DAIS CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report. This discussion and analysis contain forward looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those which are not within our control.
OVERVIEW
We have developed and patented a nanostructured polymer technology, which is
being commercialized in products based on the functionality of these materials.
We believe the applications of our technology have promise in several diverse
market segments and products. We will expand our push to sell ConsERV product
largely in
Growing emphasis is being actively placed on the Aqualyte OEM material sales in addition to ConsERV system sales to generate another revenue stream in targeted non-ConsERV applications. We believe the targeted Aqualyte OEM applications created when using features and properties of the Aqualyte nanomaterial provide the OEM evolutionary or new products. Products which the Company believes offer greater functionality, and differentiation in growing worldwide water market.
15
Table of Contents
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,
2020 2019
REVENUE
Sales $ 952,845 $ 830,625
Royalty and license fees 50,000 75,000
1,002,845 905,625
COST OF GOODS SOLD 545,068 600,213
GROSS MARGIN 457,777 305,412
OPERATING EXPENSES
Research and development, net of government grant
proceeds of $123,055 and $89,994 for the years ended
December 31, 2020 and 2019, respectively 98,645 203,757
Selling, general and administrative 1,079,594 1,369,037
TOTAL OPERATING EXPENSES 1,178,239 1,572,794
LOSS FROM OPERATIONS (720,462 ) (1,267,382 )
OTHER INCOME (EXPENSE)
Interest expense (1,127,807 ) (2,126,590 )
Change in fair value of derivative (939,464 ) (712,952 )
Gain on extinguishment of debt - 57,784
TOTAL OTHER EXPENSE, NET (2,067,271 ) (2,781,758 )
NET LOSS $ (2,787,733 ) $ (4,049,140 )
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (10.02 ) $ (25.67 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 278,128 157,771
Revenue
We generate our revenues primarily from the sale of our ConsERV cores and
systems, and our Aqualyte membrane. Product sales were
Revenues from royalty and license fees were
16
Table of Contents
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 membrane. Cost of goods
sold were
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 21% decrease 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
17
Table of Contents
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming we will
continue as a going concern. For the year ended
The Company's ability to continue as a going concern is directly linked to our ability to obtain additional sources of cash flow sufficient to fund our working capital requirements. However, there can be no assurance that we will be successful in our efforts to secure such additional sources of product revenue or capital. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned or currently underway product development initiatives and commercialization efforts, may have material adverse consequences on our financial condition, results of operations and cash flows.
Any future financing may result in substantial dilution to existing shareholders, and future debt financing, if available, may include restrictive covenants or may require us to grant a lender a security interest in any of our assets not already subject to an existing security interest. If we secure debt financing in the future, we may not be able to repay all or any of such debt when due without severely impacting our ability to continue operations and we may not be able to secure additional financing to repay such financing on acceptable terms, if at all. Should we be unable to repay or renegotiate any such financing, as an alternative, management could attempt to renegotiate the repayment terms and seek extension of the maturity dates. There is no guarantee that, if we should need to renegotiate any such future debt, any negotiated terms we may be able to secure would be favorable to us. To the extent that we attempt to raise additional funds through third party collaborations and/or licensing arrangements, we may be required to relinquish some rights to our technologies or products currently in various stages of development or grant licenses or other rights on terms that are not favorable to us. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows as could any unfavorable terms.
We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results. Although the magnitude of the impact of the Novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued spread of the Novel Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to our operations and sales activities. Our third-party manufacturers, third-party distributors, and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees' ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our activities or the operations of our third-party manufacturers and third-party distributors, the supply of our products will be delayed, which could adversely affect our business, operations, and customer relationships. In addition, the Novel Coronavirus (COVID-19) or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect demand for our products and services and impact our operating results. There can be no assurance that any decrease in sales resulting from the Novel Coronavirus (COVID-19) will be offset by increased sales in subsequent periods. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.
Statements of Cash Flows
Cash and cash equivalents as of
Net cash used by operating activities was
Net cash used by investing activities was
Net cash provided by financing activities was
18
Table of Contents
Material Financing Transactions
In the period from
No new Convertible Note Transactions were entered into during 2020.
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
Future possible impacts may include, but are not limited to, disruption to the Company's customers and revenue, absenteeism in the Company's labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company, including inventories, property and equipment, marketable securities, and potential loss of key team members.
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 has not had a material effect on our results of operations.
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
19
Table of Contents
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.
20
Table of Contents
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.
21
Table of Contents© Edgar Online, source
