DAIS CORPORATION The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Although the Company generated income of
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) 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
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.
9
Table of Contents
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
Royalty revenue is recognized as earned. The Company recognized royalty revenue
of
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
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
Concentrations - At
Fair Value of Financial Instruments - The Company's financial instruments,
including cash, accounts receivable, accounts payable, accrued expenses,
deferred revenue, customer deposits and notes payable are carried at historical
cost. At
10
Table of Contents
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
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
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
Research and development expenses and funding proceeds - Expenditures for
research and development are expensed as incurred. The Company incurred research
and development costs of
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.
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.
11
Table of Contents
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
Fair
Value at
June 30, Fair Value Measurement Using
2021 Level 1 Level 2 Level 3
Derivative liability $ - $ - $ - $ -
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, June 30,
2021 2020
Balance, beginning of period $ 3,845,662 $ 2,349,471
Additions 124,290 261,946
Extinguished derivative liability (1,728,274 ) -
Change in fair value of derivative liabilities (2,241,678 ) (585,198 ) Balance, end of period
$ - $ 2,026,219 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 3,526,733 and
250,834 were excluded from the computation of diluted earnings per share for the
three months ended
12
Table of Contents
Reconciliation of diluted loss per share for the three month periods ended June
30, 2021 and 2020 and for the six month period ended June 30, 2021 is as
follows:
Three Months Three Months Six Months
Ended Ended Ended
June 30, June 30, June 30,
2021 2020 2021
Net income attributable to common
shareholders $ 75,544 $ 1,461,516 $ 1,818,604
Income attributable to note derivatives
Change in fair value of derivatives (60,311 ) (1,911,951 ) (2,241,678 )
Gain on extinguishment of debt (1,148,554 ) (1,148,554 )
Expense attributable to note
derivatives
Interest expense 88,756 167,959 216,378
Diluted loss attributable to common
shareholders $ (1,044,565 ) $ (282,476 ) $ (1,355,250 )
Basic shares outstanding 3,691,248 278,128 1,994,429
Derivative notes and interest shares 4,639,561 16,686,343 5,831,493
Diluted shares outstanding 8,330,809 16,964,471 7,825,922
Diluted loss per share $ (0.13 ) $ (0.02 ) $ (0.17 ) Recent Accounting Pronouncements - There are new accounting pronouncements
issued by the
In
Other recent accounting pronouncements issued by the FASB and the
Note 4. Accrued Expenses, Other
Accrued expenses, other consists of the following:
June 30, December 31,
2021 2020
Accrued expenses, other $ 224,404 $ 185,656
Accrued interest 821,620 1,238,553
Accrued warranty costs 91,531 91,531
$ 1,137,555 $ 1,515,740 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
The Company has accrued compensation due to the Chief Executive Officer as of
13
Table of Contents
On
During 2016 to the period ended
The Company has used the proceeds of the Note and related amendments for working
capital purposes. Interest expense on the Note was
During
On
On
Further, at any time any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934) becomes the "beneficial
owner" (as defined in Rules 13(d)-3 and 13(d)-5 under such Act) of greater of
40% of the then-outstanding voting power of the voting equity interests of the
Company or a person or group initiate a tender offer for the Company's common
stock,
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.
14
Table of Contents
Note 6. Equity Transactions
Preferred Stock
At
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
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
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
Common Stock
At
During the three months ended
During the three months ended
There were no common stock transactions in 2020.
Options and Warrants
In
15
Table of Contents
The warrants issued in 2021 in connection with the settlement of debt have an
exercise price of
During the three months ended
Note 7. Notes Payable
Paycheck Protection Program Loans
On
On
Small Business Administration Loan
On
Secured Promissory Note
On
JMS Investments
Between April of 2021 and
Note 8. Convertible Notes Payable and Exchange Program
Debt to Equity Exchange Program
In the period from
16
Table of Contents
The Company's convertible promissory notes at June 30, 2021 and December 31,
2020 are as follows:
June 30 , December 31,
2021 2020
Convertible notes payable, bearing interest at 8-10% $ -
$ - $ 1,453,960 The company entered into various convertible notes during 2019 and 2018,
aggregating
During the three months ended
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
During the three and six months ended
During the three and six months ended
During the second quarter of 2021 the Company issued 7,036,668 shares of common
stock, valued at
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.
17
Table of Contents
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
On
As first reported in the Company's Form 10-Q for the quarter ended
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
$225,000 payment to the Company for the grant of the license and right to
manufacture, sell, lease and distribute Products (excluding manufacture of
MTM), and to use the Intellectual Property in connection therewith (the
"License Payment Default" and, together with the Distribution Payment
Default, the "Payment Default") in accordance with the terms set forth in
the Distribution Agreement. Such payment was due on the Payment Date.
(3) Section 15(b) of the Distribution Agreement for Soex's failure to issue to
the Company 25% of the equity (the "Equity Default") of SOEX (Beijing)
Environmental Protection Technology Company Limited (the "China
Subsidiary").
As a result of the above, we terminated the Soex Distribution Agreement. As
provided in Section 14€ of the Soex Distribution Agreement, the Company has the
right to enforce any obligation due to us by Soex. As a result, Soex still must
(a) pay the remaining
The Soex Litigation was moved to the
On
18
Table of Contents
Accounts Payable
The firms below have pursued legal action against the Company to collect overdue accounts payable sums. The Company is working with each to enter into a settlement plan, or "pay over time" payment plan. To date the Company has one agreement in place with SoftinWay.
Company Sum Owned Payment Plan Legal Action Old Dominion Freight Line$ 13,575.95 No Yes Power Plant Services$ 85,199.11 No Yes SoftinWay$ 15,350.00 Yes Yes The O-Ring Store$ 10,334.00 No Yes Total$ 124,459.06 Note 11. Subsequent Events
No material events have occurred after
The Company's first PPP loan for
Between April of 2021 and
In September of 2021 in one transaction
The sums advanced by
In
19
Table of Contents
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
Unless otherwise indicated or the context requires otherwise, the words "we",
"us", "our", the "Company" or "our Company" refer to
Overview
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.
Corporate History
We were incorporated as a
20
Table of Contents
In
In
In November of 2018 the board of directors unanimously voted to change the name
of the Company from
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 AqualyteTM.
AqualyteTM
The nanomaterial, called AqualyteTM 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 Aqualyte™. The Company invented and patented
Aqualyte™. It differs from other plastics because of its 'built-in' properties
and features. Dais best manages these properties creating differentiated air,
energy, and water products (sustainable) using the proven Aqualyte™
nanomaterial. Differentiated products generally are highly efficient, have fewer
or no moving parts, and notably are kinder and gentler to our planet Earth.
i.e., 45% energy savings, and a 50% lower
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 a multi-year, exclusive license agreement
with the
In addition, during 2020 and 2021, Dais sold Aqualyte to several customers for use in a range of applications. These sales are expected to continue through 2021 and grow in 2022 and beyond.
21
Table of Contents
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 while providing increased amounts of ventilation air in
conditioned spaces thought to yield health (COVID19, allergies and asthma
'trigger' contaminants) and productivity improvements (cognitive abilities). The
economic savings typically allow the remainder of the system to be smaller and
less expensive, reducing
ConsERV sales were negatively impacted at the beginning of 2017 from the
In
This arrangement has been slowed by
When compared to similar competitive products, we believe, based on test results
conducted by the Air-conditioning, Heating and
22
Table of Contents
Possible Future Commercial Products
NanoClearTM
The first NanoClear membrane evaporators have been deployed for pilot testing. NanoClear is designed to 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 desalinates seawater and purifies contaminated water produced by manufacturing and utility processes. These sorts of applications are the Company's primary focus for this product line. This includes higher salt concentrations and low pH waste streams.
· Development efforts recently completed (September 2021 ), on a U.S. Army
Corps of Engineers , $1,000,000 , Phase II Small Business Innovation
Research (SBIR) award continued throughout the first two quarters of 2021
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.
PolyCoolTM
PolyCool™, a next generation cooling technology. A revolutionary approach to cooling towers and evaporative condensers in HVAC and power generation while safer from dangerous microbes and opening new markets for reduced-maintenance cooling systems.
PolyCool systems are expected to use less energy 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 over that of conventional technology. The demonstrated ability of Aqualyte to resist operation issues found in today's state of the art products in this area affords PolyCool technology added operational flexibility. This advantage expands the applicability of evaporative cooling into a wider geographic region and allows use in smaller installations.
In the quarter ending
23
Table of Contents
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.
Sales activities for advanced materials are being done with select, successful
companies located in the
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
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.
Results of Operations
Three Months Ended
The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations:
For the Three Months Ended
June 30,
2021 2020
REVENUE
Sales $ 109,181 $ 193,074
Royalty and license fees 12,500 12,500
121,681 205,574
COST OF GOODS SOLD 45,030 126,745
GROSS MARGIN 76,651 78,829
OPERATING EXPENSES
Research and development, net of government grant
proceeds of $29,886 and $18,824 , respectively 26,329 33,931
Selling, general and administrative 1,023,687 260,839
TOTAL OPERATING EXPENSES 1,050,016 294,770
LOSS FROM OPERATIONS (973,365 ) (215,941 )
OTHER INCOME (EXPENSE)
Interest expense (159,956 ) (234,494 )
Change in fair value of derivative liabilities 60,311 1,911,951
Gain on extinguishment of debt 1,148,554 -
TOTAL OTHER INCOME (EXPENSE), NET 1,048,909 1,677,457
NET INCOME (LOSS) $ 75,544 $ 1,461,516
NET INCOME (LOSS) PER COMMON SHARE, BASIC $ 0.02 $ 5.26
NET LOSS PER COMMON SHARE, DILUTED $ (0.13 ) $ (0.02 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, BASIC 3,691,248 278,128
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, DILUTED 8,330,809 16,964,471
24
Table of Contents
Revenue
We generate our revenues primarily from the sale of our ConsERV cores and
systems and Aqualyte membrane. Product sales were
Revenues from royalty and license fees were
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 nanomaterial. Cost of goods sold were
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
Research and development costs
Expenditures for research and development are expensed as incurred. We incurred
research and development costs of
25
Table of Contents
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
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.
We continue to focus on decreasing selling, general and administrative expenses for all our product efforts.
Other Income (Expense)
Other income was
Net Income (Loss)
Net income was
26
Table of Contents
Six Months Ended
The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations:
For the Six Months Ended
June 30,
2021 2020
REVENUE
Sales $ 171,990 $ 468,032
Royalty and license fees 25,000 25,000
196,990 493,032
COST OF GOODS SOLD 82,890 268,219
GROSS MARGIN 114,100 224,813
OPERATING EXPENSES
Research and development, net of government grant
proceeds of $60,966 and $57,334 , respectively 39,846 74,226
Selling, general and administrative 1,285,074 516,744
TOTAL OPERATING EXPENSES 1,324,920 590,970
LOSS FROM OPERATIONS (1,210,820 ) (366,157 )
OTHER INCOME (EXPENSE)
Interest expense (360,808 ) (588,490 )
Change in fair value of derivative liabilities 2,241,678 585,198
Gain on extinguishment of debt 1,148,554 -
TOTAL OTHER INCOME (EXPENSE), NET 3,029,424 (3,292 )
NET INCOME (LOSS) $ 1,818,604 $ (369,449 )
NET INCOME (LOSS) PER COMMON SHARE, BASIC $ 1.29 $ (1.33 )
NET LOSS PER COMMON SHARE, DILUTED $ (0.17 ) $ (1.33 ) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC
1,994,429 278,128
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,
DILUTED 7,825,922 278,128
27
Table of Contents
Revenue
We generate our revenues primarily from the sale of our ConsERV cores and
systems and Aqualyte membrane. Product sales were
Revenues from royalty and license fees were
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 nanomaterial. Cost of goods sold were
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
Research and development costs
Expenditures for research and development are expensed as incurred. We incurred
research and development costs of
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
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.
We continue to focus on decreasing selling, general and administrative expenses for all our product efforts.
28
Table of Contents
Other Income (Expense)
Other income for the six months ended
Net Income (Loss)
Net income for the six months ended
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Although the Company generated income of
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) 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) remains 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
in a 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 2021 is limited. New capital is critical to support the
company's operations needed to manufacture product to meet sales as well
as create new sales of ConsERV and Aqualyte product. The Company is now
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 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 all the assets of the Company.
This Senior Secured Note Holder is working closely with the Company's
management and Board exploring its options in this matter. The short-term
debtholders, and key accounts payable companies are doing the same, i.e.
continue working with the Company.
29
Table of Contents
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.
Statement of Cash Flows
Cash as of
Net cash used in operating activities was
Net cash used in investing activities was
Net cash provided by financing activities was
Financing and Capital Transactions
Paycheck Protection Program Loan
On
On
Small Business Administration Loan
On
Secured Promissory Note
On
Related Party Note
On
During 2016 to the period ended
30
Table of Contents
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.
© Edgar Online, source
