DAIS CORPORATION 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 current and 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 the 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.
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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
Unless otherwise indicated or the context requires otherwise, the words "we",
"us", "our", the "Company" or "our Company" refer to
OVERVIEW Overview
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RESULTS OF OPERATIONS
Year Ended
The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations:
For the Years Ended
December 31,
2021 2020
REVENUE
Sales $ 372,506 $ 952,845
Royalty and license fees 50,000 50,000
422,506 1,002,845
COST OF GOODS SOLD 267,837 545,068
GROSS MARGIN 154,669 457,777
OPERATING EXPENSES
Research and development, net of government grant
proceeds of $89,617 and $123,055 for the years ended
December 31, 2021 and 2020, respectively 133,808 98,645
Selling, general and administrative 1,958,560 1,079,594
TOTAL OPERATING EXPENSES 2,092,368 1,178,239
LOSS FROM OPERATIONS (1,937,699 ) (720,462 )
OTHER INCOME (EXPENSE)
Interest expense (2,065,593 ) (1,127,807 )
Loss on legal judgement (382,664 ) -
Forgiveness of debt income 146,685 -
Change in fair value of derivative 2,241,678 (939,464 )
Gain on extinguishment of debt 1,148,554 -
TOTAL OTHER INCOME (EXPENSE), NET 1,088,660 (2,067,271 )
NET LOSS $ (849,039 ) $ (2,787,733 )
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.15 ) $ (10.02 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 5,734,795 278,128
Revenue
We generate our revenues primarily from the sale of our ConsERV cores and
systems, and our Aqualyte membrane. Product sales were
The decrease in sales revenue is attributed mainly to what management believes
is a "pandemic driven bubble" in orders for Aqualyte nanomaterial in key
Revenues from royalty and license fees were
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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 and Aqualyte membrane. Cost of goods sold were
Supply Chain (Availability and Increased prices) and Tightening labor market (money and people)
Current world-wide supply chain issues are impacting many industries, including those of the Company. The lead time for materials and components is increasing, resulting in longer delivery dates. Management is working with existing partners to identify multiple sources of materials and components so as not to rely heavily on one or two suppliers.
Increasing crude oil prices is influencing the cost of resins, plastics and fuel. Shipping and trucking costs have increased while capacity has contracted. These issues are creating increased costs across industries and Management is evaluating its' pricing and lead times regularly.
The labor market is having an impact across industries as competition for workers is increasing. Management is working to anticipate workforce needs and planning accordingly.
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.
Management continues to monitor the effects the pandemic is having on economies, and everyday life, across the globe. As creative solutions to defeat the current pandemic and protect us from future infections are developed, we believe our technology is uniquely positioned as its' current products are designed to provide a solution to these issues especially in increased ventilation. The awareness of the benefits of increased ventilation in homes and workplaces is a major factor in the solution to battle the current, and future, pandemics. The ConsERV products are specifically designed to increase new, fresh, ventilated, air in our homes and workplaces. Management is developing and executing on plans to increase product awareness through existing and prospective sales channels.
Climate Change and
Countries and corporations around the world are adopting aggressive plans to
achieve newly established
Research and Development
Expenditures for research, development and engineering of products are expensed
as incurred. We incurred research and development costs of
Selling, General and Administrative
Our selling, general and administrative expenses consist primarily of payroll
and related benefits, share-based compensation, 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
Our selling, general and administrative expenses may fluctuate due to a variety of factors, including, but not limited to:
· Additional expenses because 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;
· Additional infrastructure needed to support the expanded commercialization
of our ConsERV and NanoClear 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;
and
· The issuance and recognition of expense 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.
The 81% increase in selling general and administrative expenses in the year
ended
Other Income (Expense)
Interest expense for the year ended
Net Loss
Net loss for the year ended
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Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. For the year ended
1. The Company has selected targeted parties that it is actively working with
who 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 certain strategic and/or
government grant opportunities and 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, has increased its value and
potential to attract new investors in the eyes of the Management team when
the Company completed the exchange program of 'debt to equity' in the 2nd
quarter of 2021 clearing out all convertible debt in exchange for equity
at a fixed price at the end of the second quarter of 2021.
Management believes:
1. Ventilation is regularly recommended as one of the solutions to Covid related mitigation and the market awareness for the ConsERV product(s) is increasing and lead activity is encouraging.
2. The Management and Board feel the Company's ability to raise new funds is continuing to improve with (a.) the financial clarity earned with the debt to equity program completing in the 2nd Quarter of 2021, (b.) the effects of the bridge funding provided by JMS Investments and others allowing the Company to once again be fully reporting, and (c.) the shift seemingly occurring worldwide creating a pull for the Company's products showing a proven linkage to lowering drivers for Climate Change. This said, it remains a challenging time to raise growth capital and become profitable.
3. We believe our current cash position and our projected ability to obtain additional sources of growth capital, and to generate sustainable cash flow from operations and investments into 2022 is improving yet remains challenged.
We have, and seemingly continue to, be successful in attracting new capital critical to support the Company's operations and efforts needed to profitably manufacture and sell ConsERV and Aqualyte.
The current geopolitical environment and continuing impacts of the worldwide pandemic could affect business worldwide in the long-term, however, the Management and Board are guardedly optimist, despite these times of uncharted causes/effects with companies, markets, sales channel challenges, and people,
the Company will continue to be successful in securing needed funds to fund business continuation or secure growth capital funding.
Failure by us to timely procure additional financing or investment adequate to
fund the ongoing operations, including planned product development initiatives
and commercialization efforts, or experience a major supply chain disruption
will have material adverse consequences on our financial condition, results of
operations and cash flows as could any unfavorable terms. While we believe the
Company's prospects have improved for funding, there are no assurances we will
be able to obtain the financing and planned product development
commercialization. The Company may fail to reach an accord with the Senior
Secured Note Holder
Table of Contents Statements of Cash Flows
Cash and cash equivalents as of
Net cash used in operating activities was
Net cash used by investing activities was
Net cash provided by financing activities was
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Material Financing Transactions
In the period from
No new Convertible Note Transactions were entered into during 2020 or 2021
COVID-19 Disclosure
The Company's operations have been and continue to be affected by the ongoing
outbreak of the coronavirus disease 2019 (COVID-19) which was declared a
pandemic by the
Economy and Inflation
Except as disclosed herein, we have not experienced any significant cancellation of orders due to the downturn in the economy. Our management believes that inflation will have an effect on our cost of goods and shipping, however sales inquiries continue to be strong through 2021. .
Contractual Obligations
We do not have any liabilities related to long-term contractual obligations as
of
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity, or capital expenditures.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the accompanying financial statements and related disclosures
in conformity with accounting principles generally accepted in
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Revenue Recognition
Generally, we recognize revenue for products upon shipment to customers, provided no significant obligations remain and collection is probable.
In certain instances, our ConsERV system product may carry a limited warranty of
up to two years for all parts contained therein except for the energy recovery
ventilator core produced and sold by us. 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. We have recorded an accrual of
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. We recognized license fee revenue of
The Company has adopted the new revenue recognition guidelines in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606), commencing from the period under this report. 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.
Accounts Receivable
Accounts receivable consist primarily of receivables from the sale of our ERV
products and Aqualyte membrane. We regularly review accounts receivables for any
bad debts based on an analysis of our collection experience, customer credit
worthiness and current economic trends. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
Based on management's review of accounts receivable, an allowance for doubtful
accounts of
Impairment of Long-Lived and Intangible Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be recoverable.
We periodically evaluate whether events and circumstances have occurred that
indicate possible impairment. When impairment indicators exist, we use market
quotes, if available or an estimate of the future undiscounted net cash flows of
the related asset or asset group over the remaining life in measuring whether
the asset values are recoverable. We did not recognize impairment on its
long-lived assets during the years ended
Identified intangible assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Our existing intangible assets consist solely of patents. Patents
are amortized over their estimated useful or economic lives of 17 years. Patent
amortization expense was
Stock-Based Compensation
We recognize all share-based payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately.
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There were no stock options issued during the year ended
Derivative Financial Instruments
We do not use derivative instruments to hedge exposure to cash flow, market, or foreign currency risk. Terms of convertible promissory note instruments are reviewed to determine whether they contain embedded derivative instruments that are required under ASC 815 " Derivative and Hedging" (ASC 815) to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results.
Freestanding warrants issued by us in connection with the issuance or sale of debt and equity instruments are considered to be derivative instruments and are evaluated and accounted for in accordance with the provisions of ASC 815. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether fair value of warrants issued is required to be classified as equity or as a derivative liability.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
We identify and evaluate uncertain tax positions, if any, and recognize the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. We have not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, we would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company's 2017-2020 tax years remain open and subject to examination by the Internal Revenue Service.
RECENT ACCOUNTING PRONOUNCEMENTS
For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see Part II, Item 8 Note 3 Significant Accounting Policies: Recent Accounting Pronouncements.
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