fair values of our financial liabilities as of June 30, 2020:

 

 

 

Fair

Value at

June 30,

 

 

Fair Value Measurement Using

 

 

 

2020

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$ 2,026,219

 

 

$ -

 

 

$ -

 

 

$ 2,026,219

 

 

The reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows for the six months ended June 30, 2020 and 2019:

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

Balance, beginning of period

 

$ 2,349,471

 

 

$ 1,280,188

 

Additions

 

 

261,946

 

 

 

573,902

 

Extinguished derivative liability

 

 

-

 

 

 

(375,027 )

Change in fair value of derivative liabilities

 

 

(585,198 )

 

 

(202,493 )

Balance, end of period

 

$ 2,026,219

 

 

$ 1,276,570

 

 

Earnings (loss) per share - Basic income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and are excluded from the calculation. Common share equivalents of 545,083 were excluded from the computation of diluted earnings per share for the three months ended June 30, 2019 and 16,937,178 and 545,083 were excluded from the computation of diluted earnings per share for and the six months ended June 30, 2020 and 2019, respectively, because their effect is anti-dilutive.

 

 
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Reconciliation of diluted loss per share for the three months ended June 30, 2020 is as follows:

   

 

 

Three Months

Ended
June 30,
2020

 

Net income

 

$ 1,461,516

 

Income attributable to convertible notes

 

 

(1,911,951 )

Expense attributable to convertible debentures

 

 

167,959

 

Diluted loss attributable to common shareholders

 

$ (282,476 )

 

 

 

 

 

Basic shares outstanding

 

 

278,128

 

Convertible instruments

 

 

16,686,343

 

Diluted shares outstanding

 

 

16,964,471

 

 

 

 

 

 

Diluted loss per share

 

$ (0.02 )

    

Recent Accounting Pronouncements - There are new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective as follows:

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance.

 

Other recent accounting pronouncements issued by the FASB and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

   

Note 4. Accrued Expenses, Other

 

Accrued expenses, other consists of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued expenses, other

 

$ 159,907

 

 

$ 166,158

 

Accrued interest

 

 

995,856

 

 

 

777,056

 

Accrued warranty costs

 

 

91,531

 

 

 

91,531

 

 

 

$ 1,247,294

 

 

$ 1,034,745

 

 

Note 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 for this building is $4,066 per month, including sales tax. The Company recognized rent expense related to this lease of $12,198 and $12,198 for the three months ended June 30, 2020 and 2019, respectively and $24,396 and $24,396 for the six months ended June 30, 2020 and 2019, respectively The lease term will terminate upon 30 days’ written notice from landlord or 90 days written termination from us.

 

The Company has accrued compensation due to the Chief Executive Officer as of June 30, 2020 and December 31, 2019 of $1,930,802 and $1,882,464, respectively, included in accrued compensation and related benefits in the accompanying balance sheets.

 

On June 24, 2016, the Company entered into a Loan and Security Agreement (“Security Agreement”) with Patricia Tangredi (the “Holder”) pursuant to which the Company issued a Senior Secured Promissory Note for $150,000 (the “Note”). The interest rate is 12% per annum compounded daily with a minimum interest payment of $2,000. The Note grants the Holder a secured interest in the assets of the Company. Ms. Tangredi is the wife of Timothy N. Tangredi, the Company’s CEO and stockholder, and therefore is a related party of the Company. Pursuant to the Note, the Company is to pay the Holder the principal amount of $150,000 plus all interest due thereon in accordance with terms and conditions of the Security Agreement on the earlier of: (i) the date upon which the Company secures funds, regardless of source, equal to or exceeding, in the aggregate, $1,000,000 or (ii) October 31, 2016 (the “Maturity Date”).

 

During 2016 to the period ended June 30, 2020, the Holder extended the Note pursuant to various amendments. Pursuant to the amendments, the principal amount due was increased to $1,957,600 with an extended maturity date of July 15, 2020. As of the date of filing, the maturity date has been extended to August 20, 2020.

 

 
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The Company is using the proceeds of the Note and related amendments for working capital purposes. Interest expense on the Note was $57,866 and $42,901 for the three-month periods ended June 30, 2020 and 2019, respectively and $113,526 and $84,356 for the six-month periods ended June 30, 2020 and 2019, respectively. Accrued interest on the Note was $557,852 and $444,326 at June 30, 2020 and December 31, 2019, respectively.

 

During May 2019 Dais Holdings Corp. (Dais Holdings”) was formed in Vancouver, B.C. and is wholly owned by our Chief Executive Officer. Dais Holdings’ purpose is to facilitate debt financing in Europe. The intent is for Dais Holdings to enter into the debt transactions. It will then immediately loan any proceeds received to the Company on the same or similar terms as the European debt. To date, Dais Holdings has not entered into any transactions and Dais Corporation has not received any funding from Dais Holdings. The Company has paid the professional and other fees for setting up the Dais Holdings structure, aggregating $150,000. Ultimately, Dais Corporation will benefit from the Dais Holdings capital raise activities, and therefore has borne the cost. The costs have been expensed as incurred.

 

On October 12, 2019, the Company entered into a promissory note with an entity controlled by our Chief Executive Officer in the amount of $10,000. The note bears interest at 10% per year and matures on October 12, 2021. Interest expense was $150 and $300 for the three and six months ended June 30, 2020, respectively. Accrued interest at June 30, 2020 and December 31, 2019 was $450 and $150, respectively.

 

The above terms and amounts are not necessarily indicative of the terms and amounts that would have been incurred had comparable transactions been entered into with independent parties.

 

Note 6. Equity Transactions

 

Preferred Stock

 

At June 30, 2020 and December 31, 2019, the Company’s Board of Directors has authorized 10,000,000 shares of preferred stock with a par value of $0.01 to be issued in series with terms and conditions to be determined by the Board of Directors.

 

2,000,000 of the shares of preferred stock has been designated as Class A Preferred Stock. The Class A Preferred Stock shall entitle the holder thereof to 150 votes on all matters submitted to a vote of the stockholders of the Company.

 

10,000 of the shares of preferred stock has been designated as Class B Preferred Stock. The Class B Stock includes the right to vote in an amount equal to 51% of the votes to approve certain corporate actions, including, without limitation, changing the name of the Company and increasing the number of authorized shares.

 

Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Class A or Class B Preferred Stock unless, prior thereto, the holders of shares of Class A or Class B Preferred Stock shall have received $1.50 per share (the “Stated Amount”). The Class A and Class B Preferred Stock shall rank, with respect to the payment of liquidation, dividends and the distribution of assets, senior to the Company’s Common Stock.

 

The Holder (as defined in the Class A Preferred Stock certificate of designations) of the Class A Preferred Stock may convert all or part of the outstanding and unpaid Stated Amount (as defined in the Class A Preferred Stock certificate of designations) into fully paid and non-assessable shares of the Company’s common stock at the Conversion Price (as defined in the Class A Preferred Stock certificate of designations). The number of shares receivable upon conversion equals the Stated Amount divided by the Conversion Price. The Conversion Price shall be equal to the 75% of the average closing price for the 30 trading days prior to the election to convert. At no time will the Company convert any of the Stated Amount into common stock if that would result in the Holder beneficially owning more than 49% of the sum of the voting power of the Company’s outstanding shares of common stock plus the voting power of the Class A Preferred Stock. No shares of Class A Preferred Stock have been issued.

 

The shares of the Class B Preferred Stock shall be automatically redeemed by the Company at $0.01 per share on the date that Timothy N. Tangredi ceases, for any reason, to serve as an officer, director, or consultant of the Company.

 

Common Stock

 

At June 30, 2020 and December 31, 2019, the Company’s Board of Directors has authorized 1,100,000,000 shares of common stock with a par value of $0.01 to be issued in series with terms and conditions to be determined by the Board of Directors.

 

2019 Transactions:

 

During the six months ended June 30, 2019, the Company issued 50,863 shares of common stock upon the conversion of $179,080 principal amount of notes and related accrued interest of $12,846.

 

During the six months ended June 30, 2019, the Company issued 550 shares of common stock, valued at $10,000, as a finance cost.

  

 
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Note 7. Notes Payable

 

Paycheck Protection Program Loan

 

On April 29, 2020, the Company received $144,750 in a loan borrowed from a bank pursuant to the Paycheck Protection Program under the CARES Act guaranteed by the Small Business Administration (“SBA”), which we expect to be forgiven in part or in full, subject to our compliance with the conditions of the Paycheck Protection Program. If not forgiven, the terms on the note provide for interest at 1% per year and the note mature in 24 months, with 18 monthly payments of $8,146 beginning after the initial 6 month deferral period for payments.

 

Small Business Administration Loan

 

On June 12, 2020, the Company received $150,000 in a loan borrowed from the SBA. Installment payments, including principal and interest, of $731 monthly, will begin 12 months from the date of the note. The balance of principal and interest will mature 30 years from the date of the note. Interest will accrue at the rate of 3.75% per year.

 

Secured Promissory Note

 

On April 3, 2020, the Company received $54,000 pursuant to a secured promissory note. The note bears interest at 10% per year and matured on June 25, 2020. The note provides for a minimum payment of $7,500 for fees and expenses incurred by the lender. The note is secured by the Company’s receivables, inventory and interest in a certain purchase order issued to the Company by a customer.

 

The note was not paid at maturity, but the principal amount, interest, and fees were all subsequently paid on August 3, 2020.

 

Note 8. Convertible Notes Payable

 

The Company’s convertible promissory notes at June 30, 2020 and December 31, 2019 are as follows:

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Convertible notes payable, bearing interest at 8-10%

 

$ 1,453,960

 

 

$ 1,453,960

 

Unamortized debt discount

 

 

-

 

 

 

(101,899 )

Unamortized deferred debt issuance cost

 

 

-

 

 

 

(5,848 )

Total

 

 

1,453,960

 

 

 

1,346,213

 

Current portion

 

$ 1,453,960

 

 

$ 1,346,213

 

 

The Company entered various convertible notes during 2019, aggregating $412,500 at June 30, 2020. The notes all mature during 2020.

 

The Company entered various convertible notes during 2018, aggregating $1,041,460 at June 30, 2020. The notes all matured during 2019. Three notes that came due during the period were extended to August 15, 2019. Pursuant to the terms of the extensions, we have agreed to issue five hundred shares of common stock for each month that the notes are outstanding, commencing in April 2019. The shares have not been issued at June 30, 2020. We have accrued $1,056 and $27,300 as interest expense during the three months ended June 30, 2020 and 2019, respectively, for the shares due for the extensions. We have accrued $1,914 and $27,300 as interest expense during the six months ended June 30, 2020 and 2019 for the shares due for the extensions. All notes are currently being renegotiated. Accrued interest related to the shares is $36,237 for an aggregate of 22,000 shares.

 

During the three months ended June 30, 2020, the Company amortized $20,373 of debt discount and $1,250 of debt issue costs to interest expense. During the six months ended June 30, 2020, the Company amortized $101,899 of debt discount and $5,848 of debt issue costs to interest expense.

 

During the three months ended June 30, 2019, the Company amortized $158,186 of debt discount and $12,723 of debt issue costs to interest expense. During the six months ended June 30, 2019, the Company amortized $327,885 of debt discount and $26,825 of debt issue costs to interest expense.

 

Debt conversions

 

During the six months ended June 30, 2019, the Company issued 50,863 shares of common stock with a value of $468,143 upon the conversion of $179,080 principal amount of notes and related accrued interest and costs of $12,846. Unamortized debt discount and debt costs of $43,086 and $2,175, respectively, were charged against gain on extinguishment of debt at the time of redemption. In addition, $375,027 of derivative liability was extinguished. The company recorded gain on extinguishment of debt of $53,549.

 

 
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Note 9. Derivative Liabilities

 

The Company has identified certain embedded derivatives related to its convertible notes. Since the notes are convertible into a variable number of shares or have a price reset feature, the conversion features of those notes are recorded as derivative liabilities. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to adjust to fair value as of each subsequent balance sheet date.

 

The Company has recorded additions to the derivative conversion liabilities related to the conversion feature attributable to interest accrued during the period. These additions totaled $97,254 and $26,156 for the three months ended June 30, 2020 and 2019, respectively, and $261,946 and $51,569 for the six months ended June 30, 2020 and 2019, respectively and were charged to interest expense.

 

During the three and six months ended June 30, 2020, the Company recorded income of $1,911,951 and $585,198 related to the change in the fair value of the derivatives. The fair value of the embedded derivatives was $2,026,219 at June 30, 2020, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.16%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of the Company’s common stock of 615%; and (4) an expected life of 6 months.

 

During the three and six months ended June 30, 2019, the Company recorded income of $178,231 and $202,493 related to the change in the fair value of the derivative.

 

During the six months ended June 30, 2019, the Company issued 50,863 shares of common stock with a value of $468,143 upon the conversion of $179,080 principal amount of notes and related accrued interest and costs of $12,846. As a result of the conversions, $375,027 of derivative liability was extinguished. The company recorded gain on extinguishment of debt of $53,549.

 

Note 10. Commitments and Contingencies

 

Litigation

 

From time to time, claims are made against the Company in the ordinary course of its business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties, or injunctions prohibiting the Company from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on the Company’s results of operations for that period or future periods.

 

In the third quarter of 2015, the Company commenced an action for the cancellation of the 37,500,000 shares issued to Soex (the “Shares”) in connection with a Securities Purchase Agreement, dated January 21, 2014 (“Soex SPA”), and 3,750,000 shares issued to Zan Investment Advisory Limited (“Zan”), which is affiliated with Soex through Aifan Liu, who was appointed as a Company board observer by SOEX and her husband, Xinghong Hua. Sharon Han, General Manager and Chairwoman of Soex, served on our board pursuant to the provisions of the Soex SPA. Ms. Han resigned from the Board of Directors effective February 1, 2016.

 

On April 24, 2014, we entered into a Distribution Agreement (the “Distribution Agreement”), with Soex to distribute certain of the Company’s products in China. As reported in the Company’s Form 10-K for the year ended December 31, 2014 and filed with the Securities and Exchange Commission on April 1, 2015, the Company was entitled to receive, pursuant to the Distribution Agreement, royalties and a $500,000 payment, of which $50,000 has been received, that was due on or before October 24, 2014. Further, the Company reported it had not received any royalties from Soex. Soex is in breach of the Distribution Agreement.

 

As first reported in the Company’s Form 10-Q for the quarter ended June 30, 2015, the Company began pursuing legal action against Soex for breach of the Soex SPA and Distribution Agreement. On July 8, 2015, the Company filed a lawsuit in state courts in Florida against Soex and Zan.

 

Pursuant to the Distribution Agreement, Soex is in material breach of the following:

 

 

(1)

Section 1(a) of the Distribution Agreement for Soex’s failure to make a $225,000 payment to the Company for the appointment of Soex as the exclusive distributor of the Products in the Field and Territory (the “Distribution Payment Default”) in accordance with the terms set forth in the Distribution Agreement. Such payment was due on October 20, 2014 (the “Payment Date”).

 

(2)

Section 8(b) of the Distribution Agreement for Soex’s failure to make a $225,000 payment to the Company for the grant of the license and right to manufacture, sell, lease and distribute Products (excluding manufacture of MTM), and to use the Intellectual Property in connection therewith (the “License Payment Default” and, together with the Distribution Payment Default, the “Payment Default”) in accordance with the terms set forth in the Distribution Agreement. Such payment was due on the Payment Date.

 

(3)

Section 15(b) of the Distribution Agreement for Soex’s failure to issue to the Company 25% of the equity (the “Equity Default”) of SOEX (Beijing) Environmental Protection Technology Company Limited (the “China Subsidiary”).

 

As a result of the above, we terminated the Soex Distribution Agreement. As provided in Section 14€ of the Soex Distribution Agreement, the Company has the right to enforce any obligation due to us by Soex. As a result, Soex still must (a) pay the remaining $450,000 due under the Distribution Agreement and the amount of Royalties due, plus interest at 1.5% per month (18% per year) with interest accruing from the date that payment was due and (b) issue to us 25% of the equity of SOEX (Beijing) Environmental Protection Technology Company Limited. As provided in Section 14(b), neither us nor Soex shall be liable for compensation, reimbursement or damages due to loss of profits on sales or anticipated sales or losses due to expenditures, investments or commitments made or in connection with the establishment, development or maintenance of the business.

 

The Soex Litigation was moved to the U.S. District Court for the Middle District of Florida where Soex has instituted a counterclaim (Civil Docket Case #: 8:15-CV-02362-MSS-EAJ). On September 19, 2018, a pre-trial conference was held in Tampa finding a trial date set for October 22, 2018. The trial for the original case was held between October 22 and 24, 2018. The jury at the conclusion of the trial did not award monetary damages to either party for claims or counterclaims.

  

On October 24, 2018, the Company initiated a third lawsuit against an affiliate of Soex, Zhongshan Trans-Tech New Material Technology Co. Ltd. Zhongshan, China, (“Transtech”), and the Chairperson of the affiliate and Soex, based on new information learned by the Company. The Company will seek maximum relief and damages for this on-going and growing illegal misuse the Company’s Intellectual Property. The Company feels this third action will lead in a judgment in favor of the Company.

 

Note 11. Subsequent Events

 

No material events have occurred after June 30, 2020 that requires recognition or disclosure in the financial statements except as follows:

  

On July 15, 2020, the Company entered into a Twenty Fifth Amendment of the Loan and Security Agreement with a related party (described in Note 5), whereby the Maturity Date of the Note was extended to the earlier of (i) the date upon which the Company secures funds, regardless of source, equal to or exceeding, in the aggregate, $1,957,600 or (ii) August 20, 2020.

 

 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may”, “will”, “expect”, “anticipate”, “believe”, “estimate” and “continue”, or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.

 

Unless otherwise indicated or the context requires otherwise, the words “we”, “us”, “our”, the “Company” or “our Company” refer to Dais Corporation, a New York corporation, and its subsidiaries.

 

Overview

 

Dais Corporation (“Dais”, “us,” “we,”, the “Company”) is a nanomaterial technology company developing and commercializing products using the nanomaterial called Aqualyte. The first commercial product is the Aqualyte nanomaterial itself. It is useful in managing moisture and key gases in a variety of cross-industry products. The second commercial product is called ConsERV, a fixed plate energy recovery ventilator which is useful in meeting building indoor fresh air requirements while saving energy and lowering emissions for most forms of heating, ventilation and air conditioning (HVAC) equipment. The third commercial product is NanoClear, a water clean-up process useful in the creation of potable water from most forms of contaminated water including industrial process wastewater (petrochemical, steel, etc.) sea, brackish, or wastewater. We continue to develop other Aqualyte uses in cross-industry applications, HVAC/Refrigeration, energy, and wastewater treatment. One area of focused attention has been development work on a variant of Aqualyte targeting surface treatments to potentially create a protective layer designed to inactivate human coronaviruses.

 

 
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Corporate History

 

We were incorporated as a New York corporation on April 8, 1993 as Dais Corporation. The Company was formed to develop new, cost-effective polymer materials for various applications, including providing a lower cost membrane material for Polymer Electrolyte Membrane fuel cells. We believe our research on materials science has yielded technological advances in the field of selective ion transport polymer materials.

 

In December 1999, the Company purchased the assets of Analytic Power Corporation, a corporation founded in 1984 to provide design, analysis, and systems integration services in the field of fuel cells, fuel processors, and integrated fuel cell power systems. Subsequently, on December 13, 1999, the Company changed its name to Dais Analytic Corporation.

 

In March 2002, the Company sold substantially all of its fuel cell assets to Chevron, a large U.S. oil company for a combination of cash and the assumption by such company of certain of the Company’s obligations. Subsequently, the Company focused on expanding its nano-structured polymer platform, having already identified the Energy Recovery Ventilator (“ERV”) application as our first commercial product.

 

In November of 2018 the board of directors unanimously voted to change the name of the Company from Dais Analytic Corporation to Dais Corporation (the “Name Change”). The Name Change took effect with FINRA on February 27, 2019.

 

On November 2, 2018, the shareholders of the Company approved an increase in the authorized common shares of the company from 240,000,000 shares to 340,000,000 shares. On March 14, 2019, the shareholders approved an increase in authorized common shares from 340,000,000 shares to 1,100,000,000 shares. In July 2019, the shareholders of the Company approved a reverse stock split of the issued and outstanding shares of the Company’s common stock at the ratio ranging from one-for-500 to one-for-2,000. On October 31, 2019, the Company amended its Certificate of Incorporation to reflect a one-for-2,000 reverse stock split of the Company’s common stock. The reverse split was effective December 6, 2019. All share and per share data have been retroactively restated in this quarterly report and the accompanying financial statements and footnotes to reflect the effects of the reverse split.

 

Our Technology

 

We use proprietary nanotechnology to reformulate thermoplastic materials called polymers. Nanotechnology involves studying and working with matter on an ultra-small scale. Polymers are chemical, plastic-like compounds used in diverse products such as Dacron, Teflon, and polyurethane. A thermoplastic is a material that is plastic or deformable, melts to a liquid when heated and to a brittle, glassy state when cooled sufficiently. These reformulated polymers have properties that allow them to be used in unique ways. We transform polymers from a hard, water impermeable substance into a material which water and similar liquids can, under certain conditions, permeate at a molecular level as opposed to flowing in bulk as liquid water through a pore. Water and similar molecules permeate readily through the thermoplastic material while oxygen and most chemicals show severely limited permeability. It is believed this selectivity depends on the size and chemical characteristics of the molecules. We call this specialized material Aqualyte.

 

AqualyteTM

 

Aqualyte membrane is the foundation of the Dais product line. Commercially available polymer resins from any number of large chemical companies, industrial grade solvents, and industrial mixing and tape casting equipment are used to create the Company’s advanced nanomaterial called Aqualyte. The proprietary process changes the molecular properties of the starting polymer resin embedding a number of features including selectively allowing largely moisture molecules to transfer through the finished material in membrane form.

  

 
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The Company invented and patented Aqualyte as a disruptive platform plastic material technology with carefully tailored properties for use in air, energy, and water applications. This modified block copolymer membrane with a nanoscale structure serves as the foundation of the Dais product line. It is a nonporous nanomaterial that selectively and efficiently transports moisture through a solid membrane and blocks passage of most gases and volatile compounds. The membrane is robust and durable, with no pores to clog, and not allowing fungal growth or most pathogens to grow or live on its surface. We began selling Aqualyte in 2018 to strategic customers and continue through 2020 and beyond. Development work on a variant of Aqualyte is being conducted targeting surface treatments to potentially create a protective layer designed to inactivate human coronaviruses. This is an on-going activity.

  

The Company continues to develop next generation versions of our Aqualyte material by adding new features and improving the manufacturability of the nanomaterial. These and other improvements allow Aqualyte to serve a wider variety of uses in the ConsERV and NanoClear target markets. Aqualyte is the underlying technology for our family of products, including ConsERV fixed-plate Energy Recovery Ventilators (ERVs), and NanoClear high-performance contaminated water cleaning devices. Aqualyte represents the basis for a broad class of materials with unique features precisely managed by engineered products. Features of the Aqualyte technology include the ability to create hermetic composite membranes possessing ion conduction, high moisture transfer and high molecular selectivity. Our engineering process manages these features to offer differentiated products like ConsERV and NanoClear that are targeting worldwide needs in the clean air, energy efficiency and clean water markets.  

In July of 2017, Dais first entered into a multi-year, exclusive license agreement with the Haier Group to provide its Aqualyte nanomaterials for use in select refrigeration products. This first agreement continues to generate quarterly revenue for Dais. We project these revenues should increase as Haier continues its full rollout which is expected to now complete during 2021. Dais projects this agreement for targeted refrigeration products should ultimately generate over $5 million in annual revenues once world-wide rollout occurs. Haier’s use of Dais’s Aqualyte material follows a growing world-wide trend reported by Market Insight Reports (July 18, 2018) that states global adoption of mature nanotechnology materials continues to grow and is on track to reach $90.5 billion by 2021 from $39.2 billion in 2016 at a compound annual growth rate (CAGR) of 18.2%, from 2016 to 2021. Dais was listed as one of the companies by Market Insight Reports along with BASF, Bayer AG, Dow Chemical, and others.  

In addition, during 2019 and 2020, Dais sold Aqualyte to multiple customers for use in ventilation and waste water cleaning uses. These sales are expected to continue through 2020 and beyond.

 

ConsERVTM

 

We continue widening sales channels for our ConsERV product, an HVAC energy conservation product which should save an average of 30% on HVAC ventilation air operating costs. These savings typically allow the remainder of the system to be smaller and less expensive, reducing carbon dioxide (CO2) emissions from electrical power generation. ConsERV generally attaches onto existing HVAC systems, typically in commercial buildings, to provide improved ventilation air within the structure. ConsERV separates incoming fresh ventilation air from outgoing exhaust air with our Aqualyte nanotechnology polymer in an enthalpy heat exchanger referred to as a “core”. While Aqualyte physically isolates the air streams so they don’t mix, heat and moisture are freely exchanged through the material. For summer air conditioning, the core removes some of the heat and humidity from the incoming air and transfers it to the exhaust air stream, thereby saving energy under many conditions. For winter heating, the core typically recovers a portion of the heat and humidity in the exhaust air and transfers it into the incoming air to reduce heating requirements.

 

ConsERV sales were negatively impacted at the beginning of 2017 from the December 2016 termination of a failed licensing agreement with a North American company. In 2018, the Company began selling its ConsERV cores and systems across North America. The Company is continuing this effort to expand its North American sales channels to grow ConsERV sales with initiatives aimed at targeted professionals and companies specializing in the sale of HVAC components and systems. In addition, the company began selling nanomaterial to companies in the European Union and continues discussions with several companies to expand the market for Aqualyte sales. In 2019 the company began discussions with interested parties outside of China in Southeast Asia to specify or distribute ConsERV cores and systems. It is believed our continuing efforts in these areas will see revenues grow throughout 2020, and beyond.

 

 
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In December 2017, we signed a 7-year exclusive agreement with the Zhejiang MENRED Environmental Tech Co., Ltd, Zhejiang Province , China, to provide our Aqualyte moisture transfer nanomaterial in a new line of Menred energy recovery ventilators (ERV) to be sold in the growing Chinese HVAC market, and for possible export use by Dais to meet its growing needs. This arrangement is projected to yield increasing revenues in the last quarter of 2020, and beyond.

 

When compared to similar competitive products, we believe, based on test results conducted by the Air-conditioning, Heating and Refrigeration Institute (AHRI), a leading industry association, ConsERV maintains an industry-leading position in the management of latent heat. The Company introduced an updated line of ConsERV products in January 2020 marketed as the N-Series with further enhancements to this newer packaged ERV product line projected to be introduced in the last quarter of 2020. Sales from these products are expected to continue generating revenue during 2020 and beyond.

 

NanoClearTM

 

We have commercially introduced the first NanoClear membrane evaporators for pilot testing, which remove quantities of metals, acids, salt and other impurities from various contaminated water sources, producing potable water using an environmentally friendly, low maintenance design that is competitive with industry leaders in terms of electrical consumption. The evolving NanoClear product line purifies contaminated water, created largely during cooling of key manufacturing and utility processes. These sorts of applications are the Company’s primary focus. This includes higher salt concentrations and low pH waste streams.

 

Development efforts on a U.S. Army Corps of Engineers, $1,000,000, Phase II Small Business Innovation Research (SBIR) award continued throughout the first and second quarter of 2020 to develop NanoClear water cleaning technology for military use. The NanoClear funding project titled "Non-Fouling Water Reuse Technologies" uses our patented Aqualyte membrane to produce potable water from grey-water sources. The potential product improvements from this award will widen NanoClear’s applications in separating clean water from contaminated waste streams. Work on this project continues.

    

PolyCoolTM

 

PolyCool is a product in development and is believed to offer strategic advantages over existing cooling tower systems. In effect, the process water is isolated in a largely closed system (similar to dry cooling technology) and initial testing shows it reduces the likelihood of dangerous germs and viruses such as Legionella becoming airborne. In-house testing has shown the ability to generate cooling effects comparable to today’s existing cooling towers while largely isolating the process water from the air stream.

 

PolyCool systems are expected to use up to 32% less energy than a conventional cooling tower while reducing or eliminating the need for expensive chemical biocide application programs to prevent the of risk of spreading dangerous diseases. We believe these savings can reduce the operating expenses of a cooling tower by up 74% versus conventional technology. The demonstrated ability of Aqualyte to resist fouling and operate with dissolved solids levels up to 25% salinity allows PolyCool technology to operate with seawater, brine, or other forms of wastewater instead of consuming potable water as with conventional evaporative cooling technologies. This advantage expands the applicability of evaporative cooling into geographic regions that are suffering from water scarcity or stress. In addition, the dramatic reduction in maintenance and safety issues allows use of PolyCool in smaller installations with correspondingly smaller maintenance budgets and less risk tolerance, which conventionally use less efficient dry cooling instead of evaporative cooling.

  

 
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In the quarter ending September 30, 2018, the Company announced that we entered into a second definitive two-part, license agreement with the Haier Group of Qingdao, China for an Aqualyte based new product component targeted at a specific, existing Haier HVAC cooling system. Prototype testing has been slowed by the pandemic effected business environment. It is projected to re-start in the third quarter of 2020 and last through the first quarter of 2021. Once complete and having satisfactory results, it is projected the integrated new-product will then move into field testing prior to commercial release into Haier’s sales channels throughout Greater China. When commercial release occurs this action may have a sizeable, recurring revenue impact to Dais projected to be as much as $73 million annually.

 

Product Summary

 

Dais’s advanced material has many demonstrated uses in the described products. Management is placing the majority of the Company’s resources behind the two most mature products in two major revenue generating paths: (1) ConsERV cores and systems, and (2) the sale of Aqualyte nanomaterials and engineering support in areas where Aqualyte has shown proven results and Dais has partners well-placed to bring products to market. Management projects this narrower focus will increase revenues allowing profitability to occur faster.This strategy leverages the Company’s experience and depth in marketing, building and selling ConsERV cores and systems and in manufacturing and selling high performance Aqualyte nanomaterial.

 

The advance materials-only sales activities are being done with select, successful companies located in the European Union and South East Asia (including China) which take full advantage of Dais’s past and continuing market penetration efforts. The uses include energy recovery ventilation and other known HVAC and select cross-industry uses.

 

To help us support our capabilities to deliver ConsERV cores and systems, and Aqualyte advanced nanomaterials, we have qualified manufacturing companies to join our supply chain to produce materials and components for us, guided by Dais-qualified manufacturing practices to meet the growing demand for product in North America, in the European Union and South East Asia (including China). We project this expansion of the supply chain will result in lower costs and quicker order fulfillment, generating revenues faster.

 

Orders are already being generated from these agreements, and we expect them to increase as we expand and add new strategic partnerships along the way. The new orders include sales of Aqualyte nanomaterials, components for energy recovery ventilation, and other known HVAC and select cross industry products.

   

 
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Results of Operations

 

Three Months Ended June 30, 2020 Compared to June 30, 2019

 

The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations:

 

 

 

For the Three Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

Sales

 

$ 193,074

 

 

$ 200,258

 

Royalty and license fees

 

 

12,500

 

 

 

12,500

 

 

 

 

205,574

 

 

 

212,758

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

 

126,745

 

 

 

184,949

 

 

 

 

 

 

 

 

 

 

GROSS MARGIN

 

 

78,829

 

 

 

27,809

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Research and development, net of government grant proceeds of $18,824 and $10,489, respectively

 

 

33,931

 

 

 

64,066

 

Selling, general and administrative

 

 

260,839

 

 

 

310,313

 

TOTAL OPERATING EXPENSES

 

 

294,770

 

 

 

374,379

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(215,941 )

 

 

(346,570 )

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest expense

 

 

(234,494 )

 

 

(629,073 )

Change in fair value of derivative liabilities

 

 

1,911,951

 

 

 

178,231

 

Gain on extinguishment of debt

 

 

-

 

 

 

45,476

 

 

 

 

 

 

 

 

 

 

TOTAL OTHER INCOME (EXPENSE), NET

 

 

1,677,457

 

 

 

(405,366 )

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$ 1,461,516

 

 

$ (751,936 )

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER COMMON SHARE, BASIC

 

$ 5.26

 

 

$ (7.90 )

 

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE, DILUTED

 

$ (0.02 )

 

$ (7.90 )

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC

 

 

278,128

 

 

 

95,167

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, DILUTED

 

 

16,964,471

 

 

 

95,167

 

 

 
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Revenue

 

We generate our revenues primarily from the sale of our ConsERV cores and systems, Aqualyte membrane, and NanoClear evaporators. Product sales were $193,074 and $200,258 for the three months ended June 30, 2020 and 2019, respectively, a decrease of $7,184 or 4%. The decrease in product sales resulted from a decrease in ConsERV and NanoClear sales offset by an increase in Aqualyte sales. We are focusing on creating sustainable revenues with Aqualyte and ConsERV core and system sales with the expectation that this will allow for continued growth in 2020 and beyond.

 

Revenues from royalty and license fees were $12,500 and $12,500 for the three months ended June 30, 2020 and 2019, respectively.

 

Cost of sales

 

Our cost of sales consists primarily of materials (including freight), direct labor, and outsourced manufacturing expenses incurred to produce our ConsERV cores and systems, NanoClear evaporators, and Aqualyte nanomaterial. Cost of goods sold were $126,745 and $184,949 for the three months ended June 30, 2020 and 2019 respectively, a decrease of $58,204 or 32%. This reflects our reduced manufacturing costs.

 

We are dependent on third parties to manufacture the key components needed for our nano-structured based materials and some portion of the value-added products made with these materials. Accordingly, a supplier's failure to supply components in a timely manner, or to supply components that meet our quality, quantity and cost requirements or technical specifications, or the inability to obtain alternative sources of these components on a timely basis or on acceptable terms, would create delays in production of our products and/or increase the unit costs of production. Certain of the components or the processes of our suppliers are proprietary. If we were ever required to replace any of our suppliers, we should be able to obtain comparable components from alternative suppliers at comparable costs, but this would create a delay in production.

 

Gross margin

 

Gross margin from the sales of products was $78,829 and $27,809 representing 38% and 13% for the three months ended June 30, 2020 and 2019. The gross margin increase was due to focused efforts to reduce manufacturing costs and normal variances in manufacturing costs between our product lines.

 

 
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Research and development costs

 

Expenditures for research and development are expensed as incurred. We incurred research and development costs of $52,755 and $74,555 for the three months ended June 30, 2020 and 2019, a decrease of $21,800 or 29%. We account for proceeds received from government funding for research and development as a reduction in research and development costs. We recorded proceeds against research and development expenses on the Statements of Operations of $18,824 and $10,489 for the three months ended June 30, 2020 and 2019, an increase of $8,335 or 80%. Variances in grant expenditures and reimbursements are due to an emphasis on completing an existing Small Business Innovation Research (SBIR) Phase II grant.

 

Selling, general and administrative expenses

 

Our selling, general and administrative expenses consist primarily of payroll and related benefits, professional fees, marketing and channel support costs, and other infrastructure costs such as insurance, information technology and occupancy expenses. Selling, general and administrative expenses were $260,839 and $310,313 for the three months ended June 30, 2020 and 2019, a decrease of $49,474 or 16%

 

Our selling, general and administrative expenses may fluctuate due to a variety of factors, including, but not limited to:

 

 

Additional infrastructure needed to support the expanded commercialization of our ConsERV and Aqualyte products and/or new product applications of our polymer technology for, among other things, administrative personnel, physical space, marketing and channel support and information technology;

 

 

 

 

The issuance and recognition of expenses related to fair value of new share-based awards, which is based on various assumptions including, among other things, the volatility of our stock price; and

 

 

 

 

Additional expenses as a result of being an SEC reporting company, including, but not limited to, director and officer insurance, director fees, SEC compliance expenses, transfer agent fees, additional staffing, professional fees and similar expenses.

 

The decrease in selling, general and administrative expenses for the three months ended June 30, 2020 compared to the same period in 2019 is primarily the result of decreased consulting fees.

 

Other Income (Expense)

 

Other income was $1,677,457 and expenses were $405,366 for the three months ended June 30, 2020 and 2019, respectively, an increase of $2,082,823 or 514%. The increase in net other income is primarily due to the change in fair value of derivative liabilities (primarily as a result of changes in our stock price), and a decrease in debt discount and finance cost.

 

Net Income (Loss)

 

Net income for the three months ended June 30, 2020 was $1,461,516 compared to a net loss of $751,936 for the three months ended June 30, 2019. The increased income in the three months ended June 30, 2020 was primarily due to the increase in net other income and gross margin.

  

 
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Six Months Ended June 30, 2020 Compared to June 30, 2019

 

The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations:

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

Sales

 

$ 468,032

 

 

$ 570,098

 

Royalty and license fees

 

 

25,000

 

 

 

25,000

 

 

 

 

493,032

 

 

 

595,098

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

 

268,219

 

 

 

358,807

 

 

 

 

 

 

 

 

 

 

GROSS MARGIN

 

 

224,813

 

 

 

236,291

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Research and development, net of government grant proceeds of $57,334 and $33,407, respectively

 

 

74,226

 

 

 

115,835

 

Selling, general and administrative

 

 

516,744

 

 

 

745,148

 

TOTAL OPERATING EXPENSES

 

 

590,970

 

 

 

860,983

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(366,157 )

 

 

(624,692 )

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest expense

 

 

(588,490 )

 

 

(1,101,448 )

Change in fair value of derivative liabilities

 

 

585,198

 

 

 

202,493

 

Gain on extinguishment of debt

 

 

-

 

 

 

53,549

 

 

 

 

 

 

 

 

 

 

TOTAL OTHER INCOME (EXPENSE), NET

 

 

(3,292 )

 

 

(845,406 )

 

 

 

 

 

 

 

 

 

NET LOSS

 

$ (369,449 )

 

$ (1,470,098 )

 

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE, BASIC AND DILUTED

 

$ (1.33 )

 

$ (17.19 )

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED

 

 

278,128

 

 

 

85,523

 

    

Revenue

 

We generate our revenues primarily from the sale of our ConsERV cores and systems, Aqualyte membrane, and NanoClear evaporators. Product sales were $468,032 and $570,098 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $102,066 or 18%. The decrease in product sales resulted primarily from a decrease in ConsERV and NanoClear sales. We are focusing on creating sustainable revenues with Aqualyte and ConsERV core and system sales with the expectation that this will allow for continued growth in 2020 and beyond.

 

Revenues from royalty and license fees were $25,000 and $25,000 for the six months ended June 30, 2020 and 2019, respectively.

 

Cost of sales

 

Our cost of sales consists primarily of materials (including freight), direct labor, and outsourced manufacturing expenses incurred to produce our ConsERV cores and systems, NanoClear evaporators, and Aqualyte nanomaterial. Cost of goods sold were $268,219 and $358,807 for the six months ended June 30, 2020 and 2019 respectively, a decrease of $90,588 or 25%. This reflects our decreased revenue and reduced manufacturing costs.

  

We are dependent on third parties to manufacture the key components needed for our nano-structured based materials and some portion of the value-added products made with these materials. Accordingly, a supplier's failure to supply components in a timely manner, or to supply components that meet our quality, quantity and cost requirements or technical specifications, or the inability to obtain alternative sources of these components on a timely basis or on acceptable terms, would create delays in production of our products and/or increase the unit costs of production. Certain of the components or the processes of our suppliers are proprietary. If we were ever required to replace any of our suppliers, we should be able to obtain comparable components from alternative suppliers at comparable costs, but this would create a delay in production.

  

 
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Gross margin

 

Gross margin from the sales of products was $224,813 and $236,291 representing 46% and 40% for the six months ended June 30, 2020 and 2019. The gross margin increase was due to focused efforts to reduce manufacturing costs and normal variances in manufacturing costs between our product lines.

 

Research and development costs

 

Expenditures for research and development are expensed as incurred. We incurred research and development costs of $131,560 and $149,242 for the six months ended June 30, 2020 and 2019, a decrease of $17,682 or 12%. We account for proceeds received from government funding for research and development as a reduction in research and development costs. We recorded proceeds against research and development expenses on the Statements of Operations of $57,334 and $33,407 for the six months ended June 30, 2020 and 2019, an increase of $23,927 or 72%. Variances in grant expenditures and reimbursements are due to an emphasis on completing an existing Small Business Innovation Research (SBIR) Phase II grant.

 

Selling, general and administrative expenses

 

Our selling, general and administrative expenses consist primarily of payroll and related benefits, professional fees, marketing and channel support costs, and other infrastructure costs such as insurance, information technology and occupancy expenses. Selling, general and administrative expenses were $516,744 and $745,148 for the six months ended June 30, 2020 and 2019, a decrease of $228,404 or 31%

 

Our selling, general and administrative expenses may fluctuate due to a variety of factors, including, but not limited to:

 

 

Additional infrastructure needed to support the expanded commercialization of our ConsERV and Aqualyte products and/or new product applications of our polymer technology for, among other things, administrative personnel, physical space, marketing and channel support and information technology;

 

 

 

 

The issuance and recognition of expenses related to fair value of new share-based awards, which is based on various assumptions including, among other things, the volatility of our stock price; and

 

 

 

 

Additional expenses as a result of being an SEC reporting company, including, but not limited to, director and officer insurance, director fees, SEC compliance expenses, transfer agent fees, additional staffing, professional fees and similar expenses.

 

The decrease in selling, general and administrative expenses for the six months ended June 30, 2020 compared to the same period in 2019 is primarily the result of decreased legal and consulting fees.

 

Other Expense

 

Other expenses were $3,292 and $845,406 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $842,114 or 99%. The decrease in net other expense is primarily due to the change in fair value of derivative liabilities (primarily as a result of changes in our stock price), and a decrease in debt discount and finance cost.

 

Net Loss

 

Net loss for the six months ended June 30, 2020 was $369,449 compared to a net loss of $1,470,098 for the six months ended June 30, 2019. The decreased loss in the six months ended June 30, 2020 was primarily due to the decrease in operating expenses and net other expense.

 

 
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Liquidity and Capital Resources

 

The accompanying financial statements have been prepared assuming that we will continue as a going concern. For the six months ended June 30, 2020, we generated a net loss of $369,449 and have incurred significant losses since inception. As of June 30, 2020, we had an accumulated deficit of $54,555,779, a stockholders’ deficit of $10,038,443 and cash and cash equivalents of $83,107. We used $390,656 and $287,431 of cash in operations during the six months ended June 30, 2020 and 2019, respectively, which was funded primarily by proceeds from note payables. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. We are currently pursuing the following sources of short and long-term working capital:

 

 

1.

The Company is actively working with targeted third parties who have or are interested in licensing, purchasing the rights to, or establishing a joint venture to commercialize applications of the Company’s technology;

 

 

 

 

2.

The Company continues to seek capital from key strategic and/or government (grant) related sources. These sources may, pursuant to any agreements that may be developed in conjunction with such funding, assist in the product definition and design, roll-out and channel penetration of products; and

 

 

 

 

3.

The Company is actively working with newer investors, private equity companies, purchase order financing parties, and its existing debt holders to restructure its existing debt and obtain short and long-term working and growth capital.

 

Management believes:

 

 

1.

In the face of current pandemic related events the market(s) demand for its product(s) is sluggish in places where the pandemic continues to rise.

 

 

 

 

2.

The effect on the Company’s ability to raise new funds or on its current and projected cash position resulting from slower growth in sales and revenues due to a regional or world-wide economic downturn is placing unusually heavy pressures on management to monetize the entire technology base or a particular asset. Monetizing the entire technology would be done to extract the maximum value of the technology for the benefit of the company’s stakeholder at a higher short term cost. Whereas monetizing a technology segment would be pursued to raise sufficient cash to continue on in smaller, more concentrated manner.

 

 

 

 

3.

We believe our current cash position and our projected ability to obtain additional sources of cash flow from operations and investments for the balance of 2020, to support the company’s operations needed to manufacture and create salesofConsERV and Aqualyte product is more challenged than in the last reporting period. There is no assurance, in these times of uncharted cause/effect with companies, markets, and people, that management or the Board will be successful in securing needed funds to fund business continuation or secure growth capital funding.

 

 

 

 

4.

The Senior Secured Note Holder has advised Management it is exploring its options in this matter.

   

Any failure by us to timely procure additional financing or investment adequate to fund the ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows as could any unfavorable terms. There are no assurances we will be able to obtain the financing and planned product development commercialization. Accordingly, we may not have the ability to continue as a going concern. 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 we be unable to continue as a going concern.

 

 
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The Company entered into a Loan and Security Agreement in June 2016 pursuant to which the Company issued a Senior Secured Promissory Note that grants the Holder a secured interest in the assets of the Company.

 

Statement of Cash Flows

 

Cash as of June 30, 2020 was $83,107 compared to $4,083 as of December 31, 2019. Cash is primarily used to fund our working capital requirements.

 

Net cash used in operating activities was $390,656 for the six months ended June 30, 2020 compared to $287,431 for the same period in 2019. The increase in net cash used was primarily due to a decrease in net working capital accounts, partially offset by a decrease in net loss (after adjusting for non-cash items).

 

Net cash used in investing activities was $14,070 for the six months ended June 30, 2020 compared to $3,947 for the same period in 2019, driven by an increase in patent costs.

 

Net cash provided by financing activities was $483,750 for the six months ended June 30, 2020 compared to $277,820 for the same period in 2019. The increase resulted from an increase in proceeds from notes payable.

 

Financing and Capital Transactions

 

Paycheck Protection Program Loan

 

On April 29, 2020, the Company received $144,750 in a loan borrowed from a bank pursuant to the Paycheck Protection Program under the CARES Act guaranteed by the Small Business Administration (“SBA”), which we expect to be forgiven in part or in full, subject to our compliance with the conditions of the Paycheck Protection Program. If not forgiven, the terms on the note provide for interest at 1% per year and the note mature in 24 months, with 18 monthly payments of $8,146 beginning after the initial 6 month deferral period for payments.

 

Small Business Administration Loan

 

On June 12, 2020, the Company received $150,000 in a loan borrowed from the SBA. Installment payments, including principal and interest, of $731 monthly, will begin 12 months from the date of the note. The balance of principal and interest will mature 30 years from the date of the note. Interest will accrue at the rate of 3.75% per year.

 

Secured Promissory Note

 

On April 3, 2020, the Company received $54,000 pursuant to a secured promissory note. The note bears interest at 10% per year and matured on June 25, 2020. The note provides for a minimum payment of $7,500 for fees and expenses incurred by the lender. The note is secured by the Company’s receivables, inventory and interest in a certain purchase order issued to the Company by a customer. The principal amount, interest, and fees were subsequently repaid on August 3, 2020.

 

Related Party Note

 

On June 24, 2016, the Company entered into a Loan and Security Agreement (“Security Agreement”) with Patricia Tangredi (the “Holder”) pursuant to which the Company issued a Senior Secured Promissory Note for $150,000 (the “Note”). The interest rate is 12% per annum compounded daily with a minimum interest payment of $2,000. The Note grants the Holder a secured interest in the assets of the Company. Ms. Tangredi is the wife of Timothy N. Tangredi, the Company’s CEO and stockholder, and therefore is a related party of the Company.

 

During 2016 through the period ended June 30, 2020, the Holder extended the Note pursuant to various amendments. Pursuant to the amendments, the principal amount due was increased to $1,957,600 with an extended maturity date of July 15, 2020. The Company received $135,000 of additional proceeds during the six months ended June 30, 2020. As of the date of filing, the maturity date has been extended to August 20, 2020. 

 

 
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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required under Regulation S-K for “smaller reporting companies”.

 

ITEM 4. CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and outside legal and accounting resources of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not effective in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC as a result of limited resources, and a lack of segregation of duties.

 

During our most recent quarter, there has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be engaged in various lawsuits and legal proceedings in the ordinary course of our business. We are currently not aware of any pending legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or results of operations. The information required by this Item is incorporated herein by reference to Notes to Financial Statements––Note 10. Litigation in Part I, Item 1, of this Quarterly Report on Form 10-Q.

   

ITEM 1A. RISK FACTORS

 

Not required under Regulation S-K for “smaller reporting companies”.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2020 that were not previously reported in a Current Report on Form 8-K.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

 
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ITEM 6. EXHIBITS

 

Exhibit

 

 

 

Incorporated by Reference

 

Filed or

Furnished

Number

 

Exhibit Description

 

Form

 

Exhibit

 

Filing Date

 

Herewith

31.1

 

Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))

 

 

 

 

 

 

 

31.2

 

Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))

 

 

 

 

 

 

 

32.1

 

Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

 

 

 

 

 

 

32.2

 

Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

___________

*

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

 
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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 CORPORATION

 

 

 

 

 

Date: August 14, 2020

By:

/s/ Timothy N. Tangredi

 

 

 

Timothy N. Tangredi

 

 

 

President and Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

(Principal Financial and Accounting Officer)

 

   

 
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